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Study Confirms: US Health Care System Is Really Confusing

Complaining about how doctors are paid is the bread and butter of health care wonks; everyone agrees that payment systems create perverse incentives that drive up the cost of care. The picture may be more complicated, however, than the received wisdom suggests. Oncology doctors, for example, receive a certain percentage of the total cost of the medications they administer, which creates an incentive to prescribe more expensive medicine. A new study tested whether paying the doctors a lump sum for a course of treatment, rather than individual fees based on the price of each medicine, would lower overall costs.

Researchers expected that it would, but were surprised by the results. The WSJ reports:

The results of the five study groups were compared with projected costs based on a registry of other UnitedHealthcare cancer patients. The groups’ overall spending amounted to $64,760,116, about a third less than the predicted $98,121,388. But the cost of chemotherapy drugs among the study groups was $20,979,504, more than double the expected $7,519,504.

Lee N. Newcomer, a UnitedHealthcare senior vice president and the study’s lead author, said he was “very surprised by the size of the increase of the drug spend,” which wasn’t the expected result.

Researchers who weren’t involved in the study said its meaning was unclear, particularly the increased drug spending. “It’s counterintuitive, to say the least,” said Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center. “We really don’t know what happened.”

In short, the experiment did reduce the cost of care, but not by reducing the cost of drugs—which was the only area of the whole care delivery process targeted by the changes to the payment system. The unexpected results suggest that the experts who study our system and recommend reforms still don’t understand how all the parts of it interact. Instead of looking to academics to locate the key pressure points in a opaque and labyrinthine system, would-be reformers should shape policies that make it more like all other commodity markets. In a competitive market, functioning within certain legal frameworks that are fairly enforced, providers would have all the incentive they need to lower costs: capturing customers.

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  • Anthony

    Many health care providers are making a bundle of money and have no incentive to give it up. Last sentence above assumes a priori fact (health care is better delivered in quasi competitive market). I would ask is selling of health care (presently structured) in America most viable way going forward. “Many health care providers have set up shop in America. From a pure business perspective, those businesses are almost all economic successes – winners – not economic losers. Expecting our current massive, very well-financed, high-revenue, high-margin, high-growth, high-cost health care infrastructure to voluntarily take steps to reduce costs and prices is….”

    • Maynerd

      No worries. The VA has no financial incentives. It’s a veritable utopia of productivity and excellence.

      • Andrew Allison

        The VA is a run-of-the-mill bureaucratic quagmire in which the only objective is to enrich said bureaucrats. It is also an example of why government should not be in the healthcare delivery (as opposed to insurance) business.

      • Anthony

        The selling of health care as presently constituted requires more citizen attention – financial incentives currently don’t voluntarily improve either care outcomes or care quality. The reimbursement system creates incentives to maximize costs (I don’t think hospitals in America get paid more money if they do great work – but they do get more money for more patients).

  • Andrew Allison

    Missing from the report is whether the doctors were also receiving kickbacks from the providers of the drugs, and thus replacing the reduced insurance company reimbursement by prescribing more of them. If so, the results were not counter-intuitive but predicable. Another possible cause is that, faced with a fixed reimbursement, doctors prescribed more and/or more expensive drugs to shorten the course of treatment.

  • FriendlyGoat

    Sick individuals and their families are not sophisticated “commodity” traders and cannot by themselves activate the recommendations in the last two sentences of the article. They need the help of government and that help should be in mandating that the retail pricing of all services—–down to the cotton swab—-be COMPLETELY disclosed 24/7/365 in real time for every provider, as well as complete transparency of all discounts given to all insurance companies, employer groups and so-called “networks”. This would have to be part of government’s conditions for permission to practice.

    I was helping to administer my employer’s self-funded medical plan for hundreds of employees 30 years ago. Pricing was secretive then, too, to the point we had to hire third-party contractors to decipher what is “Usual, Reasonable and Customary” pricing to be allowed in claims. DECADES HAVE GONE BY while citizens continue to be completely smoked by the incorporated medical business community giving 101 weak reasons you can’t have this information. Conservatives cave in to this ALWAYS and even liberals do so most of the time.

    There will be no progress without citizens (via government) regulating the business—–not business capturing the citizens.

    • rheddles

      Yassuh I be too dumb to take care of myself wifout the help of the gubment. Those experts in Washington love me much more than my family and they will make sure I pay taxes as long as I can. They need to get control from the greedy businesses and doctors who only want to see me dead. Thank God for the gubment. I don’t know how I’d be alive without them.

      • FriendlyGoat

        I don’t see how you would still be alive either, given your admitted circumstances.

  • Boritz

    …fairly enforced…”

    Think Bonanza, and The Dick Van Dyke Show.

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