Cutting Health Insurance Costs

The president's new initiative on quality health care deserves support. So does tort reform.
by | December 16, 2010
 

Last month, I doused cold water on the Obama administration's pipedream that they can bend the medical cost curve as promised during the health-care reform debate. I'll stand by my guns that such promises will disappoint their supporters and further alienate an electorate that is fed up with hope and promises over realism. State and local government officials will be wise to ignore the Pied Pipers of health cost control and focus their energy on practical ways to curb and shift the spiraling costs of employee and retiree health care.

Despite my skepticism, however, I want to go on record as strongly supporting the administration's new efforts to focus on quality over quantity. They've finally arrived at a theme that can work and everybody should get behind.

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

There is no guarantee that improving quality will necessarily lead to lower costs, but it doesn't take a genius to realize that doctors' and hospitals' liability insurance costs will plunge if we can minimize errors, and health-care expenses could actually decline if they bungle fewer cases.

Unlike the health-care bill which Republicans and businesses chastised as a "take-no-prisoners" partisan effort, the White House has already shown a willingness to partner more closely with the private sector this time. Like former President Bill Clinton, the Obama team may have learned a lesson from the last election despite the partisan rhetoric on wedge issues like income and estate taxes.

Unlike the $1 trillion health-care reform plan, this program has a more-modest budget and humbler aspirations. Even so, a billion dollars a 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. Anybody who remembers the medical malpractice and ineptitude in the movie Hospital, starring George C. Scott, should urge support of this initiative.

State and local quality improvement initiatives. Governors, state insurance commissioners, county commissioners and mayors should follow this effort closely, and craft their own bipartisan and nonpartisan strategies to participate in this effort. Labor unions can work with the employer groups on this one, and everybody will benefit.

The challenge is to find a way for the state and local governmental purchasers of health care to exercise their collective bargaining power to insist on quality improvements and quality control. Aside from the statewide cooperatives envisioned in the Affordable Care Act, there aren't strong networks to push this agenda. 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.

Use tort reform as the carrot. By pushing for state-level tort reform (such as limits on punitive damages) as an incentive to improve quality, there could be a win-win solution that would reward conscientious health-care providers with reduced litigation risks and costs. This is where leadership 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, if the consumer side of the industry can help craft "bonus points" that shield reliable high-quality providers from nuisance lawsuits from the plaintiffs' bar, while leaving the incompetent and sloppy caregivers at risk of stiff civil actions and perennially higher insurance rates. A carrot-and-stick approach could help bend that medical cost curve just a fraction, as slipshod providers learn to save money by upgrading their quality controls.

For example, state-level medical tort reform could enable a doctor or a 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. Frequency of mistakes would decline, patients would get better care the first time, redundant procedures will decline and everybody wins. Meanwhile, the perennially incompetent would pay higher insurance premiums and suffer the wrath of juries when their sorry track records are exposed in court.

Some ten states, including California, that secretly siphon off a chunk of punitive damages awards as a hidden revenue source through so-called "split award" statutes would lose this funding source, but that should be a drop in the bucket compared to the 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 Republicans and the business community 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 their large victories in state legislatures last month, they might find stronger opportunities to achieve success in the state capitals than inside the Beltway. White House staff, take note: That may present an opportunity for an effective bipartisan accomplishment.

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