Of course, we can’t get rid of health insurance entirely, and that shouldn’t be our goal anyway. But as we have explained before, insurance need not prevent patients from making marginal decisions and it need not prevent providers from competing for patients on price and quality.

Health policy is one of the few areas of human experience where someone can come up with a catch phrase and have others repeat it again and again as though they were saying something profound. (A children’s playground is another place where this happens.)

Today’s catch phrase: We need to start purchasing quality, not quantity.

Unless you spend a lot of time at conferences where health policy wonks mainly talk to each other, I bet you didn’t even realize this was a problem. When you get a flu shot, do you search out providers who will give you the most injections for the same copayment? Don’t we all?… Oops, I guess not. More likely, you search out a doctor or nurse who will give you the right serum with the least amount of pain. If so, hooray for you! You’re already choosing quality over quantity.

If you needed a knee replacement, a colonoscopy or an MRI scan, would you search around for providers who offer two procedures for the price of one? Or would you try to find a provider who would do the procedure only once, the right way, with no mistakes? If the latter, then rest assured. You’re not the cause of our problems.

But, then, who is?

The Problem. The real problem in our health care system is not that people are choosing quantity over quality. Or quality over quantity. Or any combination of the two.

As I explained in my last Health Alert, our problem is that we have smart people and dumb payment systems. The smart people are the patients and the doctors — each pursuing his own self-interest. The dumb payment systems are the reimbursement formulas of the large, bureaucratic, impersonal third-party payers.

Although in popular lore, the big insurance company is the abuser of the hapless patient or the conscientious doctor, the truth is much more often the other way around. Doctors and patients are more likely to outsmart and abuse the insurance companies.

The abuse occurs because everyone faces perverse incentives. Patients with first dollar coverage have an incentive to consume health care until its value approaches zero. Or, until it approaches the value of the time it takes to get the care. Patients aren’t ignoring value. Quite the contrary. They are seeking out care until the value equals the marginal cost of care to them.

On the provider side, the perverse incentive is to maximize against reimbursement formulas. For example, if the formula pays for office visits, but doesn’t pay for phone calls or e-mail, doctors will schedule lots of office visits and avoid phone calls and e-mail. This isn’t an issue of quantity versus quality; it’s an issue of doing what you get paid to do. (Don’t most people in the world get paid to do what they do?)

The Wrong Solution. The solution embedded in the Affordable Care Act (ACA) will make the incentives even more perverse than they now are. Patients will have even more first dollar coverage for all manner of preventive care. They will respond by trying to obtain more pap smears, more mammograms, more colonoscopies, etc., that they probably don’t need and wouldn’t obtain if they had to pay with their own money. Never mind that we have nowhere near the supply of medical personnel that meet this surge in demand. In the very act of trying, they will waste resources, drive up costs and crowd out patients with more legitimate medical needs. And because there is no copayment or deductible, patients will have no incentive to seek out cost-effective care — say, at walk-in clinics.

On the provider side, reimbursement formulas will intrude even more into the decisions doctors make. Even so, I’ll put my money on the doctors. They will figure out how to game the system, no matter how much planning the bean counters devote to it. If all else fails, the doctors will buy computer programs that tell them how to maximize income under the next set of rules. On the surface, these initiatives appear to many to represent radical change. In fact, this approach is largely a continuation of what has been going on in Medicare for the past two decades.

The Right Solution. As we have said many times at this blog, in every health care market where third-party payers are nowhere to be found, we don’t have a problem of value purchasing. Cosmetic surgery, Lasik surgery, walk-in clinics, surgi-centers, specialty phone and email doctor services, concierge doctors, international medical tourism — you name it. Wherever providers must compete on price, they almost always compete on quality as well.

Of course, we can’t get rid of health insurance entirely, and that shouldn’t be our goal anyway. But as we have explained before, insurance need not prevent patients from making marginal decisions and it need not prevent providers from competing for patients on price and quality.

About the Author
John C. Goodman is president and CEO and Kellye Wright Fellow at the National Center for Policy Analysis. He is widely known as the “Father of Health Savings Accounts.”

http://healthblog.ncpa.org/value-purchasing/?utm_source=newsletter&utm_medium=email&utm_campaign=HA#more-14901