Thursday, April 21, 2011

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 for the health industry or by 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 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.

Thursday, April 7, 2011

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.

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.