Brian Klepper

Posted 1/7/13 on Medscape Connect’s Care and Cost Blog

“How many businesses do you know that want to cut their revenue in half? That’s why the healthcare system won’t change the healthcare system.”

Rick Scott, Governor of Florida
Former CEO, Hospital Corporation of America
Quoted by Vinod Khosla at the Rock Health Innovation Summit in August (video here)

BK 711ahip-logoThe Washington Post recently reported that health plan lobbyists, charts at the ready, are working to convince legislators that unreasonable health care costs are everyone else’s fault. Karen Ignagni, the Executive Director of America’s Health Insurance Plans (AHIP) declared: “If you’re going to have a debate and discussion about what’s driving health care costs, you have to get under the hood.”

Her first argument is that many practices of doctors, hospitals, drug, device and health information technology firms make health care cost more than it needs to be. This is well-documented and true. But her second, that health plans are different than the rest of the industry, and that they do not negatively influence care or cost, is pure marketing.

AHIP counts on Congressional representatives, lubricated by campaign contributions, to not know what they don’t know. But anyone who deals directly with major health plans knows that they consciously and carefully influence how care is delivered and cost is determined. Benefit structure, reimbursement methods, network composition and dozens of other design choices shape health care quality and cost. A health plan that makes a percentage of total cost, or that profits from products/services purchased through the plan, like drugs or labs, has business incentives to make health care cost more. And this is the rule, not the exception.

For example, every day my firm buys and passes through, without markup, health care products and services for our clients – generic drugs, ambulatory surgeries, pain management, dialysis, advanced images –  at significantly lower cost than they’ve been paying through their health plans. In Indiana, we developed a volume contract for high quality MRIs, with readings, for $450 each, through an independent imaging center. All our clients had been paying $1,750-$3,200 each through their plans.

We can make these kinds of arrangements only because health plans have been content to pay top dollar, passing those inflated costs onto employers in the form of higher premiums that generate more profit. Or they’ve purchased effectively, but then jacked up the pricing tremendously, sometimes double or more the cost – to reap the margins.

Consider networks. Most still offer nearly every provider in town, with little regard for performance or value. Since episodic costs and quality are known to vary tremendously among providers, why not offer narrower networks of doctors and services that have a record of providing higher quality care at lower cost? This would also create market pressure favoring high performance, which hardly exists today in health care.

There’s the fact that most health plans have set up barriers to evaluation of network provider pricing and performance data. Catalyst for Payment Reform, an association of large firms, has targeted this as a major impediment to fairer costs.

Or how about the way most plans continue to pay for primary care: by the visit and at rates that are typically a fraction of what their specialist colleagues make? This approach encourages primary care physicians to refer complex patients, who will take more time and cost more than they’ll generate. The result has been a doubling of referrals from primary care physicians to specialists over the past decade, with concomitant increases in diagnostics and procedures. And yet the health plans have remained steadfast on this approach, despite a wealth of evidence that more empowered primary care results in lower costs.

Many plan execs will argue that they’re piloting programs that use the kinds of streamlining mechanisms I describe here. But we rarely see those programs go mainstream. Until we do, it’s all for show.

Health plans, like the rest of the health care industry, have, over decades, structured their business practices to optimize revenues and margins. The health care reform law, filtered through industry lobbyists who contributed $1.2 billion in 2009, fails to address many of the mechanisms that unnecessarily drive up cost.

Last weekend, the New York Times noted that Aetna and other plans had announced as much as 22 percent premium increases for individuals and small groups in some states. Premium growth was much lower in states in which regulators had the power to reject rate increases. An October Aon Hewitt report estimated that the reform law’s requirements add about a point to mid-sized and large employer-sponsored plan costs, and less than 5 percent to small group and individual plan costs. Even accounting for medical inflation, this suggests that companies demanding these high increases are simply pressing their advantage in susceptible markets.

In other words, despite protests that they’re working hard to keep costs down, the health plan sector, like the rest of our industry, is demonstrably engaged in approaches that can extract excessive dollars from purchasers. That calculated rapaciousness now threatens the economic stability of the larger US economy, with health care costs now consuming almost $4 of every $5 in household income growth, leaving little for other important needs: transportation, education, energy, infrastructure replenishment.

Only one group, non-health care business, is larger and more influential than the health care sector, with the motivation to act in its own and the nation’s self-interests. Getting there, though, will require both a new collaboration among business leaders, and a realization that, for now, allowing health care’s leaders to drive the discussion is no longer an option.