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How to Save Rather than Spend $871B on Healthcare

Does the government have a role in healthcare?  Absolutely!  Is the current healthcare reform it?  Absolutely not! 

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Besides the fundamental free market principles at issue (dictating what private enterprise must offer and charge, and who to serve) , what happened to the objectives and promises of Healthcare Reform?

  • Increase Quality of Care
  • Reduce Cost of Care
  • Increase the Number of People with Coverage

The current bills do not achieve these objectives and in fact undermine each of them.  More benefits, more services, aid to Nebraska to buy their Senate vote, protection of Medicare patients in New York for theirs, etc…  All these things increase costs rather than reduce them.

There are many others, but here are just four better initiatives the government should focus their energy and resources on to actually drive costs and inefficiencies out of the healthcare system, and stay within the domain of their responsibilities. 

Each by themselves removes more than a hundred billion dollars of cost out of the healthcare system each year.  Together and over 10 years they will reduce healthcare costs by more than the $871B the government wants to spend in the current bills before the House and the Senate.  While the current bills will not, these four initiatives will also actually achieve the objective of making high quality, lower cost healthcare available to more people.

  1. Tort Reform

    Every physician  pays liability insurance premiums to protect against being sued.  $150,000 annually is not an unusual premium.  If there are 300,000 physicians, that is more than $45B every year that needs to get funded OVER AND ABOVE cost of services and compensation.   

    Besides paying the liability insurance premium to protect against law suits, doctors exercise "defensive" medicine".  This is when a doctor orders unnecessary tests or procedures merely to document they were thorough in case of a law suit.   A February 2009 study in Massachusetts by the University of Connecticut showed that 83% of physicians practiced “Defensive Medicine”.  The study found that on average between 18 percent and 28 percent of tests, procedures, referrals, and consultations and 13 percent of hospitalizations were ordered for defensive reasons.  The estimated minimum annual cost in Massachusetts alone was $1.4B.  Extrapolate that across the entire nation!

    The government can take initiative to substantially reform tort law.

  2. National Electronic Medical Record Standards

    The elimination of inefficiencies of incompatible electronic and paper records that are exchanged between doctor, insurance company and every piece of infrastructure involved in claims processing across the nation represents a staggering inefficiency cost.   Some estimates put annual savings resulting from the introduction of secure electronic medical record storage and exchange standards and technology at $81B annually. 

    More importantly, standardized electronic medical records (EMR) will reduce medical errors resulting from incomplete treatment information.  Besides an increase in the quality of care, the cost savings related to eliminating these errors could be as much as twice the efficiency savings of $81B.

    The government can provide initiative and leadership for the creation of a national standard for the secure creation, exchange and storage of electronic health information.

  3. FDA Reform

    While it is easy to vilify “big pharma” for profits they make on their successful brand name drugs, the real cost drivers behind drugs is the inefficiency of the FDA.  It takes decades to get new drugs approved and costs pharmaceutical companies billions before the first pill is ever sold.  For every drug that generates large profits, there are many that don’t ever see a pharmacy shelf and many that’s aren’t big money makers if they do.  All that investment needs to be funded.  Pharmaceutical companies are no different than the Venture Capitalist who has to fund 9 busted companies by 1 big winner.

    Speed and efficiency in the FDA approval process can be achieved without compromising  quality and safety. Private enterprise is forced to figure this out every day. It’s time to innovate at the FDA and make them accountable to a higher performance standard.

    The government can make the FDA the epitome of efficiency.

  4. Open Market for Pharmaceuticals

    According to a study by IMS Health generic medicines saved the American health care system more than $734 billion in the last decade (1999-2008), with approximately $121 billion in savings in 2008 alone.

    The protection current law grants pharmaceutical companies to reap the rewards of their innovation and investments into new drugs if fully warranted.  While I am no legal scholar, I don’t see how paying off competitive manufacturers to NOT produce generics for their drugs after that period expires,however,  is legal.  It certainly inhibits the availability of cost effective alternatives and adds unnecessary costs to the healthcare system. 

    Also, if I can get a cheaper drug in Canada or Europe that is approved by the FDA or another nation’s regulatory agency, has a safe track record and that my doctor deems suitable for my treatment, why should the US government restrict me from doing so?  Give me the warnings and assign me the risk but leave me the choice.  This is an issue of protectionism not safety, and the United States actively sanctions other nations who exercise blatant protectionism that harms American consumers.  Free market competition is healthy, and is the engine that drives cost and quality to the point the market demands.

    The government can ensure thriving free markets by removing artificial barriers and help promote dramatic increases in the use of and access to lower cost drugs.

There is a role for the government in healthcare reform.   The current bills are not it!  I have listed just four initiatives hat that better fall the governments domain of responsibility than the current reform bills and actually save money and achieve the objectives of healthcare reform. 

A billion dollars is one thousand million dollars!  We are talking about hundreds of those in either spending or savings.  Let’s save them rather than spend them.

What are your thoughts on the fundamental approach to healthcare reform? Please leave a comment.

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