Friday, June 8, 2007

Murder On The Healthcare Express

In Agatha Christie's classic "Murder On The Orient Express" the famous detective Hercule Poirot is unable to solve a murder because the clues point to twelve people on the train. So he cannot identify the killer among them. Turns out that all twelve were involved.

This helps us understand the state of US healthcare. Okay, so it's not really murder of healthcare. Just a trillion dollars of annual extra spend (or half the US total) compared to say, France or Germany for same or worse care. As my article implies, roughly a third of the trillion dollars go to extra profits or earnings above "free market rates" to providers - drug companies, doctors, hospitals. The remaining two thirds of a trillion dollars is the inefficiency or "lose-lose" costs of keeping the current system in place.

How does this relate to the novel? If the high US healthcare prices were due to one factor unfairly enriching just one player, then that factor would have quickly been singled out and eliminated amidst the full glare of media and political spotlight. Instead we have multiple factors at play that enable each industry player to blame others and thus all can get away with "reasonable doubt."

Then of course with about $300 billion in excess rents at stake it is a no-brainer for the industry players to collectively plunk, say, a mere billion dollars annually to buy off (or "influence") policy makers. This helps to maintain the status quo or even alter it to further benefit the players. It's no accident that the drug benefit for seniors (Medicare Part D) costing about $43 billion annually are largely a giveaway to drug companies and private insurers with far less value to the seniors who are the professed beneficiaries. And Paul Krugman in one of his several articles describes how positive government involvement such as a VA (veteran's) health system built up in the Clinton era is stymied by business interests and their Conservative allies.

Lest all this is too general, let me recap some activities by industry players contributing to high US healthcare prices:
  • Trial lawyers and the ABA styming tort law reforms and capping of malpractice damages.
  • Drug companies overcharging for drugs by mislabelling government negotiations as "price controls" and taking advantage of a system where patients pays a fixed deductible. So patients don't care about prices, even when drugs have only marginal extra benefit.
  • Doctor bodies controlling the physician pipeline to ensure that there's a shortage of doctors, instead of letting free market forces determine the supply.
  • Hospitals consolidating to gain monopoly pricing power, and refusing to provide transparent pricing. In the process they often charge outrageously ($10 for an ibuprufen or aspirin pill or $75 for a box of tissues.)
  • Private insurers opposing a competing public plan. I'm all for private insurance, but why not allow competition without unfair subsidies by a government institution? (P. 4 of 7 of John Edwards' plan envisages this.)

That's only five activities and players. Apparently you don't need twelve like in the novel to get away with it.

5 comments:

kenrod said...

I agree with your 5 culprits of the healthcare mismanagent though there could be more. Medical billing is totally arcane and only disinfecting sunlight can improve it. More doctors and less dishwashers need to immigrate into this country. Tort reform will bring down the costs of drugs and malpractice coverage. Insurance companies have to issue a larger segment of the population instead of cherry picking the healthy ones.

But I want to add my list to help cost reduction in the healthcare system. First, give consumers a disc which have their medical records on it. Too much time is spent between doctors offices, hospitals, ins. cos, faxing medical records. That delay can cost the patient his life if he is allergic to a certain drug. It's costing insurance cos weeks in issuing policies. I know consumer advocates are concerned about privacy rights but technology can overcome it.

And everything should go electronic. Doctors should write on electronic pads which transmit the prescription to the pharmacy, register the prognosis onto the consumers' data disc. It is also stored in a server instead of paper files where it can be transmitted to relevant parties.

Second, deductibles should be raised. Insurance should be treated as insurance, meaning protection from catastrophic loss. The more we expect them to cover the less the consumer feels responsible. Extend Medicare to all with a $2000 deductible, and then consumers can pick a supplement of their choice.

I disagree with Paul Krugman's article about govt subsidizing Medicare Advantage plans. Medicare would have to pay these costs under PPO plans. But most seniors should be in HMO's because there are more generalists in these plans. Besides most seniors cannot afford PPO plans. We are spending way too much money on people in the last stages of life, and granting them a bunch of specialists will not improve longevity significantly.

Thank you for your insight,Sandip.

Sandip Madan said...

Kenrod, those are thoughtful comments. I fully agree with th need for electronic health records (EHR) and most lawmakers do so. There is some concern raised by privacy advocates that you rightly mention can be surmounted with technology.

Some doctors and hospitals can also resist EHRs (without stating their true reasons) because these reduce patient "stickiness" allowing easier switching among providers. But the move to EHRs is happening and is almost inevitable. The reason for the tardy progress is that the government needs to take the lead in setting standards and rules. This is simply not a matter high enough on the priorities - without enough of a financial, political or socio-religious axe to grind that seems to make the Bush Administration tick. :-) Just be patient.

I'd nuance your justified comments a bit, by preferring more co-pays and less deductibles up to a certain limit in drug or treatment plans. This smooths out and stretches the patient's financial skin in the treatment. But you're right on.

Anonymous said...

Dear Mr madan please see my pages of comments on Humana shareholder message board on aol. Dr Linder

Sandip Madan said...

Dr. Linder, I'll be happy to. Can you provide a link / URL to this message board? I couldn't easily find it.

Sandip Madan said...

Okay, Dr. Linder, I think I found the thread with your comments:
http://messageboards.aol.com/aol/en_us/articles.php?channel=Personal+Finance&boardId=70432&func=6&articleId=733

Medicare and the government can certainly exert a lot of volume buyer's leverage as far as reimbursement rates go. But in my opinion the government is more than matched by the doctor's bodies that have constrained doctor supply and created a doctor scarcity in the US. So we see that even Medicare rates are much higher than those paid by European public health agencies to their doctors.

Actually I'm all for a real free market where doctor supply in all specialties and what Medicare pays doctors is determined by market forces. Forcing more doctors to go into primary care, and cutting down on specialists is counter-productive.

The reason why specialists earn much more is because their is a heavy demand for their services. This demand is quenched (and prices lowered) if the number of specialists is allowed to rise, instead of being forcibly curtailed. In your example of there being a shortage of doctors to treat diabetics, I'd hope this shortage causes rates to rise, and attracts more doctors back into this area.

This forced rebalancing of specialties is the 1993-94 part of HillaryCare that had bothered me. I hope they change it this time around.