NU Online News Service, Jan. 29, 2004, 5:11 p.m. EST, Washington – The net burden of health services regulation may exceed the annual cost of covering all 44 million uninsured Americans.[@@]

Christopher Conover, assistant research professor of public policy studies at Duke University, presented that conclusion at a recent hearing on the problems of the uninsured and the factors driving up the cost of health insurance that was sponsored by the Senate Committee on Health, Education, Labor and Pensions.

“A legitimate policy question is whether the benefits of regulation outweigh the benefits of coverage for all Americans,” Conover said.

Noting recent Institute of Medicine findings that 18,000 uninsured people die every year due to lack of coverage, Conover asked, “Is maintaining our current regime of health regulation worth letting that continue?”

Conover said his analysis is based on more than 2 years of research conducted in part under a contract with the U.S. Department of Health and Human Services.

Conover said he examined the literature for about 50 different kinds of federal and state health services regulations, including regulation of health facilities, health professionals, health insurance, pharmaceuticals and medical devices. He also looked at the medical tort system.

The regulations ran the gamut from mandated health benefits to state certificate of need requirements for hospitals and nursing homes, Conover said.

Then, he said, he systematically tallied both the benefits and costs associated with such regulations and found that the expected cost of the regulations came to about $335 billion in 2002.

The estimate of benefits came to about $207 billion, leaving a net cost of $128 billion, Conover said.

Conover said 3 areas account for the lion’s share of this net burden: the tort system, U.S. Food and Drug Administration regulation and health facilities regulation.

The medical tort system, including litigation costs, court expenses and defensive medicine, costs $81 billion, Conover said.

FDA regulation adds another $42 billion in costs, and health facility regulation adds $29 billion, Conover said.

The net burden on the health industry is 6.4%, meaning that health expenditures, and health insurance premiums, are at least that much higher than they would be if the burdens were gone, Conover said.

Conover said this increased cost implies a 2.2% reduction in demand for coverage, meaning that regulatory costs might be responsible for 5 million people lacking insurance.

Some researchers have estimated that it would cost only $34 billion to $69 billion in added health spending to cover all the nation’s uninsured, he said.

That means eliminating the regulatory burden could cover the cost of the uninsured several times over, Conover said.

Karen Davis, president of the New York-based Commonwealth Fund, also cited unnecessary costs as a major factor in the high rate of uninsurance.

“We can no longer afford or tolerate wasteful spending on care that does not benefit patients, the duplication of expensive procedures, medical errors or the high administrative costs incurred by the nation’s insurers and providers,” she said.

“Real solutions should directly target these sources of unacceptably high costs, not simply shift costs from employers to workers or from government to the beneficiaries of public programs,” Davis said.

Davis said consumer-driven health care, which she described as the major private-sector strategy for addressing rising costs, is unlikely to address the fundamental causes.

Indeed, she said, it is likely to have adverse consequences for patients.

For one thing, she said, consumer-driven health care contributes to excessive financial burdens on patients, particularly lower-income and sicker patients.

“If all Americans had a $1,000 deductible plan, one-third would spend more than 10% of their income on health care if they were hospitalized, with even higher rates at the lowest end of the income scale,” Davis said.

In addition, she said, patient cost-sharing is a blunt instrument for reducing utilization of services.

But studies have shown, Davis said, that drug-tiering and higher co-payments are leading patients to skip filling essential prescriptions, increasing adverse medical events and raising emergency room use.

There are, she said, better alternatives than shifting costs to patients.

Costs are higher in the United States than in other countries because Americans pay higher prices for the same services. This is because administrative costs are higher and physicians prescribe specialized services that are not clinically justified, Davis said.

“If we as a nation were to adopt fundamental reforms?such as an integrated public-private strategy to purchase health services efficiently, demand quality performance and streamline administrative costs?substantial savings could be achieved,” Davis said.