Reducing Costs Does Not Reduce “Costs”

One of my New Year’s resolutions was to clarify the confusion created by the phrase “cost reduction” when applied to healthcare. A proposal recently surfaced in the Albuquerque Journal (“Health Insurance Called Broken,” January 27, 2008) to eliminate private health insurance and centralize financial control of New Mexico’s healthcare system in the State government. The proponents claim they can “increase access, raise quality and reduce costs.” While I have serious doubts about the first two, the third promise is an obvious shell game.

”Reducing health care costs” does not mean reducing the cost – money needed – to provide health care. It means allocating less money in the State budget to pay hospitals, doctors and pharmacies. It does not mean spending less on health care services. In the long-term, we will be spending much more.

Proponents of the new Healthcare Commission say they will negotiate with the providers. How much negotiation takes place between a hungry wolf and a chipmunk? The State will simply dictate “allowable reimbursements” based on budgetary calculations and providers will be required to provide all care needed or desired.

How long can any business stay solvent when it is required by law to sell at less than what it costs to produce the goods or services? Have you ever read Atlas Shrugged? How long will pediatricians stay in medicine when they get paid less, actually a lot less, than the truck driver delivering Enfamil (baby formula)?  What excuses will be found to avoid or defer necessary medical procedures, when each additional procedure performed loses more money for the hospital?

When your local hospital goes out of business, you will have only two choices: not get care and die (clearly the cheapest solution!) or try to get care elsewhere, which will certainly cost even more.

If you want to reduce true costs, demand the actual amounts and look at the primary reasons for those costs, what the economists call the drivers of expense. Changing these drivers will reduce costs. Nothing else will. (P.S. The drivers are not the hospitals, nurses and doctors and no one, repeat no one knows the true costs of health care.)

I urge that you say to anyone claiming they can reduce costs: Costs to whom, over what time frame, and where is the evidence that proves you can do what you say?

System MD

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