Make Medical Providers Compete on Price as Well as Quality

By Roger Stark, MD, FACS

The method doctors and hospitals are paid for their work is undergoing gradual but relentless change. Providers traditionally have been compensated on a fee-for-service basis, where they receive a specific amount of money for a specific visit or medical procedure. This is how other highly trained professionals, like lawyers, dentists, auto mechanics, and architects are paid—they receive a fee for service rendered.

The main argument offered against allowing doctors to charge for their services is that it leads to overutilization and increases healthcare costs. Doctors are accused of ordering more visits, extra tests, and unnecessary operations simply to pad their incomes.

From an economic standpoint, the fundamental difference with health care is the third-party payer system in the United States. The overwhelming majority of health care in this country is paid for by employers or the government, with money channeled through heavily regulated insurance companies. In other economic activities, consumers pay directly for a product or service and consequently become savvy shoppers who can take advantage of marketplace competition. In health care, patients are largely barred from shopping and have become isolated from true costs they incur.

Third-party payers were disinterested until healthcare costs and utilization exploded. Now, the payers, and not patients or providers, are attempting to change the payment model by imposing wage and price controls on doctors and hospitals. Patients are not seeking these caps, they are cost-control efforts by the entities that have to pay the bills.

A second argument against doctor fees is it discourages the use of “integrated care,” by which patients are placed in some type of provider-group that controls all aspects of their care. These integrated groups have many different names, including medical homes and accountable care organizations (coordinated care organizations in Oregon). In reality, they are simply various forms of the health maintenance organizations (HMOs).

HMOs may or may not provide integrated care but, through force, they can hold down healthcare costs. HMOs decrease healthcare costs by using a gatekeeper system where clinical decisions are weighed against budgets. Various types of HMOs are strongly encouraged or outright mandated in the Affordable Care Act.

The idea of pay-for-performance is becoming popular with payers, regulators, and policymakers. The reason is that they, not patients or doctors, decide what “performance” means and how much the “pay” will be. Providers get paid a higher amount if they meet certain quality measures that are determined, in many cases, by non-clinician policymakers or other regulators.

Results with the pay-for-performance model over the past 15 years have been varied. There is no clear evidence its defined quality measures decrease patient complications, improve care, or predictably lower costs. It does increase the regulatory and compliance burden on providers, however. In reality, most hospitals have been improving quality measures and the patient experience without pay for performance.

What is a real and meaningful solution to the provider reimbursement problem?

First, solve the third-party payer problem by removing employers and the government as payers of most health care. Allow patients, working with their providers, to make their own medical decisions and control their own healthcare dollars. Change the tax code and allow individuals to take the same health insurance deduction employers now receive. Use government programs such as Medicare and Medicaid as safety-net plans for low-income people. Reform or repeal the vast new system of government controls imposed by the Affordable Care Act.

Second, allow more competition in the health insurance industry by eliminating many of the government benefit mandates. Let patients decide what insurance plans are best for them and allow them to purchase plans across state lines. Encourage the use of health-savings accounts and low-cost, high-deductible insurance plans.

Third, increase the use of high-risk pools for high-use and high-cost patients.

Fourth, pass meaningful tort reform so providers don’t feel the need to order extra tests out of fear of lawsuits.

Finally, encourage more price transparency in the system and allow providers to compete on price as well as quality, just as professionals do in other parts of our economy.

The most important person in the healthcare system is the patient, not cost-conscious employers or distant government bureaucrats. The patient, as a consumer of health care, should determine the value and quality of services received and how much doctors should be paid to provide them.


 

Dr. Roger Stark is a health care policy analyst at Washington Policy Center in Seattle, Washington and a retired physician. He is a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research center. A version of this article originally appeared in The Seattle Times.


 

Policy Picnic – November 19, 2014

Please join us for our monthly Policy Picnic led by Cascade President & CEO John A. Charles, Jr.

Topic: Alternatives to the Proposed Portland Street Tax

Description: The Portland City Council seems determined to enact a new tax to pay for basic road maintenance. In this seminar, we will discuss why such a tax is unnecessary, and what the city should do to maintain and improve the road system.

Admission is free. Please feel free to bring your own lunch. Coffee and cookies will be served.

Space is limited, so sign up early!

 
Sponsored by:
Dumas Law Group

Executive Club

Redder or Bluer?

GMO Marijuana?

Same bathrooms for the top 2?

Drivers licenses for alien judges in digital camo?

Time for the postmortem! Postpartum?

Let’s hear from the band

Eric Winters, Lindsay Berschauer, and Gregg Clapper

singing their a cappella hit single

Oregon Election 2014

Understanding and Defending Your Property Rights—And Why It’s So Important

Please join us for Cascade’s monthly Policy Picnic led by Pacific Legal Foundation’s Christina Martin on July 14, at noon. An attorney, Christina was a project director at Cascade Policy Institute before joining Pacific Legal Foundation.

For decades, your property rights have faced major challenges from local, state, and federal regulations. Now, the U.S. Supreme Court has begun to push back. Come learn about recent property rights cases to better understand your rights, why they are important, and what you can do to protect them.

Admission is free. Please bring your own lunch. Coffee and cookies will be served. Space is limited to sixteen guests on a first come, first served basis, so sign up early.

Sponsored By

Friedman Legacy Day 2014

Cascade Policy Institute cordially invites you to participate in this year’s Friedman Legacy Day. This annual, international event provides fans of Milton Friedman and lovers of liberty the opportunity to learn about the late Nobel laureate, to share his ideas, and to celebrate the impact they had on our country and the worldwide movement for freedom.

4 pm – 5 pm Policy Picnic on Milton Friedman with Steve Buckstein (SOLD OUT. Register below for our main event!)

5 pm – 7pm Complimentary food and beverages

We will also be holding a book fair and video showing!

Understanding Oregon’s Common School Trust Lands and the Financial Crisis on the Elliott State Forest

Please join us for Cascade’s monthly Policy Picnic led by Cascade Policy Institute President and CEO John A. Charles, Jr. and attorney Katie Walter on Thursday, June 26, at noon.

The Common School Trust Lands serve as an endowment fund for Oregon’s public schools. Unfortunately, the most valuable asset within the Trust Land portfolio – the Elliott State Forest – lost $3 million during 2013. This seminar will discuss the history of the Trust Lands, the legal requirements to manage them for the benefit of students, and the crisis on the Elliott State Forest.

Admission is free. Please bring your own lunch. Coffee and cookies will be served. Space is limited to sixteen guests on a first come, first served basis, so sign up early.

Sponsored By

Press Release: Angry Protesters Reject Proposals for Employees’ Freedom to Choose

For Immediate Release

Media Contact

Patrick Schmitt, patrick@cascadepolicy.org

503-242-0900

Angry protesters reject proposals for
employees’ freedom to choose

Attendees and Speaker Harassed at Northwest Employee Freedom Event

VANCOUVER, Wa. – Several dozen union protesters marched outside Clark College’s Columbia Tech Center in Vancouver on Thursday evening. The hostile group tried to block attendees from entering the event venue scheduled to hold the first Northwest Employee Freedom One Night Event, jointly sponsored by Cascade Policy Institute of Portland, Oregon and The Freedom Foundation of Olympia, Washington.

After yelling, harassing, and shoving event attendees and organizers, protesters entered the venue and began shouting and using bullhorns to disrupt the event. The keynote speaker, Mackinac Center for Public Policy’s labor expert Vincent Vernuccio, was also spat on by a protester. The Vancouver Police Department was called and escorted protesters out of the event center. The two who refused to leave were arrested for trespassing.

This peaceful gathering of Washingtonians and Oregonians was meant to educate them on the story of how Michigan secured the freedom for all of its public and private sector employees to choose whether or not they want to be represented by a union without financial consequences.

“This kind of behavior is most saddening because it shows a real lack of understanding of what Cascade Policy Institute wants for Oregon,” said Cascade founder Steve Buckstein.

“We do not seek to end unions or union representation. We simply want all Oregonians to have the right to choose whether or not union membership and representation is something they desire for themselves,” he said. “All Oregonians deserve that right, even those who reject our efforts.”

“At the end of the day, this is a fight for freedom and justice. No amount of harassment or intimidation will change that fact,” he ended.

Photos from the event, including images of protesters and arrests, can be found here: http://on.fb.me/1aUbH2C

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Press Release: Requiring a Prescription for Cold Medicine Has Not Reduced Meth Use in Oregon

Media Release
FOR IMMEDIATE RELEASE

Contact:

Steve Buckstein

Senior Policy Analyst
Cascade Policy Institute
Phone: (503) 242-0900

steven@cascadepolicy.org

February 21, 2012

Requiring a Prescription for Cold Medicine Has Not Reduced Meth Use in Oregon

Cascade Study Raises Questions about Real Impact of Oregon’s
Prescription-Only Requirement

PORTLAND, OR — Cascade Policy Institute released a study today which found the 2005 Oregon law which restricts access to medicines containing pseudoephedrine (PSE) has not made the illegal drug methamphetamine harder to get or reduced the number of people using it. The Oregon law makes any medication containing PSE available only via prescription (“Rx-only”).

“This study affirms what we predicted over six years ago: The law would not significantly curb meth use or production, but it would impose a considerable burden on legitimate users of cold and allergy medicines like Claritin-D and Sudafed,” said Steve Buckstein, Cascade’s founder and Senior Policy Analyst. “With other state and federal lawmakers considering following Oregon’s lead on this issue, we thought it was critical to find out what has actually happened here since the law went into effect.”

“The prescription requirement for cold and allergy medicines containing pseudoephedrine had no more of an impact on the reduction of meth lab incidents than other measures adopted in neighboring states. In fact, the rate of mobile meth lab reductions in Oregon is nearly identical to that of six neighboring and nearby states that do not have a prescription requirement. Moreover, meth addicts in Oregon can still get access to their drug of choice,” added Buckstein. “Overall, our study raises fundamental questions about the effectiveness of Oregon’s law and whether such a prescription mandate—which impacts all consumers in the state—is warranted.”

Key findings of the study:

  • Law enforcement in Oregon report that methamphetamine remains the state’s greatest drug threat, despite the reduction in in-state meth production, and contributes the most towards drug-related crime.
  • Methamphetamine lab incidents in Oregon declined more than 90 percent between 2004 and 2010. Most of this decline occurred before the prescription-only law went into effect in 2006.
  • Six neighboring states including Washington and California experienced similar declines in meth lab reductions without imposing a prescription requirement during the same time frame.
  • The number of methamphetamine admissions to substance abuse centers in Oregon declined about 23 percent from 2006 to 2009, the exact same rate as the rest of the United States. Usage was slightly higher in California at 29 percent and slightly lower in Washington at 20 percent.
  • Legitimate users of pseudoephedrine in Oregon incur additional costs as a result of this law, because it requires a doctor visit to get Sudafed and similar products that are available over-the-counter in 48 other states. Some of these additional costs are also borne by all taxpayers who fund government health care programs.

The first part of the study examines whether the manufacture and availability of methamphetamine in Oregon is substantially different from similar states and similar regions of the country. Part two examines trends in indicators that track methamphetamine production, such as Oregon’s lab incidents compared to other states. Part three examines trends in indicators of methamphetamine use, such as substance abuse-related admissions in Oregon compared to other geographies. And finally, part four explores the costs, financial and otherwise, to consumers.

The report’s findings are consistent with studies conducted by other independent groups, such as Oregon’s High Intensity Drug Area (HIDTA), which reported: Methamphetamine continues to be highly available and widely used throughout the HIDTA region and remains the most serious drug threat to Oregon” (“Threat Assessment & Counter-Drug Strategy,” 2011 Oregon High Intensity Drug Trafficking Areas (HIDTA) Report, Accessed 9/26/11).

Please visit the Cascade Policy Institute website to read the entire study, entitled

Making Cold Medicine Rx-Only Did Not Reduce Meth Use
Analyzing the Impact of Oregon’s Prescription-Only Pseudoephedrine Requirement

The study was conducted by Chris Stomberg, Ph.D., a Partner, and Arun Sharma, a Principal, in the Antitrust and Competition, and Healthcare practices at Bates White, LLC, an economic consulting firm based in Washington, D.C. Primary report author Chris Stomberg can be contacted at chris.stomberg@bateswhite.com or (202) 747-1421.

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