Will Telemedicine Save Money?

Telemedicine (or telehealth) in the specific form of video chats with doctors seems at last to be taking off in U.S.A. The latest development is a Sep. 8, '15 article in the Annals of Internal Medicine voicing qualified support by the American College of Physicians (ACP). An earlier Aug. 4, '15 report says the U.S. will have an over 40% share of a global telemedicine market projected to grow to over $34B by end of 2020.

Articles on Aug. 2, '15 in the Wall Street Journal and on July 11, '15 in the NY Times describe U.S. patients Skyping with doctors and insurers covering such consultations. This is despite strict constraints and push backs by many doctors and payers. Such video visits can save the time and expense of going to emergency rooms and physician offices, and cost as little as $40 to $50 each. Will such telemedicine save money overall? 

I agree with the expert in the Times article who says no, though it adds a lot to patients' convenience and access to care. That's because any savings in per consultation prices will likely be more than offset by increased demand by patients who otherwise may have done nothing and stayed at home. But I make an important distinction.

We will not save money if we have telemedicine in its present form with only U.S. trained doctors allowed to practice it. On the other hand we'll actually save an immense amount of money and enormously enhance patient benefits if we do it the right way as envisaged in my post going back to April 2011. The difference: allowing patients to be served by highly qualified foreign doctors who are licensed after clearing U.S. board exams but without U.S. residency requirements. This will overcome the deliberately engineered shortage of U.S. doctors described in my Sep. 2010 post that keeps fees and prices high. Moreover, the scope of telemedicine can and should be vastly enhanced, so that foreign specialists and surgeons treat patients remotely, with on site nurses or other staff assisting as needed.

If we allow good foreign doctors into telemedicine their fees are likely to be a third or less than that of U.S. trained doctors. Some of these doctors from places like India are actually a lot more experienced as well, because they serve many more patients in the same period of time, and because they start their careers earlier. That's because medical schools outside the U.S. and Canada take in high school graduates instead of college graduates. That gives foreign medical graduates a four year career head start in addition to avoiding costly and unnecessary education. Top surgeons in their mid thirties in India have performed as many procedures as typical U.S. doctors in their fifties, and they achieve better outcomes.

Other improvements we need in telemedicine are around IT, better electronic health records (EHRs), automated billing systems, rapidly accessing other (remote) specialists when required, and so on. Advances like Da Vinci machines make remote complex surgery feasible (with safeguards and back up systems, of course.)  All this can rapidly evolve over time. The main constraint is U.S. policies and doctor lobbies keeping domestic supply constrained and foreign providers at bay. To significantly lower medical expenditures this is the key problem to be addressed by our political leadership. 

U.S. Doctors: Good PR on Their Pay and Plight

U.S. doctor groups have ensured that prices of their services remain multiples above elsewhere in the world. At their behest every year Congress overrode a 1997 law provision that cut Medicare rates to keep expenses per beneficiary at par with growth of GDP.  Then on Apr. 16, 2015 this law was revoked and replaced with one that protected or raised rates in coming years.

Now doctor and other healthcare players are pushing to kill the Independent Payment Advisory Board (IPAB) set up under Obamacare to control costs if prices rise too much. This 15 member board has never been constituted because Senate Republicans have vowed to block any members nominated by President Obama. But hey, why risk a future Democrat dominated Senate seating this Board and spoiling the party?

In Sep. 2010 I wrote about the need and the path to overcome artificial doctor shortages that complement powerful lobbying as a root cause of high prices. Others too have written about the medical cartel boosting MD salaries and ostensibly pro-competition Republicans supporting such a cartel. (Remember, it was Republicans who through their 1997 law capped doctor residencies, worsening and permanently entrenching doctor shortages and a sellers' market for their services.)

But these voices have largely been lost in mainstream media that buys the narrative of doctors being squeezed by current health trends. It has fooled even the foremost journalists who have exposed healthcare overpricing in the past couple of years.

Steven Brill whose Mar. 2013 Time cover article "Bitter Pill" first created waves earnestly agrees (including at 3min. 45 secs of this Jon Stewart interview) that "doctors don't make the money". He says that most of the excess payments go to hospital CEOs, citing some who make over $4 million a year. But CEO compensation is typically under 1 percent of hospital revenues. So where does the rest of the bounty go? Answer (that Brill would also have discovered if he had truly "followed the money" per his claim): lots of it in one form or another goes to doctors.

Elizabeth Rosenthal augmented Brill's Time expose with a series of "Paying Till It Hurts" articles in the New York Times about abusive pricing of medical services. Amazingly, she too in a May 17, 2014 article asserts that doctors "are on average right in the middle of the compensation pack." Her logic is that typical physician earnings are less than those of health insurance and hospital CEOs. She is comparing average wages in one profession with those of the top functionaries in others. She may as well say that doctors earn much less than those in the fast food line because, you see, the CEOs of McDonald's and Starbucks make nearly $10 million a year.

While doctor groups typically operate behind scenes, they also need to counter public perceptions about excessive earnings. Otherwise popular outrage can pressure political leaders to ease up on support. Key factors help doctors' PR efforts: flawed data understating their true earnings, and healthcare academics and even public agencies like the HHS shying away from exposing them. This causes the media to accept justifications by doctors that are buttressed by obliging health experts and economists. These last are mistaken for objective arbiters of facts when they are often paid shills who conceal or downplay their incentives and financial ties to the industry.  

An example is David Cutler of Harvard whose one-sided 2011 study justifying high doctor salaries is widely quoted by their groups.  I'd also include the "liberal" Uwe Reinhardt of Princeton who highlights high costs of US healthcare but helps absolve the industry with fuzzy conclusions when he ought to know better. Of lesser eminence is Duke University Researcher Christopher Conover who does more obvious hack jobs, like rebutting Steven Brill's expose of exorbitant hospital pricing.

These three are all quoted in medical doctor Kevin Pho's July 2, '14 Op-Ed "Doctors Are Not Overpaid" in USA Today. Dr. Pho's piece contains all the points typically made by U.S. doctors to defend the extent of their earnings, and the system that makes this possible. All four of Dr. Pho's defenses are flawed. Yet in the past year they haven't been rebutted in any major publications. So it is worthwhile to comment on them:

Defense 1: We shouldn't compare the compensation of U.S. doctors' with doctors in other countries.  Instead, we should compare it with the top earners (1% or 5%) in each country. By that measure David Cutler found (Table 2 at p. 12) U.S. physicians (with average salary of $230,000) were less well paid relative to their peers.

I agree an average salary of $230,000 for U.S. doctors is reasonable and justified. The problem is that this figure is bogus - something Cutler should well know - and vastly understates true doctor earnings. When you peel away the onion layers of quoted sources, this number comes from the AMA, the doctors' own trade group, which is acutely aware that understating it helps protect and justify doctors' current fee structure.

How much do doctors really earn? Sadly, per my March 2010 post HHS doesn't bother to find out, or even identify unbiased sources. A Jan. 27, '15 report in The Atlantic shows much higher (though still underestimated) earnings. Taken together with pay data from physician recruiters like Merritt Hawkins, actual average doctor earnings are likely twice as high as in Cutler's quoted surveys. And why should the average U.S. doctor feel entitled to being well within the top 1% of earners when their peers are not quite in this stratified bracket elsewhere in the world?

Defense 2: It takes more financial capital to become an independently practicing doctor.  Christopher Conover calculates that the rate of return for doctors on their cost of education "paled in comparison with those pursued degrees with shorter and less expensive training, such as business or law."

How can you justify the extra 1 - 2 years of education costing $60K - $120K to get an MD as paying you an additional $100K - $200K every year for the rest of your career? Doctors enter residency after eight years of post-high school education, when they become financially independent (though earning just a fraction of what they'll make when fully trained in 2 - 5 years.) Compared to this, MBAs spend six years, law graduates seven years and doctoral students seven to nine years after high school. So the difference isn't that much. Moreover, why do our medical schools not simply admit applicants after high school as is done in the rest of the world? Then getting an MD prior to residency will incur the same time and expense as getting through (undergraduate) college.    

Defense 3: Doctor salaries are modest compared to administrators like insurer CEOs and hospital administrators with an average base pay of $583,700 and $236,800 respectively. 

First, as explained earlier, actual doctor earnings are much higher than those salary surveys indicate. But more importantly, like Elizabeth Rosenthal above, you are comparing the average doctor salary with that of the top executives in hospitals and insurance companies, which makes no sense.   

Defense 4: Slashing physician salaries won't save much. Uwe Reinhardt says doctor salaries are about 10% of total health costs, so halving them will save only 5%.

According to CDC's Health, United States, 2014 (Table 103) Doctor fees for services separately billed by them is 20% of total health expenses while hospital charges are 32%. Of these latter a substantial though undisclosed chunk also goes to doctors on staff, and so does a certain proportion of expenses on drugs (9.3% of total) and medical devices and products (3.4%), and so on. So (surprise, surprise) though no precise data of this exists, doctors' earnings from all sources can account for over a third of all medical expenses. Aligning pricing and consequently these earnings closer to those in other countries will save a lot more than doctors and their experts claim.

As I wrote in March 2011 there are administratively easy ways to massively lower our health expenses. These can face stiff opposition from entrenched interests including doctor groups benefiting from the present system. Their efforts to shape public opinion should be appropriately weighed against the facts.

Feeling The Price Chasm

Even Anita and my routine medical expenses this past month show how our leadership from the top down miss the key flaw with our U.S. healthcare system.

It's like in the satirical novel Catch-22 where the (anti) hero Yossarian tends to airman Snowden aboard their WW2 bomber which has been hit by anti-aircraft fire. Yossarian painstakingly treats a serious but non-life threatening leg wound while unaware that beneath his flak jacket the dying Snowden's abdomen has been blown apart.

In similar fashion, President Obama touts a new system to tie more payments to the quality - not quantity - of health care services rendered. He echoes health secretary Sylvia Burwell's similar recipe offered up on Jan. 26, '15.  This implicitly implies that our main issue is one of over-treatment, "wrong" treatment or even waste, and data shows this to be false as I repeatedly highlight, including in my previous post. Americans already see doctors 40% less and are hospitalized 20% less often than in other developed countries so how is excessive "quantity" a big problem? Yet our bills run over twice as high.

Neither Mr. Obama nor Ms. Burwell nor any legislative leader has said anything about our core problem - grotesquely high prices of medical services and goods compared to anywhere else in the world.

So about our own March medical purchases, these involved office visits to a dermatologist, an orthopedic surgeon and an ophthalmologist for routine eye exams. All providers are highly rated and attended to us well. We paid them out of pocket as it counted towards our deductible in our health savings account.  Our rates were negotiated by our insurer Aetna, which were below "usual and customary charges" or what they would take up front from a cash paying customer without insurance.

Most Americans would consider what we paid to be very reasonable. That's part of the problem as they have no idea about the rates for medical services and goods abroad. Though reports like the 2013 IFHP comparative price study are available, listing our own payments as below and what they'd have been in Germany, France and India puts it all in a personal context:

1) Eye exam: We paid $235 for an eye exam and glasses / contact lens prescription by an ophthalmologist. The cheapest option would have been a $95 eye exam by a Costco optometrist purely to get glasses or contacts - no detailed exam for any other potential trouble.

According to an Oct. 2011 IBES study in France an eye exam costs between 25 and 40 euros (p. 35, or $35 - $55) and in Germany it is free if you buy glasses or contacts from that specialist. If you don't charges vary, averaging around 40 euros. In India an eye test by an optician is free if you buy glasses or contacts from them. Now get this: I paid only $66 for a pair of glasses with progressive lenses and free eye exam in India last year, though charges would have been $150 - $200 had I opted for top line glasses.  For my father-in-law a couple of years ago I had a detailed eye exam for macular degeneration by Pune's top eye specialist for $50.  Routine screening was for $15 - $25. In sum eye exams in France and Germany cost about a fourth, and in India about a tenth of what we paid in U.S.A.

2) Dermatologist: First, most dermatologists were booked solid for two months or had closed their practice to new patients as they were so busy. But one was available within a week. The standard office visit which included some cortisone shots lasted 15 minutes with the doctor and another 15 minutes with a nurse and for paperwork with the office staff. The charge was $262 but our payment was $181 at Aetna's negotiated rate. The doctor also prescribed a generic steroid ointment clobetasol propionate that cost us $40 at our CVS pharmacy.

In France the dermatologist fee would be 25 euros and coupled with the cortisone shots the total bill would be under $50. In Germany it may have been $70.  In Pune, India a reputed dermatologist charges $7 for office visits (and $20 for house calls) and along with cortisone shots we'd have paid $12 - $14. And that ointment that cost us $40 at "negotiated rates?" I discovered I had that exact same one, only a branded product called Tenovate made in India by the reputed GlaxoSmithKline that cost - get this - $2 for the same quantity. In addition as per Indian law the packaging had this price printed on it to prevent overcharging.

3) Orthopedist: The complaint was leg pain. The diagnosis after physical examination and taking three X rays was osteoarthritis worsened by some undesirable exercises. The treatment was avoiding those exercises, wearing a knee brace and taking ibuprofen tablets for a few days. The list charges for this 45 minute visit (15 minutes with the doctor, and the rest with X rays technicians, assistant and billing clerk) were $380 though we paid $220 at Aetna's negotiated rates.

In France an orthopedist will charge 25 euros and an uninsured visitor will pay about 45 euros for X rays (locals pay less) bringing the total to about $90.  In Germany the doctor may cost about $20 more, so overall cost is $110. In Pune, India a top orthopedic surgeon Dr. Dudani charges $6 - $12 per visit depending on where you see him, and X rays cost $5 - $15 in private facilities bringing the total to $11 - $27.

So there you have it. Our March personal medical expenses in U.S.A. for routine treatment were 2 - 3 times what we'd have paid in West Europe even without any state subsidies, and ten or more times those in India.  And it would be all traditional fee for service in those other places as well, with none of those quality versus quantity approaches that seem to be distracting Mr. Obama and his health administration.

False Cure for Health Savings

The U.S. cannot cure its colossal health care expenses by targeting the wrong disease. Even as a Sep. 2014 CMS report predicts a further 6% bump in our healthcare costs from 2015 out we have an opportunity to correct our true problem of bloated prices.

Health experts with industry ties blame over-treatment, waste, fraud, and our lifestyle choices for healthcare costs. The data tells a different story. In fact, their impact is minor compared to overpricing, which is the root cause of our inflated medical bills. Industry apologists bury high prices among other factors to protect this key source of providers’ extreme earnings and profitability. They tout “anything but price” solutions that will at best achieve very limited success. Most of these are based on three somewhat overlapping myths about our health system. 

   

Myth 1: Americans enjoy more care, while other advanced countries provide skimpier treatment after longer wait times.  But OECD Health Data shows that Americans see their doctors 40% less and are hospitalized 20% fewer times than in other advanced countries. While Americans do get more heart bypasses, knee replacements, MRIs and CT scans, this is outweighed by less of other care and treatment, explaining the lower aggregates. Japan even has much higher MRI and CT usage than us, with a third of our per capita spending. 

The Commonwealth Fund in 2014 shows U.S. ranking fifth in access (includes wait times) and last overall among the eleven countries studied.  Citizens in other developed countries use more health resources than we do, with better health outcomes, comparable wait times, and at about half of our cost.   

Myth 2: Our health system is riddled with waste that can easily be eliminated to realize huge savings. An influential March 2012 JAMA study has a “midpoint estimate” of $910 billion wasted annually, roughly a third of our total medical spending. It divides this into six categories – requiring as many remedies – and says “waste reduction is the best strategy by far.”

There are several problems with these assertions. Some waste and leakage is inevitable in any large and complex system, including health care. Except for multiple insurers, there’s no evidence that our system is more wasteful than in peer countries. No one is offering any silver bullet or straightforward, easily implementable solutions. Strenuous efforts to address those multiple sources of nebulously defined waste are likely to yield few savings.

For example, the recently released Medicare payments to individual doctors shows some multimillion dollar payouts triggering suspicions, but fraud represents only a small fraction of total expenses. It’s about $80 billion or under 3% according to the FBI.  The JAMA study doubles this estimate on adding fraud detection and enforcement costs. How do you cut down on fraud AND on anti-fraud measures at the same time?  

Myth 3: Much of our excess expenses are due to heavy and avoidable treatment benefitting very few people, often in their final months of life.

A 2012 federal health department study shows that just 1% of Americans incurred 21.4% of all US health expenses. The top 5% incurred nearly half, while the lower 50% accounted for only 2.8%. Other studies show Medicare spent 28% of its budget on patients in the last 6 months of their life.

Heavy medical users are stereotyped by media stories of fortunes spent to painfully add a few months to lives of terminally ill patients.  But the health department shows only a fifth of the top 10% of spenders are in poor health, while a majority are in good to excellent health over two years. So many people requiring intensive medical services in a particular year or two don’t need much in the preceding and following years. Think of high hospital bills of young women during childbirth, or the young man treated after a skiing accident going back to low health spending in later years. There are of course old or chronically sick patients needing consistently expensive care, but that’s inevitable in our humane society. Few support culling such people or “pushing grandma over the cliff.” 

Also, many “unnecessary” treatments are only evident in hindsight. It’s reasonable to try an expensive therapy offering decent hope though not assured success. Consider patients suffering from a deadly disease that will kill them in two months, unless they undergo treatment costing $200,000 apiece with a 70% success rate. 70% of these people will be cured, but the unlucky ones who fail to respond and die will feed the data showing 30% of medical spending is on patients in the last two months of their life. It’s absurd to look back and classify it as “waste.”

The true issue remains US medical prices that are two to three times higher than in West Europe and six to nine times those in top Asian hospitals. The few experts who fully acknowledge this problem only propose forcing pricing transparency (letting customers know rates in advance). California has required this since 2003 to little effect.   

But with the right legislative and administrative steps matching the (still expensive) European price levels should be easy. The difficulties are primarily political, with the health industry fiercely opposing anything diminishing their fee nirvana. They spend half a billion dollars annually on lobbying according to the Center for Responsive Politics, and that’s just the “official” money changing hands.

Overcoming such resistance to lowering prices carries immense rewards. At European rates our health expense per capita drops from $9,000 to $4,500, yielding $1.5 trillion of annual savings. Even partial success towards this goal transforms our economic landscape. Our budget deficit becomes a surplus (removing the major flash point between Obama and the new Republican Congress) and lower employee labor costs boost our workforce competitiveness. This realization hopefully triggers a long overdue drive against pricing excesses.