Does Health Care’s Profit Motive Hurt More Than it Helps?

The profit motive in health care can be a very bad thing.

The incentive to maximize financial gain — and not always at the benefit of patients — can bring us too many surgeries and not enough primary care providers. At its worst, it can lead to massive fraud and abuse.

But it can also spark positive changes — or so the architects of the federal health reform law hoped.

Has it? The jury’s still out on some of ObamaCare’s most sweeping reforms, but a recent story on new financial incentives for end-of-life care shows the mixed blessings of the profit motive.

PPACA Uses Profit Levers

Peter Orszag, who served as President Obama’s chief economist through July 2010, was an advocate of using behavioral economics to reform U.S. health care. Specifically, Orszag argued that relying on economic principles to drive reforms, from incenting individual patients’ healthy behaviors to changing how doctors make decisions, would improve systemic efficiency and reduce spending.

Accordingly, the Affordable Care Act included a raft of provisions that hinge on profit-seeking behavior while also serving the public interest:

  • More expansive health coverage: Payers accepted new restrictions that prevent them from denying or rescinding health coverage in exchange for the ACA increasing their possible patient base. The potential financial windfall for health insurers adds up to $1 trillion, Alex Wayne notes in Bloomberg News.
  • Better-coordinated care: Hospitals and physicians were encouraged to accept spending cuts because the ACA introduced new models like accountable care organizations — designed to give them a greater stake in patient outcomes — that could lead to high-quality providers actually receiving even more reimbursement.

The ACA also came on heels of the 2009 federal stimulus package, which included new financial incentives for providers to digitize their medical records, prompting many doctors to make long-overdue upgrades.

But some of the law’s provisions have the potential to go terribly awry. For example, the ACA heavily penalizes hospitals based on their 30-day patient readmissions rate — moreso than their 30-day mortality rate — and public health advocates warn that may be sending the wrong message.

Under the ACA, “it’s like readmissions matter more than mortality, and that just seems ill-advised,” according to Ashish Jha, an internist and policy researcher at Harvard University. Jha fears that some low-mortality hospitals will realign their resources to prioritize programs that avoid readmissions, HealthLeaders Media reports, ultimately benefiting their bottom lines but not serving patients’ best interest.

With hospitals being pushed to curb readmissions, some marketers are even touting hospice services as a “cost-cutter,” according to USA Today. Many elderly patients move in and out of the hospital with terminal conditions, and these marketers argue that simply routing such patients to hospices would lower hospitals’ readmissions rates.

One specialist — speaking at a conference sponsored by the National Hospice and Palliative Care Organization — even suggested that hospital CEOs hire staff who can speak to patients about the benefits of hospice. Another marketer suggested lobbying hospital CEOs on the “financial benefit” of steering more patients into hospice.

Misaligned Incentives

It’s discomfiting to see hospice actively portrayed as a cost-cutting solution. But financial incentives manifesting in unexpected, and uncomfortable, ways isn’t a new health care trend.

Atul Gawande’s seminal New Yorker article, “The Cost Conundrum,” framed how some physicians can be seduced by profit growth, leading them to cherry-pick patients or do unnecessary procedures. In one Texas town, where health care costs eventually exploded, the “medical community [had come] to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers,” Gawande concludes.

More recently, the Huffington Post‘s Jeffrey Young detailed how the dust-up over Accretive Health’s aggressive bill collection practices are tied to deeper, systemic problems in health care.

Many of Accretive’s clients are hospitals that — facing reimbursement cuts, capital constraints and the obligation to treat uninsured, emergency patients — are “clamoring to bring in every dollar they can,” Young writes. And “those factors can lead to an environment where it seems okay to harass patients for money,” he adds.

Challenge of Striking the Right Balance

The ACA was intended to address some of those deep, systemic problems. Providers will be increasingly incented to deliver lower-cost care, in theory reducing unnecessary tests and interventions. Expanding Medicaid to cover more uninsured patients should reduce hospitals’ reliance on aggressive bill collectors.

According to a CMS spokesperson, the law’s incentives related to readmissions are intended to “ensure that savings come from better care, not cutting care.” And while the marketers’ pitch on hospice is unsettling, there are clear benefits to getting terminally ill patients into hospice sooner, rather than having them undergo painful and pointless procedures.

But the emerging fight over readmissions shows the fine line that regulators must walk when introducing new financial incentives in health care. Steering providers toward better, medically sound decisions is acceptable. Aggressively pushing them to make profit-driven choices isn’t.

Here’s what else is happening around the nation.

Challenges to Reform

Nearly 62,000 U.S. residents who receive health benefits through the federal health reform law’s Pre-Existing Condition Insurance Plans could lose coverage if the U.S. Supreme Court strikes down the overhaul. It is possible that if the high court deems the law’s individual coverage mandate unconstitutional, the entire law could be struck down. That would include the PCIPS, or temporary high-risk insurance pools created as a stop-gap until the law in 2014 prohibits insurers from denying coverage to individuals with pre-existing conditions (Alonso-Zaldivar, AP/San Jose Mercury News, 5/17).

Eye on the Courts

In 12 lawsuits filed in federal courts on Monday, 43 Roman Catholic dioceses, schools and other institutions challenged the federal contraceptive coverage rules that are being implemented as part of the federal health reform law (Boorstein, Washington Post, 5/20). The lawsuits represent the largest coordinated test of the rules since President Obama announced the policy in January (Zoll, AP/U-T San Diego, 5/21). The plaintiffs include the University of Notre Dame; the Catholic University of America; and the archdioceses of New York and Washington, D.C. (Rovner, “Shots,” NPR, 5/21).

In the States

On Friday, Missouri‘s Republican-controlled Legislature passed two bills to protest provisions in the federal health reform law. The first bill (SB 749) ensures that employers or health plan providers across the state cannot be compelled to provide or penalized for refusing to provide coverage for abortion care, contraceptives or sterilization if it goes against their religious or moral convictions. The second bill (SB 464) would ask state residents this year to vote on whether to create an insurance exchange as mandated by the federal overhaul. The bills will be sent to Gov. Jay Nixon (D), who has not indicated whether he will sign them (Lieb, AP/Christian Science Monitor, 5/19).

Studying Its Effects

U.S. residents who purchase insurance coverage in the individual market would have saved about $280 annually on out-of-pocket costs if the federal health reform law had been in effect between 2001 and 2008, according to a new study in the journal Health Affairs. The researchers contended that the state-based insurance exchanges created by the overhaul will make individual policies more generous and lead to out-of-pocket savings (Baker, “Healthwatch,” The Hill, 5/17).

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