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(HealthNewsDigest.com) – Through all the sound bites and complex terminology and calculations, healthcare expenditures really just boil down to one simple formula: Costs = Price x Utilization.
Viewing healthcare expenditures through this formula is actually quite simple. In order to decrease costs, one must decrease prices or utilization, or shift costs to others. It’s really that simple. Unfortunately, when you break down all the healthcare reform proposals it becomes clear that many do not add up.
The current healthcare reform is being framed by the question “How do we permanently bring down costs and make quality, affordable healthcare available to every American?”
The answer being shouted back is that “We can do this by keeping what works, fixing what doesn’t, and demanding quality care and greater value for our dollar.” Of course the devil is in the details and it is here that things don’t quite add up.
It is argued that much of the cost of healthcare reform will come from savings within the system. These savings are believed to come from improved care which will result in a reduction in hospitalizations, duplicative testing, and medical errors. Additionally, what has been positioned as inappropriate payments will be reduced or eliminated, while new revenue sources are developed. Some of these additional steps include ending current overpayments to private insurance companies, insisting on better prices for prescriptions, and new premiums paid by those currently uninsured.
Our current reimbursement system provides incentives where the more tests and services are conducted, the more money is paid. To tackle this situation in a way that would reduce costs through reductions in utilization, the reimbursement system would be repositioned based on bundled payments and payments based on health outcomes. So, the first in a series of structural reforms is based on a change in the reimbursement system.
The second structural reform is aimed at improvements to the quality of medical information making its way to doctors and patients. This is based on the fact that less than one percent of our healthcare spending goes to examining what treatments are most effective. And even when that information finds its way into journals, it can take up to 17 years to find its way to an exam room or operating table.
On the price side of the equation there is a move toward having the Medicare Payment Advisory Commission (MedPAC) determine reimbursements in a thoughtful way tied to patient outcomes instead of relying on yearly negotiations about the Sustainable Growth Rate formula, which is based on politics and the state of the federal budget in any given year.
Unfortunately if things don’t add up, such that the anticipated savings aren’t there and the costs exceed expectations, the result could be unprecedented tax hikes, overwhelming deficits, and drastic cuts in our federal and state budgets. Also not mentioned is the possibility of a reduction in services either directly through tight utilization control or as a result of providers leaving the system making access for needed services difficult.
The devil is in the details, so as the details roll out, one needs to apply them to the healthcare formulary of Costs = Price x Utilization to see how things work out…it may reveal some surprises.
Richard G. Stefanacci, DO, MGH, MBA, AGSF, CMD
Dr. Richard G. Stefanacci is the executive director of the Institute for Geriatric Studies at Mayes College of Healthcare Business & Policy at University of the Sciences in Philadelphia. As an internist/geriatrician, Dr. Stefanacci has a longstanding interest and commitment to geriatric health, particularly the frail elderly and long-term care. He is a former Centers for Medicare & Medicaid Health Policy Scholar and continues to practice geriatric medicine through NewCourtland Elder Services and participates in Medicare and Medicaid policy development. Dr. Stefanacci’s regular speaking topics include Medicare reform issues, disease management, long-term care, and geriatric healthcare systems. He received his BA in economics at Boston College, his medical degree and MGH from AT Still University, and his MBA from Keller. In addition, Dr. Stefanacci is a fellow of both the American Geriatric Society and College of Physicians of Philadelphia.
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