Monday, March 28, 2011

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.
  • 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 ManifestoOther 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.


Anonymous said...

The problem with Medicare for all is that the administrator, CMS, is way too powerful and political. Right now, they have shut down two hugh companies, Aetna and Healthnet. The only reason i can see is that they fell on the political wrong side of Obamacare argument. Ron Williams was first, an proponent of Obamacare. He later turned lukewarm and Aetna has been shut down for 2 year on Medicare Advantage products.

Initially, CMS cited the drug distribution process but that has been rectified and their numbers hasn't been higher than the competition. Govt do like to hang a few big examples out to dry to show they have power rather than allowing the marketplace to penalize the errant companies.

But I keep saying that the tail that wags the dog is the Medicaid system. These recipients don't contribute much to society but, on the other hand, demand so much services that the whole system is out of whack. If you talk to any doctor, they will tell you that they are the first ones to sue, the first to demand free bees and always the loudest in demanding their rights. Moreover, I just don't understand why every single one of them aren't in a Managed Care system. They, of all people, should be in an HMO rather than seeing doctors all over town. They think they know better but doctors should manage the care for them.

Moreover, why do they get open enrollment all year. Why can't they pick a plan like the rest of the working stiffs and stick to the program. I talked to an executive from Blue Cross/Shield and was told they are the most expensive to administer because they will join one company to get a benefit, say glasses. Then the following month go to another to get another, like dental or a certain drug. Why do we allow that when productive members of the community are only allowed to make one switch a year?

And since doctors and insurance companies lose money on this class of people they have to make it up by charging more to the others. So wake up bleeding heart liberals, the very people you are tripping to help are bleeding the system dry and spoiling it for the rest of us.


Sandip Madan said...

Aetna and HealthNet "shut down"? They're doing very well and HealthNet's stock just hit a 52 week high. Congress and CMS rightly acted to stop Medicare paying private insurers a premium for Medicare Advantage members, over and above what Medicare incurred for its own patients.

There may be some Medicaid abuses as you cite but these can be addressed without diverting from the basic tenets of universal coverage, or a more efficient model of public insurance. Such an improved system will likely be welcomed by business groups and increase job growth as the burden of health care costs of workers declines.

Anonymous said...

Call you local Aetna or Healthnet agent and try to purchase a Medicare Advantage product. Once again, you will find the heavy hand of the govt at work. I think 2 yrs is excessive to shut a major co down. My opinion is that politicians of all stripes politicize business for their own purposes. The very reason you want to keep business independent from all parties. But Medicare for all will keep govt in the middle of all health businesses.