Health care reform raises two sets of issues: access and costs. Given that health care in 2007 accounted for on average nearly one-third of state spending, and it is projected to reach 25 percent of gross domestic product in 2025, improving access to health care without controlling costs provides a social good with an accompanying burden to the U.S. economy.

To manage costs, the laws governing the health care system must be aligned with policies that seek to decrease unnecessary services, encourage use of cost-effective services, and reduce administrative costs, including payment of claims, profits, shareholder return, broker costs, litigation and other factors. However, many of this country’s laws, well-intentioned and otherwise beneficial, serve as barriers to reducing health care costs.

Laws affecting utilization of health care services

Currently, there is no incentive for anyone in the health care system (outside of capitated payment arrangements) to reduce the number of unnecessary medical services. Given that 70 percent of health care costs are tied to chronic care, rewarding patients for improving their health may reduce both complications of chronic diseases and cost.

However, current law restricts the ability of employers and others to provide incentives for healthy behavior, such as stopping smoking or losing weight. The Americans with Disabilities Act does not allow employers to provide benefits that treat disabled employees differently from other employees. Employer wellness and health screening programs may be voluntary only, and no penalty may be imposed on employees who do not participate.

The federal Health Insurance Portability and Accountability Act allows group health plans to provide discounted premiums and cost sharing for employees who succeed in wellness programs only if the reward or penalty for success is relatively small. The Civil Monetary Penalties law prohibits disease management programs from offering more than nominal remuneration to a Medicare or Medicaid beneficiary for seeking any specific service from a particular provider. The effect is to limit Medicaid programs from offering strong enough incentives to encourage individuals to control their diseases.

Likewise, current state laws do not always support a patient’s desire to withdraw nonbeneficial care at the end of life – for example, when the patient does not have an advance directive – given the tendency in the health care system often to promote aggressive care. The law can help by (a) promoting clinical practice guidelines in end of life care as voluntary standards, (b) clarifying the rights of family members to authorize withdrawal or withholding of end of life treatment if the patient is not able to make decisions, © allowing health care providers a process to resolve disputes over care that is not beneficial, similar to Texas law, which provides for review by an ethics committee of disagreements over care and transfer to other providers, and (d) promoting use of advance directives. Financial reimbursement to physicians for having a conversation that sets out all options for end of life care, including hospice and palliative care, is consistent with patient autonomy as well as fiscal responsibility.

Provider incentives

The fee-for-service payment system compensates providers for every service performed, in effect penalizing doctors and hospitals for keeping patients healthy. The federal government has discussed paying “accountable care organizations” for managing the care of patients, but under current law payment to “nonemployed physicians” — physicians who are not employed by a hospital – based on quality of care is restricted.

The Stark law prohibits physicians from referring patients to an entity in which they have a financial interest unless an exception exists, but the law does not allow hospitals to reward nonemployed physicians based on quality or reducing unnecessary services. In addition, the civil monetary penalty law, which prohibits hospitals from paying physicians an inducement to reduce or limit services to Medicare or Medicaid patients, prevents hospitals from rewarding physicians for reducing unnecessary care. A better concept – proposed to the CMS in December 2008 – may be to allow hospitals to structure “quality performance payment programs” that would be exceptions to the above laws. The programs would allow hospitals to make payments to physicians for improving or sustaining quality, as defined and applied through the programs.

Fees for health care goods and services

Current law allows providers to charge an unlimited amount for health care goods and services. Although Medicare and insurers can place limits on what they will reimburse for, patients without insurance can receive a hospital bill that is 10 times what an insurer would pay. Some states, such as New York and Illinois, have laws that limit hospital charges to the indigent, and it may be appropriate to expand such laws to all persons without insurance.

Providing a mechanism for patients to compare fees charged by various providers would presumably benefit more efficient and lower cost providers. However, providers’ contracts with payers generally contain confidentiality clauses that prohibit the release of price information. Providers have a practical concern, as well – if a payer is aware that providers are offering lower than contracted prices for certain services, the payer may reduce its fees accordingly.

Efforts to reduce administrative costs

Administrative costs – including processing and administering claims, shareholder return, executive compensation, profits, broker costs, and malpractice costs – are more than $1,000 per capita in the U.S. Several changes in the law may help to reduce those costs:

• Malpractice reform. The costs of litigating malpractice suits as well as defensive medicine contribute to administrative costs. Removing some of the most expensive suits from the tort system by establishing a compensation fund may both reduce costs and provide more consistent justice for those injured. There is both federal and state precedent for such reform through the federal National Vaccine Injury Compensation Program and programs in Virginia and Florida to compensate families whose babies are born with neurological impairments. In additionally, allowing physicians who follow clinical practice guidelines a rebuttable presumption that the standard of care was met may reduce defensive medicine and lawsuits against physicians.
• Claims adjudication. Establishment of a single claims adjudicator to approve and pay claims from private payers would remove the conflict that these payers now experience between denying/delaying claims and maximizing profits.
• Claims payment. Laws to improve the efficiency of the claims payment system may include requiring payers to (a) use standard contract terms, (b) maintain standardized benefit packages, © set up electronic portals to allow providers to check patient eligibility and benefits, (d) use standard claims forms and codes, and (d) provide beneficiary ID cards that can be electronically swiped at provider’ offices with connectivity to a payer’s system.

In summary, changing the incentives that drive up health care costs requires review and consideration of several changes in the law. The changes, described in more detail in a report by the New York State Bar Association Health Law Section, will require all of us – providers, payers, and patients – to put aside self-interest to strengthen our health care system.

Margaret Davino, R.N., J.D., is the chair of the Public Health and Policy Committee of the New York State Bar Association, Health Law Section. She is with the law firm of Kaufman Borgeest & Ryan, with offices in New York and New Jersey. mdavino@​kbrlaw.​com.