Wednesday, February 4, 2015

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.


Anonymous said...

Your mostly right. The big elephant in the room is Mediaid. There is so much abuse by patients and doctors. My suggestion is that they all go on some kind of a Medicare Advantage program to limit the billing

Sandip Madan said...

Kenrod, as I emphasize, our problem isn't much of abuse by way of fraud or unnecessary treatment, but simply high prices. Medicaid prices are more reasonable in this sense than private insurer or even Medicare prices.