A formula to help Congress with health care costs

by Gary R. Gibson, MD, FACP

In his 2007 book Critical, Tom Daschle said lawmakers were “flummoxed” when attempting to craft specific reform legislation. They seem flummoxed again as they fail to recognize the primacy of the patient-physician covenant and try to analyze a complex problem without a suitable conceptual model.

The formula below represents a valid conceptual model describing health care costs.

“E” is expressed in monetary units and the other factors in the equation have numerical value but no units.

Health Care Cost = [(N) E (D) / (R) (X)] (1 + $)

N = number of people receiving care
E = effort/energy/expenditure devoted to appropriate care
D = patient demand for care
$ = coefficient of greed
R = value of physician reassurance
X = efficiency of the entire system

N. In a country with the resources of the United States, N should equal the entire population. If it does not, we may go down in history in disgrace regardless of our other accomplishments. Anyone who believes N should exclude part of the population needs to ask himself whether he belongs to human civilization or some other branch of the animal kingdom.

E. The effort/energy/expenditure devoted to appropriate health care, expressed monetarily. Doctors best know what this should be according to the specific needs of their patients. Of course lawmakers are flummoxed when trying to determine E because health care is not their craft.  When the doctor holds responsibility and liability for delivering appropriate care, s/he must be allowed to devote full energies to that purpose within the patient-physician covenant, without distraction or interference by any third parties seeking financial gain. E evolves over time as better tests and therapies, based on valid scientific evidence, are incorporated and old ones are discarded if less suitable.

D. Summation of demand throughout the population. When enticed by solicitation for health care services, quests for the fountain of youth, and medicalization of life processes and events that do not belong to the realm of health care, demand rises dramatically. No population in recorded history has had a higher D than the U.S. citizenry of today and that is part of the reason that designing a system of health care in the U.S from the top down is so difficult.

$. Coefficient of greed. Doctors, Hospitals and all institutional providers of health care who factor financial gain into strategies on how to best care for patients cause costs to rise. In a perfect system the coefficient of greed is zero. Owing to the large numbers in a system that includes hundreds of millions of patients and hundreds of thousands of providers, the coefficient of greed will never be equal to zero, but it should be as close to zero as possible. Efforts at health care reform must take this into account and not design a system where $ is encouraged or rewarded.

R. The value of physician reassurance expressed as a summation over the entire system. This is in the denominator because the greater the value of physician reassurance, the less is overall cost. Truth needs no second opinion. With advances in expensive technological tests and therapies, the falling value of R in U.S. society over the past 25 years has caused costs to rise dramatically.

X. Efficiency of health care. In the denominator because greater efficiency lowers costs. Many factors contribute to X, including efficiency of reimbursement, incorporation of information technology, and practice of defensive medicine to hide from liability. Third party payors contribute to inefficiency. When an insurance company’s “loss ratio” is 0.7, as is the case currently, the health care costs are 35% higher than when administration of benefits occurs with near 100% efficiency.

With modern computerization of financial records, there is no excuse for efficiency of benefit administration to be less than 97%. Medicare’s efficiency of benefit administration was close to 96% for the first 17 years of the program, before the introduction of “managed care” by private insurance companies and other intermediaries. Information technology holds the promise of bringing relevant information instantly into the hands of the doctor, nurse or pharmacist at the point of care for the benefit of the patient; when that is achieved it is possible to render better care at lower cost provided that these providers are functioning effectively at the point of service.

Defensive medicine is costly in dollars and in lost quality. For example, the negative predictive value of a test may be 99%: considered in the context of the patient’s history and physical; that should be sufficient to discharge the patient from the present care in most situations, and yet the modern climate of medical liability does not allow for such considerations of probability. The appropriate level of probability when making health care decisions is a function of the specific disease(s) under consideration and the circumstances of the patient. Striving for absolute, rather than probabalistic certainty and creating a medical record as though in preparation for court rather than as a summary of relevant health care information has had a devastating effect on the efficiency and quality of care in the United States in the past 25 years.

Efficiency is also reduced when market forces do not operate to allow price competition among prescription drugs, third party benefit managers, and other providers of health care goods and services. Thus, several factors exist within “X”.

The formula herein is offered as a tool to allow clearer analysis of the several factors which affect the cost of appropriate, modern health care. If we are to achieve constructive, sustainable reform in U.S. health care, we must analyze factors contributing to the health care crisis, and then design and implement a better system.

I believe many of the greatest obstacles to successful health care reform are a consequence of a modern American culture. The health care system should not be designed so as to reward individual or corporate greed, selfishness, cowardice and lack of self discipline.

Gary R. Gibson is an internal medicine physician.

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