Market Driven Health Care

Government plans to revamp the health care system has a lot of people worried. After all, government is not known for operating as efficiently as the free market, particularly when information freely flows to all parties.

Information flow is critical to efficient health care plans. With our current health care system, costs and alternative procedures are not driving decisions because we consumers expect insurance companies to pay our bills because of the premiums we pay. Also, businesses that pay part of their employees’ premiums don’t realize the cost savings they may potentially extract from the current system because of the lack of information flow.

Here are two real-world examples. The first shows how access to cost comparisons and related information can reduce unnecessary consumption. The second shows how understanding options can reduce costs and loss of productivity for employers.

A colleague from Ohio, who has a health care savings account, is the first example.  Users of health savings accounts are motivated by cost-savings to try to sift through the hospital/doctor/insurance web of usually “covered” tests, procedures, protocols, prescribed medications, etc. to see which ones are actually relevant to their situation and worth purchasing. His wife recently had a baby. I was surprised to hear that she stayed in the hospital only one night. He explained that it cost $2,095 per night and since everyone was healthy, there was no reason to stay longer. An interesting sidebar, though, was that no one in the hospital could tell him when the second day’s charge would begin. Consequently, they took their new son home late that evening.

The second example is a friend who is a working professional in Richmond. Faced with a hip replacement, she saw several surgeons in the city, who all proposed the same procedure. The option was invasive and required three to four days for hospital-based recuperation and then eight to twelve additional weeks before she could return to work.  They suggested no alternatives.

Through her own research, she found that the Mayo Clinic was practicing an alternative procedure, tissue sparring approach that was less intrusive than her Richmond-based options. Notably, this approach reduced her hospital-recovery time to two days and she was back to work within six weeks. She eventually found a surgeon in Virginia to do the surgery and thought it odd that she could not find the same procedure in Richmond. She asked her surgeon for an explanation and he said that he tried to teach the procedure to the medical community in Richmond but there was no interest because, in his view, doctors are often resistant to learning new procedures that require them to invest career growth. This is apparently true for hospitals as well who often must invest in new equipment in order to offer new procedures.

She has found that almost 200,000 hip replacements occur a year. From that perspective, hospital stays can be reduced by two to three days!

These situations raise the question–is a government-run health care system going to reduce or magnify the information problems associated in these two examples? If it increases the information provided to the consumers and businesses that pay premiums and gives incentives to choose cheaper solutions, then the system will reduce costs. From what I have seen proposed so far, the new system will do little to motivate consumers to make cost-effective decisions.

Reprinted with permission from the Richmond Times-Dispatch.