Healthcare Value

Americans spend more on healthcare than people in any other country in the world.

The price of a hospital visit is based on a nearly endless list of factors: prices negotiated by insurance providers, the cost of expensive medical technology, the salaries of staff and administrators, and so on.

Skyrocketing prices have spawned a medical tourism industry in which Americans leave their country to have complicated procedures done at a fraction of the cost abroad.

The fee-for-service healthcare system in the U.S. has been under fire for decades, and has left many wondering why our healthcare comes with such a hefty price tag.

Post-op Problems Make for Good Profits

A recent study published in the Journal of the American Medical Association examined the cost of post-surgical complications and found that hospitals lack incentives to improve their quality of care, especially when they stand to make a 330-percent greater profit if complications arise.

Researchers from Harvard Medical School examined 34,256 surgical discharges from 12 area hospitals. Of those, 1,820 patients experienced one or more complications that required additional treatment. They uncovered a connection between how people paid for their procedures and the likelihood they’d be back in the hospital because of complications:

  • The higher the cost of surgery, the greater the likelihood of complications.
  • The more out-of-pocket a patient with Medicare or private insurance paid, the more complications were reported.
  • If a patient paid for the surgery fully out-of-pocket or through government-funded Medicaid, the likelihood of complications was lower.
  • Surgical complications resulted in profits of between $1,749 per patient with Medicare and $39,017 per patient with private insurance.

“Depending on payer mix, many hospitals have the potential for adverse near-term financial consequences for decreasing post-surgical complications,” the study concluded.

In other words, when a hospital is run on a for-profit basis, it’s bad business to prevent repeat customers.

The discussion around healthcare reform began almost immediately after President Richard Nixon signed the HMO Act in 1973, effectively turning the U.S. medical system into a for-profit business on the premise that less care given to citizens means more money for providers

The American fee-for-service system rewards counterproductive behavior, and it must be changed, according to one vocal critic of status quo.

Doctors Know It Must Get Better

Standing before thousands of fellow doctors as the keynote speaker for the 2013 American College of Physicians conference, renowned bioethicist Dr. Ezekiel Emanuel—a proponent of voucher-based universal healthcare—made a bold statement: “Doctors, more than anyone else, will determine the future of the United States.” 

In 2012, he said, the U.S. spent $2.87 trillion on healthcare, including $979 billion in federal spending. If the U.S. healthcare system were a national economy, it would be the 5th largest in the world. 

The problem is evident: 50 percent of all Americans account for three percent of healthcare spending, while 10 percent—those with multiple chronic conditions—account for 63 percent of all healthcare costs.

“We can do a better job cutting spending without rationing care,” Emanuel said. 

Doctors can determine the country’s economic future by transforming the type of care delivered, he said, by focusing on delivering cost-conscious value to patients, standardizing processes, and delivering care in a team-focused system.

Price and quality transparency is “inevitable and coming faster than you think,” Emanuel said.

Price Transparency: What Doctors Should Know

One major problem facing hospitals is a lack of price transparency. This means not making costs visible to patients, but also to doctors. Often, doctors don’t know the price of the tests they're ordering or the machines they’re using.

While quality of care should never be compromised to cut costs, doctors have many testing and treatment options available and have found that some methods are expensive and unnecessary.

Three years ago, the Cleveland Clinic challenged itself to save $100 million by taking a nuts-and-bolts approach, which involved looking closely for repetitive and unnecessary spending. They went through all of their major procedures and developed a best-practices approach even for the use of nitric oxide. 

Within a year and a half, they saved $155 million.

“Medical judgment should be based on best practices, and in many cases, those are also the most cost-effective. As more physicians realize this, they are spurred to join the ongoing discussion,” Dr. Toby Cosgrove, Cleveland Clinic president and CEO, wrote in Time Magazine. “Physicians, after all, are evidence-based decision makers. By supplying doctors with supporting data, change will come naturally. And so will the savings.”

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