March 01, 2015
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Consumer-Driven Health Care: Ethical and Legal Pitfalls
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Consumer-Driven Health Care: Ethical and Legal Pitfalls

With health care costs continuing to grow at a much higher rate than inflation, some policy makers have seized upon yet another technique they hope will restrain spending — "consumer-driven health care" in the form of "health savings accounts."

Consumer-driven health care is the latest in a series of efforts since the early 1970s to control health care costs. One of the first approaches was health planning, whereby hospitals could not increase the number of beds, and providers could not make major capital expenditures for equipment or new services, without first obtaining permission from the state, known as a certificate of need. This effort failed because the state had little incentive to limit the growth of its health care infrastructure. Health planning largely has been abandoned, although, interestingly, the Clinton health reform plan proposed to reinvigorate it.

Consumer-driven health care is the latest in a series of efforts since the early 1970s to control health care costs.

The next approach was outright price controls. Building on the refusal of insurers to pay more than the "usual, customary or reasonable fee," Medicare in the early 1980s replaced its cost-plus payment system for hospital care with a prospective payment system, known as DRG, whereby hospitals were paid a fixed amount based on the patient's diagnosis, and later began to pay physicians according to a "resource-based relative value scale" (RBRVS) fee schedule. This, too, failed to constrain health care costs satisfactorily. The reasons are too numerous and complicated to explore here, but the major problem with the idea was that it limited the amount doctors and others could collect per service, so providers simply increased the number of services they provided to patients.

The cost-containment poster child of the 1990s was managed care. Managed care took as many forms as health care management consultants could invent catchy names and clever twists but, in essence, the more the provider spent on patients, the less profit remained for the provider. In the "capitation" model, providers were paid a fixed amount per patient per time period. This effectively transformed providers into health insurers for the most costly patients (or at least insurers for the costs for which the providers had not purchased stop-loss insurance).

Despite all the hoopla, managed care enjoyed only a brief period of apparent cost-containment success in the mid-1990s. HMOs are failing to hold down costs because physicians resist external controls on clinical decision-making and because of relentless, albeit only marginally-successful, legal attacks.

Is Consumer-Driven Health Care the Solution?
Persistent health care inflation at levels that many believe are unsustainable has led insurers, employers and the Bush Administration to promote consumer-driven health care as the new panacea. They call their idea "health savings accounts."

The idea is to turn traditional health insurance on its head. Unlike traditional insurance where the insurer paid for expenses beyond a relatively small deductible up to a certain level and then the patient became responsible for the rest, under consumer-driven health care the patient is responsible for costs up to a certain threshold, beyond which the insurer becomes responsible.

With a health savings account, patients would get fixed, pretax amounts of money from their employers or from the government to purchase health plans with extremely high deductibles, leaving the patient financially responsible for the first several thousand dollars of annual health care costs. The idea is that, since patients are free to reinvest any money left in their accounts at the end of the year, they will have an incentive to make wise health care spending choices.

With a health savings account, patients would get fixed, pretax amounts of money from their employers or from the government to purchase health plans with extremely high deductibles...

But notice what happens. Under health planning and price controls, the government and private insurers make financial decisions by regulating large-scale expenditures and establishing maximum fee schedules. Managed care imposes financial pressures on physicians and other health care professionals to make frugal spending decisions. But under consumer-driven health care, as the name indicates, the financial decision-maker becomes the patient. The ethical and legal issues raised by the consumer-driven health care movement stem from this feature.

Patients' Heightened Need for Information
One of the defining features of consumer-driven health care - making patients financially responsible for a substantial amount of first-dollar (i.e., prior to insurance kicking in) health care costs - actually is not new at all. Before the spread of third-party payment (by an insurer or the government, for example), patients who could afford to pay for health care did so out of their own pockets. What they saved by being thrifty on health care they were free to spend on other things, or they could save the money and spend it on health care at a later time.

But consumer-driven health care is different from this traditional method of health care financing in several important ways. Traditionally, there was much less high-cost care in the physician's armamentarium, and what there was - private sanitaria, expensive surgeries, long-term hospitalization — was much less widely available. In short, physicians had relatively few expensive options to offer most patients. Today, however, patients face a bewildering array of high-cost options.

Second, in contrast to the past when most high-cost interventions provided little proven value, expensive options available today include some, if not many, that offer significant clinical benefit, and decisions to forego them may have serious and even dire health consequences.

Third, the old system was a paternalistic one in which patients by and large were expected to rely on their physicians to decide what services the patients would receive. Today, in contrast, the principle of patient autonomy and its embodiment in the doctrine of informed consent, at least in theory, make patients co- if not the principal decision-makers. Indeed, the consumer-driven health care model owes part of its origin to consumerists who strongly believe in patient control.

On the one hand, patients may seem to make better decision-makers than health care professionals. Patients can apply their own value systems and tailor their purchases to their individual level of risk aversion. A vitalist can ask for everything possible to prolong life. A person who is highly risk-averse can purchase extra tests to rule out more remote possibilities of illness. Putting patients in the driver's seat avoids the need for caregivers to attempt to determine patient preferences through the informed consent process, or to guess at those preferences with the risk of getting them wrong.

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