Silence Of The Lambs, And Of The Wolves

Most Americans know by now that we spend more on health care than any other country.  They just don't know why, even when they think they do, with good reason.  Health experts, industry players, politicians and a gullible media imply that our higher costs are a result of more or even excessive care, treatment and tests.

Actually, as I said on June 17, Americans receive less health care than in peer economies, but at "actual prices" that are 2 - 3 times higher.  The "list price" differential is even greater.  That's why as against an OECD median of $3,487, Americans incurred health expenditures of $7,960 despite being hospitalized 20% less and seeing their doctors 40% less often.  This gap outweighs services like MRIs and CT scans that Americans receive 2-3 times as much as OECD medians, as they comprise under 2% of overall costs.

The price differentials between US and other countries are stark in a 2009 International Federation of Health Plans (IFHP) report (p.3). Compare for example the range of US "insurer negotiated" and Medicare fees with standard fees in the highly rated French and the Dutch systems:

• CT scan abdomen. France:$248; Netherlands:$258; US:$750 - $1,600; Medicare:$400
• MRI scan. France:$436; Netherlands:$567; US:$1200 - $1500; Medicare:$500
• Routine doctor visit. France:$31; Netherlands:$32; US:$59 - $151; Medicare:$72
• Hospital cost per day. France:$1,050; Netherlands:$502; US:$3,181 - 12,708; Medicare:$2,200
• Hip replacement.  France:$8,200; Netherlands:$7,600; US:$32,093 - $67,983; Medicare:$17,500

If Americans receive exactly the same health care services as they do now, but at West European prices, then our health spending per capita will be less than that of West Europeans.  As a percentage of GDP we'd spend only 8% compared to our actual 17.4% in 2009.  Imagine what this would do to our economy and well being.

Our yawning budget deficits would become massive surpluses.  (Or in an alternative Democratic utopia, we could have "Medicare for all" for free, i.e., everyone's health care paid fully out of public funds without adding to federal and state budgets.)  Our workforce will become internationally more competitive, boosting overall job growth. The tax policy gridlock in Congress will end as we won't need more revenues, nor painful spending cuts elsewhere. 

Moreover as I said on March 28, the steps needed to fix our egregiously high prices are administratively simple.  The essence is to:

• Address shortages and resultant market power of providers by massively increasing the availability and choice of hospitals and doctors.
• Use trade in health services (allow in top foreign doctors and hospitals, medical travel, etc.) to jumpstart competition and innovation, getting results in 1 – 3 years instead of in a decade or more.

Yet far from any of this happening, we hardly even hear of pricing being at the root of our health care woes.  That's because lowering prices is against the interests of the health care industry.  So their propaganda machine and experts in the media shift public attention to controlling costs not by charging less, but by doing with less (which is sometimes laudable but misses the main point.)  Examples of their proposed solutions are wellness and preventive health, avoiding unproved costlier treatments, end of life planning ("death panels"), and premium support where patients as payers self-ration care.

It's like foreign cars being banned, allowing Ford to price its Focus at $50K here when a Toyota Camry or Honda Accord costs $25K abroad. When US car buyers are unduly burdened by this, then Ford instead of lowering prices advises customers to need fewer cars by car pooling and using mass transportation.

I categorize those who should but don't mention or fix health care prices as either lambs or wolves depending on their intent and awareness of the problem.  Among the lambs are (a) a naive media that relies only on health experts to identify issues without realizing they have interests linked to the industry, (b) payers including employers and patients who should be collectively pushing for price reductions but are misled or side-tracked into less impactful solutions, and (c) the American public whose votes and involvement could pressure lawmakers and leaders to do the right thing.

The wolves are mainly health industry organizations and their experts who deliberately suppress the fact of over-pricing and draw attention and debate away from it to other aspects with less impact on their interests. They can also (generally implicitly) intimidate experts and academics that depend on industry largesse for funding and career advancement from fully speaking out.

For example, in their 2003 article "It's The Prices Stupid" some academics point to much higher US prices and in a 2005 follow up article they expose as untrue two common industry excuses for this, i.e.,  less rationing of services in the US, and excess malpractice litigation or defensive medicine costs.  But that's where their nerve gives out.  There is no follow up article on what then IS actually behind these high prices, and ways to correct this.  More recently on November 25 a PBS discussion again points to prices as the root of high US costs, but the expert surprisingly cites quantity of care (wasteful or unneeded services) when asked for causes of this.

 Somewhere between the lambs and the wolves are the lawmakers, the insurers and the public health department (HHS and its CMS) who are well aware of the price issue but don't raise it.  Lawmakers are beholden to the health industry or wary of antagonizing it, especially in a absence of any countervailing public pressure or awareness.  Many insurers are members of the IFHP that compares international prices, and as payer representatives would be interested in lower prices by providers. But they live in glass houses and are afraid to publicise high prices as the industry can retaliate by pointing to inefficiencies of private insurance as one contributor to higher prices.

The HHS being mute on prices is not that surprising considering a revolving door relationship and the way government departments identify with the industry they deal with.  They have little incentive to push reforms that slash their own budget, and consequent perceived importance of their empire.  In that sense a failure to grasp the obvious role of prices and exert external pressure on HHS is the lapse of the US Treasury Department and the President's Council of Economic Advisers.  (Some will argue the buck stops at the desk of the President.)  Of course they are merely continuing the tradition of several past administrations that have ignored the over-pricing issue over the last 2 - 3 decades.  But with the health care cost crisis and the budget impasse coming to a head their need to act is more compelling.

Meanwhile, the silence and inaction on health pricing is imposing a horrendous and unnecessary burden on the US economy, its global competitiveness and its people. 



  

Beat The Deficit And Health Costs With Trade

Trade in health services can allow Republicans to have their cake (of no new taxes) and Democrats to eat it too (no cut in entitlements) - all the while keeping the US deficit stable.  Here's how it all adds up:

• Keeping the US deficit stable requires control over spending, including on entitlement programs that already make up about 40% of the federal budget, and are rising.
• Of the entitlement programs, health care expenses are by far the dominant problem. CBO's long term outlook (p. 8, Table 1.2) shows social security rises from 4.8% of GDP in 2011 to "only" 5.3% in 2021 and 6.1% in 2035. In contrast public health expenses (Medicare, Medicaid, etc.) rise from 5.6% of GDP in 2011 to 7% in 2021 and 10% in 2035.
•  The high US health costs are primarily due to over-pricing as I explained on June 17, and not because Americans receive excessive or unneeded care.  Our medical care is over twice as expensive as in West Europe and 5-10 as much as in popular Asian medical travel destinations with equal or better outcomes.
• An obvious (but overlooked) solution is for the US to incorporate the best features of West European and other foreign health systems.  Many such changes as I listed on March 28 will be slow and take over a decade to show results, while others just won't happen due to entrenched practices, politics or industry resistance.  
• But trade in health services per my narrative on April 7 rapidly increases provider supply and injects competition.  This can dramatically lower price points starting in as little as a year.  Foreign managed hospitals with operational systems that are radically more efficient and cost effective will force incumbents to transform. The resultant savings of trillions of dollars can preserve entitlement programs while containing the deficit.  The reduced health care overhead also makes US labor more competitive and attractive to employers, creating many times more jobs overall than unproductive ones lost in the health sector.

What are the consequent savings?  I had outlined these on July 31, 2010 over the next decade under some realistic assumptions for the four types of health services trade:

• Remotely delivered services.  Types of off-shored telemedicine can easily replace a fourth of primary care visits and diagnostic radiology analysis, as well as a tenth of specialist visits, and all at a fifth of the cost.  This will save $267B of health care expenditure including $133B in public funds.
• 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.  There are some 30 major procedures of which a fourth can be off-shored for $950B in overall savings, half of this in public funds.
• Allowing and encouraging foreign entities to set up hospitals here will improve coverage in under-served areas 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.  We project resultant savings of $2.73 trillion, including $1.36 trillion 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.  They shouldn't require a US medical residency, but would have to clear the applicable US board exams.  Their visas can also be tied to practicing in designated under-served areas.  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.  These prices can go down by 23.5% to the Medicare rates dictated by the (never implemented) SGR formula that are still generous by European standards. That saves $1.26 trillion, with $630B of this in public funds.

This means that over the next decade trade in health services alone can save $5.2 trillion of health care expenditures, including $2.6 trillion in public funds. This exceeds the $2.4 spending reduction deal reached by Congress and Obama to raise the debt ceiling.  It also goes a long way towards achieving the $4 trillion deficit reduction recommended by the bipartisan Simpson-Bowles Commission (p.14) in December 2010.  A more aggressive trade in health services may even by itself achieve the entire $4 trillion of savings.  Or the many other health reforms being discussed can close the gap, without needing any revenue (tax) increases or other cuts elsewhere.

Also, as I said at the beginning, none of the trade initiatives is a deal breaker for leaders and lawmakers of either party.  The Republicans don't have to agree to raising taxes, or to a bigger governmental role, as in single payer or "Medicare for all" (which is a lot more efficient than our private insurance model, but never mind.)  Lower prices result from introduction of more genuine market competition that Republicans (at least ostensibly) support. Democrats on the other hand can see the entitlement benefits protected and maintained, or even expanded within the same spending limits.

There is of course still the unstated concern of politicians about the consequences of these measures on lavish financing and contributions to them by the health care industry.  This is where as I said on April 21 the influential payers who benefit so handsomely from such price reductions can make offsetting contributions through bodies such as the NBGH to help leaders do the right thing.

The US has ignored this immensely promising solution of trade in health services to our deficit and rampant health expenditures for too long.  All it needs is political will and for this, with other options running out, the timing may now be right.

Do Our Doctor Imports Hurt Their Home Countries?

The US has only about two thirds of Europe's per capita availability of doctors.  This scarcity is the largest cause of severe overpricing of medical services that underlies the US health care crisis.  Any sensible policy should massively expand the domestic pipeline of doctor supply, but there's a decade's gap between initiating such long overdue measures and boosting the ranks of trained doctors.

The immediate solution is to import highly qualified and experienced doctors from accredited medical institutions around the world that can be put in place in as little as a year or two. Attracting such doctors is easy as actual US physician earnings are about thrice those in Europe and tenfold over their peers in developing countries.  Setting high standards and requiring these foreign doctors to clear the same board exams as domestic doctors should address any real or feigned concerns about quality of care.

Objectors also cite the plight of countries like India (a front page WSJ story on July 30) whose best doctors are ideal candidates because of their qualifications, salary differential, and fluency in English.  They say India already has much fewer doctors per capita, and its populace will suffer further hardship if the US poaches their top medical practitioners.  Such concerns by US doctors and their proxies are probably self serving and hypocritical, aimed at preserving their "scarcity premium" and thwarting competition in their home turf.  It is like US workers opposing imports out of professed solidarity with foreign workers toiling in sweat shops.

I had briefly countered in my June 27, 2010 post that remittances to, and investments in their country of origin by immigrant US doctors should by themselves generate enough resources to train several more doctors.  But in our collaborative work Prof. Jagdish Bhagwati has been questioned about this "brain drain" even by some policy advisers with legitimate concerns about the donor countries.  So here's more elaboration for why the benefits of this free flow of doctors should exceed the costs for a donor country like India:

1. Remittances finance replacement doctors.  As compared to the US, India is not only far more cost efficient in medical treatment but also in training doctors.  And it's not just because US and Canadian medical schools absurdly require entrants to be college graduates, unlike medical schools elsewhere that only require completion of high school.  It's also that quality education in India costs only 10%-20% annually of the tab in USA.  So while the 11 or more years of post high school that it takes to get a doctor through residency in the US costs about $600,000, training to the same level in India in 7 years costs about $40,000.

Consider now remittances and money flow benefits by emigrant doctors which have never been tracked separately.  There are various estimates of remittances by all Indian emigrants, but a US Congressional report has private remittances from the US to India at $3.2B as quoted on Feb. 25, 2011 by the Economic Times.  This comes to 5%-6% of worldwide remittance inflows from the Indian diaspora, estimated by the Indian government to be $40.8B in the eight months from April to December of 2009.  According to the 2009 American Community Survey of the US Census Bureau (S0201) there are 2.6 million Indian immigrants of which 1 million are full time workers, so the annual remittance per worker is $3,200.

But the mean earnings of an Indian worker are $80,000 while doctors average over 4 times this. Taking remittances in the same proportion of earnings, an emigrant Indian doctor would remit $12,000.  Even if we scale this down to half (Prof. Bhagwati thinks the well-off Indians here may not send to relatives back home at the same rate and may instead simply bring them over) that is $6,000 annually. Over a 25 year career span in the US that's $150,000 in remittances alone - enough to train four new Indian doctors for every exported one.  These numbers exclude informal or illegal remittances like hawala transactions - the reason a World Bank report regards official estimates to considerably underestimate actual money flows.

2. Benefits of shared expertize and enhanced country brand.  We saw how countries that banned or restricted emigration during the Iron Curtain years limited the development and vibrancy of their own skilled workforce.  Conversely, the free flow of ideas, knowledge and experience between emigrant Indian professionals and their home country counterparts has enriched and raised professional, including medical, standards in India.  Then there are perceptions in the US.  One in 20 doctors here is of Indian origin which is a reason why patients think well of, and are comfortable with them. That can significantly boost medical tourism to India if and when constraints of politics and worries about legal exposure abate.

3. Outsized contributions by doctors returning home. Indian doctors in the US get first hand experience in the world's best system in terms of quality of health care (even if it's also the least cost effective.)  They have it so good here that in terms of percentage very few return home. But those that do have an immensely positive and transformational impact on Indian medical care.  Most of the top private medical hospitals in India have been founded or are headed by doctors who have practiced in the US or UK.  These include the Apollo Hospitals Group founded by Dr. Pratap Reddy, Escorts and now Medanta - The Medicity set up by Dr. Naresh Trehan, the Asian Heart Institute headed by Dr. Ramakanta Panda, and Narayana Hrudayalaya established by Dr. Devi Shetty.  Within such hospitals are prominent US and UK trained doctors who are renowned for their specialist surgical expertise and have trained many other doctors.

In sum, a free movement of doctors should be a win-win for both the US and the donor country.  Not all imported doctors will come from developing countries, of course.  The enormous earnings differential between the doctors in the US and other first world countries will persist to some extent even if and when US doctor scarcities are addressed.  This will ensure that many doctors from Europe including the most affluent countries like UK, Germany and France will come to the US if they're allowed to practice here.

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Aside: Some other useful background readings and links:

• A 2006 overview of skilled Indian migration to developed and gulf countries by Binod Khadria.
• American FactFinder of the US Census Bureau for US population, demographic and economic data.

It's the Prices, Stupid

Americans who've been abroad know that the cost of living in most other developed countries is much higher than in the US. In a study of the world's most expensive cities in 2011, Tokyo ranked as No. 1, other Japanese, West European and Australian cities ranked high up, and America's most expensive city New York was way down at No. 44.  Yes, in getting more for your money the US land of plenty remains a haven for its residents, shoppers and visitors.

Except when it comes to health care.  Why are "actual" prices (the "list" prices are even worse) for hospital stay over three times as high as in those otherwise costly foreign places, doctor fees 2 - 3 times as high, and drug prices twice as high?  More importantly how has this crucial disparity eluded our leaders, lawmakers and pundits in coming up with solutions for our unmanageable and growing health care costs?  Thanks to this neglect (or collusion) most Americans have swallowed the propaganda that Medicare and Medicaid underpay providers resulting in their need to recover losses by charging more from private insurers.

Actually the Medicare rates are twice as high as those for providers in West Europe.  Even poor Medicaid (that is routinely spurned by many providers per this NY Times June 15 article) pays $100 for an office visit that would cost even "regular" insurers a mere $50-$70 in Europe.  Going back to Nov. 21, '09 I've repeatedly wondered why our governmental HHS or CMS won't conduct and publicize studies comparing US provider rates with other countries.  But other studies and agencies hint at the underlying problem.

A Health Affairs article (24, no. 4 (2005): 903-914) ruled out lower wait times and defensive medicine (two favorite excuses of US apologists) as significant underlying reasons for cost differences. A 2003 Health Affairs article (also titled "It's The Prices, Stupid) explicitly identifies high US prices as the driver of high costs, though without going much into the root causes or remedial action. A Congressional CRS report of Sept. 17, 2007 also mentions high US prices while speculating (p. 19) that physician and other provider shortages are a probable cause.

A focus on correcting high prices will provide the easiest and most straightforward solutions to our health care and related budgetary crisis, with little or no sacrifices by Americans.  It will even boost the job creation and the economy by making the US workforce most cost competitive internationally, and lowering the tax (or deficit) burden.

I've already laid out like on March 28 the required corrective steps, starting with increasing provider supply and competition through domestic planning, and in the shorter term, by importing health services or providers. The hitch is the reluctance of leaders and experts to antagonize the US health providers and lobbies that have been thriving for decades on exorbitantly excessive rents.  These groups have outsize influence as great paymasters and financial contributors to politicians and pundits alike.

That's why most measures and proposals touted currently do not impact provider rates.  They instead involve doing with less health care (some in good ways like the Independent Payment Advisory Board that many lawmakers sadly oppose per this NYT Apr. 19 report).  Or worse, like the Paul Ryan plan that's justifiably panned by Paul Krugman (e.g., in his NYT June 6 column) that shifts the cost burden from the government to patients while increasing the role of private insurers as middlemen.  All the talk about increasing competition this way or through Accountable Care Organizations is meaningless so long as providers are scarce or enjoy huge market power.

Back to correcting prices, as I said on April 21, payers and groups like the National Business Group on Health can play a big role in offsetting health industry influence to achieve effective and "real" solutions.

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Footnote:
To show price disparities across countries I included above a link to the IFHP Comparative Price Report of 2009 because it has useful information including on Medicare pricing. Update: A 2011 version is now available.

Bin Laden, Pakistan And US Health Care

This April 12 WSJ article "Medical Schools Can't Keep Up" quotes the AAMC as saying the US facing a shortage of 150,000 doctors in 15 years.  Actually, we're 350,000 short right now as compared to OECD averages,with the problem worsening over time.  Steps by the government to rectify this in the short and the long term as outlined in  my September 11, 2010 post are straightforward, but no one seems bothered.

This doctor scarcity is not accidental.  Apart from causing hardship to an under-served populace it is the biggest cause of US health care overpricing per my Feb. 10 post.  I see parallels between  Osama Bin Laden hidden away in Pakistan and this health care situation in the US.

• OBL hid "in plain sight" under the nose of the Pakistan government for years.  Ditto for managed US doctor shortages that have escaped US government and media attention for decades.

• Pakistan and its ISI was either colluding with OBL in keeping him hidden, or amazingly incompetent.  Given the location and size of the hideout it's probably the former but we don't know for sure.  Either way it shatters notions of Pakistan being a satisfactory partner in combating terror. The US government and lawmakers are either deliberately allowing doctor scarcities, or are amazingly ignorant of it.  Given that they inexplicably legislated caps on funding medical residencies to make an awful situation even worse, it's probably the former but we don't know for sure.  Either way they have seriously undermined public interest.

• Pakistan and the ISI selectively target some terrorist networks like the Pakistan Taliban while ignoring or shielding arguably bigger ones like the Afghan Taliban and Haqqani network that further their interests. US lawmakers and health experts espouse health remedies like use of electronic health records, prevention and wellness measures, anti obesity campaigns and (for Paul Ryan) shifting costs to consumers.  But they avoid exposing and moving against the biggest sources of gain for their benefactors - doctor scarcity and hospital market ("monopoly") power that jack up prices and overall costs. 

• After OBL's killing and the resultant questions about Pakistanis' role in his hiding in their midst for so long, Pakistan indignantly asserted that it aided the capture of more terrorists than any other country.  It's just that they "overlooked" the worst and biggest ones.  In the US there's no dearth of organizations, publications, expert opinions and articles on how to improve health or health care.  Every major magazine or newspaper has a section on "health."  Government bodies like the CMS, CDC and CBO have millions of pages of health data.  Notably absent is material comparing payments for procedures, medical fees to doctors, true doctor earnings, drug prices (particularly for generics where no royalties or patents are involved) in the US with other countries.  CMS with its (and perhaps IRS) vast databases can task a handful of its analysts to compile and disseminate all such information within a week if they so want.  Instead, even the little data they put out on payments for some procedures was horribly flawed and (no surprise) heavily understated.

• Ongoing terrorism can be good business for Pakistan.  Pakistan gains in military and financial aid so long as the threat of terrorism against the West continues in this region. Excess earnings by the health industry can be good business for US politicians and health experts.  Even a fraction of a percent of these can be plowed back for substantial payoffs and political contributions.

• Even those in Pakistani establishment who genuinely want to combat all terrorism can be pressured by public sentiment and risk to their well being and careers, or seduced by blandishments to help some groups. The same way, US health experts avoid exposing overpricing and other key aspects behind excess expenditures, because of the way medical groups can control their careers, funding and research grants. The editorial boards of health publications are dominated by doctors so even pure academics telling inconvenient truths can suffer in their "publish or perish" world. And public health officials are aware of lucrative post-government opportunities (as in Thomas Scully's case) so long as they serve and shield their industry well.

• Bin Laden, terror networks and Mideast wars have caused trauma, suffering and deep financial loss to the US.  There were almost 3,000 deaths on September 11, '01 and another 6,000 military deaths (600 annually) in subsequent wars costing about $100 billion per year.  Doctor shortages and overpriced US health care impose suffering and financial burden that is far higher.  The excess expenditure compared to peer economies is already over $1 trillion a year and getting worse. And 45.000 die annually due to inadequate care and lack of insurance.

I'm obviously not serious about equating health industry abuses with terrorism.  It's just that double dealing and conflicts of interest can be endemic in foreign relations as well as domestic situations.  In the latter we fortunately have more control in taking corrective action once there is public awareness and resultant pressure.

Helping Leaders Heal Health Care

Solving US health care problems and the resultant budgetary morass is not that hard.  Taken together, the steps laid out in my March 28 post do not fall into either ideological extreme, and balance each other out in terms of right versus left dogma.  Moreover, embracing trade per my April 7 post results in rapid and dramatic benefits and savings.

Increasing provider availability and competition should suit Republicans who are for free markets and supply side economics, while Democrats get universal coverage without increasing health spending.

Instead, the Republicans' Paul Ryan plan only caps future federal outlays on Medicare and Medicaid and shifts the onus of health coverage to the states and individuals.  All the cost savings are supposed to come from "flexibility" to be enjoyed by the states, and competition among private insurers who are an added layer of middlemen.  While some like BusinessWeek on April 6 seem to laud "The Audacity of Paul Ryan", Paul Krugman in his Times April 7 and April 14 columns exposes the disastrous implications of Ryan's undermining of the health safety net.

Interestingly, Ryan opposes the Independent Payment Advisory Board created by the new health care law to curb Medicare spending, that can cut Medicare rates to providers.  His Republican colleagues and even some Democrats also oppose this expert led Board.  It would reduce their political powers to favor or protect providers (and receive payback in return.)  They of course advance different reasons for their stance, calling this panel a "rationing board" that "punts difficult decisions on health spending to an unelected, unaccountable board of bureaucrats.”  Krugman in his Times April 21 column exposes the flaws in the Republican rationale in more detail.

On the Democrat side the initial 2009 attempts at cost control were confined to cutting out private insurers through single payer, or keeping them in line through a strong public option.  Both of these failed. Now President Obama on April 13 has at least pledged to protect most of the Medicare and Medicaid benefits.  But his plan of cumulative savings of $480 billion through 2023 and $1 trillion in the following decade is uncertain of success and sets too low a target at the same time.

There is pressing need to control costs, yet the Republicans and their experts avoid directly confronting root causes like high provider prices.  Obama and the Democrats do so, but only in a timid and limited way.  The reason is obvious - no one wants to lose the largesse or attract the opprobrium of one of the most well endowed industries.  Ironically, the very distortions in our system that have unjustly enriched the industry have added to the resources and leverage of the players to block corrective measures.

The direct political contributions as compiled by the likes of followthemoney.org for the health industry or by opensecrets.org don't even come close to giving the full picture.  That's because the special interests including this industry are keenly aware of public scrutiny and of the negative perceptions about their campaign financing.  So they can cover their tracks by using artifices like super PACs with sister corporations (this was added here on Oct. 1) or by funding through proxies.  As an example of the latter, doctors, legal and insurance professionals can contribute to candidates favored by their associations through their spouses and dependents.

Other than such legal workarounds to disclosure rules there's also the universe of employment favors or rich "consulting contracts" for relatives, or outright bribes.  Unless someone is foolish or careless most of such goings on don't come to light.  In sum, as against publicly disclosed contributions of a "paltry" $100 - $200 million annually, the actual payoffs by health industry players may well be over ten times this amount.  Even "honest" politicians can be compromised if they hesitate to annoy interest groups that can run massive ad campaigns against them or fund their opponents.

Can payers and patients do anything to counter health industry influence and help lawmakers act in the public interest?  Actually, they can.  Health overcharges are at best a zero sum game where every unnecessary dollar going to a provider or middleman comes out of the pocket of a payer.  I say "at  best" because many are heavily "negative sum" thanks to "friction" - the gainer gains much less than the loser loses.  For example, trial lawyers gross revenues are less than $5 billion annually from malpractice litigation, but they block tort reforms that eliminate defensive medicine and court costs that may exceed $100 billion.  But even in the zero sum case there are in theory losers who can neutralize the industry gainers through their own influence and financing of decision makers.

The reason this does not happen is because the losers are a diffuse populace (e.g., 300 million patients) who succumb to the "free rider" effect ("let others do this, not me, even if I benefit if they succeed.")  The special interests in contrast are a select group (doctors, hospital and insurance executives, hedge fund managers, bankers - you get the idea) who stand to gain a lot more individually and can act in unison.

This brings me to the main point of this post.  Are there any influential groups that can exert countervailing influence?  (I'm talking of other than the likes of MoveOn.org or the AARP that have broader agendas and / or can't match the financial clout of the health industry players.)  Happily, there are, and they can play a much bigger part than at present to help themselves as well as the American people.

We should look to the large employers who according to MEPS pay for over 75% of their employees and their families health costs, and this accounts for over 12% of their payroll. They are better suited than the US Chamber of Commerce, whose large membership includes small businesses providing less health benefits, that oppose some reforms.  Besides, this Chamber includes health providers (hospitals, medical groups, device makers, drug makers and middlemen) that are the likely target of reforms.

Among the large employers the most promising subset are their biggest, like the Fortune 500.  They are a concentrated group offering the most generous benefits.  They almost all pay for the bulk of the health costs of their employees and their families, and sometimes for their retirees.  Even better, they already have their own organization solely focused on their health care issues and concerns, the National Business Group on Health.  The 300 or so NBGH members include nearly two thirds of the Fortune 100, and cover health care needs of over 50 million Americans, incurring (at a guess) up to a tenth of the national health care costs.

The NBGH is engaged in "representing large employers' perspective on national health policy issues and providing practical solutions to its members' most important health care problems." While it is doing useful work, its resources, role and impact can all be elevated orders of magnitude higher.  It can enable the right health reforms by sponsoring objective studies untainted by industry influence, shape public opinion through massive media initiatives, and through lobbying and campaign contributions. 

Other than helping Americans, making the US labor more competitive and earning goodwill as good corporate citizens, what do NBGH members get for their extra effort and invested resources?  Improved bottom lines and employee welfare as a result of a sharp decline in health care costs and better care.  They collectively spend over $200 billion annually on health care.  Supply side measures, competition and resultant price corrections alone can reduce health expenditures by a quarter so these NBGH members stand to save over $50 billion annually with the "right" reforms.  Investing a small percentage of this can give NBGH billions in resources to help make this happen.

Of course, these large employers not only serve themselves well, but in this scenario also have a much bigger impact on the US economy.  Other payers including small businesses and self paying patients all benefit as well.  And since over half of US health expenditures are met by public funds, the government (which cannot lobby itself) and taxpayers save five times as much as NBGH members. 

The course of health reforms will be strongly determined by the influence over Washington and the states.  The largest employers can step in to play the system to help themselves, while this also makes them the good guys to bring about the best outcome for the rest.

How Trade Can Transform US Health Care

 [This post is part of my ongoing collaboration with Prof. Jagdish Bhagwati.]

Imagine that lawmakers come together to solve the health care (and budget) crisis by taking all the steps outlined in my last post.  Intrinsic to their plan is the critical role of trade in health services to achieve quick results.

There are four ways in which such trade occurs. "Arm's length" services are typically found online: The provider and the patient can be physically far apart. In medical travel patients go to doctors elsewhere. A third way is by foreign entities creating and staffing hospitals in the US. Finally, foreign doctors and other medical personnel can be brought to the US to tend to patients here.

A narrative below illustrates how wisely implementing a comprehensive trade policy in health services can transform our health care experience and costs.

Jane isn’t feeling well and goes to a facility staffed by two nurses.  This has some typical medical examination rooms which also include a couple of large LCD screens and a video cam that allow for Skype like videoconferencing.  A nurse asks Jane for the reason for her visit then ushers her into one of these rooms.  The screens lights up and Jane is instantly in video conference with Dr. Gupta, an experienced and highly qualified primary care physician based in India.  Dr. Gupta has cleared the rigorous medical board exams set by the US state Jane resides in, and is licensed to practice telemedicine here. 

It feels as if Dr. Gupta is in the same room as Jane, except that the nurse does all the examining under his directions and reports her findings.  Dr. Gupta then prescribes medication, treatment and follow-up visits if needed.  Also, if Jane needs a specialist like a cardiologist, Dr. Gupta instantly connects her to one.  Cardiologist Dr. Sharma appears on the second screen.  Dr. Gupta briefs Dr. Sharma about Jane and either stays on or hands off to Dr. Sharma who then “examines” Jane with the nurse’s help before prescribing treatment.  Any imaging tests ordered (MRI, PET, CAT, X-Ray) are digitally transmitted and reported on by a certified India based radiologist.


Jane’s insurer pays $10 - $15 for each doctor.  This is twice their domestic rate, and enough incentive for them to have obtained US certification and practice telemedicine.  The insurer also pays $15-$20 to cover the US nurse’s and the facility maintenance charges.  The cost of a typical visit ranges from $25 for a PCP to $45 for a PCP-specialist combo, which is just a third to a sixth of normal US payments. 

Since it is all digitally captured, Jane has the option of saving and retaining her consultation, or having it deleted for privacy reasons.  If she likes these doctors she can ask to see them specifically and schedule future visits accordingly.  She can also anonymously rate them, for the benefit of health authorities and other patients.


If Jane needs a major surgery like hip or knee replacement or a heart bypass, she and a companion can go on an all expenses paid trip to India.  She is treated at a top Indian hospital with a safety record at par or better than US hospitals, and recuperates in a five star hotel before returning home.  Her insurer pays a third in all of what it costs for the procedure in the US.  The incentive for Jane to go is high quality (and even pampered) care with lower chances of complications, and a waiver of all deductibles and co-pays.


Of course, in a majority of situations medical travel is not feasible.  Jane then goes to a new local hospital that is run by a foreign chain that has combined high quality with low cost in hospitals in its home country.  It incorporated its efficiency and superior practices into its US holdings, and is profitable even on reduced Medicare and Medicaid payments. 


When Jane needs to see local doctors she goes to highly experienced and qualified foreign doctors who have been certified to practice after clearing all US board exams.  They are no longer required to undergo US medical residency which was the main impediment to augmenting doctor supply.  Even after Medicaid rate cuts these doctors seeing such patients make many times what they earned back home, and happily accept all patients.


Then there’s Jane’s friend Mary who is very distrustful of foreign health care providers and insists on “all-American” care.  Even Mary is now much better off.  Thanks to the increased supply of providers she no longer has to wait to see her US doctors.  They’re also more attentive now and no longer spurn Medicare or Medicaid patients even after the reduction of rates.  The same holds for her local US hospital that seems to be improving its quality and cost efficiency by learning from the foreign transplants.  Having less market power it too now accepts lower insurer rates.

 So benefits of the trade in health services flow not just to those who directly avail of them, but also to the rest that don’t.  Moreover, the gains come quickly, as early as in 2012, with almost full effects in place in 3-5 years.  As compared to this, purely domestic solutions, for example, of increasing the supply of doctors will take a decade to even begin showing some effect. 

Also, although federal orchestration and coordination is clearly preferable, a lot of the benefits can be availed at the states level by their own legislative and executive action.  That is because many of the impediments to trade in health services originate in, or are at least addressable through state enactments.  These include licensing requirements of qualified foreign doctors, permission to set up hospitals, who can prescribe drugs, and limits of legal exposure.

What will be the impact of such trade on American jobs?  Thanks to the ongoing and projected scarcities among health care providers their loss of jobs will be minimal.  Some like the doctors are likely to see their outsize earning premiums over their European counterparts decrease significantly but will still earn handsomely.  Other medical personnel in short supply may also lose a chunk of their overtime earnings, but are very unlikely to lose their jobs.  In contrast the jobs outside of the health industry should increase since reduced health care overhead makes US labor more attractive to employers.  This should vastly outweigh any decrease in health jobs.

Apart from service improvements and expanded coverage, what are the potential savings?  A lot depends on how this trade is allowed and which modes are emphasized.  But broadly speaking, the “US premium” on the price of health services can easily be brought from the present over 100% to about 30% over the prices in Europe.

Chastened medical providers who presently sneer at Medicaid rates and threaten to turn away Medicare patients if the rates are reduced may instead vie for this business.  In addition to lower domestic prices due to competition, there will be direct savings from off-shored services.  All told, the total US health expenditure can drop from a NHE projected $3.3 trillion in 2014 by over $1 trillion annually, with more than half of this being public funds of CME and the states.  Even in 2012 if action is taken right away to qualify foreign providers, telemedicine and medical travel can kick in to yield relatively painless savings of about $50 billion.

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Dec. 21, 2012 update: Telemedicine within the US is now maturing - see The Atlantic Dec. 11, 2012 article. The same thing can be done with foreign based doctors.

Do This To Fix Health Care And Our Budget

Lawmakers and officials now seem serious about ballooning health care costs, but they're still not addressing the root issues.  They are unaware (or choose to ignore) that the major problem is of overpriced care, not excessive or even wasteful care.

This is actually good news per my previous post, as the fixes for price distortions are relatively straightforward and painless.  That is, except for special industry interests who have bought and wielded a lot of influence.  But they may finally be trumped by public angst, and by other players that benefit from reforms and can compensate lawmakers to do the right thing (more on that in a subsequent post).

So what exactly should be done?  Here's the recipe, in two parts.  The first and major part lowers prices by correcting the scarcities as well as the lack of competition and innovation that have caused US health care to be over twice as expensive as in Europe.  The second part is common sense steps to reduce waste and foolish splurging of resources for minimal benefit.

Here's the road map to lowering prices while increasing availability of resources to expand coverage:

• Increase the supply of doctors as I detailed in my Sept. 11, 2010 post.  This involves expanding medical schools and setting up new ones, both of which allow entry directly from high school with applicants meeting core requirements through AP classes.  Increase the number and support for residencies, while eliminating those caps imposed by doctor dominated bodies like the ACGME and the RRCs whose members benefit from scarcities.  There are over 40% more doctors in Europe on average than in the US.  A change in policy will start increasing domestic supply of doctors after about 10 years, so it is important to import doctors in the mean time, per my June 27, 2010 post.  This should ideally be orchestrated at the federal level, but failing that the states can make changes in licensing requirements on their own. 

• Leverage telemedicine, especially with qualified foreign doctors who can be allowed to treat US patients, as described in my April 30, 2010 post.  This will add to patients' convenience while removing the need for a significant chunk of US doctor office visits and costly readings by US diagnostic radiologists.  Apart from direct savings from payments to foreign providers that are a fraction of US rates, this will expand the availability of US physicians and lower prices here as well. 

• Allow and encourage more hospitals to be set up, particularly those managed by reputed foreign chains, per my June 8, 2010 post.  Cost effective innovations and practices from abroad can really help, in addition to the necessity of competition.  US hospitals should never have been allowed by anti-trust authorities to consolidate as they did since the early 1990's. That has allowed them to jack up prices as there are few alternatives for payers and patients, and 90% of even metropolitan areas in the US now face low or no competition among hospitals.

•  Encourage and allow medical travel abroad as described in my May 13, 2010 post.  The facilities and support infrastructures for this are largely in place so the benefits kick in much faster than through other measures.  Apart from direct cost savings that can be up to 90% for a destination country like India, this again diverts some demand for US hospitals and doctors.  That reduces some of the market power and scarcity premium in pricing in the US, and allows for lower rates here.  If HHS / CMS takes the lead on medical travel for major, "standard" surgeries this will enable private insurers to follow suit while considerably reducing their own legal exposure.  That's because if they strictly follow or exceed the same protocols as the government, juries are far less likely to find against them when there are adverse outcomes.  (These are inevitable when large numbers of patients are involved, even if the complication and mortality rates in world class foreign hospitals are lower than in the US.)

While I have stressed addressing doctor scarcity above there are also current and looming shortages of other types of health care workers like nurses and physical therapists.  These have a much smaller impact on health costs, but should also be addressed through expansion of training facilities and enhanced intake.  We may need even more nurses to take over some tasks presently performed by physicians, including locally helping patients who "see" their doctors through telemedicine.

Here's the second part, the ways to reduce inefficiencies and wasteful practices that receive more media coverage and commentary by pundits:

•  Allow drug importation and for Medicare to directly negotiate prices of drugs that it pays for.  There's no valid reason to protect a system where US prices are twice as high as anywhere else.

• Use comparative effectiveness research to guide treatment, particularly when paid for with public funds.  Factor in cost effectiveness as is explicitly done by the NHS in UK.  Substitute fee-for-service with capitation or global payment.  Counter Palin type "death panels" misinformation and encourage sensible end of life planning.  Some sensible cuts by states like New York and by Washington should be adopted by others.

• Enact tort reforms, limit debilitating lawsuits by having more efficient forms of legal redress, impose malpractice caps and lighten needless regulatory or work rules burden on providers. (About the last, some onerous work rules may for example stem from union agreements that only lightly benefit health workers but severely throttle hospital operations.) The actual impact of legal exposure is likely less than what Republicans and providers claim, but Democrats conceding on this may enable broader bipartisan agreement.

•  Electronic health records.  Wellness and preventive programs.  Smoking cessation.  Obesity control and healthy living.  Atul Gawande's Checklist Manifesto.  Other innovations in practice of medicine.  Yes, yes, yes.  And motherhood and apple pie.  By all means do all this, as supplemental to - not instead of - other necessary measures.

What about single payer, or a "Medicare for all" type of program?  This can avoid the inefficiencies of private insurers offering a complex array of plans and needing to make a profit.  They, in the words of Joseph Stiglitz also spend a lot of resources in marketing, administration, and in figuring out how to cover people who don't need much treatment, and to keep out those who do.  Single payer is particularly helpful in countering the market power of providers in a situation of scarcity or lack of competition.

Conversely, an expanded provider supply through actions as in the first part above can make private insurance more viable, as in the Netherlands or a parallel system as in Germany.  Such a system could be allowed to co-exist in the US with a basic public plan, with choices of more lavish private plans.  Those opting for them can be helped with payments through risk category based government vouchers or credits that equal offsetting average savings in public funds. 

Overall, steps of both types should be pursued in tandem but those enhancing provider supply and lowering prices at part one above offer easier and bigger savings as well as service improvements.  For quick results turning to international trade in health services is essential, as I'll elaborate in a later post.

Moreover, this supply side approach that enhances competition should be more acceptable (in theory at least) to Republicans who control the House and vigorously oppose the single payer route.  Given political will, these changes in health care are administratively quite easy to implement, and help solve the budgetary crisis far better than other more widely bandied options.

Better US Health Care At Half The Cost

The main problem with US health care is its high cost.  A surprisingly unmentioned fact is that this "high cost"  is actually due to exorbitant pricing, as compared to all other countries.  Why is this important?

It's because correcting these prices is the quick and painless way for Americans to address the health crisis and achieve universal coverage.  It is the closest to having our cake and eating it too.  We can achieve universal coverage, hold the line on spending or even reduce it, avoid additional taxes, and all without trade-offs on the quality or the amount of care.

Yet this approach is suppressed and ignored.  It is anathema to the health providers and middlemen (like PBMs) who benefit from the current system.  They and their "experts" instead plant the false notion that our care is so costly because we're getting much more of it than elsewhere.  They imply that Americans utilize more resources in getting more treatment, more time with providers or in hospitals, more or better medication, and more diagnostic and imaging tests.

Only the last about imaging tests is true, with very limited effect, as the OECD health data shows, and Americans actually lag behind their first world counterparts in the other parameters.  True, Americans average 92 MRIs and 230 CAT scans per 1000 population annually, as against the OECD median of 37 MRIs and 119 CAT scans.  But that translates to less than 3% of extra costs even at inflated US prices.  These and any other "excesses" are more than offset by Americans seeing their doctors 40% less often and being in hospitals 20% less than the OECD median.

So what's behind US prices being over twice as high as in Europe, and 5 - 10 times higher than in the top Asian hospitals popular with medical tourists?  It is mainly tightly restricted supply, limited competition (as I've written earlier about doctors and  in regard to hospitals) and a system that simply lets providers get away with it.  An example of the last: unlike other countries the US bars its federal agency (HHS or Medicare) from directly negotiating drug prices for publicly funded patients, so these are double those in Europe.

Provider groups use their financial leverage and lobbying to sustain the current price regimen, while dodging adverse public scrutiny.  Some interesting aspects are:

• Doctors and hospitals vehemently protest impending Medicare rate cuts under SGR.  But they'll carefully avoid any comparisons with other countries.  That's because Medicare rates on which they claim to lose money are actually far higher (even after cuts) than prices anywhere abroad.   
• The lure of industry largess and fear of career suicide seems enough to stop health care experts and academics from discussing or publishing work on US health pricing. The bulk of academic endowments, research grants and other funds flow from provider organizations.  Moreover, the editorial boards and review committees of health journals are dominated by doctors who can blacklist authors of inconvenient articles exposing their industry. 

• The experts' reticence results in wider ignorance and misconceptions in the public.  The popular media looks to research and analysis in respected publications for answers to the health crisis.  Their own journalists haven't realized that pricing alone plays a much bigger role in health costs than all the other reasons trotted out by the experts as Op-Ed writers or talking heads on TV. 

•  Even the HHS / Medicare does not compile and publicize data that exposes the pricing anomalies and actual doctor earnings, that can justify the government's case for SGR cuts.  This is less surprising once you realize that HHS / CMS employees have a symbiotic relationship with the health industry players.  They are aware of the revolving door and subsequent lucrative employment opportunities if they oblige the industry.  Ex-CMS Administrator Thomas Scully is an example.  The current CMS chief Dr. Donald Berwick is an excellent choice, but he too has to tread cautiously as a recess appointee in a precarious position with many GOP foes.

Law makers can easily take measures to correct pricing anomalies in a relatively short time, and apart from all the economic benefits, this should go down well with voters.  But they are either bankrolled by the provider groups, or fear funding of election bids against them if they overly annoy providers.  So their inaction and silence extends to both sides of the aisle, though more so by Republicans who have closer industry ties.

In fact, cynical politicians can go the opposite way if their actions remain beneath the public radar, and the ill effects are only felt long after they are gone.  In his Jan. 19 WSJ Op-Ed the CEO of NY Presbyterian Hospital describes a bipartisan panel proposing a $60B cut through 2020 of Medicare funds to train new doctors.  It's like meeting grain shortages by eating the seed for future harvests:  worsening doctor scarcity, further raising prices for their services, and increasing overall costs and patient misery. 

Is pricing the only problem leading to higher US health care costs?  Obviously not.  We have the usual causes widely discussed in the media.  The waste and duplication in the private health insurance industry. The distortions in provider incentives under the fee for service system.  Malpractice laws and defensive medicine.  Lack of proper end of life planning (Sarah Palin's "Death Panels") and public funding guidelines about treatment of patients with terminal illness.  Inadequate research and dissemination of information on comparative effectiveness (including the cost) of treatments and consequently deficient policies.  Cost of care fully borne by third parties that removes the patient's incentive to look at costs.  Insurance and Medicare fraud, and so on.

But the savings potential from addressing these other causes is dwarfed by that from correcting prices.  The latter is the richer, low hanging fruit in terms of administrative ease and voter acceptance.  Consider this: effective steps to bring health care prices down so that they are "just" 30% higher than in Europe will reduce the annual US expenditure of $2.5 trillion by $1 trillion, half of it in public funding.  Other reforms can of course result in further savings and improve the quality of care.

Key measures that were shot down by Republicans and some Blue Dogs (or not even pushed in a misguided attempt to "compromise") could have had an indirect but strong bearing on prices.  A single payer ("Medicare for All") system would have concentrated buying power into a single governmental entity that could dictate more reasonable prices even in the face of provider scarcity.  That's in addition to it streamlining payments, improving efficiency and effectively increasing doctor / provider supply by freeing up their time spent chasing payments and instead devoting more of it on patients.  That's how countries like Singapore, Japan, Taiwan and even UK are doing well with fewer providers. A strong public option would have also helped (though not quite as much) for similar reasons.

But too many Americans swallowed the propaganda that this "socialized medicine" would limit their choices and worsen their care - never mind that most seniors love their Medicare.  Where do we go from here?

We face the reality now of Republicans controlling the House, having expanded ability to filibuster in the Senate, and trying to limit a government role, including by undermining "Obamacare." Recognizing the central role of high prices and the core causes behind it can enable us to skin the cat another way - finding solutions palatable to the Republican supply side and free market ideology.  

These steps involve expanding provider capacity, allowing more competition including free trade in health services, reducing unneeded regulation and (for limited benefit) reforming malpractice laws.  Taken together they may work just as well or better than just a focus on single payer, and save a lot of money for taxpayers and businesses.  More on these in my next post.

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(Footnote: As in my March 1, 2010 post, I've pointed to the Obama administration's failure to publish data on true doctor earnings and hospital payments per procedure. Now the HHS is a year behind the rest of OECD in reporting even basic health data statistics as above.  This hadn't happened even in the "Heck of a job, Brownie" days of  G.W. Bush.  It underscores how the government apart from policy making also needs to pay attention to routine administrative efficiency.