Saturday, October 20, 2012

Part Remedy Beats Poison

A rare  Sep. 25 Op-Ed in the conservative Wall Street Journal counters attacks on the Affordable Care Act (Obamacare) by Romney-Ryan, and demolishes their own alternative proposals.  The authors are Ezekiel (older brother of Chicago mayor Rahm) Emanuel, Neera Tanden and Donald Berwick, former administrator of Medicare (CMS) under President Obama.

They repudiate the key premise of Romney-Ryan that delivering Medicare benefits through competing private insurers will lower costs.  Adding a layer of middlemen while fragmenting buyer power will bump up costs instead, as logic and prior experience with private Medicare Plus indicate.  This is apart from other problems with "Vouchercare" as described by Paul Krugman in his Times Aug. 30 column. And on Oct. 4 in "Romney's Sick Joke" Krugman scathingly exposes Romney's false claims about covering pre-existing conditions and the uninsured under his plan.

Still, Obamacare has severe shortcomings, thanks mostly to a handful of Democratic lawmakers who joined Republicans in killing vital features like a strong public option.  Private insurers rightly saw the public option as threatening most of their business.  That's because of its greater efficiency through simplified choices and procedures, and centralized buying that would counter the market power of providers facing little competition.    In his Sep. 29 Times Op-Ed J.D. Kleinke describes Obamacare as essentially a brainchild of conservatives that they now hate because Obama embraced it.  It does nothing about exorbitant prices that are the (hidden) root cause of high US costs

Instead, savings are sought by reducing the amount of services consumed, hopefully by cutting down waste and unnecessary treatment so as not to compromise patient well-being.  What's wrong with that?  Well, nothing, so long as it is done in addition to lowering prices closer to European levels that achieves far more cost reductions without hurting patients.  But that's not the case - in an "instead of" approach, the "less care" advocates use their pitch to divert attention away from over-pricing.  This benefits the health industry (who are thus paid over double of what they "deserve") while imposing an enormous burden on payers, including taxpayers, employers and individuals.

Almost no health pundit or politician points out that Europeans already receive more treatment overall than Americans.  Americans do get more imaging tests (MRIs, PET and CAT scans) and heart bypasses and joint replacements, but this is more than offset by their getting less of other types of care.  OECD Health Data 2012 shows this.  Americans see their doctors 40% less often and are hospitalized 20% less than citizens in other advanced economies.  Yet US health expenses in 2010 were $8,233 per capita and 17.6% of GDP, as compared to the OECD average of $3,268 per capita and 9.5% of GDP. 

So just to be clear, imagine this: If we simply cut our prices to OECD levels without any changes to the amount of care we receive, our health expenses drop to less than half of what they are now.  Instead, our policy makers and pundits focus on "cutting waste" by reducing the amount of services rendered, pushing them further below OECD averages, while hardly touching our sky high prices.  Higher prices are partly due to private insurers with their complex offerings, payment bottlenecks and need for profits that introduce middleman inefficiencies.  But much more of the proceeds go to providers who simply get to charge more because of their market power, lack of competition and political clout in thwarting Medicare from cutting payments.

If neither Obamacare nor Romney-Ryan's "Vouchercare" directly address prices, is there a difference in controlling these under the two alternatives?  The answer is yes. 

That's because Obamacare like Medicare at present prevents providers from getting extra payments from patients.  At some point rising costs and the drain on public resources imposes constraints on healthcare prices through taxpayer resistance, especially if the defined benefits cannot be decreased.  In addition, Medicare is still by far the biggest buyer of health services, with corresponding leverage over providers. 

The Romney-Ryan plan in contrast does away with both these points of leverage.  Its intent to let private insurers compete to offer Medicare plans has the opposite effect of fragmenting buyer power in negotiations with providers.  Moreover, with the "better" and costlier plans that can be offered under their plan the insurers (and hence providers) get to realize additional payments from patients, in addition to Medicare vouchers.  Finally, insurers will naturally try to maximize profits by cherry picking the actuarially attractive patients, leaving the "money losers" in the traditional Medicare plan. Of course there is talk of risk adjustment to increase voucher payments for sicker patients, but to the extent these tricky adjustments are imperfect there will be scope for insurers to game the system.  So we end up with higher costs and less check on prices under Romney-Ryan proposals, with either the extra costs borne by Medicare recipients or by the government. The WSJ on Oct. 16 also confirms this as resulting in higher premiums, based on a study by the non-partisan Kaiser Family Foundation.

In sum, with all its flaws Obamacare in addition to its primary objective of extending health insurance to most Americans also has some secondary effects on curbing prices.  The Romney-Ryan plan rolls back the safety net while having fewer checks on prices, with the resultant higher costs met either by public funding, or (as Republicans prefer) by private payers.

A concluding side question: If prices are by far the main villain behind high US costs, why don't we hear much about this fact, leave alone have any serious proposals to lower them?  You don't see high prices mentioned in discussions in the media (it's just "costs"), including in recent Presidential or Vice Presidential debates. It's because the extra revenues generated by over-pricing has created enormous surpluses, a fraction of which goes to sustain an ecosystem of beneficiaries who  want to let the good times roll.  These include politicians, health experts, private insurers, trial attorneys, and even HHS / Medicare officials looking for subsequent industry fed opportunities through a revolving door.

So to the above question the short though dramatic answer is that there is a conspiracy of silence on the issue of over-pricing. The ones who suffer are mainly of course the payers.  Can payers or a body of them not exert counter leverage that can correct prices?  Not so far, but they certainly can and should.  I have talked about this in the past and will elaborate in my next post.

Saturday, August 25, 2012

States Can Lower Prices If DC Won't

Mitt Romney's pick of Paul Ryan as his VP running mate ensures that the Medicare and health care debate takes center stage.  It should be a strong card for the Democrats though Republicans may succeed in confusing voters as to who really threatens Medicare.  Neither side calls out the prime cause of our unmanageable health care costs - the prices - nor surprisingly does most of the media.  For example the NY Times on Aug. 21 in its extensive and otherwise well written "Rationing Health Care More Fairly" makes no mention of this elephant in the room.

Actually, our problems disappear - with no need for rationing benefits or giving up on universal coverage - if our health prices are halved so as to approach those in "expensive" Europe.  The steps we need are listed in my March 28, '11 post, and none of these are administratively or legislatively hard if you strip out special interest politics.

It's the last that stands in the way of reforms that would lower tariffs, as health industry players either pay or intimidate most lawmakers, though a few may (still!) just be in the dark.  Ideology has little to do with it, since Republicans should favor increased competition and supply based economics.  Yet they are often complicit in protecting providers from market forces. 

President Obama missed a huge opportunity in 2009 to early 2010 when he faced Republican (and a sliver of Blue Dog Democratic) intransigence on key reform proposals like a strong public option.  Had he and his advisers been more astute they would have switched to simply pushing to lower the age for Medicare from 65 to 55 (or even 25).  This move towards "Medicare for All" would have been far simpler, easily understood and popular with the public.  And above all, it needed only 50 Senate votes to pass through "Reconciliation", instead of the 60 to break a filibuster.  This near-single payer model with more buying leverage could push down prices, with part of the public savings going to allow tax breaks for those receiving employer health coverage.  So it could make almost all payers and patients better off, and be a lot more difficult to demonize.

Instead, we've ended up with an inferior and far more complicated Affordable Care Act that commendably extends coverage but does little to control costs. Where do we go from here? Washington is paralyzed ahead of the elections, and may largely remain so afterwards.  Even if Democrats beat the odds to win the Presidency and both houses of Congress, health lobbies need to win over just a handful among them to stymie measures that would lower prices.  So don't count on Congress.

But there's good news.  Individual states can achieve a lot of price reductions on their own, and more so with support from just the President's Administration.   That's because states have much control over the key factors behind high prices - supply constraints like a scarcity of doctors; hospitals facing little competition; and wasteful practices and regulations. 

Here are key steps that states can take on their own:
  • Eliminate physician shortages with the help of foreign doctors.   The existing license requirements typically include clearing all three parts of an examination (USMLE) that in turn require completing at least a year of US residency. But states can set up parallel criteria to let foreign doctors without such residency get licensed to practice within the entire state or even just sub-regions designated as underserved areas. The states of course can and should emphasize quality, restricting eligibility only to candidates who have substantial experience and are trained in reputed, approved institutions, so they are expected to be on par or better than their typical US counterparts. They should clear the USMLE provided the doctor dominated bodies sponsoring the tests agree to let them participate.  Once US doctor bodies realize that they cannot restrict physician supply they'll likely go along with changes that allow the US to meet future requirements internally.

  • Use the same licensing procedure as above to allow foreign doctors based in their home countries to practice telemedicine on US patients in the state.  In an April 2011 narrative I had explained how effective and inexpensive this could be.  A local nurse can act as the hands of the foreign doctors who see and treat patients through videoconferencing with such an office visit costing a third to a sixth of typical US rates.  So even the uninsured get a huge relief.  With ready availability of such doctors wait times can be eliminated and patients can see their doctors as needed on a walk-in basis.  Medicare under section 1834(m) of the Social Security Act allows payments for such telehealth services.

  • Enable and encourage good foreign managed hospitals to set up shop.   This includes easing state rules that hold up hospital creation in general, like the CON (Certificate of Need) laws.    We need more hospitals regardless of ownership simply to reduce the market power of incumbents.  But foreign-run hospitals with their cost efficiency will change the whole dynamic, forcing others around them to adapt and lower prices dramatically.  These hospitals typically employ their own doctors, so ensuring availability by importing more doctors as above ties in well with this proposal. 

  • Complement HHS measures to reduce unnecessary, burdensome or obsolete regulations on hospitals and healthcare providers. An obvious one to consider is malpractice caps even though it's more of an excuse for, than a cause of, high prices and costs.

 States have little control over some aspects.  For example, drug prices can largely be impacted only by federal measures, as by allowing drug imports from other countires, or for Medicare or CMS to directly negotiate prices.  Medical tourism (sending patients abroad) under public funding is not possible without changes to sections 1812, 1814(f)(1) and 1862(a)(4) of the Social Security Act.

In other matters states can achieve much on their own, and more so with minor federal support.  For example, states can license foreign doctors to practice here, but their visa and work authorization falls within federal purview.  An expansion of J or H-1B visas for doctors will certainly help, though even without it states will be able to get doctors under existing rules, or from countries whose citizens have less restrictions.  And then again, we may get foreign doctors who first come into the US for other reasons, or immigrate after marrying US citizens.

 Which states are most likely or suited to take the lead in such measures?  Almost all can hugely benefit, whether they are Democratic or Republican, because the massive cost savings can be used to fill budget holes, extend coverage or lower taxes depending on ideology.  California has often led in path breaking legislation and is a top candidate. Its crisis of budgetary shortfall and desire to continue providing generous Medicare ("Medi-Cal") benefits while avoiding other cuts lend further impetus for it to act.  Other such states with centrist and innovative leadership that come to mind are New York, Illinois and New Jersey.  And while they can easily act individually they may even consult and band together for a common approach.  Once experiments like this succeed, other states and even Washington should soon jump in.

Won't health interests on getting wind of any impending changes in the states jump to exert the same kind of influence as they do in Washington to block them?  Very likely yes. That's why payers who enormously benefit from lower costs should be prepared to ensure these reforms don't get derailed.  The best suited for such a role are the large employers.  I have long maintained that their National Business Group on Health should focus on becoming a potent counter-lobby to push for politically difficult reforms that enormously benefit payers and patients.  The other thing in favor of state reforms is that their budget gaps are more dire, they cannot print their own money and gain more from healthcare savings.

 When it comes to fixing healthcare prices states should rush in when the US fears to tread.

Wednesday, July 18, 2012

Test (Or Prove) Your Ignorance About Obamacare

Here's a short Kaiser Health Reform quiz with ten "yes" or "no" questions to test if you really know the key points about the Affordable Care Act (Obamacare).  You can take it and see how you compare with the rest of the country before reading further.

While the quiz responses are being continuously updated the picture has hardly changed since a Kaiser analysis of the responses in February 2011, a year after the passing of the law.  It shows less than 1% of Americans getting all 10 answers right.  Worse, (given the bell shape of a normal distribution) even monkeys pulling levers with these yes or no choices would have done better than Americans actually did.  That's because the Americans' average score was under 5 while blind guessing or coin toss would get you 5 out of 10 correct on average.  (Assuming you ignore the "don't know" option as that is throwing away the question without even trying to score.)

This may largely explain why half the Americans are opposed to Obamacare - they don't even know what's in it.  True, Obamacare has way too many flaws and limitations but at least it makes the overall US health care situation better than before. 

I have another hypothesis which may be fun to test if the quiz respondents are also asked to state their political affiliations - whether they are / lean Democrat, Republican (or are truly independent).  I expect Republicans on average to fare worse on this quiz, i.e., they are more ignorant about this law.  Here's why:
 (a) True to human nature their political leanings and prejudices make them subconsciously block out facts about a law that they associate with Democrats.
(b) They get their news mainly from sources like "Fair and Balanced" Fox News where facts take a back seat to furthering Republican causes.
(c) People living in red states (by definition Republican dominated) that are largely in the US hinterland tend to be less well read or informed about the issues and simply go by what their favorite politicians tell them. Remember the "Keep Government out of My Medicare" slogans of Tea Party protesters?

In his July 16 column "Five Obamacare Myths" in NYTimes, Bill Keller does a good job killing some of the biggest pieces of misinformation. He followed it up today with "More Myths of Obamacare" by refuting some of the blow back, mostly from special interests and political opponents, and addressing three more myths.  I wonder though about the "taking the horse to the water" factor, as to how much of such fine work actually reaches the people who are the least informed, or the most misinformed. 

Back to the quiz, if you did score well on it, congratulations!  You're also then an outlier, or not a typical American.  Or un-American, in Tea Party parlance.

Thursday, June 28, 2012

Obamacare Lives, Now Let Trade Really Heal Health Care

The US Supreme Court verdict on the Affordable Care Act (Obamacare) is out and largely upholds key provisions.  These include the mandate to have insurance (though only as a form of a tax rather than as a more drastic coercion.)  So Obama and the Democrats should be celebrating. 

But this law and the judgement focus on health coverage for everyone, and barely touch the biggest problem affecting most Americans, which is the high and soaring cost of health care.  This puts a huge burden on payers, hamstrings international competitiveness of US labor, and squeezes out public investments in education, scientific research, infrastructure, and even defense.  Moreover it threatens to devastate public budgets with future escalations. 

Heeding our advice in a WSJ Op-Ed four years ago would have already made a huge difference today.  As I said earlier, trade is critical to rescuing our dysfunctional health care system.  To see why, look at the dominant cause of high costs and how trade corrects this with speed and efficacy that can't be matched by other options, while maintaining or improving the quality of care.

Why is health spending in the US so high? This is the topic of a special writeup by OECD accompanying "Health at a Glance 2011: OECD Indicators", addressing it more honestly than the US experts and academics with industry ties. Simply put, the key reason is outrageous prices that are 2-3 times those in "expensive" West Europe, not to speak of much higher multiples of Asia's best providers.

And what causes providers to over-price?  It is largely their market power arising from an artificially constrained doctor supply and a lack of hospital competition.

For decades private doctor bodies have determined the number of residencies that control the number of doctors entering the profession. This flies in the face of a free market for jobs. Then in 1997 a Gingrich/Republican controlled Congress in the guise of spending control further helped doctor cartels by capping all future medical residencies at 1996 levels. The US has 2.4 doctors per 1000 people, compared to the OECD median of 3.4. Even this doesn't reflect the true differences in availability, as US doctors on average spend less time seeing patients. This is due to more of their time being wasted dealing with complex insurance plans, regulations and payment procures, and other steps to protect themselves in a litigious environment. The US also has a higher proportion of women doctors (who typically work shorter hours). 

The market power of our hospitals enables them to be paid almost $4,000 per hospital day compared to under $700 for West European hospitals, according to the 2011 Comparative Price Report by IFHP (P.8) Hospital consolidations since the early 1990s have jacked up prices, in combination with a faulty "cost plus" payment system that rewards or at least condones inefficient and wasteful operations. A February 2006 RWJF report finds (p. 4) that 90% of MSAs (metropolitan areas) face concentrated markets.  The situation is worse in less populated areas where payers may have to accept prices set by the only hospital in the area.

Are there other reasons for high prices?  Sure there are, like private insurance complexity and middleman inefficiencies that add about 15% according to a 2003 Woolhandler, et al, study published in NEJM. Then there are lesser factors like malpractice burden and cross-subsidy for write-offs for unpaid treatment of the uninsured, but these tend to be little more than red herrings or excuses.  Malpractice premiums are only 3.5% of revenues and 7% of income according to a Health Affairs May 2006 study based on AMA data that is arguably skewed to play up such costs. And for unpaid hospital bills, they're just $49B (USA Today, May 9, '11, that too at the vastly inflated list prices) as compared to hospital receipts of $759B (Table 128 of Health, 2011 by CDC). So they contribute less than 5% to prices. In sum the main reason for our excessive prices is that providers can get away with them, aided by market power and supply scarcities.

Trade can transform this health care landscape, with speed and efficacy unmatched by any alternatives.  This trade should take several forms, allowing foreign providers to (a) come to the US and practice medicine, (b) set up hospitals here, (c) deliver health services remotely, and (d) treat US patients sent abroad to them.  These are explained below:

About increasing doctor supply internally, after - and if -  plans are put in motion to educate and train more doctors, it will take a decade before the first of them enter practice.  Then it will take another decade or more for the deficit to be corrected. In contrast well conceived trade planning allows us to set standards and allow in highly qualified foreign doctors so we have enough within a year or two, augmenting our supply by up to 200,000 doctors to attain European averages. And yes, we can still put in place long term plans to internally meet doctor supply needs in the more distant future.

Establishing more domestically run hospitals will not suffice because it's not just a matter of increasing competition among more of their own. Their managers need to unlearn the ways they've operated all this while, and then internalize and implement radically different procedures. Second, they'll be weighed down by their own legacy of suboptimal decisions and agreements with constituents like health worker unions.  In contrast, foreign management can far more easily adapt their low cost systems to accommodate US regulations and circumstances. It's the concept of reverse innovation that will have US hospitals seeing foreign managed competitors operating beside them at a third of the cost and impel them to follow suit.

Thanks to global connectivity and broadband, remotely delivered services already include diagnostic reports by radiologists ("nighthawking") based in other countries, though only if they're US trained and certified. The concept should be vastly extended by allowing a broad swathe of highly qualified foreign doctors to take US board exams (just like domestic doctors who complete residency here).  They should then be licensed to serve US patients, including through videoconferencing. Such consultations will cost a fraction of US rates, and the enhanced availability may eliminate any waits or need for prior appointments.  Patients may have a US based nurse to assist in physical examinations and use of local equipment. This concept of telehealth in domestic settings has already proved to work well, with even better outcomes than for in person visits, according to a June 25, 2012 report in FierceHealthIT. It should work just as well with foreign doctors.

Medical outbound travel abroad for much cheaper treatment with same or better quality has now become well known.  The fraction of US patients availing this is still quite low because it is limited to the uninsured and the self-payers, since insurers have been reluctant to offer this for fear of legal exposure. All this can change if Medicare and Medicaid start sending patients abroad, while passing on some cost savings to them. Private insurers following exactly the same standards and procedures will have some legal protection against allegations of negligence, and malpractice caps will further encourage them to offer this.  Other than direct savings, medical travel options will also siphon off domestic demand for procedures, likely increasing leverage of payers in negotiating rates with US providers.

How much can all this save?  Our combined proposals make them nearly as trade-able as goods, so trade in health services can drop US prices to levels in Germany or the Netherlands that (like us) don't have a single payer system. Such price drops should cause our expenditures as percent of GDP to decline the same way.  For the US it was 17.9% in 2010 and presently rising to 19.6% of GDP per CMS projections of health expenses (2011-2021), as compared to the German and Dutch 12% in 2010, and about 14% by 2021.

The impact of actually reversing our rising trend and instead lowering expenditures from the projected 19.6% to say 15% of GDP by 2021, will be monumental.  It will mean our total national health expenditure of $2.59 trillion in 2010 rises to $3.66 trillion in 2021 instead of the projected $4.78 trillion, and per capita expenditure of 8,402 in 2010 rises to $10,790 in 2021 instead of to $14,100.  Since CMS projects that half of the total expenditure is met by public funds (with two thirds of that from the federal budget) this would mean annual taxpayer savings of $560B in 2021 of which $370B are in the federal budget.  This should please Democrats and Republicans alike as it goes a long way to let us to keep entitlements and development programs while not raising taxes or the deficit.

What then stands in the way of such trade?  It's the special interests in the health industry of course, in particular the providers who have influence in both parties though more so among the Republicans.  But countervailing pressures to balance budgets without raising taxes may (finally) give the impetus for change, even if it is after election season.  Obama has been opportunistically attacking Romney on outsourcing during his time at Bain. So both candidate may find it difficult to appear open to a new form of trade regardless of its merits.  Fortunately, November is not far away, and after that embracing trade by whoever wins is the best way to progress from widening the blanket of care through insurance to solving the even bigger problem of affording it.

Wednesday, May 2, 2012

Trade Can Cover All, Regardless Of Verdict

Trade can be key to solving our health related financial morass, though its best path of introduction and usage depends on a much awaited Supreme Court judgment on ObamaCare.

Objective legal experts say that the law including the mandate for everyone to have insurance is a valid exercise of federal authority and should be upheld.  But Bush v, Gore (2000) or Citizens United (2010) show that the conservative majority can go out of its way to help out the party that put them on the bench.

Regardless of the Court challenge the health law and other reforms have a vital shortcoming.  They hardly address the massive and surging healthcare costs that swamp our budgets and drag down our economy.  The two political sides have opposite priorities on publicly funded care.

Obama and the Democrats pushed through affordable care for all without a way to pay for it, particularly in outer years as projected expenditures escalate. The Republicans led by Paul Ryan want to limit public expenditures through fixed payments to future Medicare recipients or block grants to states for Medicaid. This likely transfers cost escalations to hapless patients and shreds the safety net.

Both sides are beholden to industry interests (though Republicans probably more so than Democrats) and hence are unwilling to address over-pricing as a root cause of rampant health costs.  With Medicare and Social Security slipping closer to insolvency, there is public pressure on lawmakers and leaders to maintain entitlements while controlling budgets. And it can all be accomplished with trade in a combination of its four forms.  These are (a) allowing medical services to be remotely delivered from abroad, (b) sending patients for treatment abroad, (c) letting foreign providers set up hospitals here, and (d) bringing in foreign doctors.

By importing market competition and best practices worldwide, trade can lower US medical prices to 120% - 130% of those in West Europe, instead of the 200%-300% presently, with same or better quality.  As trade and its benefits take hold the savings will show up as a flattening of the total expenditures in nominal dollars rather than a sudden dramatic dip.  Health expenses as a proportion of GDP will trend down slightly (instead of going up steeply as per historic extrapolation and current projections), approaching those in Europe. This frees up immense resources to avoid future tax hikes even after extending health care to the currently uninsured.

Yes, medical trade promises extreme benefits, though the precise manner in which it is deployed and utilized depends on the forthcoming supreme court decision.  There are two broad scenarios.

 If Obamacare is upheld in its entirety then everyone is required to have insurance and most will comply.  The economic issue for payers and insurers is to keep down the premiums or the cost per covered member.  All the four modes (kinds) of trade contribute substantially to this.  Legislative and regulatory steps to allow such trade will lower prices and make the burden manageable for taxpayers and private employers. 

What if Obamacare is largely upheld but the individual mandate is struck down? It creates a new problem of some people not buying insurance unless and until they get sick, which upends insurers who are required to keep premiums low.  But as it turns out the same path of deploying trade mitigates this problem and combines well with other ways to address it. 

An April 5, 2012 article in BusinessWeek describes how "Obamacare Can Live Even If The Mandate Dies."  It primarily talks about alternative ways to prod healthy people to get insurance and points out how penalties under the mandate are quite light anyway.  It proposes converting the stick of the insurance requirement into a carrot of a tax credit for those who do buy it in advance.  Another option is having a limited open enrollment period for buying cheap insurance or higher prices for late enrollment.

Trade complements these measures by greatly lowering the price of medical services and hence the corresponding premiums, making healthy people more willing to enroll. Also, for those who still don't enroll till they are seriously ill, the cheaper treatment means that insurers take a smaller hit when they are forced to cover preexisting conditions.

 There's the other possibility (I wouldn't bet on it but you never know) that the Supreme Court will invalidate the entire Affordable Care Act. This would leave the uninsured in the same plight that they are in now.  Here trade still can and should be used to lower the price of care for those do have insurance.  But in addition intelligently deployed trade can transform care for the uninsured who currently face neglect or crippling bills if they get sick. 

Best of all, it can be done by the state government by changing their own regulations without need for federal action, and with no additional budgetary burden.

This is because the laws and rules about establishing medical facilities, who can practice medicine and prescribe drugs, malpractice caps and the licensing process are all largely state subjects.  The state can allow and facilitate trade and even accredit some agencies to enable their residents to access foreign medical services with some assurance of quality.  Moreover if this is done at a much lower price point, the uninsured can afford to easily self-pay in full for these services.

In my April 7, 2011 post is a narrative of how such services can be availed.  A patient could walk into a clinic staffed with a nurse for an instant video conference "visit" with a good primary care or specialist doctor sitting in India. The doctor "examines" the patient with the help of the local nurse, prescribes medicines, diagnostics and treatment as required, and this office visit costs $25 - $40.  Even preventive care and routine physicals can be easily availed this way.  MRIs and CT scans?  These could be done by US based foreign managed centers with data transmitted to and reported upon by Indian radiologists at $200 - $400 a pop, as compared to $1,000 - $2,500 presently paid to US providers.  X-rays and even blood lab tests can be offshored for comparable savings.

Medical travel to reputed foreign facilities, preferably through agencies vetted by the state government, can be a viable option for major treatment.  Heart surgeries, angioplasties, and hip or knee replacements can be performed abroad for $10,000 - $15,000 all inclusive, as compared to $40,000 - $100.000+ that US hospitals charge for uninsured patients.  These much lower expenses can be met by many of the uninsured without driving them to financial ruin.

In other words the state governments here would be easing their laws and regulations to enable external competition to make prices plummet without sacrificing quality.  With or without Obamacare this will bring us closer to affordable health care for all, without burdening taxpayers. 

Sunday, April 15, 2012

Role Of Agency Betrayals In Our Health Woes

Our soaring US health care costs are primarily the result of egregious prices that are twice as high as in "expensive" Europe, not to speak of multiples of Asia's best providers.  Other factors like excessive or unneeded care play a part of course, but are also ploys by health industry apologists to draw public attention away from the pricing issue.

Aligning US health care prices with Europe's will vastly benefit Americans and satisfy objectives of both political parties. It will solve our deficit problems without raising taxes, lower employer costs, create jobs through a more cost competitive work force, and free more public resources for education, worker training, infrastructure, and defense.  Yet real reforms to correct prices are almost non-existent.  Why?

It's due to various forms of the principal-agent problem that is widely studied in economics and political science.  It involves situations where a body of people like the American public or companies or other entities (the principal) has to act through a representative (the agent).  The agent should act in the best interests of the principal, but may instead follow a different agenda if incentives are misaligned.

The US story is one of betrayal by several types of agents, primarily those acting on behalf of the public, who are bought over or intimidated by a health industry awash in money.  Understanding these agency issues can help us to identify barriers to reform as well as ways to overcome them.

Lawmakers (senators and Congressmen) are elected agents of the American people.  They can fix the two biggest sources of abnormal pricing by easing provider scarcities and allowing more hospital competition.  The third major source, private insurance complexity and middleman inefficiencies could be eliminated through single payer or at least a strong public option.  Excessive drug prices and malpractice / regulatory burden are other contributors to high costs, and are also eminently addressable.  Yet lawmakers have largely failed the public trust on all these fronts.  Far from helping, in 1997 Newt Gingrich and Co. actually legislated caps on medical residencies funded by Medicare, to worsen doctor shortages and elevate prices for their services.
The President is an agent of the American people, but he is also a principal with the HHS and Medicare (CMS) as his agents in public health care.  Now CMS should use its vast resources to collect and publicize the kind of facts that would pressure lawmakers to enact the right reforms to end the rip-off of payers. But CMS fails to properly compile and report the most obvious data, like (high) prices of medical services, or true earnings of doctors which are much higher than shown in faulty surveys. Why such lapses?  Any ineptness or apathy aside, HHS and CMS folks may simply identify less with public welfare than with a health industry that rewards them for protecting its interests.And this can be by acts of omission (like failure to look deeply or to publicize damning information) rather than commission.

Moreover, the natural  tendency of officials in government is to expand their departmental empire, not to shrink it.  A larger payout for health care services means a bigger budget for CMS, more clout and opportunities to accord patronage, and receiving payback in return.  Blandishments include lucrative post-government careers for obliging officials.  GWB era CMS director Thomas Scully parleyed multi-million dollar private earning opportunities even as he was driving Medicare to pay for drugs for seniors that enriched the pharma industry.
So strong external pressure is needed, primarily from the President under advice from his treasury and economic advisers, to get HHS and CMS to control spending.  Yet President Obama, Treasury Secretary Tim Geithner as well as prior administrations have instead largely left it to the "experts" in HHS to come up with savings ideas and deliver on them.

The media has been similarly naive in relying solely on health care pundits whose allegiance to their industry trumps any objective presentation of facts and suggested solutions to runaway health costs.  An example is Dr. Sanjay Gupta of CNN who speaks knowledgeably about purely medical aspects of patient care and treatment.  But he served up a highly biased and distorted "fact check" on the movie "Sicko" that exposed US health industry shortcomings.  Very few experts even mention the role of high US prices, leave alone core reasons for it like market power, stifled competition, artificial scarcity of providers.  The few that do so seem to lose their nerve when it comes to offering up real supply side solutions (including global options) that will shrink the size of the bloated industry pie.

Among journalists there are positive developments.  A handful like Ezra Klein on March 2 in the Washington Post and Todd Hixon on March 1 in Forbes are (at last) highlighting the role of overpricing while discounting some red herrings as to the causes.  They should amp up their message of this problem as well as the fixes that are easier than they realize through straightforward legislative and administrative steps.  That will build up popular awareness and pressure lawmakers and public officials to do right by their constituents.

If the media needs objective guidance from experts it can turn to those who don't have strong US health industry ties and yet have useful knowledge and insights to offer.  They can seek health experts outside of the US, like those in the WHO or in Europe who have studied our system.  Another option is US academics outside of the health industry.  For example John Cochrane, a prominent professor of finance in the University of Chicago has an op-ed "What to do on the day after Obamacare" in the WSJ on April 2.  Even as a strong Republican (as evident from his numerous WSJ op-eds) he talks of US health provider supply constraints, lack of competition and need for imports that no health expert has dared touch upon.

Are there agents for private payers that can counter industry influence?  As I described on April 21, '11 the most potent one is the National Business Group on Health (NBGH).  NBGH represents a concentrated base of almost 350 of the largest employers who cover 50 million people and pay about 10% of all US health care expenditures.  This employer group has the financial clout as well as the incentive to push solutions that align US health care prices with peer economies, and NBGH is uniquely placed to channel its members' efforts.  The right price corrections alone can cut a trillion dollars annually from national health expenditures of which NBGH members' collective savings of a tenth of that is a staggering sum.  Of course health expenditures won't abruptly plummet that way, but rather flatten in nominal dollars as reforms take root over the next few years.  That means health expenditures will decline as percent of GDP (an unimaginable scenario according to health pundits, instead of shooting up per current projections) and converge towards European levels.

But of all of NBGH's many activities and initiatives, some of which have been recognized with awards, none focuses meaningfully on prices.  At least nowhere with the scope and scale in the political sphere and in shaping public opinion as an antidote to industry influence.  It's as if NBGH is happily mining for silver when even larger quantities of gold are lying about untapped.  NBGH achievements in furthering quality, wellness and procedural efficiencies is probably saving its members billions of dollars.  Yet this very fact may lull its governing Board and management into ignoring healthcare fee anomalies whose elimination will realize for their members (and the US as a whole) savings that are orders of magnitude higher.  There are several other reasons why NBGH may not be going there that can and should be surmounted.  I'll cover this in a separate post.

The point is that many health reforms can drastically lower costs without compromising quality or even patient choice.  But they're stymied when principals and agents (especially for public interests) have divergent agendas.  A more discerning media and agents for a concentrated body of private payers like the NBGH can be key to getting public agents to solve our "real" (read price-based) health cost issues and resultant economic crisis.