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Two Ideas for Controlling Spending (Page 2)

Solution One: Reduce Supply

Since the 1970’s, the federal government and the states have used Certificate of Need (CON) laws to limit the number of hospitals (valued at over $1,000,000) and other major medical equipment (valued at over $500,000) built in any given community. The laws do not typically apply to clinics or physician offices where major medical equipment is not used.

In short: CON laws were specifically designed to stop the rapid proliferation of expensive, medically unnecessary services that has taken place over the last forty years or so.

CON laws require providers to obtain permission from a review board before building (or expanding) facilities. The board considers whether the region in question needs an additional specialty hospital, for example, and whether patients there will be well served over time.

To date, 36 states and the District of Columbia have CON laws on the books.

Pennsylvania is one of the states that no longer have a CON law.

The problem with CON laws? 

Folks on both the right and the left of the political spectrum say that CON laws do not actually control costs.

They limit competition: Those on the right, including Alaska Governor Sarah Palin, say that CON laws limit competition between providers. They argue that letting the number of providers proliferate unchecked encourages competition for patients and drives down the cost of services (and total spending on healthcare).

The challenge is that healthcare does not follow a standard economic model!

Healthcare consumers do not have enough information about prices to make a decision based on the price factor alone. Patients visit specialists or undergo tests as a result of doctor recommendations, and whether or not their insurance will cover the procedure, but not based on price.

We agree, then, with those who say that regulation is necessary to reduce prices and spending- and that free market competition alone will just make the problem worse due to the excess capacity it generates.

Those on the left point out that:

  • The Big 3 automakers have shown that medical costs are higher in states without CON than in those with the laws.
  • But the laws, while restricting the number of facilities built, actually lead existing facilities to perform a larger volume of services to prove that they are necessary.
  • As a result, the laws do not go far enough to help reduce the total number of services supplied, which is what needs to happen to reduce total spending and keep insurance premiums at bay.

Solution Two: Payment Reform

Physicians are headed for a 21% fee cut, to begin January 1, 2010, if Congress doesn’t act to adjust the Sustainable Growth Rate (SGR) formula before then.

The SGR was established several years ago to control physician spending under Medicare. When aggregate Medicare spending reaches a certain point, the SGR kicks in to lower the total cost of the program by cutting pay to physicians.

These fee rates are very important: Many private insurers use the reimbursement rates set by Medicare to determine their payment systems as well.

Physicians- and especially primary care doctors- say that they simply cannot afford to operate their practices with reduced revenues.

Critics, on the other hand, charge that American physicians, (specialists in particular), make more money than doctors in other countries and that continually increasing the fee rates is simply unsustainable.

As President Obama and Congress grapple with this difficult issue in the months ahead, there are several payment reform options on the table that might also encourage doctors to limit the use of new technologies and cut costs.

Payment Reform Options:

FIRST: Some argue that Congress should increase the amount paid to primary care doctors, and limit reimbursements to specialists, rather than just cutting payments across the board.

The hope is that this proposal would limit the amount of expensive, specialty care performed, while also increasing the number of medical students going into primary care.

  • Increasing the primary care workforce is essential: Huge primary care physician shortages are expected in the years ahead. Even folks with insurance coverage have reported problems finding a doctor to see them.
  • Medical students are shying away from this field due to the low salaries that are unaffordable when they have $140,000 in medical school debt.
  • Check out our previous post on this issue.

primary care providers

SECOND: President Obama is heavily invested in the medical home and community health center (CHC) models, which bring together a group of physicians, nurses, and other medical professionals to divide the responsibilities of primary care visits and manage chronic diseases.

Many hold high hopes that this model will successfully reduce costs and improve care:

  • Patients are able to call or meet with nurses, instead of doctors, when they have minor or routine questions; and
  • The medical homes take responsibility for organizing a patient’s records, which reduces test redundancies, and other mistakes.

THIRD: Perhaps the best solution is to do what providers such as the Mayo Clinic and the Veterans Administration (VA) already do:

Pay doctors a salary, rather than reimbursing them for services performed.

Patients and doctors associated with the Mayo Clinic and the VA both report satisfaction with this system. Doctors are not required to squeeze in as many patients as possible, and they are not rewarded for administering extra care.

Bottom Line

Looking at ways to reduce our overuse of (newer) technology is important.

Check out this post for more information on physician payment reform and proposals to bundle payments to hospitals for services performed.

This article was written by Julia Nagle.

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