Directors Corner | August 2020 | COVID-19 Has Revealed…

COVID-19 Has Revealed…

The Overwhelming, Increasingly Self-Imposed Healthcare Cost Burden Employers Bear

The American health care system for years has provided hospitals with a clear playbook for turning a profit: Provide surgeries, scans and other well-reimbursed services to privately insured patients, whose plans pay higher prices than public programs like Medicare and Medicaid.”

Hospitals Knew How to Make Money. Then Coronavirus Happened
New York Times, May 20, 2020

Even the structure of the American healthcare system tends to favor high-cost interventions such as surgery and treatment by specialists like endocrinologists, orthopedists and cardiologists, rather than primary care physicians who traditionally helped patients maintain their health and prevent disease.”

It’s not just coronavirus: America repeatedly fails at public health
Los Angeles Times, July 7, 2020

The day will come when the COVID-19 pandemic is finally behind us. Experts caution that the viability of the healthcare system that awaits on the other side of the pandemic may hinge on which entities have the financial wherewithal to survive the crisis and thrive in its aftermath.”

The Day After Tomorrow Must Include Independent Primary Care
Health Affairs Blog, July 23, 2020

While each of the above disparate articles informs individually, connecting the dots of the three in the context of what we have been living through for the last several months brings into sharp focus two conclusions to which employers need to pay attention:

  • The US significantly overspends on sick care that offers short term profits (but frequently with marginal value) while we significantly underspend on population health.
  • We purchase and pay far too much on low-value care and far too little on primary care.

Why for employers?  Aren’t these broad “policy” questions?  Of course they are.  But given that employers pay for roughly half of US healthcare and given the economic axiom that “what gets paid for gets done” (and what pays most gets done most), employers are de facto policy partners with government.   Employer spending essentially establishes policy.  And you’d be hard pressed to conclude or otherwise argue other than that employer purchasing practices have been setting bad policy….for decades.  If, as well documented, healthcare is consistently inefficient, inconsistently effective, and increasingly expensive….well, it seems that you really do “you get what you pay for.”

Perhaps the most foreboding of the quotes above is the third.  We should be concerned that the providers we need the most are the ones being hurt the most in today’s health economy and may not survive.  Yes, hospitals have been hit – and unquestionably hit HARD – but a) the drop in elective procedures likely presents what is primarily a cash flow problem for which, overall, Colorado hospitals systems have the reserves to handle, b) we can probably do without some of the high cost specialty centers that the hospital “arms-race” has bequeathed us.  What we can’t do without is the independent practice of medicine and particularly without independent primary care physicians.

The one thing I would bet a paycheck on is this:  US employers simply cannot afford the corporate practice of medicine.  There would seem to be absolutely no limit to the costs and prices some systems will justify.  Colorado hospitals already incur expenses higher than their peers nationally and our non-profits are fully 25% less efficient (according Becker’s CFO Report) and are significantly more expensive (as shown by the Rand report).

Employers play a key role in shaping policy through purchasing.  Changing policy will require changing purchasing practice in four ways:

  1. Off-setting the overpowering consolidation and countering the resultant oligopolistic behavior of hospitals and drug manufacturers through group purchasing. This is “Economics 100.”
  2. Purchasing healthcare services (not simply administrative services) at the wholesale level with the same due-diligence that they purchase other goods and services and providing benefits at the retail level so as to create provider competition based on value.
  3. Adequately funding and encouraging the use of independent physician practices – particularly primary care. This require investing in population health through alternative payment models.
  4. Aligning purchasing practices – such as performance measures and payment mechanisms – with both Medicare and Medicaid.

These are dramatically altered practices.  Only a few employers in a few parts of the US do these things today.  But thinking that the ways of the past are appropriate to the needs of the present is nothing short of sidestepping fiduciary responsibilities – to our employees, our employers, and our shareholders/taxpayers.