As with prior articles, this is not a partisan piece and does not look at or address political ideology. Our goal is to evaluate these on the basis of financial impact to the country and healthcare providers since these are our clients.
Why Is It Good the Senate Healthcare Bill is Dead?
The various incarnations of a healthcare reform bill in the Senate would actually have been harmful to physicians and healthcare providers financially as detailed at length in our prior article. At the risk of rehashing the entire other article, one of the key reasons is that fewer insured Americans means more patients who either do not receive healthcare or cannot pay for the care they receive, which hurts doctors financially.
More significantly, the Senate bill did not address the primary problem in U.S. healthcare. In order to say the bill did not address the problem, one must define and agree upon what the problem is. As noted previously since neither I nor Apache Health takes a partisan position, this is not from the perspective of tax cuts or who should pay for things, but simply macroeconomic trends and the direct impact of policy on our clients, i.e. healthcare providers. The primary problem is that healthcare is too expensive on both a per patient basis and for the entire economy. To define this more clearly, it is costing the US economy enormously and it is too expensive for many if not most Americans. These are not partisan political statements, they are facts.
Total spending on healthcare in the US is estimated at $3.5 trillion. That is $3,500,000,000,000. This is a staggering expenditure and an incredible rise over the last few years and decades. And healthcare expenditures are still growing faster than the economy – 5.8% in 2015. Total expenditures are projected to continue to rise from $3.2 trillion in 2015 according to CMS to $5 trillion by 2022 (Deloitte projection). Few economists (if any) believe that this is a sustainable growth trajectory since healthcare will BECOME the economy if this persists.
By the year 2025 government expenditures on healthcare will total $1.9 trillion according to the CBO1. We believe that is an estimate that is too low. The government already spends approximately half of all healthcare dollars among all its programs (Medicare, Medicaid, Veterans, CHIP, ACA market subsidies, etc.) and healthcare expenditures are already $3.5 trillion, expected to be $5 trillion by 2022, so by 2025 half of all expenses would be greater than $2.5 trillion, possibly closer to $3 trillion. Federally mandated spending in 2025 is projected to be $3.89 trillion, which means healthcare by 2025 could consume nearly three quarters of all government expenditures. Regardless of your political views, that is physically impossible.
The number of patients who cannot afford care is on the rise. The rate of bankruptcy as a result of healthcare expenses is also believed to be rising, although good data on this seems to be elusive. A number of studies use questionable methodologies, but one Harvard study in 2009 estimated that 62.1% of all bankruptcies in 2007 were medical.
Aside from the contentious political question of whether all patients deserve medical care, if patients cannot afford care, physicians cannot get paid for their services, so it is in the provider community’s best interest to ensure that patients can pay for the care they need.
Top Costs of Healthcare
So if we are to suggest that something needs to be done about healthcare expenses, we need to identify what are the top contributors. Following are widely considered to be the top reasons for high expenditures.
The population is aging. The percent of the population over 60 is projected to grow to 27.4% of the total by 2050, totaling 110 million people in the U.S.
There are several components to this, but in general as people age they require more healthcare. Moreover, the percent of society that is old is increasing as people have less children and so the shape of the pyramid of age in our society looks less like a wide pyramid and more like a tower. There is a significant societal cost implication to this.
End of Life Care
Medicare spent 28% on patients’ last six months of life (Pasternak, 6/3). Other estimates put this expense at 25%2, while some put the estimates even higher at 30% or more.
There has been a great deal of debate on whether it is appropriate to give extremely expensive care that either doesn’t work because the patient is going to die anyways often due to co-morbidities or only extends their life a short period of time. This even evokes passionate discussions of death squads and “killing grandma”. Regardless of political ideology or belief, an extremely high percentage of our healthcare costs are attributable to end of life care.
Billing expenses alone account for at least 6-10% of costs for providers alone according to Sean McSweeney of Apache Health, a healthcare revenue cycle management company. The OECD estimates the US administrative expenses are 8% of total spending, which translates to $280 billion on things like billing, overhead, claims processing, and the salaries of insurance company administrators. This is the highest in the developed world and double the average.
Smoking, excessive alcohol consumption, obesity, and other unhealthy behaviors are known to cause patients to require much greater healthcare utilization. These behaviors are expensive societally. A University of Michigan study found that 26%3 of all healthcare expenses were attributable to avoidable unhealthy behaviors. Interestingly enough the proportion of cost attributable to unhealthy behavior was about the same (25% vs 26%) for both generally healthy and unhealthy patients.
There is a great deal of overlap here between chronic conditions and unhealthy behaviors because many chronic conditions like cardiovascular disease, CHF, COPD, and diabetes are related or directly caused by unhealthy behaviors like overeating, drinking, and smoking. If all of the unhealthy behaviors are removed, there only remain a small group like alzheimers, mental health, arthritis, and a few subsets of the larger ones like Type 1 diabetes.
According to the U.S. Dept of Health and Human Services, 5% of the population accounts for 49% of the total healthcare expenses.4 Data is not readily available on what percent of this is not attributable to unhealthy behavior, but this warrants further study.
Malpractice Insurance, Defensive Medicine, and a 3rd Party System
Physicians and hospitals have often sought reform on malpractice. The industry has stated that this significantly increases the expenses of healthcare. Some states have enacted caps and other efforts to address this. A greater issue is that providers often engage in what is called defensive medicine. This is where a physician or other provider orders as many tests as could possibly benefit the patient without regard to cost in order to either avoid claims later that they did not provide sufficient care and are liable to legal, financial, or other ramifications.
As much as 12.7%5 of costs are likely attributable to malpractice and defensive medicine.
According to Price Waterhouse Cooper:
The Great Recession resulted in a temporary decrease in the overall trend line of increasing utilization, but recent data suggests that utilization will resume its upward pre-recession trend in the coming years. In 2014, utilization increased in virtually every metric, with more physician visits, hospitalizations, and prescriptions filled than in 2013. Prior to the recession,
“higher utilization of services accounted for 43 percent of the increase, fueled by factors such as increased consumer demand, new and more intensive medical treatments and defensive medicine, as well as aging and unhealthy lifestyles.” As American consumers return to increasing use of healthcare services, including many newly insured individuals, utilization is expected to increase.6
How much of the increase in utilization is attributable to having a 3rd party system? The nature of our system is that it is like walking into a grocery store and asking how much the steaks cost. The store says “don’t worry about it, take as many as you want, we’ll send the bill to someone else”. In that case, would you take just one or two? Might you even take a salmon even if you’re not sure if you’ll have time to eat it this week? Many people would and do just this when it comes to healthcare.
Physicians are under a great deal of pressure to appease patients who are not paying directly for these services (even with a good plan or who have hit their out of pocket max) who request unlimited care and expensive treatments even if they are not necessary or have questionable benefits.
This is not a comprehensive list, there are other factors contributing of course, although the above list is considered to be largest contributors. Additional major cost contributors (some of the above categories overlap or are subcategories) include new expensive technologies (could be covered under increased utilization); lack of data i.e. outcomes and efficacy information that allows better decisions on care or calculation of cost-benefit ratios; concentration among provider especially hospital systems; laws preventing less expensive providers like nurses from providing some care that they could perform; inefficiency and waste; lack of coordination of care; and supply/demand problems.
Did the ACA (aka Obamacare) solve the problem? No. Did it materially improve the problem? Unclear.
It essentially shifted cost from the sickest to the least sick by requiring them to get insurance. This helps physicians and hospitals by having more patients with insurance. There are also less people uninsured who just show up in the emergency room without insurance or how have let small healthcare issues escalate until they are acute. Some believe that over time the ACA will help control industry and consumer costs, but that is far from certain.
Would Senate bill or anything recently debated solve this problem? No.
Nothing that we could see in any of the Senate healthcare bill versions would address any of the problems listed above, so our conclusion was that it did not fix the problem in any way. Whether it fixed other problems related to taxes and government regulation is a subject of political debate and not related to our editorial mission.
If anything, the Senate bill might have actually made the problem worse as defined as overall cost of healthcare for the US economy and costs for individual patients. There was a small projected savings related to the reduction in coverage of patients, although this was from a reduction in covered patients, so this does nothing to reduce the overall cost of healthcare in the US economy, it just shifts more to patients, and does nothing to reduce the cost of healthcare for individuals.
Maybe now we can move onto a discussion about how to actually reduce the costs of healthcare in the US. How do you think we as a nation can address these issues listed above?
About Apache Health
Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company. The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup. Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients. Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers. Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track in-house billing performance improvement over time. For more information contact:
2Gerald F. Riley and James D. Lubitz, “Long-Term Trends in Medicare Payments in the Last Year of Life,” Health Services Research April 2010; 45(2):565-576.