WellPoint, Cigna, and a number of other major health insurance
companies announced last month that they will no longer bear the
extra costs of caring for patients harmed by any of nearly a
dozen types of preventable medical errors. In other words, the
doctors and hospitals that harm these patients will have to foot
the bill themselves.
These errors occur all too frequently. The Institute of Medicine,
a non-partisan research organization chartered by Congress,
estimates that 50,000 to 100,000 hospital patients die in the
United States each year as a result of preventable errors. That’s
almost three to six times the 18,000 Americans the IOM estimates
die each year because they lack health insurance.
Medical errors are pervasive in part because the way we pay
doctors and hospitals leaves them with too little direct
incentive to improve patient safety. For the most part, insurers
pay providers on a “fee-for-service” basis: for each service a
doctor performs, he collects a fee. That creates an obvious
incentive to recommend more tests and treatments, even if those
services offer little or no benefit to the patient.
The problem goes beyond wasteful spending, however. If, through
negligence, a healthcare provider causes a patient to require
more services, he can often collect additional fees.
Medicare, the federal health care program for the elderly,
provides an example. When Congress created Medicare in 1965, it
assuaged doctors’ fears about government-run medicine by agreeing
to pay providers on a fee-for-service basis.
When a hospital discharges a patient, Medicare cuts the hospital
a check based on the patient’s diagnosis, and cuts checks to the
doctors who treated him. If, however, someone made a mistake that
injured the patient and caused him to receive more services —
if, say, he acquired a preventable infection, or received the
wrong medication, or was injured in a fall, or developed
bedsores, or underwent surgery on the wrong body part — then
Medicare will send the doctors more checks, and might also
increase the amount it pays the hospital.
Imagine remodeling your kitchen and paying the contractor extra
to fix your garage door because he backed his truck into it. When
Medicare and private insurers reward medical errors this way,
Americans pay higher taxes and insurance premiums to cover the
costs of other people’s mistakes.
AFTER FORTY YEARS, Medicare has finally wised up to this perverse
financial incentive. Medicare officials have announced that
starting this October, they will no longer pay the added costs
associated with a list of obvious medical errors. Private
fee-for-service plans such as WellPoint and BlueCross/BlueShield
are following Medicare’s lead, as they usually do in matters of
provider reimbursement.
Yet this is hardly a case of government beating the market.
Markets developed an antidote to this perverse incentive decades
ago by creating arrangements that force hospitals and insurers to
bear the financial costs of their own errors.
In prepaid group practices like Kaiser Permanente, providers
receive a fixed amount of money per patient. If an error leads to
additional services, the added expense comes right out of
Kaiser’s bottom line. As Donald Berwick and Sachin Jain of
Harvard Medical School write, “The prepaid group practice model
is particularly conducive to improving safety…because the
practice itself (and not the insurers or patients) must pay the
costs of poor quality.”
If anything, government prevents markets from improving patient
safety. A raft of government interventions favor fee-for-service
medicine and inhibit competition by plans with greater incentives
to reduce errors. Medicare, the nation’s largest purchaser of
medical services, is almost entirely fee-for-service. Federal and
state tax laws give larger tax breaks to people or groups that
choose more costly care, and favor employer-based coverage, which
usually denies workers the ability to choose their health plan.
To be sure, prepayment creates a troubling incentive of its own:
providers who receive a fixed amount per patient can potentially
increase their profits by skimping on care. Nevertheless, most
research suggests that prepaid plans produce similar health
outcomes at a lower cost.
We may disagree about how to achieve better medical results, but
as we all know, you get what you pay for. The government pays for
unnecessary and harmful medical care, and that means more money,
more mistakes, and more casualties.
