Friday, May 31, 2013

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.