Insight, analysis & opinion from Joe Paduda


Why health care costs too much

If you go into the hospital for surgery, there’s about a ten percent chance you’ll be back – victim of a surgical infection, gastrointestinal problem, or other complication.

Of course, this being healthcare, (in general) the facility isn’t financially penalized for the problem.  In fact, they’ll increase their revenue – up to $58,000. So, the more re-admissions, the more revenue for the hospital (on average, they get about $1.2 million a year more due to re-admissions).

Fortunately, CMS and a few other payers are taking steps to help hospitals reduce re-admission, with the most important step being a refusal to pay for some re-admissions.  That’s helping to concentrate the efforts of many providers, who are working hard to figure out what causes re-admissions and what to do to forestall them.

That’s not to say that ALL re-admissions are due to hospital error, infection, or other issue – some patients just have problems.

But – and it’s a big BUT – many re-admissions CAN be prevented – BUT absent a financial motivation, there’s just no reason for the hospital and providers to do much to prevent them.  In fact, there’s 58,000 reasons to not try.

Today, our reimbursement “system” rewards excess treatment, expensive technology, over-utilization.  If we are to gain control over our costs and improve our (very mediocre) outcomes, we have to reward good performance and penalize bad – while working with the poor performers to help them improve.

CMS is leading the effort, starting with its decision to not pay for “never-ever” events, continuing with reductions in reimbursement for selected diagnoses, and then expanding to cover more in 2015.  And where CMS leads, other payers will benefit – as hospitals ratchet up their performance, re-admissions for all payers will decline, lowering costs while improving outcomes.

What does this mean for you?

Why are you paying for poor performance by healthcare providers, when you wouldn’t get paid to fix your own work if it was less-than-acceptable?

Time to rethink your provider contracts…


2 thoughts on “Why health care costs too much”

  1. Joe,
    You hit the nail on the head. Health providers are not paid to cure people. They are paid to perform procedures. The more procedures they perform, the more they get paid. Complicating this are the plaintiff’s attorney. If a doctor does not perform every procedure under the sun and something goes wrong, the health provider loses a lawsuit.
    The fundmental business model is seriously flawed and the result is we have the (by far) least efficient, and most expensive medical system in the world.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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