:: The Real Obstacles To Health Care Reform: A Checklist

Health care reform proposals typically find expression in blue-sky manifestos with political flavor and little practical foundation. The following is a list of problems that must be addressed for real improvement in the delivery of health care.

#1 Lack of Accountability For Public Funds

The Washington Post reports today an appalling story about Medicare fraud that underscores the flaws in spending-focused health care reform initiatives. The problems of the uninsured population are ill-served when public dollars are spent on unneeded, non-existent or exorbitantly priced medical equipment such as revealed in a recent investigation into Medicare fraud. In the Post report, southern Florida tops the list of fraud havens:

The schemes center on what prosecutors call the nation’s largest hot spot for health-care malfeasance: the southern district of Florida. Over the past several weeks, federal agents visited dozens of companies there that charged Medicare for prosthetic limbs, costly AIDS drugs, air mattresses and urinary collection bags. Few if any of the products were purchased or delivered to patients in need. Instead, the cash went into the pockets of company operators — one purchased a Rolls Royce Phantom valued at more than $200,000, law enforcement officials said. Many of the office headquarters are little more than barren storage closets.

The story includes examples of a 2 million dollar ankle brace for a patient whose foot had been amputated and government payment of bills for a new hospital-style bed, at the rate of one per month, for a single patient. Now with the public attention on the issue, one might be encouraged to expect more accountability for the public fisc – but then, consider this item, also from the Post article:

Questions about the program and its oversight have persisted for months. Industry officials say that it is relatively easy to win a provider billing number from Medicare and that supervision has been lacking. Companies continued to bill the government a total of $400,000 even after staff members at the Health and Human Services Department’s inspector general visited their offices and determined that the businesses did not exist, according to a March report.

Funding of health care constitutes an important issue to be sure. But spending-based initiatives, the definition of health care reform for many, fall short of providing a complete solution.

#2 Outpatient Treatment Centers and Physician Self-Referrals

According to a report by the McKinsey Global Institute, one of the significant cost drivers in the United States health care system can be found in the emergence of out-patient treatment centers. See, Accounting for the Cost of Health Care in the United States, McKinsey Global Institute (January 2007). The out-patient treatment include ambulatory surgery centers, diagnostic imaging centers, drug rehabilitation clinics, mental health clinics and “nonphysician” offices.

The U.S. spends 37% more than would be predicted on the financial model used by the economists to compare the U.S. with other developed countries adjusted for wealth of populations. Why is this so?

Of the reasons cited in the report, the practice of physician self-referrals emerges as an important factor. According to the report, while payment for referrals is prohibited by Stark regulations, the practice of referring patients to facilities in which physicians have a financial interest has provided a significant loophole.

Additional tests and procedures are driven by financial incentives both to support the lease, purchase and operation of equipment (e.g., imaging equipment) and by the profitability of the tests and procedures, the use of which often depends on subjective clinical judgment. Moreover, changes in the business model of equipment vendors has resulted in the marketing of lease arrangements to physicians to facilitate the acquisition of the expensive equipment.

Thus, compared with England, Canada, France and Germany, the U.S. has 3 – 6 times more scanners. Ultimately, the outpatient centers deprive hospitals of potential revenue on profitable procedures and increase utilization based upon non-clinical factors.

Perhaps “defensive medicine” is an explanation for the additional tests? No, not according to the economists. The report states that, while the U.S. tort system is a peculiar American phenomenon, it contributes little to the cost equation. When viewed from an economic perspective, “it is only a small contributor to the higher cost of health care in the United States.”

The MGI research finds support from other sources. In a paper entitled “The Prevalence Of Physician Self-Referral Arrangements After Stark II: Evidence From Advanced Diagnostic Imaging“, an abstract states:

Using data from a large insurer in California, we identified the self-referral status of providers who billed for advanced imaging in 2004. Nearly 33 percent of providers who submitted bills for magnetic resonance imaging (MRI) scans, 22 percent of those who submitted bills for computed tomography (CT) scans, and 17 percent of those who submitted bills for positron-emission tomography (PET) scans were classified as “self-referral.” Among them, 61 percent of those who billed for MRI and 64 percent of those who billed for CT did not own the imaging equipment. Rather, they were involved in lease or payment-per-scan referral arrangements that might violate federal and state laws.

(Next: The Role of “Big Pharma”)

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