What Would Make a U.S. Single-Payer Healthcare System as Cost-Effective as Other Advanced Countries?
By Stephen Kemble and OPS Policy Working Group 2020
U.S. healthcare is the least cost-effective in the developed world, by far, with widespread failures in both access to care and cost control. The COVID-19 pandemic has also exposed the serious flaws in financing health care through employment and from state taxes, both of which have dropped precipitously. The urgency has never been greater for consideration of a single-payer healthcare system for the U.S., financed with federal tax revenues.
Recent cost estimates of a U.S. single-payer system at either the federal or state level vary wildly in their assumptions, predicting anywhere from 18% increase in cost (Urban Institute 2019) to 18.8% savings (Friedman 2019). Other countries with universal health care systems, both single-payer and regulated multi-payer, spend 40-60% of what we do on healthcare as a percentage of gross domestic product, so clearly the assumptions behind U.S cost estimates do not match the policies actually used in other countries.
We know the difference between the U.S and other advanced countries is not excessive utilization of care, which is toward the low end of the range in other countries. The difference is in administrative complexity and lack of effective price controls, driving higher prices. “Administrative complexity” includes widespread profiteering by layer upon layer of middle-men: insurance companies, Medicare Advantage plans, Medicaid managed care contractors, Health Maintenance Organizations, Accountable Care Organizations, hospital-physician chains now taking on insurance risk, pharmacy benefits managers, revenue-cycle managers, and their contractors and sub-contractors.
Current healthcare reforms in the U.S. are founded on the belief that excessive utilization driven by incentives in fee-for-service payment is the major driver of excessive cost in U.S. health care. The proposed solution is to shift insurance risk onto doctors and hospitals in the form of capitation and bundled payments, so that they make more money by providing fewer services, and hopefully only services that have “value.” The experience of other countries that pay for health care with fee-for-service and spend half what we do per capita certainly should raise questions about the assumptions behind “value-based” payment.
Although there are pockets of over-utilization driven by fee-for service, most notably in the hospital sector with some procedural specialists, there has never been any evidence of over-utilization of primary care services with fee-for-service payment. However, efforts to shift from fee-for-service to capitation, led by Centers for Medicare and Medicaid Services (CMS), have been focused largely on primary care. The result so far is widespread demoralization and a worsening shortage of primary care physicians nation-wide.
Value-based payment (shifting insurance risk onto providers of care) introduces unwanted incentives to skimp on care and avoid care of sicker, more complex, and socially disadvantaged patients and populations (“cherry picking” and “lemon dropping”). The counter-incentives are pay-for-quality or outcomes, and risk adjustment. Both of these are far too complex to do accurately, and they are failing to deter skimping on care and “cherry picking” by health systems, hospitals, and doctors. Furthermore, both pay-for-performance and risk adjustment require much more detailed documentation and data reporting than is required by fee-for-service, raising administrative cost and burdens. So far, Medicare’s ACO program is costing as much or more to administer than the very modest savings achieved from reduced utilization, and the cost and burdens of increased documentation and data reporting are the main cause of widespread physician “burnout” and the destruction of independent primary care. Administrative cost is also driving many early participants in the ACO program to drop out.
This brings us back to the question, “What design features of a U.S. single-payer system would reduce our per capita healthcare cost to the range found in other advanced countries?” Desirable features of such a system should include public accountability, transparency, and meaningful public participation. We propose the following principles, based on what has been shown to work in other countries and in the U.S. None are characteristic of current U.S. healthcare policies.
Assure access to high quality care for everyone equally. Make every effort to eliminate disparities in access to care. Finance health care with progressive funding sources and eliminate or severely minimize patient cost-sharing. However, achieving universal coverage and eliminating disparities cannot be achieved politically without cost containment.
Cost containment should be achieved primarily by reducing administrative costs and reducing structural incentives to provide services that may not be most effective, not by interfering in the doctor-patient relationship. Reducing administrative costs will allow lower fees. Monopsony power must be used to more effectively control prices of prescription drug and medical equipment.
The key to administrative simplification and savings is standardization of payment and price controls, not competition, profit incentives, micromanagement of care by health plans, or use of financial "carrots and sticks" to manipulate doctors and hospitals in the name of "improving" health care.
Standardized payment of doctors and other healthcare professionals requires a mechanism to keep payment in proportion to the training and expertise required for each profession. The most efficient and effective means to assure this would be collective negotiation of salaries for employed doctors and other health professionals and fees for those in independent practice, between the single-payer and organizations representing each profession. Likewise, prices for pharmaceuticals and durable medical equipment must be standardized and negotiated between the single-payer and manufacturers of drugs and DME.
Manage insurance risk by maximizing risk pooling with a single risk pool, not competition among plans that each have their own risk pool, or by creating networks and shifting insurance risk onto doctors and hospitals within those networks. Risk-shifting creates perverse incentives to skimp on care and avoid care of sicker, poorer, and more complex patients and populations, aggravating disparities in access to care.
Health care must be a public good, not a commodity purchased according to ability to pay, or a "feeding trough" for those seeking to extract profit from health care, and it should not be owned or organized or managed by large corporations with business motives and ethics, whether technically for-profit on non-profit.
Establish and maintain a robust public health system, including programs for prevention of disease, responding to environmental disasters and pandemics, and addressing linkages between health care and social determinants of health.
Promote professional ethics and intrinsic motivation for doctors and other health professionals. The desire to improve patient care must be the basis for quality improvement, not financial incentives (pay-for-performance). Keep payment for health care as incentive neutral as possible, so as to free up professional ethics and intrinsic motivation. The incentive-neutrality principle prohibits capitation, shared savings payments, pay-for-performance etc. because they require accurate risk adjustment which is not possible and drives up administrative costs.
Payment for both doctors and hospitals must be disconnected from the details of documentation. Payment of doctors should be based on their time and expertise, not on counting “elements” in their notes. Medical documentation should be focused on information necessary for patient care and quality improvement, not “pay-for-documentation.” The administrative burdens of inappropriately detailed documentation and data reporting now required for pay-for-performance and risk adjustment are the root cause of widespread physician demoralization and “burnout."