Since 1970, healthcare costs have grown at twice the rate of inflation, with costs doubling over the last 10 years. Annual U.S. healthcare expenditure has reached an incredible $3 trillion. Insurance premiums have soared as medical spending has continued to rise. This unsustainable healthcare cost growth threatens the financial well-being of individuals and families, small and large businesses, and our government at all levels.
Our third party financing system that disconnects consumers of healthcare from payment of that care has been the primary driver of uncontrolled healthcare cost growth. In addition, this pre-payment financing scheme, i.e. not insurance in the usual understanding, discourages transparency and accountability regarding indications for care, cost of care, and outcomes of care. Misguided government tax policies promoting employer provision of healthcare insurance, and heavy-handed insurance regulation including mandated coverages, restriction of interstate sales, and restriction of group associations ultimately limits consumer choice and discourages product development, decreases competition, and in turn furthers excessive cost growth.
For all that healthcare spending, quality is variable and generally suboptimal. Medical errors, including avoidable hospital events, are the third most common cause of death after heart disease and cancer. CMS’s recent requiring of reporting adverse events and consequent financial penalties is a positive step, but still much more outcome transparency and accountability are needed. Such transparency and accountability cannot be successful imposed by top down regulation but rather by the bottom up forces generated by competition.
This 3rd party financing system has spawned the emergence of mammoth healthcare systems and the consolidation of the health insurance industry. These health systems initially bought-up primary care practices and then pressured specialists to sell their practices to them or face competition from system recruited and owned specialists – a competition heavily tilted in favor of the health system as a result of its control of primary care. Simultaneously, these giant systems have been buying up independent imaging and surgical centers. The goal of this acquisition strategy is straight forward: Eliminate competition, control patient referrals so as to direct them to hospital owned ancillary services, and raise market prices to their excessive charges.
The massive growth of healthcare systems has seen a corresponding tremendous expansion of hospital administrators. Over the last 30 years, while the number of physicians has remained relatively flat, hospital administrator positions have increased 3000%. This bureaucracy is the cause and primary beneficiary of increased healthcare costs.
The hospital systems’ expansion has coincided with growth and consolidation of the insurance industry which has been winnowed down to only 3 major national companies: Anthem, United HealthCare, and Aetna. These insurance company behemoths are complicit in the anti-competitive growth strategy of the massive healthcare systems. So long as the insurance companies are able to raise premiums, they are happy to accommodate the hospital systems’ charge increases. In fact, with Obamacare’s restriction limiting the medical loss ratio – the portion of the premium that can go to insurance company administrative costs (including salaries and profit) – to 15%, from their perspective, the higher the healthcare spend, the better
It is important to recognize that the goal of the hospital – most of them “non-profits” – and insurance company consolidation has been to decrease competition and to increase revenues, despite any lip service they may pay to containing healthcare costs. In reality, the health systems and dominant insurance companies have been quite content to see year after year revenue growth.
Obamacare’s Accountable Care Organization (ACO) initiative will lead to little or no savings. Promoting partnerships between large healthcare systems and the dominant insurance companies to control healthcare expenditure is classic “putting the foxes in charge of guarding the hen house”. Their narrow networks are contrived not so much to lower costs but rather to consolidate their high cost provision of services. They will undoubtedly wring “savings” out of practitioners and ration care to their insured but are unlikely to meaningfully alter their excessive cost structures.
But there is a better way. The same free market principles that have spawned the productivity miracle – more and better for less in household conveniences, technology, transportation, entertainment, etc. – would do the same for healthcare. Free markets, empower consumers to choose what goods and services they value, what best serves their desires and needs. Free markets inspire sellers to innovate and create value. That process of creating and offering, and choosing and buying drives new product development, higher quality and service, and lower cost – the productivity miracle. While success on the provider side of the market comes and goes, the consumer always wins in this competition.
Analysis demonstrates significant variability in any given market regarding both cost and quality of procedures. Costs can vary by as much a factor of 10, with the large systems being the most expensive sellers (chargers) of healthcare. Surprisingly, that same analysis demonstrates no correlation between cost of care and quality of care delivered.
It estimated that a third of the annual $3 trillion healthcare expenditure is amenable to consumerism – the ability for buyers of elective healthcare to choose services on the basis of cost and quality, e.g. value. The other 2/3rds of medical spending results from the significantly fewer but much costlier events such trauma, complicated emergent medical conditions, etc. Currently 80% of the $1 trillion market that is potentially responsive to consumer driven value is going to the high cost providers.
The Opportunity for Self-insured Employers, Public Union Benefit Administrators, Sharing Ministries, and Self-insured Individuals and those with High Copays and Deductibles
Self-insured companies could significantly lower their healthcare costs by taking advantage of transparent and competitive medical free markets. Reshaping benefits plans to incentivize their employees to utilize the high value providers for free market amenable healthcare expenditure would generate significant cost savings for employer.
As a result of the Surgery Center of Oklahoma’s pioneering efforts in price transparency – posting transparent pricing for their services since 2009, Oklahoma City has a vibrant medical free market. OK City area employers have saved millions of dollars by their employees choosing to go to the high value sellers of surgical services. For applicable services, employers can save 70% or more as compared to the typical PPO discount cost of service (see Kempton Premier Provider table below).
The incentive program benefit typically sits alongside of a traditional healthcare benefit. When an employee submits a request for a test or procedure for which there is high value seller, the benefit administrator contacts the employee to let them know about the high value option. Typically, in choosing the high value option, the employee’s copay and deductible are waived; or in other programs, the employee is paid a portion of the savings. These “go green (high value provider) to get green” programs have been very popular with employees, lowered employer costs, and have promoted higher quality, lower cost surgical care.
The goal of these programs is not to find the cheapest care but rather excellent care at a fair market price – a price that is optimized by providers competing to provide the best value for the care.
The Opportunity for Providers
Development of a healthcare market in which buyers of healthcare are incentivized to choose care on the basis of value would be a singular opportunity for independent physician long-term viability and success. It would allow us to leverage our strengths: quality and cost. We would no longer be competing with the WellSpans, Geisingers, Pinnacles and their complicit partners –the gargantuan consolidated insurance companies, on a playing field they have established. A playing field on which they control primary care and primary referrals, and can exclude us from their networks – networks contrived not to lower costs but rather to consolidate their high cost provision of services.
In a free market healthcare business, we would no longer need to spend resources on collecting copays and deductibles. In general, coding, documentation, and collection costs would be greatly reduced. Ideally, our free market business could grow to the point that we would stop participating with government payers and all its regulations, red tape, and falling reimbursements. There would be no elaborate EOBs, just submitting an invoice at the time of service.
Frustrating contract negotiations with payers who are more interested in maintaining their status quo relationship with large hospital than in paying us for higher value work would go by the wayside.
OSS Health and several other regional physician groups have embraced this vision of medical free markets. Transparent bundled pricing creates a value-based healthcare field of competition that utilizes and leverages our strengths – commitment to the highest quality and service for orthopaedic and spine care, and the ability to sell those service significantly below the market inflated price.
Free market medicine offers independent physicians the ability to reject the status quo market controlled by large health systems and large insurers. This status quo medical market place is expensive, getting more expensive, and quality is unpredictable and generally suboptimal. A medical free market creates the opportunity for self-insured businesses and other entities with direct healthcare liability to lower cost by getting more value for their healthcare spend.
For independent physicians, free market medicine is a singular opportunity for our long-term viability in a market increasingly controlled by large healthcare systems and insurer. This is no free lunch. Free markets give us as sellers of healthcare the opportunity to compete and succeed. If we don’t provide value, we won’t succeed. Our success depends on ever working to improve cost and quality. On the other side of the market, the consumer always wins because free market competition will continually push for higher quality and service at lower cost.
Please go to OSSHealth to see the pricing for our list of services and bundles procedures.