Week 2 – Background

Mar 20, 2019

Since 2010, the Northern California region has faced a healthcare crisis that has left Bay Area residents without crucial patient care. In his article “Consolidation Trends In California’s Health Care System,” Dr. Richard Scheffler detailed the rapid consolidation of the Bay Area healthcare markets by conducting an analysis into the level of horizontal concentration and vertical integration of affected markets from 2010 to 2016. Over this six-year period, he found that a few health conglomerates and insurance providers purchased numerous family-owned practices in the region, concentrating the market so that these companies have unregulated price-setting power. After insurance providers received this unregulated power, Bay Area healthcare prices skyrocketed at a rate that was unprecedented compared to other regional markets. Dr. Scheffler reported that, in Northern California, “inpatient prices were 70% higher, outpatient prices were 17- 55% higher, and ACA premiums were 35% higher than they were in Southern California” (Scheffler 2018). Dr. Scheffler argued that health insurance providers are setting exorbitant prices that are too high for numerous Bay Area residents to receive crucial patient care. These practices reveal the corrupt tendencies of insurance providers to gain higher profits at the expense of vulnerable patients. Dr. Scheffler’s findings ultimately set the context for this study in that insurance providers are decreasing access to essential healthcare services in the Bay Area.
Although Dr. Scheffler addresses the economic implications of the unethical practices of insurance providers in the Bay Area, he does not discuss the potential spillover of these practices into healthcare categories like diagnostics. Dr. Regina Herzlinger details the diagnostic policies of insurance providers in her article, “Why Innovation in Healthcare is So Hard.” Dr. Herzlinger argues that insurance providers create guidelines that specifically prevent members from using diagnostic tests that might help them in the long-term. After an extensive analysis into several insurance policies ranging from Medicare to Anthem Blue Cross, Dr. Herzlinger concludes that “commercial insurers would rather not refer patients in the short term in order to not pay for expensive diagnostic tests that would save millions of dollars in the long-term” (Herzlinger 2006). Between public and private insurance coverage, a clear divergence exists where commercial insurance policies prevent members from using diagnostic tests that might help them in the long-term. Commercial insurers are motivated by a higher short-term profit that they can project to their shareholders to encourage investment while Medicare and government-protected plans would pay for expensive diagnostic tests that save millions in the long-term. Because Dr. Herzlinger reveals the economic motivations behind the actions of commercial insurance companies, the role of insurance providers in a doctor’s decision calculus to administer diagnostics should be investigated to understand its impact on a patient’s satisfaction with the insurance provider.
While Dr. Herzlinger discusses the economic principles behind health insurance guidelines that disincentivizes the use of diagnostic tools, her argument seems to run counter to the willingness of insurance providers to pay for preventative healthcare. In his review “Health Insurance Effects on Preventative Care and the Health,” Dr. Jacob Wallace of Harvard University argues that the passage of the Affordable Care Act had an enormous impact on the coverage of preventative care by insurance providers. Dr. Wallace reports that “The passage of the Affordable Care Act (ACA) resulted in new insurance coverage for at last 16 million Americans. Most notably, individuals…must be provided with essential benefits package that includes preventative care” (Wallace et al. 2016). However, after performing an analysis on the mechanisms of payment of claims, Dr. Wallace concludes that insurance providers view a clear dichotomy between preventative healthcare and diagnostic healthcare. While preventative healthcare is inexpensive and offers a high chance of a patient finding an illness in its early and treatable stages, diagnostic healthcare is, by definition, a series of procedures that are completed after a patient is already experiencing symptoms. At this point, if a patient is experiencing dire enough symptoms that the patient went to the hospital, the illness probably entered its late stages where insurance providers would have to pay high costs for treatment. As a result, insurance providers often “deny valid claims and force patients to pay high fees” (Brozak 2016) through vague and loophole-filled policies to disincentivize patients from filing claims for diagnostic tools. Thus, the views of Dr. Herzlinger and Dr. Wallace agree in that insurance providers design policies that cut costs on diagnostics at the expense of valuable patient care. This also reinforces the premise of this study in that the role of insurance providers in a doctor’s decision to administer diagnostic tests must be explored.
Dr. Herzlinger’s analysis into the economic motivations of insurance providers led to a more in-depth analysis into the impact of insurance coverage on the availability of diagnostic tests. Dr. Sarah Beachy explored the decision calculus of insurance providers when they decided to accept a diagnostic claim for patients in her study “How Insurers Decide Whether to Pay for Testing.” She interviews Dr. Bruce Blumberg, institutional director of Northern California Kaiser Permanente, and finds that the diagnostic policies of the health insurance providers in this region have one of the following two characteristics – open-to-interpretation policies or strict-to-interpretation policies. For example, Aetna policies, an example of the open-to-interpretation system, “cover only medically necessary tests and treatments and excludes coverage for experimental and investigational technologies” (Beachy et al. 2014). However, the open-to-interpretation system has been criticized for not being transparent enough when the providers deny diagnostic claims when it becomes less profitable for the company. On the other hand, Dr. Beachy also reports that insurance providers rationalize the exclusivity of diagnostic tests because of the excessive spending and unnecessary access to diagnostic tools. Dr. Beachy focuses on Northern California insurance policies that already do not give enough credence to the needs of patients, so I plan on the impact of insurance policies on the availability of diagnostic tests to members of the Bay Area.
While there are several studies and extensive analysis that examine the motivations behind and the nature of the policies of insurance providers, there are few studies that actually examine the role of insurance providers on the decision calculus of a doctor when he or she decides to administer diagnostic tests. These researchers examined only a limited feature of the multi-faceted relationship between insurance providers, healthcare providers, and patients. I will explore the role of insurance providers on choice of doctors in the Bay Area to administer diagnostic tests and this relationship’s effect on customer satisfaction with health insurance companies.

2 Replies to “Week 2 – Background”

  1. Krystal Y. says:

    Hi Akash, this is a fantastic literature review! You establish your credibility as a researcher by providing context about the studies you read, and explaining why these studies are important to your research field. I also wonder if there has been more research done on the Bay Area healthcare system specifically; if there is, I think it could be beneficial to add one or two of these studies to your literature review. I think you also did a great job of explaining your research gap!

  2. Krip R. says:

    Very detailed background with a clear gap that you want to study. I also love that you put the studies in dialogue with each other, AP Seminar style.

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