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Why Obamacare Can’t Lower Costs

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Posted on May 9, 2014

By Kip Sullivan

(Page 2)

According to the best study of the rates of both under- and overuse (a 2003 paper in The New England Journal of Medicine), underuse occurs at about four times the rate of overuse—46 versus 11 percent. Here is how the authors summarized their findings: “Underuse of care was a greater problem than overuse. [P]atients failed to receive recommended care about 46 percent of the time, compared with 11 percent of the time when they received care that was not recommended and potentially harmful.”

Once you realize underuse is far more serious than overuse, the claim that reducing overuse can cut costs loses its seductiveness. The question naturally arises, if our goal is to lower costs through better health, how do we improve the overall health of the populace while leaving all that underuse untouched? The logical answer is we can’t (and the moral answer is we shouldn’t). And if we decide we must eliminate or reduce underuse to improve health, how do we do that without spending a lot more money to provide the underused services? The answer is we can’t eliminate or even reduce underuse without spending a lot more money.

The inaccuracy of Obama’s and the establishment’s overuse diagnosis is compounded by the inaccuracy of their claim that prevention, such as smoking cessation treatment and mammograms, must inevitably lead to lower costs. It just isn’t true. A review of the literature on this issue published in The New England Journal of Medicine by Joshua T. Cohen et al. concluded, “Although some preventive services do save money, the vast majority reviewed in the health economics literature do not.”

The reason preventive services generally don’t save money is threefold. First, the preventive services cost money and have to be administered to millions of patients in order to prevent disease in a few of them. Second, like all medical services, preventive services are not 100 percent effective. Flu shots, for example, are effective in about half the people who receive them. Third, some preventive services turn up incipient diseases that require treatment. Colonoscopies and mammograms are examples. If they reveal cancer, patients receive surgery, chemotherapy and radiation, all of which in turn have side effects that can trigger more treatment.

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Scholars have reached the same conclusion about a close cousin of prevention known as “disease management.” Whereas prevention aims to avert disease before it starts, disease management aims to prevent chronic diseases such as diabetes from getting worse. Numerous reviews of the literature have reported that most chronic diseases are so resistant to treatment that the savings achieved from better treatment of those diseases (usually in the form of reduced hospitalizations) are swamped by the cost of the additional treatment.

There are exceptions to this rule that prevention and disease management cannot save money. The insurance industry and its allies in business and academia love to talk about these exceptions as if they were typical examples of what prevention and disease management can do. Do not be fooled. They are exceptions to the rule.

Contrary to the conventional wisdom that seduced Obama and proponents of the ACA, the insurance industry’s methods are too crude to reduce overuse without aggravating underuse, and the industry has no secret formula for making patients healthier without spending more money. The industry’s methods for reducing overuse and making patients healthier fall into two categories: financial incentives, and direct interference in doctor-patient decision making.

The most commonly used financial incentive is known as “pay for performance” (P4P). Doctors are paid bonuses if they score well on report cards that purport to measure a tiny proportion of all the activities doctors engage in during the course of a day’s work. For example: the percent of diabetics who receive an eye exam once a year. The most commonly used method of interfering in doctor-patient decision making is “utilization review,” which means someone at the insurance company has to approve a physician’s decision, such as whether to hospitalize a patient or whether a patient must try a cheaper drug first before the doctor can prescribe the drug the physician and patient would choose if the decision were left up to them. But P4P and utilization review are far too crude to reduce overuse without increasing underuse. P4P, for example, cannot accurately measure which patients “belong” to which doctors, and how much of a bad “grade” is attributable to the patient’s health or income and how much is due to the doctor. Moreover, P4P induces “teaching to the test,” that is, it encourages overworked doctors and nurses to shift resources away from patients whose care is not being measured to those whose care is being measured, thereby aggravating underuse for the unmeasured patients.

Perhaps the single best evidence of the insurance industry’s inability to cut costs is its performance within Medicare, the nation’s program for the elderly and the disabled enacted in 1965. Although Congress established Medicare precisely because the insurance industry was avoiding the elderly, lawmakers have over the years (beginning in 1972) allowed the insurance industry to stick its nose further and further into the Medicare program. Congress bought the industry’s claim that its usurpation of physician-patient authority would somehow lead to less overuse and lower Medicare costs. Today 30 percent of all Medicare beneficiaries are insured through the so-called Medicare Advantage program, the privatized branch of Medicare.


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