Graph of the day: Over-the-top health costs

Today’s graph comes from National Geographic and shows just how far out of whack the U.S. health system is compared to other nations.

Despite spending significantly more than any other developed country and lacking a universal health care system (which the blue-line countries have), we still rank in the bottom half in average life expectancy.

What makes our system so poor at delivering value for the money? Misaligned incentives.

The U.S.’s system is built on a fee-for-service model, where patients pay per procedure. This encourages a higher volume of care rather than quality care at a reasonable value.

“No other industry thrives on effort independent of results,” said Jim Traficant, then Vice President of Harris Healthcare Solutions, at a 2009 seminar. “Health care is unique in this aspect and we’re paying for it.”

One example of the damaging consequences that grow from these incentives lies in hospital readmission rates. Nearly 20% of Medicare patients are readmitted to a hospital within 30 days of discharge. Some providers have taken extra steps to prevent these readmissions, but under the current system, such forward-thinking hospitals and clinics are hit with a financial double whammy: They spend extra money to prevent readmission, and then lose out on the money they would have made off of the returning patient. Given such twisted incentives, why would any hospital invest in quality care?

Luckily, the Affordable Care Act includes some provisions to combat the backwards health care market. Beginning in 2013, hospitals with above-average readmission rates will pay a penalty.

But perhaps most revolutionary is the law’s experiment with Affordable Care Organizations (ACOs), which went live on January 1 of this year.

ACOs are made up of health organizations working together to care for an individual or individual’s condition. But in exchange for this care, the ACO will accept a flat fee rather than charging per service. As Sarah Kliff writes, “The hope is to do nothing less than change the basic business model of American medicine from making money by getting patients to spend more money to making money by saving patients money.” By accepting a flat fee, care providers will make money by making care cheaper while maintaining a required standard of care, rather than making money off of each procedure they perform regardless of health outcomes.

The Department of Health and Human Services has currently accepted only 32 “Pioneer ACOs” from those that applied to pilot the model. Minnesota has three participants among their ranks: Allina Hospitals & Clinics, Fairview Health Systems, and Park Nicollet Health Services. These three organizations could play an essential role in correcting incentives and steering the U.S. toward a new health care model that fixes the massive discrepancies found in the graph above.

Aaron Sinner