Costly Nelson Eye On Free Trade

In 1801 Horatio Nelson put a telescope to his blind eye to disregard signals to retreat from a naval battle.  His valor resulted in a crucial victory over the French fleet.  But the US turning a Nelson eye on solutions through free trade in health services is an act of cowardice and cynicism.

The "W" Bushies are also guilty of such neglect after the benefits of trade grew with the proliferation of world class medical facilities abroad, and the advent of the internet and better communications.  But the failure of Obama's team is more poignant when new laws covering the uninsured add to overall costs, as well as to the scarcity (and resultant leverage) of domestic providers.   

On trade in health services, Prof. Bhagwati and I in mid-2008 highlighted promising approaches and reiterated these in my December 2009 post. Four subsequent posts have elaborated on each category (or mode) and quantified potential savings.  The overall picture is compelling.

Highly qualified foreign doctors who have cleared the required US medical board exams can remotely consult through video-conference with a nurse at hand to assist with the patient, if necessary.  Diagnostic radiology does not even need direct patient contact.  This type of telemedicine can easily replace a fourth of primary care visits and diagnostic radiology readings, as well as a tenth of specialist visits, and all at a fifth of the cost.  This will not only help meet the crisis of additional demand due to health reforms and an aging populace, but also save $16B in 2006 terms.  This translates to $267B of savings over the next 10 years, $133B in public funds.  Even the states can authorize telemedicine within their areas, if the federal government doesn't act.

 In medical travel, US patients go to reputed hospitals abroad for major surgeries and medical procedures, often performed by US or UK trained doctors, at a fraction of the cost.  The movement can receive a huge fillip if lawmakers and the leadership reduce legal exposure through legislation, create protocols and procedures to select and qualify foreign hospitals, and identify procedures to be covered.  They should also send publicly funded patients and lay down the incentives for such patients to volunteer, so that private insurers can follow suit and get legal cover.  There are some 30 major procedures costing $300B in 2007 terms that are suitable for medical travel.  Assuming a fourth of these are off-shored the savings are $57B annually in 2007, which comes to $950B over the next 10 years, half of this in public funds.

The third way of trading in health services is to allow and encourage foreign entities to set up hospitals here.  This will allow under-served areas to be covered and introduce greater competition in MSAs, 90% of which face highly concentrated markets for hospitals.  But most importantly, this will bring badly needed reverse innovation to the egregiously expensive and inefficient US hospital system.  Policy changes needed include easing the process and shortening the time line for approval, creating standard guidelines and norms for facilitating this, and doing away with state regulations holding up such hospital creation.  The resultant savings due to competitive pressures and forced changes bringing US costs halfway down to European levels (or "just" 1.5 times instead of being twice as high) are $175B in 2007.  This comes to $2.73 trillion over the next 10 years, with $1.36 trillion of this in public funds.

The final piece is allowing highly qualified foreign doctors trained in one of the pre-approved list of accredited foreign institutions to practice in the US, without going through a US residency.  Other conditions can be imposed on them, like requiring them to clear the required US board exams, or tying their visas to practicing in designated under-served areas.  This will immediately boost doctor supply and should be undertaken in parallel with expanding the domestic pipeline that will start having an impact in 10 years. The US has 2.4 doctors per 1000 people compared to the OECD average of 3.4.  Boosting this US ratio from 2.4 to 3.0 will require 200,000 additional doctors, but this increased number will ensure better access by patients, as well as reduce the scarcity related prices for doctor services.  If these prices go down by 23.5% to the Medicare rates dictated by the (never implemented) SGR formula that are still generous by European standards, then the savings are $79B in 2007.  That is $1.26 trillion over the next 10 years, with $630B of this in public funds.

Therefore apart from the vital increase in access to badly needed services by US patients, the total savings from all four modes of trade are estimated at $5.2 trillion over the next 10 years.  Nearly half of this or $2.6 trillion will be in public funds.  To get some perspective, compare this with the $1 trillion projected added cost of the health reforms bill that created such a firestorm among Republicans.  Had they faced the trade option squarely (requiring them to face down their health industry lobbies which is why they didn't, of course) we'd have saved substantially even after the passage of health reforms.

There is hope yet.  Dr. Donald Berwick's appointment as Director of CMS (during Congressional recess, over Republican objections) is a positive development.  He has studied and talked extensively about the merits of foreign health systems, including Britain's.  If he can look not just at these systems, but to them for solutions (and carry the political will of the Obama team with him) then a lot of these desirable measures can become reality.

Trade of course is not the only answer.  Several unrelated domestic policy initiatives can make a huge difference (more on these later.)  But its potential and benefits are so large that Obama and the lawmakers should urgently look at it - with their good eye for a change - and act accordingly.

Medical Billing Tricks From Up Close

I had of course read accounts like the $75 to $129 hospital charges for a box of tissues. But even somewhat less eggregious billing tricks make you sit up when they affect immediate family. Yesterday I heard of two such instances from my father and brother who live in the (California) Bay Area.

Story 1: My father has been getting hormone suppressing injections of Lupron at Stanford Hospital to treat prostate cancer. A dose of about 22.5mg given every three months was being billed to Medicare for about $1,800. This price is somewhat on the high side considering that it is freely available online in the US for about $1,250. And in India a generic version made by the reputed Wockhardt company has been sold since 2002 for about $140 for the monthly 7.5mg dose, or $420 for three months. So we were surprised to learn that the price of this injection has been almost tripled to $4,800 for the three month dose.

Medicare paid almost the entire amount billed, so my father was hardly affected. But like him enough of my father's urologist's patients noticed these dramatically increased charges to Medicare to enquire about them. This doctor is excellent, and he called the hospital administrative point person to find out what was going on. He was advised "not to worry about it" as this "was a management decision." In other words, the hospital simply jacked up the rates and hit pay dirt, including with Medicare and the taxpayer's money.

Story 2: My brother told me his wife Deanne's car was rear-ended at high speed by a teen-age driver. Her Audi S4's rear as well front scrunched like an accordian (since the impact caused her car to hit the one in front of her) but did its job in protecting her. She heeded the advice of the paramedics called to the scene and was taken to El Camino Hospital to ensure there weren't internal or whiplash injuries. A doctor examined her and ordered a blood test to ensure she wasn't pregnant since X-Rays can harm a fetus. (I thought a simple pregnancy kit can do the job but never mind.) Deanne then had a couple of X-rays taken which didn't show anything abnormal, and was out within an hour of having first entered the emergency room.

The hospital bill for this was $5,000 though they received "only" $1,500 at the discounted insurance rates. The surprising part was the cost of the blood test. The same hospital has in the past ordered these at the adjoining Quest Diagnostics lab which bills $220 and receives a payment of $110 for these services. But this time the attending doctor ordered the test to be done in the hospital's own diagnostic lab. They billed over $1,000 - the amount a hapless uninsured or self-paying patient would have had to pay for this simple test, though Deanne's insurer paid at the "in-network" rate of $110.

Why should the hospital lab charge such exorbitant amounts, that ambushed uninsured or "out of network" payers would be fully on the hook for? Even the negotiated rate of $110 is quite high. In contrast, my in-laws in Pune, India pay only $30 for a far more extensive blood and urine routine. This even includes two home visits by the technician (since my in-laws are largely bed-ridden) to collect samples while fasting and then eating something.

Both of these stories show how providers can and do game the system. Patients and payers have a very limited set of hospitals in the vicinity, and these keep pricing opaque while raising rates at will. Reforms and regulations should put an end to such price gouging, and Medicare as a major payer should be allowed to directly negotiate drug prices. Yet the opponents of reform mislabel the present system as a "free market" and the recent medical overhaul will do little to check such practices. The budgetary crisis and pressures from the crushing health care burden will hopefully allow follow on measures that change the situation.

The first case of Lupron over-pricing also points to administrative lapses by Medicare. I'd have expected their payment systems to automatically flag claims where prices were so high relative to drug costs, rose suddenly or were out of whack with those from other institutions. That's even if Stanford Hospital had tried to disguise its moves through some clever upcoding to beat detection software. Donald Berwick has now been appointed Director of CMS and Obama has been in office for almost a year and a half. So such weaknesses should be fixed quickly - you can't keep blaming these on your preceding Bush's team forever.