If competition the way it is structured at present actually drives the cost of health care up rather than down, what would bring lower costs? What provisions in a “health reform act” would actually drop costs in health care? Let’s leave aside for the moment all the myriad other arguments – some might be seen as too much government intrusion, some would be cripplingly difficult for providers, and so on – and just focus on cost. Given the real structure of health care markets in the United States at this moment, among the various options available to lawmakers, what could be written into federal law and regulation that would actually reduce cost?


Some of these changes are massive, some would be invisible to those outside the industry, but all could be legislated or regulated, and all would “bend the curve” toward lower costs. Choose any you like. They would all have some effect. Collectively, they would have a massive effect:

  1. Sell health plans only through exchanges: Exchanges (including the Federal Employees Health Benefit Plan) promote direct competition between health plans by forcing them into direct, standardized, head-to-head, benefit-by-benefit price comparisons between plans. In addition, they eliminate commissions paid to the plans' own sales force and to third-party re-sellers.
  2. Extend Medicare to the 55-and-older age group: This is the most expensive part of the population covered by private insurance. Covering them through Medicare means forcing providers to take Medicare rates for this expensive population.
  3. Pass a “robust” public option: All providers must take its payments as full payment, rates tied to Medicare rates (perhaps plus a percentage), with the Medicare rates decided by an independent rate-setting commission.
  4. Limit medical loss ratios: Many European countries dictate that health plans must return 85% or 90% or 92.5% of the premium paid in as medical services paid out.  U.S. health plans, in contrast, compete on (and brag to Wall Street analysts about) how low their medical loss ratio is. Some are as low as 60%. Mandating that at least 85% or 90% of premiums must be paid out in medical services would cut health plan profits, force health plans to streamline their operations and reduce transaction costs, reduce the amount diverted to profits, administration and marketing, and lower premiums.
  5. Negotiate drug prices: Allow the federal government (the world's largest buyer of pharmaceuticals) to negotiate prices for life-saving drugs.
  6. Reform malpractice : Our adversarial system of dealing with malpractice costs us, directly, only about one half of one percent of medical spending. But the extra tests and unnecessary procedures of "defensive medicine" cost an estimated additional 3% – $60 billion per year, an amount equal to most of the cost of extending coverage to all Americans. And still most victims of real malpractice are left without any help or compensation at all, most actual medical mistakes pass without comment, and most of the few really "bad" doctors out there are still able to practice medicine unhindered.
  7. Create more docs, more clinicians: Increase the supply of medical service by expanding medical and nursing school enrollments, reducing barriers for foreign medical school graduates, reducing internship requirements, and allowing nurses and techs to perform more procedures.
  8. Bundle: Many parts of health care could be “bundled” into coherent products – a replaced hip, an uncomplicated birth, a cornea transplant, diabetes management – from diagnosis to re-hab, counting all imaging, drugs, everything. Payers should pay for these as single payments, just as you don’t pay the auto body shop for each sheet of sandpaper or quart of paint, but for the whole job. This would drive providers to discover the most efficient way to do it.
  9. Publish outcomes: There are comparable measures of quality that do not penalize places that take more complex or difficult cases. Establish standards and put all the statistics on the Internet.
  10. Publishing prices: You want a new hip? Here’s what it costs at each of these institutions, here is their clinical quality outcome rating, here is their customer satisfaction rating, right there on the Internet. This is true competition that would drive down prices and drive up quality.
  11. Ban discounts: Counterintuitive? Perhaps. Any CFO of a health care organization would tell you that their “master charge list” is a phantom made up only for negotiating discounts, and the discounts are all over the map – so no one can tell you what the “real price” of any part of health care is. This means that competing on price at all is very difficult, if not impossible. “Common carrier” rules in communications and transportation dictate that the price is the price, and the little buyer pays the same as the big buyer. This would massively transfer risk to the providers to get their costs under control and get their prices right. 
  12. Give a premium to integrated “accountable care organizations:” All the organizations consistently put up by reformers as good examples of giving the most and best health care for the dollar, such as Mayo, the Cleveland Clinic, Geisinger, Group Health of Puget Sound, Kaiser, and Health Partners of Minnesota, are structured differently from the rest of health care. The doctors are on salary, or share profits in the whole enterprise. Many of these organizations are “capitated:” they cover everything for a set monthly fee. There is no encouragement to do anything unnecessary, and every encouragement (since they are in competition) to do whatever actually works for better health. They do good, conservative medicine in a collaborative team-based style. We cannot mandate the growth of such organizations, but we could give an extra 5% or so to encourage their growth.
  13. Ramp up comparative effectiveness research: Traditional testing asks whether particular new drugs and therapies are safe and effective. It doesn't ask whether they are more effective than an existing drug or therapy, or just as effective but more difficult, invasive, or expensive. In these "gray areas," doctors have great influence over the patient in choosing the therapy, and they tend to choose the therapy that will make them the most money. For instance, back fusion surgery for ordinary chronic back pain has been shown in the peer-reviewed medical literature to be no more effective than much-cheaper (and safer) painkillers, weight loss, exercise, and physical therapy. Yet this type of surgery still thrives. Comparative effectiveness research would help narrow these expensive "gray areas."
  14. Increase subsidies for digitization, tied to productivity improvements: There are huge inefficiencies in the actual practice of medicine. No one can improve on them until the people running health care can actually track what they are doing, in detail. In something as complex as health care, that means total digitization, like any other business.
  15. Subsidize automation: Many things in health care would be done much more efficiently by automation, from lab work and pharmaceutical distribution to tracking inventory. Today’s system does little to encourage such automation – instead,it actually supports the inefficiency.
  16. Standardize and mandate standard checklists: Many parts of health care have established pathways that are clinically proven and widely published in the medical literature, yet followed only at the clinician’s whim. These are not matters for the doctor’s judgment, these are matters like washing your hands between patients, fully draping a patient for a central line placement, getting clear verbal confirmation from everyone in the surgical suite that they agree on who the patient is and what the operation is for. Standard pathways, and simple feedback mechanisms like checklists to make sure they are followed, are still not common practice in health care. If regulations made them mandatory, following them would save billions of dollars in fighting infections and having to re-admit patients to the hospital with problems that could have been prevented.
  17. Give warranties: You define the job and put a price on it, now back that with a warranty. Today, if I have an operation, and get an infection from the operation, or it has to be done over, the provider actually gets paid for taking care of the problem. With a warranty, I (and my insurer) would pay nothing. This would drive the risk for quality back on the provider.

None of these choices is “radical” in the real world of health care. Each has been proven, in practice, in some part of the current market. Each is practical, not just theoretical. Each could be done with current technology if we decided to do them. Most could be done without any massive new bureaucracy, just from a tweak here and there in the rules, undoing rules that have been set for the convenience and profit of payers and providers, and setting them instead to force them to compete on actual value for the patient and for the nation.

We could drive down the cost of health care while driving up quality and serving everyone. How much could it be driven down? The evidence (from other countries and from variations in our own market) says that we could do health care in the United States, with full choice and higher quality than today, for everyone, for half to two thirds of today’s cost.