Most waste in the healthcare system is caused by huge over charges by hospital providers. Keeping costs under control will require pressure on providers, not on consumers, John McConnell, PhD, a health economist at Oregon Health & Science University, told an audience of health professionals attending Oregon Health Forum’s breakfast meeting on Thursday.
He said that while copayments and deductibles do work to hold down the cost, they work primarily by patients avoiding care but not avoiding higher cost providers. Getting the price information in advance is very difficult for patients, but even with greater price transparency, patients are unlikely to use such information because as many as two-thirds of healthcare costs stem from emergencies. “Consumers are not very good at shopping,” he said.
Lynn Quincy of the national Consumers Union told the crowd that $1 trillion of the $3 trillion spent on healthcare is unnecessary since costs vary from hospital to hospital, often irrespective of quality. “High prices do not purport to good outcomes,” she said.
Only about 10 percent of that waste is administrative, Quincy said, and McConnell argued that administrative costs in the traditional Medicare plan -- which hover around 3 percent -- are too low and that weak oversight of Medicare leads to tremendous fraud.
The obstacle to removing the waste may be political more than anything.
“There are a lot of people invested in that $1 trillion in activity,” said Tom Culhane, medical director of Atrio Health Plans. .
McConnell said states like Michigan and Massachusetts, where BlueCross BlueShield plans predominate, the insurer had success stemming costs through its market power and an investment and reform of the primary care spending model. But, Oregon’s healthcare system is more complicated since the commercial market is divided among so many players, giving the hospitals the upper hand on price negotiations.
Instead, the Oregon Health Authority has set aside anti-trust laws to convene a collaborative of the major health insurance players and will try to imitate what BlueCross had been able to do by itself with primary care.
“When we invest more in primary care, we get better results and lower costs,” said Sen. Elizabeth Steiner Hayward, D-Portland, the lone state legislator to speak at the forum.
Culhane said the system had seen incremental success in reducing cost drivers in the past, such as when the federal government delineated diagnostic-related group hospitals and made long hospital stays a source of expense for the hospitals after it had been a source of revenue.
Charity Care
Almost all Oregon hospitals avoid paying taxes on their business profits since they are non-profit entities. That status requires them to spend an indefinite amount of their windfall on charitable services such as offering free care to the uninsured. But the Affordable Care Act has significantly reduced that number, leaving hospitals able to come up with their own definition of charity care. .
McConnell said the IRS requires the hospitals to file annual reports outlining their charity plans, but since that requires only a written narrative, there’s no way to quantify it.
To diffuse pressure, the hospitals have been orchestrating a public relations campaign to get policymakers and regulators to consider the difference between their list price and the amount Medicare and Medicaid are willing to spend as a “loss for community benefit,” which would free them from having to spend as much on real charity.
As an example, despite reporting an uptick in profits of 7.3 percent in 2015, Legacy CEO Dr. George Brown has claimed that his health system “lost” $172 million from low Medicare and Medicaid reimbursements.
But as Rep. Mitch Greenlick, D-Portland, told the Willamette Week, that kind of math would be like a Subaru dealer claiming a loss because he knocked $10,000 off the bloated sticker price.
