Solving the Problem of "Delay and Deny"

Anger Over "Delay and Deny"

The recent shooting of Brian Thompson the CEO of United Healthcare has led to an outpouring of anger over the behavior of health insurance companies, which use the tactics of "delay and deny" to avoid paying for surgical and medical treatments that have been prescribed by doctors. There is no doubt that the insurance companies use those tactics, and many people feel that it is wrong for them to do so: an insurance company - they say - should not second-guess the doctors who are experts in medical care.  

The insurers "delay and deny" treatments by requiring that healthcare providers must obtain "prior approval" before the treatments are applied. Critics of the requirement say that requiring prior approval is an unjustifiable interference by an insurance company in the practice of medicine and that we should prohibit the companies from requiring prior approvals. However, such a prohibition would not be easy, and it would have unintended consequences. 

Before we try to prohibit insurance companies from requiring prior approvals, we should first understand why the companies have taken on this role. We need to know more about the way our healthcare system really works and why it is so expensive. We have a truly dreadful healthcare system, and while the insurance companies are indeed profit-driven organizations, they are not uniquely greedy actors in a system where everyone else acts from purely humanitarian motives. In our healthcare system, the healthcare providers are also driven by a desire to make money. They cannot work to maximize profit because, nominally at least, they are non-profit organizations, but they do work to maximize their revenue.

Healthcare Providers Maximize Their Revenue

Healthcare Providers Are Local Monopolies

Healthcare in the United States is usually provided by large corporations that are motivated to maximize their revenue and market share. It is not difficult for them to do that because typically a community has only a few healthcare providers, which are local monopolies or oligopolies that have monopoly power to set their prices. Moreover, in most cases, neither patients nor doctors care what a treatment costs because the bill is paid by an insurance company. So, the healthcare providers can and do raise their prices easily.

"Fee For Service" Drives Up Costs

Moreover, our system pays for services, not for outcomes. So, healthcare providers can increase their revenues by performing unnecessary services and by inventing new ones. A doctor may be incentivized to perform unnecessary surgeries by being paid a share of the revenue that they bring in, and a hospital may increase its revenue by charging a “facility fee” for the use of an operating room or by charging for each strip of gauze that is used. Such revenue enhancing strategies are common in our healthcare system.

Insurance Companies Cannot Bargain Collectively

In theory, the insurance companies could fight back against the healthcare companies’ inflated charges by bargaining with them. In theory, the insurers could push for contracts under which the healthcare companies agreed up front to limit their charges. However, the bargaining power of the insurance companies is limited by the fact that our antitrust laws prohibit them from bargaining collectively. Instead, they bargain individually. Some insurance companies are able to make better deals than others, but none do as well as they could do if they were able to bargain collectively.

Healthcare Providers Have Not Defined Best Clinical Practices

Finally, we should note that most healthcare companies have not encouraged their doctors to define the best clinical practices for treating various medical conditions. Best practices have been defined in a few places. For example, the doctors at Intermountain Healthcare have defined the best practices in clinical areas like cardiology or gastroenterology, and a doctor who wishes to use a treatment that is outside of the recommended best practices must justify the proposed treatment to his/her colleagues. However, most healthcare providers in the United States have neither defined nor adopted lists of best practices.

When the doctors take responsibility for defining the best clinical practices, an insurance company receiving the bill for a treatment can know immediately whether or not a particular treatment is justified, but in the absence of best practices defined by the doctors, an insurance company must itself decide whether a treatment is justified. That is the situation in which we find ourselves today. 

Insurance Companies Have Become Gatekeepers in a Bad System

Insurance companies have become gatekeepers in a bad system. They face healthcare providers who are highly motivated to maximize their revenue by performing unnecessary or invented services, and the insurers must decide in each case whether or not to pay for a particular treatment. To do so, they insist on prior approval of many treatments, and the result is the “delay and deny” that so many patients and doctors object to.

To Eliminate "Delay and Deny" We Will Have to Reform Our Healthcare System

We cannot solve this problem merely by prohibiting the insurance companies from requiring prior approval of certain treatments. If we did that, the healthcare providers would still be able increase their revenue by performing unnecessary services and by billing for additional, invented “services.” In this situation, the insurance companies would respond to the increase in the claims they would have to pay by raising the price of health insurance as they have done in the past. Individuals and employers would either pay more for health insurance or settle for health insurance with bigger deductibles or bigger co-pays. All of us would suffer.

To solve this problem, we will have to think systemically. We will have to reform our entire healthcare system. Our reform must provide healthcare for all of our people and must include non-market means of controlling costs.  For a review of the ways that this might be done, you can watch the video “Sick Around the World,” which looks at the healthcare systems of several countries that spend far less than we do on healthcare and provide healthcare for all of their citizens.