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.

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