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Politicians’ simplistic health care solutions only worsen problem

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At the Democratic presidential primary debates in Detroit last week, the candidates jockeyed to explain their plans to reduce health care costs. Each candidate backed some form of Medicare for All system, which researchers say would only further increase health care costs — even if patients are further shielded from them.

Yet few politicians are discussing the underlying reasons for high health care costs. Rather, most treat them as a given, as if the five-figure bills for routine procedures were part of the state of nature like the Grand Canyon. Policymakers seem unwilling or unable to educate patients and physicians about the real cost drivers of health care. No wonder support for government-run care is growing.

Robert Dean

Robert Dean

While there are countless culprits behind today’s high health care costs, three of the biggest are the medical loss ratio, prescription drug rebates, and the over-reliance on emergency rooms. However, market-based solutions like the expansion of urgent care centers could help bring prices down for both patients and the government alike.

The medical loss ratio, which passed as part of Obamacare, requires health insurers to spend about 80 percent of their revenues on claims. In theory, this rule is supposed to limit insurer profits. But in reality, it merely incentivizes far higher insurance premiums, from which a bigger profit can be derived. Indeed, average insurance premiums doubled between 2013 and 2017, and have only further risen since.

Prescription drugs prices were also brought up during the debates, with the candidates calling for government price controls to lower them. While it’s true that sticker prices for many drugs have risen in recent years, the net prices – what is actually paid to drug manufacturers – have in many cases declined. For instance, the list price of one popular insulin drug rose by more than 50 percent between 2014 and 2018, yet the net price after rebates fell by 8%.

What explains this divergence between list and net prices? The multibillion-dollar drug rebates that health insurers demand from drug manufacturers in return for placement on the formulary lists of drugs they cover. Health and Human Services estimates that eliminating these rebates would reduce prescription drug prices by nearly one-third.

That’s why earlier this year HHS proposed a rule to eliminate these rebates and pass the savings on to patients at the prescription counter. The rule would have disproportionately benefited seniors on Medicare struggling with the cost of medications to pay for their chronic illnesses. Yet ironically, the AARP, formerly known as the American Association of Retired Persons, aggressively lobbied against this rule, submitting numerous public comments against it.

Why would the AARP take this position that’s opposed to its members’ interests? Because it receives the vast majority of its funding not through membership dues as is commonly thought but from royalties from health insurers in return for licensing its name for health insurance products marketed to seniors. The elimination of rebates would threaten these royalty payments, on which a former AARP director Marylin Moon admits the organization depends. With friends like these, seniors don’t need enemies to drive up their cost of care.

Another major driver of health care costs is the ove rreliance on expensive emergency rooms for care. Every year, there are some 150 million emergency room visits. Yet only around 10 percent of those visits result in actual admission to the hospital. According to a University of Maryland study, ERs provide nearly half of medical care in the U.S. This was never the actual intent of the ER, which is the gateway to admission into the hospital. And with the increasing number of hospital-employed physicians, cost rise precipitously. Rather, the ER should be reserved for its true purpose: life-threatening emergencies.

A RAND Corporation study found that about 25 percent of ER visits could be handled by urgent care centers saving up to $4.4 billion in health care costs. This figure is far greater when you consider that moderately complex problems can be handled in an ambulatory (non-hospital) setting.

Recognizing the complexity of health care, patients seek specialty care, hence the reason for the overuse of the ER. Ambulatory solutions connecting patients with those specialists are lacking. And unfortunately, solutions such as these are being held up by insurers who don’t provide the same reimbursement rates as they offer to hospitals and free-standing ERs or hospital-owned urgent care centers. (Remember, given the medical loss ratio, insurers have no interest in seeing prices fall.)

Policymakers on both sides of the aisle do voters a disservice by promoting simplistic health care solutions that would only exacerbate the health care cost problem. If they refuse to educate voters about the root causes of rising health care costs, then doctors must. Real health care solutions will arise from changing the delivery model. Running the same experiment over and over again expecting a different outcome is the definition of insanity.

Dr. Robert Dean, MD, PhD. is an Otolaryngologist and the CEO of Urgent Specialists Management, with offices in Tucson and St. Louis. 

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