Why the health care system needs to be disrupted

In the September 8, 2008 issue of Business Week (in collaboration with CBS News), an article entitled “Medical Bills You Shouldn’t Pay” described the illegal practice of balance billing in health care, in which hospitals and physicians charge their patients for the difference between what the providers billed and the amount that insurers actually reimbursed them. The California Association of Health Plans found that over the past two years, 56% of the 1.76 million patients in the state who received such bills unwittingly paid them. Yet providers who believe they are being paid too little for their services argue that the insurers’ reimbursement rates are simply not reflective of value nor market forces.

Medical expenses are the common cause of personal bankruptcy in the United States. According to a Health Affairs survey in 2005, medical bankruptcy affected roughly 2 million Americans (including dependents). 75.7% of them had insurance when they first became ill. Added to the co-payments and co-insurance for which most Americans are already responsible, it’s not surprising that health care is always one of the top of mind issues for voters every election season.

At the same time, hospitals and physicians are facing financial difficulties of their own, with public officials and hospital leaders struggling to keep open vital services. In a California HealthCare Foundation report, Los Angeles County, where one public hospital and five private emergency departments have shut down since 2003, typifies the crisis of access to health care that arises from funding problems. At the same time, just as fewer and fewer medical students are choosing to enter sorely needed but lower-salaried primary care specialties, Congress in the eleventh hour narrowly averted imposing a 10.6% across-the-board cut in Medicare reimbursement rates on July 1, 2008. It’s not surprising that providers are looking for any way to keep their doors open, even resorting to practices such as balance billing.

This current state of affairs is simply a zero-sum game of passing the buck. Asking patients to pay the balance of their bills is not only illegal, but it forces them into financial straits and exacerbates the problems of the uninsured and the overuse of providers of last resort. It is not a solution. Forcing hospitals and physicians to continue swallowing reimbursement cuts and driving them out of the system is not a solution.

What needs to happen is disruption of the health care system. Innovative delivery models that utilize disruptive technologies, incorporate convenient and efficient focused facilities, and employ affordable providers are critical to ensuring access to health care for everyone in a manner that is sustainable. At the same time, creating a system of insurance, reimbursement, and information that gives patients more knowledge and control of their health care decisions will benefit both patients and providers. A disruptive payment system, in particular, will spur innovation among providers and other sectors of health care by encouraging pricing that truly reflects value, dislodging today’s administrated pricing system that only serves to pit patients against their providers and in which no one wins in the end.