Finally, the health reforms bill passed by the Senate and now the House has been signed into law. Paul Krugman calls it transformational and a triumph over fear-mongering even though it is far from ideal and a parallel legislation to fix some flaws is going through contentious reconciliation. This legislation is also expected to clear. With all the Democratic missteps along the way, this is a historic moment.
Reformers had wanted President Obama to do much more and earlier in time, but his final push was key in getting enough Democratic Congressmen to sign on. Among the side shows the Catholic nuns commendably came forward to support the health reforms bill even as the Conference of US Bishops opposed it on tangential abortion issues. More worrisome are possible accommodations made to get the support of the AMA and the pharmaceutical industry. That's because this bill does little to fulfill the other vital imperative of lowering costs, that will require follow on action affecting the interests of these providers.
The most credit goes to House Speaker Nancy Pelosi, whose quiet resolve and deft dealing with Democratic colleagues has been highlighted by the WSJ.
What about the dire Republican warnings of Democrats paying the price in the 2010 mid-term elections? Obama and other Democratic leaders have publicly accepted this assessment. It's a wise move showing their pro-reform lawmakers in shaky seats as sacrificing their political future for doing the right thing. This paradoxically may help these very Democrats come November.
Anne Kornblut in an MSNBC discussion also rightly opined that the health care issue may well recede from center stage come November, with some other issues driving voter decisions. In any case the Democrats would have lost a lot more if they failed to accomplish health reforms.
In a rational world the reformers should face no downside. The vast majority of Americans either benefit or (for those insured through employers) lose nothing while having the security net of affordable coverage even if their circumstances change. The people who pay more through higher taxes are a small minority of tax earners and some businesses on whom the mandates are accompanied by some offsetting (may be even over-compensating) concessions.
With the increased number of Americans covered the providers all gain up to this point. It is definitely a mixed bag for private insurers whose practices on pre-existing conditions, lifetime caps, rate hikes and recissions will be banned. But even they may benefit in the net, and the stock prices of Aetna and other insurers have risen after passage of this bill.
Still, the voters haven't always been rational in the past - they did elect GWB to a second term in 2004. There's also the uncertainty injected by 13 Republic state attorney generals challenging the law that will take over a year to wend its way and be decided by a Republican leaning Supreme Court. So I'll allow Republicans their hopes and the Democrats their nervousness, though I wouldn't bet with the many pundits on Democratic reversals as a result of these health reforms.
Tuesday, March 23, 2010
Monday, March 8, 2010
Simplified, Compromise Health Reforms?
I've quoted my brother Viranjit's friend Jonathan Starr before, as he's an avid and thoughtful health reforms enthusiast. To break the health reforms impasse he's acted on President Obama's call for "any other ideas."
Here's his compromise, simplified "Starr Plan" for health-insurance reform, sent to his California Senators and Congressman:
Here's his compromise, simplified "Starr Plan" for health-insurance reform, sent to his California Senators and Congressman:
1) Increase Medicaid coverages and reimbursement rates to equal those of Medicare.
2) Allow everyone to buy into Medicaid coverage, at rates scaled by income (still starting at $0 for very low income people).
3) Pay for this program with a combination of participant premiums and a Medicaid tax similar to the present Medicare tax.
4) Exempt employers from their share of this Medicaid tax if they provide health-insurance to their employees (that meets federally-established quality standards).
5) Require all Americans to obtain health-insurance that meets federally-established standards, whether provided by an employer, purchased from a private insurer, or purchased from Medicaid.
6) Prohibit denial of coverage due to pre-existing conditions, as long as the person has previously consistently complied with the requirement, above, to obtain health-insurance.
7) Prohibit rescission of coverage for any reasons other than non-payment of premiums.
8) Prohibit federal Medicaid funds from being used to cover abortions, but allow state Medicaid funds to be used for this, at the discretion of the individual state.
That is basically it. Other issues (e.g. Medicare reforms, medical malpractice tort-reforms, insurance anti-trust exemptions and cross-state sales restrictions, prescription-price negotiations, taxing health-insurance employee-benefits, etc.) would be handled separately, in their own debates and legislation.
This approach has many advantages, including:
A) It would bring health-insurance coverage within reach of all Americans.
B) It is simple. It would involve far fewer changes to American society than the present proposals, and would entail a much shorter bill.
C) It is self-funding. It does not require modifying other programs to try to gain offsetting savings.
D) The cost of supporting the program is distributed largely by ability to pay.
E) It takes advantage of existing infrastructure and existing programs, reducing the cost of implementation and administration.
F) It avoids involving the American government in directly facilitating the transfer of funds to private insurance companies.
G) The question of funding abortions is handled according to the long-standing compromise embodied in the present Medicaid program.
So what do you think of this? Overall, I think this is an excellent approach and outline for effective legislation. The "compromise" here is with the holdout Democrats, as the Republicans collectively have pretty much dug in to oppose any reform package that meaningfully covers the uninsured.
Adopting Starr's proposals needs to be in conjunction with the House also passing the bill that was successfully cleared by the Senate last December. That way all the needed changes look as if they can clear the Senate through reconciliation. This is important, since reconciliation requires only 51 Senate votes, otherwise an all but impossible 60 votes are needed to overcome an expected Republican filibuster.
This proposal reintroduces the public option, in much more potent form than the House bill H.R. 3962 passed on Nov. 7, '09. Cost containment is more effective than anything else being seriously considered by Congress. That's because Medicare and Medicaid already have the infrastructure in place so incremental administrative costs are low. Moreover they enjoy the purchasing power and simpler payment process to be able to pay providers much less than what private insurers can negotiate, thus saving money.
Of course the very inclusion of this robust public option is the reason these proposals won't be liked by private insurers and their supporters in Congress. Point (2) of Starr's proposal can be refined so that the same subsidy on basis of low income is available to the recipients if they choose private insurers over Medicaid. Private insurers will still find it hard to match Medicaid's cost efficiency, leave alone have something left over for profit. Keep in mind though that much of Medicaid is outsourced to private HMOs and over a third of Medicaid beneficiaries are served in this way.
Starr's proposal also offers some financial flexibility. The total cost of the bill will depend upon the amount and the thresholds for income based subsidy, and that can be bargained over and decided in the legislative process. If Congress wants to limit additional public expenditure to say, a trillion dollars over the next 10 years, then they can adjust the subsidy levels and the eligibility criteria accordingly. As also recommended by others the proposal envisages the remaining contentious issues to be dealt with separately.
Politics will (naturally) play a big role in the final outcome, but good ideas can show the way forward. For American liking this proposal Starr urges sending it to your Congressman (Representative) and your Senators so they are at least in the know and hopefully act on it.
So what do you think of this? Overall, I think this is an excellent approach and outline for effective legislation. The "compromise" here is with the holdout Democrats, as the Republicans collectively have pretty much dug in to oppose any reform package that meaningfully covers the uninsured.
Adopting Starr's proposals needs to be in conjunction with the House also passing the bill that was successfully cleared by the Senate last December. That way all the needed changes look as if they can clear the Senate through reconciliation. This is important, since reconciliation requires only 51 Senate votes, otherwise an all but impossible 60 votes are needed to overcome an expected Republican filibuster.
This proposal reintroduces the public option, in much more potent form than the House bill H.R. 3962 passed on Nov. 7, '09. Cost containment is more effective than anything else being seriously considered by Congress. That's because Medicare and Medicaid already have the infrastructure in place so incremental administrative costs are low. Moreover they enjoy the purchasing power and simpler payment process to be able to pay providers much less than what private insurers can negotiate, thus saving money.
Of course the very inclusion of this robust public option is the reason these proposals won't be liked by private insurers and their supporters in Congress. Point (2) of Starr's proposal can be refined so that the same subsidy on basis of low income is available to the recipients if they choose private insurers over Medicaid. Private insurers will still find it hard to match Medicaid's cost efficiency, leave alone have something left over for profit. Keep in mind though that much of Medicaid is outsourced to private HMOs and over a third of Medicaid beneficiaries are served in this way.
Starr's proposal also offers some financial flexibility. The total cost of the bill will depend upon the amount and the thresholds for income based subsidy, and that can be bargained over and decided in the legislative process. If Congress wants to limit additional public expenditure to say, a trillion dollars over the next 10 years, then they can adjust the subsidy levels and the eligibility criteria accordingly. As also recommended by others the proposal envisages the remaining contentious issues to be dealt with separately.
Politics will (naturally) play a big role in the final outcome, but good ideas can show the way forward. For American liking this proposal Starr urges sending it to your Congressman (Representative) and your Senators so they are at least in the know and hopefully act on it.
Monday, March 1, 2010
Doctor Earnings - and Why They Matter
President Obama and the Democrats may salvage something of health reforms using reconciliation to get past recalcitrant colleagues and a united Republican opposition. It's a far cry from what could have been achieved through a better, more proactive approach in the past year, yet a third of a loaf is better than none.
Administrative lapses have heavily contributed to the political stumbles. The Obama administration has failed to compile readily available data and publicize findings that undermine claims by special interests and their political allies who oppose reform. Reforms aimed at drastically curbing costs are bound to hurt some or most industry players, so they are all pointing elsewhere in the race to pin blame for health costs.
While the focus has been overly on insurers, a Feb. 25 study in Health Affairs by authors from a non partisan research group shows how hospitals and doctors bear much responsibility. The negotiating power lies with consolidated hospital chains facing little competition, and physicians increasingly banding together to command yearly double digit payment increases. (The study is limited to California, so it does not touch upon the national scarcity of doctors that contributes to their leverage.)
So how can Obama's administration including the HHS help simply by putting the facts out? One example is making widely available Medicare's true rates data, as described in my Nov. 21, '09 post. Another is shedding light on "true" doctor earnings.
Doctor and clinical services make up 21% of all US health care expenses, or half a trillion dollars annually. And this does not include the significant chunk going to salaried doctors directly employed by hospitals that account for an even larger 31% of total expenses. It is common knowledge that US doctors make much more than their counterparts elsewhere. According to available statistics it is twice or thrice as much as in other industrial countries. There are plenty of surveys on US physician earnings, but even these understate reality as elaborated subsequently.
Administrative lapses have heavily contributed to the political stumbles. The Obama administration has failed to compile readily available data and publicize findings that undermine claims by special interests and their political allies who oppose reform. Reforms aimed at drastically curbing costs are bound to hurt some or most industry players, so they are all pointing elsewhere in the race to pin blame for health costs.
While the focus has been overly on insurers, a Feb. 25 study in Health Affairs by authors from a non partisan research group shows how hospitals and doctors bear much responsibility. The negotiating power lies with consolidated hospital chains facing little competition, and physicians increasingly banding together to command yearly double digit payment increases. (The study is limited to California, so it does not touch upon the national scarcity of doctors that contributes to their leverage.)
So how can Obama's administration including the HHS help simply by putting the facts out? One example is making widely available Medicare's true rates data, as described in my Nov. 21, '09 post. Another is shedding light on "true" doctor earnings.
Doctor and clinical services make up 21% of all US health care expenses, or half a trillion dollars annually. And this does not include the significant chunk going to salaried doctors directly employed by hospitals that account for an even larger 31% of total expenses. It is common knowledge that US doctors make much more than their counterparts elsewhere. According to available statistics it is twice or thrice as much as in other industrial countries. There are plenty of surveys on US physician earnings, but even these understate reality as elaborated subsequently.
This information is important for many reasons:
- It helps justify what are reasonable payments under the existing system, by Medicare as well as other payers who often use Medicare rates as a basis for their own negotiations. Medicare payment cuts to physicians under the Sustainable Growth Rate (SGR) legislation have been threatened since 2002 and amount to over 21% for 2010. Facing doctor protests, Congress has always suspended any cuts after 2002 and the whole formula will likely be scrapped under pending new legislation. Any new system should factor in reliably ascertained doctor earnings.
- It enables comparison of doctor earnings across specialties within the US, as well as across countries, particularly the first world peer economies. This tells us where the health dollars are going, and high salaries as a group are likely to indicate scarcity in specialties, needing policy corrections.
- It helps to determine if the problem is one of egregious waste or of egregious overpayment, and to consequently identify appropriate solutions. For example, a diagnostic radiologist drew in revenues averaging $1.46 million while earning "only" $438,000. Where does the remaining $1 million go? (It's not towards equipment and its usage as that is billed separately.) If it's mostly waste then a different model (say of radiologists employed on fixed monthly salary with reasonable performance bonus) can save a lot. On the other hand, the real earnings may simply be much higher than even the reported numbers. That strengthens the case for bringing them down through cutting payments, increasing radiologist supply domestically, and trade options.
While the reported earnings of US doctors have attracted some attention for quite a while, even these figures likely heavily underestimate true earnings for the following reasons:
- Almost all estimations are based on optional surveys with no penalties or safeguards against incorrect answers by doctors or other respondents. Doctors are acutely aware of public sensitivities about their earnings, and how this can impact Medicare payment rates that largely underpin their entire compensation structure. So they have every reason to under-report earnings.
- The studies most relied upon like the Occupational Employment Statistics and AMGA survey only include salaried physicians. According to BLS, self-employed physicians overall earn more than salaried ones, thus skewing the results downwards. Even including the self-employed may not help, given the greater propensity and leeway in this category to understate earnings.
- The response rate in these surveys is very low (e.g., under 9% according to p. 10 and p. 18 of the AMGA 2009 Executive Summary.) If the higher earning practices are reluctant to disclose "inconvenient truths" and shy away from participating, this again skews numbers downwards.
For all these reasons the Obama administration should compile the true doctor earnings statistics and make them public without further delay. This is a purely administrative task needing no legislative clearance and can even be done entirely under the political radar.
What's more, there's a ridiculously simple, quick and cheap way to accomplish this. How? By tapping into the already available sea of past IRS audited data on physician tax returns. Physicians as a higher earning group would have a higher proportion of returns subjected to audit. These audited returns will yield a much better representative, "non-optional" sample, not just for correct earnings but also to study expense patterns to identify waste and scope for reforms.
Monday, January 25, 2010
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:
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.
Thursday, December 10, 2009
The (Deliberately?) Overlooked Promise of Free Trade in Health Care
Congress labors to find savings of about $900B over 10 years to fund pending health care reforms and covering the uninsured. It has even cut $43B or 13% of Medicare spending on home care, which is arguably a cheap and efficient alternative to far more expensive hospital or nursing home care.
Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)
Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.
Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.
Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.
What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?
Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.
Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.
This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.
The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.
In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.
Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)
Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.
Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.
Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.
What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?
Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.
Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.
This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.
The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.
In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.
Saturday, November 21, 2009
Bad Medicare Data Thwarts Good Policy
In August 2006 even George Bush tried doing something right in health care. He asked his public health agencies to make pricing and payment to providers information transparent and publicly available.
Till then Medicare and the like kept such information secret or very hard to access, ostensibly to give them better negotiating leverage with providers. I think (having been in government) it's just the natural way of bureaucrats. The less information they put out there, the less vulnerable they are to any criticism, and more able to dispense favors or act arbitrarily.
But there are very good reasons to make Medicare rates and payment information freely available, especially when health reforms are such a priority:
$1.4 billion? This sum is ridiculously low compared to our own calculations mentioned in our Global HealthNet website and summarized in our May 2008 WSJ Op-Ed. There were $220 billion worth of 30 "exportable" medical procedures performed in 2006, and if 25% were performed abroad, $45 billion would be saved. And this does not factor in savings due to US hospitals lowering prices due to foreign competition. Mattoo looked at only 15 procedures and used a 10% participation rate, but that doesn't come close to explaining the difference between $1.4 billion and $45 billion.
The biggest culprit I see is the flawed Medicare payment data put out by CMS and relied upon by Mattoo. It leads to average payments being heavily under-estimated. Here's how CMS has slipped up:
The resources needed for this appear to be absurdly meager - I'd think a couple each of in house programmers, data base professionals and statisticians working for a few days. The directives have long been in place so it does not need any legislative, political or even top administrative clearance. In absence of this ready data we are paying a high price by mulling political options and policies in a vacuum. HHS or CMS shouldn't lose any more time correcting the situation.
Till then Medicare and the like kept such information secret or very hard to access, ostensibly to give them better negotiating leverage with providers. I think (having been in government) it's just the natural way of bureaucrats. The less information they put out there, the less vulnerable they are to any criticism, and more able to dispense favors or act arbitrarily.
But there are very good reasons to make Medicare rates and payment information freely available, especially when health reforms are such a priority:
- Hospitals have long maintained they lose money on Medicare patients and hence need higher private insurance and "list" rates as a cross-subsidy. The media and analysts have never properly verified these claims. They and policy makers can do so with more easily available data, and compare Medicare payments with those in Europe and other countries to evaluate their fairness.
- Doctors too complain about low Medicare rates and especially the cuts required in them by federal law. A cut of 10.6% was eliminated for 2009, and just two days back the 21.2% cut for 2010. Precisely knowing and assessing these rates will again better shape payment policy.
- The difference in rates and average payments across provider groups and regions can identify the outliers. Thus excessive prices and inefficiencies can be curbed while studying the most cost efficient providers for propagating best practices. Atul Gawande's Jan. 26, 2009 article in the New Yorker that so impressed President Obama shows one way to do this.
- US Medicare payments can be compared with prices charged abroad. This will highlight the achievable savings that are being studiously ignored in the current health care reforms debate. The Wall Street Journal's front page story today was of Dr. Devi Shetty's $2,000 heart bypass surgeries in India with quality and outcomes comparable to those in the US. But even top foreign providers serving medical tourists that charge $10,000 for a heart bypass offer enormous savings as they are a fifth of US prices.
$1.4 billion? This sum is ridiculously low compared to our own calculations mentioned in our Global HealthNet website and summarized in our May 2008 WSJ Op-Ed. There were $220 billion worth of 30 "exportable" medical procedures performed in 2006, and if 25% were performed abroad, $45 billion would be saved. And this does not factor in savings due to US hospitals lowering prices due to foreign competition. Mattoo looked at only 15 procedures and used a 10% participation rate, but that doesn't come close to explaining the difference between $1.4 billion and $45 billion.
The biggest culprit I see is the flawed Medicare payment data put out by CMS and relied upon by Mattoo. It leads to average payments being heavily under-estimated. Here's how CMS has slipped up:
- Foreign hospitals readily provide a consolidated estimate for standard procedures and a single final bill. But US treatments typically generate a flood of separate bills from providers (individual physicians, radiologists, therapists, device vendors, different hospital services, etc.) CMS inexplicably fails to list or specify all such components so researchers are very likely to miss major ones.
- Even the figures presented seem to be wrong. For instance, they show 42,000 heart bypasses (CABG) for Medicare recipients in 2006 with average hospital payments of $22,700 (or $33,100 for complex cases) that are only 30% of the charges. But the federal HCUP database itself shows 127,000 Medicare CABG cases and says payments average 55% of charges. (It can be about 46% for Medicare that typically pays 83% of private insurer rates but that's still a lot more than 30%.) Similarly, CMS shows under $12,000 Medicare payment to hospitals for knee or hip replacements, that again seems grossly understated at 30% of charges. Among other things it looks here that CMS omitted the sizable cost of orthopedic implants.
- To see how wrong data can skew savings calculations, consider a heart bypass that costs a total of $19,000 in a "5 star" Indian hospital including all treatment, travel and stay. If we take the US total payment to be $26,000 then the savings are $7,000 per case. But if total US payments are a more realistic $65,000 then the savings are $46,000, an over six-fold increase.
- CMS also makes it needlessly hard to find this supposedly very open payment information online. If you have a little time, visit their website and see if and how quickly you can find this before reading further. Of all places it is tucked away in "Research, Data,..." under "Health Care Consumer Initiatives."
The resources needed for this appear to be absurdly meager - I'd think a couple each of in house programmers, data base professionals and statisticians working for a few days. The directives have long been in place so it does not need any legislative, political or even top administrative clearance. In absence of this ready data we are paying a high price by mulling political options and policies in a vacuum. HHS or CMS shouldn't lose any more time correcting the situation.
Wednesday, September 16, 2009
Northern Myth Busting
We shouldn't generalize about the state of health care from individual anecdotal accounts. But these blog posts in part 1 and part 2 back from February of 2008 by Sara Robinson are good testimony from someone who has seen both the Canadian and US systems from up close. Moreover, in debunking and occasionally confirming claims about the Canadian system she cites facts and statistics that corroborate her first hand experiences. In a word she says Canadian care is at least B grade for every Canadian, while for much higher cost US care is A grade for some Americans, and C or D grade for many.
More recently on September 10, 2009 she described her efficient and worry-free hospitalization and treatment in Canada on the very day of President Obama's health care speech to Congress.
But if you've time and appetite to look up just one item I'd recommend this entertaining link sent to me by single payer advocate Jonathan Starr. It features Canadian Steven Lewis exposing US health care myths and deficiencies with music, sarcasm, facts and humor.
At the bottom of this clip is a link to a longer and more serious expose titled "Universal Health Care Message to Americans From Canadian Doctors & Health Care Experts." Canadian health care is overall better and more cost effective than that in the US, though I prefer private insurers to be allowed to offer competing choices as in many European countries. That private competition is what all serious US reform proposals envisage anyway, though private insurers rightly fear most people will opt for the the public option if they're allowed to do so.
What about opponents of changes in US health care? Here is a clip of town hall protests on 8/29/09 against health reform in Spring Valley, CA. As I commented to some friends it's scary if these are "ordinary Americans". They remind me of the 2006 movie "Idiocracy" where future generations become retarded.
Too bad that Democratic leaders like Senate Finance Committee Chairman Max Baucus seem to have heeded such sentiments. After wasting months seeking a bipartisan solution he came up with an ineffectual Senate bill without a public option that's a sellout to the insurance industry. Surprisingly he still didn't get any of the Republican members of the "Gang of Six" to sign on.
The only way I'd view Mr. Baucus' efforts positively (or even Mr. Obama's to date) is if this bill has been conceived just get something past the Senate including their own Blue Dogs. And then the plan is to introduce effective changes like a strong public option through the reconciliation process solely with Democratic support.
More recently on September 10, 2009 she described her efficient and worry-free hospitalization and treatment in Canada on the very day of President Obama's health care speech to Congress.
But if you've time and appetite to look up just one item I'd recommend this entertaining link sent to me by single payer advocate Jonathan Starr. It features Canadian Steven Lewis exposing US health care myths and deficiencies with music, sarcasm, facts and humor.
At the bottom of this clip is a link to a longer and more serious expose titled "Universal Health Care Message to Americans From Canadian Doctors & Health Care Experts." Canadian health care is overall better and more cost effective than that in the US, though I prefer private insurers to be allowed to offer competing choices as in many European countries. That private competition is what all serious US reform proposals envisage anyway, though private insurers rightly fear most people will opt for the the public option if they're allowed to do so.
What about opponents of changes in US health care? Here is a clip of town hall protests on 8/29/09 against health reform in Spring Valley, CA. As I commented to some friends it's scary if these are "ordinary Americans". They remind me of the 2006 movie "Idiocracy" where future generations become retarded.
Too bad that Democratic leaders like Senate Finance Committee Chairman Max Baucus seem to have heeded such sentiments. After wasting months seeking a bipartisan solution he came up with an ineffectual Senate bill without a public option that's a sellout to the insurance industry. Surprisingly he still didn't get any of the Republican members of the "Gang of Six" to sign on.
The only way I'd view Mr. Baucus' efforts positively (or even Mr. Obama's to date) is if this bill has been conceived just get something past the Senate including their own Blue Dogs. And then the plan is to introduce effective changes like a strong public option through the reconciliation process solely with Democratic support.
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