Obamacare's Self-Inflicted Wounds

The good news is that Obama is a lot better in policy and execution than his predecessor, G.W. Bush. The bad news is that he is a lot worse than his predecessor's predecessor, Bill Clinton.

The good news is Obamacare (ACA) is much better than no safety net for non-seniors.  The bad news is this complex law is far inferior to "Medicare for all."  Obama instead could have pushed to lower the age for Medicare needing only 50 Senate votes or else insisted on a cleaner bill with a strong public option.

The good news is Obamacare should survive and desirous applicants should eventually be able to enroll before coverage starts on Jan. 1, 2014. The bad news is the awful, glitch-ridden debut of these online exchanges gives House Republicans behind the government shutdown some legitimacy in attacking the law.

This last self-inflicted set of wounds in the high profile rollout of Obamacarethat has little to do with politics or Washington gridlock.  Earlier health care shortcomings of HHS and Secretary Kathleen Sebelius are listed in my previous post.  There have also been outbreaks of infectious diseases and preventable veterans deaths in VA hospitals. And now this.  Even the generally Obama friendly Jon Stewart to his credit has excoriated the administration including in this Oct. 7 interview of Sebelius who looked as if she did not want to be there. 

She also couldn't properly answer his reasonable, easily anticipated and repeated question about why the businesses were given a one year waiver from the provisions of the Act, but individuals are not. (The best reason is that to make private insurers cover pre-existing conditions and less healthy people without discrimination you have to make everyone including healthier people participate.  Otherwise it's like allowing people to buy auto insurance to cover an accident that has already occurred, which is neither fair nor viable for insurers.  Such problems of adverse selection don't apply to businesses, unless all their employees get seriously sick simultaneously.)

Another of Stewart's questions Sebelius needlessly fumbled with was why wasn't single payer a much better solution than the present complex law with a big role for private insurance.  She could have simply agreed, explaining that this law was the best achievable compromise given Republican opposition and privately insured Americans' discomfort with changing the whole system. 

Of course the primary problem is not about giving bad answers in interviews, but the ineptness of Sebelius and HHS in implementing the law.  The blame shouldn't stop with them.  The effective execution of Obama's centerpiece legislation is so vital that he and his other close advisors should have been closely engaged in it.  I cited instances of Team Obama's administrative failings in the later part of my March 26 post and this is another - and much bigger - instance of his team's flubs. 

The Times on Oct. 12 reported on ignored warnings and repeated mistakes behind the dismal opening of the federal health care exchange.  The problems are so severe and widespread ("it's awful, just awful"), the article quotes, that they cannot even be categorized as "glitches".  Repeated warnings and missed deadlines have been ignored by HHS officials and the White House.

Obama and Sebelius seem to have made bad judgments and obvious mistakes even in basic decisions like assigning priorities and whom to shortlist for doing the job.  Considering its crucial role in implementing Obamacare the online system should have been vastly overdesigned for handling traffic volumes, complexity and even hacker attacks.  No expenses should have been spared - after all what's a billion dollars or two of initial outlay compared to the Medicare and Medicaid annual budget (Table 3 here) of over $1 trillion? 

Only the best IT services vendors should have been considered as lead implementer and integrator.  I'd have limited the choice to just the reputed heavyweights IBM and Accenture, with just may be HP (which acquired EDS) as a third possibility. These have the heft, the expertize and the reputational stakes to ensure they deliver well, and any subcontracting and resultant responsibility should have been left to them.  Instead, HHS seems to have invited  bids from multiple vendors with doubtful credentials and selected the lowest cost bidder, Canada's CGI Group which - no surprise - has flubbed the job.  HHS compounded the problems by having its own under-resourced and ill equipped CMS be the lead integrator and coordinator of 55+ contractors and being slow to lay down the specs.

Where do we go from here?  While a lot of his routine administration has been far from satisfactory Obama has shown he can deliver on matters that he intensely focuses on.  Examples include his getting Bin Laden and FEMA's effective response to Hurricane Sandy (a contrast to GWB's "Heck of a job, Brownie" 2005 Katrina debacle) that enormously helped his re-election.  Now he and his team need to have the same focus and oversight over implementing Obamacare and not leave it largely just to Health Secretary Sebelius and the HHS.  The online exchanges should work smoothly before December 15 and in any case easily complete all enrollments by the extended deadline of March 31, 2014.  This should help people overlook the earlier troubles like they did with GWB's drug plan for seniors.   It will improve Obamacare's standing in the polls and solidify President Obama's legacy of transforming health care for the better.
 

Health Secretary Should Do Much More

In fairness Health (HHS) Secretary Kathleen Sebelius has done more than most of her predecessors going back to the Nixon Presidency.  The top spot should go to Donna Shalala who at the end of her tenure in the Clinton presidency was described by the Washington Post as "one of the most successful government managers of modern times."  Sebelius comes second but that's a low bar to cross. 

Why? Because Republican administrations tend to favor providers and industry players over consumers, and Republican appointees account for ten out of the last 14 health secretaries.  That leaves just two other Democratic appointees, Joseph Califano and Patricia Harris.  They each lasted two years under President Carter - too short a time to make a big impact in a presidency facing many challenges and distractions.

Sebelius on the other hand is enjoying a long tenure at an extraordinary time when the crushing US health care burden and its affordability are prime public issues.  2009 and 2010 were ideal years for an optimal overhaul because of the focus on health care reforms and Democratic control over both houses of Congress plus the White House.  Sebelius could have helped achieve this through insightful ideas, sound advice to the President, and publicizing compelling data to pressure lawmakers beholden to industry interests.  She didn't do this and compounded President Obama's failure to achieve a better outcome.

While Obamacare is better than nothing it falls far short of "Medicare for All" that would have simply extended a popular and streamlined program while dramatically cutting costs.  Lowering the age of Medicare and paying for it by raising taxes needed only a House majority (which Democrats had till 2010) and 50 Senate votes and hence could not be filibustered.  This approach could at least have been used as a credible threat or bargaining chip to overcome Republicans opposition to a so-called strong public option.  That meant a Medicare style choice for Americans under 65 competing with private plans that again would have lowered costs and forced efficiencies.  Ezra Klein floated a version of this idea in the Post back on Jan. 20, '10 and Sen. Bernie Sanders (I-Vt.) another on Feb. 25, '10.  Neither happened and the watered down Obamacare that emerged is in essence a national version of Romneycare.

Apart from being unwieldy and complex Obamacare fails to substantially address the root cause of high US costs, which are exorbitant prices for health services and products.  These in turn are due to lack of market competition and cleverly engineered scarcities of providers, particularly doctors. Sebelius and HHS have done pitifully little to lower prices, but there's time even now for them to lay the foundation for dramatic improvements down the line.  HHS can say they're too embroiled and overwhelmed presently with getting all those health exchanges under Obamacare up and running, but this excuse for inaction shouldn't last beyond Feb. 2014.

I had outlined the path for systemic health care reforms in my March 28, 2011 post.  Sebelius can help move many of these along.  The actions she should take can be divided into three categories:

a) Revelations that enhance general awareness and other indirect actions to influence or pressure Congress into passing remedial laws that restore efficiency and market competition.

b) If Congress at (a) still doesn't act, working with other agencies including the states to achieve much of the same reforms.

c) Take corrective administrative actions where no changes in laws are necessary.  This should be the easiest being totally within her control, if the Obama administration is on board with it.

There are some key steps in each type. 

A) HHS INFORMATION AND PROPOSALS TO GET CONGRESS TO ACT

Sebelius should use her vast data, research and legal resources to compare the US system with those of other leading economies, proposing specific  legislation that corrects anomalies.  She should have respected experts without industry loyalties (they are a miniscule percentage of the total but enough can be found) to estimate resultant cost savings.  There's no reason why US health prices shouldn't drop down to approach those in "inefficient" Europe that otherwise has a higher cost of living. Her actions should include:

• Highlighting the impact of doctor shortages and the trend of doctor practices merging or being bought over by hospitals.  This increases provider market power enabling them to defend or worsen pricing abuses and resist cost-containment reforms, like replacing fee for service with "outcomes-based payment".  Such revelations will push lawmakers towards allowing increases in doctor supply internally and from abroad as described in my Sep. 11, 2010 post. As part of this Congress should promptly undo their awful 1997 provision freezing medical residencies. Doctor lobbies snuck it into the Balanced Budget Act, neatly shifting the job of choking doctor supply from their own private bodies on to the government.  Just raising the cap on residencies isn't enough - the whole provision and the concept of the cap needs to go.
• Estimating and then publicizing the savings attainable if Medicare is allowed to directly negotiate drug and medical device prices with manufacturers.  This is the way public health agencies abroad do it, paying under half the price charged in the US.  Congressional Republicans have opposed this ostensibly to avoid Big Government but the savings can appeal well to their own Tea Party faction that pushes for lower spending.  The timing may be opportune since Tea Partiers are getting used to finding common cause with liberals in another area - opposition to military intervention in Syria.  Ideally, the whole wasteful G.W. Bush era Medicare Part D (drug plan for seniors) should also be overhauled so it is directly administered by Medicare.  Seniors can then get their drugs more easily and completely free, at lower cost to taxpayers than the present system needlessly involving and favoring private insurers as middlemen.
• Reviving the case for a strong public option while quantifying the savings from increased buying leverage and cutting out private insurer overheads and profits.  Republican aversion to a bigger government role can be balanced out by their desire to cut spending as well as taxes.  Savings that reduce Obamacare subsidies and health costs can facilitate these objectives, and be well timed as a way out of the looming clash on budgets and raising of the debt ceiling.

B) HHS WORKING WITH THE STATES

If Congress remains intransigent or gridlocked, I spelled out on Aug. 25, '12 how HHS can achieve a lot of reforms simply by working with the states and other federal agencies.  That's because a lot of barriers to health  market competition and efficiency are a result of state laws that can be remedied and updated by them without need for federal action.  These include licensing and US residency constraints that keep out well qualified foreign doctors, hurdles in establishing new hospitals, and burdensome regulations and malpractice laws. Some actions by Sebelius should be:

•  Advising states on ways to ease provider shortages and lowering prices.  To achieve this HHS should ideally consult with states and come up with model state legislation that willing states can adopt to replace their existing laws. Such state laws can include allowing foreign doctors to practice without US residency requirements, telemedicine, ease in setting up new hospitals, tort reforms and malpractice caps. 
• Working with other federal agencies like the USCIS to allow in more foreign doctors on professional visas.  Also with the anti-trust authorities to block mergers of hospitals and physician practices that are likely to increase their pricing power.  When such mergers are cleared on claims of increased efficiency and economies of scale there should be an automatic policy to get an equal number of new hospitals and doctors in the area.  This way the provider marketplace will remain competitive and negotiating leverage of public and private payers will not decline.
• Encouraging and enlisting the support of powerful yet presently comatose non-governmental bodies for health reforms.  Topping my list of such bodies is the National Business Group on Health (NBGH) as I wrote in March.  These large employers can collectively counter-lobby and neutralize the influence and the financial contributions of our powerful health groups to political leaders.  If their backing of reforms causes health prices to drop dramatically, the large employers will derive almost unimaginable savings and return on investment on their reform drive. They and their employees incur about 10% of national health care expenses.  And thanks to them the other 90% of savings will lift the government budgets and all other payers.

 

C) HHS ACTING ON ITS OWN

 

Actions that HHS should take on its own - but hasn't so far - will hugely help patients and payers.  Some big ones are:

• Eliminate the about 80% higher payments for doctors employed by hospitals which are billed as "outpatient services", as compared to identical services by doctors in private practice. This has enabled hospitals and doctors to game the system and is behind the rapid trend of hospitals employing doctors.  Medicare and other payers consequently pay much more for the same services, often delivered at the same location.  Why didn't HHS spot and stop this anomaly beforehand and is still taking so long to fix it? The extra amount paid is a "facility fee" to ostensibly cover hospital overheads.  This is unjustified considering that their centralized system for handling billing, appointments, etc., and their economies of scale should lower, not raise costs. 
• Simplify and make transparent the very complex system of payment rates to hospitals and providers.  Flat, national base rates for procedures and treatments should be modified by only a couple of parameters, like cost of living index and malpractice insurance rates. In doctor payment rates there are well publicized problems of their imbalances between primary care doctors and specialists, and across specialties.  Fixes include changing the assignment of relative value units (RVUs) across specialties, and HHS can and should expedite this process.
• HHS should use its enormous resources of data and researchers to compile accurate statistics on revenues and salaries of providers, payment rates, and how they compare with other countries.   My Mar. 1, '10 post describes how our privately compiled data heavily understates incomes of doctors.  Health experts and academics are silent on where all the excess money paid for overpriced treatment goes, especially with hospitals showing so little profit or net cash flow. HHS should get all the facts out, enabling better policy and decision making. 

HHS has recently released useful information that can help consumers at the expense of the industry.  But even this has been done belatedly and incompletely, seemingly under pressure from above, or to comply with obligations under Obamacare.  For instance Sebelius made public charges and Medicare payments data for the top 100 procedures and for 3,000 hospitals. This was readily compile-able all along and I wish she'd done this in 5 months instead of taking 5 years.  Worse, it understates total payments by only revealing the hospitals' take.  It excludes major items like surgeon and anesthesiologist fees without explicitly clarifying this fact.  This makes apple to apple international comparisons difficult since foreign hospitals typically quote package prices that include everything. 

In sum, Sebelius and HHS can easily rev up efforts as described above if they're motivated by public spirit or pressed by the Obama administration to do so.  That can dramatically change the trajectory of health prices and expenditures, while maintaining or improving quality.  The WSJ on Sep. 18 reported on the expected slowdown in health expenses to an "only" 6.1% increase next year and a slower move up as percent of GDP going out.  But with the right steps I'd expect far better results, with expenses static or actually declining as percent of GDP from the current 18% over the next couple of decades.

 

Ranbaxy Tarnishes India's Image

In US medical care the system and the laws are manipulated to allow providers to get away with outrageous prices.  "The $2.7 Trillion Medical Bill" of June 1, '13 in the NY Times by Elizabeth Rosenthal is the latest in a stream of recent articles exposing such overpayments in comparison with other countries.  As at the end of my last post I've frequently made favorable references to India, where high quality medical care can be available at a fraction of the cost.

But India remains a developing country where a lot can go wrong.  Even giant corporations here can engage in illegal and damaging practices because of a culture of cutting corners and unscrupulous business leaders thinking they can get away with it.  Some do even worse.

The poster case for such shenanigans is Ranbaxy, which is India's largest pharmaceutical company.  "Dirty Medicine" on May 15, '13 in Fortune details the long-term criminal fraud at Ranbaxy which makes generic Lipitor for millions of Americans, not just products for third world countries.  As the article said:

"On May 13, Ranbaxy pleaded guilty to seven federal criminal counts of selling adulterated drugs with intent to defraud, failing to report that its drugs didn't meet specifications, and making intentionally false statements to the government. Ranbaxy agreed to pay $500 million in fines, forfeitures, and penalties -- the most ever levied against a generic-drug company.  ...

 "It is not a tale of cutting corners or lax manufacturing practices but one of outright fraud, in which the company knowingly sold substandard drugs around the world -- including in the U.S. -- while working to deceive regulators. The impact on patients will likely never be known. But it is clear that millions of people worldwide got medicine of dubious quality from Ranbaxy." 

Ranbaxy's misdeeds occurred with the knowledge and complicity of its top management including then chief and owner Malvinder Singh.  As consequences like actions by USA's FDA were catching up with them, Malvinder Singh and his brother Shivinder Singh sold the company in 2008.  The hapless buyer was Japan's Daiichi Sankyo that paid $4.6 billion, including $2 billion for the Singh brothers' 34% stake.  Daiichi Sankyo seemed unaware of the real extent of Ranbaxy's wrongful practices and its resultant troubles (despite Malvinder's indignant assertions to the contrary) and is seeking legal remedies. 

Ranbaxy itself may repair its image quickly with its unscrupulous former owners gone and succeeded by a more ethical Japanese owner, but the damage to the Indian generics industry may last longer.  Lax domestic oversight should take much of the blame.  Notably, all the wrongdoing was detected and exposed only by foreign agencies, and none all these years by the Indian authorities.  The Indian government could have done a lot to ensure quality control that would not only have protected India's international reputation but more importantly the health of its own people.  It can even now make amends by acknowledging past problems and promising vigorous remedial measures, but sadly is showing little signs of doing so.  Instead in a knee jerk reaction, as I had seen too often during my own tenure in government, it is vehemently and unconditionally defending all Indian generic drug makers. 

In its June 3 statement release the Government of India "hit back" at the "reports of malpractices of pharma manufacturing in India."  It asserts that the Pharma sector "is highly regulated" and that "vested interests are raking up isolated issues reported regarding technical deficiencies on manufacturing".  It says "Government has strong reason to believe that some of the spurious drugs detected in the international markets, alleged to be exported from India, are desperate attempts by other countries getting affected by the strength of Indian pharma industry."  It also cites figures showing the size of the industry (so what?) and talks of the many tests and certifications.  The problem with the latter is that they mean little if they're based on falsified or invented data.  

I'd hope for a more enlightened approach.  Given endemic corruption drug inspectors may give advance warning of "unannounced" site inspections and accept doctored samples for testing as described in the Fortune story.  The Indian authorities should be devising systems that ensure frequent and random testing of drug samples (perhaps simultaneously by two unconnected laboratories) and genuine surprise visits.  Done right, this will protect Indians and far from harming the "good" pharmaceutical companies, it will instead more quickly restore the credibility of the Indian drug industry.  There's also the matter of pursuing strong penalties against wrong-doers.  Alleged sample fraud and data falsification as described in the Fortune story should be thoroughly investigated and the full force of criminal law applied to anyone found guilty.

What about Ranbaxy's future prospects?  Under its new owners and management it already seems to be cleaning up its act. A so-called public interest litigation (PIL) case is pending in the Indian Supreme Court to cancel Ranbaxy's license and issue broader court directives to Indian regulators for better oversight.  The former looks unlikely to happen, and skittish Indian customer pharmacies that had been wary of Ranbaxy following its US troubles now seem to have had their fears allayed.  

But with Malvinder Singh and his clan I'd still have misgivings.  They're no longer in pharmaceuticals but have huge ongoing holdings in health care, including the Fortis group of hospitals, where given their past conduct they can do a lot of damage.  For example, in pursuit of profits they can pressure their doctors and employees to perform unnecessary but lucrative surgeries and treatments.  Whether by government directives, investor pressure or bad publicity in the media, I'd like to see this Singh family relinquish all control over sensitive health care institutions.  It will also be fair if Daiichi Sankyo can claw back a lot of what they paid to acquire Ranbaxy.  Whether or not this happens is an open question.  Knowing they were selling a lemon the Singh brothers would have tried inserting protective clauses in the sale agreement that the unsuspecting Japanese may have signed on to as "routine."

The bottom line is that India promises much in health care products and services, but customers should be wary and choose carefully, to sift the good from the bad.

Write and Wrong

There are - finally - more articles in the popular media exposing price gouging as the root cause of high US health costs.  But two big concerns remain.

First, such writings are still too few and far between to sufficiently penetrate public consciousness to create the political climate and pressure for reforms that align health prices with other countries.  Besides, the message continues to be drowned out by the flood of red herrings and misinformation put out by pundits funded by the health industry, and naively accepted by the media.

For example, type something like "why are US health prices so high" into Google search and you'll get a stream of articles and quotes blaming unnecessary care or treatment for high costs.  This "quantity" argument is quite false since Americans in aggregate get far less care than Europeans in terms of doctor visits (40% less) and hospitalization (20% less) according to OECD health data. This dwarfs any "excess" care Americans receive in the likes of MRIs, heart bypasses and knee replacements. There are also the many sins of omission - you'll see very few articles in health journals on US pricing anomalies, and none that honestly analyze the reasons for them, or how they can be addressed.

Second, and a bigger concern is that even articles sounding the alert on prices contain serious mistakes about root causes and where the money goes, which derail the quest for best solutions.  Why does this happen? One reason is that the authors have spent so much time unearthing and exposing the fact of overpricing that they've little left over to go into tedious research about the reasons.  Most or all authors happen to be "outsiders" getting little help (or even deliberate misinformation) in quest of answers from health experts and academics beholden to their industry.

There's also a psychological mindset as we tend to ascribe the best motives to our doctors who typically care deeply about their patients.  We (wrongly) transfer this trust in doctors to their powerful associations like the AMA that seek to maximize their members' benefits.  To achieve such objectives these bodies manipulate the political system to the extent it lets them, even at heavy cost to the overall economy or societal welfare.  Writers who don't see this are giving a free pass to our doctors while blaming greedy management, bureaucrats, insurers, drug companies and trial lawyers with less benign personae.  While all these players contribute to higher prices the maximum benefit goes to doctors, so the most needed reforms  will cause their earnings to drop.  And conversely, avoiding reforms opposed by doctor groups almost guarantees continuance of overpricing. 

 Here to my mind are five examples of some welcome facts mixed with misstatements and oversight that can lead away from good solutions:

1) Steven Brill in his famous Mar. 4 / Feb. 20, '13 "Bitter Pill" Time article admirably exposed outrageous charging by US health providers.  He further drove home this message in various media interviews, including on Jon Stewart's Daily Show on Feb. 21.  His biggest mistake lay in ignoring his own dictum of "following the money" to declare that "Everyone in health care makes money (from overpricing) except for doctors."  He says most of the excess money goes to the hospitals' top executives, citing hospital CEO salaries even in "non-profit" University hospitals that are multiples of those of their university presidents.  Actually, under 1% of large hospital revenues typically go towards C-Suite (including CEO) salaries.   Also, administrative heads of departments in hospitals are not bureaucrats but invariably senior doctors in a dual role.

So where do most of hospital excess revenues (i.e., those over and above what their European counterparts would take in for equivalent services) go?  A lot of it goes to doctors either in the form of salaries or perks hidden (for PR and tax purposes) as expenses. About the latter, think of lavish family vacations passed off as conferences, luxury cars expended as work vehicles, and payments on large homes treated as home offices.  Hospitals zealously guard their books which is why Brill who spent most of his energies digging into details of overpricing may not have grasped how the money is really spent.  Other than excess compensation there are of course other big buckets of unnecessary expenses or inefficiency as well.  These include bottlenecks due to regulations or union contracts, administrative costs due to a complex insurance system and fear of litigation, and sheer ineptness in a system devoid of market competition.

2)  Bill Keller, former executive editor of The New York Times and as well informed a person as any, acknowledged how even he was led to believe that high US health costs were due to too much care.  As he wrote in the Times' "Carrots for Doctors" on Jan. 27, '13 he finally learned the true culprit was prices.  His main point was that pay-for-performance (P4P) will do little to improve "our absurdly priced, underperforming health care system" and he did well to highlight the role of pricing. 

But Keller remains mistaken about the true cause of overpricing (which is managed scarcity of doctor supply and the market power of hospitals) and ways to correct this.  He is duped by the doctors' propaganda of "the high price of malpractice insurance being a favorite, and genuine culprit."  (It actually averages just 3.2% of doctors' revenue according to this site.)  He also over-emphasizes the role of single payer systems in keeping prices down, suggesting a damaging converse that in its absence (as it's "politically unpalatable") we must live with high prices.  See examples in the point below to debunk this.

3) Ezra Klein has been key in mainstream coverage of pricing issues as in his Mar. 3, '12 "Why an MRI Costs $1,080 in America and $280 in France".  However, his views like in his Feb. 25, '13 Wonktalk with Sarah Kliff discussing Brill's Time article overemphasizes the need and role of "rate-setting" as the answer.  Rate-setting is where the government, typically in a single payer system according to Klein, lays down the rates that hospitals can charge for various services and procedures.  This implies that prices can only be brought down significantly if we bring about a single payer system, which is a non-starter with Republicans.  While I'm all for single payer which can solve a lot of problems it is by no means the only viable option.

A parallel route can achieve similar or better results while being acceptable (at least in theory) to Republicans and free market thinkers.  This includes introducing real competition through trade, allowing new hospitals with disruptive business and operational models be set up and letting the supply of doctors rise.  Take the example of top Indian and Thai hospitals with prices that are a third of European hospitals (or a sixth of what US hospitals typically get) that are magnets for medical tourism.  Their prices are not determined by any kind of rate-setting but by market forces, and unlike US hospitals they disclose their "real" prices for various procedures and services up front.

4) Scott Gottlieb in his "The Doctor Won't See You Now..." March 14 Op-Ed in the WSJ lambasts Obamacare for "making the local doctor-owned medical practice a relic."  He says this happens because Obamacare (a) favors hospital owned accountable care organizations (ACOs), (b) replaces fee-for-service with flat pricing, and (c) is "mandating all medical offices install expensive IT systems."

 Dr. Gottlieb rightly questions the savings potential of ACOs, and the long standing anomaly of Medicare paying higher rates for services by doctors as hospital employees than those in private practice.  But most of his remaining narrative is flawed.

Rates paid to US doctors in private practice are multiples of those paid to their European counterparts - it's just that prices for doctor services in hospitals is more egregious.  So it isn't a case of hapless doctors being so squeezed as to throw up their hands in private practice, but of being lured into hospitals with even more lavish pay packages and shorter hours.

Flat pricing is what takes away the incentive for wasteful and unneeded care, not to talk of stopping to reward bad care and medical mistakes with more fees for additional services.  World class hospitals abroad that attract medical tourists have flat pricing. This enables them to quote up front for surgical packages, in contrast to the hideously opaque US pricing system.

The government is right to use the carrot (subsidies for conversion) and stick (lower payments for holdouts) policy to get medical establishment to migrate to electronic health record keeping (EHR).  It improves efficiency, makes prior patient history easily accessible and exchangeable for better treatment, lowers costs long term and reduces medical mistakes.  Thanks partly at least to the government push over half of doctors and 80% of hospitals have switched to EHRs, up from 17% and 9% respectively in 2008.

5) Lisa Krieger in her Feb. 5, '12 "Cost of Dying" in Mercury News exposed overpricing without even realizing it as she was focused instead on unnecessary end of life care for her 88 year-old father. She doesn't question the $323,000 charges at Stanford Hospital for 10 days of stay with mostly standard tests and care.  Just the stay in their intensive care unit (ICU) was billed at $25,000 per day.  Ms. Krieger sympathizes with the hospital for receiving "only" $67,800 from Medicare ($6,780 per day!) so that, according to her, they'd need to make up their losses by overcharging private insurers. 

In contrast my 94 year-old father-in-law was taken to one of Pune's (India) best hospitals - Ruby Hall Clinic - this past month.  He was there for eight days receiving essentially the same treatment and tests as described by Ms. Krieger for her father.  It included MRI's, CT Scans, pathology tests, feeding tube, oxygen mask, round the clock nursing care, etc.  He too was in the ICU, in the cardiac care section (CCU) with a deluxe private room.  He passed away after eight days despite all efforts.  There isn't a more upright, decent and engaging person than he was, but that's another story.  His total bill as a private and cash paying patient was about $3,000, or $400 per day, that too at the most upscale and priciest hospital by Pune standards.  That's 6% of the rate at which "stingy" Medicare paid Stanford Hospital, or 1% of what Stanford would have charged an uninsured patient.

Our sky-high health care prices and resultant financial and budgetary morass is an offshoot of a corrupt legislative environment influenced by powerful medical interests.  While the popular media articles drawing long overdue attention to such prices are welcome, the above examples show the need for much more in-depth reporting of the true reasons and fixes for this.  Only then can public awareness and outrage rise enough to force politicians to act.

Rally For A (Price) Cure

Democratic Presidential and Senate election victories have saved ACA (Obamacare) from repeal. It has also survived threats from the fiscal cliff and - for now - the sequester.  If Republicans have their way this reprieve to Obamacare and some other elements of the social safety net may be short-lived. Starting with truth about the need to control public spending, Republicans push the fallacy that this is only possible by cutting benefits and raising the age of eligibility for Social Security and Medicare.

They're wrong because costs can be controlled without reducing benefits and diluting the social safety net.  And as I said on Nov. 14, 2011 we could've had effective solutions in place decades ago if it weren't for silence and inaction by the media and key decision makers.  CBO 2012 projections (Fig. 1.1 on p.10) clearly show that our main problem is high and ever-rising health care expenses.  CBO predicts (Table 1.2 at p.12) that social security payments rise from 5% of GDP in 2012 to 5.4% in 2022 and 6.2% in 2037.  But federal health expenses leap from 5.4% of GDP in 2012 to 7.2% in 2022 and 9.6% in 2037. 

It's tragic and no accident that most Americans aren't even aware of the dominant cause by far of our uncontrollable health care costs - high prices that are multiples of those in other countries. Only a handful of articles in publications or popular media even mention the role of prices and why they're so high.  And almost none seriously delve into how our prices can be brought down close to those in other advanced economies.  (An exception is Steven Brill's "Bitter Pill: Why Medical Bills Are Killing US" in Time on Feb. 20, 2013 where I agree with many though not all the findings.) Why is this?   

The sea of excess revenue generated by this overpricing has sustained and solidified an ecosystem of beneficiaries.  They include providers, insurers, health experts on industry payroll or grants, pharma, medical device manufacturers, malpractice attorneys, and contribution hungry politicians.  They are sometimes at odds with each other but mindful of not rocking the boat too much.  Many of them contribute to high prices and all of them benefit in some way from the vastly expanded pie.  So they avoid exposing each other and inviting retaliation in kind. 

Amidst this conspiracy of silence and collusion the biggest victims are payers (employers, taxpayers, individuals) with collateral damage to US business, worker earnings and employment.  High US worker health care expenses slash worker pay checks and incentives for employers to hire them, as David Goldhill lays out in the NY Times on Feb. 17.  
        
I've often said (as in this Mar. 28, 2011 post) that cutting US health care expenses, especially the exorbitant prices is fairly straightforward if we're free of special interest influence.  It can be done by increasing provider supply and competition that curbs their market power, and easing legal exposure and procedural / regulatory burdens that throttle productivity and create waste. 

At the moment though, we still lack general public awareness about prices as the villain behind our high costs, leave alone pressure to take the measures needed to lower these.  Who can bell the powerful health care industry cat that has so far prevented this from happening? 

We've had just such a group since 1974 that can easily do all this, but hasn't.  It's the National Business Group on Health (NBGH) "devoted exclusively to representing large employers' perspectives on national health policy issues" according to their website.  Its 362 members as of Jan. 2013 are primarily Fortune 500 companies and large public sector employers providing health coverage for more than 55 million US workers, retirees and their families.  I estimate (per footnotes) the cost of this coverage in 2013 at $380 billion of which the members pay nearly $270 billion with their workers bearing the rest.  This is a significant chunk out of the health expenditure of $2.92 trillion for all 316 million Americans.

Through NBGH its members collectively can easily neutralize health industry influence that has allowed inefficiencies and price-gouging to flourish.  The resultant reforms will enormously benefit them and the country as a whole.  Instead, this group has been frittering away its energies and potential by completely ignoring the dominant issue of over-pricing.

Again according to its website it focuses on:
"...exchanging ideas for controlling health care costs, improving patient safety and quality of care and sharing best practices in health benefits management with senior benefits, HR professionals, and medical directors from leading corporations." 

Even in "controlling health care costs" above they're just talking about reducing the quantity of health services needed through wellness, comparative effectiveness research or evidence based medicine.  They're essentially duplicating (or if you want to be more charitable, reinforcing) the work and message of public health agencies like NIH and CDC, and some consumer advocacy groups.  In this and "sharing best practices" among themselves NBGH is probably happy saving their members "billions of dollars" annually.  Considering their annual budget in the tens of millions of dollars that sounds like a very impressive return on members' investment.

That is, until you compare it with what's achievable if NBGH concentrated on what they've completely ignored so far - the dominant issue of over-pricing.  They can outbid the health industry in winning over politicians to enact reforms that (finally) rationalize prices.  Unlike public agencies or consumer think tanks, NBGH's giant members almost uniquely have the financial and political clout for such successful counter-lobbying.

Such efforts would enable the systemic yet fairly straightforward changes that lower overall prices from about twice as high as in West Europe at present, to "only" thirty percent higher.

Such a goal may be all too easy.  After all, as travelers to West European countries know that the cost of living there is much higher than in the US.  Why shouldn't it be the same way with US medical services being cheaper in a service to service comparison, instead of being twice as costly?  And remember, Europe itself is no paragon of economical health delivery - its hospitals can be thrice as pricey as leading Asian hospitals of equivalent or better quality that attract Western medical tourists.  Why then take the US price goal to be 30% higher than in West Europe?  It's to be ultra realistic by factoring in "legacy" effects.  That is, assuming Americans have had their pockets picked for so long as to accept paying a 30% premium above justifiable health care prices for the foreseeable future.

If you do the math per footnote below, this price drop of 35% saves NBGH members $96 billion annually, and their employees $38 billion.  The resources needed to get the laws and regulations passed to achieve this are miniscule in comparison.  Illustratively, the NBGH needs an attack budget for lobbying and influence buying of about $3 billion a year for an initial 3 - 5 years to overpower the legislative lock of various health industry special interests.  Once changes are in place a "maintenance lobbying budget" of say, half to a billion dollars a year should be enough to protect the gains from again being undermined by an opposing health lobby.  For NBGH members on average, it'd mean chipping in about $10 million for 4 years and then $2 million thereafter to reap $300 million in yearly savings (and profits) thereafter.  It's hard to think of a better return on investment from even their narrow financial perspective.

So why haven't NBGH and its members made such moves all this while?  One reason I believe is a corporate bystander effect or Kitty Genovese syndrome among their top management. The CEOs and CFOs who should be leading the charge are so fixated on competing with and outperforming their business counterparts that they invest scant reflection and effort to collective benefit.  This is in spite of the enormous benefit that even a little thought by a tiny section of the leadership can achieve.  And in the specific case of health care their blind spot is worsened by views of health experts with dubious allegiance leading away rather than towards the right answers.  For this reason most CEOs and CFOs who are interviewed about the problems of rising health care costs seem almost as clueless about the role of prices as the common man.

In the process large employers have chosen the wrong type of people to lead NBGH and sit on its board, as well as to guide its mission.  The NBGH Board directors are all HR or employee benefits executives (or in the case of Walt Disney, the Chief Medical Officer) appointed by their member companies.  Given their roles in their organization and their limited mindset of working with health providers and insurers they are likely incapable of grasping NBGH's much broader potential for pricing reforms.  I wouldn't be surprised if they (like the CEOs and CFOs) are oblivious of the overpricing problem or at least have placidly accepted it as a given that can't be changed.  They may also lack the standing to get their own companies to drastically increase contributions - in spite of a 1,000% ROI - to NBGH for the new political initiative.

If the appointees to its Board of Directors are not well suited for NBGH to come anywhere near realizing its true potential, the current CEO Helen Darling seems to be even less so.  She's done nothing so far to tackle over-pricing or even raise awareness about it through the media. In her prolific tweets on Twitter there isn't a single mention yet of prices.

NBGH has recently done the unthinkable.  In my April 21, 2011 post I noted that one of NBGH's key strengths was that it didn't include health providers or insurers (unlike the US Chamber of Commerce) that might create internal dissensions.  Since then NBGH admitted as members the very health industry players who benefit from high health costs and prices.  Out of NBGH's 362 members these health service sellers number 74.  They include 23 health care providers like hospitals and doctor groups, 7 pharmacies and the like, 24 health insurers, 7 medical scientific product (device) makers, and 20 pharma and biotech manufacturers.  There are another 38 classified as "health care services" with dubious overlap of interests with the pure payer (buyer) category who are the logical constituents of this Group. 

NBGH may argue they wanted to "work with" their health providers by admitting them as members.  While cooperative consultations with suppliers is one thing, just think about it.  Do Wal-Mart or Dell (both on the NBGH Board) include their Chinese vendors in their own buyer teams focused on reducing the cost of goods purchased from these vendors?  NBGH members now include Sutter Health hospital and doctor system in California that faced many accusations and enquiries for price-gouging.  NBGH's crowning act is admitting HCA, the largest for-profit hospital chain in the US just this month as a member.  Without a trace of irony the NBGH March 5 newsletter trumpets this development and CEO Helen Darling welcomes CHA in her March 8 tweet.  NBGH as the most potent body to alter medical pricing dynamics to help payers has simply emasculated itself.  Health providers admitted into its fold may not believe their good luck. They didn't even need any Trojan Horse to infiltrate the ranks of their hapless customers whose representative body threw its gates wide open to their plunderers.

NBGH should have used common sense criteria like only admitting members who spend more on health services than they make by selling them.   NBGH failure to do this as well as address prices underscores the need for member companies to question the suitability of NBGH's leadership as well as their own representatives on its Board.

I'll assume that NBGH can reverse or at least mitigate most of the damage.  Ideally they can turn the clock back by using the above criteria to drop all members who are net sellers rather than buyers of health services.  If that isn't feasible they may at least restrict constitution of important committees dealing with lobbying and health price issues as well as the NBGH Board to only the "net payer" companies.  In other words the health care players who have managed to become part of NBGH are given observer status or made non-voting members.  They can only participate in "win-win" deliberations where there's little or no conflict of interest - like EHR, automation, wellness and the like.  Then the core "health buying" members can tackle the important issue of pricing without being tripped up from within. 

Though NBGH could and should have acted on prices long ago the timing for its doing so now couldn't be better.  With health prices far outstripping normal inflation rates for decades, soaring health costs are becoming unbearable. They severely burden employers as well as the employees who face rising out of pocket costs, and threaten the international competitiveness of US labor.  Medical bills are behind 60 percent of all US personal bankruptcies.  Escalating health costs are the prime driver of our Congressional budgetary gridlock, pitting Republicans opposed to raising taxes against Democrats committed to preserving health benefits and the social safety net.

NBGH catalyzing that 35% health price drop enormously rewards its members' bottom lines with almost $100 billion annually of course as described above, but there's more.  They become national heroes, as it saves the US $1 trillion annually, of which almost half is taxpayer's money.  It makes laughably trivial all the budgetary battles around the need to raise taxes versus restraining benefits, the sequester, and the past threats of the fiscal cliff.  That's because the disputed amounts in Congress of about a trillion or two in a decade is just a fraction of these savings.  With savings of this magnitude you don't need to cut any benefits or raise taxes, and yet can see our budgetary deficits converted into surpluses.  It should delight Democrats and Republicans alike.

 What is needed now is for no less than CEOs or CFOs of NBGH member companies, especially the 17 that are on its Board to sit up and get involved.  Only on their orders can NBGH be reoriented towards spearheading a political push for reforms that correct prices.  Only they have the heft to substantially increase their companies' contributions to NBGH for this new effort without lengthy justification and delays, and to sway their fellow members to do likewise.

The CFOs should be the directors on NBGH's Board, instead of their aides on the benefits side or HR representatives.  The present directors don't have the mindset and perspective for guiding NBGH in this new role, and they may not even have the appetite to go up against health lobbies due to divided loyalties.  That's because they may identify themselves with health industry players with whom they interact closely as much as with their own employers.  Their recently admitting health industry players as members and the under-utilization of NBGH potential all these years may be explained by this dynamic.  In any case it is unlikely they'll suddenly veer to throw their full energies and commitment to NBGH's new direction that they've overlooked for so long.

Similarly a change in NBGH leadership will also be needed.  The new CEO should have the conviction to address health pricing as well as the knowledge and stature to gain traction.  An excellent fit I can think of is Donald Berwick who was Administrator of CMS under President Obama.  He resigned in December 2011 because Republicans opposed his confirmation at the behest of the health lobby.  And why did the health lobby hate him?  Because in spite of being a medical doctor he looked to cost-savings solutions like the UK medical system that would end a lot of overcharges and hit their pocket book.  I take it as putting his public conscience about industry loyalties. He has the credibility and domain knowledge to hone in on changes in laws and regulations that are most effective in addressing over-pricing.  Will Republican opprobrium not hobble his effectiveness?  I don't think so, as in Mob parlance their opposition to him was "just business" because their financial backers in the health lobby wanted it so.  If through NBGH he becomes their financial contributor and his proposals include many supply side solutions (e.g., more doctors and hospitals) that fit their ideology they should be willing to listen to him.

Another option to lead NBGH could be someone competent and widely respected in business (and political) circles and closely identify with big employer needs, like ex-CEO of Xerox Anne Mulcahy.  I'm just throwing a couple of examples.

Two more questions: First, should NBGH seek alliance or support of other business groups like the US Chamber of Commerce in pushing for reforms targeting health prices?  I see limited gain given the diffuse nature of that body.  Its members include health industry players and presently two pharmaceutical companies (Pfizer and Sanofi USA) sit on its large and unwieldy Board.  But then NBGH itself has thrown away its advantage of being a body consisting purely of health service buyers.  So there's no harm and perhaps some good from NBGH trying to broaden its political base of support.

Second, should NBGH go full sail in this new direction and shelve all or most of its existing activities?  Since they're already set up I see little harm in NBGH continuing with these along with the staff that's currently in place.  There seems little in these that will interfere with the fresh political objective aimed at health prices.  As I remarked in April 2012 it's as if NBGH has been happily mining for silver while ignoring even larger quantities of gold lying about untapped.  As NBGH finally gears for its much more important role it can handle both operations running side by side as they're "profitable", even if the scale is vastly different.

What's vital is for the C-Suite of NBGH members to realize what they've been missing all this while and appreciate that there isn't a better time to act to get health prices more in line with other countries.  They'll reap huge rewards for themselves and incidentally, ten times more for the country.

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Footnotes:

1. How NBGH members' health expenses are estimated:
- Health care expenditures in 2013 are $2,916B for all 316 million Americans. 273 million of them are non-seniors. (CMS's NHE Table 1.) 
- People covered by NBGH members are assumed to be non-seniors (seniors would cost them more unless they're on Medicare)
- Seniors account for about 35% of all health expenditures (it was 32% in 2010 according to MEPS and 34% in 2004, per CME age tables) leaving $1,895B for the 273 million non-seniors.
- The 55 million covered by NBGH members proportionately incur $382B.
- Since large employers cover about 70% of the expenses, their share is $267B for 2013, with employees bearing the remaining $115B.

2) How NBGH members and overall US health savings are estimated, due to price corrections:
- If overall health services prices fall from a factor of 2 to "only" 30% higher than in West Europe, then the $382B incurred on NBGH members' covered populace declines to 382 X 130 / 200 = $248B, saving $134B. 
- Using a 70:30 split, the NBGH member companies save $96B pretax annually, and their employees $38B.
- Assuming the same price drop for all payers, the US as a whole incurs $2,916 X 130 / 200 = $1,900B, saving about $1,000B annually.  Of this the public funding (government or taxpayer's) share is almost half. 

NBGH members and employees are assumed to cover all or most health expenses for the stated 55 million people.  If some of these people are only covered for secondary benefits (like seniors on Medicare) then the burden and potential savings for NBGH members are proportionately reduced.  

3) The expenses and savings above are in constant 2013 dollars at current size of the economy.  In actual fact they will escalate with inflation, an expanding economy, as well as due to aging Baby Boomers needing more health resources for their remaining lifetime.  The national health expenditure in nominal dollars will not go down but increase in future years, only at a far smaller rate than is projected now by CBO and CMS.  For a realistic projection of health expenses and savings due to reforms see the bottom part of my June 28, 2012 post.

4) A streamlined single payer system can lower prices by reducing plan complexity, speeding payments, and above all using buyer power to counter provider cartels. But it's by no means the only approach, so Democrats frustrated by Republican opposition to "socialized medicine" needn't despair.  More choices, competition and transparency of pricing and quality can achieve similar results.  John Cochrane in his Feb. 6, 2013 "After the ACA" lays out a Republican approach in which he makes many good points, though some of his glib fallacies make my blood boil. (I'll deal separately with these as well as with Steven Brill's Time article since this post is already too long.)