The 60 Percent Solution to Reforming Healthcare

Can we transform the entire health care system by empowering the roughly 60 percent of patients who are in private health plans? That’s the premise of a new book I just read by Todd Furniss (@TFurniss on Twitter). The author of The 60% Solution: Rethinking Healthcare, believes there are five major reforms necessary to empower patients and help them get better care at better prices. These include: (1) change governance, (2) modify health savings accounts (HSAs), (3) clear prices, (4) standardize accounting and information technology in the medical industry and (5) emphasize primary care.

Why reform how medical care is governed? The theory of regulatory capture posits that over time regulatory agencies will become captured by the industry they regulate and promulgate self-serving regulations to benefit the industry. An example of this is state medical boards, which are composed mostly of physicians. These boards regulate the practice of medicine and protect it from competition under the pretense of patient safety. This process began more than a century ago with the infamous Flexner Report. Abraham Flexner was neither a scientist, physician or medical educator. Yet, with backing from the Carnegie Foundation and the American Medical Association (AMA), Flexner’s 1910 exposé resulted in the closure of more than half of medical schools. The 82 shuttered medical schools were deemed substandard by the AMA.

With the AMA’s backing, Flexner also succeeded in making physician training more difficult and time consuming. Instead of attending college with a major in medicine, students were required to get a 4-year degree before attending one of the few remaining (elite) medical schools. This purposely made physician training more selective and costly. As the saying goes, this was a feature not a bug.

Removing many of the barriers to practicing medicine would increase access to care by boosting the supply of physicians. State medical boards, caps on physician residency slots and stringent requirements for foreign medical graduates all function to reduce the supply of physicians, limiting competition and boosting fees.

Tax law began stripping away consumerism in medicine nearly 80 years ago. During WWII ship builder Henry J. Kaiser was not allowed to raise wages so it sought permission to offer health insurance benefits instead. In 1954 Congress affirmed health benefits were nontaxable, while paying for care out-of-pocket required the use of after-tax dollars. This tax advantage is largely why today about 90 percent of medical care is paid for by someone other than the patient. This also explains why prices are not transparent and providers do not compete for patients on the basis of price.

One way to boost competition and increase price transparency is to put more health care dollars back under the control of patients. That’s where HSAs come in. To help patients pay for more medical care directly, they need a way to save for physician visits. Under current law there are strict requirements for who can have an HSA and how much they can save. This needs to change. If patients pay for care directly the price of medical services will become more transparent as is the norm in other industries where industries offering goods and services compete for customers on price. For services covered by health plans consumers still need the ability to compare prices.

Why standardize accounting and IT? The purpose of accounting to compare costs and profitability across firms applying the same standards. Yet, diverse accounting standards obscure both costs and prices in health care. Hospitals do not compete on price. Thus, they often don’t even know the actual cost of a given procedure. Indeed, prices vary from one hospital to another.

The difference is often huge. In addition, the current system of huge list prices, secret insurance prices and nonexistent or super-secret cash prices has gotten worse over time.

Why standardize health information technology? Health IT is widespread but most systems can’t easily share information across platforms or institutions. This often leads to redundant and unnecessary care that is wasteful. By contrast, almost any brand of computer can run a variety of browsers (Edge, Chrome, Firefox, etc.) and view nearly all websites on the Internet. Why can’t health IT be like web browsers? Patients need to right to easily share medical records between providers.

Finally, the author believes patients need to place greater emphasis on primary care. Consumers should know their doctors and be able to easily consult with them before chronic conditions occur, not just periodically to manage disease once it develops. This is more likely to occur when HSAs are expanded, prices are transparent, and barriers to the practice of medicine are lowered.

These five reforms are not controversial among those who believe in patient-centered health care. Unfortunately, too many in the medical establishment have a vested interest in the status quo. Also worrisome is whether President Biden embraces the leftist belief that patients should never suffer the indignity of reaching for their wallets following a medical service.