Opinion: Five myths and misperceptions about health care that hurt your bottom line

By Robert Smith

Several myths and misperceptions about health care — typically unspoken and mostly unexamined —pervade the C-Suite of many employers where minds and efforts focus, understandably, on matters more immediate to their own organization’s success in a still recovering economy.  We could probably rattle off at least a dozen, but we will summarize five of the most intrinsically harmful.

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1.  Health care in the U.S. costs so much because it’s the best in the world.  In some ways, we can understand why many executives buy into this. In most markets, cost and quality are directly related. But if you think that the cost-quality relationship holds up in health care, you may want to CYA – check your assumption. The data simply don’t support it. In fact, a library of studies refutes it. Despite spending nearly twice as much as the next in line, the U.S. ranks well below other countries in the Organisation for Economic Co-operation and Development on virtually every measure (see “Mirror, Mirror on the Wall Update: How the US Compares Internationally”).  Even worse news is this: as reported in a New York Times article (“Medical Procedures May Be Useless, Or Worse”), up to 40 percent of all services provided in the U.S. over a 10-year period either didn’t help or actually harmed patients.

Bottom line? While you can get the best health care in the world here, you don’t always.  But you will pay the most – for everything – and you may not need it.

2. Hospitals’ outrageous pricing practices – such as the $25 aspirin – are the problem. People do seem to have the urge to identify a “culprit” for high costs and hospitals are huge, lethargic fish in the health care barrel. There is no question that their charge masters (eg., what they bill insurers) are out of whack. (No, make that way out of whack — as Steven Brill’s wildly popular Time article, “Bitter Pill: Why Medical Bills are Killing Us” points out so starkly.)  So it’s fair to jump on hospital charges. But it’s fairer still to view hospital costs more as a symptom of the problem than the problem itself. The problem derives from how hospitals are “reimbursed” – both by the government and commercial insurers.

Bottom line? Pricing strategies of other providers are probably more egregious than that of hospitals. If you add government’s cost-shift and the costs of indigent care to the insurance industry’s 30-year obsession with discount percentages (instead of actually focusing on the price we pay), the way we pay for hospitals puts them in a no-win situation.

3. Health care exchanges will drive down the cost of health care by promoting competition. Let’s put this one in the category of “Ah, nice try, but….”  Here’s why: Your health care bill has two major components: administrative and medical/ pharmaceutical. The Affordable Care Act (aka, “Obamacare”) actually caps administrative costs at 15 percent of premium for large employers and 20 percent for small employers. Now you could very fairly argue that, compared to other countries, 15-20 percent is an excessive load and should be challenged. However, it is the more massive medical and pharmaceutical costs (the other 75-80 percent) that have doubled your health care tab over the last decade. Health care exchanges do not address these underlying issues.

Bottom line? Exchanges incorporate and extend the market inefficiencies. When you realize that somewhere between 35 percent and 50 percent of the billions of dollars spent we spend on health care are for over-utilized and mis-utilized services with inflated costs – in other words, are being wasted – you realize that we need competition among providers even more than among insurers.

4. Hospital and health system consolidation will result in economies of scale and lower costs. Want to guess where this myth comes from?The evidence shows, at least so far, that consolidation drives up costs — whether that consolidation is hospital-hospital or hospital-physician.  Conservatively, consolidation inflates costs 8-16 percent. We’ve seen estimates as high as 20 percent and know of no evidence to the contrary.

Bottom line: Check out two recent studies by the University of California and Stanford University. Or Google “effects of hospital consolidation.”

5. Health insurers and health plans will do what can be done to control ballooning health costs.  We list this last although it is by no means the least mythic. We can’t but wonder: If this were true, why would costs have doubled over the past decade?  Why wasn’t the waste squeezed out long ago? Rather, it strikes us that the current market structure doesn’t serve employers well. It disengages them as a proactive purchaser. After all, in the wholesale world – a world where health plans buy provider services and then retail them to employers – isn’t the provider’s primary customer the health plan?  The health plan becomes the provider’s channel of distribution. The employer’s interests are secondary to the plan’s and the provider’s.

Bottom line? If employers continue to purchase care in the same one-off fashion — without unequivocally demanding changes in payment, improvements in transparency, and a reallocation of resources to primary care — the current market structure is likely to double costs again in the next 10 years.

Here’s the core business reality that every executive should immediately recognize and apply to health care: Markets that deliver the highest value are those where the party writing the check directly interacts with the party providing the service and defines what it is they want to pay for. For all of non-governmental health care, that check-writer is the employer.  Only employers have the incentive to fix health care and only employers, acting as enlightened and proactive purchasers, have the power to protect their own bottom lines.

Last but not least, if you question any of the above numbers or facts, please email us and we’ll send you our referenced sources.

Robert Smith is project manager of the Colorado Business Group on Health, a nonprofit, employer-driven association dedicated to changing the way employers buy health care. Reach him at www.cbghealth.org

Opinions expressed in Health News Colorado represent the views of the individual authors.

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