“Nobody Knew Health Care Could Be So Complicated”

– President Donald J. Trump quoted on February 27, 2017 http://nym.ag/2m4AlcF

This article explores the problem of healthcare costs and what we need to do about it.  It’s a problem that’s hurting Americans, their employers, and the healthcare providers that we all must rely on.

The practice of medicine may have been one of the most rewarding careers a person can select, but I doubt that is true today.  Practicing medicine may still be one of the noblest of professions, but it has gotten far more complicated.  Doctors spend an equal amount of time fighting insurance carriers, health systems, and productivity models as they do fighting disease. 

Is the Affordable Care Act (ACA) responsible for this, or is it that insurance carriers see any change in the system or the market as a reason to raise premiums and shift more deductible and co-insurance costs back to the insureds?

I understand the basic economic model of the Affordable Care Act (ACA).  It is a model similar to that of Social Security.  The key to both is that number of healthy people paying into the system must be greater than the number of seniors and sick people receiving benefits.

The difference between the two is striking. Young people today are required to pay into the Social Security Fund. The ACA by contrast imposes disincentives to the healthy to help fund care for those who are not.  But two things will happen over time: the healthy will not always remain so, and when that happens, we will have to answer questions about who will fund their care.

All of this means we must ask ourselves these questions: What must we do about healthcare coverage?  How can we reduce healthcare costs while improving care and expanding coverage?

Healthcare Cost Control Killers


To try to answer these, let’s look at the three killers of healthcare cost control:

  1. Pay-for-Procedure: Payment and compensation based on procedures rather than healthcare outcomes.
  2. End-of-Life Care: The extraordinary money often spent in the last 14 days of a person’s life.
  3. Drug Prices: The cost disparity between what we Americans pay for drugs and what other countries pay for those same drugs.

The ACA (Obamacare), CMS and hopefully the American Care Act (should it ever see the light of day) are testing different compensation models such as pay-by-population, pay-for-outcomes and others.  So, I see little reason to dwell on these models here. But we must ask ourselves about end-of-life costs.

Decisions to pay for end-of-life care for anyone’s loved ones are tough. Really tough. But “do-not-resuscitate” orders (DNRs) are often ignored by families and healthcare providers when families demand it, when hospitals profit from doing so, and when doctors are more concerned about malpractice lawsuits if they do not provide all possible care. I do not know the degree to which we could reduce overall healthcare spend if we required end-of-life directives be honored, but I have to believe it would be significant.

The last cost killer is prescription drugs. There are two parts to this challenge.  First is how and why doctors are writing a disproportionate number of scripts for new drugs.  Some of this is because of a growing aging population, but that is not the entire reason.  We have become a “We have a pill for that” nation. Are we replacing the practice of medicine with the practice of pharmacology?  Are patients demanding a quick fix versus a meaningful fix?  This is an area of healthcare cost about which we seem to hear little.

The second part of the prescription cost epidemic is would be easier to deal with, but will require a level congressional fortitude I have not seen in my lifetime. Most of us get the idea that most prescription pills or tablets cost just a few cents to manufacture, package and distribute. However, it is that first pill or tablet that costs the developer millions of dollars to create. Therefore, to make it worthwhile to the drug companies, our government (you know, “we the people”) grants patents to prevent the onslaught of generic or copy-cat equivalent drugs so drug companies can recoup their costs – often with staggering profits.

Patent and Exclusivity are the two most important words here.  While generic drugs account for more than 80% of prescription drugs in the US, and while that number continues to grow, some of the most talked-about and life-changing drugs remain protected by patents, and therefore drug companies may charge whatever price they believe the market will bear. A patent is a property right issued by the United States Patent and Trademark Office (USPTO) to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a limited time, in exchange for public disclosure of the invention when the patent is granted. In general, the term of a new patent is 20 years from the date on which the application for the patent was filed in the United States. A company may apply for a patent from the USPTO anywhere along the development lifeline of a drug and can encompass a wide range of claims.

In theory, drug patents have a limited life, long enough for drug companies to recoup their costs and produce enough cash to invest in the next Viagra or statin drug.  What I do not understand is why most every patent is for the same period of time, regardless of the development costs and irrespective of the price to be charged in the US market.  I am also confused as to how other countries are able to procure many of these same brand drugs for pennies on the dollar of what we in the US spend, even when a patent is in force.

Changes We Must Make


I believe for any American healthcare act to work effectively, three things must change and be accepted:

  1. We, as a society, must accept that social insurance must include both basic healthcare and basic retirement benefits. Like it or not, our Social Security system is, arguably, the most successful government social insurance program in the nation’s history. Its growth and impact have been immense.
  2. We must accept the premise that the ‘many’ fund the needs of the few, recognizing that the ‘many’ will ultimately become the few. This known as a shared risk model used in most types of insurance.
  3. We must find new and creative approaches to control the costs of providing healthcare to our citizens.

To achieve this, the following must be examined by economists, not lobbyists:

  • Healthcare plan choice and administration must become not-for-profit efforts.
  • Pharmaceutical innovation must be incentivized over a longer period of time through different financial instruments, not purely on the backs of the payers (employers, individuals, and the government), in order to allow for more creativity, fewer stifling protections, and the ability to negotiate ‘most favored nations’ pricing for our own citizens.
  • As a society, we must accept the definitional difference between ‘basic’ healthcare services and ‘all possible’ care approaches.
  • Providers and caregivers must be compensated on either the basis of outcomes or population, not by number of procedures.
  • Incentives for better utilization of technologies for the monitoring and administration of basic healthcare services, and especially for chronic care, must be developed and implemented.

We invite healthcare professionals who read this post to consider what we’ve written, and to then challenge us to help them fix specific problems they face – either individually in their roles as healthcare professionals or as leaders at the healthcare institutions where they work.

TBG photo

Timothy Gendreau is a Revenue Strategist at The Gendreau Group

Timothy is an expert in developing new revenue strategies to produce real and sustainable revenues and enhance a company’s valuation