Thursday, December 10, 2009

The (Deliberately?) Overlooked Promise of Free Trade in Health Care

Congress labors to find savings of about $900B over 10 years to fund pending health care reforms and covering the uninsured. It has even cut $43B or 13% of Medicare spending on home care, which is arguably a cheap and efficient alternative to far more expensive hospital or nursing home care.

Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)

Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.

Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.

Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.

What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?

Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.

Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.

This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.

The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.

In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.

Saturday, November 21, 2009

Bad Medicare Data Thwarts Good Policy

In August 2006 even George Bush tried doing something right in health care. He asked his public health agencies to make pricing and payment to providers information transparent and publicly available.

Till then Medicare and the like kept such information secret or very hard to access, ostensibly to give them better negotiating leverage with providers. I think (having been in government) it's just the natural way of bureaucrats. The less information they put out there, the less vulnerable they are to any criticism, and more able to dispense favors or act arbitrarily.

But there are very good reasons to make Medicare rates and payment information freely available, especially when health reforms are such a priority:
  • Hospitals have long maintained they lose money on Medicare patients and hence need higher private insurance and "list" rates as a cross-subsidy. The media and analysts have never properly verified these claims. They and policy makers can do so with more easily available data, and compare Medicare payments with those in Europe and other countries to evaluate their fairness.
  • Doctors too complain about low Medicare rates and especially the cuts required in them by federal law. A cut of 10.6% was eliminated for 2009, and just two days back the 21.2% cut for 2010. Precisely knowing and assessing these rates will again better shape payment policy.
  • The difference in rates and average payments across provider groups and regions can identify the outliers. Thus excessive prices and inefficiencies can be curbed while studying the most cost efficient providers for propagating best practices. Atul Gawande's Jan. 26, 2009 article in the New Yorker that so impressed President Obama shows one way to do this.
  • US Medicare payments can be compared with prices charged abroad. This will highlight the achievable savings that are being studiously ignored in the current health care reforms debate. The Wall Street Journal's front page story today was of Dr. Devi Shetty's $2,000 heart bypass surgeries in India with quality and outcomes comparable to those in the US. But even top foreign providers serving medical tourists that charge $10,000 for a heart bypass offer enormous savings as they are a fifth of US prices.
Sadly though, this Medicare payment data is incomplete and difficult to find and tally. Worse, it is plain wrong. I was alerted to this problem when Prof. Jagdish Bhagwati drew my attention to World Banks' Aaditya Mattoo and R. Rathindran's 2006 article in Health Affairs (or a detailed 2005 working paper.) The authors estimated US savings of about $1.4 billion annually, if 15 exportable procedures were performed abroad on only 10% of eligible patients.

$1.4 billion? This sum is ridiculously low compared to our own calculations mentioned in our Global HealthNet website and summarized in our May 2008 WSJ Op-Ed. There were $220 billion worth of 30 "exportable" medical procedures performed in 2006, and if 25% were performed abroad, $45 billion would be saved. And this does not factor in savings due to US hospitals lowering prices due to foreign competition. Mattoo looked at only 15 procedures and used a 10% participation rate, but that doesn't come close to explaining the difference between $1.4 billion and $45 billion.

The biggest culprit I see is the flawed Medicare payment data put out by CMS and relied upon by Mattoo. It leads to average payments being heavily under-estimated. Here's how CMS has slipped up:
  • Foreign hospitals readily provide a consolidated estimate for standard procedures and a single final bill. But US treatments typically generate a flood of separate bills from providers (individual physicians, radiologists, therapists, device vendors, different hospital services, etc.) CMS inexplicably fails to list or specify all such components so researchers are very likely to miss major ones.
  • Even the figures presented seem to be wrong. For instance, they show 42,000 heart bypasses (CABG) for Medicare recipients in 2006 with average hospital payments of $22,700 (or $33,100 for complex cases) that are only 30% of the charges. But the federal HCUP database itself shows 127,000 Medicare CABG cases and says payments average 55% of charges. (It can be about 46% for Medicare that typically pays 83% of private insurer rates but that's still a lot more than 30%.) Similarly, CMS shows under $12,000 Medicare payment to hospitals for knee or hip replacements, that again seems grossly understated at 30% of charges. Among other things it looks here that CMS omitted the sizable cost of orthopedic implants.
  • To see how wrong data can skew savings calculations, consider a heart bypass that costs a total of $19,000 in a "5 star" Indian hospital including all treatment, travel and stay. If we take the US total payment to be $26,000 then the savings are $7,000 per case. But if total US payments are a more realistic $65,000 then the savings are $46,000, an over six-fold increase.
  • CMS also makes it needlessly hard to find this supposedly very open payment information online. If you have a little time, visit their website and see if and how quickly you can find this before reading further. Of all places it is tucked away in "Research, Data,..." under "Health Care Consumer Initiatives."
Remarkably, all the data needed by CMS to compile the complete and accurate payment information and make it transparent is sitting right there in its payment system servers and storage. They can also easily have it for up to a quarter or two ago, instead of it being three years old, for 2006.

The resources needed for this appear to be absurdly meager - I'd think a couple each of in house programmers, data base professionals and statisticians working for a few days. The directives have long been in place so it does not need any legislative, political or even top administrative clearance. In absence of this ready data we are paying a high price by mulling political options and policies in a vacuum. HHS or CMS shouldn't lose any more time correcting the situation.

Wednesday, September 16, 2009

Northern Myth Busting

We shouldn't generalize about the state of health care from individual anecdotal accounts. But these blog posts in part 1 and part 2 back from February of 2008 by Sara Robinson are good testimony from someone who has seen both the Canadian and US systems from up close. Moreover, in debunking and occasionally confirming claims about the Canadian system she cites facts and statistics that corroborate her first hand experiences. In a word she says Canadian care is at least B grade for every Canadian, while for much higher cost US care is A grade for some Americans, and C or D grade for many.

More recently on September 10, 2009 she described her efficient and worry-free hospitalization and treatment in Canada on the very day of President Obama's health care speech to Congress.

But if you've time and appetite to look up just one item I'd recommend this entertaining link sent to me by single payer advocate Jonathan Starr. It features Canadian Steven Lewis exposing US health care myths and deficiencies with music, sarcasm, facts and humor.

At the bottom of this clip is a link to a longer and more serious expose titled "Universal Health Care Message to Americans From Canadian Doctors & Health Care Experts." Canadian health care is overall better and more cost effective than that in the US, though I prefer private insurers to be allowed to offer competing choices as in many European countries. That private competition is what all serious US reform proposals envisage anyway, though private insurers rightly fear most people will opt for the the public option if they're allowed to do so.

What about opponents of changes in US health care? Here is a clip of town hall protests on 8/29/09 against health reform in Spring Valley, CA. As I commented to some friends it's scary if these are "ordinary Americans". They remind me of the 2006 movie "Idiocracy" where future generations become retarded.

Too bad that Democratic leaders like Senate Finance Committee Chairman Max Baucus seem to have heeded such sentiments. After wasting months seeking a bipartisan solution he came up with an ineffectual Senate bill without a public option that's a sellout to the insurance industry. Surprisingly he still didn't get any of the Republican members of the "Gang of Six" to sign on.

The only way I'd view Mr. Baucus' efforts positively (or even Mr. Obama's to date) is if this bill has been conceived just get something past the Senate including their own Blue Dogs. And then the plan is to introduce effective changes like a strong public option through the reconciliation process solely with Democratic support.

Wednesday, September 9, 2009

CDC Can Do More on Swine Flu

Looking up the CDC website on swine flu guidance reminded me of an old joke about a balloonist who was swept away by the winds and got lost.

He lowered himself next to a tall office building. He wrote "Where Am I?" on a placard and held it up for the people inside the building windows to see. Those people responded with their own placard that said "You Are in a Balloon 100 Feet Up in the Air." That answer was however enough for the balloonist to know that he was at the Microsoft headquarters in the Seattle suburb of Redmond. For going by its help feature in its products only Microsoft could provide an answer that was completely correct and yet so irrelevant and useless.

How's this related to swine flu? About two weeks ago I briefly came down with the sniffles and a mild fever that lasted less than a day. Then over this Labor Day weekend we drove to Pittsburgh where Anita's nephew had similar symptoms. We isolated the affected person (me and our nephew) and considered the obvious question of whether to seek testing, and if yes, where.

Testing would help the authorities to compile statistics and monitor the spread of the disease. Patients testing positive would know what to watch out for and be extra careful about exposing others. Recovered patients presumably acquire immunity, and needn't worry about subsequent exposure, or getting inoculated when the swine flu vaccine becomes available.

On the other hand, patients arriving in large numbers in medical facilities could put providers and other patients at risk, and strain scarce resources. Also, uninfected patients can acquire the H1N1 virus from others in the very clinic that they visit.

Weighing these pros and cons we looked at the CDC and other official websites for guidance. Despite all the other information crammed in there, we found nothing addressing these obvious questions. Countless other patients and American families may be similarly confused and frustrated.

The closest answer I got after clicking through links and menus was an indirect one, under "Home Care Guidance: Physician Directions to Patient / Parent." It said that you should see a doctor or seek medical help if you develop certain serious symptoms, presumably meaning that you shouldn't if these don't occur. It needs to be a lot more explicit and easy to find.

The new health care and CDC leadership under the Obama administration has been in place for quite some time, with Director Thomas Friedan confirmed in May 2009. They should have personally scrutinized their agency's website and confirmed there are no glaring omissions. They don't seem to have adequately done so, but this is fixable. Having worked in government these are the obvious added steps I would take in regard to swine flu were I directing CDC or the HHS in regard to the flu:

1) Prominently feature in the Frequently Questions (FAQs) and other parts of their website, as well as in briefs to the media
  • Advice to persons with typical symptoms and parents on whether and when to get tested for swine flu, and when not to
  • Similar advice on when to seek medical help or visit a doctor, and when to hold off out of concerns of spreading or contracting infection
  • Some information about the cost of testing, the best places to go to (doctor's office, clinic or hospital emergency room?) and the reliability of the tests. Add more "layman" information about the benefits - and the downside or risks - of anti-viral treatments like Tamiflu and Relenza.
2) Have an interactive feature on the website where users can enter their address or zip code. They then get a listing with addresses and contact information of nearby medical facilities that have special swine flu treatment arrangements and / or accept patient samples for testing. To keep pricing transparent and competitive, such facilities should disclose their prices for standard testing and treatment, and this information should also be displayed. If an interactive feature is beyond CDC's scope they can at least provide links to state and local government resources that provide this information. It will specially help the uninsured, and many insured patients as well.

3) Engage and coordinate efforts with large providers and test labs to expand capabilities to handle swine flu patients. The CDC can also issue standard guidelines and practices (e.g., separate windows and rapid turnover waiting areas for flu patients in emergency rooms with proper signage, to limit cross-infections) that help providers and patients alike. The CDC can even use its power to disseminate information to have "suggested prices" for testing and treatment. Coupled with inviting providers to include their prices in the links on the CDC website as at (2) above, this will encourage lower prices.

4) Orchestrate a system to enable healthy family members to get sterile vials or containers from labs, collect patients' samples like nasal swabs, and submit these for testing. This way patients being tested get to stay at home and again limits inconvenience and the spread of infection.

5) Encourage or help set up a system of home visits to patients by health workers. Such workers should have either already contracted and recovered from H1N1 infections, or have been vaccinated after this treatment becomes available, so that they are immune.

Similar steps can be taken to disseminate detailed information about the swine flu vaccine which is expected to be widely available very soon. The CDC and the HHS are large organization with multiple responsibilities. So ideas like these may not have been considered. I hope they are responsive once they see them. Since H1N1 flu has now spread worldwide, other countries can also adopt similar practices.

Wednesday, September 2, 2009

Another Red Herring

This cover story in the current Atlantic "How American Health Care Killed My Father" by David Goldhill has attracted a lot of attention. David Brooks in the NY Times in a September 2 column even calls it "brilliant." But I find its conclusions about required steps to be misleading and adding to the confusion about health care reforms.

It has some nuggets of insight. Like health insurance is currently not just insuring against unforeseen events as other kinds typically do, but generally paying for almost all care however routine or minor. Or that patients don't concern themselves with expenses or limit needless treatment, when someone else (the insurer) is picking up the tab. Or that hospitals restrict competition by lobbying against new entrants and through consolidation, and deliberately overprice emergency room care to inflate their charitable services component. Or that for hospitals and providers, the real customer is not the patient - it's the payer of their bills.

Goldhill summarizes at one point: "A wasteful insurance system; distorted incentives; a bias toward treatment; moral hazard; hidden costs and a lack of transparency; curbed competition; service to the wrong customer. These are the problems at the foundation of our health-care system, resulting in a slow rot and requiring more and more money just to keep the system from collapsing. "

Goldhill then suggests starting completely afresh, taking a lot more time to think and plan, and "to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system." His outlined solution is to essentially tweak the marginally successful system of individual consumer health savings accounts (HSA) coupled with catastrophic insurance that has been in place since 2005.

Even some smart and logical people seem to have been swayed by Goodhill's logic. Here for example is the reaction of Hari, a seasoned Silicon Valley engineer:

"Despite some flaws in the solution the author proposes, I actually agree with his description of the fundamental problem of why medical costs are so high, medical care is not commensurate with cost and all solutions from insurance to government will eventually lead to cost overruns. I actually think that a combination of private HSA savings account, catastrophic-only insurance and government maintenance of Medicaid is the way to go..."

Why is this HSA approach so deficient? Jonathan Starr, also an engineer and a single payer advocate, gave this apt response to Hari that captures a lot of my thinking as well:
"The author identifies some important concerns regarding cost-control, good-practice, and accountability. But, I do not agree with the solutions he offered, such as the ones you mention.

Regarding reliance on HSA accounts as a major part of paying for health care:
1) Assuming these are tax-deductible accounts, they are inherently regressive. The higher a person's income, the more that person can afford to put into such a tax-sheltered account. The higher the person's marginal tax-bracket, the larger the tax-deduction that person receives for any amount put into that account.
2) For most people, it is impossible to predict future medical needs, and how much they will cost, so it is impossible to determine how much any particular person should put into an HSA account.
3) Insurance, single-payer or otherwise, pools risk to make coverage available when some members of the pool need it. By pooling the financial resources of a large group, most of whom at any one time are healthy enough not to need to draw significantly on those resources, those who do need to draw heavily on the pooled resources are able to do so. With HSA accounts, there is no pooling of risk. Resources are distributed in as fragmented a manner as possible. So, financial resources in most accounts may sit around unused, while those people who need health care service exhaust their own little financial pool quickly. Pooling of risk through some type of insurance is a great innovation with enormous public benefit, all of which relying on HSA accounts forgoes.
4) Individual customers, with just their own HSA accounts, have little leverage, or expertise, for negotiating for favorable prices and rates for pharmaceuticals, medical equipment, and health care. Large aggregations of resources, such as in insurance plans (again, single-payer or otherwise), can have far greater expertise and leverage in negotiating and pressuring for such cost-reductions.
5) Fragmenting the customer pool reduces the capacity for aggregating information about health care outcomes and for advocating and enforcing best-practices.

In short, there is great power in numbers for controlling costs through bulk-purchasing and negotiation, and for gathering, evaluating, and distributing information and requirements about best-practices to control costs and improve outcomes. This is increased with large insurance programs, and maximized with a single-payer program; in contrast, it is minimized through reliance on individual HSA accounts, which maximize the fragmentation of the pool of end-users.

Also, the low-hanging fruit reducing health care costs is in reducing administrative overhead. Hospitals and other care-providers must pay large costs to handle the billing of innumerable insurance policies. If instead, they have to bill an exponentially larger number of individual people and HSA plans, that makes this administrative overhead even higher. Furthermore, care-providers must build into their price-structure higher fees to those who do pay in order to cover those who do not. If every person is being billed individually, the number who ultimately do not pay undoubtedly will increase. This not only increases the costs for collection, it also inevitably raises the fees that must be paid by those who do pay.

In a single-payer system, the need for such billing overhead is drastically reduced. There is a single program to deal with, instead of innumerable policies, or even more innumerable individuals. Furthermore, payment by single-payer systems are reliable, so that fees do not need to be padded to cover those who do not pay. In practice, one of the reasons doctors and other care-providers have been willing to accept the lower-than-market-rate fees paid by Medicare is precisely this reliability of payment.

If the HSA-based system still includes reliance on, or even just availability of, private insurance, then not only is there the administrative overhead that must be built into healthcare costs, there is also the profit, marketing, billing, lobbying, and administrative costs of the insurance companies themselves. This is more money that is paid nominally for healthcare, but actually goes to something else, which adds to the cost of the system.

Also, providing insurance, or even just administering HSA accounts, is a competitive burden on American companies. With a single-payer system, this burden is relieved; with everyone having HSA accounts, it instead could be increased."

President Obama is (finally) set to exercise leadership and press his own specific proposals for health care reforms for Congress to pass, rather than passively let a bill bubble out for him to sign. That's the good news. But he has already failed to strongly speak out for a strong public option (if not an outright single payer system) so that public support has eroded due to the propaganda and misinformation by reform opponents. There are signs that he's willing to drop insistence on this option that is vital to cost containment. If that happens it may be a big indicator not only of his success on health reforms, but of his vision and overall ability to lead.

Monday, August 24, 2009

Easily Conned?

Last Friday I traded in our ancient minivan to buy a new SUV under the highly popular "Cash for Clunkers" program.

As I was signing the final papers, the manager at the GM dealership lamented the bureaucratic wringer and technical glitches that have plagued the program. The government website (for uploading claims) would remain unavailable or keep crashing. Paperwork was tedious and claims were rejected for trivial reasons. Four weeks after filing the first claims the dealership had yet to receive any money.

"The government messes up everything, and now it's trying to take over our health care," said the auto manager. I asked him what he thought of the public option, and he said he is dead set against it.

That stopped me short. Here was someone who was (a) not a health provider or insurer, (b) not a $250K+ earner who would see taxes hiked up, and (c) not a lawmaker (Republican or Blue Dog Democrat) bribed by the industry to safeguard its interests. Moreover, he is in the business of selling new and used cars. That's someone who should be savvy enough to tell facts from fiction.

Yet even he swallowed the industry claims and counter-arguments against reform. He objected to the public option because his employer may then drop his private insurance (why should it matter if the public plan is better, or he can still see the same doctors?) When asked about the popular Medicare for seniors, and why not offer it to all Americans, he said Medicare will be out of funds (if it's cheaper, the funding is just a matter of allocating enough to it.)

This underscores just how easy it can be for reform opponents to confuse (or sucker) the average Joe about changes to the system. The Obama administration certainly hasn't helped with its mixed and conflicting messages on its commitment to the public option.

It doesn't have to be this way. Here's a link I received from Jonathan Starr of an MSNBC "Morning Joe" discussion between Republican host Joe Scarborough and Congressman Anthony Weiner (D - NY). Weiner advocates a single payer system and his logic for it even gets Scarborough (to his credit) thinking hard and admitting he's impressed "and speechless." Why isn't Mr. Obama making this case?

Paul Krugman has criticized Obama in today's Op-Ed in The Times. He also repeats that "Reaganomics has failed to deliver what it promised, yet people still believe that government intervention is bad, and leaving the private sector to its own devices is good."

A remarkable national survey result also shows that a majority of Americans believe most of the 19 myths floated by reform opponents.

Republicans also have some (a few, I wish they had more) good ideas on health reforms that are being ignored by Democrats. Chief among these is the need for malpractice reforms. It may bring down some health care costs, or at least remove one major reason (or excuse) advanced by providers for high costs.

Then there are reforms that neither party stresses, like vastly expanding the supply of doctors and other providers, and curbing hospital market power. A reason reforms are so difficult is that each interest group has powerful leverage and lawmakers protecting them. Strong public demand can pressure the politicians to do the right thing. For this to happen President Obama needs to stop being so passive and overlearning from the Clintons' 1993 experience. He should instead imagine how Hillary would act now if she were in his place.

And Americans like my auto dealer need to better judge industry claims.

Sunday, August 16, 2009

Sell-Out By Obama?

In the past day or so I've been struck by three news items about health reforms.

First, former DNC Chairman Howard Dean flatly stated in a TV interview that health reforms without a public option were not worth having.

Second, the New York Times today carried an Op-Ed by President Obama himself on the need for health reforms. He seemed to want everyone on board with it, touting support by provider groups including the AMA. But that may just be the problem.

Third, as also reported in the NYT the White House in its anxiety to pass any type of health reform package seems ready to compromise by dropping the call for a public insurance option. “The public option, whether we have it or we don’t have it, is not the entirety of health care reform” Mr. Obama said. “This is just one sliver of it, one aspect of it.”

Actually, the public option is a huge deal, given that the government buying clout is needed to counter the market power of providers controlling scarce resources or facing little competition. Without it the cost-containment component of health reforms suffers a severe setback even if we manage to expand coverage of the uninsured. Howard Dean realizes this, as does Paul Krugman who reiterated this view in his Op-Ed today in the NYT.

President Obama could have used his speeches and town hall meetings to expose the special interests and their misinformation about the public plan. This could also have deterred Democratic senators like Ben Nelson and Kent Conrad who have apparently been bought over by industry interests. Instead, Mr. Obama seems anxious to pass a reform plan that placates the opposition, even if it is weak and ineffective at reining in costs, and then calling this a victory for his administration (and of course "the American people.") Let's hope I'm wrong.

Friday, August 7, 2009

Don't Confuse Corruption With Centrism

In his July 27 column in the New York Times, Paul Krugman exposes the flawed objections of the Blue Dog or so-called centrist Democrat lawmakers to crucial aspects of proposed health care reforms. Krugman says he's not cynical enough to believe these Democratic holdouts are simply acting to protect special interests who buy them off. But it's hard to see it any other way.

After all, Blue Dogs tout fiscal responsibility and their objections to health reforms are supposedly about how to pay for it and to contain costs. Yet they are the ones also (a) seeking higher payments for selected providers, (b) opposing the public option that is the most effective way of lowering the prices charged by providers benefiting from engineered scarcities or non-competitive practices, and (c) opposing employer mandates that prevent shifting a greater burden on to public funds.

I'd have understood and even welcomed these "centrists" seeking additional cost containment measures. These could include more vigorous support for comparative effectiveness and treatment cost effectiveness studies and criteria, and direct negotiation of drug prices by the government for publicly funded plans. Another of importance is malpractice caps and tort reform that is opposed by liberal Democrats who are beholden to their own lawyer lobbies. Incidentally, Paul Krugman is also silent about this last one, and I'd like to see him be more of an honest broker by attacking this sacred (and also very wasteful) cow on the left. But Blue Dogs by and large are conspicuously quiet on all these issues.

The Republican lawmakers are of course even more sold out to the anti-reform lobbies. They trot out meaningless slogans ("socialized medicine") and flawed logic that a reasonable audience should clearly see through. Still, a recent Gallup poll shows that such attacks gained some traction and support for health care reforms is decreasing. Krugman in his August 7 column also notes this trend - the average Joe can apparently be swayed and misled quite easily. So President Obama needs to step up his roles of countering propaganda, and exposing lawmakers seeking to water down reforms - especially Democrat "centrists" - so they're pressured to do the right thing.

The role of industry lobbies and special interests in obstructing health care reforms should also be seen in the context of a larger problem. That's our failure to have an enlightened approach to pay our lawmakers well and to adequately fund their elections with tax dollars. I've talked about this, including in a separate May 29 blog post on the misplaced outrage over the UK MPs' expenses. Campaign finance reform can also go much further with universal adoption of a clean elections system.

However compelling the logic, lawmakers are seen and portrayed as self-serving if they try to give themselves huge raises. A strong case should instead be made on their behalf by opinion leaders like Paul Krugman, Tom Friedman and respected media publications like the Wall Street Journal. Sadly, the WSJ just continues to take cheap shots as in its August 8 front page article and August 10 headlines about petty lawmaker expenses on Congressional trips.

Thursday, July 16, 2009

Parsing Counter-Arguments Against Health Reform

Talk of contrasts between two articles. There is a great one in July 15's New York Times (NYT), and the other is a hack job in an Op-Ed back from July 1st in the Wall Street Journal (WSJ).

The NYT article "Why We Must Ration Health Care" by Princeton professor Peter Singer makes a thoughtful and compelling case for wisely providing AND rationing publicly funded health care. The few who can afford to pay out of pocket can be left free to buy much less restricted coverage, but a sound rationing policy for utilizing available resources will vastly benefit the general populace. This piece, along with an earlier excellent one of June 17 about how a sub-optimal de facto rationing already exists, should insulate readers from slogans by reform opponents about "rationed care."

The WSJ Op-Ed titled "Parsing the Health Reform Arguments" by George Newman offers a pointwise counter to reforms. However, he goes about it like a hack - using mostly arguments that he should know are misleading. I liken it to Johnny Cochrane defending O.J. Simpson, trying to sway a jury even though he doesn't believe his own logic, or the cause of his client.

Newman's talking points are likely to be used by anti-reformists in TV short debates and sound bytes that can influence gullible viewers. His article is long, but here are my comments on his main contentions:
  • Newman dismisses the cost of health care rising 2-3 times as fast as inflation by saying health care now is so much better than that in the past. He says "That's like comparing the price of a hamburger 30 years ago to a filet mignon today and calling the difference inflation. Or the price of a 19 inch B&W TV 30 years ago with the price of a 50 inch HDTV today."

Actually the CPI compares prices irrespective of technological advances for all services and products, including items like computers or cars that have improved over time just as healthcare has. Incidentally the hamburger to filet mignon analogy is false as both products have existed over this period. As for the TVs, the color TV was invented over 60 years ago, and the cost ratio of a 19 inch B&W TV back then to a 50 inch HDTV today will be pretty much in proportion to the change in general CPI.

There is a valid argument that higher health care costs are also due to a greater quantity of health care being delivered per capita due to the rising needs of an aging populace. But that doesn't explain the egregious escalation in prices of health care (as in a day of stay in a hospital, or an hour of a doctor's time) as compared to a general increase in the CPI. The BLS CPI urban data (CPI-U) compiled by category shows that from 1982-84 to June 2009, the overall prices rose 116% while prices for professional (doctor) services rose 220% and for hospitals they rose 464%.

An international comparison of changes in health expenditures invalidates Newman's "normal health cost increase in the US" assertions in another way. The 2009 OECD health data shows that for all OECD ("developed) countries, the median health expense as a percent of GDP rose 30% from 7% in 1982-84 to 9.1% in 2007, while the increase was nearly double in the US from 10.1% to 16% of GDP over the same period.

  • Newman also explains away health care representing a rising proportion of our US income as "perfectly natural" by categorizing it as a "discretionary, income-elastic expense" that forms an increasing share of a prosperous economy.

Health care is part luxury good, with an inelastic ("necessity") component. Expenses rise with with resources going into increasing longevity of the population and also because older patients need more care. But again, there is no reason for such expenses to be rising faster in the US than elsewhere, and for their absolute level to be so much higher than in peer economies. Given the political and the right reforms we can actually expect US expenses to fall for a few years as US costs are brought closer in line with the rest of the first world.

  • About the problem of the 45 million uninsured, covering this 15% of the population risks destroying a system that works for the vast majority. Universal coverage will push up not only overall costs, but also health care prices as higher demand for services chases the same supply. A public payer option won't help since there is already enough competition among private insurers.

First, the current system is way too expensive, with prices twice those in Europe, so it isn't really "working." Simply extending insurance to those not covered will indeed exacerbate scarcities and tend to raise prices. That's why a public option is vital and is not just like another private plan. It concentrates buyer power that counters the pricing leverage of providers of scarce services. The savings should partly pay for covering the uninsured, though extra funds may be needed in the short term, at least till other reforms free up more resources over time.

Also on July 1 in the Washington Monthly, Steve Benen and several readers dissed Newman's contention about 1500 private plans offering enough competition.

  • A taxpayer funded universal healthcare will not ease competitive burdens of US businesses that no longer have to pay high healthcare costs for their employees. That's because the employees still pay for healthcare costs through higher taxes, as funds "do not fall from the sky."

This logic is false for two reasons. First, as the European experience shows, the single payer public system is much more efficient, so the overall health cost burden is less. Second, if taxpayers rather than businesses pay employee health expenses then for the businesses their employees don't directly cost them extra healthcare dollars in that country. Of course, the current US reform proposals (sadly) do not go all the way towards a purely taxpayer funded system. Instead in a half-measure they propose (all but the smallest) employers should pay for their employees' health insurance or contribute towards a public plan.

  • A public option will drive out private plans. So contrary to reformer's claims, people won't be able to keep the private insurance that they have. Congress will inevitably favor the public plan and harass private plans into extinction.

It is true that a public plan with its concentrated buyer's power has a huge advantage over fragmented private plans. Most people will want to switch to the public plan because it will be a better deal, and will lower costs. That's the whole point. And yes, private plans will shrink dramatically as a result. But they will still be around for the, say, 10% - 15% of the Americans who still want them. Why should Newman expect Congress to unjustly favor the public plan that cannot even give lawmakers anything in return? The danger is exactly the opposite. It is private funded lobbies and groups that can typically buy over or influence lawmakers with favors. In sum I expect a public plan to win out because of inherent efficiencies, and not because of tampering by Congress.

This WSJ article has some other counterclaims as well. To me they are weaker and devoid of merit, but I leave it to you to find the flaws, or enquire in "comments" if you're very interested.

Wednesday, July 1, 2009

The Vast Left-Wing Courtspiracy

Almost all the good ideas on health reforms so far have come from Democrats. Republican have mainly launched hack attacks against such Democratic initiatives. "Hack" here means trying to sway opinions by using any means necessary, including misleading and irrelevant arguments that even the author doesn't believe to be valid.

For example, partisan hacks use phrases like "socialised medicine" or "a bureaucrat coming between a patient and his doctor" to denounce the public insurance option. Never mind that our socialized armed services, socialized police force, socialized public school system and socialized Medicare program seem widely preferred to purely privately run alternatives. Or why should a private insurer whose payouts directly decrease profits be better at serving patients and paying doctors, compared to an automatic Medicare style system of public billing?

But the June 30 Op-Ed by law professor Richard Epstein of the University of Chicago is different. He spells out several reasons why the dysfunctional US malpractice system is much worse than that in other developed countries. This is an issue that Democrats and even their most effective spokesmen for reforms like Paul Krugman completely ignore. While malpractice payouts are less than 1% of total healthcare costs, they cause much larger damage by inducing the practice of defensive medicine.

In that sense health industry groups traditionally aligned with Republicans are more "efficient" in enriching themselves. The annual US health care tab is inflated by hundreds of millions of dollars due to overpricing, including by doctors benefiting from managed scarcities, and by hospitals and insurers facing inadequate competition. But at least this money flows more directly to the recipient interest group.

In contrast, defensive medicine and "excess" malpractice insurance costs as much as 10% of the total health bill or over $200 billion annually if we believe some studies. Yet trial lawyers get at most half of the total malpractice payout of about $6 billion annually, or under 1.5 % of the cost imposed on the system. To misquote Winston Churchill, never have so many paid so much to benefit so few. Even as they push for other changes, Democrats have no excuse to block malpractice reforms.

Epstein says the main reasons the US system (as different from others as in Europe) drives up malpractice costs are:
  • Jury trials that can veer out of control and introduce significant uncertainty, coupled with a contingency fee system and each side bearing its own costs. This encourages trial lawyers to litigate excessively, as they have a good chance to win big with little downside if they lose.
  • American judges frequently allow juries to decide whether honest mistakes are negligent, and to infer medical negligence from the mere occurrence of a serious injury. American plaintiffs sometimes aren't required to identify any particular acts of negligence, or showing the connection between the negligent act and the injury.
  • Damage awards in the US tend to dwarf those made elsewhere.

As a result, Americans file claims about 3.5 times more often than Canadians. Yet the frequency of medical malpractice in Canada is about the same as in the US (so much for the deterrence of the costly US system) - for about a tenth of the total cost.

I agree with Epstein's recommendation to (a) replace juries with specialized commissions like those in France that reduce litigation expenses and promote uniformity in case outcomes across regions, and (b) have a national cap on damages for pain and suffering, such as those already enacted in over 30 states that are set between $250K and $500K.

Two concluding caveats to Epstein's article, though. First, not everyone agrees that malpractice coupled with defensive medicine imposes such heavy costs. A 2004 report titled "Limiting Tort Liability for Medical Malpractice" by the Congressional Budget Office uses terms like "weak", "inconclusive" and "ambiguous" to describe a lot of the evidence. Second, Epstein couldn't leave well enough alone, and took a pot shot at the vitally needed (in my opinion) public option in his concluding sentence: "Market-based solutions that make the private sector more responsive should in turn undermine the case for moving head-first into a government-run health-care system with vast, unintended inefficiencies of its own."

Friday, June 26, 2009

Audacity of Incrementalism?

I see signs of a sellout by the Obama folks and Democratic "centrists" on the public healthcare option. If this doesn't happen a lot of thanks should go to Paul Krugman whose forceful reasoning and barbs may give President Obama the spine to make a stand.

In his Times' June 22 column, "Health Care Showdown" Krugman exposes the "centrist" Democrats led by Senators Ben Nelson and Kent Conrad. Both of these men oppose or undermine the public option for apparently ulterior motives, be it campaign contributions, outright corruption, or aspirations to become power brokers. Their group as well as the Republicans have to know that the public option will vastly lower prices and benefit payers and patients. Proponents of this option are emphasizing that it will compete with private plans that patients are free to opt for, or retain. So any switch to the public plan will be purely voluntary, because it is a cheaper and/or better choice.

Opinion polls show wide support for this option by a 72% to 20% margin according to the most recent survey. Still, Nelson and Conrad can afford to ignore voter sentiment (often misplaced, but not this time) because neither is up for re-election till 2012, and Nelson enjoys high ratings in his Nebraska state. Whatever their reasons, or that of other Democratic "centrists" and the Republicans, we can be sure they are knowingly refusing to act in the public interest.

However, Obama can push through effective reforms if he really wants to. He doesn't need to keep seeking bipartisan support that dilutes reforms to the point of making them trivial. Thanks to the Congress reconciliation process he doesn't need a 60 vote filibuster-proof support in the Senate, but just a simple 50 vote majority that Democrats can easily manage.

This is where Krugman's other Op-Ed of yesterday titled "Not Enough Audacity" comes in. It makes effective arguments for Obama to not settle for half-measures, as he shows some signs of doing. It's worth reading both of Krugman's articles to really get it, but here are key excerpts:

"The point is that if you’re making big policy changes, the final form of the policy has to be good enough to do the job. You might think that half a loaf is always better than none — but it isn’t if the failure of half-measures ends up discrediting your whole policy approach.
Which brings us back to health care. It would be a crushing blow to progressive hopes if Mr. Obama doesn’t succeed in getting some form of universal care through Congress. But even so, reform isn’t worth having if you can only get it on terms so compromised that it’s doomed to fail.

"And that’s why the public plan is an important part of reform: it would help keep costs down through a combination of low overhead and bargaining power. That’s not an abstract hypothesis, it’s a conclusion based on solid experience. Currently, Medicare has much lower administrative costs than private insurance companies, while federal health care programs other than Medicare (which isn’t allowed to bargain over drug prices) pay much less for prescription drugs than non-federal buyers. There’s every reason to believe that a public option could achieve similar savings...

"Indeed, the prospects for such savings are precisely what have the opponents of a public plan so terrified. Mr. Obama was right: if they really believed their own rhetoric about government waste and inefficiency, they wouldn’t be so worried that the public option would put private insurers out of business. Behind the boilerplate about big government, rationing and all that lies the real concern: fear that the public plan would succeed..."

Wednesday, June 17, 2009

Excellent Article About the Rhetoric of Rationed Care

This isn't from my favorite New York Times writers Tom Friedman or Paul Krugman. Yet it is one of the best articles on an important health care topic (or any other subject) I've seen in a long time.

I'm referring to "Health Care Rationing Rhetoric Overlooks Reality" by David Leonhardt appearing today in the NYT. It makes the case that health care rationing is occuring in reality in the US already, just in a worse way overall than other developed countries that have universal coverage supported by public funding.

I hope President Obama and the public spirited policy makers (who haven't been entirely bought over by industry interests) get to read this and pay serious attention to it.

Thursday, June 11, 2009

Overseas, Truth Under The Knife

Expert opinion under the guise of objectivity can be highly persuasive. Three US doctors on June 10 wrote in The New York Times to rather subtly undermine the push towards medical tourism.

In their Op-Ed "Overseas, Under The Knife" Drs. Arnold Milstein, Mark Smith and Jerome Kassirer begin by praising medical tourism's "allure of good care at half the price." They also say "total fees at well-regarded hospitals like Apollo and Wockhardt in India are 60 percent to 90 percent lower than those of the average American hospital."

Then they change tack to slant some statistics, and play on patient fears and insecurities about medical tourism. Those in the industry should know better but the average reader will likely buy their story.

Interestingly, Nicholas Kristof has an Op-Ed of June 11 in the NYT cautioning against the scare tactics of health insurers against a public plan. It applies to many admonitions by Dr. Milstein et al. They denigrate medical travel by saying: (a) it won't save much money overall; (b) it poses risks and difficulties for patients; and (c) too little is known about quality of care and we should first set up protocols and collect extensive data before seriously considering this option.

Towards the end of the article they do suggest useful steps like Medicare prescribing uniform reporting and tracking of treatment information by US hospitals, and inviting foreign hospitals to participate. The data includes surgical outcomes, risk factors, complications rates and comparable measurements of long term success. Still, this doesn't allay my concerns about other parts of the article.

Some of their assertions I take issue with are below (in italics), along with my comments:
  • Offshore surgery cannot substantially lower health care costs. Less than 2 percent of spending by American health insurers goes to the kind of non-urgent procedures that Americans seek overseas. --- Huh? In our May 27, 2008 Op-Ed in the WSJ we had identified 30 such procedures with a spending of $220 billion in 2005. For 2006 the figure is $270 billion. This is 13% of the $2.1 trillion total healthcare spending, or almost 42% of the $649 billion spent on hospital care. Of this, the spending on just the top six "exportable" surgeries (3 in cardiac - valve, bypass and angioplasty; and 3 in ortho - hip replacement, knee replacement and spinal fusion) is $100 billion. That alone is 4.7% of the total health bill, or 15% of the hospital bill. Another way of looking at it is that medical tourism potentially offers bigger savings than the $1.2 trillion dollars over the next decade promised by the health industry groups amidst much fanfare to the Obama administration.

  • Compared with low-cost American hospitals, the offshore fees are 20 percent to 50 percent lower. --- This significantly understates the cost differential as well as the incentive to go abroad. Even compared to negotiated rates of cheap US hospitals (leave alone the atrociously high "list" prices) top Asian hospitals charge a lot less. A heart valve replacement costing over $100K in a typical US hospital may cost $50K in a cheap US hospital, but only $10K in Wockhardt or Apollo in India. For a heart bypass, the comaprable figures are $70K typically in the US, $40K in a cheap hospital, and $10K in India. That's offshore fees 75% - 80% lower, which is very different from a "mere" 20% - 50% differential.

  • Other negatives are obvious: people having surgery done halfway around the world are far from their regular doctors as well as friends and family. Consider, also, what happens if an American abroad falls victim to negligent care. Arranging transfer to another hospital may be difficult. --- If the authors insist on playing this "fear" card they should at least mention that the patient is far less likely to have an adverse outcome in a top foreign hospital than in an average US hospital. Take heart bypass: the US overall mortality rate for this is over 2%. It is only about a third of that (0.6% - 0.8%) at Apollo or Asia Heart Institute in India with similar favorable comparisons for infection rates, other complications and other procedures like hip resurfacing. Also, most of these foreign hospitals are multi-specialty with good general care, and in any case located in the largest cities like Delhi, Mumbai or Singapore with a profusion of other hospitals. So in the rare event of a transfer being needed it's likely easier done abroad than in the patients' home place. It's only a matter of time as one can't keep beating the odds, but as of now I haven't heard of a single fatality of a US medical tourist in the top hospitals in India and Singapore. For all this the authors only say "There is reason to think the quality of care at some foreign hospitals may be comparable to quality in the United States."

At least there's one positive to this article - someone (other than Prof. Bhagwati and I) is discussing medical tourism as an option. So far the Obama administration and lawmakers in Congress have been totally quiet on the subject.

Monday, June 1, 2009

Omitted Trade Option Again Highlighted in FT

Today on June 1st the Financial Times published another letter by Prof. Jagdish Bhagwati that stresses our findings about the benefits of trade in lowering US health costs and improving access to providers. We had earlier written about this on December 23rd, 2008 as also reproduced in my post of that day.

The Obama Administration continues to ignore this option of importing doctors and exporting patients (medical tourism) despite its immense promise. The probable reasons? Expected opposition by a powerful lobby like the AMA, and misplaced protectionism. I call protectionism "misplaced" here because the scarcity of skilled health care personnel in the US is artificially jacking up prices and making it unlikely that medical tourism will contribute to greater unemployment. On the contrary, lower US health care costs as a result of trade may make broader US goods and services more competitive internationally.

Here is Prof. Bhagwati's published letter:

Sir, Krishna Guha’s excellent article (May 28) on Barack Obama’s plans for healthcare reform makes it clear that the president’s economic and medical advisers continue to ignore altogether the most important way in which comprehensive coverage could be facilitated by significant saving in costs and by easing the shortage of doctors and medical personnel: namely, a full-throated embrace of international transactions in medical services.

Sandeep (sic) Madan, of Global Healthnet, and I have argued extensively that costs (whose fiscal magnitude crippled the attempt to introduce comprehensive coverage in California) can be reduced massively with augmented measures to “export patients” and to outsource claims processing and customer service. These savings exceed those claimed with fanfare for the technocratic Obama proposal to computerise medical records.

Again, “importing doctors” and medical personnel represents an excellent way to alleviate shortages (such as those that have afflicted comprehensive coverage in Massachusetts). Independently, Fredrik Erixon of the European Centre for International Political Economy has long advanced similar proposals in the European context and recently extended his arguments to the Obama administration’s omissions in this regard to date.

Perhaps the administration’s de facto antipathy to trade lies at the bottom of this glaring omission; if so, it is costing the president’s major reform agenda!

But perhaps it is also because of the American Medical Association’s fear that international transactions in medical services will harm the earnings of their members. But, in that case, what happens to the president’s frequent claim that his administration will bring an end to the lobbying as we knew it?

Professor Jagdish Bhagwati,
Council on Foreign Relations,
New York, NY, US

Thursday, May 28, 2009

Failure Through Compromise?

Make no mistake. The health industry likes the status quo and wants health reforms to fail. Why? Because "what the rest of us call health care costs, they call income" as Paul Krugman noted on May 10. A meaningful reform package will drastically cut costs that will affect all or most players, so the industry has strong incentives to unite to oppose it.

President Obama ought to fully know this even as he lauded the health industry's promise to cut $2 trillion in costs over the next 10 years. The industry is doing this to get a seat at the table on health care reforms. Pundits and reformers are rightly suspicious of industry intentions. Krugman in his May 21 column exposed insurer moves to kill the public insurance option in a repeat of the Harry and Louise ads that helped sink Clinton's 1993 reforms.

This public option is vital for the US unlike other countries like the Netherlands as explained in my previous two posts - because engineered provider scarcities in the US require a centralized entity with buyer's clout to keep pricing reasonable. The cost-effectiveness of the public option will essentially sink the private insurers as the private market is likely to shrink to less than a fifth of its current size. So yes, I empathize with the desperation of private insurers. The question for Obama and Congress is, whose interests should be paramount? The American public whose health care costs can be chopped dramatically, or the employment and profits of private insurers?

Despite the obvious answer, reforms may be stymied as in decades past. With so much at stake, private insurers will spare no efforts to buy over lawmakers, and advance fallacies of "free market" virtues and "socialized medicine" evils to sway public opinion. The biggest hurdle is the US Senate where Republicans are a 40% minority, but can be joined by enough Democrats to block the most useful changes through "compromise legislation." Such Democrats call themselves "centrists", but like good and bad cholestrol, such centrists can be good or bad types depending on how they choose to accomodate Republicans.

An example of a bad centrist is Democratic Senator Ben Nelson who opposes the public option and gave eight easily refutable reasons for doing so, and basically parrots Republican objections. Then you have Sen. Charles ("Chuck") Schumer ostensibly addressing Sen. Nelson's objections in a compromise proposal by handicapping the public option and constraining it to pay providers higher rates than Medicare. Just as in G.W. Bush's ill-conceived drug plan for seniors, what's the point of not allowing the government to use its buying power to lower costs, particularly to counter monopoly or scarcity pricing by providers?

President Obama's Administration can of course use his high popularity and his bully pulpit to call out the Democratic Senate hold-outs. They will support the public option without undue handicaps if they fear a voter backlash from failure to do so and heightened suspicions of their backroom dealing. Obama at times seems over-eager to be inclusive, but it's early yet and I hope my misgivings are misplaced. We will know soon.

Finally, an aspect that escaped comments by Krugman and other experts is about the numbers in the health industry's promise to cut costs. They'll cut $2 trillion over ten years by reducing the projected annual growth rate of health costs by 1.5%. Is that it? While $2 trillion sounds like a lot, it's under 5% of cumulative costs. Given our outrageously high costs and pricing compared to peer economies we should be aiming for over a trillion dollar reduction per year at current levels. That's about $15 trillion over ten years.

Wednesday, April 29, 2009

Deceptive Arguments Against Reform

Republicans have been vociferously opposing two key features of health care reform: universal coverage and public insurance alongside private options. Till recently they mainly combined backroom obstruction with shallow slogans like "socialized medicine" or "save taxpayers". Now they offer more detailed arguments, like in three articles appearing in major newspapers. Their objections may sound convincing but are deeply flawed.

The first of these articles is Ramesh Ponnuru's April 9 Op-Ed in The New York Times about "The Misguided Quest for Universal Coverage." He uses some clever phraseology and statistics to argue against guaranteed health coverage for all that are summarized (in italics) below, along with my comments:

  • Universal coverage will not save money, but instead may cost more. The cost shifting effect of uninsured people raising premiums for everyone else is very little, and will likely be outweighed by money needed to extend proper health care to all. --- I agree with all this, but talk of a red herring. Reformers have never used this cost saving argument to push for universal coverage. Instead, they acknowledge it will take some additional resources but consider it very worthwhile on grounds of public benefit and moral responsibility. It's actually the health industry interests and their Republican allies who push this "cost-shifting" as one excuse to justify exorbitant US prices for treatment. Now, there arguably ARE two economic second order benefits of universal coverage that Ponnuru does not try to counter: (i) Timely care will avert some more serious problems, lost productivity and more costly emergency treatments. This creates some offsetting savings. (ii) A lot of waste and expense will be eliminated, associated with private insurers' trying to screen out sicker applicants, and providers trying to recover dues from uninsured patients.

  • Universal coverage cannot be achieved using free market methods. It will require regulating private insurers, subsidizing them and/or introducing public insurance. --- Even if this is correct, so what? A "free market" however you define it should be a means to an end of greater prosperity and well being of the overall society. It makes no sense to bear huge burdens and inefficiencies just to maintain a convoluted concept of free market health care. And why should public insurance be banned from competing with private plans in a really free market? That said, the Dutch health care system is an example of (appropriately regulated) private insurers alone doing a good job of delivering universal care. Finally, the US already has public insurance in the form of Medicare for its senior citizens. Extending something like it for all Americans is not such a large conceptual leap.

  • It's possible that money spent on universal coverage can be spent more efficiently or effectively on something else (e.g., clinics, reducing medical errors, nutrition, or even improving education.) --- No supporting facts or proof are offered that would indicate this. It's as ridiculous as saying you shouldn't treat patients in hospitals because the resources involved could just be better utilized for something else that you can't specify. Ponnuru raises other open-ended questions in his piece without offering any facts to establish the legitimacy of his concerns.

  • Voters want lower health costs more than they want universal coverage. During the Democratic presidential primaries, Hillary Clinton repeatedly attacked Barack Obama’s health care plan for not covering everyone — and as you may have noticed, he survived. If Democratic primary voters are not wedded to universality, the larger public surely is not. --- First, as you may have also noticed, Obama roundly beat McCain who wanted the precise health care system advocated by Ponnuru & Co. Second, Obama was as much for universal coverage as Hillary was, and only differed on the way to achieve it. Hillary wanted to mandate that everyone had or bought coverage beforehand. Obama wanted to give people the option of obtaining it whenever they wanted it, even after falling sick. That is like being allowed to buy insurance and fix your car with it after having an accident. This of course went down very well with voters, and its problem is viability for the insurers. Third, given the economic uncertainties, even the covered Americans are fearful of losing their benefits. Most of them want the safety net of universal coverage that incidentally is already available in every developed country except for the US.

  • The best way to go forward is to allow private insurers to offer any plan only to customers they want, so that they can lower prices of coverage. People with preexisting conditions or who develop chronic problems subsequently should be able to turn to the government or public funding for help. --- This is of course very convenient: private insurers cover healthy people profitably, and abandon others or make taxpayers pick their tab. It's part of the joke about Republicans wanting to privatize all gains while socializing all losses.

  • People shouldn't be forced to have or buy health insurance in a free country. --- First, even in a free country you have and need laws to protect people from their own idiocy or neglect, like those requiring seat belt use in cars. Second, in humanitarian free societies the uninsured will likely still not be completely abandoned, so society and providers will incur expenses for their care in any case. For example, we have longstanding US laws requiring hospitals to provide emergency care to patients regardless of their ability to pay. So it's better and fairer to require coverage for all.

The other two Op-Eds appear in the Wall Street Journal, "The End of Private Health Insurance" of April 12, and Kerry Weem and Benjamin Sasse's "Is Government Health Insurance Cheap?" of April 14. Both make the case against public insurance being allowed to compete with private health insurers. Here's what they - and I - have to say:

  • Democrats intend to game the system to precipitate -- or if need be, coerce -- an exodus to government from private insurance. Soon enough, that will be the only "option" left.
    As people gravitate to "free" or heavily subsidized care, the inevitably explosive costs will be covered in part with increased outlays to keep premiums artificially low or even offer extra benefits. ---
    There's no evidence at all of this sinister Democratic intent. In fact in the case of Medicare vs. the private Medicare Advantage plans, subsidies have been flowing the opposite way. Private insurers have been paid 12.4% more per member than what the government spends on its traditional Medicare patients. The Obama administration's move to simply level the payments is facing stiff opposition. And a public insurance plan can very well be like Medicare for all.

  • Public insurance with its enormous buyer clout (monopsony) can force providers to accept much lower prices than private insurers and enjoy other scale economies. So private insurers cannot compete effectively, and will be squeezed out of a lot of business. --- This is correct, and only underscores the need for a strong buyer to counteract the pricing leverage of providers as a result of lack of competition and engineered scarcities (e.g., a shortage of doctors.) Whose interests should the lawmakers and government serve - its citizenry or industry interests? Why should Americans be prevented from signing up with a more efficient and cost effective public insurer just to enable costlier private insurers to retain more business? If the supply of providers is improved over time (something the lawmakers and administration should have addressed long ago) the private insurers should be able to do better.

  • As more people switch to a public Medicare-type plan the providers will have to do more cost-shifting, making private plans more expensive. --- This argument is invalid for several reasons. First, providers voluntarily accept Medicare patients, and wouldn't do so if they were losing money on them. Second, Medicare payments are quite high compared to the rates in other developed countries. It's just that providers get away with charging even higher prices because of the frictions and scarcity-induced market distortions in US health care. Third, even Ponnuru acknowledges that any cost-shifting effect is minuscule - about 1.7% of private insurer premiums (I'd of course challenge even that number.)

  • Public insurance will be wasteful and open to fraud, and so will actually cost more. --- These critics should make up their minds. First they attack public insurance as being too cost effective for private insurers to be able to compete. Here they say it will be so wasteful as to fritter away taxpayer dollars. Anyone seeing the numbers on Medicare vs. private Medicare Advantage will realize the public option costs less overall.

Obama seems to have rightly decided to go ahead with health reforms even if it involves bypassing a Republican filibuster though with Sen. Arlen Specter's defection that may not be necessary.

Friday, April 3, 2009

Why We Need Government Run Health Insurance

In a search for a real world model for health care reforms, there is good news and bad news.

The good news is that any of the health care models in highly rated countries will be a huge improvement over that in the US for most of its population. There are many different models and The Commonwealth Fund in March 2008 described some of the disparities even within West Europe. Some countries like the Netherlands since 2006 operate almost entirely through private insurers and providers while offering wide choices. It ranks No. 1 in the Euro Health Consumer Index for 2008. On the other side the No. 2 and No. 3 ranked health care systems of Denmark and of Austria (that rate even higher than The Netherlands in other studies) are mainly government run and financed, with fewer choices. Almost all of the other countries have heavy government involvement through public health insurance and/or regulated pricing (as in Singapore) for many medical services. But the systems vary enormously from country to country.

The bad news is that this wide variation in the health care structure in top ranked countries muddies the picture for reforming US health care. It allows special interests and the lawmakers under their influence to argue against the Democratic consensus on the need for public health insurance as an alternative to private insurance. When driven by the public outcry to lower costs and cover the uninsured, they can point to The Netherlands and the more expensive (but still a third cheaper than the US) private insurance system of Switzerland as examples that we don't really "need" public health insurance in the US. But this is a highly flawed contention, and I'll explain why.

Largely through industry influence and aided by bad planning and happenstance the US has a shortage of providers. Take the important case of doctors. Both The Netherlands and Switzerland have 3.8 doctors per 1000 population, which is above the OECD median of 3.4. So private insurers can get competitive deals and pricing with providers in these countries. In the US by contrast we have only 2.4 doctors per 1000 population so it's entirely a seller's market. That's the main reason many US doctors are opting out of Medicare because of low rates even though these are generous by European standards. We have a similar though smaller problem with hospitals. Due to lax anti-trust oversight we have allowed many hospitals and chains to consolidate so there is now reduced competition and low consumer choice of hospitals in many places.

Detractors will be quick to point out that some (though few) developed countries with less doctors do manage to have relatively good and inexpensive care. Specifically these exceptions are Singapore, Canada, Japan and UK. They have 1.4, 2.1, 2.1 and 2.5 doctors per 1000 population and health care expense per capita of $1,170, $2,578, $3,678 and $2,760 respectively in 2006, compared to $6,714 for the US. But all these countries have managed to keep costs and prices low precisely through heavy government intervention. Singapore directly imposes price controls and restrictions on most hospitals and providers, and has a younger population needing less health care (only 7% are over 65 years old, compared to 14% in the US.) The other three, Canada, Japan and UK all have public insurance playing a huge role that determines pricing.

In other words, when we have a constrained supply of providers as in the US, we also need the purchasing power of a dominant buyer like the government (i.e., a monopsomy) to keep prices in check. Private insurers and their supporters say that this huge buying power of a public insurer gives it an "unfair" advantage, but unfair to whom? Yes, going by the West Europe as well as Medicare versus the private Medicare Advantage enrollment experience, I fully expect that over 80% of the business will go to the public insurer if it were created. That's precisely because this public insurer offers by far the best value, and only the very affluent or those with generous employers will opt for the much more expensive private insurance.

Let's be clear though: public insurance provides the means to drive down prices but does not guarantee it. There still has to be sufficient oversight and proper execution to ensure that special interests don't exert undue influence to come away with overly generous reimbursements. Think Blackwater, no-bid contracts in Iraq and after Hurricane Katrina... But this should be less of a concern post 2008 elections, with the high profile of this issue and a better administration in place. Also we need to separately address the issue of provider shortages.

Back to public insurance the primary responsibilty of US policy makers is to set up a high quality, cost-effective and universal health system for US consumers. It's not to steer business towards private insurers by selling out the public interest. Unfortunately, this is precisely what they did in the Bush era when they created the complex Medicare Part D's drug program for seniors. This barred Medicare from negotiating drug prices and is rightly viewed as a giveaway to drug companies, private insurers and middlemen.

Given its importance will Obama and the Democrats be able to stand firm and set up a public insurance program to run alongside private ones? Or will they submit to "compromise" that eliminates or postpones this step? It's a huge deal that will radically affect health care costs, and is a fitting test of the commitment and effectiveness of the new administration. We'll see.

Thursday, March 12, 2009

Different This Time?

The good news is that President Obama hasn't let the current economic situation make him lose sight of the imminent need for health care reforms. The question is whether he has the resolve and insight to push the most important ones through.

The health care forum kicked off by him on March 5 has generally been well received. News commentators and political pundits have contrasted the atmosphere of open discussion and hearing of all the interest groups with the behind-closed-doors formulation of the ill-fated 1993 Clinton plan. How well the new approach works depends partly on how the working group discussions have been structured, and whether all the ideas could be aired and properly debated.

In these open discussions there are hopefully safeguards to ensure that special interests can't through mutual compromises squelch good ideas that adversely affect them. For example, payers and patients stand to enormously benefit from an increased supply of doctors; a properly designed public health insurance plan that fairly competes with private plans; reform of tort laws including restrictions on jury shopping and imposition of malpractice caps; and using a cost-benefit criteria to evaluate drugs. But these measures can reduce excess earnings of doctors, private insurers, trial lawyers and the drug companies respectively. So they all decide to "respect" each other and downplay such proposals.

Another danger in open discussions is the advance warning and preemptive opportunities available to special interests and the lawmakers that they have influenced or bought. Five senior Republican senators have already affirmed their GOP group's opposition to the public option, declaring, "..forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition... Ultimately we would be left with a single government-run program controlling all of the market.”

Huh? If private plans are more efficient and / or offer something better than the government program then why should they be wiped out? I don't much doubt the prediction, since the experience in France and Germany indicates that about 80%-90% of the people will go for the basic government plan (though 90% of the French also buy supplemental private insurance.) It's because a properly administered government -run plan can deliver better value than private profit-seeking entities, but then that's a sound reason to change the system. Note the "properly administered" qualifier - Paul Krugman repeatedly points out the success story of the government run Veteran's Health Administration in the Clinton years. Then services deteriorated and scandals like at Walter Reed emerged in the subsequent Bush era.

On this issue of public programs it is a little disturbing to see Obama appearing less than resolute and making conciliatory noises at the outset. He says he understands the objections because "...if a public option is run through Washington and there are incentives to try to tamp down costs, (then) private insurance plans might end up feeling overwhelmed.” Why? A March 12 item by Reuters quotes conservative experts who assert it will be "almost impossible to create a level playing field (between a public and private insurers)" but give no reason to support this.

Still, there are two encouraging aspects that makes the present reform thrust much more likely to succeed than the 1993 effort (other than the over-hyped closed-door versus open-door contrast):
a) A sadder, wiser, more anxious public is less likely to be taken in by those Harry and Louise ads. And a more dire health care situation has made the push for reforms much stronger.
b) Obama has rightly focused on the very high costs of US health care as an even bigger issue than extending coverage to all the uninsured. That should force participants to come up with solutions for more efficient and cost-effective health care, instead of simply shoveling more taxpayer dollars to outrageously priced providers.

Monday, February 16, 2009

Major Reform Steps or Media Hype?

BusinessWeek in its Feb. 23 issue is carrying this big article titled "CVS's Bold Bet on Health-Care Reform." Tom Ryan, CEO of CVS, has built the drug store chain into a "national health-care colossus" with $76 billion in annual sales.

Ryan's goal is reported to be "to help transform America's expensive and often ineffective health-care system. Seeking to take advantage of President Barack Obama's commitment to health-care reform, Ryan wants to use CVS's vast prescription database and burgeoning network of in-store clinics to treat patients with chronic diseases and help keep them out of the hospital, where most medical costs are incurred. "I don't think our health-care system is broken," Ryan says. "We are just spending too much, and it's unproductive." " And so the article goes.

I am a little bothered whenever someone in the industry says that they don't think the healthcare system is broken. That seems to indicate that they want to tweak the existing system rather than go for an overhaul. Though CVS is reportedly setting out to "transform" healthcare it doesn't seem as if the two steps outlined will drastically lower costs or improve coverage.

These two steps in essence are a) to build their electronic health records (EHR) system so that patients are helped in continuing to take their prescribed medications thereby keeping in better health and averting some costly hospital visits, and b) to set up in-store clinics that are mainly run by nurse-practitioners so as to handle routine and minor health complaints without needing to go to a doctor or hospital.

Everyone is in agreement that EHRs should be promoted and CVS efforts tie in well with this objective (even if the jury is still out on whether CVS with its dedicated PBM Caremark helps consumers.) Then there are some questions about the viability and growth potential of in-store walk-in clinics, especially in view of the hostility of the AMA towards them. But we can hope that they flourish and expand so as to take some pressure off the demand for doctors' services that are in short supply.

These efforts are fine and laudable. All I'm saying is that news coverage and hype about them shouldn't obviate from the larger issues of universal coverage, malpractice (tort) reform, doctor shortages, reduction of administrative waste, and drug policy rationalization.