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.

Silence Of The Lambs, And Of The Wolves

Most Americans know by now that we spend more on health care than any other country.  They just don't know why, even when they think they do, with good reason.  Health experts, industry players, politicians and a gullible media imply that our higher costs are a result of more or even excessive care, treatment and tests.

Actually, as I said on June 17, Americans receive less health care than in peer economies, but at "actual prices" that are 2 - 3 times higher.  The "list price" differential is even greater.  That's why as against an OECD median of $3,487, Americans incurred health expenditures of $7,960 despite being hospitalized 20% less and seeing their doctors 40% less often.  This gap outweighs services like MRIs and CT scans that Americans receive 2-3 times as much as OECD medians, as they comprise under 2% of overall costs.

The price differentials between US and other countries are stark in a 2009 International Federation of Health Plans (IFHP) report (p.3). Compare for example the range of US "insurer negotiated" and Medicare fees with standard fees in the highly rated French and the Dutch systems:

• CT scan abdomen. France:$248; Netherlands:$258; US:$750 - $1,600; Medicare:$400
• MRI scan. France:$436; Netherlands:$567; US:$1200 - $1500; Medicare:$500
• Routine doctor visit. France:$31; Netherlands:$32; US:$59 - $151; Medicare:$72
• Hospital cost per day. France:$1,050; Netherlands:$502; US:$3,181 - 12,708; Medicare:$2,200
• Hip replacement.  France:$8,200; Netherlands:$7,600; US:$32,093 - $67,983; Medicare:$17,500

If Americans receive exactly the same health care services as they do now, but at West European prices, then our health spending per capita will be less than that of West Europeans.  As a percentage of GDP we'd spend only 8% compared to our actual 17.4% in 2009.  Imagine what this would do to our economy and well being.

Our yawning budget deficits would become massive surpluses.  (Or in an alternative Democratic utopia, we could have "Medicare for all" for free, i.e., everyone's health care paid fully out of public funds without adding to federal and state budgets.)  Our workforce will become internationally more competitive, boosting overall job growth. The tax policy gridlock in Congress will end as we won't need more revenues, nor painful spending cuts elsewhere. 

Moreover as I said on March 28, the steps needed to fix our egregiously high prices are administratively simple.  The essence is to:

• Address shortages and resultant market power of providers by massively increasing the availability and choice of hospitals and doctors.
• Use trade in health services (allow in top foreign doctors and hospitals, medical travel, etc.) to jumpstart competition and innovation, getting results in 1 – 3 years instead of in a decade or more.

Yet far from any of this happening, we hardly even hear of pricing being at the root of our health care woes.  That's because lowering prices is against the interests of the health care industry.  So their propaganda machine and experts in the media shift public attention to controlling costs not by charging less, but by doing with less (which is sometimes laudable but misses the main point.)  Examples of their proposed solutions are wellness and preventive health, avoiding unproved costlier treatments, end of life planning ("death panels"), and premium support where patients as payers self-ration care.

It's like foreign cars being banned, allowing Ford to price its Focus at $50K here when a Toyota Camry or Honda Accord costs $25K abroad. When US car buyers are unduly burdened by this, then Ford instead of lowering prices advises customers to need fewer cars by car pooling and using mass transportation.

I categorize those who should but don't mention or fix health care prices as either lambs or wolves depending on their intent and awareness of the problem.  Among the lambs are (a) a naive media that relies only on health experts to identify issues without realizing they have interests linked to the industry, (b) payers including employers and patients who should be collectively pushing for price reductions but are misled or side-tracked into less impactful solutions, and (c) the American public whose votes and involvement could pressure lawmakers and leaders to do the right thing.

The wolves are mainly health industry organizations and their experts who deliberately suppress the fact of over-pricing and draw attention and debate away from it to other aspects with less impact on their interests. They can also (generally implicitly) intimidate experts and academics that depend on industry largesse for funding and career advancement from fully speaking out.

For example, in their 2003 article "It's The Prices Stupid" some academics point to much higher US prices and in a 2005 follow up article they expose as untrue two common industry excuses for this, i.e.,  less rationing of services in the US, and excess malpractice litigation or defensive medicine costs.  But that's where their nerve gives out.  There is no follow up article on what then IS actually behind these high prices, and ways to correct this.  More recently on November 25 a PBS discussion again points to prices as the root of high US costs, but the expert surprisingly cites quantity of care (wasteful or unneeded services) when asked for causes of this.

 Somewhere between the lambs and the wolves are the lawmakers, the insurers and the public health department (HHS and its CMS) who are well aware of the price issue but don't raise it.  Lawmakers are beholden to the health industry or wary of antagonizing it, especially in a absence of any countervailing public pressure or awareness.  Many insurers are members of the IFHP that compares international prices, and as payer representatives would be interested in lower prices by providers. But they live in glass houses and are afraid to publicise high prices as the industry can retaliate by pointing to inefficiencies of private insurance as one contributor to higher prices.

The HHS being mute on prices is not that surprising considering a revolving door relationship and the way government departments identify with the industry they deal with.  They have little incentive to push reforms that slash their own budget, and consequent perceived importance of their empire.  In that sense a failure to grasp the obvious role of prices and exert external pressure on HHS is the lapse of the US Treasury Department and the President's Council of Economic Advisers.  (Some will argue the buck stops at the desk of the President.)  Of course they are merely continuing the tradition of several past administrations that have ignored the over-pricing issue over the last 2 - 3 decades.  But with the health care cost crisis and the budget impasse coming to a head their need to act is more compelling.

Meanwhile, the silence and inaction on health pricing is imposing a horrendous and unnecessary burden on the US economy, its global competitiveness and its people. 



  

Better US Health Care At Half The Cost

The main problem with US health care is its high cost.  A surprisingly unmentioned fact is that this "high cost"  is actually due to exorbitant pricing, as compared to all other countries.  Why is this important?

It's because correcting these prices is the quick and painless way for Americans to address the health crisis and achieve universal coverage.  It is the closest to having our cake and eating it too.  We can achieve universal coverage, hold the line on spending or even reduce it, avoid additional taxes, and all without trade-offs on the quality or the amount of care.

Yet this approach is suppressed and ignored.  It is anathema to the health providers and middlemen (like PBMs) who benefit from the current system.  They and their "experts" instead plant the false notion that our care is so costly because we're getting much more of it than elsewhere.  They imply that Americans utilize more resources in getting more treatment, more time with providers or in hospitals, more or better medication, and more diagnostic and imaging tests.

Only the last about imaging tests is true, with very limited effect, as the OECD health data shows, and Americans actually lag behind their first world counterparts in the other parameters.  True, Americans average 92 MRIs and 230 CAT scans per 1000 population annually, as against the OECD median of 37 MRIs and 119 CAT scans.  But that translates to less than 3% of extra costs even at inflated US prices.  These and any other "excesses" are more than offset by Americans seeing their doctors 40% less often and being in hospitals 20% less than the OECD median.

So what's behind US prices being over twice as high as in Europe, and 5 - 10 times higher than in the top Asian hospitals popular with medical tourists?  It is mainly tightly restricted supply, limited competition (as I've written earlier about doctors and  in regard to hospitals) and a system that simply lets providers get away with it.  An example of the last: unlike other countries the US bars its federal agency (HHS or Medicare) from directly negotiating drug prices for publicly funded patients, so these are double those in Europe.

Provider groups use their financial leverage and lobbying to sustain the current price regimen, while dodging adverse public scrutiny.  Some interesting aspects are:

• Doctors and hospitals vehemently protest impending Medicare rate cuts under SGR.  But they'll carefully avoid any comparisons with other countries.  That's because Medicare rates on which they claim to lose money are actually far higher (even after cuts) than prices anywhere abroad.   
• The lure of industry largess and fear of career suicide seems enough to stop health care experts and academics from discussing or publishing work on US health pricing. The bulk of academic endowments, research grants and other funds flow from provider organizations.  Moreover, the editorial boards and review committees of health journals are dominated by doctors who can blacklist authors of inconvenient articles exposing their industry. 

• The experts' reticence results in wider ignorance and misconceptions in the public.  The popular media looks to research and analysis in respected publications for answers to the health crisis.  Their own journalists haven't realized that pricing alone plays a much bigger role in health costs than all the other reasons trotted out by the experts as Op-Ed writers or talking heads on TV. 

•  Even the HHS / Medicare does not compile and publicize data that exposes the pricing anomalies and actual doctor earnings, that can justify the government's case for SGR cuts.  This is less surprising once you realize that HHS / CMS employees have a symbiotic relationship with the health industry players.  They are aware of the revolving door and subsequent lucrative employment opportunities if they oblige the industry.  Ex-CMS Administrator Thomas Scully is an example.  The current CMS chief Dr. Donald Berwick is an excellent choice, but he too has to tread cautiously as a recess appointee in a precarious position with many GOP foes.

Law makers can easily take measures to correct pricing anomalies in a relatively short time, and apart from all the economic benefits, this should go down well with voters.  But they are either bankrolled by the provider groups, or fear funding of election bids against them if they overly annoy providers.  So their inaction and silence extends to both sides of the aisle, though more so by Republicans who have closer industry ties.

In fact, cynical politicians can go the opposite way if their actions remain beneath the public radar, and the ill effects are only felt long after they are gone.  In his Jan. 19 WSJ Op-Ed the CEO of NY Presbyterian Hospital describes a bipartisan panel proposing a $60B cut through 2020 of Medicare funds to train new doctors.  It's like meeting grain shortages by eating the seed for future harvests:  worsening doctor scarcity, further raising prices for their services, and increasing overall costs and patient misery. 

Is pricing the only problem leading to higher US health care costs?  Obviously not.  We have the usual causes widely discussed in the media.  The waste and duplication in the private health insurance industry. The distortions in provider incentives under the fee for service system.  Malpractice laws and defensive medicine.  Lack of proper end of life planning (Sarah Palin's "Death Panels") and public funding guidelines about treatment of patients with terminal illness.  Inadequate research and dissemination of information on comparative effectiveness (including the cost) of treatments and consequently deficient policies.  Cost of care fully borne by third parties that removes the patient's incentive to look at costs.  Insurance and Medicare fraud, and so on.

But the savings potential from addressing these other causes is dwarfed by that from correcting prices.  The latter is the richer, low hanging fruit in terms of administrative ease and voter acceptance.  Consider this: effective steps to bring health care prices down so that they are "just" 30% higher than in Europe will reduce the annual US expenditure of $2.5 trillion by $1 trillion, half of it in public funding.  Other reforms can of course result in further savings and improve the quality of care.

Key measures that were shot down by Republicans and some Blue Dogs (or not even pushed in a misguided attempt to "compromise") could have had an indirect but strong bearing on prices.  A single payer ("Medicare for All") system would have concentrated buying power into a single governmental entity that could dictate more reasonable prices even in the face of provider scarcity.  That's in addition to it streamlining payments, improving efficiency and effectively increasing doctor / provider supply by freeing up their time spent chasing payments and instead devoting more of it on patients.  That's how countries like Singapore, Japan, Taiwan and even UK are doing well with fewer providers. A strong public option would have also helped (though not quite as much) for similar reasons.

But too many Americans swallowed the propaganda that this "socialized medicine" would limit their choices and worsen their care - never mind that most seniors love their Medicare.  Where do we go from here?

We face the reality now of Republicans controlling the House, having expanded ability to filibuster in the Senate, and trying to limit a government role, including by undermining "Obamacare." Recognizing the central role of high prices and the core causes behind it can enable us to skin the cat another way - finding solutions palatable to the Republican supply side and free market ideology.  

These steps involve expanding provider capacity, allowing more competition including free trade in health services, reducing unneeded regulation and (for limited benefit) reforming malpractice laws.  Taken together they may work just as well or better than just a focus on single payer, and save a lot of money for taxpayers and businesses.  More on these in my next post.

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(Footnote: As in my March 1, 2010 post, I've pointed to the Obama administration's failure to publish data on true doctor earnings and hospital payments per procedure. Now the HHS is a year behind the rest of OECD in reporting even basic health data statistics as above.  This hadn't happened even in the "Heck of a job, Brownie" days of  G.W. Bush.  It underscores how the government apart from policy making also needs to pay attention to routine administrative efficiency. 

When the Bad Guys Win

It's an unjust world.  The Democrats got pummeled in the mid-term elections, partly because of the Affordable Care Act passed over a strong and united Republican opposition.  The Act benefits a vast majority of Americans yet more than half dislike it, and even now are evenly divided about repealing it.

The Republicans' criticism is mainly on three counts, of which the first is misplaced given the rationale and experience of other countries, and the other two are a consequence of their own obstructionism.  These three are:

(a) The expanded role of government.  Every other advanced country has an even more pronounced public payer model, with much lower costs, and better outcomes on average than the US in OECD tracked measures like life expectancy and infant mortality.  Even (sane) capitalists recognize that some functions like defense, police and fire fighting are better performed by a public agency.  Why should anyone blindly assume that health care coverage does not fall into this category?  Or that the job is most efficiently performed by profit maximizing private insurers needing a 25% overhead on top of payouts to providers for meeting their own administrative costs and earnings goals?  Now a WSJ story on Nov. 16 describes how China's successful "State Capitalism" is upsetting the adage of the supremacy of market competition in a broader economic context.

(b) The mandate for obtaining or providing health insurance, especially for employers who otherwise pay a fee.  This mandate for employers and individuals would have been unnecessary if we had a tax funded single payer system.  This "single payer" term is widely misunderstood, and  Howard Dean and Congressman Anthony Wiener wisely used the term "Medicare for All" which Americans grasp much better.  But they didn't get enough air time to get their message through, and Obama never picked up on their cue.  

"Single payer" does not necessarily preclude private insurers - they are allowed to operate in West Europe, but less than 15% of the population opts for them.  So US insurers were right in fearing they'd be cut to a third of their size if something like that happened here.  Their opposition and disinformation aided by their largely Republican allies ensured the timid Obama administration didn't even try for single payer.  Then mandating coverage for all became the only way to viably force private insurers to accept those with pre-existing conditions.  Americans largely fail to understand the connection, and hence Republicans have been able to beat Democrats over the head about these unpopular mandates.

(c) Reforms hardly address the high cost of health care.  This again is ironical since it is Republicans who have strenuously opposed most measures to bring health care prices down, like single payer or even a strong public option, or Medicare directly negotiating drug or device prices.  In their own time they turned a blind eye to provider shortages and increasing hospital market power through consolidations.  They are right though, to raise the issue of tort or malpractice reforms, even as Democrats argue this is not a big factor.

Overall, the wrongful obstruction and opposition by cynical Republican lawmakers of much needed health care reforms has been rewarded by victories at the hustings.  I prefer the endings in typical Bollywood films where the villains get their just desserts and the good guys win out.

Special interests aside there are actually effective ways to drastically cut down health costs while maintaining quality, achieving universal coverage and keeping most Americans happy.  More on that in my next post.

Costly Nelson Eye On Free Trade

In 1801 Horatio Nelson put a telescope to his blind eye to disregard signals to retreat from a naval battle.  His valor resulted in a crucial victory over the French fleet.  But the US turning a Nelson eye on solutions through free trade in health services is an act of cowardice and cynicism.

The "W" Bushies are also guilty of such neglect after the benefits of trade grew with the proliferation of world class medical facilities abroad, and the advent of the internet and better communications.  But the failure of Obama's team is more poignant when new laws covering the uninsured add to overall costs, as well as to the scarcity (and resultant leverage) of domestic providers.   

On trade in health services, Prof. Bhagwati and I in mid-2008 highlighted promising approaches and reiterated these in my December 2009 post. Four subsequent posts have elaborated on each category (or mode) and quantified potential savings.  The overall picture is compelling.

Highly qualified foreign doctors who have cleared the required US medical board exams can remotely consult through video-conference with a nurse at hand to assist with the patient, if necessary.  Diagnostic radiology does not even need direct patient contact.  This type of telemedicine can easily replace a fourth of primary care visits and diagnostic radiology readings, as well as a tenth of specialist visits, and all at a fifth of the cost.  This will not only help meet the crisis of additional demand due to health reforms and an aging populace, but also save $16B in 2006 terms.  This translates to $267B of savings over the next 10 years, $133B in public funds.  Even the states can authorize telemedicine within their areas, if the federal government doesn't act.

 In medical travel, US patients go to reputed hospitals abroad for major surgeries and medical procedures, often performed by US or UK trained doctors, at a fraction of the cost.  The movement can receive a huge fillip if lawmakers and the leadership reduce legal exposure through legislation, create protocols and procedures to select and qualify foreign hospitals, and identify procedures to be covered.  They should also send publicly funded patients and lay down the incentives for such patients to volunteer, so that private insurers can follow suit and get legal cover.  There are some 30 major procedures costing $300B in 2007 terms that are suitable for medical travel.  Assuming a fourth of these are off-shored the savings are $57B annually in 2007, which comes to $950B over the next 10 years, half of this in public funds.

The third way of trading in health services is to allow and encourage foreign entities to set up hospitals here.  This will allow under-served areas to be covered and introduce greater competition in MSAs, 90% of which face highly concentrated markets for hospitals.  But most importantly, this will bring badly needed reverse innovation to the egregiously expensive and inefficient US hospital system.  Policy changes needed include easing the process and shortening the time line for approval, creating standard guidelines and norms for facilitating this, and doing away with state regulations holding up such hospital creation.  The resultant savings due to competitive pressures and forced changes bringing US costs halfway down to European levels (or "just" 1.5 times instead of being twice as high) are $175B in 2007.  This comes to $2.73 trillion over the next 10 years, with $1.36 trillion of this in public funds.

The final piece is allowing highly qualified foreign doctors trained in one of the pre-approved list of accredited foreign institutions to practice in the US, without going through a US residency.  Other conditions can be imposed on them, like requiring them to clear the required US board exams, or tying their visas to practicing in designated under-served areas.  This will immediately boost doctor supply and should be undertaken in parallel with expanding the domestic pipeline that will start having an impact in 10 years. The US has 2.4 doctors per 1000 people compared to the OECD average of 3.4.  Boosting this US ratio from 2.4 to 3.0 will require 200,000 additional doctors, but this increased number will ensure better access by patients, as well as reduce the scarcity related prices for doctor services.  If these prices go down by 23.5% to the Medicare rates dictated by the (never implemented) SGR formula that are still generous by European standards, then the savings are $79B in 2007.  That is $1.26 trillion over the next 10 years, with $630B of this in public funds.

Therefore apart from the vital increase in access to badly needed services by US patients, the total savings from all four modes of trade are estimated at $5.2 trillion over the next 10 years.  Nearly half of this or $2.6 trillion will be in public funds.  To get some perspective, compare this with the $1 trillion projected added cost of the health reforms bill that created such a firestorm among Republicans.  Had they faced the trade option squarely (requiring them to face down their health industry lobbies which is why they didn't, of course) we'd have saved substantially even after the passage of health reforms.

There is hope yet.  Dr. Donald Berwick's appointment as Director of CMS (during Congressional recess, over Republican objections) is a positive development.  He has studied and talked extensively about the merits of foreign health systems, including Britain's.  If he can look not just at these systems, but to them for solutions (and carry the political will of the Obama team with him) then a lot of these desirable measures can become reality.

Trade of course is not the only answer.  Several unrelated domestic policy initiatives can make a huge difference (more on these later.)  But its potential and benefits are so large that Obama and the lawmakers should urgently look at it - with their good eye for a change - and act accordingly.

Savings Through Free Trade - Medical Travel

Medical travel is the second (and most talked about) of the four modes of trade in health services envisaged under GATS. It's also popularly called medical tourism, a term the industry wants to change, to stress the more serious treatment aspect over any incidental entertainment or sightseeing.

While the first mode telemedicine described earlier is an alternative for some doctor office visits, medical travel does the same for some costly inpatient hospital procedures. Its potential was touched upon in our December 10 overview. Here's a further and updated look.

The main reason for outbound US medical travel are cost savings, which can be up to 90% for a destination country like India. This holds even for procedures performed by US or UK trained and certified doctors in JCI accredited hospitals, with outcomes at least as good as back home. Naturally, only patients who have strong financial or other incentives (not just to save their insurers or employers money) will opt to go.

So far almost all US medical travelers have been the self-payers, either the uninsured or those coming for cosmetic or dental procedures not covered by their insurance. This is a sliver, estimated by Deloitte to be 878,000 in 2010, of the total potential clientele. After all, even among the uninsured who are 15% of the populace or 45 million, less than a third can afford to pay the still significant sum up front for travel and treatment abroad.

Medical travel's ability to significantly address US health costs will be unlocked only if the largest payers (private insurers, employers and public agencies) sign on. They can induce their patients to voluntarily opt for medical travel by passing on some of the savings. But they haven't done so yet. Why?

Private insurers and employers are most worried about legal and PR exposure if some surgeries abroad end badly (which is inevitable, even if complications occur at much below US rates.) These payers fear multimillion dollar lawsuits in which capricious juries may side with their "home boy" plaintiffs regardless of the merits and the precautions taken. Even a few "jackpot" awards can wipe out the entire savings, not to mention any fallout from adverse publicity. In analogy to G.W. Bush paraphrasing the IRA on terrorism, trial lawyers just have to get lucky once, while defending payers have to win (almost) 100% of the time. Given the almost random outcomes of jury trials, successfully defending all cases is a tall order, and in any event involves high legal costs.

Prior safeguard or dispute resolution agreements are of limited value as courts may rule that patients cannot waive their basic right to sue in US courts. Then there's the problem in getting patients to volunteer through financial rewards, like passing along a portion of the savings to them. Even when it's purely voluntary, such financial incentives can be portrayed in malpractice lawsuits as coercive or unduly influencing patients.

There are also other reasons why private insurers hesitate to embrace medical travel:

• Fear that the lure of financial gain may cause patients otherwise hesitant or on the fence about undergoing procedures to go for them along with the medical travel option. This can increase expenses and offset some of the savings. (This is largely fixable through a proper screening, eligibility and incentive design process.)
• Collective inertia among the oligarchs (the major insurers) who feel that their launch of such an initiative will trigger similar actions by their rivals. Thus their potential gains are reduced through the resultant competitive activity, so the effort isn't worthwhile.
• Where insurers are merely administering plans and passing on the costs, say to the self-insured employers, they may have little incentive to push such innovation.
• Insurers are aware that health reformers will push them to lower rates, and are holding such options in hand to use only when these exigencies arise.

The government agencies like CMS have neither legal exposure nor many other private payer concerns as an impediment to the medical travel option. Juries identifying with taxpayers are less likely to award huge payments to plaintiffs that come out of public funds. Public agencies also lack the motive to profit from misdeeds or to cut corners to save money that can form the basis for punitive damages.

But the government and the lawmakers have very different, political and protectionist reasons for staying clear of medical travel. US providers portray foreign medical travel in protectionist terms as loss of American business and jobs. They also raise concerns (sometimes ignoring the facts) about the quality of treatment overseas, and lack of recourse of aggrieved patients to US courts. Their most potent weapon of course is their lobbying and financial clout with Congress and the administration. It's primarily for this reason that you don't hear anyone in CMS, HHS, the rest of the Obama administration as well as in Congress seriously considering the medical travel option.

All this may change as sky high prices, domestic supplier shortages, the health costs related crises in federal and the states budgets, and public awareness trumps the current political nexus. If the government acts effectively on medical travel this will not only save taxpayer funds and benefit publicly funded patients, but also pull along the private payers on this. Here's how:

• Medicare and Medicaid should create protocols to select and qualify foreign providers, identify procedures to be covered, offer financial and other incentives for patients to volunteer, track and disseminate quality and outcomes information, redress treatment problems, etc.
• Private insurers and employers strictly following the same (or better) practices and procedures will get legal cover from adverse outcomes beyond their control. Besides, if the government agencies are doing it, then private payers will also be shielded from adverse publicity or allegations of insidious motives.
• The lawmakers and the administration should pass measures reducing legal risks and costs for public and private payers adopting and implementing this option in good faith. These steps can include laws to restrict jury shopping, requiring arbitration by bodies set up for the purpose, limiting damages and imposing malpractice caps. Such laws will need to be carefully crafted to avoid being struck down as unconstitutional by the courts.

So what are the expected savings from medical travel other than for cosmetic, dental and medically unnecessary procedures? Prof. Jagdish Bhagwati and I looked at all the major surgical procedures and identified 30 that are suitable for medical travel to places as far as Asia. These cost at least $25,000 each, are commonly performed, involve standard techniques, have quick recovery times, and are typically one-time surgeries.

In 2007 these 30 procedures cost a total of $300B. Assuming 25% of patients of these procedures opt for medical travel, the direct savings are $57B annually. The data sources, assumptions and basis for calculations are described in the footnote below. This does not include the effect of lower US prices as a result of competition, or medical travel for smaller procedures to Mexico from border areas like California and Texas. It also excludes possibilities from ideas going as far back as 1993, like hospital ships catering to coastal cities like New York.

Over the next 10 years the savings come to $950B, about half in public funds. Looked another way, these direct savings in public funds from medical travel alone meet half the projected cost of the recently enacted health care reforms.

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Footnote: Data sources, assumptions and calculations leading up to the projected savings from medical travel:

1) The online query system HCUPnet (part of AHRQ in HHS) is used to get the statistics on all hospital procedures. This includes the aggregate charges for all hospital stays, their breakdown by procedures under the simplified CCS categories, the number of each principal procedure and mean charges per procedure. These are for the latest available year (2007).

2) HCUP only has hospital charges (billing), not the actual payment to the hospital, which is less than what is charged. On the other hand HCUP charges do not include the physician (surgeon, anesthesiologist, etc.) fees that make up almost a fourth of the total payment, which we need. So we need a factor to reduce the charges to actual estimated payments, and then add back payments to physicians.

3) To get the factor in (2) above we compare the aggregate civilian hospital charges for all stays nationally ($1,032B obtained from HCUP) with the actual hospital expenditures obtained from the NCHS (CDC / HHS) Health publication, 2009 ($696B from Table 127, less $38B for VA hospital expenses, equals $658B). This gives us the overall conversion factor of 64% to convert charges into actual payment received by hospitals. We then take physician fees to be added to be 30% of hospital payments, or 23% of the total payment.

4) From the list of the top 200 procedures in HCUP nationally we select 30 that meet our selection criteria. These include a minimum cost of $25K in the US, no need for a subsequent procedure / trip, short recovery time allowing the patient to return to the US within a month, and only highly standardized procedures (e.g., excluding cancer treatment where better US care may be available.)

5) Our total cost of overseas treatment is based on package rates (including air travel and hotel stay while recuperating) to the most popular JCI accredited medical travel destination hospitals in India with US or UK certified / trained physicians. Savings for other destinations like Singapore, Turkey or Costa Rica will be lower.

They've Protected Us From Health Reforms

It's champagne time for reform opponents. Scott Brown's win over Martha Coakley puts to rest any lingering fears of health care changes that seriously damage interests of any major health industry players. Of course, all of them support the "right" reforms that won't diminish their own prosperity.

But any meaningful measure that cuts expenses (possibly excepting EHRs and tech savings, which are therefore over hyped) adversely affects some influential participant. And full reforms that tackle the whole trillion dollars of annual waste and overpayment to bring US costs in line with West Europe will likely take a big bite out of all players' earnings.

Now any effective reform proposals relating to cost controls have been stymied and even the weak Senate version of the health bill may not be passed into law. It's a remarkable outcome given the public outcry and election rhetoric over soaring health costs and uninsured Americans a scant year ago. To paraphrase a pundit, the industry hasn't just dodged a bullet, they've dodged a cannon fusillade. The credit for this upshot goes to many, as listed and recognized below:

• The Congress. Apart from Republican lawmakers firmly in their pocket the industry got vital support from "centrist" Democratic senators who refused to let their 60 votes block a filibuster. It's sound economics. The industry collectively needs just a fraction of a percent of its trillion dollars of excess revenues to have billions of dollars to buy or influence crucial lawmakers. Methods can range from outright bribery (underpaid lawmakers come cheap) to legitimate campaign contributions and threat of funding opponents in weak re-election bids. Now the Jan. 21 Supreme Court ruling undoing many campaign finance reforms and restrictions adds to the power of special interests.
• Good RNC and industry sloganeers. Terms like death panels and socialized medicine are catchy regardless of accuracy. Slogans like "don't let a bureaucrat come between me and my doctor" or "government takeover of health care" played well as if government loves paying patients' bills. Never mind that it's like Haitians earthquake victims protesting about aid groups coming between them and their rescue. The Roves and Cheneys managed to, say, link Saddam's Iraq with 9/11 attacks in the public mind. Their compatriots while outside of government used the same approaches to sow voter misgivings about health reforms.
• President Obama. In the 2008 elections John McCain was weakest on reforms ideas and most likely to maintain the status quo. But Obama too has proved to be sufficiently inept, unlike Hillary Clinton who was the biggest threat to the existing system. He didn't use his bully pulpit and vaunted oratory skills to whip up public opinion and preempt lawmakers (especially "centrist" Democrats) from opposing big reforms. He gave a free pass to doctors, hospitals and trial lawyers in cost control, and made easy deals with drug makers who escaped government negotiating drug prices or allowing cheaper re-imports. Why? Because he was eager for industry (rather than public) support for changes aimed largely at private insurers who are a small part of the cost equation.
• The media. Journalists and pundits seem to have been diverted from health factors leading to high costs (high provider prices, doctor scarcities, hospital concentration, unnecessary treatment, malpractice burdens, etc.) to mainly the issue of private insurer practices, the public option and covering of the uninsured. That took the heat off most other interest groups. And as countries like The Netherlands (top ranked by Consumer Health Powerhouse) show, even private insurance is very compatible with an excellent health care system, so long as you ensure an adequate supply of providers. Though incomplete it's also useful to see the OECD health head's September 2009 report comparing the US health care system with others.
• Practitioners as writers. Health groups have their own members whose writings project views and can protect collective well-being. For example, Dr. Atul Gawande's (seen here on TV) long New Yorker article from a year ago that so impressed President Obama ignored high provider prices (twice those in Europe). It instead focused on much smaller contributors to overall US health costs - unnecessary tests and treatment - and offered no solutions. In another long article ("Testing, Testing) of Dec. 14, 2009 he advocates intensive experimentation that can postpone roll out of reforms tackling pricing and costs by years if not decades. Other US doctors and the AMA have dissed competing medical travel overseas while ostensibly evaluating it objectively. Of course, all or most writings aren't self-serving by any means.
• Enemies helping enemies. Expedience makes strange bedfellows. Doctors and hospitals hate trial lawyers and want tort and malpractice reform. Yet it is mainly fear of US "jackpot" lawsuits in case anything goes wrong that holds back private insurers from medical tourism that lowers costs for them and their customers. Hospitals and doctors also complain about heavy regulation. But it is regulatory barriers that largely prevent more hospitals from being established and offering competition. Or prevent highly qualified foreign doctors from practising in the US and easing the acute doctor shortage. This greater supply and competition would have enabled insurers and payers to secure better rates. Doctors traditionally support Republicans. But is is Democratic bias against free trade and "jobs going overseas" that hold back Medicare or Medicaid (who face less legal exposure than private insurers) from using medical tourism to save taxpayer dollars.
• The "independent" voter. The latest climbdown on health reforms has come because of the Democratic loss of Kennedy's senate seat. It is considered heretical and political suicide to question the wisdom of the voter. But as the Massachusetts election shows, many voters can blame the wrong party for failed legislation. More union households voted for Scott Brown than for the Democratic Martha Coakley. They feared a tax on their "Cadillac" health plans even though they were exempted before the election. They also failed to make the connection between lowered health costs and higher take home pay. The "independent" voters may be those who are free from letting their choices be guided by rationality or self-interests.

Where do we go from here? Paul Krugman strongly argues on Jan. 22 for House Democrats "to do the right thing" by passing the Senate version of the bill and possibly ironing out some parts through reconciliation. This view is echoed in today's NYT editorial. This is quite a happy state of affairs for the health industry since the Senate bill is quite favorable to them overall, and was decried as a sellout by liberals a short while back.

A simple but somewhat drastic alternative is suggested by Ezra Klein to lower the Medicare age from 65 down to 50 and to double the income limits for Medicaid recipients. Such a bill can pass through the reconciliation process in the Senate that requires only 51 votes, instead of the 60 to overcome a filibuster. It doesn't address many aspects of private insurance reform like dropping of coverage, denial due to preexisting conditions and coverage caps. Yet it hits private insurers by advancing a single payer model for more Americans. However, this idea is unlikely to be acted upon. We may even see little change till after the mid-term elections.

In sum the health industry can collectively relax a bit and thank the folks listed above who helped thwart more serious reforms.

Easily Conned?

Last Friday I traded in our ancient minivan to buy a new SUV under the highly popular "Cash for Clunkers" program.

As I was signing the final papers, the manager at the GM dealership lamented the bureaucratic wringer and technical glitches that have plagued the program. The government website (for uploading claims) would remain unavailable or keep crashing. Paperwork was tedious and claims were rejected for trivial reasons. Four weeks after filing the first claims the dealership had yet to receive any money.

"The government messes up everything, and now it's trying to take over our health care," said the auto manager. I asked him what he thought of the public option, and he said he is dead set against it.

That stopped me short. Here was someone who was (a) not a health provider or insurer, (b) not a $250K+ earner who would see taxes hiked up, and (c) not a lawmaker (Republican or Blue Dog Democrat) bribed by the industry to safeguard its interests. Moreover, he is in the business of selling new and used cars. That's someone who should be savvy enough to tell facts from fiction.

Yet even he swallowed the industry claims and counter-arguments against reform. He objected to the public option because his employer may then drop his private insurance (why should it matter if the public plan is better, or he can still see the same doctors?) When asked about the popular Medicare for seniors, and why not offer it to all Americans, he said Medicare will be out of funds (if it's cheaper, the funding is just a matter of allocating enough to it.)

This underscores just how easy it can be for reform opponents to confuse (or sucker) the average Joe about changes to the system. The Obama administration certainly hasn't helped with its mixed and conflicting messages on its commitment to the public option.

It doesn't have to be this way. Here's a link I received from Jonathan Starr of an MSNBC "Morning Joe" discussion between Republican host Joe Scarborough and Congressman Anthony Weiner (D - NY). Weiner advocates a single payer system and his logic for it even gets Scarborough (to his credit) thinking hard and admitting he's impressed "and speechless." Why isn't Mr. Obama making this case?

Paul Krugman has criticized Obama in today's Op-Ed in The Times. He also repeats that "Reaganomics has failed to deliver what it promised, yet people still believe that government intervention is bad, and leaving the private sector to its own devices is good."

A remarkable national survey result also shows that a majority of Americans believe most of the 19 myths floated by reform opponents.

Republicans also have some (a few, I wish they had more) good ideas on health reforms that are being ignored by Democrats. Chief among these is the need for malpractice reforms. It may bring down some health care costs, or at least remove one major reason (or excuse) advanced by providers for high costs.

Then there are reforms that neither party stresses, like vastly expanding the supply of doctors and other providers, and curbing hospital market power. A reason reforms are so difficult is that each interest group has powerful leverage and lawmakers protecting them. Strong public demand can pressure the politicians to do the right thing. For this to happen President Obama needs to stop being so passive and overlearning from the Clintons' 1993 experience. He should instead imagine how Hillary would act now if she were in his place.

And Americans like my auto dealer need to better judge industry claims.

Don't Confuse Corruption With Centrism

In his July 27 column in the New York Times, Paul Krugman exposes the flawed objections of the Blue Dog or so-called centrist Democrat lawmakers to crucial aspects of proposed health care reforms. Krugman says he's not cynical enough to believe these Democratic holdouts are simply acting to protect special interests who buy them off. But it's hard to see it any other way.

After all, Blue Dogs tout fiscal responsibility and their objections to health reforms are supposedly about how to pay for it and to contain costs. Yet they are the ones also (a) seeking higher payments for selected providers, (b) opposing the public option that is the most effective way of lowering the prices charged by providers benefiting from engineered scarcities or non-competitive practices, and (c) opposing employer mandates that prevent shifting a greater burden on to public funds.

I'd have understood and even welcomed these "centrists" seeking additional cost containment measures. These could include more vigorous support for comparative effectiveness and treatment cost effectiveness studies and criteria, and direct negotiation of drug prices by the government for publicly funded plans. Another of importance is malpractice caps and tort reform that is opposed by liberal Democrats who are beholden to their own lawyer lobbies. Incidentally, Paul Krugman is also silent about this last one, and I'd like to see him be more of an honest broker by attacking this sacred (and also very wasteful) cow on the left. But Blue Dogs by and large are conspicuously quiet on all these issues.

The Republican lawmakers are of course even more sold out to the anti-reform lobbies. They trot out meaningless slogans ("socialized medicine") and flawed logic that a reasonable audience should clearly see through. Still, a recent Gallup poll shows that such attacks gained some traction and support for health care reforms is decreasing. Krugman in his August 7 column also notes this trend - the average Joe can apparently be swayed and misled quite easily. So President Obama needs to step up his roles of countering propaganda, and exposing lawmakers seeking to water down reforms - especially Democrat "centrists" - so they're pressured to do the right thing.

The role of industry lobbies and special interests in obstructing health care reforms should also be seen in the context of a larger problem. That's our failure to have an enlightened approach to pay our lawmakers well and to adequately fund their elections with tax dollars. I've talked about this, including in a separate May 29 blog post on the misplaced outrage over the UK MPs' expenses. Campaign finance reform can also go much further with universal adoption of a clean elections system.

However compelling the logic, lawmakers are seen and portrayed as self-serving if they try to give themselves huge raises. A strong case should instead be made on their behalf by opinion leaders like Paul Krugman, Tom Friedman and respected media publications like the Wall Street Journal. Sadly, the WSJ just continues to take cheap shots as in its August 8 front page article and August 10 headlines about petty lawmaker expenses on Congressional trips.

The Vast Left-Wing Courtspiracy

Almost all the good ideas on health reforms so far have come from Democrats. Republican have mainly launched hack attacks against such Democratic initiatives. "Hack" here means trying to sway opinions by using any means necessary, including misleading and irrelevant arguments that even the author doesn't believe to be valid.

For example, partisan hacks use phrases like "socialised medicine" or "a bureaucrat coming between a patient and his doctor" to denounce the public insurance option. Never mind that our socialized armed services, socialized police force, socialized public school system and socialized Medicare program seem widely preferred to purely privately run alternatives. Or why should a private insurer whose payouts directly decrease profits be better at serving patients and paying doctors, compared to an automatic Medicare style system of public billing?

But the June 30 Op-Ed by law professor Richard Epstein of the University of Chicago is different. He spells out several reasons why the dysfunctional US malpractice system is much worse than that in other developed countries. This is an issue that Democrats and even their most effective spokesmen for reforms like Paul Krugman completely ignore. While malpractice payouts are less than 1% of total healthcare costs, they cause much larger damage by inducing the practice of defensive medicine.

In that sense health industry groups traditionally aligned with Republicans are more "efficient" in enriching themselves. The annual US health care tab is inflated by hundreds of millions of dollars due to overpricing, including by doctors benefiting from managed scarcities, and by hospitals and insurers facing inadequate competition. But at least this money flows more directly to the recipient interest group.

In contrast, defensive medicine and "excess" malpractice insurance costs as much as 10% of the total health bill or over $200 billion annually if we believe some studies. Yet trial lawyers get at most half of the total malpractice payout of about $6 billion annually, or under 1.5 % of the cost imposed on the system. To misquote Winston Churchill, never have so many paid so much to benefit so few. Even as they push for other changes, Democrats have no excuse to block malpractice reforms.

Epstein says the main reasons the US system (as different from others as in Europe) drives up malpractice costs are:

• Jury trials that can veer out of control and introduce significant uncertainty, coupled with a contingency fee system and each side bearing its own costs. This encourages trial lawyers to litigate excessively, as they have a good chance to win big with little downside if they lose.
• American judges frequently allow juries to decide whether honest mistakes are negligent, and to infer medical negligence from the mere occurrence of a serious injury. American plaintiffs sometimes aren't required to identify any particular acts of negligence, or showing the connection between the negligent act and the injury.
• Damage awards in the US tend to dwarf those made elsewhere.

As a result, Americans file claims about 3.5 times more often than Canadians. Yet the frequency of medical malpractice in Canada is about the same as in the US (so much for the deterrence of the costly US system) - for about a tenth of the total cost.

I agree with Epstein's recommendation to (a) replace juries with specialized commissions like those in France that reduce litigation expenses and promote uniformity in case outcomes across regions, and (b) have a national cap on damages for pain and suffering, such as those already enacted in over 30 states that are set between $250K and $500K.

Two concluding caveats to Epstein's article, though. First, not everyone agrees that malpractice coupled with defensive medicine imposes such heavy costs. A 2004 report titled "Limiting Tort Liability for Medical Malpractice" by the Congressional Budget Office uses terms like "weak", "inconclusive" and "ambiguous" to describe a lot of the evidence. Second, Epstein couldn't leave well enough alone, and took a pot shot at the vitally needed (in my opinion) public option in his concluding sentence: "Market-based solutions that make the private sector more responsive should in turn undermine the case for moving head-first into a government-run health-care system with vast, unintended inefficiencies of its own."

Different This Time?

The good news is that President Obama hasn't let the current economic situation make him lose sight of the imminent need for health care reforms. The question is whether he has the resolve and insight to push the most important ones through.

The health care forum kicked off by him on March 5 has generally been well received. News commentators and political pundits have contrasted the atmosphere of open discussion and hearing of all the interest groups with the behind-closed-doors formulation of the ill-fated 1993 Clinton plan. How well the new approach works depends partly on how the working group discussions have been structured, and whether all the ideas could be aired and properly debated.

In these open discussions there are hopefully safeguards to ensure that special interests can't through mutual compromises squelch good ideas that adversely affect them. For example, payers and patients stand to enormously benefit from an increased supply of doctors; a properly designed public health insurance plan that fairly competes with private plans; reform of tort laws including restrictions on jury shopping and imposition of malpractice caps; and using a cost-benefit criteria to evaluate drugs. But these measures can reduce excess earnings of doctors, private insurers, trial lawyers and the drug companies respectively. So they all decide to "respect" each other and downplay such proposals.

Another danger in open discussions is the advance warning and preemptive opportunities available to special interests and the lawmakers that they have influenced or bought. Five senior Republican senators have already affirmed their GOP group's opposition to the public option, declaring, "..forcing free market plans to compete with these government-run programs would create an unlevel playing field and inevitably doom true competition... Ultimately we would be left with a single government-run program controlling all of the market.”

Huh? If private plans are more efficient and / or offer something better than the government program then why should they be wiped out? I don't much doubt the prediction, since the experience in France and Germany indicates that about 80%-90% of the people will go for the basic government plan (though 90% of the French also buy supplemental private insurance.) It's because a properly administered government -run plan can deliver better value than private profit-seeking entities, but then that's a sound reason to change the system. Note the "properly administered" qualifier - Paul Krugman repeatedly points out the success story of the government run Veteran's Health Administration in the Clinton years. Then services deteriorated and scandals like at Walter Reed emerged in the subsequent Bush era.

On this issue of public programs it is a little disturbing to see Obama appearing less than resolute and making conciliatory noises at the outset. He says he understands the objections because "...if a public option is run through Washington and there are incentives to try to tamp down costs, (then) private insurance plans might end up feeling overwhelmed.” Why? A March 12 item by Reuters quotes conservative experts who assert it will be "almost impossible to create a level playing field (between a public and private insurers)" but give no reason to support this.

Still, there are two encouraging aspects that makes the present reform thrust much more likely to succeed than the 1993 effort (other than the over-hyped closed-door versus open-door contrast):
a) A sadder, wiser, more anxious public is less likely to be taken in by those Harry and Louise ads. And a more dire health care situation has made the push for reforms much stronger.
b) Obama has rightly focused on the very high costs of US health care as an even bigger issue than extending coverage to all the uninsured. That should force participants to come up with solutions for more efficient and cost-effective health care, instead of simply shoveling more taxpayer dollars to outrageously priced providers.

Major Reform Steps or Media Hype?

BusinessWeek in its Feb. 23 issue is carrying this big article titled "CVS's Bold Bet on Health-Care Reform." Tom Ryan, CEO of CVS, has built the drug store chain into a "national health-care colossus" with $76 billion in annual sales.

Ryan's goal is reported to be "to help transform America's expensive and often ineffective health-care system. Seeking to take advantage of President Barack Obama's commitment to health-care reform, Ryan wants to use CVS's vast prescription database and burgeoning network of in-store clinics to treat patients with chronic diseases and help keep them out of the hospital, where most medical costs are incurred. "I don't think our health-care system is broken," Ryan says. "We are just spending too much, and it's unproductive." " And so the article goes.

I am a little bothered whenever someone in the industry says that they don't think the healthcare system is broken. That seems to indicate that they want to tweak the existing system rather than go for an overhaul. Though CVS is reportedly setting out to "transform" healthcare it doesn't seem as if the two steps outlined will drastically lower costs or improve coverage.

These two steps in essence are a) to build their electronic health records (EHR) system so that patients are helped in continuing to take their prescribed medications thereby keeping in better health and averting some costly hospital visits, and b) to set up in-store clinics that are mainly run by nurse-practitioners so as to handle routine and minor health complaints without needing to go to a doctor or hospital.

Everyone is in agreement that EHRs should be promoted and CVS efforts tie in well with this objective (even if the jury is still out on whether CVS with its dedicated PBM Caremark helps consumers.) Then there are some questions about the viability and growth potential of in-store walk-in clinics, especially in view of the hostility of the AMA towards them. But we can hope that they flourish and expand so as to take some pressure off the demand for doctors' services that are in short supply.

These efforts are fine and laudable. All I'm saying is that news coverage and hype about them shouldn't obviate from the larger issues of universal coverage, malpractice (tort) reform, doctor shortages, reduction of administrative waste, and drug policy rationalization.

Acting Now On Health Reforms

The state of the US economy and the Congress' struggle to pass a fiscal stimulus package seems to have crowded out the Obama Administration's mind share on other vital initiatives.

So I was glad to see Paul Krugman drawing attention to this issue in his Jan 29 Times OpEd "Health Care Now." Krugman argues that (a) The economic crisis and resultant swelling of the ranks of the unemployed uninsured adds to the urgency of reforming the health care safety net; (b) The cost of healthcare reforms are far less than the fiscal stimulus package, and hence not "too expensive"; (c) many of the health and health reform expenditures will of themselves stimulate the economy and should be part of the stimulus package; and (d) the time to act and seize the moment is short and we shouldn't let the momentum built from the current "serious crisis go to waste."

I agree with Krugman on all these points. If anything I'd like Krugman (and the Obama administration) to expand advocacy of health care reforms from universal coverage, single payer system and drug purchase coverage to also include other important measures. These are, addressing the doctor shortage and ensuring increase in long and short term supply of health care workers; malpractice and tort reforms that will immensely ease overall health costs; and allowing more international trade in health care services (importing doctors and exporting patients) that improves services and lowers costs. All these measures carry huge benefits, but are opposed by some influential lobbies.

Still, the main point of Krugman's article shouldn't be lost sight of. Congress has struck its compromise on a $789B package. Sadly, some needed health expenditures have been cut out, but a separate health care focused bill can address this. Obama's administration should keep sweeping health care reforms on the front burner and act before the window of opportunity narrows.

Medical Blunder and its Aftermath

We faced this situation while in India last month: How to react when a dedicated and otherwise competent doctor makes a grave mistake that puts the life of your loved one in limbo?

Our spirits were high on October 1st. It had been almost nine days since my father-in-law (Daddy's) emergency surgery for a ruptured duodenal ulcer. Anita had joined me in Pune, and my mother-in-law (Mummy) was also doing well in an adjacent private ward in the same Inlaks Hospital. Both were to be sent home the following day.

Daddy's surgeon Dr. P had said that the first 6-7 days were the most critical in Daddy's case. This is because the sutures to repair the large perforation of the duodenum are very vulnerable to the strong acids in the stomach, and can typically give out by day 6. If they hold past that, then the prognosis is very good. Daddy was now past that critical period. He had some problems with cough, pneumonia and weakness following the surgery, but this was under control and considered normal for someone of his age who was inactive after a major surgery.

Daddy's IV lines were removed and similar preparations were made for his urinary catheter as well. Dr. P came in and removed the external staples that had held Daddy's almost 2 feet long abdominal incision together. He then urged Daddy to try and resume normal activities including walking as quickly as he could.

An hour later things went terribly wrong. Daddy was coughing hard, and as a result suffered a burst abdomen, meaning that his recently stitched abdominal wall gave out, spilling out some of his insides. Anita raised an alarm and Dr. P. was there within five minutes. He and his juniors hastily tended to the gaping wound, temporarily taped it up, assembled a surgical team and began an emergency surgery within 45 minutes to repair the damage.

The cause of the problem? Daddy is 89, and many of Dr. P's colleagues told us that they'd have not removed the staples for at least 12-14 days after the surgery (instead of the nine days as happened here) and have taken other precautions to protect the healing wound.

The trauma of this second surgery and its consequences placed Daddy's life in the balance for the next couple of weeks. Apart from blood and fluid loss his complications included pneumonia, kidney malfunction, severe hospital acquired infections and heart complications. He was in pain and delirious or semi-conscious for several days. Anita and I cancelled our flights back to the US and postponed subsequent programs in this period. Fortunately, Daddy pulled through, slowly recovered and is now recuperating at home.

Despite his blunder my relations with Dr. P and his colleagues remained warm and cordial. I have repeatedly been asked two questions. First, did I genuinely harbor no ill will towards Dr. P, or did I just mask my true feelings? Second, had this happened in the US, would we have sued and made Dr. P pay heavily for his mistake?

To the first question, I obviously very much wish that Dr. P had played it safe and none of this had happened. But after it did, I still had good feelings about him. We continued to have an easy relationship and I'd even joke about the colorful shirts worn beneath the white coat of one of his cheery-faced residents when they'd visit us in Daddy's room. Here's why:

• I believe Dr. P's prompt action and skill during the first surgery on September 22 was a big factor in enabling Daddy to pull through. So I attribute Daddy's being home and improving today to Dr. P's initial action
• Dr. P is overall an accomplished surgeon who is also very responsive. Like many of his colleagues (and not at all like in the US) he had given me his cell phone number at the time of the first surgery and was directly accessible on that when I needed him. (Of course I tried not to abuse this privilege)
• I perceive a big difference between negligence that may come from not putting in the required time or effort, and "just" a misjudgement. I knew that Dr. P never lacked for sincerity, dedication to Daddy's welfare, or hard work. His unfortunate miscalculation in removing staples prematurely stemmed from a concern about their continued insertion causing a surface infection. I'm sure the consequences will guide his future judgement and help other elderly patients
• We were fairly high profile at Inlaks (partly because it is rare for both husband and wife to be simultaneously checked into adjoining deluxe wards, and that too by a son-in-law visiting from the US.) Dr. P's mistake was widely known among his colleagues. He paid enough of a price in that sense without me raising the subject with him
• Dr. P as a person was decent, caring and straightforward. He was uncomfortable when other doctors tending to Daddy prescribed medications that he felt were unnecessary or even needlessly expensive (yes, some of that pharma - doctor linkage seemed to exist here, too.) As coordinating physician he struck off some of these medications or expressed reservations about them, even at the risk of running afoul of his colleagues. I felt I could trust his commitment and intentions
• Once the second surgery became necessary, Dr. P did everything necessary to reduce its risk. General anesthesia for a second time in a frail patient is a major risk, so he performed this surgery using spinal tap and local anesthesia. He also got his team to waive overtime charges for performing it after hours. He closely monitored Daddy's condition and incessantly advised and encouraged him

Coming to the second question, how would we have acted had the same lapse occurred in the US? We wouldn't have sued Dr. P for all the reasons above. A sued physician pays a huge price even when he is fully insured. This price is in terms of damage to his record and reputation, the distraction of defending a lawsuit, and increases in future premiums.

However, in the US the extra cost following the second surgery may have exceeded $100,000 even at negotiated rates. A substantial chunk may have been payable out of pocket and I would probably have asked the hospital to waive or substantially reduce this. At Inlaks in India the extra charges only came to about $3,500. Given how everyone pulled so hard for Daddy's recovery I didn't seek any reduction in this. In fact when it was Daddy's time to leave he asked me to give some gifts to the staff that had attended to him so well.