How about some incentives to reduce the $2.6 trillion spent each year in health care?

At the heart of every Economics 101 course is the idea of the incentive:  essentially giving carefully crafted incentives can lead to a happier world for all to enjoy.  I've been thinking a lot about this lately for a few reasons, but mostly because of my seemingly never ending battle to stop my sciatica pain.  It's now been about 10 months, $3,000+, 2 chiropractors, 3 doctors, 2 physical therapists, and one MRI later and all I know is I supposedly have piriformis syndrome and that I should avoid sitting (go ahead and try to do that for a day or two, I dare you). My most recent trips to a new pain management specialist gave me some first hand examples of where some economic incentives could drastically reduce spending on health care and most likely have zero impact on quality of care.  Most importantly, this could be done through the regular HMO or PPO health care plans that most Americans use today (High Deductible plans are another way to provide a similar incentive, but I realize those are not for everyone).  In my case, in my first visit the specialist billed me $532 for my initial hour long diagnostic appointment.  That's pretty steep, but she did a detailed exam, spent a lot of 1:1 time with me, and my insurance company had a contracted rate to only pay $280.  The treatment we agreed to was to try "trigger point injection" shots where the sun don't shine to try to loosen up my muscle.  This consisted of another 4 identical visits to the specialist which each lasted less than 10 minutes.  The key word here is identical, because when you look at what I was billed you'll see some big differences in what was actually billed to my insurance company.


Notice how my first two injection appointments (3/5 and 3/13) include an "ancillary" facility charge from the hospital of $400 plus a "surgery" charge of $283 (a whopping $683 for 10 minutes of a doctor's time and a clean needle - I'm almost positive the needle was empty).  But after my first two visits I'm suddenly only charged $124 for "surgery" with no facility charge(3/19 and 4/2).  That's a pretty significant difference that has been billed for identical appointments.

So how does this tie into incentives you ask?  Well, since my health insurance plan has a $500 deductible which I've already met this year, I have zero motivation to pickup the phone and try to fix this.  As a result, my plan will have paid more money to Spaulding Hospital (the winner here), my employer and I will pay a marginally higher premium next year, my doctor likely won't see a dollar extra, and the US economy is spending more than it should.  I also don't have any incentive to try to find a lower cost doctor, or at least a lower cost facility that my doctor practices out of (she rotates through other hospitals).

So, here are two incentives that could have changed this situation and had a dramatic impact if replicated across the millions of Americans each year in similar situations.

Incentive #1:  Encourage the patient (that's me!) to review the bills (even if they aren't responsible for them) to try to find errors.  If the patient works to correct an otherwise approved bill that ultimately results in the health care plan spending less money, give them 10% (or some other %) of the savings in reduced premiums or co-pays.  In this instance, there is potentially $1000 in charged amounts that I could likely recover on behalf of my plan.  A $100 incentive would likely motivate me to take on that burden and it would still save my plan $900

Incentive #2:  Encourage, but don't force, patients to use lower cost providers.  If a patient uses a provider that is lower cost than the average in-network provider in that area, give them 10% of the savings.  My MRI last year cost my insurance company almost $1600, which I found out later could have been $800 had I gone to a different place down the street.  $80 in my pocket would motivate me to shop around a bit (especially for labs and images) and would have still saved my plan $720.

By the way, a few of the other reasons I've been thinking so much about this are that:

  • I work in the healthcare IT industry now and I'm slowly starting to learn some of the fundamental challenges and problems (or to put it bluntly, just how fu$&*d up it is)
  • This New York Times article highlighted the huge variance in hospital bills between medical providers and sometimes even in the same hospital:

Fees for a routine appendectomy in California can range from $1,500 to — in one extreme case — $182,955. Researchers found wide variations in charges even among appendectomy patients treated at the same hospital.

  • The publicity of "Obamacare" and the pending Supreme Court decision has led to a number of interesting stories highlighting just how out of whack US healthcare spending is.  For example, also according to the NY Times (article here):

In 2010, the United States spent $2.6 trillion on health care, over $8,000 per American.....So the United States, with a population a quarter of the size of China’s, spends just on health care slightly less than half of what China spends on everything.

  • Despite the incredible amount of money we spend, our care isn't really that good.  The non-profit Commonwealth Fund published this study showing the US pretty much ranks at the bottom compared to other countries.
Commonwealth fund infographic
Commonwealth fund infographic