It is axiomatic that you become what you hate, and Congress has, if unwittingly, tyrannized the American public through two landmark enactments:
the Internal Revenue Code of 1954, which made employer contributions for health benefits tax deductible as a business expense and excluded from employees’ taxable income, perhaps a logical outcome of the War Labor Board’s 1943 ruling that employer contributions to health insurance did not count as wages;2,3 and
the implementation of medical loss ratio (MLR) requirements in the Affordable Care Act (ACA).4
The consequence of these two acts of Congress is that value for money in the health economy is elusive and random, which in the case of the ACA may be a feature and not a bug.
Channeling my inner Marshawn Lynch, I have written over and over and over about the health economy’s proof of Sir Isaac Newton’s Third Law of Motion: for every action there is an equal and opposite reaction. Hindsight is 20:15, but the War Labor Board’s ruling catalyzed most of the “healthcare waste” lamented in the ivory towers of Ivy League economics departments and Beltway policy shops, manifesting in mercenary relationships between brokers, benefits consultants and payers at the expense of employers and consumers.
“In a war economy with labor shortages, employer contributions for employee health benefits became a means of maneuvering around wage controls. By the end of the war, health coverage had tripled…Between 1950 and 1965, employer outlays for health care rose from 0.5 to 1.5 percent of total employee compensation.”5
The waste incubated by the distinctly American employment-based health system was supercharged by the ACA’s MLR provisions that codify minimum percentage spending thresholds, thereby disincentivizing any focus on cost-containment. Other than gross incompetence, which is uncharacteristic of the payer industry, only the perverse “cost-plus” aspects of the ACA can explain this graph:
Of course, reimbursement rates are only part of the story. Value for money exists at the intersection of quality and negotiated rates, i.e., what the provider receives, not what the provider “charges.” Once again, mortality is the ultimate measure of quality as the legendary British epidemiologist William Farr reminds us: “Death is a fact; all else is inference.”
A picture is worth a thousand words, but a thousand words are not enough to explain why there is no observed correlation between quality and negotiated rate for DRG 291 – Heart Failure, the highest volume medical DRG in the health economy. In each correlation analysis below, the X-axis represents quality, and the Y-axis represents the in-network rate, for which a lower number is better for each axis. As a result, in these correlation analyses, the ideal correlation would be -1, which would demonstrate that as the rate increases, so does quality. Conversely, a correlation of 1 would demonstrate that as rate increases, quality decreases.
These graphs clearly reveal that value, the intersection of quality and rate, in the health economy is as random as throwing dice in a Las Vegas casino. The most notable difference between healthcare and a Las Vegas casino is that many people like to visit Las Vegas.
How is it that there is no correlation between quality and rate in the U.S. health economy? Because CMS doesn’t even uniformly enforce quality reporting, much less incentivize quality, and the ACA inaugurated an era of cost-plus insurance, leaving “consumers” trapped in a system they don’t understand and cannot afford.
As Rand analysts are fond of noting biennially, employer-sponsored insurance pays ~2.5X as much as Medicare.6 Of course, the deleterious impact of employer-sponsored health insurance on costs is well-known, as the Congressional Budget Office detailed in March 1994. For Congress to refuse continually to address something that is the catalyst for healthcare’s continuously increasing cost is tyrannical.
Today, the health economy is too opaque for the American public to articulate all the grievances they should lodge as their forefathers did in 1776. However, even if modern-day Americans don’t understand healthcare quality to quantify value for money, they are beginning to figure out that healthcare is often unaffordable.
As I have previously written, Federal action to create a true “market economy” for healthcare through the elimination of the tax deduction for employer-sponsored health insurance seems unlikely, because it would be the health economy’s version of “the shot heard round the world.”7 Whether something is unlikely is different from whether it is necessary, and the health economy desperately needs deeply serious men and women with the courage to challenge the tyranny of the Internal Revenue Code and the ACA that implicate healthcare costs.
With respect to healthcare policy, the Federal government currently seems to have an abundance of deeply zealous people and a scarcity of deeply serious people. Deeply serious people don’t think that providers are the key problem in “information blocking” or that the acquisition of a 123-bed hospital in Mooresville, NC will alter the competitive balance of the healthcare landscape in the Charlotte-Concord-Gastonia, NC-SC MSA or that chargemaster “prices” are the same as reimbursement “rates” or that cost-plus business models are the remedy for an industry whose costs are too high or that a former energy trader should be the majordomo in health policy.
As I have also previously written, the U.S. health economy is, ironically, much closer to Britain’s National Health Service than stakeholders realize. Americans will really hate the parts that we don’t yet have, and a bunch of individuals who were fed up with government overreach is how we got to July 4, 1776. Health economy stakeholders who fail to realize that delivering value for money is table stakes should not be surprised when they lose healthcare’s negative-sum game.
Hal Andrews, President & CEO, Trilliant Health
Strategies from the Field Guide
Adopting a “focused factory strategy” is seemingly obvious in a resource-constrained industry. Doing so requires healthcare providers to allocate resources strategically to service lines where they are positioned to compete effectively. Provider organizations should prioritize service lines with high margin, acceptable quality, strong provider alignment and increasing consumer demand.
An example health system’s service lines are plotted below against a competitor based on provider alignment, visit volumes and patient revenue, revealing the Neuro/Spine, Heart/Vascular, OB/GYN and Orthopedic service lines as high-priority service lines. While the Digestive volumes are high, low physician alignment limits the return on investment in that service line, with only 20% of downstream care staying in system.
However, an analysis of future demand for each service line reveals that Orthopedics and Heart/Vascular should be the highest priorities for service line investment.
Four years after the pandemic, telehealth volumes have continued to decline or plateau quarter-over-quarter. While utilization remains above pre-pandemic levels, telehealth visit volumes in Q3 2023 were 54.7% below Q2 2020. Consistent with our findings from the 2022 Telehealth Trends report, utilization trends signal that patients do not see virtual care as a substitute for in-person care for most conditions, except behavioral health. Read part 1 of our three-part series on telehealth trends four years post-pandemic.
The U.S. Preventive Services Task Force (USPSTF) recently changed its guidelines to recommend mammograms for women in their 40s due to increasing cancer rates and concerns about higher mortality rates among young black women. However, even as the risk of dying from breast cancer has been cut in half for women below 50 years of age in the last 30 years, data suggests that increased breast cancer screening has not played a significant role, calling into question USPSTF guidelines. (Sensible Medicine)
In hindsight, the Supreme Court’s ruling in Alabama Association of Realtors v. Department of Health and Human Services and National Federation of Independent Business v. Department of Labor foreshadowed last week’s ruling in Loper Bright Enterprises v. Raimondo, which overturned the “Chevron Doctrine.” In Loper, the Supreme Court held that the “Administrative Procedure Act requires courts to exercise their independent judgment in determining whether an agency has acted within its statutory authority.”8 The Affordable Care Act is an example of legislation that might invite the most scrutiny post-Loper, as it provides the Secretary of HHS with extraordinary discretion, particularly the 1,015 times that it states “the Secretary shall.”9 In time, the Loper decision, in conjunction with the opinion of the U.S. Court of Appeals for the Ninth Circuit in Health Freedom Defense Fund, Inc. v. Carvalho, may have an even larger impact with respect to government and employer vaccine mandates.10
Interested in reading our other publications?Sign up here.
.png?upscale=true&width=200&upscale=true&name=Hal%20Andrews%20signature%20(1).png)
.png?upscale=true&width=140&upscale=true&name=Group%20817%20(2).png)
.png?upscale=true&width=140&upscale=true&name=Group%20817%20(3).png)
