What is reason behind rising healthcare costs? How do healthcare costs impact healthcare professionals and patients? Healthcare professionals are experiencing burnout across the nation, and one of the reasons behind that are decreased reimbursements and increased time demands. We are being asked to do the same with less or fewer resources. Why aren’t our salaries going up when hospitals are making millions?
Good news- we brought Michael Menerey on the show to talk about the failing system that is designed to drive up healthcare costs.
Michael Menerey is an employee benefits broker consultant and works with employers and is the intermediate between the employer and health insurance companies, working with companies of various structures. Insurance is the payment mechanism for healthcare. Michael and his company are involved in helping their clients manage their healthcare costs via the tools employers have. Employers are self-funding their insurance for their employees more and more, which allows them to be creative to drive down healthcare costs.
Takeaways from our conversation:
WHAT IS THE REASON BEHIND RISING HEALTHCARE COSTS?
Single employee and family contributions towards healthcare insurance have increased by 350% over the last 17 years. Michael shares a general explanation to rising healthcare costs, which includes two main things:
- Change in utilization- people are sicker, using healthcare services more
- Unit costs of healthcare
Michael breaks down the ugly truth about healthcare: The industry does not operate like any normal service that we might purchase in the economy. For example, Michael purchased a pair of golf shoes on Amazon. Clearly, he saw what the price was when he purchased the shoes, which is known as price transparency. He also received information about the quality of the shoes in the Amazon description.
Lastly, there is competition- he can go elsewhere and purchase the shoes, which allows for an efficient marketplace. In theory, an efficient marketplace will drive costs down. Think about computers- compared to twenty years ago, the price of computers has dropped.
We have an interesting situation in healthcare and education. We experience rising healthcare costs and education costs because they’re designed that way. There is no price transparency- things are hidden behind the veil as Michael describes, there is no transparent information about the quality of care, and there’s a huge price variation. For example, you may have one provider charging $5000 for an MRI, and down the street you can get the same MRI for $500- but you have no idea.
Taking a look at the overall healthcare continuum, prices continue to go up because they’re designed to go up. Everyone’s trying to get their slice of the pie- drug manufacturers, insurance companies, hospitals, etc.
WHAT IS GOING ON?
The result is that healthcare costs go up 3-4x the rate of traditional inflation. If our salary is only going up 2-3% a year and healthcare costs are going up 7-12% a year, that will have a huge impact on our quality of life and reduces our disposable income- like education and saving for retirement.
There’s no competition in the sense of other economic goods and services in education in healthcare; as a result, it is challenging and carries a negative consequence for those working in healthcare. In Michael’s words, this trend is unsustainable.
WHO IS BENEFITING FROM THE RISING HEALTHCARE COSTS?
Michael begins to answer this question by acknowledging that this is a complex question. We don’t have a healthcare system- we have a system that’s good at treating illness. There is little focus looking at the healthcare system as a whole to help people with preventative measures, maintain a healthy lifestyle, and help people avoid getting in the hospital.
Bad news: There are misaligned incentives in healthcare, and there are winners and losers. Healthcare is a lucrative business- the GDP is getting close to 20% that is going to healthcare annually.
Who’s it going to? Michael says to follow the money to see where the money is going. First of all, hospitals are gobbling up medical groups at a rapid pace so they can charge more and leverage the medical groups that they purchase to refer patients into their own facilities. There are also for-profit hospitals and non-profit hospitals. There are non-profit hospitals that make millions of dollars each year and don’t pay any taxes.
Aside from hospitals, you have drug manufacturers, pharmacy benefit managers, and insurance carriers (albeit, a small profit, they are the scapegoats that are passing costs to the payers) that make plenty of money.
WHO IS NOT BENEFITING FROM THE GAME?
Primary care physicians, other ‘front line’ providers like allied health professionals, behavioral health providers. Michael believes that money is going to the wrong place. Providers on the front lines that can help people be well, help people learn to be healthier, and help people to manage chronic disease and illness burdens should be allocated more of the money- currently, Michael expresses that a lot money is driven towards specialty care and hospital facilities.
HEADS IN BEDS
After all, healthcare is a business. “Sick care” is a misaligned incentive. A common phrase is “getting the heads in the beds-” that’s why when hospitals purchase medical groups and driving referrals to their facility is so important to them. How does that benefit the community as a whole?
There is no piece of legislation that will fix the healthcare system and the rising healthcare costs without looking at the root causes.
REIMBURSEMENTS AND HEALTHCARE COSTS
How are reimbursements rate set for Medicare? There is a group that sets those reimbursements rates. Every specialty has their own lobby and they lobby for higher reimbursements for their own group. They money is driving those changes in reimbursement. Michael is taking a guess that primary care physicians, occupational therapists, and physical therapists don’t have a strong enough lobby, which is why reimbursement is lowering for them.
The problem extends over to the commercial insurance side, where you have personal insurers (i.e. Aetna) negotiating rates of reimbursements for providers- the problem is as Michael frames it is that the specialty providers are getting overly compensated, whereas the other providers are paying the price.
Direct primary care movement is a grassroots movement where physicians are opting out of the system, which influences their ability to provide high quality care. Subscription-based reimbursement models are popping up, where physicians can deliver a higher quality of care, see patients for 30, 45, or 60 minutes instead of 15 minutes. Providers need to stand up for themselves.
If you’re a provider, want to deliver quality care, and have a balanced life, and want to get compensated fairly, Michael says opting out of the system may be the best thing to do. Many behavioral healthcare professionals are opting out of the network and working in cash-based systems. Providers are seeing this and thinking, “How can I make a living by doing this?”
Michael suggests that providers must think about innovating and creating value for the consumer and meet them where they want to be met. There is so much innovation happening the marketplace, you just have to look for it.
HIGH COSTS DON’T BOTHER INSURANCE CARRIERS
Insurance carriers don’t care about the cost of healthcare. They are all publicly traded companies on Wall Street. Their first obligation is to deliver higher profits on a quarterly basis to their shareholders.
Any executive from any other companies will tell you the opposite- that they care about controlling costs. The only way for insurance carries to make more money is to make 2-3% on a higher number. Higher healthcare costs lead to higher insurance premiums. Insurance is a pass-through mechanism of actual healthcare insurance costs. The insurance carriers have very little incentive to control healthcare costs.
There are navigation solutions to help employees navigate the system. With a fragmented healthcare system, it can be stressful- where do you go? How do you know where you’re going is a high quality/ How do you know you’re getting the best costs? This is where consumers need help. Michael’s company provides those services- for example, their services help employees to look at the actual costs of procedures.
Take a look at drugs that do the same thing- there could a several hundred dollar price variance. When the FDA approves a drug, they do it for safety and not for efficacy. A new drug can come out that can be affordable, but then a manufacturer can turn that into a $2000 drug. As providers, we’re not trained to look at the cost. If you’re a physician, think about when you prescribe medication- are you prescribing it because a rep is pushing you to prescribe X amount of prescriptions a year, or is it because you’re providing the most affordable medication?
FIXING THE SYSTEM
Be the provider that looks out for your patients from a cost point, not just looking out for their well-being. Good people are working in a bad system that continually produces bad results, with negative consequences for the consumer and the economy.
Michael’s manifesto for fixing the system:
- Reward lower cost, high quality providers
- Steer people away from hospitals that are profiteering from patients
- Think about PCPs and ancillary providers as less as an expense and more of an investment
- Provider resources and support to people to keep them out of the hospital and focus on lifestyle