Thursday, February 10, 2011

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. 
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. 

5 comments:

Anonymous said...

If Burlick was such a good choice, why was he rammed through without a vote from Congress?


He believes in rationing which is the antithesis of the capitalist system we live in. Rationing, as several studies have found, will solve the problems in the short run but magnify them in the long run.

Kenrod

Sandip Madan said...

About Berwick not getting confirmed, that's my point precisely. He's a great choice whom Republicans wrongly and vigorously oppose because they've been bought by the health industry providers.

Of course there should be some rationing, as public resources are not limitless. UK does it formally and it occurs de facto in almost every other place, including the US. Would you think it fine to spend a trillion dollars to save one life? I don't. In fact till the health reforms Act private insurers had a cap on lifetime benefits, which was a very extreme form of rationing.

Anonymous said...

There is a difference between allowing the marketplace and allowing the govt to ration. The marketplace does it far more efficiently and, I would say, fairly. My niece was recently shopping for a medical policy. One cost $54 for a $500,000 lifetime max benefit. The other for $65 for a $4 million max benefit. Yet another was $73 for a 7 million max. In this case the applicant should be allowed to determine the level they want.

I would agree with Obamacare that certain policies are a total rip off. For example, Mcdonalds and other major cos was selling these policies that cost $25 a month for an annual max benefit of $2000. Rarely do I agree with govt intervention in such cases but this one is okay by me.

Kenrod

Sandip Madan said...

Let's put anecdotes aside as we can find some to support any position. Why should we assume that private companies driven by profit maximization or greed will be the "marketplace" that works most efficiently for public good, and better than an elected central planner (the government)?

I didn't find a cogent theoretical rationale for the above even in "my" University of Chicago that's the Mecca of free market thinking. The evidence was mainly empirical ("we had free markets and we did better than the rest of the world") but that's being weakened by more recent data about the rise of more centralized economies.

Besides, the US health market is hardly "free" as the players have devastated competition through consolidation, limiting supply and other measures that the government should have stopped in the first place.

Anonymous said...

This is where I think we need strong govt action. A strong FTC to prevent too many mergers to ensure that there are enough players to maintain a free market. It is the fault of the govt that there are only 4 or 5 major players where 2 decades ago there were 15 to 20 players.

And show me a society without greed and I'll show you one living in the stone ages. Greed is what makes us different from dogs or monkeys. That's what makes me wake up in the morning. That's what makes me want to invent something and profit from it. Substitute that, and all you will get is a power grab by authorities.

And why should I share my hospital room with an illegal alien or someone who hasn't contributed to the system? Let him go to the govt or county hospital. There is the access.

Kenrod