Curing a Health Care Cost Curve

With health care driving state spending, a focus on quality care could cut costs.
by | February 2011

Many of us -- and I am one of them -- have been skeptical of promises made during the health-care debate, namely the claim that the health-care reform law could bend the medical-cost curve. I continue to have my doubts. That said, I strongly support the Obama administration’s new efforts to focus on quality of care. It has real potential to cut costs.

The new 10-year, $10 billion initiative that Obama announced in November seeks to boost the quality of medical care by eliminating mistakes, improving efficiency and transferring the proven techniques of quality control management from the factories and service-processing industries to the health-care sector. IBM, the American Nurses Association, insurance giant WellPoint, the National Business Coalition on Health and consumer advocates have come out in support of this nonpartisan effort.

There’s no guarantee that improving quality will necessarily lead to lower costs. But health-care expenses could actually decline if providers bungle fewer cases, and if there is someone around to remind chronically ill seniors to take their medications.

Unlike the $1 trillion health-care reform plan, this program has a modest budget and humbler aspirations. Even so, $1 billion per year is enough to get industry attention if deployed strategically. The president’s more realistic expectations could be readily met if the central players work together. Let’s give this one a chance. Anyone who remembers the medical malpractice and ineptitude in the movie The Hospital (starring George C. Scott) should urge support of this initiative.

Governors, state insurance commissioners, county commissioners and mayors should follow this effort closely, and craft their own bipartisan and nonpartisan strategies to participate in it. The challenge is to find a way for the state and local governmental health-care purchasers to exercise their collective bargaining power to insist on quality improvements and control. This can’t be done from Washington, D.C. State-level efforts and policy coordination will ultimately make or break this quality initiative from the demand side, while the White House seeks solutions on the supply side.

There’s an opportunity to use another hot-button medical-care issue to leverage the quality-care initiative. By pushing for state-level tort reform (such as limits on punitive damages) as an incentive to improve quality, a win-win solution could reward conscientious health-care providers with reduced litigation risks and costs. This is where meetings with industry leaders at the state level could prove most productive. The insurance companies, medical associations and hospitals that constantly complain about tort reform have an opportunity here to "put up or shut up."

State-level medical tort reform, for instance, could enable a doctor or hospital to accumulate "consistent quality control" points over time. Superior scores when aggregated would reduce their potential exposure to punitive damages in a future case of alleged malpractice. Even with a spotless record and consistently improving quality scores, such providers would still be liable for malpractice awards for actual damages, including lost income. But their risk of multimillion dollar punitive damages would be curtailed, and the plaintiff’s attorneys would know that. Insurance rates should directly reflect the lower risk of litigation costs.

This arrangement would provide strong incentive for providers to clean up their act and become quality fanatics. Mistakes would decline, patients would get better care and redundant procedures would fall off. Meanwhile, the perennially incompetent would pay higher insurance premiums and suffer the wrath of juries when their track records are exposed in court.

There could be a fiscal "penalty" for 10 states, including California. These states secretly siphon off a chunk of punitive damages awards and use them as a hidden revenue source through so-called "split award" statutes. These states would collect less. However, that should be a drop in the bucket compared to the statewide gains in quality, reliable care and the damages that are avoided.

The business community would have preferred to achieve tort reform by federal action, which is understandable because it would simplify the rules for multistate firms. But they might be wiser now to pursue state-level actions and let the “laboratories of democracy” in our federalist system provide some tangible examples of what can work. With large Republican victories in state legislatures last year, they might find plenty of opportunities to achieve success in the state capitals.

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