For Immediate Release: June 16, 2009

Less Cost for More Health Care

As health care reform discussions continue in Washington D.C. it might be useful to review some of the issues, assumptions and observations about health care cost and services in Oklahoma as well as the United States.

When the data shows virtually every other industrialized country delivers a better health care product for half the cost it is incumbent on us to at least hypothesize that there may already be plenty of money in the system and it is just not properly managed.

The “Insure Oklahoma” program is an example of finding the most expensive way to pay for health care delivery.  This is the program in Oklahoma which encourages small employers to purchase health insurance in the market with 60% of the premiums paid for by the taxpayers (tobacco tax), 25% paid for by the employer and 15% paid for by the employee.  We know that insurance companies have an administrative overhead at least 25% and as much as 34% higher than the Oklahoma Health Care Authority incurs for other programs.  In addition the insurance companies pay providers from 25% to 43% above the Medicare or Medicaid reimbursement.  This program which was developed as an effort to help uninsured working people pay for health care could have cost the tax payers 30% less and cost the employer and employee absolutely nothing if it didn’t gift the providers the Medicaid reimbursement amount plus 43% and if it was administered by the Health Care Authority instead of by private insurance which has an administrative overhead of as much as seven times that of the Health Care Authority.  Another way of looking at this is it would save the taxpayers as much as 80% if the employer and employee paid the same amount as now required and the providers were reimbursed at standard Medicaid ratesi.

The citizens have been at least unintentionally misled into thinking that health care can’t exist without health insurance.  There is a distinction between the two.   Fifty years ago we had universal health care in the United States.   Health care was delivered by doctors and other health care professionals and the hospitals and other care facilities were financed by the community with the doctors determining their usage in the interest of the patient.  Health care was affordable and, if necessary, was subsidized by the community.  In 1959 a primary care office call had a cost of from $3 to $5.  When adjusted for inflation that same office call would cost from $20 to $32 today.  Is it somehow better for a physician to bill an insurance company $90 for an office call and wait two months to collect 30% of the $90 with the rest being disallowed?

A few years ago a group of doctors in Washington State discovered they could make more money by charging half as much for an office call if the patient paid cash.  The program is called Simple Care and the key to its success is cutting out the insurance company middlemen.  When they accepted insurance and charged $70.00 for an office call they were losing money.  When they became a cash only provider they found they were profitable with an office call fee of $36.00.  For instance, a primary care practice with a panel of 1,800 patients will generate a gross of $300,000 by charging $166 per person per year or about $52 per visit assuming the average patient visits 3.2 times per year.  With this scenario the physician will earn at least more than the current average for family practice or internal medicine physician.   For $600 million everyone in Oklahoma can have comprehensive primary care.  The insurance industry claims we can save 40% of premiums if we limit claims to catastrophic or major medical issuesii.   Since we pay about $5 billion in private insurance premiums (including the State’s Health Choice) we can save, by their calculations, $2 billion for an investment of $600 million and ensure every person in Oklahoma has primary care – the most important part of the health care system.

Applying the data to Oklahoma from a 2003 article in The New England Journal of Medicineiii which compares the cost of health care administration in the United States and Canada we can determine the following:

• The cost of health care administration in Oklahoma is estimated at a rate of 31% of the 2008 health care cost of $22.3iv billion or $6.9 billion.
• If the per capita administrative overhead was the same in Oklahoma as Canada’s 16.7%, the lowering of Oklahoma expenditures would save $3.19 billion – enough to supply every uninsured resident $4,900 for health care.
• The burden on a typical doctor’s office is 26.9% of office income.

Who’s paying now in Oklahoma
 (based on population of 3,450,654 – 2000)?v

• Medicare                                                      455,950
• Medicaid                                                       668,826
• Native American                                           387,229
• State Employees and dependents                    60,960
• Common Education (no dependents                64,461
• Higher Education (no dependents)                  64,652
• Federal employees                                         46,500
• Dept of Defense-civilian                                 20,000
• Dept of Defense-military                                 25,000
• City-county employees                                   99,737
•             Total                                             1,893,315    54.9%
•                Burden of uninsured 55%              367,892
•                Total with uninsured burden        2,261,207    65.5%

What are we getting for being
the most expensive health care system in the world?vi

We assume that since we have the most expensive health care system in the world we are getting better results – but the data shows we are not even close to the best.

We try to explain some of the high cost of care in the United States on the high availability of technology.  The US is second only to Japan in the availability of MRI units and CT scanners per million people.   Japan ranks the highest with health indicators and the US ranks among the lowest.  This could be explained by the diagnostic encouraging more treatment in the US without better results.

A comparison of 13 countries in a 1998 study showed the United States ranked 12th (second from the bottom) for 16 available health indicators.  Countries in order of their average ranking on health indicators are Japan, Sweden, Canada, France, Australia, Spain, Finland, the Netherlands, the United Kingdom, Denmark, Belgium, the United States and Germany.  Rankings of the United States on the separate indicators are:

• 13th (last) for low-birth-weight percentages
• 13th for neonatal mortality and infant mortality overall
• 11th for post-neonatal mortality
• 13th for years of potential life lost
• 11th for life expectancy at 1 year for females, 12th for males
• 10th for life expectancy at 15 years for females, 12th for males
• 10th for life expectancy at 40 years for females, 9th for males
• 7th for life expectancy at 65 years for females, 7th for males
• 3rd for life expectancy at 80 years for females, 3rd for males
• 10th for age adjusted mortality

In a 2000 study the poor performance of the US was confirmed by the World Health Organization which used different indicators which ranked the United States 15th among 25 industrialized countries.

The health care system may contribute to poor health through its adverse effects.  For example, US estimates of the combined effect of errors and adverse effects that occur because of activity performed by the health care industry not associated with recognizable error include:

• 12,000 deaths/year from unnecessary surgery
• 7,000 deaths/year from medication errors in hospitals
• 20,000 deaths/year from other errors in hospitals
• 80,000 deaths/year from hospital acquired infections
• 106,000 deaths/year from non error, adverse effects of medications
• These total 225,000 deaths per year by exposure to the health care industry which represents the third leading cause of death per year in the United States following heart disease and cancer

Another analysis of adverse effects in outpatient care that don’t result in death suggests that between 4% and 18% of consecutive patients experience negative effects with:

• 116 million extra physician visits
• 77 million extra prescriptions
• 17 million emergency department visits
• 8 million hospitalizations
• 3 million long-term admissions
• 199,000 additional deaths
• $77 billion in extra costs ($750 million in Oklahoma – EST.)

A few additional data suggest other problems with the health care system in the United States.

• Patients who don’t have a payer source are 50 percent more likely to die of traumatic injuries than  those with insurance
• It is estimated on average there is at least one medication error per hospital patient per day
• Eighty percent of hospital bills have errors in them
• Prompting 60% of US bankruptcies – 78% had health insurance
• Oklahoma ranks last in quality of care and 26th in cost          
• It has been shown that more health care is not necessarily better – in fact it can be detrimental

If Oklahoma’s health care performance improved to the level of the best performing state then:

• 303,956 more insured adults ages 18-64
• 75,883 more insured children ages 0-17
• 167,030 more adults ages 50 and older receiving preventive care
• 60,944 more adults ages 18 and older would receive three recommended services for diabetes
• 13,064 more children ages 19-35 months would be up-to-date on vaccines
• 302,693 more adults ages 18 and older would have a source for usual care
• 169,740 more children ages 0-17 would have a medical home
• 20,347 fewer preventable hospitalizations for ambulatory care ages 65 and older
• $88,551,000 would be saved from the reduction in hospitalizations
• 4,492 fewer hospital readmissions age 65 and older
• $51,352,000 would be saved from the reduction in hospitalizations
• 3,017 fewer long-stay nursing home residents would be hospitalized
• $25,532,000 would be saved from the reduction in hospitalizations
• 1,707 fewer premature deaths before age 75 might occur from treatable or preventable health care

Should we let the “market” create efficiency?

The health care industry does not and cannot respond to competition for the following reasons:

• Because of third party payers the consumer is not cost conscious enough or the product is so necessary the consumer doesn’t care about the cost until after the product is delivered – or the cost is so large that there is no hope of paying the bill.
• Supply and demand is reversed in health care – instead of the normal business model where demand creates supply, in health care supply creates demand (The Dartmouth Atlas Project has consistently shown a positive association between the supply of staffed hospital beds per 1,000 residents and the hospitalization rate for medical non-surgical conditions).
• Whereas we reduce services to non-payers in this country, we are not ready to deny services completely to non-payers – a requirement for markets.
• Pricing is not transparent.  There is probably not anyone in a hospital that can give us a firm price for a procedure.

Whereas reducing “bad behavior” such as smoking, drinking and violence will mitigate poor health outcomes, the data does not support the assertion that such behavior explains the high cost of health care.

• The proportion of females who smoke ranges from 14% in Japan to 41% in Denmark with the United States measured as 24% (fifth best).  For males, the range is from 26% in Sweden to 61% in Japan with the United States at 28% (third best)
• The United States ranks fifth best for alcoholic beverage consumption
• The United States has relatively low consumption of animal fats (fifth lowest in men aged 55-64 in 20 industrialized countries) and the third lowest mean cholesterol concentrations among men aged 50 to 70 years among 13 industrialized countries
• Among the 13 countries included in the international comparison mentioned above the US ranks 11th (third worst) in income inequality while Sweden ranks the best in income equality which matches its high position for health indicators

Other countries require a waiting period for elective procedures.
One justification for the higher cost of health care in the United States is that consumers in other countries have to wait long periods for elective procedures.  As an example, let’s assume the patient has to wait four months for a knee replacement.  In this country he is going to wait about six weeks.  By paying twice as much for health care the argument goes, he will save ten weeks in time for the knee replacement.  Let’s assume no medical inflation and 40 years of premiums and the current annual per capita health cost of $8,000.  He is paying $4,000 per year in additional premiums to save a ten week waiting period for a knee replacement.  Even at 5% interest his cost just to save those ten weeks is over $500,000.

Emergency rooms are the most expensive place to get primary care.
Emergency room charges are abusive when used for non traumatic care.  The consumers often have no alternative for primary care on nights and weekends without going to the emergency room.  The argument is made that emergency rooms are the most expensive places to receive care and the charges are justified because of expensive equipment and on-call staff.  In most rural areas and many city ERs the staff are waiting for the next automobile accident or other trauma and can offer primary care without charging the ear ache patient for trauma care.  This pattern of trauma charges for non-trauma treatment appears to be nothing more than manipulation of the billing function to gain additional revenue – because of the door the consumer walked through instead of the treatment the patient required.  There is no other product where this business practice would be tolerated.

Information technology:
Although the health care industry is the largest industry in the United States it has yet to enter the age of electronic record keeping. The value of electronic health records is not disputed.  The national estimate for health care savings because of comprehensive health records is at least $78 billion.  Oklahoma’s share of that savings would be about $800 million per year along with as many as 700 lives saved per year.  The policy makers in Oklahoma have resisted implementing information technology every year by creating task forces and as recently as this year creating an advisory committee.  It is difficult to understand if the impediments are for the benefit of special interests or just bureaucratic and legislative incompetence.  Regardless, the citizens of Oklahoma could be benefiting from electronic health records and are not.

Fraud:
It is estimated that 3% of health care spending is because of fraud.  With an annual health care cost of $2.5 trillion the fraud amount is as much as $75 billion with Oklahoma’s share being about $750 million.

Why is it possible for a consumer to purchase a pharmaceutical at a lesser price if he pays cash than his co-pay would be if he chooses to use his insurance? 

Does anyone know the price?

We see news stories about health care consumers who seek treatment in India or Thailand.  We have to wonder how many of these people would make the trip if they were quoted a fair and reasonable price in this country.  CMS has shown that hospitals charge on average 308% of Medicare charges to the uninsured and uninformed.

We pay a large cost to placate special interests?
We have a law in Oklahoma that requires health insurance companies to spend no less than 60% of the premiums collected for health care.  That means they can keep 40% for administration, advertising and profit.  This corresponds to 2% administration overhead for Medicare and 5.5% administration overhead for Medicaid.   Some states require an 80% contribution to health care from premiums.  This year some legislators tried to increase that percentage to 75% and could not get the votes to pass it.

Base on a California case, some legislators also tried to pass a measure this year which would prohibit insurance companies from paying bonuses to employees who could figure out how to cancel an insured who is making claims for illness and/or treatment.  Again, it didn’t pass.

Mandates:
Mandates are usually just standards that consumers want and are willing to pay for.  They are intended to improve the health of the insured which may not be in the best interest of the insurance company.

Oklahoma started requiring mammograms in 1988.  By 2006 according to the state Health Department 67.7% of Oklahoma women over the age of 40 reported having a mammogram during the previous two years.  In 1988 that number was 42.9%.

One of the two most beneficial cancer screenings is a colonoscopy.  For an insurance company with an exposure to any one insured averaging five years, it is mathematically more profitable to not cover a routine colonoscopy and to just treat those with colon cancer.

Summary

When it comes to health care we can get a better product for not more than 60% of what we now pay.   We don’t even need to be smart.  There are examples in every other industrialized country.

The taxpayers are currently contributing almost 2/3 of total health care in Oklahoma through taxes – which is probably enough by itself to pay all health care costs if we were to emulate any other industrialized country.

There is no doubt, with the appropriate policies, we can find sufficient savings and improved outcomes by reviewing the data in this report.  And why wouldn’t we?

It appears the best and least expensive health care comes from providers such as the VA, Mayo and the Cleveland Clinic where doctors are on salary and have no motive above delivering good health care.

The current administration in Washington D.C. is certainly not unaware or naïve.  The political reality is we need to placate the special interests and pander to the misinformation from the feuding providers and payers while the health care consumers pay both in dollars and health.  For instance, Medicare reimbursement rates are designed to pay a little more than cost for an efficiently run hospital.  Virtually every, but not all hospitals claim they lose money on Medicare and Medicaid reimbursement.  They claim an uninsured and charity burden which justifies reaching agreements with insurance companies to pay 143% of Medicare and charging the uninsured 308% of Medicare.   Maybe these assertions are true, but nobody knows.  A citizenry which assumes it is the beneficiary of charity is a vulnerable citizenry.

There is a commercial running on television which claims it represents a conservative organization and is against changing the current health care system.  It is one thing to be conservative but quite another to be gullible and bereft of ideas.

One of the favorite admonitions of politicians is to say “If you like the way the postal service is run, you’ll like the way government will run health care”.  The health care system is so convoluted and needlessly expensive in the United States it is obvious the postal service would no doubt do a better job.  After all, no one dislikes Medicare, which gives its members a choice of providers and defines medically necessary as “services and treatment necessary to diagnose and/or treat illness, injury or disease”.  The insurance industry doesn’t do that.