Steps for passage of either a single payer system or budget caps in total payments to providers under the Medicare program.

Steps for passage of either a single payer system or budget caps

Discuss what would have to take place in the United States for passage of either a single-payer system or budget caps in total payments to providers under the Medicare program. Address questions such as the following:

1. How will political ideology affect such a consideration?
2. How will out-of-pocket costs affect such a possible change?
3. What would be the transition challenges of making such a change?

Book: Organizational Dynamics in Healthcare

Overview

A Single-Payer System Would Improve Resource Allocation

A single-payer system offers several strategies that have succeeded in other countries. As Marmor and Oberlander have written, “they may not be modern, exciting, or ‘transformational.’ But they do have the advantage of working” [15].

Consolidate fragmented finances. It’s been said that when you are trapped in a hole, the first rule is to stop digging. Certainly don’t dig faster.

Profound administrative excesses divert resources into activities that do not improve health outcomes. They often represent the entire careers of countless highly skilled and compassionate people who could be spending their time delivering health care rather than impeding it.

Insurance companies have balked at the ACA’s requiring them to spend at least 80-85 percent of their revenue on the delivery of health care. (In contrast, more than 98 percent of Medicare’s expenditures are clinical [16].) Estimates vary, but one-quarter to one-third of our current costs are driven by insurance company overhead, profits, and the administrative costs embedded in clinical settings. Roughly half of these costs would be recovered under single-payer and could be reallocated to the delivery of meaningful health care services [17, 18].

A single-payer model would eliminate the inefficiencies of fragmentation by converting public programs such as Medicare, Medicaid, and CHIP into a single administratively efficient financing system. Streamlined billing under single-payer would save physicians vast amounts in overhead [19].

In addition to reduced billing expenses, physicians would also enjoy a meaningful drop in their malpractice premiums. Roughly half of all malpractice awards are for the present and future medical costs [20], so if malpractice settlements no longer need to include them, premiums would fall dramatically.

Use bulk purchasing to negotiate lower costs. We spend more but use less of most services [21] than other member nations of the Organization for Economic Cooperation and Development. In other words, our prices are much higher [22]. As health care economist Uwe Reinhardt noted,

prices for identical products or services in the U.S. tend to be, on average, twice or more than the prices of the same products and services paid in other countries…. Prices are high here because the payment side of the health system is so fragmented that few payers have sufficient market power to bargain for lower prices from an increasingly consolidated supply side [23].

Drug formularies vary widely among health plans. The medical evidence behind the formulary selections is the same in Florida and Alaska, yet the drug lists are sometimes as different as the geography. Although pharmacy benefit managers work within the boundaries of medical evidence, they also consider the prices they have negotiated and the local drug market shares on their formulary selections. Any industry’s power to negotiate prices depends upon its purchasing volume.

Only a single-payer system enables the kind of bulk purchasing of drugs and medical devices that would give the buyer power. A model for this structure exists today in the United States: the Department of Veterans Affairs. Due to governmental authority to negotiate drug prices for the VA, it pays roughly half of the retail price of drugs [24].

Negotiations with clinicians should ensure adequate reimbursement of expenses plus fair profits, while ensuring value for taxpayers. A recent careful analysis found that this model is effective and does not lead to a loss in physician income [25].

Adopt responsible, rather than profit-driven, strategies. The United States has little national planning of health care resource allocation. Uncontrolled costs consuming an ever-increasing percentage of the GDP create the appearance of inadequate resources, but the experience of other nations [20] belies this. Under a single-payer system, regional planning of resource allocation would be aligned with public health needs rather than duplicating services and driving up medically questionable utilization.

Investing in health care buildings and equipment for reasons other than anticipated need duplicates services and drives up utilization. Intelligently planning capital investments to match community health care needs is the key to aligning utilization of services with public health priorities.

According to the Physicians’ Working Group for Single-Payer National Health Insurance, “Capital spending drives operating costs and determines the geographic distribution of resources. When operating and capital payments are combined, as they currently are, prosperous hospitals can expand and modernize while impoverished ones cannot” [9], threatening the viability of safety-net institutions that serve vulnerable populations.

This self-stimulating relationship is dependent upon market opportunities, often not the same as public health priorities. Regions with excess capacity inevitably have excess utilization [10]; better planning could also ensure adequate capacity in underserved areas. Divorcing capital from operating budgets eliminates the ongoing pressure to reap future capital growth by limiting reimbursement to clinicians. Capital, operating, and educational budgets would be nationally funded, regionally administered, and nonfungible. Applying national planning to regional budgeting would right-size capacity.

Today’s fragmented system is akin to requiring each household in a community to anticipate their needs for the coming year and negotiate their own fees and scope of services with the local police and fire departments. Imagine instead how much of their budgets these life-saving community services would be obliged to devote to marketing to and negotiating with each household and the rampant disparities in service that would result.

That is precisely what is happening today in health care, and it is absurdly wasteful. For police and fire departments, we have recognized that it is significantly less wasteful to give all citizens the same “coverage” for set prices and to administer it with regional coordination. Global budgeting is the only sensible strategy for such unpredictable yet universally needed services.

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Organizational Dynamics in Healthcare