Over the last twenty years, medical costs have gradually, but steadily, replaced indemnity wage replacement as the engine driving the workers' compensation train. This is the same period during which our nation's health care costs have grown from average among OECD countries (Organization for Economic Cooperation and Economic Development) to double the average (PDF). In other words, workers' compensation medical cost increases reflect similar increases within the general public. The only surprising thing here is that during the last decade or so, the steady increase in workers' compensation medical costs has happened at twice the rate of those eye-popping group health increases.
The National Council on Compensation Insurance (NCCI) has convincingly demonstrated that the rise in workers' compensation medical costs is due primarily to over-utilization of physical medicine services, especially those for chronic, soft tissue claims. (See here (PDF) and here (PDF ). And now, Atul Gawande, writing in the June 1, 2009 issue of The New Yorker, has demonstrated even more convincingly that over-utilization of medical services, including testing, surgery and hospitalization, is the metastasizing cancer in America's health care system.
Dr. Gawande's lengthy article, The Cost Conundrum, for which he should win the Pulitzer Prize, is the most trenchant argument yet for why costs in America are so appallingly high, but outcomes merely mediocre. He reduces the problem to its simplest terms. In essence, our American health care house that Jack built has turned the once noble profession of medicine into nothing more than assembly line piecemeal work, and our physicians both in primary care and the specialties, have been economically incentivized to over-prescribe in all areas. And, as Gawande's article clearly shows, the areas of the country that produce the highest costs with all that over-prescribing also produce the poorest health care results.
Dr. Gawande examines health care in McAllen, Texas, a town within Hidalgo County, the County with the lowest household income in the country, but, after Miami, the second most expensive health care costs. He wanted to know why. He also wanted to know why health care costs in El Paso County, eight hundred miles to the north with similar demographics to Hidalgo's, were 50% lower.
He wanted to know why the Mayo Clinic, in Rochester, Minnesota, with the best medical technology on the planet, produced some of the highest quality medical care in the nation, but with costs that rank in the lowest fifteen percent of the nation. And why the Mayo was able to replicate that achievement when it opened its hospital medical center in Florida, one of the country's highest cost states for health care?
His answer? Because in the pockets of excellence he found around the country doctors work together in teams, peer-reviewing each other's work. In these low-cost, high-quality areas, physician income is neutralized. At the Mayo, for example, the doctors are all on salary. Whether they order ten procedures or none, they get paid the same. This is central to understanding how to fix the problem. As Gawande writes:
"Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coordination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country's best electrician on the job (he trained at Harvard, somebody tells you) isn't going to solve this problem. Nor will changing the person who writes him the check.
This last point is vital. Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here's how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some "skin in the game," and then they'll get the care they deserve. These arguments miss the main issue. When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care."
The Cost Conundrum, by Atul Gawande, should be required reading for anyone interested in understanding and participating in American health care reform. And that should be all of us.