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What will fix the health care system?

The health care act targets underuse. Tort reform targets overuse. The only real way to cure the system is a comprehensive reform which addresses holistically the three cost drivers of underuse, misuse and overuse.

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Ronen Avraham is Thomas Shelton Maxey Professor in Law at the School of Law. His primary research interests are the economic analysis of torts and medical malpractice law, specifically how liability reform can influence health care reform. Avraham also writes about contract theory and theories of justice. He is the author of “Private Regulation,” an article about a new approach to the delivery of health care.

In three previous posts I discussed how the main cost drivers of the health care system are underuse, misuse and overuse. Those posts explain why I do not think the Democrats’ Patient Protection and Affordable Care Act (PPACA) or the Republicans’ tort reform can actually fix the health care system. The PPACA targets primarily underuse (by increasing access to the uninsured). Tort reform targets primarily overuse (by targeting defensive medicine). Yet, the only real way to cure the system is a comprehensive reform which addresses holistically all three cost drivers.

To finish this series of posts, I would like to propose one such holistic regime. A market-based system of private regulators, along with a few small alterations to the existing legal landscape, could create the environment which would allow all of the parties to act in favor of their own interests, and at the same time advance society’s interests.

The regime would involve newly created or even existing private actors who issue clinical practice guidelines (CPGs). CPGs are systematically developed guides for doctors that instruct how best to treat specific ailments in specific situations. They incorporate the most up-to-date research and detailed patient specific responses to specific treatments. CPGs are perhaps the best option for fully instituting evidence-based medicine.

Under this private regulation regime, health care providers — doctors and hospitals — would contract with the private regulators for the use of the CPGs. In exchange for using the CPGs, the providers would receive medical malpractice immunity as long as they followed the guidelines. If the providers do not follow the guidelines, they would face liability as they do now. At the same time, the private regulators who promulgate the CPGs would face liability if and to the extent they issue guidelines that do not provide for optimal care.

This system of private regulation would address the problems of underuse, misuse and overuse.

Underuse would be addressed by incorporating proper preventative medicine, so doctors would be forced to prescribe it — assuming they want immunity. Misuse would be addressed because the CPGs would fully incorporate evidence-based medicine. If the private regulators promulgate guidelines which are suboptimal, then they will face legal liability. Thus, the private regulators will have the incentive to make the guidelines safe. Doctors will follow the guidelines because doing otherwise would expose them to liability.

Overuse will be addressed in two different ways. Offensive medicine (overtreatment due to doctors’ incentive to maximize their reimbursements) will be dealt with through the guidelines. Any extra care will involve extra risks, thus the private regulators would not include it due to the liability they face. Furthermore, health care insurance companies will insist no extra procedures are written into the guidelines in order to keep the insurers’ premiums low. If CPGs incorporate offensive medicine, the insurers would not provide coverage.

Defensive medicine (overtreatment due to doctors’ incentives to shield themselves from liability) would be eliminated, on the doctors’ ends, because the doctors would be immune from liability as long as they follow the guidelines. Nor would defensive medicine be written into the guidelines because the market would not allow it. The private regulators will need to keep costs low, and thus they will not want to increase the cost of their guidelines by incorporating defensive medicine.

In this way, all of the involved parties have incentives which will encourage quality care at a low cost. None of the reforms proposed by politicians address the problems holistically in this way.

As can be seen in my earlier posts, addressing only one of the cost drivers exasperates other problems. Increasing access through the PPACA is expensive. Tort reform might lower costs, but it will likely come with more mistakes.

This election season may be too far along for any candidate to propose such complete reform. Yet, health care prices in Texas are probably among the highest in the country.

I used to shock my students by telling them that the bill for my son’s five days in the hospital for swine flu was about $45,000. I recently heard from a colleague that a simple heart procedure performed on the colleague’s spouse, followed by a one-night stay in the hospital, was billed at $88,000 (showing maybe my son’s stay was a bargain).

There is no cost-based way to justify such prices. Moving forward, it is important for the candidates and electorate alike to remember that real reform must tackle simultaneously all of the cost drivers.

More election posts from Ronen Avraham:

Visit the mid-term elections blog series home page for a complete lineup of faculty experts’ analyses.