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The effect of patient demands and defensive medicine on health care costs

Health care is not and cannot function as a rational market.

The Chicago-school economists and their Republican disciples in Congress argue that the answer to ballooning health care costs consists of making patients put skin in the game.  By that they mean patients/consumers must accept a painful share of the costs.  Their reasoning is that this will make them shop for reasonably priced medical services, the same way they buy ordinary consumer goods and services.

On the face of it, their idea is patently absurd.  Health care is not and cannot function as a rational market. Much of the time, people just cannot purchase health care in the coolly deliberative, rational way they shop for a house or a car. When someone's doctor tells her that the lump she felt is malignant, she cannot defer treatment the way she might postpone buying a new spring wardrobe or a trip to the islands.

Then too, finding the most cost-effective provider and course of treatment remains beyond the vast majority of people because the choices require highly technical knowledge and the real costs are usually buried in technicalities that make apples-to-apples comparisons nearly impossible.  Honest economists recognize that such huge "asymmetries of knowledge" in health care present another obstacle to a genuinely functional market.

Add to these disqualifications the fact that a legitimately functioning market also requires a large number of sellers, no one of which is large enough to unduly influence prices in the market.  Clearly that doesn't apply to health care.

As an example of the oligopoly arrangement that prevents a competitive market, consider the health insurance sector.  Prior to the Affordable Care Act, the market for obtaining individual health insurance was dominated by one or two different issuers in most states. "In 2012," according to the Department of Health and Human Services, "more than half of all enrollees in the individual market were covered by only one issuer." The situation improved somewhat after the ACA took effect, but still almost half the U.S. population lives in areas where three or fewer companies offer health insurance policies.  For employees who obtain health coverage through their work, one-quarter have a choice of only two plan issuers and another quarter have only one insurer available to them.

The idea of making patients put skin in the game is motivated by the reactionary myth that most patients are extravagant spenders of someone else's money and they demand medical services without regard to costs. But now data on patient behavior is emerging to prove that this idea of the wasteful patient is a myth. In the high cost area of oncology, patients requested more tests and procedures from their doctors only 9% of the time. In 87% of those cases where patients did ask for additional services, their doctors considered the requests to be entirely appropriate.  Only 1% of patients requested clinically inappropriate medical interventions.

Physicians, for their part, place the blame for unnecessary tests and procedures on their fear of malpractice suits. More than 90% claim their worry about malpractice suits motivated them to order more tests or procedures than what was needed. But fingering malpractice lawyers as the main reason for padding medical bills is a big dodge.  Although physicians may say "defensive medicine" makes them run up the bill, they either deliberately or unconsciously misrepresent their motives.

Some physicians put the blame on personal injury lawyers to divert attention away from a favorite method of generating more income for themselves. Another segment of physicians aren't even consciously aware how the "grand rounds" approach they learned during their residency training fosters a "test-and-probe-it-to-the-max" attitude even when there's only a negligible relationship between these superfluous services and outcomes.

Health care professionals first decide how much money they want to make and then determine how many services, and which kinds, their various patients should get.

Very few occupations enjoy this much discretion to game the system for their own benefit. The bootleggers during Prohibition were one group that was able to do it. Representatives of Al Capone or his counterparts would go into a speakeasy and tell the proprietor how much beer and liquor he should buy, and then proceed to sell him that amount. If the bar owner refused, he faced a good chance his place would get firebombed or raided by corrupt police who were paid by the bootleggers.

The Affordable Care Act has tried to make providers put skin in the game by encouraging medical practice models such as Accountable Care Organizations (ACOs). The theory behind ACOs is that physicians practicing in such arrangements will collaborate and share information, thereby creating less duplication of tests, procedures and prescribing.

ACOs are provider groups that try to coordinate care for Medicare beneficiaries under a fee-for-service arrangement in which they assume some risk on quality and cost. ACOs choose how much of their reimbursement they will put at risk and they receive financial incentives based on that choice and their performance quality.

The problem is that ACOs have not significantly reduced overall costs. The Center for Medicare and Medicaid Services (CMS) found that among the 360 Medicare ACOs established so far, serving over 5.6 million Americans, per capita growth in Medicare spending has been only 0.45% lower than the increase in other Medicare, fee-for-service arrangements.

So the rightwing solution of putting skin in the game causes pain with negligible gain when applied to patients, while providers find ways to subvert any cost savings that might limit their incomes.

The earlier posting here this week discussed how the rising costs of insurance and drugs are putting health care beyond the reach of more people.  As providers account for a much larger share of health care dollars than drugs, the hospitals and physicians deserve their share of blame for cost increases that are growing out of control.

Do readers in this area feel the pinch as much as the national figures indicate?

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