Back Button
Menu Button

Optical Illusions of Healthcare ‘Reality’

I spend a great deal of time studying healthcare issues, giving balanced attention to both the ‘delivery’ and ‘payment’ of medical care. Admittedly, I have my own biases. How healthcare is delivered in our country is largely dependent on the incentives and disincentives that come from the payment side of our healthcare infrastructure. As a result, the fallout from the misalignment of these incentives cause a great deal of unintentional consequences.

It is true there are positive stories about exceptional doctors and medical staff who shine brightly when caring for patients. In fact, their work can be awe-inspiring, as most people performing this work are honorable and want to do the right thing for patients. However, these well-intentioned professionals are relegated to work in systems ill-equipped for them to consistently succeed. This too-often causes morale problems that can eventually lead to job burnout for medical professionals – which adversely impacts all of us.

For me, cynicism about our healthcare ‘system’ has become a way of life. Key healthcare players are legally allowed to operate within their own myopic sphere to justify their ‘value’ within increasingly complex – yet profitable – inter-related sectors that suck oxygen from our economy. What escalating costs are doing to our families and to our economy, to put it mildly, remains deeply disturbing. Healthcare’s inability to control costs continues to shortchange other sectors of our economy. Opaqueness and creating illusions are important tools to ensuring the status quo will not go away soon.

Within the span of two hours one recent morning, I perused the following topics that fed my skepticism about the true intent of the healthcare sector:

Axios – Executive Pay Packages

This article analyzed the pay of CEOs from 70 of the largest U.S. healthcare companies, who have, on a cumulative basis, earned $9.8 BILLION during the seven years following the passage of the Affordable Care Act (ACA). Why does this matter? Because the pay packages rarely, if ever, incentivize CEOs to control healthcare spending, eliminate unnecessary procedures, tests or devices and coordinate care. Instead, CEOs are motivated to sell more prescription drugs, perform more tests and procedures, purchase another practice/competitor and create new medical therapies that may not add value to one’s life. In short, CEOs are paid to “do anything to create higher earnings per share” for their shareholders.

My Takeaway: Developing an organizational infrastructure to ensure “value-based healthcare” is evidently dependent on someone else’s pay-scale.

Modern Healthcare – Other Revenue Streams are the Priority

Ninety percent of surveyed hospital and health-system executives have an “urgent priority” to find new revenue streams in the next three years due to downward revenue pressure causing massive financial headwinds to their profitability goals. In healthcare, it is all about revenue growth.

My Takeaway: Too bad the revenue streams derived from patient-centric and safety programs are paltry when compared to other appealing opportunities being pursued by these executives.

A transcript of the most recent ‘Fixing Healthcare’ podcast – Perverse Incentives

Dr. Robert Pearl and Jeremy Corr interviewed Dr. Elisabeth Rosenthal, Editor-in-Chief at Kaiser Health News. Dr. Rosenthal does not mince words within this podcast, or in her bestselling book, An American Sickness, as well as other articles she has carefully researched and written. Within this nearly one-hour interview, Rosenthal pointed out many perverse bugaboos found in U.S. healthcare – many of which I have previously written about over the years. But one particular comment she made was screaming at me. Largely unnoticed in mainstream media is the perverse incentive for insurance companies to have little motivation to keep costs down. Yes, you heard me right.

Under the ACA, a well-intentioned, but flawed regulation was directed at insurance companies to spend 80 to 85 percent of premiums on medical care – a much larger chunk than what was spent by some insurers in the pre-ACA era. Put another way, insurers are bound by this rule to not spend more than 20 percent of individual and 15 percent of small-group premium revenue on administration, marketing and profit. On the surface, this seems to make sense. Insurance companies must spend a higher proportion of premiums on medical care, rather than retain as profit. However, insurers can skirt around this issue by paying inflated medical bills so that they can retain a larger piece of the cost pie. This certainly benefits the medical providers, as well. To be sure, this is seldom (if ever) admitted by industry insiders – and is also very difficult to prove this is intentionally done.

My Takeaway: No wonder why larger employers and states are looking to bypass the inflated appearance of negotiated ‘discounts’ arranged by insurance companies, and instead, directly negotiate payment arrangements with providers based on methods tied to lower Medicare costs. But when this happens, using the state of North Carolina as an example, hospitals and insurers balk at this approach.

Health Affairs Blog – Health Costs Major Concern for Americans

This blog is a direct result of the previous behaviors briefly described earlier. Cost-shifting fatigue is taking its toll on the payers. One quarter of surveyed U.S. adults reported that cost was the nation’s most pressing healthcare issue, while 61 percent indicated that paying higher premiums (or a greater portion of medical expenses) was a “major concern.” About one-half of U.S. adults worry they will not have enough money to afford care.

My Takeaway: The ‘optics’ in healthcare are alive – indeed thriving.  The hypnotic messages you hear and see from many key stakeholders may not be the reality we wish and hope to have. The desire to ‘reform’ our healthcare infrastructure to become more affordable with better outcomes runs contrary with how major stakeholders are being incentivized and motivated to act. Re-engineering appropriate incentives (and disincentives) is necessary before we can obtain meaningful progress. Until this happens, the chairs are on the Titanic are merely being rearranged for appearance purposes only.

Skepticism, especially in healthcare, can be a virtue. Accepting the truth that this is happening is the first step of recovery.

To stay abreast of employee benefits and healthcare issues, we invite you to subscribe to our blog.

Join the Conversation

*