How a Little Common Sense Could Save Billions in Government Health Care Spending

29 Apr 2016 | HEALTH, John Goodman

By John C. Goodman 

Originally posted at Forbes, April 2016 

Imagine that you could make a change in an entitlement program that reduces the cost to the taxpayers and enhances the value of the program for the beneficiaries – at the same time. Who could possible object to that?

I think there are thousands of opportunities to make those types of win/win policy changes in government programs. These changes ought to be irresistible to politicians – whether Republican or Democrat, conservative or liberal. After all, win/win means that everyone comes out ahead. There are no losers. Who could object to that?

Yet win/win is just about the last thing our representatives seem disposed to talk about. It’s almost as if members of Congress think they were sent there to do battle. If they don’t draw blood, if someone doesn’t suffer as a result of their efforts, they apparently think they aren’t doing their jobs. Perhaps for that reason, Washington is dominated by a zero sum mentality: everyone’s gain must be offset by someone else’s loss.

A win/win opportunity: veterans’ prescriptions. Many veterans see private doctors – because of the long waits to see VA doctors, because of convenience and perhaps for other reasons. Yet they frequently turn to VA pharmacies to have their prescriptions filled because of the lower cost of drugs in the VA system. Unfortunately, VA pharmacies can only fill prescriptions ordered by VA providers. So the veteran has to get in line with other patients (who really need care) in order to get a VA provider to give a second approval to a prescription a private doctor has already ordered. The same rule applies to refills.

According to one estimate, VA waiting lists could be reduced by one third if VA pharmacies could do what every other pharmacy in the country can do: fill prescriptions ordered by private doctors.

This should be a no brainer. Right?

Well, let’s play devil’s advocate for a moment – if for no other reason than to understand how the Capitol Hill bean counters think about things.

Veteran patients face a tradeoff between time costs and money costs. Right now, they can reduce their out-of-pocket money cost of drugs if they are willing to wait to see a VA doctor. If we get rid of the waiting, however, more veterans will likely get their prescriptions filled in VA pharmacies. To meet the increased demand, the VA might have to hire additional staff or stay open longer hours. That might increase the VA’s costs. Even more important, without the prescription fillers clogging up the access lines, other veterans would find it easier to get their needs met. And meeting more real medical needs also costs more money.

Now, many readers might think these are acceptable burdens for the rest of us to bear. After all, the veterans did their part. We taxpayers should step up to the plate and do ours. But put those concerns aside. What I am about to propose is not about fairness.

How can we solve problems for the veterans in a way that wins for the taxpayers as well? Veterans in the current system are able to lower their money cost of care if they are willing to incur waiting costs. Since we know that a tradeoff is involved, why not try something in between. That is, we could charge veterans, say, 10 percent of the money they expect to save. The veteran still comes out ahead. And the new revenue the VA system collects could offset some of the other cost increases we expect to incur.

Another win/win opportunity: walk-in clinics. There are an estimated 2,000 walk-in clinics in this country. Studies show that the nurses managing these clinics, following computerized protocols, adhere to best practices more frequently than conventional primary care physicians and the cost is a fraction of the cost of an emergency room visit. If Medicare and Medicaid would only pay the market price for these services, we could make heath care for our most vulnerable populations more accessible and more economical.

Ah, but enter the bean counters again. A RAND Corporation study concludes that walk-in clinics actually add to total health care spending. The reason: when people don’t have to wait for hours for their care, they get more care.

Here again there is a tradeoff and the solution is to find something in between. If walk-in clinics reduce waiting costs and increase accessibility, patients should be willing to pay something for that – out of their own pockets. So, pick a co-sharing arrangement that lowers the cost to the government and makes patients better off at the same time.

The trial and error principle. Whenever there are two policy extremes where one kind of cost falls and another rises as we move back and forth between them, there is almost always some intermediate point where everyone gains. We can’t find that point by arm chair theorizing, however. We must be willing to experiment and adapt. That is, we must be willing to do the kind of experimentation that private markets do every day.

Pareto Optimality. Why do I think there are thousands of opportunities for win/win public policy changes? Because so many government programs are so visibly inefficient. They labor under archaic rules and regulations — obstacles that any private entrepreneur would jettison in a second. Further, they inevitably leave all of us with perverse incentives. When we act on those incentives, we do things that make social costs higher and social benefits lower than otherwise would have been the case.

Economists define inefficiency as a state of affairs in which everyone could potentially be better off by doing things differently. Such changes are called Pareto improvements, in honor of the Italian economist Vilfredo Pareto.

If government programs are inefficient, we know that in principle everyone could be better off through some sort of policy change. Sometimes it may not be practical to make everyone better off. But in many, many cases, that opportunity is real.

This article was originally posted at Forbes on April 26, 2016. 

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the soon-to-be-published updated edition of Priceless: Curing the Healthcare Crisis, the widely acclaimed A Better Choice: Healthcare Solutions for America, and New Way to Care: Social Protections that Put Families First. The Wall Street Journal and National Journal, among other media, have called him the “Father of Health Savings Accounts.”