By MATTHEW HOLT

In recent days and weeks, there have been three stories that have really brought home to me the inanity of how we run our health care system. Spoiler alert, they have the commonality that they all are made problematic by payment per individual transaction—better known as fee-for-service.

First, several health insurers who sold their reputation to Wall Street as being wizards at understanding how doctors and patients behave had the curtain pulled back to reveal the man pulling the levers was missing a dashboard or dial or three. It happened to United, Humana and more, but I’ll focus on Agilon because of this lovely quote:

“During 2023, agilon health experienced an increase in medical expenses attributable to higher-than-expected specialist visits, Part B drugs, outpatient surgeries, and supplemental benefits, partially offset by lower hospital medical admissions. While a number of programs have been launched to improve visibility, balance risk-sharing and enhance predictability of results, management has assumed higher costs will continue into 2024,” the company said in a statement

Translation: we pay our providers after the fact on a per transaction basis and we have no real idea what the patients we cover are going to get. You may have thought that these sharp as tacks Medicare Advantage plans had pushed all the risk of increased utilization down to their provider groups, but as I’ve be saying for a long time, even the most advanced only have about 30% of their lives in capitation or full risk groups, and the rest of the time they are whistling it in. They don’t really know much about what is happening out in fee-for-service land. Yet it is what they have decided to deal with.

The second story is a particularly unpleasant tale of provider greed and bad behavior, which I was alerted to by the wonderful sleuthing of former New Jersey state assistant director of heath benefits Chris Deacon, who is one of the best follows there is on Linkedin.

The bad actor is quasi-state owned UCHealth, a big Colorado “non-profit” health system. They have managed to hide their 990s very well so it’s a little hard to decipher how much money they have or how many of their employees make millions a year, but it made an operating profit last year of $350m, it has $5 BILLION in its hedge fund, and its CEO (I think) made $8m. It hasn’t filed a 990 for years as far as I can tell. Which is probably illegal. The only one on Propublica is from a teeny subsidiary with $5m in revenue.

So what have they been doing? Some excellent reporting from John Ingold and Chris Vanderveen at the Colorado Sun revealed that UC has been getting collection agencies to sue patients who owe them trivial amounts of money, and hiding the fact that UC is the actor behind the suit. So they are transparent on how much very poor people allegedly owe them, and come after them very aggressively, but not too transparent on how their “charity care” works. The tales here are awful. Little old ladies being forced to sell their engagement rings, and uninsured immigrants being taken to the ER against their will and given a total runaround on costs until they end up in court. Plenty more stories like it in a Reddit group reacting to the article.

What’s the end story here? UC Health gets a measly $5m (or a share of it) a year from all these lawsuits which is less than the CEO makes (according to a Reddit group—with no 990 it’s a little hard to tell).

Yes, all these patients are being billed or misbilled for individual procedures and visits. It makes people terrified of going to the doctor or hospital, and no rational health services researcher thinks that charging people a fee to use health care encourages appropriate use of care. Last month Jeff Goldsmith had an excellent article on THCB explaining why not.

Of course it goes without saying that if these patients were covered by some kind of a capitation, subscription or annual payment none of this cruelty or waste motion would be happening.

The final example is still going on.

Just over a year ago United HealthGroup, the $500bn market cap gorilla in America’s health care system, paid $13 Billion for Change Healthcare. Change was (and is) a giant in the business of revenue cycle management and claims processing. As Stat News’ Brittany Trang reports

Change ferries claims and payments between providers and insurers, and helps providers check on patients’ insurance information. Before Optum acquired Change in 2022, it served 1 million physicians, 39,000 pharmacies, 6,000 hospitals, and connected with 2,400 insurers.

United went to war with the DOJ and won in order to buy Change because it got them into the detailed flow of bills sent from providers (including pharmacies) to payers—presumably so they could get smarter about what’s going on out there. Well I suspect United is regretting it now. Last week Change got seriously hacked.

In response to the cyberattack last week, UnitedHealth unplugged Change’s connection to every hospital, medical office, and pharmacist that used it to execute one of those functions, whether those organizations interfaced with Change directly or through the complicated insurance claims bucket-brigade.

The complexity of the financial and clinical data flowing through Change is staggering even to those of us who had some idea what it did. But hospitals, doctors and pharmacies can no longer identify patients’ eligibility and more importantly can’t submit claims or get paid.

Why do we need “revenue cycle management” and “claims submission”?  Because of fee-for-service.

This is similar to the time in 2020 when Covid stopped hospitals and doctors seeing patients and submitting bills. Who was ok back then? Kaiser Permanente and other integrated “payviders” who get paid a flat amount per patient they take care of.

Plenty of other industries figure out a way around this. Netflix doesn’t charge per movie watched, my cable company charges me an outrageous amount for internet and TV and divvies it up among its suppliers, giving way too much to Fox News. Even phone companies have gone from pay per minute of each call to a bundled amount per month. Of course there are plenty of companies trying to unbundle this to charge more—as a soccer fan I am very conscious of this with different companies charging me to watch different competitions but none of them are charging per game watched!

But health care remains dead set on fee for service and there are plenty of companies like Change and those Colorado collection agencies that live precisely off this system. In the thirty plus years I’ve been looking at American health care none of the promise of value-based care has made fee-for-service less prevalent. In fact it’s usually just added to the complexity of it while using FFS as a base.

Why? Because in general, as Agilon and the other Medicare Advantage plans are discovering, if a provider gets paid for doing something to a patient, it’s pretty hard to stop them doing more of it.

Legendary Canadian health economist Bob Evans told me once that nothing that is regular is stupid. In other words if something keeps happening, there’s a reason behind it. In the case of fee-for-service in health care the reason is clear, and everyone—other than the dumbos paying for it–is in on the game. It’s just that the reason is stupid.

Among the American public and even some policymakers, it has become conventional wisdom that poverty, a dearth of supermarkets, reduced leisure time, and insufficient exercise are key forces behind the U.S. obesity epidemic.

Conventional wisdom is an unreliable guide, however, and in this case, much of it is wrong: The epidemic actually coincides with a falling share of income spent on food, wider availability of fruits and vegetables, increased leisure time, and more exercise among the general population.

Of course, there are differences between individuals, but we need to explain the change in obesity over time, not why people differ. Some differences in body mass index (BMI) are associated with genetic makeup. But genes haven’t changed in the past 50 years, so differences between individuals don’t explain trends.

Data from a new analysis of this issue indicates that the same argument applies to other characteristics, such as geography. Southern hospitality’s heavy food hasn’t caused the obesity epidemic any more than an active Colorado lifestyle has prevented it. There are differences at a given point in time, but the trend is the same, as shown in the figure below.

Percentage of Population with a BMI Over 25 in California, Colorado, and Mississippi

SOURCE: Calculations based on Behavioral Risk Factor Surveillance Survey; smooth trend adjusted for 2010 demographics.

Increases in obesity have also been surprisingly similar by level of education and by racial/ethnic group, as the following figures show.

Increase in Average BMI Nationwide, by Highest Education Level Achieved

SOURCE: Calculations based on Behavioral Risk Factor Surveillance Survey; smooth trend adjusted for 2010 demographics.

Increase in Average BMI Nationwide, by Racial/Ethnic Group (Men)

SOURCE: Calculations based on Behavioral Risk Factor Surveillance Survey; smooth trend adjusted for 2010 demographics.

Increase in Average BMI Nationwide, by Racial/Ethnic Group (Women)

SOURCE: Calculations based on Behavioral Risk Factor Surveillance Survey; smooth trend adjusted for 2010 demographics.

Across all these characteristics, the striking feature over time is not how different the trends are but rather how similar the weight gain has been, regardless of geography or social group. There are differences between groups—often sizable ones—at any point in time, but addressing such disparities is different from stopping the obesity epidemic.

That no group is immune to rising obesity rates suggests that universal environmental factors are driving the trend. The clearest change concerns food availability and cost. Since the 1970s, there has been a significant drop in the share of income spent on food—yet each food dollar buys a lot more, as shown below.

Food Expenditures as a Percentage of Disposable Income, Total and by Type of Food

SOURCE: U.S. Department of Agriculture data.

Average Daily Per Capita Calories, Adjusted for Spoilage/Waste

SOURCE: U.S. Department of Agriculture data.

As the obesity epidemic has grown and food prices relative to income have dropped, Americans have been eating more of everything, including fruits and vegetables. In terms of macronutrients, most extra calories come from carbohydrates.

U.S. markets have succeeded in largely solving the age-old problem of food scarcity, so the answer isn’t to return to higher food prices across the board. But with the solution to food scarcity contributing to a new threat, Americans need market forces to shift them in a different direction and help stem the obesity epidemic.

Market forces happen on both sides: supply and demand. On the supply side, agricultural policy has historically tried to promote output and improve food security. Undesirable side effects weren’t uncommon. Europe, for example, often resorted to discount prices to eliminate its surplus “butter mountains” and “milk lakes.”

On the demand side, consumers do substantially alter their shopping and improve their diets if motivated by price changes. An encouraging example comes from South Africa, where the country’s largest health insurer implemented a nationwide rebate program for healthy foods. However, even substantial price incentives—in South Africa, a 25-percent rebate—can close only a small part of the gap between recommended and actual diets. In addition, price discounts may improve diet quality, but they may not reduce obesity. (A discount for healthy foods doesn’t mean that people will buy fewer calories overall.)

South Africa isn’t the only country taking action. In Mexico, where the obesity rate now exceeds that in the U.S., policymakers have enacted a tax on sugar-sweetened beverages and energy-dense snack items. Europe, perhaps spurred by swelling obesity rates of its own, is also taking action. Hungary has imposed special taxes on unhealthy foods, while Denmark went back and forth: It implemented a tax, only to repeal it a year later.

Changes in social norms that shift the demand curve could be just as important as policies that affect food prices. There was a time when it was polite to offer a guest a cigarette. Americans today might offer cookies or soda. When they begin to regard junk food as they do tobacco, curbing the obesity epidemic may become more attainable.

Under the influence of conventional wisdom, many policy interventions focus on “positive” messages: Eat more fruit and vegetables. Get more exercise. However, given that fruit and vegetable availability and physical activity have both increased while relative food prices have plummeted and obesity rates have soared, reducing discretionary calorie consumption may be a more promising lever to reduce overweight and obesity.

Roland Sturm is a senior economist at the nonprofit, nonpartisan RAND Corporation and a professor at the Pardee RAND Graduate School.

This November, voters weighed in on an array of state ballot initiatives on health issues from medical marijuana to health care reform. Ballot outcomes by state are listed below (more after the jump).

Voters in Alabama, Montana, and Wyoming passed initiatives expressing disapproval of the Affordable Care Act, while a similar initiative in Florida garnered a majority of the vote but failed to pass under the state’s supermajority voting requirement. Missouri voters passed a ballot initiative prohibiting the state executive branch from establishing a health insurance exchange, leaving this task to the federal government or state legislature.

Florida voters defeated a measure that would have prohibited the use of state funds for abortions, while Montana voters passed a parental notification requirement for minors seeking abortions (with a judicial waiver provision).

Perhaps surprisingly, California voters failed to pass a law requiring mandatory labeling of genetically engineered food. Several states legalized medical marijuana, while Arkansas voters struck down a medical marijuana initiative and Montana voters made existing medical marijuana laws more restrictive.

Colorado and Washington legalized all marijuana use, while a similar measure failed in Oregon.

Physician-assisted suicide was barely defeated in Massachusetts (51% to 49%), while North Dakotans banned smoking in indoor workplaces. Michigan voters failed to pass an initiative increasing the regulation of home health workers, while Louisiana voters prohibited the appropriation of state Medicaid trust funds for other purposes.

Affordable Care Act

Alabama Health Care Amendment, Amendment 6: Approved 59.52% to 40.48% (prohibits mandatory participation in any health care system)

Florida Health Care Amendment, Amendment 1: Defeated 51.46% to 48.54% (required 60% support to pass) (would have prohibited passing laws compelling the purchase of health insurance)

Missouri Health Care Exchange Question, Proposition E: Approved 61.8% to 38.2% (“prohibit[s] the Governor or any state agency, from establishing or operating state-based health insurance exchanges unless authorized by a vote of the people or the legislature”)

Montana Health Care Measure, LR-122: Approved 66.83% to 33.17% (prohibits “the state or federal government from mandating the purchase of health insurance coverage or imposing penalties for decisions related to the purchase of health insurance coverage”)

Wyoming Health Care Amendment, Amendment A: Approved 76.98% to 23.02% (stating that “the right to make health care decisions is reserved to the citizens of the state of Wyoming”)

Abortion

Florida Abortion Amendment, Amendment 6: Defeated 55.05% to 44.95% (would have “prohibited the use of public funds for abortions except as required by federal law and to save the mother’s life”)

Montana Parental Notification Measure, LR-120: Approved 70.24% to 29.76% (requires “parental notification prior to an abortion for a minor” with a judicial waiver provision)

Genetically Modified Foods

California Mandatory Labeling of Genetically Engineered Food, Proposition 37: Defeated 53.1% to 46.9% (would have required labeling for GMO food and prohibited labeling or advertising GMO food as “natural”)
Home Health Care

Michigan Home Health Care Amendment, Proposal 4: Defeated 57% to 43% (would have required training and background checks of in-home care workers, “set minimum compensation standards and terms and conditions of employment” for home health workers, and given collective bargaining rights to in-home care workers in negotiations with the Michigan Quality Home Care Council)

Marijuana and Medical Marijuana

Arkansas Medical Marijuana Issue 5: Defeated 51.44% to 48.56% (would have allowed use of marijuana for medical purposes)

Colorado Marijuana Legalization Initiative, Amendment 64: Approved 54.83% to 45.17% (legalized marijuana in the state)

Massachusetts Medical Marijuana Initiative, Question 3: Approved 63% to 37% (“eliminating state criminal and civil penalties related to the medical use of marijuana”)

Montana Medical Marijuana Veto Referendum, IR-124: Approved 56.53% to 43.47% (upholding more restrictive medical marijuana laws)

Oregon Cannabis Tax Act Initiative, Measure 80: Defeated 54.83% to 45.17% (would have “allow[ed] commercial marijuana (cannabis) cultivation/sale to adults through state-licensed stores; allow[ed] unlicensed adult personal cultivation/use; prohibit[ed] restriction on hemp”)

Washington Marijuana Legalization and Regulation, Initiative 502: Approved 55.44% to 44.56% (legalizing production, distribution and possession of marijuana)

Medicaid

Louisiana Medicaid Trust Fund Amendment, Amendment 1: Approved 70.84% to 29.16% (prohibiting “monies in the Medicaid Trust Fund for the Elderly from being used or appropriated for other purposes when adjustments are made to eliminate a state deficit”)

Physician-Assisted Suicide

Massachusetts “Death with Dignity” Initiative, Question 2: Defeated 51% to 49% (would have “allow[ed] a physician licensed in Massachusetts to prescribe medication, at the request of a terminally-ill patient meeting certain conditions, to end that person’s life)
Smoking

North Dakota Smoking Ban Initiative, Measure 4: Approved 66.66% to 33.34% (banning smoking in indoor workplaces)

Katie Booth is a third-year law student at Harvard Law School and a Petrie-Flom Center student fellow. This post originally appeared at the Center’s blog project, Bill of Health.