Thursday, March 09, 2023

Why are certain U.S. healthcare system dysfunctions not endemic in other countries? Or are they?

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I’ve just finished reading the eminent healthcare economist Uwe Reinhardt’s last and posthumously published book: Priced Out: The Economic and Ethical Costs of American Health Care. Reinhardt passed away at age 80 in November 2017; the analysis in Priced Out of the Affordable Care Act and Republicans’ failed 2017 repeal/replace attempts continues to within months of his lamented death from sepsis.

The book, a characteristically caustic and ironic overview of the politics and economics of healthcare delivery in the United States, brings into sharp focus the core themes of Reinhardt’s scholarship and writing. Key takeaways:

  • Republicans want to ration healthcare by ability to pay, but they won’t say it. The U.S. is the only developed country in the world that does not explicitly commit to providing equal access to healthcare for all (with some allowance for concierge service on a pay-for basis for the wealthy, which Reinhardt regarded as tolerable).

  • The U.S. multi-payer system, in which each insurer negotiates its own prices, is insanely wasteful. Reinhardt pegged the cost of all the wrangling between providers and payers at close to $200 billion per year.

  • It’s the prices, stupid*: Prices for medical services and drugs that are more than double norms in peer countries are also attributable in large part to our divide-and-conquer multi-payer system.

  • No single-payer soup for you, U.S.: While Reinhardt helped design a well-regarded single payer system in Taiwan, and regarded single payer as one viable model for universal healthcare, he repeatedly asserted that the U.S. political system was too corrupt to manage it: industry would use its funding leverage to demand unsustainably high payment.

While these themes were familiar to me from Reinhardt’s prior writings (e.g., regular contributions to the New York Times’ old Economix blog) a few throwaway lines made me wonder why some U.S. dysfunctions that are not solely attributable to our failure to standardize prices are not shared by peer countries, or at least not to the same degree. 

My first question pertains to risk adjustment. Designed as a means of deterring insurers from cherry-picking health customers (with plan designs that deter those who know they need a lot of certain forms of expensive care), it’s become famous in the U.S. as a means of gaming federal payment.

In an epilogue to Priced Out, Tsung-Mei Cheng, Reinhardt’s wife and herself a health policy analyst, quotes Reinhardt’s 2012 testimony before Congress. In response to Rep. Jim McDermott’s question whether a public option would “become a dumping ground for the problem cases of the insurance industry” — i.e., a high risk pool, Reinhardt responded:

Well, most other nations that have only private insurance options, or they could have a public one [too], they use a risk-adjustment mechanism. Germany quite explicitly does that, so that after the enrollment period is over, they assess the risk that each plan ended up with and them have compensation payments…So if you have an insurance market with a public plan and private plans, you would use that same mechanism. I think the Germans do it, the Dutch do it; the Swiss do it as well. And the risk adjusters you need for that are pretty well understood now by health services researchers.

The U.S. uses precisely this mechanism to balance payments to Medicare Advantage plans, adjusting their risk payments against traditional, FFS Medicare. And it’s universally acknowledged (except by the insurance industry) that risk adjustment is a major gravy train for MA plans — so much so that CMS shaves a statutorily required 5.9% off the plans’ risk scores, and that’s far from enough. MedPAC suggests in its 2022 report that the haircut should be 9.5%, and cites an analysis by former HHS official Richard Kronick and UC San Diego scholar Michael Chua finding that MA risk scores exceed what the same patients would be scored in traditional Medicare by 20%. Kronick and Chua estimate that “total Medicare payments to MA will be $600 billion higher over the 2023-2031 period than they would be if the coding intensity adjustment were set to the empirically justified level, rather than remaining at the statutory minimum.” HHS Office of the Inspector General reports have found that MA plans inflate patients’ risk scores via Home Risk Assessments that log diagnoses for conditions that are not treated and “chart reviews” that punch up diagnoses after treatment is delivered.

Question: do German, Dutch and Swiss health insurers not engage in “upcoding” — that is, working to maximize their enrollees’ risk scores? In those countries, the core required health insurance product is delivered on a non-profit basis, though insurers can offer supplementary insurance on a for-profit basis. Still, the nonprofit insurers compete intensely. Here in the United States, nonprofit status does not deter hospital systems or nonprofit health insurers (e.g., many Blues) from being geared to maximize revenue.

Is a cultural difference at work here? Or are European risk adjustment systems less susceptible to gaming — not based on individual enrollees’ diagnoses? Richard Kronick has proposed (in 2017) curbing upcoding in Medicare Advantage by capping total risk adjustment payments for all plans at an amount “equal to the amount that would have been paid using demographic risk adjustment under the adjusted average per capita cost method." Demographic risk adjustment uses basic demographic data -- age, sex, Medicaid enrollment (i.e. low income) and disability -- as opposed to scoring enrollees based on actual diagnoses. Maybe European risk adjustment systems are based on blunter and less gameable measures than U.S. equivalents.

My second question is in the same vein. Of hospital administrative costs, Reinhardt writes:

Hospitals in other countries may have fewer than half a dozen billing clerts and coding consultants. By contrast, U.S. hospitals require hundreds and thousands of billing clerks. Duke University’s health system, for example, with 957 beds, has 1,600 billing clerks (p. 29).

Recognizing that dealing with hundreds of insurers does require a lot of “billing clerks,” the plethora of payers does not wholly explain hospitals systems’ devotion to the billing arts. In An American Sickness, Kaiser Health News editor-in-chief Elizabeth Rosenthal details the incentives that hospitals provide their doctors to upcode. For example (pp 35-36):


RVUs (Relative Value Units) are the basic component on which both Medicare and private insurance payments are based. While the necessity of dealing with a plethora of payors may prime U.S. healthcare providers for payment combat (as constant warfare among Greek city-states may have fitted them to fend off invading Persians), are providers in other countries not motivated to maximize their payments by variants of upcoding? I wondered this when I read Rosenthal’s book, and I wonder it again, reading Reinhardt’s. (As it turns out, a footnote to the Reinhardt passage quoted above cites a short Reinhardt disquisition, Where Does the Health Insurance Premium Dollar Go?, which in turn draws on an article about provider upcoding by…Elizabeth Rosenthal.)

If I had to guess at answers to my questions above, I would hazard that 1) U.S. culture and business practice (including ‘nonprofit’ business practice) generally is more geared toward maximizing revenue than those of peer nations; 2) our multiple payer system does hone competitive coding skills (and a market for third party specialists) among sellers and buyers alike; 3) regulatory capture may induce U.S. administrators to create fine gradations and loopholes in payment codes that encourage gaming; and 4) there is perhaps more gamesmanship in peer countries’ systems than I’m recognizing.

Of course, research is preferable to guessing. Readers: if you have answers, or referrals to good sources, please let me know.


* Reinhardt was a coauthor of a famous 2003 article with that title.

Photo by John Guccione

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