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Accountable Care Organizations, Technology Cut Medical Costs

By Vera Gruessner

- The healthcare system has a multitude of gaps that cause spending to continue rising without an effective method to reign in these high costs. For example, a major problem has been ongoing redundant tests and unnecessary, expensive procedures within the healthcare industry due to a fee-for-service payment system. However, Accountable Care Organizations and value-based care could provide a new method to decrease high healthcare costs.

Prescription Drug Costs

To learn more about the issues taking place within the healthcare field, spoke with Dr. John R. Patrick, author of Health Attitude: Unraveling and Solving the Complexities of Healthcare. In his book, Dr. Patrick discusses ways the federal government and stakeholders across the medical field could reign in the rising costs of healthcare services.

Healthcare Needs to Invest in the Internet Age

“We’ve seen what’s possible when we use Amazon, eBay, and many other successful and profitable websites. We know that Internet technology is very highly scalable. It didn’t used to be back at the beginning,” Dr. Patrick explained. “Technology has evolved. People have mastered the technique of being able to create scalability on the Internet so that an organization can simultaneously serve millions of consumers.”

“I mention that as a backdrop because it begs the question – why can’t we do that in healthcare?” Patrick told “I came from a world where you click and something happens. When I got into the world of healthcare, I found there was no place to click.”

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“The healthcare industry is plagued with paper, post-its, clipboards, mailings, multiple blank sheets, and redundant information that adds no value whatsoever but does add cost,” he mentioned. “If companies like Amazon and others utilized the technology approach of the healthcare industry, they would be bankrupt. When you look at the American healthcare system, we should ask ‘what is the number one problem?’”

“From my point of view, the answer is cost. I find that many countries spend half the money per person for healthcare compared to what we spend. It’s not because they do half a job – they have great healthcare in Europe, Canada, the UK, and other developed countries. We have a cost problem.”

Why is Healthcare so Expensive?

“The follow-up question is – why is it so costly? Why are we out of line with the rest of the world? There’s a long list of reasons. The number one reason is unnecessary tests and procedures. Estimates range up to $1.5 trillion. Some other major contributors have to do with the efficiency of the industry.”

“The information technology being used in healthcare is way behind other industries. Even today, after all these years of exploitation of the Internet, when you visit a doctor’s office, the odds are very high that you’ll be presented with a clipboard,” he explained.

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“I don’t know of any other industry that is based on clipboards and fax machines. Also, healthcare still uses beepers. Nobody uses beepers that I know of other than in healthcare. One of the elements of the out-of-line cost is inefficiency. One study suggested that if the American healthcare system used the same administrative standards that Canada uses, it would save $300 billion per year,” Dr. Patrick mentioned.

“We have a big problem with the cost of administration. The other costs have to do with fraud and the lack of tort reform. The lack of tort reform is not a large part of the problem itself, but it induces defensive medicine, which is what produces unnecessary tests and procedures. The incentive system that is part of the American healthcare system encourages unnecessary tests and procedures because it compensates providers based on how many times they do something.”

“The good news is the accountable care model offers the hope that we can get this under control by paying fixed amounts per person per month rather than pay for every time somebody does something,” Patrick concluded.

Why are Prescription Drugs Costs Soaring?

“The culprit in this area is Congress. The pharmaceutical lobby convinces Congress to do things that are not in the best interest of the American people but in the best interest of the pharmaceutical industry. For example, in Medicare Part D, the prescription drug plan put in place in 2003, Congress inserted a provision into the legislation preventing Medicare from negotiating the price for the drugs they pay,” Dr. Patrick stated. “It’s outrageous. The American people should be outraged and demand an explanation from Congress.”

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“It’s a major contributor to the high cost of drugs. There’s no effective competition and they have the free hand to set prices wherever they want. Medicare pays it. Other countries do negotiate over the price. They pay a lot less than we do for exactly the same drugs.”

“For example, the price for one common pill in the US is $5.20 and it’s a $1.30 in Canada. This is the same pill made by the same company. This is because Congress doesn’t allow Medicare to negotiate and regulators do not  allow Americans to buy drugs from Canada.”

Could Prohibiting Consumer Marketing Cut Costs of Prescription Drugs?

“The reason we have this advertising – which no other country in the world allows – is because lobbyists convinced Congress that doctors don’t keep up with the latest medications and so they need to go directly to the consumer with TV advertising,” Dr. Patrick mentioned.

“This adds cost because millions of people watch these ads. The average person in America sees 13 or 14 of these ads per day. Most of them having nothing to do with the condition that the person watching TV has.”

“These ads are created in a way to portray people that look like somebody who may be watching. The person watching thinks that maybe they do have that symptom or condition. They go to the doctor and ask to have that particular drug prescribed. This adds unnecessary cost,” Patrick told “Do any of these drugs advertised all day long add any quality of life? Do they add to the health of the American people? In most cases, I don’t think so. Also, the pharmaceutical industry spends more on marketing than they do on research.”

How the Federal Government Can Lower Rising Healthcare Costs

“The first thing Congress should do is remove the restriction on Medicare from negotiating drug prices. This should not require any debate. The other thing Congress can do is support the spread of Accountable Care Organizations,” he stated.

“Right now, we have half or more of Congress saying we need to repeal the Affordable Care Act. When they say that they’re really making a political statement. There are problems with the Affordable Care Act that need to be addressed and people are frustrated with it.” “However, repealing the entire reform act would be throwing away the baby with the bathwater.”

“The transition we’re going through to bring millions of people into the healthcare system is adding a lot of cost. The promises that were made that insurance premiums would go down were never true. I’m not saying that people lied. I think they didn’t have all the information and it was a hopeful set of statements, but was not the case. In the short term, people are not happy with what they see from the Affordable Care Act.”

“If you peel back the onion and look at the elements of the Affordable Care Act, you find things that are helpful. One of them is the Accountable Care Organization, which reverses the fee-for-service system. This is going to lower the cost of healthcare over time. The most recent report I saw indicated the savings from the ACO model were $418 million.”

“It is complicated. It requires modern management and leadership. It requires skills in data analysis that were not needed before. We’re in the early phases of it, and it’s going to take time. I believe that it will work,” he explained. “I call it healthcare common sense. Instead of paying for everything that happens, you pay a fixed amount. That fixed amount has to be fair and has to enable hospitals to operate with a positive margin. But it doesn’t compensate hospitals that do a lot of unnecessary procedures.”

“The other hopeful part of the Affordable Care Act is an increased focus on patient safety and quality. People die every year from medical errors and people do go to hospitals and acquire infections. I think the Affordable Care Act, while needing a lot of surgery itself, has elements in it that will lower the cost and improve the quality of care.”

How Patient Engagement Lowers Healthcare Spending

“The mHealth movement is empowering consumers to gather data about their activity and their health including medical conditions. This is not just about counting how many steps you walk. This is technology that will enable laboratory tests to be done in the home. A new device now permits kidney dialysis at home without needing a healthcare professional. People are able to monitor their heart at home.”

“These things are empowering the consumer with data and that data will enable them to more effectively collaborate with physicians. Consumers are going to want to engage, discuss options, and ask questions. When they become convinced they need something being recommended, they’re going to ask how much it costs and expect to see the price. This will allow consumers to comparison shop,” Dr. Patrick concluded. “The growth of high-deductible insurance plans provides a lot of motivation to shop around just as we do for everything else we buy.”


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