We Have To Change Our Healthcare System: Part IV (Taking Costs Seriously)

How do we go from a healthcare system where we have to hustle for services to one where the system hustles for our business? The Affordable Care Act (ACA) made it possible for every American to get an insurance card. It did not, however, fix our healthcare woes. We still spend $3.5 Trillion for healthcare and, as I mentioned elsewhere, don’t get much for our money. How do we get quality care that doesn’t bankrupt us? Below are a few thoughts.


This may be the lowest-hanging fruit. Reinsurance is a system where a third party (either another insurer or a government) pays part of an insurance company’s claims once they pay more than an agreed-upon amount. It’s a policy conservative and liberal economists like. You can do it under the ACA. It has lowered premiums in every state that has implemented it. There is a bi-partisan bill that would make re-insurance nationwide. It’s an idea the Germans copied because it worked so well in Medicare and makes insuring sick patients attractive. It should be a no-brainer.


Hospital spending makes up 33% of total healthcare and can be ruinous. Insurance can help but only if a hospital is in that insurer’s network. But if you or I are brought to the nearest hospital that does not contract with our insurer we could be “surprise billed” for thousands and even tens of thousands of dollars. We would, in addition, be responsible for “facility fees.” These are arbitrary fees hospitals charge ostensibly to keep emergency rooms open. (Yeah, right.) There is already a bi-partisan bill that would cap the amount an out-of-network hospital can bill. If that becomes law, it could stop hospitals from “surprise billing” us. And let us recall that Congress and President Obama tried to take bi-partisan action to limit how much hospitals can charge in facility fees but hospitals defeated them. We should try again.

That’s the stick. There should also be a carrot. Hospitals that contract with every insurer in the country or state, should be able to take out low-interest loans for renovation or expansion. Aside from encouraging hospitals to play by the rules, this could help decrease the disparity between rural and urban hospitals because, if small hospitals contract with insurers, they would be able to get modern equipment. The carrot and stick approach should do away with surprise bills and hopefully make it possible to avoid bankruptcy after landing in the hospital while insured.

This will be a change for hospitals. Many hospitals rely on out of network billing as a business model. If we are to force them to contract with insurers instead, we need to let them cut costs. We could (for example) allow hospitals and individual patients import/re-import drugs. This might make the transition easier because drugs are an increasingly big part of hospital expenses.

And hospitals should want to transition. The high cost of inpatient stays is causing employers and states to directly negotiate with them. And employers pay less than insurers do. Plus, the status quo is fast becoming a PR nightmare which is not good for any business.

Doctors and Other Healthcare Professionals

Spending for physician and clinical services makes up 20% or total healthcare spending. That’s a big chunk of the $3.5 Trillion we spent on healthcare in 2017. That’s partially because there aren’t enough healthcare professionals. The ACA provides at least part of the regulatory framework that can help us fix this. It requires networks to be adequate. I.e., insurers must have enough healthcare professionals under contract to serve their patients. To get there we need to educate more healthcare professionals.

One way to do that is to ensure that any person who “passes” the Medical College Admissions Test (MCAT) gets into medical school and residency. If, in 2017, we had admitted everyone who got around 508 on the MCAT (the average score on the proficiency test you take to get into medical school) into a combined medical school/residency track, we would have about 10,000 new residents.

This would not change how much education you need to become a doctor; it would slightly change the process of completing the educational requirements. Right now, to become a doctor you need to: earn a Bachelor’s Degree, take the MCAT, be admitted to a medical school program which generally lasts four years, be “matched” to a residency program, and spend three to five years as a resident. You then need to pass the three-part US Medical Licensing Examination. After that, you have to get a license to practice medicine in your state. The whole thing takes 11-15 years. Combining medical school and residency program would not shorten that process; it would simply ensure that if you get into medical school you can (if you do well) go on to residency. That, by itself, would get us more doctors.

It would also make it possible to provide stipends to would-be doctors in medical school who commit to taking Medicaid patients. If they don’t pass their Licensing Exams or drop out of school, they will have to repay the money. This too would help us get more doctors because many simply can’t afford medical school. It would also make sure that more doctors will work with people who are covered by Medicaid. An important consideration at a time when states are increasingly considering a Medicaid buy-in.

This may be the right time to launch this initiative. Read virtually any study and you will read about a health professional shortage because so many are retiring. These retiring doctors would make ideal supervisors. They could earn a bit of money either right before or right after retirement and would, at the same time, help solve our well-documented shortage. If it’s that easy (you may be asking) why haven’t we done it already? Because either the Accreditation Council of Graduate Education (ACGME) or the Association of Medical Colleges (AAMC) (or both) might lose money. The ACGME makes money by accrediting residency programs and through their continuing education courses. The AAMC makes money by accrediting medical schools in the United States and Canada. Since those costs are passed on to medical students as tuition, the AAMC sets its price. Medical schools have little incentive to negotiate with the AAMC for lower fees. Combining residency programs and medical schools would thus mean taking on two very powerful associations.

That’s just to start. To increase the number of residents, we would also need to relax the ACGME rules around which doctors can oversee residents’ training. Right now, attending physicians (high-priced staff  just below the doctor who runs the hospital) are deemed eligible for that task. These high-priced doctors would also lose out if we relaxed the rules. Even if we did all that, we would be only half-done. Because we would still have to figure out how to pay for it all.

We could raise some of that money, as I’ve argued elsewhere, by investing in promising pharmaceuticals/treatments, plowing half the profits back into the small and innovative pharmaceutical companies and part into medical education. If we did it that way, we could lower drug prices and increase the number of residents and other health professionals. Contrary to popular belief, we would not need that much money. California did something very similar in mental health for $22.5 Million per year. As California has 10% of the population, the budget for the country could be $200-$300 Million. That’s a rounding error in the $4.4 Trillion federal budget. If states decided to do this by themselves, they would have to figure out how to raise the money. California does it by taxing millionaires.

But how do you get the associations and the unions to go along? I mentioned the AAMC and the ACGME earlier but there are many others. On top of that, healthcare employees are increasingly unionized and strike when their salaries or benefits are threatened (as they may be should there be more healthcare professionals). Here, Americans’ litigious culture may come in handy. We could (for example) pass a law that if a patient is hurt or dies, the patient/his family can sue the associations and/or unions if they prevented hospitals from training more healthcare professionals. For, although more studies are needed, there is at least a tentative agreement that the more healthcare professionals there are, the longer they spend with patients, the less they prescribe, and the better the outcomes. That, of course, would not be the only benefit.

Having more health professionals could also lead to more widely available clinical trials. There is already a movement to have clinical trials in the community. If this movement takes off, people will be able to enroll in a clinical trial at their local pharmacist or community clinic. Today, the biggest obstacle to such trials (which everyone wants) is lack of staff. Our newly educated healthcare professionals would be that staff.

Educating more health professionals in the United States may also let us stop spending so much time and energy trying to circumvent the “system” by recruiting foreign-trained health professionals. Don’t get me wrong. I think programs like Welcome Back International Worker Assistance Centers are invaluable for cultural and linguistic diversity. We need them. Just as we need the one-sixth of our healthcare professionals who are foreign-born. But we won’t make networks adequate and help people live longer until we train a lot more doctors in the United States.


If we’re serious about making sure that everyone can get quality, affordable healthcare, we need to reconsider the way we license healthcare providers. The most obvious example is licensure reciprocity. That’s when you can practice in several states even if you were licensed by only one state. The other is expanding scope of practice—letting (say) nurses do more.

Right now, states achieve license reciprocity through compacts with other states. Which sounds OK until you realize that states need to enter into a separate compact for each profession. For example, neither California nor Texas are part of the Interstate Medical Licensure Compact that allows doctors to practice across state lines but Texas is part of the Nurse Licensure Compact that lets nurses practice in other states. In other words, a doctor licensed in California can’t go to Texas but a nurse licensed in Texas can go to (say) Florida.

It is possible, I suppose, that the rivalry between California and Texas is of such long standing that Homo Texan and Homo Californian are distinct species. I am only partially joking. Many of the arguments opponents of licensure reciprocity and of expanding scope of practice make are ostensibly about patient safety. The reality is that if we continue to not allow (say) nurses to tread on doctors’ economic turf and doctors and nurses to practice across state lines, we put patients at risk.

Consider this everyday example. You live in Texas, visit your family in California, have an accident and go to the local hospital, are discharged and go home to Texas. Your California doctor wants to follow up; see how you’re doing. He can’t. He can’t practice in Texas. He can’t even follow up with you by Skype. In fact, lack of licensure portability is the main obstacle in tele-medicine. If there is a hurricane in Texas, all California doctors can do is watch it on TV. They can’t practice medicine in Texas. Texan doctors can’t come to California to help people suffering after the fires. They can’t practice in California. This, even though clinical practice has become national in scope. In other words, what a nurse or a doctor does and learns in Texas is basically the same as what a nurse or a doctor does and learns in California. The only real reason to prohibit reciprocity is to exacerbate a man-made labor shortage.

It’s the same story when it comes to expanding scope of practice. As I have pointed out elsewhere we (the patients) don’t care if our medicines are furnished or prescribed. We just need our meds. But the American Medical Association cares a great deal that nurses (after a long, long fight) get to “furnish” drugs. This is just one example. But all the examples pile up and in the end we, the patients, pay the bills. If it was only money. All these “rules” make the process of getting healthcare incredibly frustrating. Half the time we have no idea what we are paying for or what we should do next. Which is why we now have a brand new cottage industry: Patient Navigators who, for (a reasonable by healthcare industry standards) rate of $100 to $450 per hour will help you navigate this bureaucratic mess called “healthcare in America.”

It gets worse. We are living at the beginning of a medical revolution. We may be able to cure most types of cancer with an infusion. (We can already cure two types of cancer this way.) But to make it possible for us to walk into a hospital, get a cancer diagnosis, and walk down to the lab to get our anti-cancer shot, that hospital has to have a National Institutes of Health (NIH)-level lab. This lab will be run by scientists who had likely received more training than the hospital’s head of service. For a hierarchical system like medicine, this will be a profound cultural shift. If we re-think licensure before this happens, it may not be as disruptive.

Rethinking licensure would also help us focus on the social determinants of health. That’s things like where people live, how they eat, and how much education they have. All that has a huge impact on how healthy we are. Right now, our healthcare system is ill-equipped to handle these.

Secretary Mandy Cohen tells about how she saw a woman for several weeks who was having terrible stomach pains. She ordered a barrage of expensive tests for her but found nothing wrong. She was about to refer her to a specialist when her technician said, “I think you better ask her if she has enough to eat.” Sure enough, it turned out that her patient was sheltering in her car, going without food, suffering trauma and trying to finish school. That’s enough to give anyone terrible stomach pains. And had her intake been done by a peer counselor or that technician she may not have had all those expensive and intrusive tests. She might have gotten the help she needed a lot sooner.

Or consider North Carolina where the Greensborough Housing Coalition is trying to keep people out of emergency rooms by relocating them to healthy homes. In Alameda County, California a similar group tries to clean up and refurbish the buildings. These are successful healthcare programs run by everyday people. We need more people like that in healthcare because they can help us all be healthier.

These are not new ideas. Previous administrations struggled with these issues as have the states. We’ll get there. We just have to keep pushing.


When we think about healthcare, we usually think about insurance. The word “affordable” in Affordable Care Act refers to affordable insurance. But what does “affordable” mean? In Germany, it’s a percentage of income (around 15%). We should aim for that. If we make it attractive for insurers to insure everyone through reinsurance, make it impossible for hospitals to charge outlandish out-of-network rates and cap their facility fees, increase the number of healthcare professionals, and reduce the cost of drugs, insurance costs will also go down. A lot. In return, we should demand that insurance companies tie premiums to people’s incomes and do away with deductibles. We probably can’t go to 15% in one fell swoop because economists estimate that right now we and our employers pay 30% of benefits package for premiums alone. But we can take it down to 20%.

Capping how much insurers charge will do more than simply lower our rates (though I don’t want to minimize how much that matters). It will also force insurers to negotiate. Right now, they give major hospitals in their networks whatever they ask while not adequately reimbursing small, independent practices. They don’t care about the high prices because (as Dan Weisman explains) they just pass those costs on to us. This encourages consolidation because those small practices sell out to the big hospitals which then jack up the rates some more. To add insult to injury, the big hospitals also start charging facility fees when patients visit the small practices they just bought. That’s why consolidation is one of the major drivers of high healthcare costs. If we capped insurance rates at a percentage of income and did away with deductibles, we would make it impossible for insurers to pass the costs of consolidation on to us. Insurers would then have to negotiate. They would have to work to bring healthcare costs down and bring healthcare quality up.


That’s a lot but it’s not an exhaustive list. And it won’t get us to the Bismarck Model in five years or less. But doing some or all of it can help us get healthcare costs under control. And we can start anywhere, at any level. States could do some of this and the feds could do some of this.

Thanks to the ACA, we can all get a health insurance card. Now, let’s see if we can get quality and affordable healthcare to go with it.


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