Antidotes for high health care costs

To reduce the high health care costs in the Milwaukee area, the region needs more competition in the health care marketplace and employers should switch to consumer-driven health benefits plans, according to a recent report released by the Thiensville-based Wisconsin Policy Research Institute Inc. (WPRI)

WPRI is a nonprofit organization established in 1987 to study public policy issues affecting Wisconsin. The organization recently released a report, written by Linda Gorman (a senior fellow at the Independence Institute in Golden, Colo.), about “Why Milwaukee Health Care Costs are High: What To Do About It.”

Gorman said she comes from the Ronald Reagan school of “government is not the solution to our problem, government is the problem.” So, she acknowledges that her report is not going to please those who believe that a government health care system, including the proponents of the proposed Healthy Wisconsin plan, is the answer.

“I think that government causes most of the health care costs,” Gorman told SBT. “If you look around the world, the countries with government-controlled health care, their quality is poor and the cost is higher. I think there is a tremendous amount of waste in government programs.”

Gorman’s report concludes that the reason the region’s health care costs are so high “has nothing to do with the demographics or even the health risks presented by the population.”

So, don’t blame our beer drinking, bratwurst eating and cheese loving ways, Gorman says.

Lack of competition

“The most significant factor driving health care costs in Milwaukee is the relative lack of competition,” her report said. Factors cited for this by the report include the lack of for-profit hospitals and referrals by doctors to hospitals in their system.

The lack of competition issue is interesting because whenever someone tries to open a new hospital in the region, critics scream that additional facilities will slice the health care consumer pie into smaller pieces and force providers to raise their rates, driving up health care costs for all of us.

That was the rally cry of the opponents of the hospital that Aurora Health Care is building near Oconomowoc.

“Existing hospitals may … (claim) that new entrants increase spending on unnecessary plant and equipment and that prices will have to be raised to cover the increased cost,” the report stated. “This position focuses attention on costs and essentially argues that increasing the number of producers increases cost. The problem with this position is that it ignores price.”

Gorman’s report said 99.5 percent of hospital admissions in Wisconsin are to nonprofit hospitals. Indeed, for-profit hospitals have not had a big impact on our market. Charlotte, N.C.-based MedCath Corp. opened The Milwaukee Heart Hospital in Glendale in 2003 and closed about a year later and was sold to Columbia St. Mary’s Hospital.

One thing that prevents for-profit hospitals from coming into the area and prevents price competition is the fact hospital systems control most of the physicians, who refer their patients to their hospital system, Gorman’s report says.

Area health care systems are increasing their ranks of affiliated physicians. Waukesha-based ProHealth Care joined with Medical Associates, adding about 100 physicians to ProHealth Care. Aurora Health Care became affiliated with Advanced Healthcare, which has 250 physicians and specialists.

“In some areas of Wisconsin, hospital networks employ unusually large fractions of the state’s primary care physicians,” the report stated. “Physicians employed by integrated hospital systems may be used to shield certain hospital networks from the effects of competition if their contracts obligate them to send their patients to the hospitals that own their practices.”

The ‘nonprofit’ stranglehold

In Wisconsin, high health care costs are often blamed, at least in part, on low Medicare reimbursements. WPRI cites a California study that said, “non-profit hospitals are more likely to cost shift (costs from Medicare patients to private payers) than for-profit providers.”

Another factor reducing health care competition in the region is the fact that hospital systems in the Milwaukee area have been consolidating in recent years. Earlier this year, Columbia St. Mary’s and Froedtert & Community Health announced they had approved a joint operating agreement to form Progressive Health.

The SynergyHealth board of directors in West Bend recently approved a definitive agreement to affiliate with Froedtert.

In 2006, All Saints Healthcare in Racine merged with Covenant Healthcare in Milwaukee to form Wheaton Franciscan Healthcare.

The hospital systems say these mergers will improve efficiencies and reduce costs. However, as health care systems consolidate, there are fewer competitors that health insurance carriers can negotiate with, according to Gorman.

“In areas where hospitals compete for insurer contracts, negotiated prices may be no higher than marginal costs,” Gorman’s report states. “In areas with little hospital competition, hospitals with strong reputations can virtually dictate their prices. Hospitals dominate pricing in areas where hospitals control strong health care systems and in markets where hospital capacity is low. Insurers dominate in high-capacity markets with few organized hospital systems.”

Consumer-driven solutions

To cope with the high health care costs in the Milwaukee area, employers should push for a free market for health care suppliers, in which patients have the ability to go to competing facilities, and employers should aggressively move to make their health benefits plans consumer-driven, her report states.

Consumer-driven plans encourage patients to spend more of their own money, which places pressure on health care providers to keep costs low, Gorman’s report states.

“Consumer directed health plans have the potential to accelerate health care streamlining by unleashing millions of experienced, highly trained, and dedicated American shoppers on an industry that has been insulated from those it is supposed to serve since the 1930s,” her report states.

These plans often include high deductibles and employer or employee-funded savings accounts, typically known as health savings accounts (HSAs).

With some skin in the game, patients are often more selective about how they receive health care. Gorman’s report cites a study that says people with high-deductible health insurance plans had dramatic decreases in repeat visits to the emergency room, which is much more expensive than a regular doctor’s visit.

As for HSAs, many critics say they are only good for healthy and wealthy people who can afford to save money in an HSA and can afford to pay a higher deductible when they get sick.

“(The HSA critics) tend to focus on the deductible only, forgetting that the high deductible plans typically cost less (per paycheck) because they dramatically reduce claims overhead by reducing billing costs and the necessity for some of the administrative overhead that insurers have traditionally deployed to control utilization,” Gorman’s report stated. “When consumers are spending their own money, there is less need to block access to specialists or expensive medications.”

In the Milwaukee area, some companies have been slow to offer consumer driven health plans because employees already have better benefits that they don’t want to give up, her report stated.

“Expanded access to consumer-directed health plans offers a promising corrective to the high health care costs created by rich health care plans,” the report stated. “Because consumer-directed plans reduce ties to any particular health care network, they may help further a gradual process of deregulation. Consumer-directed plans also have the potential to encourage competition for high priced networks that use restrictive referral policies to protect against competitive threats. The proper corrective for the bureaucratic stranglehold that cripples American health care is sensible deregulation and consumers armed with cash and ready to shop for health care.”

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