Health Care Reform Considered

I wanted to respond to a recent article on healthcare reform sent to me entitled Lipstick on a Pig - The Failure of Obama’s Health Care Reform by Billy Wharton.

Obama has publicly said he thinks 2/3 of the cost of healthcare in America go to administrative costs. That's enticing. We need to go after that, one thinks. One of the other big ideas on the table is to try getting everyone covered. I can understand that, but I want to talk about the administrative costs.

The article mentioned above claims more or less that the current reform on the table does little to impact the administrative costs of health care. Highly profitable health insurance companies remain intact and few concessions are gained. That's a good point.

The main point I agree with in the article is that the "Single Payer" system, out of all the health care reform propositions available to us, is the one that will do the most to reduce the administrative costs of health care. The insurance companies don't want it. That's a signal.

What's perplexing to me is why Obama has taken the single payer reform off the table. If someone can explain that to me, I'm ready to listen.

Here's what I think I can contribute to the discussion. I worked at Healthcare Insight, a company with the techology to electronically audit doctor bills. I became more acutely aware of the broad array of different overcharge categories that regularly happen including fraud. Consider reviewing this report called HIPPA and Health Care Fraud: An Empirical Perspective by David A. Hyman which suggests that improper payments in Medicare each year are in the tens of billions.

I offer the following quote which I think exposes the problem of administrative costs in health care.

Not surprisingly, the complexity of the system leads to frequent
disputes. Indeed, studies of coding accuracy paint a dismal picture.
One study found that family physicians agreed with expert coders
(who themselves were not in perfect agreement) 52 percent of the
time for established patient progress notes, and 17 percent of the
time for new patient progress notes. Family physicians undercoded
33 percent of established patients and overcoded 81 percent of new
patients (King, Sharp, and Lipsky 2001; see also Iezzoni 1999).

The takeaway is that processing healthcare claims is inexact, error-prone and costly. Much of the administrative costs consists of the back-and-forth of claims in dispute between health care providers (doctors, hospitals, etc.) and payers (insurance companies mostly). These costs cannot be eliminated - only reduced by legislation.

The reason why the single payer legislation is arguably most effective in dealing with claims processing administration is you no longer have two offices pitted against each other in a sort of arms race of resources for the dollars. Instead, you have one office attempting to ensure that claims are legitimate.

Now Obama hopes to make inroads on overpayment costs. Here's an article and quote.

Money will be saved, Obama says, by finding and stopping overpayments in Medicare, the federal health insurance plan that covers 44 million elderly people.

"The Government Accountability Office has labeled Medicare as 'high-risk' due to billions of dollars lost to overpayments and fraud each year," the budget reads.

About $26 billion can be saved over 10 years by using a combination of incentives and penalties to prevent avoidable expensive readmission -- when patients go back into the hospital within a month after treatment -- the budget says.


I want to raise an alarm. I think that health insurance companies are increasingly shifting the costs of claims processing (adjudication) onto the consumer, and pocketing the reduced administrative load. Little to nothing is being said about it in the current debate. I've experienced it myself. I realize this is anecdotal evidence, but the logic is sound. There's a simple profit motive.

The problem with this is that the majority of citizens are woefully unprepared to review claims for accuracy. The learning curve is steep. Even with the training and experience I gained at Healthcare Insight and with questioning charges on my own bills, I still feel overwhelmed by bills that come from the hospital and doctor bills. Most people remain unaware of overcharges.

I've recovered hundreds of dollars of overcharges for my small family over the past few years. I now question all charges. I soon plan to create a website that organizes information about common overcharges - what to look for and what to do about it. Stay tuned.

In a nutshell, I think there are two big issues for health care: 1. The issue of justice (getting everyone covered), and 2. Reducing the cost, 2/3 of which is administrative.

Another issue to keep on the radar is the rationing - an inevitable side-effect scarce resources. One hears frequent anectotes of Canadians and others on socialized medicine who are told they can't receive an implant or epidural who otherwise could have received it in a private payer system. I know people personally who experienced this. There are two sides to every debate, and rationing is no exception. Here's a blog entry on Newsweek.