The Impact of Outsourcing the “No” in Health Care  

Saying “no” is hard. It makes others unhappy, so people avoid it when they can — whether they are telling kids or constituents they can’t get what they want. 

But sometimes “no” is the right answer — granting a request may be dangerous, not possible, not in the contract, or not fair. You can soften the answer, but in these instances, it still comes down to…“nope.” 

Unless, that is, you are buying health care benefits or making capital investments in health care services. Purchasers of health care — be they Medicare, Medicaid, or employers — have mostly outsourced to health insurers the hard job of saying no when it comes to covering certain services. And health services investment decisions have been left by the public to third party investors in pharmaceutical companies, hospitals, and physician practices who are seeking to maximize financial returns.  

For a while, the result was a booming health care economy and worried state and federal budget experts. Now the dysfunction of this outsourcing has become so damaging and so apparent that a health insurance executive has been shot on the street and some Americans are sympathizing with the murderer.  

The inability to say no has led to a raging health care affordability problem in the United States. No single health care scapegoat of choice — fat cat insurers, greedy specialists, price-gouging pharmaceutical companies, opaque pharmacy benefits managers, or monopolistic health systems — is solely responsible. Each is playing by the rules established for (or by) them — and our current rules are failing us.

The supply and demand for US health care services have to be matched. For many other goods and services, we let the market do this matching and accept any resulting inequities in the consequences; Mountain Dew is fine for some and Dom Perignon for others based on one’s tastes and resources. Investors for their part seek and reward opportunities to create better quality for lower costs. 

But in medical services, market principles do not and cannot function. Third party insurance may protect us from bankruptcy but it creates moral hazard. The most empowered shopper in the world cannot be expected to shop for value for their life-preserving infusion drug or hospital admission. And health care is not like other goods and services — even the staunchest free market advocate would prefer not to see pain and suffering in the streets. 

Seduced by neoliberalism and the magic of the free market to match supply and demand, public policy in 1980s in health care forsook clumsy public sector resource allocation mechanisms like certificate of need to help oversee health industry expansion and provider rate-setting to manage health care prices. Instead, the US turned to the promise of unfettered health provider competition and managed care, which offered the benefit of broader coverage in exchange for following its rules for obtaining covered services from in-network providers. 

Employers jumped on board, and Medicaid and Medicare — only too happy to pay someone else to say no and to deal with irate providers and beneficiaries — quickly followed. Public and private purchasers grew comfortable with the “bargain” even if managed care’s processes were increasingly complex. In exchange for outsourcing determinations of medical necessity and provider network composition, employers got a predictable cost for a broad set of services which, when it got too high, could be partially shifted to beneficiaries or covered by public sector subsidies. Over three-quarters of Medicaid beneficiaries are enrolled in a managed care plan, and this year 50% of Medicare beneficiaries were in Medicare Advantage plans.   

Meanwhile, in a world of provider competition, private rate negotiations, and limited government review of service expansions, size matters. Providers steadily consolidated to gain leverage at the bargaining table and in the capital markets, as well as influence in public policy making. Big health systems have brought no discernible cost efficiencies or clinical quality improvements, but they have led to higher prices and dramatic increases in the complexity of care delivery.  

More perniciously, this world has accommodated the influx of capital from investors seeking outsized and quick returns through the spread of private equity investment schemes. While health care in the US has long included shareholder- and privately owned health systems, their owners have had lower return expectations and longer timelines than investors in private equity. The effects of private equity strategies to generate these higher and quicker return demands in health care have been chaotic. Asset extraction has left hospitals paying rent to occupy their own property. Value enhancement in physician practices has meant more patient visits in shorter time frames and higher prices.  

At the bottom of this cascade sits (or more often lies) the patient, left to navigate increasingly byzantine delivery systems and benefits administration processes, at precisely the point in their lives when they are most sick and tired. They have a dizzying array of treatment options to coordinate and financing rules that appear arbitrary. Caring relationships between patients and clinicians — so essential to affirming human dignity — often wither under the burdens of this complexity and uncertainty. 

In outsourcing the responsibility for saying no in health care, we have reaped what we have sown: high costs, mediocre life expectancy, exhausted providers, and a public that is confused, angry, and now violent. To quote the old comic strip Pogo, commenting on our environment at the dawn of the ecology movement, “We have met the enemy, and he is us.”  

“In-sourcing” this work, by rebuilding trustworthy public decision-making processes to allocate limited health care resources in fair and equitable ways, will be a herculean effort. Providers and insurers will not unilaterally disarm. Employers are in a seeming death dance with their perceived obligation to provide health benefits: they are absorbing more costs and passing what they can to employees and the rest to us as consumers, and unwilling to cede this obligation to the government. Refinancing 17% of the US economy is not for the faint of heart. Trust in government is at historic lows.  

And yet. Connecticut, Colorado, Oregon and, in most instances, Massachusetts have eliminated health insurers from their Medicaid programs. Maryland maintains two national caliber academic medical centers on a chassis of an all payer, public rate setting process, and the Center for Medicare and Medicaid Services’ AHEAD model hopes to seed similar activity in other states. Rhode Island reviews all health insurance rates for affordability efforts and limits the rates of increase hospitals can receive, resulting in demonstrably lower insurance premiums than neighboring states.  

People trust local governments more than state governments and states more than the federal government. That is why Washington and Oregon are using their Medicaid programs to build local, community-wide infrastructure for assuming financial risk for health care costs (OR) and for identifying and responding to population health needs (WA). North Carolina is using Medicaid funds to reshape its networks of behavioral health providers and build community-based organization capacity to meet health-related social needs.

It is worth attending to these efforts. Because in health care it is better to say “yes” to allocating limited resources in ways that are reliable, fair, transparent, and public than to live with a capricious, inequitable, opaque system controlled by those with access to capital and motivated by financial gain.