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.
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.
