I read an interesting article on health care that debunks many of the commonly stated reasons for our health care crisis in this country.  It seems that we don’t have more hospital beds, doctors or CT Scanners than the rest of the world.  Malpractice insurance and tort reform are a problem, but not a huge problem. Why in the world are we spending 2.4 times the amount of  money per capita and 70% more as a percent of GDP than the rest of the world on our health care system?

My quick answer is OPM – Other People’s Money. Just like its homonym, OPM (opium) is a narcotic that can induce people to misuse it.

Lets take a few examples and see where this leads. Insurance companies pay the bulk of the medical bills in this country.  In most cases, they negotiate with providers (hospitals, physicians, etc.) to pay from a price list.  That is, even though a hospital may charge $1000 for a procedure, the insurance company has negotiated a rate of $600 and will pay that $600 to the hospital.  The hospital writes off the $400 negotiated credit.  But what happens if you don’t have insurance… You will be billed $1000 and be expected to pay that. The hospital is not taking a loss at $600, but there is no incentive for them to accurately price their services. In fact, they may not even know their true costs to offer services.  That to me, as a business and numbers guy, is truly scary.

The patient, in most cases, has insurance.  Do most patients shop around for services based on cost?  Actually, most people pay more attention to the pricing of their cell phone plan or auto body repair than they do for health care.  Why is this?  OPM.  They know that their insurance company will pay according to the terms of their policy and this gives them the freedom to be blind and dumb when it comes to their healthcare.  Do whatever the doctor recommends, no matter the cost.  This has the additional unfortunate side effect of people not having the data to accurately determine the competence of their health care provider.  If you are not going to check on price, you probably aren’t going to see if the doctor or hospital has significant experience and positive results with your type of condition.

Ah, then, the answer is to get the insurance companies involved.  Well, not so fast.  The insurance companies by definition, assess and reduce risk.  The usual answer is that they do this by combining risk for many people to reduce the harm that an individual’s loss could cause.  In auto insurance and home insurance, they do this pretty well.  In health insurance, unless you are part of a huge group, say a Fortune 1000 company, insurance companies will weed out anyone who shows even a glimmer of a future problem, either through direct denial or increased rates.  Rather than look at their entire portfolio of insureds and combine risks, they focus on the micro level of each individual subscriber.  But the only data that they have is based upon doctor records.  So, if you know you are sick but haven’t been to a doctor, you are more likely to get insurance coverage than if you have been doing the preventive medicine routine with regular checkups and preemptive care. Totally backwards, but somehow it makes sense to the insurance companies.

Well, then the problem must be solved by the doctors.  Again, OPM raises its ugly head.  Doctors also buy insurance — in their case it is malpractice insurance.  They are scared senseless by the threat of huge lawsuits, so they overtest. Sure don’t want to be that guy who gets asked “Why didn’t you order an MRI to determine for sure the extent of the problem?” on the witness stand.  All of this testing costs money and the patients, in general, don’t make a fuss — if the doctor requests it, it must be the right thing. This leads into a long discussion about tort reform, another OPM — insurance companies paying off litigants and their attorneys, but I am not going to go there.  The thing about overtesting is that the doctors have wised up.  They have seen the amounts of money going to testing, imaging and minor surgical procedures.  They too are taking advantage of the OPM gravy train by starting up centers to do imaging, diagnostic testing and minor surgery.  They can then take a piece out of the insurance dollars on both sides of the transaction.  There is nothing in the AMA charter that disallows this practice.  Does it equal more unnecessary tests?  You would have to think so.

Solving the health care crisis is not solving a simple problem.  It will require many small steps to help to corral the runaway train that is OPM. But nothing is more important to the future of our country than the process of reining in health care costs and improving medical outcomes.  We as a country need to step back and say that we didn’t have the optimal solution and look at how other countries have attacked the problem to help us find our right path.