The Cost of Health Care, Contractually Abusive Joint Ventures, and the Economics of Medicine

It is no secret that a crisis is looming in health care in America. Our aging population, rapidly rising costs, and a large number of uninsured pose almost insurmountable problems for our country in general and, more specifically, for politicians lacking the courage or political will to act.

In a previous article, I wrote about universal health care coverage, recommending a two-provider model (public and private) as the most workable in America, given our unique culture and the structure of our health care system. Let us now consider how government economic health care policy is not controlling costs but is actually increasing costs, specifically using an example from the laboratory world. Without control of costs, universality of coverage will be unattainable.

First, let’s deal with the monster in the closet. This monstrosity is our current litigious health care environment and malpractice debacle. It has been reported that 25 percent of health care costs in America directly relate to the practice of defensive medicine, i.e., unnecessary tests, procedures, and evaluations performed by physicians to try to avoid being sued for malpractice. Do the math. If we are a country of about 300 million persons and close to 50 million are uninsured (that is about 17 percent of the population), then it is obvious that by eliminating or markedly reducing the practice of “defensive medicine” we could cover all of the uninsured in this country and still have change left over to spend on preventive medicine. Clearly, in our medical system a perfect (or near perfect) outcome is the standard by which medical care is measured. This expectation has to change. Gross negligence and true malpractice should not go without penalty, but a less than ideal outcome of treatment is not something that should be compensated for at the expense of society as a whole.

Second, what steps can we take to mitigate the impact of that most powerful and connected of lobbies—the American Trial Lawyers Association and related entities? Short of putting all of the trial lawyers into a landfill, how can we effect change? What can we do to stiffen the political spines of our elected leaders to pass tort reform? Easy question but there is no easy answer, given the power and money of this special interest group.

Consider one way in which the federal government is trying to control costs in health care, as are the payers who follow Medicare’s lead: cutting physician incomes. Yes, physicians have received an increase of 1 percent or so per year for a number of years. In general, physicians have celebrated that they have been thrown this bone of an increase, after having been threatened with draconian cuts in reimbursement of 10 percent or more. Physician naïveté in thinking that this year-after-year minimal “increase” in reimbursement—which does not come close to keeping up with inflation—is not just a cut in disguise is astounding.

What happens when physicians engaged in the health care system are cut fiscally to the point that their practices are in jeopardy or their standard of living is falling significantly? After all, they are human beings, and human beings have a bias toward self-preservation. What happens is something I understand but do not condone. Well, guess what? Utilization goes up! It is estimated that physician incomes are about 10 percent of the global health care budget. But there is a multiplier effect here. As physicians are squeezed, utilization of profit-generating procedures, tests, ancillary services, etc., goes up. It is an oft-quoted statement in the literature that decisions resulting from laboratory testing drive 60 to 70 percent of other health care decisions. In a similar way that this multiplier applies to lab and health care decisions and costs, physician-increased utilization multiplies costs far above the meager amount saved for the health care system by cutting real physician reimbursement.

Now to the point of this article as it relates to laboratory medicine: There is a cancer spreading across the country in anatomic pathology. This cancer goes by various names: pod labs, condo labs, captive labs, in-office ancillary services, and contractually abusive joint ventures, to name a few. Physicians are being sold by well-paid “consultants,” or middlemen, on the concept of in-sourcing anatomic pathology services as a way to enhance their bottom-line revenue without regard to patient-care consequences or the fiscal cost to society as a whole. While these arrangements may or may not be legal, they are not good for patient care. The result of these arrangements is increased utilization of anatomic pathology services and increased numbers of procedures and/or biopsies performed on patients. This means increased risk of patient harm and increased costs related not only to increased testing, but also to the cost of procedure-related patient complications and malpractice. This trend creates a “de facto” self-referral situation. These arrangements are being used increasingly by specialist physician groups and larger multispecialty clinics.

Let’s pick one example, that of a gastroenterology group: The physicians in this group are paid to see their patients, paid to do procedures (endoscopies), and paid to do the endoscopic biopsies, and all of these payments are appropriate. Now, when the anatomic pathology laboratory is “captive” or in-sourced, this physician group additionally profits from the technical performance of processing the biopsy and may profit yet again by negotiating a “discount diagnostic read” by a pathologist. Human nature is what it is—the bias is toward increased utilization, increased costs, and increased harm to patients resulting from unnecessary procedures.

Under normal circumstances, an anatomic pathology laboratory is completely independent from any ability to induce referrals to it. It must compete for work on the grounds of quality, service, excellence, and cost. There are clearly some indications for clinical laboratory testing to be done in clinics and the like on the grounds of patient convenience, expediency, etc. But this argument does not apply to anatomic pathology. In fact, having dozens of small unregulated labs with manual processes and limited oversight in a geographical region is—simply stated—poor medicine. Far better is to have fewer, larger, high-quality, competing laboratories with strong quality control programs, checks and balances, lean process design, bar coding and tracking of specimens, paperless systems, the best equipment, and a highly skilled technical staff. All of these things lead to increased quality and decreased risk to patients.

How can this situation be rectified? It can be corrected through legislation forbidding these arrangements and/or through tough regulatory oversight of anatomic pathology laboratories. This may eventually happen. However, these actions require involvement of political or governmental people and processes, desirable but problematic.

Alternatively, payers and malpractice insurance carriers should understand the costs and risks of these arrangements and take steps to halt or eliminate them to the extent possible within their sphere of influence. For example, payers could refuse to pay for technical anatomic pathology services unless they are provided by an independent laboratory. Malpractice carriers could raise insurance rates for physicians who own in-house ancillary laboratories.

Finally, power can and should come from the people. Patients must know who, what, when, where, and why regarding the processing and interpretation of tissues obtained from their person. Consider the gauntlet thrown down.