Thursday, July 2, 2009


There are clear signals from Capitol Hill, which suggest that the idea of public healthcare is unlikely to gain traction in either chamber of Congress. Proposals in the works are aimed at preserving the existing market framework, while making health insurance more affordable, covering patients with pre-existing conditions and curbing healthcare spending. Whether the reform is going to work basically depends on how well individual and group interests will be aligned towards maximum efficiency in applying care.

The first, and arguably, most important aspect of any solution is to change the economic environment on the supply side, by drastically reducing use of “fee-for-service” compensation, which generally encourages waste and marginalizes preventive care, and replacing it with value-based reimbursement system. This is supposed to re-focus providers’ attention from selling more services within their domain, to achieving best possible outcomes with fewer resources, in coordination with everyone else involved.

On the supply side, cost sharing is proposed, in the form of higher out-of-pocket expenses and/or deductible. In theory, this should make consumers inclined to take more responsibility of their own health and chose higher-value care when they need it. At the same time, some patients tend to cut back even on necessary services with little regard to their actual value. To mitigate this side effect, patients need to have access to information about their health status and ways to improve it, as well as to be offered incentives for taking good care of themselves. Perhaps, something like a “health score” would help with setting goals and creating a program to achieve them.

In order to be successful in the long run, healthcare reform has to be comprehensive, but to be adopted, it must:
· have support of the most influential stakeholders, not just public at large
· be deficit-neutral during implementation
· have immediate tangible positive effects on a majority of Americans

There is a lot of explaining required from the Administration and Congress, especially on the last two bullet points, to prove that we will have the right treatment for our healthcare.


  1. Alex,

    Just a brief note - the cause of out of control medical costs is over utilization, not medical fees. We could actually pay higher fees and if the docs would reduce utilization to appropriate levels we could dramatically reduce medicla costs.

    Just a thought.

  2. I am afraid that the current fee-for-service payment model largely drives utilization, through duplicate or unnecessary tests, scans, and even care. Please take a look at . This article estimates the share of waste in healthcare at 30%.