Consumer-Directed Healthcare: Fad or Future?
By John Latsko  For those who have been in a coma for the past several decades, US healthcare costs continue to escalate annually at double-digit rates, with more and more Americans going without health insurance due to its high costs. While the average American spent more than $5,600 on healthcare in 2005, the US has the lowest life expectancy and highest infant mortality and preventable death rates among the six most industrialized nations in the world. That list includes Canada, the United Kingdom, Germany, Australia, New Zealand, and the US. Waste and inefficiency in our system is evidenced by the fact that the US performs the most duplicative tests and has the highest rate of emergency room visits for primary care problems among those same nations.
In 2005, 46.6 million Americans were uninsured, up 1.3 million over 2004 and growing, mostly because of the high cost for health insurance. Many small employers have ceased providing health insurance benefits due to high cost.
American medicine traditionally has financially rewarded high utilization. Mergers and acquisitions have resulted in even less price competition. Hospital providers especially have more influence over healthcare expenditures than do the employers and patients who pay the bills. Managed care had a limited influence in slowing healthcare inflation, but consolidation changed that. The federal government's FY 2007 proposed budget plans to reduce Medicare spending by $2.5 billion in that year and by $36 billion through 2011. Commercial insurers will follow Medicare's lead.
How Costs Will Be Cut
How will they do it? One approach to control expenditures that is gaining strength in the marketplace is consumer-directed healthcare (CDHC). CDHC is the new center stage of healthcare reform. The theory behind CDHC is that an informed patient with access to a wealth of data to make informed decisions will reduce fraud, waste, and unnecessary services, increase price competition, and seek care from high-quality, low-cost providers. CDHC assumes that competitive pricing and quality measurements will be reported and transparent. Patients who are paying for their own care will select providers based on factors directly influenced by price and quality. By transferring upfront costs and financial responsibility to patients, spending will be reined in at non-catastrophic levels while encouraging patients to become much more involved in decisions related to their care. Patients will be motivated to participate in wellness and prevention programs to lower their overall healthcare costs.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 made CDHC programs feasible by authorizing the creation of health savings accounts (HSAs). When coupled with a high-deductible health plan (HDHP), an HSA is a tax-sheltered way for patients to minimize out-of-pocket expenses while still having catastrophic-level comprehensive insurance protection. Amounts contributed to an HSA can be used by patients to pay for qualified medical expenses until the deductible is met and the HDHP begins to pay. HSA funds can be rolled over from year to year until the funds are needed.
What This Means to You
So what does this mean to healthcare providers and suppliers? It means that patients will become the payers for your devices and services much more often than before—and will be more concerned with the cost. Small employers now offer insurance through HDHPs when they previously did not. One-third of the small employers who now offer HDHPs did not provide any previous health insurance to employees.
Virtually all insurers now offer an HDHP as part of their total offering of plans. For example, going from a $500 to a $1,500 deductible results in an approximately 20 percent premium savings and is tax-effective. A majority of employers have indicated that they will offer an HDHC to their employees in the future.
HDHPs will make collections more difficult. While insurance companies sometimes make collecting for services frustrating, collecting high deductibles from patients may make providers wish for the good old days when insurance companies paid claims. Patients will want to know exactly what an item will cost before services are rendered, and you will want to know how you will be paid for services. You will need to have someone spend time finding out whether a deductible has been met, whether the maximum out-of-pocket has been spent, and how much the patient will be charged. You will need to set up new systems to deal with this new way of financing healthcare delivery.
Consumerism may be just a fad or it may be the pathway to progress. Many hope that consumerism in healthcare is not a fad because we are running out of ideas to control costs. In either event, you will see patients being more financially responsible for your devices and services, and, if consumerism really works, an informed and careful patient will want access to information about you, your success as a practitioner with patient outcomes, and the cost associated with achieving those outcomes. You will be required to report cost and quality data to third parties. Cost and quality data transparency will assist patients in choosing healthcare providers, including O&P.
The hope of reformists is that consumer-directed care will cause the law of supply and demand to apply to healthcare. Competition has not worked in healthcare like it does in other industries because the ultimate beneficiary has not been responsible for its costs. CDHC wants to change that. You must accommodate consumerism if you are to effectively compete in a changing marketplace.
John Latsko is a partner in the health law practice of Schottenstein, Zox & Dunn, Columbus, Ohio. He can be contacted at 614.462.2329; jlatsko@szd.com 
Table Of Contents - November 2006
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