As of last week, my youngest daughter has her driver’s license, and we are now in the market for a car. Grace knows that, while she will be driving the car, I am the one paying for it. That gives me some special rights to set spending limits, and require certain performance elements – such as safety, practicality, and the model’s maintenance record – be included in the purchase decision. My daughter is more concerned about color, “cuteness,” and how her vehicle will compare to others in the high school parking lot. Grace’s mother thinks in terms of precedent and what we did or did not do for the other five kids when they started to drive.
For me, turning this scenario into a win-win-win situation will be a significant challenge. But given that this is the last time I will be car shopping with a high schooler, I have decided that I must win-win-win this one for the Gipper. (Sorry, I am a Notre Dame alumnus.) Similarly, Congress appears to be facing insurmountable odds in its efforts to fix the US health care system. It is possible to win this one, too. But we should first understand the math of health care.
The math of health care
I believe the Senate is energized now that the AHCA has passed the House of Representatives. It is the Senate’s turn to either pass it, suggest changes through a conference, or write and pass their own version. My colleague, Anne Phelps recently walked through the possible scenarios this bill could take.
In my experience, few people understand something I call “the math of health care.” Instead, they tend to focus on health insurance premiums, or are preoccupied with the rules of health care financing. I think the same is happening around the health care policy agenda.
We all know health care is complicated. And while it varies by health plan, about 85 percent or more of each premium dollar is spent on health care. The cost of that care is determined by the number of services provided to the patient multiplied by the price of those services. To calculate a premium, the services are categorized (e.g., hospital admissions, outpatient services, physician and professional services, labs, drugs, home health, rehabilitation, and behavior), and the number of expected services is estimated for the population. The number of services in each category is multiplied by the average cost in each category, which equals the total cost.
The headline here is that the US – as compared to the other industrialized nations – is fairly efficient in terms of the number of health care services provided to our population. However, we are significantly pricier for almost every type of service category, which causes our overall health care spending to be significantly greater than most other countries.1
It may be possible to lower our health care costs and defy the historical trend of cost increases. To do it, I believe we should reduce our reliance on the fee-for-service (FFS) reimbursement system, which does not reward health care providers for the quality of services they provide, nor the adoption of a team-based approach. In addition, the FFS system can inhibit the adoption of technology that could help the health system provide more care for less cost. The FFS reimbursement model is based upon the idea of face-to-face interactions with the patient, which might have been appropriate at the time the rule was defined. In today’s world, however, the reimbursement rules can actually constrain the number of potential touchpoints for chronic care when we should be using technology and virtual visits to increase access.
Chronic care accounts for more than 80 percent of the total health care cost, according to the Centers for Disease Control and Prevention (CDC).2 A leading clinical model for chronic care is a comprehensive, multi-faceted strategy with a team and a structured-treatment approach. We have health care professionals who can provide needed services in person, but some of those services can also be provided virtually and with a team. The FFS model was not designed to accommodate this type of approach.
Ironically, health care financing started out as a prepaid fixed-payment system offered by physicians as a packaged deal. That means the precedent is there, and Congress has the pen to exercise its privilege as the financier and change the terms and conditions of the existing system. We can deploy new technology and innovation to provide more value for less cost. If successful, it could be a win for all citizens, patients, employers, and health care providers. Ultimately the goal would be to offer a greater number of touchpoints for the chronically ill, with much lower costs per service.
Federal, state, and local governments account for nearly half (46 percent) of health care spending in this country,4 which is financed through taxpayers. Congress may want to consider asserting its rights as the financier to specify, encourage, enable, and facilitate the reduced reliance on FFS and replace it with prepaid reimbursement for health care services. This would better align the incentives to provide more care for less cost. This is the health care math we should be focusing on to deal with and fix the affordability crisis we face.
If you don’t know the story of George Gipp, he was an amazing athlete who went to Notre Dame to play baseball. Knute Rockne, the school’s football coach, recruited Gipp to play football, which he did for four years. Records that Gipp set for passing, rushing, interceptions, and punt returns stood for decades. Some sports historians suggest he might have been the greatest college football player of all time. But Gipp died December 14, 1920, at the age of 25, from a Streptococcal throat infection. He also probably had pneumonia from sleeping outside his dorm room because he missed the curfew and couldn’t get inside. Antibiotics were not readily available. On his deathbed, Gipp is purported to have told Rockne that when the team is getting beat, to ask the boys “to go in there with all they’ve got and win just one for the Gipper.” That’s exactly what the coach did, and the speech inspired the Fighting Irish to win against a previously undefeated team.
Similarly, I intend to defy insurmountable odds and make my daughter, her mother, and myself happy with this upcoming car purchase. I’m also convinced that we can beat the odds in transforming the health care system. We can’t let the affordability crisis prevent people from receiving the care they need. We have a great health care system. While the FFS system made sense at one time, we need a new system that allows us to continue to improve our system and realign the incentives like we once had in place. Now let’s get in there and win it for the Gipper
1How does health spending in the U.S. compare to other countries? Kaiser Family Foundation, May 22, 2017
2Chronic Disease Prevention and Health Promotions, Centers for Disease Control and Prevention.