Will Telemedicine Save Money?

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

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

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

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

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

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

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.

States Can Lower Prices If DC Won't

Mitt Romney's pick of Paul Ryan as his VP running mate ensures that the Medicare and health care debate takes center stage.  It should be a strong card for the Democrats though Republicans may succeed in confusing voters as to who really threatens Medicare.  Neither side calls out the prime cause of our unmanageable health care costs - the prices - nor surprisingly does most of the media.  For example the NY Times on Aug. 21 in its extensive and otherwise well written "Rationing Health Care More Fairly" makes no mention of this elephant in the room.

Actually, our problems disappear - with no need for rationing benefits or giving up on universal coverage - if our health prices are halved so as to approach those in "expensive" Europe.  The steps we need are listed in my March 28, '11 post, and none of these are administratively or legislatively hard if you strip out special interest politics.

It's the last that stands in the way of reforms that would lower tariffs, as health industry players either pay or intimidate most lawmakers, though a few may (still!) just be in the dark.  Ideology has little to do with it, since Republicans should favor increased competition and supply based economics.  Yet they are often complicit in protecting providers from market forces. 

President Obama missed a huge opportunity in 2009 to early 2010 when he faced Republican (and a sliver of Blue Dog Democratic) intransigence on key reform proposals like a strong public option.  Had he and his advisers been more astute they would have switched to simply pushing to lower the age for Medicare from 65 to 55 (or even 25).  This move towards "Medicare for All" would have been far simpler, easily understood and popular with the public.  And above all, it needed only 50 Senate votes to pass through "Reconciliation", instead of the 60 to break a filibuster.  This near-single payer model with more buying leverage could push down prices, with part of the public savings going to allow tax breaks for those receiving employer health coverage.  So it could make almost all payers and patients better off, and be a lot more difficult to demonize.

Instead, we've ended up with an inferior and far more complicated Affordable Care Act that commendably extends coverage but does little to control costs. Where do we go from here? Washington is paralyzed ahead of the elections, and may largely remain so afterwards.  Even if Democrats beat the odds to win the Presidency and both houses of Congress, health lobbies need to win over just a handful among them to stymie measures that would lower prices.  So don't count on Congress.

But there's good news.  Individual states can achieve a lot of price reductions on their own, and more so with support from just the President's Administration.   That's because states have much control over the key factors behind high prices - supply constraints like a scarcity of doctors; hospitals facing little competition; and wasteful practices and regulations. 

Here are key steps that states can take on their own:

• Eliminate physician shortages with the help of foreign doctors.   The existing license requirements typically include clearing all three parts of an examination (USMLE) that in turn require completing at least a year of US residency. But states can set up parallel criteria to let foreign doctors without such residency get licensed to practice within the entire state or even just sub-regions designated as underserved areas. The states of course can and should emphasize quality, restricting eligibility only to candidates who have substantial experience and are trained in reputed, approved institutions, so they are expected to be on par or better than their typical US counterparts. They should clear the USMLE provided the doctor dominated bodies sponsoring the tests agree to let them participate.  Once US doctor bodies realize that they cannot restrict physician supply they'll likely go along with changes that allow the US to meet future requirements internally.

• Use the same licensing procedure as above to allow foreign doctors based in their home countries to practice telemedicine on US patients in the state.  In an April 2011 narrative I had explained how effective and inexpensive this could be.  A local nurse can act as the hands of the foreign doctors who see and treat patients through videoconferencing with such an office visit costing a third to a sixth of typical US rates.  So even the uninsured get a huge relief.  With ready availability of such doctors wait times can be eliminated and patients can see their doctors as needed on a walk-in basis.  Medicare under section 1834(m) of the Social Security Act allows payments for such telehealth services.

• Enable and encourage good foreign managed hospitals to set up shop.   This includes easing state rules that hold up hospital creation in general, like the CON (Certificate of Need) laws.    We need more hospitals regardless of ownership simply to reduce the market power of incumbents.  But foreign-run hospitals with their cost efficiency will change the whole dynamic, forcing others around them to adapt and lower prices dramatically.  These hospitals typically employ their own doctors, so ensuring availability by importing more doctors as above ties in well with this proposal. 

• Complement HHS measures to reduce unnecessary, burdensome or obsolete regulations on hospitals and healthcare providers. An obvious one to consider is malpractice caps even though it's more of an excuse for, than a cause of, high prices and costs.

 States have little control over some aspects.  For example, drug prices can largely be impacted only by federal measures, as by allowing drug imports from other countires, or for Medicare or CMS to directly negotiate prices.  Medical tourism (sending patients abroad) under public funding is not possible without changes to sections 1812, 1814(f)(1) and 1862(a)(4) of the Social Security Act.

In other matters states can achieve much on their own, and more so with minor federal support.  For example, states can license foreign doctors to practice here, but their visa and work authorization falls within federal purview.  An expansion of J or H-1B visas for doctors will certainly help, though even without it states will be able to get doctors under existing rules, or from countries whose citizens have less restrictions.  And then again, we may get foreign doctors who first come into the US for other reasons, or immigrate after marrying US citizens.

 Which states are most likely or suited to take the lead in such measures?  Almost all can hugely benefit, whether they are Democratic or Republican, because the massive cost savings can be used to fill budget holes, extend coverage or lower taxes depending on ideology.  California has often led in path breaking legislation and is a top candidate. Its crisis of budgetary shortfall and desire to continue providing generous Medicare ("Medi-Cal") benefits while avoiding other cuts lend further impetus for it to act.  Other such states with centrist and innovative leadership that come to mind are New York, Illinois and New Jersey.  And while they can easily act individually they may even consult and band together for a common approach.  Once experiments like this succeed, other states and even Washington should soon jump in.

Won't health interests on getting wind of any impending changes in the states jump to exert the same kind of influence as they do in Washington to block them?  Very likely yes. That's why payers who enormously benefit from lower costs should be prepared to ensure these reforms don't get derailed.  The best suited for such a role are the large employers.  I have long maintained that their National Business Group on Health should focus on becoming a potent counter-lobby to push for politically difficult reforms that enormously benefit payers and patients.  The other thing in favor of state reforms is that their budget gaps are more dire, they cannot print their own money and gain more from healthcare savings.

 When it comes to fixing healthcare prices states should rush in when the US fears to tread.

Obamacare Lives, Now Let Trade Really Heal Health Care

The US Supreme Court verdict on the Affordable Care Act (Obamacare) is out and largely upholds key provisions.  These include the mandate to have insurance (though only as a form of a tax rather than as a more drastic coercion.)  So Obama and the Democrats should be celebrating. 

But this law and the judgement focus on health coverage for everyone, and barely touch the biggest problem affecting most Americans, which is the high and soaring cost of health care.  This puts a huge burden on payers, hamstrings international competitiveness of US labor, and squeezes out public investments in education, scientific research, infrastructure, and even defense.  Moreover it threatens to devastate public budgets with future escalations. 

Heeding our advice in a WSJ Op-Ed four years ago would have already made a huge difference today.  As I said earlier, trade is critical to rescuing our dysfunctional health care system.  To see why, look at the dominant cause of high costs and how trade corrects this with speed and efficacy that can't be matched by other options, while maintaining or improving the quality of care.

Why is health spending in the US so high? This is the topic of a special writeup by OECD accompanying "Health at a Glance 2011: OECD Indicators", addressing it more honestly than the US experts and academics with industry ties. Simply put, the key reason is outrageous prices that are 2-3 times those in "expensive" West Europe, not to speak of much higher multiples of Asia's best providers.

And what causes providers to over-price?  It is largely their market power arising from an artificially constrained doctor supply and a lack of hospital competition.

For decades private doctor bodies have determined the number of residencies that control the number of doctors entering the profession. This flies in the face of a free market for jobs. Then in 1997 a Gingrich/Republican controlled Congress in the guise of spending control further helped doctor cartels by capping all future medical residencies at 1996 levels. The US has 2.4 doctors per 1000 people, compared to the OECD median of 3.4. Even this doesn't reflect the true differences in availability, as US doctors on average spend less time seeing patients. This is due to more of their time being wasted dealing with complex insurance plans, regulations and payment procures, and other steps to protect themselves in a litigious environment. The US also has a higher proportion of women doctors (who typically work shorter hours). 

The market power of our hospitals enables them to be paid almost $4,000 per hospital day compared to under $700 for West European hospitals, according to the 2011 Comparative Price Report by IFHP (P.8) Hospital consolidations since the early 1990s have jacked up prices, in combination with a faulty "cost plus" payment system that rewards or at least condones inefficient and wasteful operations. A February 2006 RWJF report finds (p. 4) that 90% of MSAs (metropolitan areas) face concentrated markets.  The situation is worse in less populated areas where payers may have to accept prices set by the only hospital in the area.

Are there other reasons for high prices?  Sure there are, like private insurance complexity and middleman inefficiencies that add about 15% according to a 2003 Woolhandler, et al, study published in NEJM. Then there are lesser factors like malpractice burden and cross-subsidy for write-offs for unpaid treatment of the uninsured, but these tend to be little more than red herrings or excuses.  Malpractice premiums are only 3.5% of revenues and 7% of income according to a Health Affairs May 2006 study based on AMA data that is arguably skewed to play up such costs. And for unpaid hospital bills, they're just $49B (USA Today, May 9, '11, that too at the vastly inflated list prices) as compared to hospital receipts of $759B (Table 128 of Health, 2011 by CDC). So they contribute less than 5% to prices. In sum the main reason for our excessive prices is that providers can get away with them, aided by market power and supply scarcities.

Trade can transform this health care landscape, with speed and efficacy unmatched by any alternatives.  This trade should take several forms, allowing foreign providers to (a) come to the US and practice medicine, (b) set up hospitals here, (c) deliver health services remotely, and (d) treat US patients sent abroad to them.  These are explained below:

About increasing doctor supply internally, after - and if -  plans are put in motion to educate and train more doctors, it will take a decade before the first of them enter practice.  Then it will take another decade or more for the deficit to be corrected. In contrast well conceived trade planning allows us to set standards and allow in highly qualified foreign doctors so we have enough within a year or two, augmenting our supply by up to 200,000 doctors to attain European averages. And yes, we can still put in place long term plans to internally meet doctor supply needs in the more distant future.

Establishing more domestically run hospitals will not suffice because it's not just a matter of increasing competition among more of their own. Their managers need to unlearn the ways they've operated all this while, and then internalize and implement radically different procedures. Second, they'll be weighed down by their own legacy of suboptimal decisions and agreements with constituents like health worker unions.  In contrast, foreign management can far more easily adapt their low cost systems to accommodate US regulations and circumstances. It's the concept of reverse innovation that will have US hospitals seeing foreign managed competitors operating beside them at a third of the cost and impel them to follow suit.

Thanks to global connectivity and broadband, remotely delivered services already include diagnostic reports by radiologists ("nighthawking") based in other countries, though only if they're US trained and certified. The concept should be vastly extended by allowing a broad swathe of highly qualified foreign doctors to take US board exams (just like domestic doctors who complete residency here).  They should then be licensed to serve US patients, including through videoconferencing. Such consultations will cost a fraction of US rates, and the enhanced availability may eliminate any waits or need for prior appointments.  Patients may have a US based nurse to assist in physical examinations and use of local equipment. This concept of telehealth in domestic settings has already proved to work well, with even better outcomes than for in person visits, according to a June 25, 2012 report in FierceHealthIT. It should work just as well with foreign doctors.

Medical outbound travel abroad for much cheaper treatment with same or better quality has now become well known.  The fraction of US patients availing this is still quite low because it is limited to the uninsured and the self-payers, since insurers have been reluctant to offer this for fear of legal exposure. All this can change if Medicare and Medicaid start sending patients abroad, while passing on some cost savings to them. Private insurers following exactly the same standards and procedures will have some legal protection against allegations of negligence, and malpractice caps will further encourage them to offer this.  Other than direct savings, medical travel options will also siphon off domestic demand for procedures, likely increasing leverage of payers in negotiating rates with US providers.

How much can all this save?  Our combined proposals make them nearly as trade-able as goods, so trade in health services can drop US prices to levels in Germany or the Netherlands that (like us) don't have a single payer system. Such price drops should cause our expenditures as percent of GDP to decline the same way.  For the US it was 17.9% in 2010 and presently rising to 19.6% of GDP per CMS projections of health expenses (2011-2021), as compared to the German and Dutch 12% in 2010, and about 14% by 2021.

The impact of actually reversing our rising trend and instead lowering expenditures from the projected 19.6% to say 15% of GDP by 2021, will be monumental.  It will mean our total national health expenditure of $2.59 trillion in 2010 rises to $3.66 trillion in 2021 instead of the projected $4.78 trillion, and per capita expenditure of 8,402 in 2010 rises to $10,790 in 2021 instead of to $14,100.  Since CMS projects that half of the total expenditure is met by public funds (with two thirds of that from the federal budget) this would mean annual taxpayer savings of $560B in 2021 of which $370B are in the federal budget.  This should please Democrats and Republicans alike as it goes a long way to let us to keep entitlements and development programs while not raising taxes or the deficit.

What then stands in the way of such trade?  It's the special interests in the health industry of course, in particular the providers who have influence in both parties though more so among the Republicans.  But countervailing pressures to balance budgets without raising taxes may (finally) give the impetus for change, even if it is after election season.  Obama has been opportunistically attacking Romney on outsourcing during his time at Bain. So both candidate may find it difficult to appear open to a new form of trade regardless of its merits.  Fortunately, November is not far away, and after that embracing trade by whoever wins is the best way to progress from widening the blanket of care through insurance to solving the even bigger problem of affording it.

Trade Can Cover All, Regardless Of Verdict

Trade can be key to solving our health related financial morass, though its best path of introduction and usage depends on a much awaited Supreme Court judgment on ObamaCare.

Objective legal experts say that the law including the mandate for everyone to have insurance is a valid exercise of federal authority and should be upheld.  But Bush v, Gore (2000) or Citizens United (2010) show that the conservative majority can go out of its way to help out the party that put them on the bench.

Regardless of the Court challenge the health law and other reforms have a vital shortcoming.  They hardly address the massive and surging healthcare costs that swamp our budgets and drag down our economy.  The two political sides have opposite priorities on publicly funded care.

Obama and the Democrats pushed through affordable care for all without a way to pay for it, particularly in outer years as projected expenditures escalate. The Republicans led by Paul Ryan want to limit public expenditures through fixed payments to future Medicare recipients or block grants to states for Medicaid. This likely transfers cost escalations to hapless patients and shreds the safety net.

Both sides are beholden to industry interests (though Republicans probably more so than Democrats) and hence are unwilling to address over-pricing as a root cause of rampant health costs.  With Medicare and Social Security slipping closer to insolvency, there is public pressure on lawmakers and leaders to maintain entitlements while controlling budgets. And it can all be accomplished with trade in a combination of its four forms.  These are (a) allowing medical services to be remotely delivered from abroad, (b) sending patients for treatment abroad, (c) letting foreign providers set up hospitals here, and (d) bringing in foreign doctors.

By importing market competition and best practices worldwide, trade can lower US medical prices to 120% - 130% of those in West Europe, instead of the 200%-300% presently, with same or better quality.  As trade and its benefits take hold the savings will show up as a flattening of the total expenditures in nominal dollars rather than a sudden dramatic dip.  Health expenses as a proportion of GDP will trend down slightly (instead of going up steeply as per historic extrapolation and current projections), approaching those in Europe. This frees up immense resources to avoid future tax hikes even after extending health care to the currently uninsured.

Yes, medical trade promises extreme benefits, though the precise manner in which it is deployed and utilized depends on the forthcoming supreme court decision.  There are two broad scenarios.

 If Obamacare is upheld in its entirety then everyone is required to have insurance and most will comply.  The economic issue for payers and insurers is to keep down the premiums or the cost per covered member.  All the four modes (kinds) of trade contribute substantially to this.  Legislative and regulatory steps to allow such trade will lower prices and make the burden manageable for taxpayers and private employers. 

What if Obamacare is largely upheld but the individual mandate is struck down? It creates a new problem of some people not buying insurance unless and until they get sick, which upends insurers who are required to keep premiums low.  But as it turns out the same path of deploying trade mitigates this problem and combines well with other ways to address it. 

An April 5, 2012 article in BusinessWeek describes how "Obamacare Can Live Even If The Mandate Dies."  It primarily talks about alternative ways to prod healthy people to get insurance and points out how penalties under the mandate are quite light anyway.  It proposes converting the stick of the insurance requirement into a carrot of a tax credit for those who do buy it in advance.  Another option is having a limited open enrollment period for buying cheap insurance or higher prices for late enrollment.

Trade complements these measures by greatly lowering the price of medical services and hence the corresponding premiums, making healthy people more willing to enroll. Also, for those who still don't enroll till they are seriously ill, the cheaper treatment means that insurers take a smaller hit when they are forced to cover preexisting conditions.

 There's the other possibility (I wouldn't bet on it but you never know) that the Supreme Court will invalidate the entire Affordable Care Act. This would leave the uninsured in the same plight that they are in now.  Here trade still can and should be used to lower the price of care for those do have insurance.  But in addition intelligently deployed trade can transform care for the uninsured who currently face neglect or crippling bills if they get sick. 

Best of all, it can be done by the state government by changing their own regulations without need for federal action, and with no additional budgetary burden.

This is because the laws and rules about establishing medical facilities, who can practice medicine and prescribe drugs, malpractice caps and the licensing process are all largely state subjects.  The state can allow and facilitate trade and even accredit some agencies to enable their residents to access foreign medical services with some assurance of quality.  Moreover if this is done at a much lower price point, the uninsured can afford to easily self-pay in full for these services.

In my April 7, 2011 post is a narrative of how such services can be availed.  A patient could walk into a clinic staffed with a nurse for an instant video conference "visit" with a good primary care or specialist doctor sitting in India. The doctor "examines" the patient with the help of the local nurse, prescribes medicines, diagnostics and treatment as required, and this office visit costs $25 - $40.  Even preventive care and routine physicals can be easily availed this way.  MRIs and CT scans?  These could be done by US based foreign managed centers with data transmitted to and reported upon by Indian radiologists at $200 - $400 a pop, as compared to $1,000 - $2,500 presently paid to US providers.  X-rays and even blood lab tests can be offshored for comparable savings.

Medical travel to reputed foreign facilities, preferably through agencies vetted by the state government, can be a viable option for major treatment.  Heart surgeries, angioplasties, and hip or knee replacements can be performed abroad for $10,000 - $15,000 all inclusive, as compared to $40,000 - $100.000+ that US hospitals charge for uninsured patients.  These much lower expenses can be met by many of the uninsured without driving them to financial ruin.

In other words the state governments here would be easing their laws and regulations to enable external competition to make prices plummet without sacrificing quality.  With or without Obamacare this will bring us closer to affordable health care for all, without burdening taxpayers. 

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. 



  

Beat The Deficit And Health Costs With Trade

Trade in health services can allow Republicans to have their cake (of no new taxes) and Democrats to eat it too (no cut in entitlements) - all the while keeping the US deficit stable.  Here's how it all adds up:

• Keeping the US deficit stable requires control over spending, including on entitlement programs that already make up about 40% of the federal budget, and are rising.
• Of the entitlement programs, health care expenses are by far the dominant problem. CBO's long term outlook (p. 8, Table 1.2) shows social security rises from 4.8% of GDP in 2011 to "only" 5.3% in 2021 and 6.1% in 2035. In contrast public health expenses (Medicare, Medicaid, etc.) rise from 5.6% of GDP in 2011 to 7% in 2021 and 10% in 2035.
•  The high US health costs are primarily due to over-pricing as I explained on June 17, and not because Americans receive excessive or unneeded care.  Our medical care is over twice as expensive as in West Europe and 5-10 as much as in popular Asian medical travel destinations with equal or better outcomes.
• An obvious (but overlooked) solution is for the US to incorporate the best features of West European and other foreign health systems.  Many such changes as I listed on March 28 will be slow and take over a decade to show results, while others just won't happen due to entrenched practices, politics or industry resistance.  
• But trade in health services per my narrative on April 7 rapidly increases provider supply and injects competition.  This can dramatically lower price points starting in as little as a year.  Foreign managed hospitals with operational systems that are radically more efficient and cost effective will force incumbents to transform. The resultant savings of trillions of dollars can preserve entitlement programs while containing the deficit.  The reduced health care overhead also makes US labor more competitive and attractive to employers, creating many times more jobs overall than unproductive ones lost in the health sector.

What are the consequent savings?  I had outlined these on July 31, 2010 over the next decade under some realistic assumptions for the four types of health services trade:

• Remotely delivered services.  Types of off-shored telemedicine can easily replace a fourth of primary care visits and diagnostic radiology analysis, as well as a tenth of specialist visits, and all at a fifth of the cost.  This will save $267B of health care expenditure including $133B in public funds.
• 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.  There are some 30 major procedures of which a fourth can be off-shored for $950B in overall savings, half of this in public funds.
• Allowing and encouraging foreign entities to set up hospitals here will improve coverage in under-served areas 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.  We project resultant savings of $2.73 trillion, including $1.36 trillion 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.  They shouldn't require a US medical residency, but would have to clear the applicable US board exams.  Their visas can also be tied to practicing in designated under-served areas.  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.  These prices can go down by 23.5% to the Medicare rates dictated by the (never implemented) SGR formula that are still generous by European standards. That saves $1.26 trillion, with $630B of this in public funds.

This means that over the next decade trade in health services alone can save $5.2 trillion of health care expenditures, including $2.6 trillion in public funds. This exceeds the $2.4 spending reduction deal reached by Congress and Obama to raise the debt ceiling.  It also goes a long way towards achieving the $4 trillion deficit reduction recommended by the bipartisan Simpson-Bowles Commission (p.14) in December 2010.  A more aggressive trade in health services may even by itself achieve the entire $4 trillion of savings.  Or the many other health reforms being discussed can close the gap, without needing any revenue (tax) increases or other cuts elsewhere.

Also, as I said at the beginning, none of the trade initiatives is a deal breaker for leaders and lawmakers of either party.  The Republicans don't have to agree to raising taxes, or to a bigger governmental role, as in single payer or "Medicare for all" (which is a lot more efficient than our private insurance model, but never mind.)  Lower prices result from introduction of more genuine market competition that Republicans (at least ostensibly) support. Democrats on the other hand can see the entitlement benefits protected and maintained, or even expanded within the same spending limits.

There is of course still the unstated concern of politicians about the consequences of these measures on lavish financing and contributions to them by the health care industry.  This is where as I said on April 21 the influential payers who benefit so handsomely from such price reductions can make offsetting contributions through bodies such as the NBGH to help leaders do the right thing.

The US has ignored this immensely promising solution of trade in health services to our deficit and rampant health expenditures for too long.  All it needs is political will and for this, with other options running out, the timing may now be right.

Do Our Doctor Imports Hurt Their Home Countries?

The US has only about two thirds of Europe's per capita availability of doctors.  This scarcity is the largest cause of severe overpricing of medical services that underlies the US health care crisis.  Any sensible policy should massively expand the domestic pipeline of doctor supply, but there's a decade's gap between initiating such long overdue measures and boosting the ranks of trained doctors.

The immediate solution is to import highly qualified and experienced doctors from accredited medical institutions around the world that can be put in place in as little as a year or two. Attracting such doctors is easy as actual US physician earnings are about thrice those in Europe and tenfold over their peers in developing countries.  Setting high standards and requiring these foreign doctors to clear the same board exams as domestic doctors should address any real or feigned concerns about quality of care.

Objectors also cite the plight of countries like India (a front page WSJ story on July 30) whose best doctors are ideal candidates because of their qualifications, salary differential, and fluency in English.  They say India already has much fewer doctors per capita, and its populace will suffer further hardship if the US poaches their top medical practitioners.  Such concerns by US doctors and their proxies are probably self serving and hypocritical, aimed at preserving their "scarcity premium" and thwarting competition in their home turf.  It is like US workers opposing imports out of professed solidarity with foreign workers toiling in sweat shops.

I had briefly countered in my June 27, 2010 post that remittances to, and investments in their country of origin by immigrant US doctors should by themselves generate enough resources to train several more doctors.  But in our collaborative work Prof. Jagdish Bhagwati has been questioned about this "brain drain" even by some policy advisers with legitimate concerns about the donor countries.  So here's more elaboration for why the benefits of this free flow of doctors should exceed the costs for a donor country like India:

1. Remittances finance replacement doctors.  As compared to the US, India is not only far more cost efficient in medical treatment but also in training doctors.  And it's not just because US and Canadian medical schools absurdly require entrants to be college graduates, unlike medical schools elsewhere that only require completion of high school.  It's also that quality education in India costs only 10%-20% annually of the tab in USA.  So while the 11 or more years of post high school that it takes to get a doctor through residency in the US costs about $600,000, training to the same level in India in 7 years costs about $40,000.

Consider now remittances and money flow benefits by emigrant doctors which have never been tracked separately.  There are various estimates of remittances by all Indian emigrants, but a US Congressional report has private remittances from the US to India at $3.2B as quoted on Feb. 25, 2011 by the Economic Times.  This comes to 5%-6% of worldwide remittance inflows from the Indian diaspora, estimated by the Indian government to be $40.8B in the eight months from April to December of 2009.  According to the 2009 American Community Survey of the US Census Bureau (S0201) there are 2.6 million Indian immigrants of which 1 million are full time workers, so the annual remittance per worker is $3,200.

But the mean earnings of an Indian worker are $80,000 while doctors average over 4 times this. Taking remittances in the same proportion of earnings, an emigrant Indian doctor would remit $12,000.  Even if we scale this down to half (Prof. Bhagwati thinks the well-off Indians here may not send to relatives back home at the same rate and may instead simply bring them over) that is $6,000 annually. Over a 25 year career span in the US that's $150,000 in remittances alone - enough to train four new Indian doctors for every exported one.  These numbers exclude informal or illegal remittances like hawala transactions - the reason a World Bank report regards official estimates to considerably underestimate actual money flows.

2. Benefits of shared expertize and enhanced country brand.  We saw how countries that banned or restricted emigration during the Iron Curtain years limited the development and vibrancy of their own skilled workforce.  Conversely, the free flow of ideas, knowledge and experience between emigrant Indian professionals and their home country counterparts has enriched and raised professional, including medical, standards in India.  Then there are perceptions in the US.  One in 20 doctors here is of Indian origin which is a reason why patients think well of, and are comfortable with them. That can significantly boost medical tourism to India if and when constraints of politics and worries about legal exposure abate.

3. Outsized contributions by doctors returning home. Indian doctors in the US get first hand experience in the world's best system in terms of quality of health care (even if it's also the least cost effective.)  They have it so good here that in terms of percentage very few return home. But those that do have an immensely positive and transformational impact on Indian medical care.  Most of the top private medical hospitals in India have been founded or are headed by doctors who have practiced in the US or UK.  These include the Apollo Hospitals Group founded by Dr. Pratap Reddy, Escorts and now Medanta - The Medicity set up by Dr. Naresh Trehan, the Asian Heart Institute headed by Dr. Ramakanta Panda, and Narayana Hrudayalaya established by Dr. Devi Shetty.  Within such hospitals are prominent US and UK trained doctors who are renowned for their specialist surgical expertise and have trained many other doctors.

In sum, a free movement of doctors should be a win-win for both the US and the donor country.  Not all imported doctors will come from developing countries, of course.  The enormous earnings differential between the doctors in the US and other first world countries will persist to some extent even if and when US doctor scarcities are addressed.  This will ensure that many doctors from Europe including the most affluent countries like UK, Germany and France will come to the US if they're allowed to practice here.

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Aside: Some other useful background readings and links:

• A 2006 overview of skilled Indian migration to developed and gulf countries by Binod Khadria.
• American FactFinder of the US Census Bureau for US population, demographic and economic data.

How Trade Can Transform US Health Care

 [This post is part of my ongoing collaboration with Prof. Jagdish Bhagwati.]

Imagine that lawmakers come together to solve the health care (and budget) crisis by taking all the steps outlined in my last post.  Intrinsic to their plan is the critical role of trade in health services to achieve quick results.

There are four ways in which such trade occurs. "Arm's length" services are typically found online: The provider and the patient can be physically far apart. In medical travel patients go to doctors elsewhere. A third way is by foreign entities creating and staffing hospitals in the US. Finally, foreign doctors and other medical personnel can be brought to the US to tend to patients here.

A narrative below illustrates how wisely implementing a comprehensive trade policy in health services can transform our health care experience and costs.

Jane isn’t feeling well and goes to a facility staffed by two nurses.  This has some typical medical examination rooms which also include a couple of large LCD screens and a video cam that allow for Skype like videoconferencing.  A nurse asks Jane for the reason for her visit then ushers her into one of these rooms.  The screens lights up and Jane is instantly in video conference with Dr. Gupta, an experienced and highly qualified primary care physician based in India.  Dr. Gupta has cleared the rigorous medical board exams set by the US state Jane resides in, and is licensed to practice telemedicine here. 

It feels as if Dr. Gupta is in the same room as Jane, except that the nurse does all the examining under his directions and reports her findings.  Dr. Gupta then prescribes medication, treatment and follow-up visits if needed.  Also, if Jane needs a specialist like a cardiologist, Dr. Gupta instantly connects her to one.  Cardiologist Dr. Sharma appears on the second screen.  Dr. Gupta briefs Dr. Sharma about Jane and either stays on or hands off to Dr. Sharma who then “examines” Jane with the nurse’s help before prescribing treatment.  Any imaging tests ordered (MRI, PET, CAT, X-Ray) are digitally transmitted and reported on by a certified India based radiologist.


Jane’s insurer pays $10 - $15 for each doctor.  This is twice their domestic rate, and enough incentive for them to have obtained US certification and practice telemedicine.  The insurer also pays $15-$20 to cover the US nurse’s and the facility maintenance charges.  The cost of a typical visit ranges from $25 for a PCP to $45 for a PCP-specialist combo, which is just a third to a sixth of normal US payments. 

Since it is all digitally captured, Jane has the option of saving and retaining her consultation, or having it deleted for privacy reasons.  If she likes these doctors she can ask to see them specifically and schedule future visits accordingly.  She can also anonymously rate them, for the benefit of health authorities and other patients.


If Jane needs a major surgery like hip or knee replacement or a heart bypass, she and a companion can go on an all expenses paid trip to India.  She is treated at a top Indian hospital with a safety record at par or better than US hospitals, and recuperates in a five star hotel before returning home.  Her insurer pays a third in all of what it costs for the procedure in the US.  The incentive for Jane to go is high quality (and even pampered) care with lower chances of complications, and a waiver of all deductibles and co-pays.


Of course, in a majority of situations medical travel is not feasible.  Jane then goes to a new local hospital that is run by a foreign chain that has combined high quality with low cost in hospitals in its home country.  It incorporated its efficiency and superior practices into its US holdings, and is profitable even on reduced Medicare and Medicaid payments. 


When Jane needs to see local doctors she goes to highly experienced and qualified foreign doctors who have been certified to practice after clearing all US board exams.  They are no longer required to undergo US medical residency which was the main impediment to augmenting doctor supply.  Even after Medicaid rate cuts these doctors seeing such patients make many times what they earned back home, and happily accept all patients.


Then there’s Jane’s friend Mary who is very distrustful of foreign health care providers and insists on “all-American” care.  Even Mary is now much better off.  Thanks to the increased supply of providers she no longer has to wait to see her US doctors.  They’re also more attentive now and no longer spurn Medicare or Medicaid patients even after the reduction of rates.  The same holds for her local US hospital that seems to be improving its quality and cost efficiency by learning from the foreign transplants.  Having less market power it too now accepts lower insurer rates.

 So benefits of the trade in health services flow not just to those who directly avail of them, but also to the rest that don’t.  Moreover, the gains come quickly, as early as in 2012, with almost full effects in place in 3-5 years.  As compared to this, purely domestic solutions, for example, of increasing the supply of doctors will take a decade to even begin showing some effect. 

Also, although federal orchestration and coordination is clearly preferable, a lot of the benefits can be availed at the states level by their own legislative and executive action.  That is because many of the impediments to trade in health services originate in, or are at least addressable through state enactments.  These include licensing requirements of qualified foreign doctors, permission to set up hospitals, who can prescribe drugs, and limits of legal exposure.

What will be the impact of such trade on American jobs?  Thanks to the ongoing and projected scarcities among health care providers their loss of jobs will be minimal.  Some like the doctors are likely to see their outsize earning premiums over their European counterparts decrease significantly but will still earn handsomely.  Other medical personnel in short supply may also lose a chunk of their overtime earnings, but are very unlikely to lose their jobs.  In contrast the jobs outside of the health industry should increase since reduced health care overhead makes US labor more attractive to employers.  This should vastly outweigh any decrease in health jobs.

Apart from service improvements and expanded coverage, what are the potential savings?  A lot depends on how this trade is allowed and which modes are emphasized.  But broadly speaking, the “US premium” on the price of health services can easily be brought from the present over 100% to about 30% over the prices in Europe.

Chastened medical providers who presently sneer at Medicaid rates and threaten to turn away Medicare patients if the rates are reduced may instead vie for this business.  In addition to lower domestic prices due to competition, there will be direct savings from off-shored services.  All told, the total US health expenditure can drop from a NHE projected $3.3 trillion in 2014 by over $1 trillion annually, with more than half of this being public funds of CME and the states.  Even in 2012 if action is taken right away to qualify foreign providers, telemedicine and medical travel can kick in to yield relatively painless savings of about $50 billion.

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Dec. 21, 2012 update: Telemedicine within the US is now maturing - see The Atlantic Dec. 11, 2012 article. The same thing can be done with foreign based doctors.

Do This To Fix Health Care And Our Budget

Lawmakers and officials now seem serious about ballooning health care costs, but they're still not addressing the root issues.  They are unaware (or choose to ignore) that the major problem is of overpriced care, not excessive or even wasteful care.

This is actually good news per my previous post, as the fixes for price distortions are relatively straightforward and painless.  That is, except for special industry interests who have bought and wielded a lot of influence.  But they may finally be trumped by public angst, and by other players that benefit from reforms and can compensate lawmakers to do the right thing (more on that in a subsequent post).

So what exactly should be done?  Here's the recipe, in two parts.  The first and major part lowers prices by correcting the scarcities as well as the lack of competition and innovation that have caused US health care to be over twice as expensive as in Europe.  The second part is common sense steps to reduce waste and foolish splurging of resources for minimal benefit.

Here's the road map to lowering prices while increasing availability of resources to expand coverage:

• Increase the supply of doctors as I detailed in my Sept. 11, 2010 post.  This involves expanding medical schools and setting up new ones, both of which allow entry directly from high school with applicants meeting core requirements through AP classes.  Increase the number and support for residencies, while eliminating those caps imposed by doctor dominated bodies like the ACGME and the RRCs whose members benefit from scarcities.  There are over 40% more doctors in Europe on average than in the US.  A change in policy will start increasing domestic supply of doctors after about 10 years, so it is important to import doctors in the mean time, per my June 27, 2010 post.  This should ideally be orchestrated at the federal level, but failing that the states can make changes in licensing requirements on their own. 

• Leverage telemedicine, especially with qualified foreign doctors who can be allowed to treat US patients, as described in my April 30, 2010 post.  This will add to patients' convenience while removing the need for a significant chunk of US doctor office visits and costly readings by US diagnostic radiologists.  Apart from direct savings from payments to foreign providers that are a fraction of US rates, this will expand the availability of US physicians and lower prices here as well. 

• Allow and encourage more hospitals to be set up, particularly those managed by reputed foreign chains, per my June 8, 2010 post.  Cost effective innovations and practices from abroad can really help, in addition to the necessity of competition.  US hospitals should never have been allowed by anti-trust authorities to consolidate as they did since the early 1990's. That has allowed them to jack up prices as there are few alternatives for payers and patients, and 90% of even metropolitan areas in the US now face low or no competition among hospitals.

•  Encourage and allow medical travel abroad as described in my May 13, 2010 post.  The facilities and support infrastructures for this are largely in place so the benefits kick in much faster than through other measures.  Apart from direct cost savings that can be up to 90% for a destination country like India, this again diverts some demand for US hospitals and doctors.  That reduces some of the market power and scarcity premium in pricing in the US, and allows for lower rates here.  If HHS / CMS takes the lead on medical travel for major, "standard" surgeries this will enable private insurers to follow suit while considerably reducing their own legal exposure.  That's because if they strictly follow or exceed the same protocols as the government, juries are far less likely to find against them when there are adverse outcomes.  (These are inevitable when large numbers of patients are involved, even if the complication and mortality rates in world class foreign hospitals are lower than in the US.)

While I have stressed addressing doctor scarcity above there are also current and looming shortages of other types of health care workers like nurses and physical therapists.  These have a much smaller impact on health costs, but should also be addressed through expansion of training facilities and enhanced intake.  We may need even more nurses to take over some tasks presently performed by physicians, including locally helping patients who "see" their doctors through telemedicine.

Here's the second part, the ways to reduce inefficiencies and wasteful practices that receive more media coverage and commentary by pundits:

•  Allow drug importation and for Medicare to directly negotiate prices of drugs that it pays for.  There's no valid reason to protect a system where US prices are twice as high as anywhere else.

• Use comparative effectiveness research to guide treatment, particularly when paid for with public funds.  Factor in cost effectiveness as is explicitly done by the NHS in UK.  Substitute fee-for-service with capitation or global payment.  Counter Palin type "death panels" misinformation and encourage sensible end of life planning.  Some sensible cuts by states like New York and by Washington should be adopted by others.

• Enact tort reforms, limit debilitating lawsuits by having more efficient forms of legal redress, impose malpractice caps and lighten needless regulatory or work rules burden on providers. (About the last, some onerous work rules may for example stem from union agreements that only lightly benefit health workers but severely throttle hospital operations.) The actual impact of legal exposure is likely less than what Republicans and providers claim, but Democrats conceding on this may enable broader bipartisan agreement.

•  Electronic health records.  Wellness and preventive programs.  Smoking cessation.  Obesity control and healthy living.  Atul Gawande's Checklist Manifesto.  Other innovations in practice of medicine.  Yes, yes, yes.  And motherhood and apple pie.  By all means do all this, as supplemental to - not instead of - other necessary measures.

What about single payer, or a "Medicare for all" type of program?  This can avoid the inefficiencies of private insurers offering a complex array of plans and needing to make a profit.  They, in the words of Joseph Stiglitz also spend a lot of resources in marketing, administration, and in figuring out how to cover people who don't need much treatment, and to keep out those who do.  Single payer is particularly helpful in countering the market power of providers in a situation of scarcity or lack of competition.

Conversely, an expanded provider supply through actions as in the first part above can make private insurance more viable, as in the Netherlands or a parallel system as in Germany.  Such a system could be allowed to co-exist in the US with a basic public plan, with choices of more lavish private plans.  Those opting for them can be helped with payments through risk category based government vouchers or credits that equal offsetting average savings in public funds. 

Overall, steps of both types should be pursued in tandem but those enhancing provider supply and lowering prices at part one above offer easier and bigger savings as well as service improvements.  For quick results turning to international trade in health services is essential, as I'll elaborate in a later post.

Moreover, this supply side approach that enhances competition should be more acceptable (in theory at least) to Republicans who control the House and vigorously oppose the single payer route.  Given political will, these changes in health care are administratively quite easy to implement, and help solve the budgetary crisis far better than other more widely bandied options.

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. 

Savings Through Free Trade - Importing Doctors

Why does the US need to import doctors? First, to lower the prices of medical services that are vastly inflated relative to peer economies as a result of an engineered shortage of doctors. And second, to improve (or even maintain) access to doctors as need for their services expands due to the rising numbers of the elderly, and health reforms covering the uninsured.

According to the OECD Health Data 2009 the US has 2.4 doctors per 1000 people, compared to the OECD median of 3.4. Even this doesn't reflect the true differences in availability, as US doctors on average spend less time seeing patients. This is due to more of their time being wasted dealing with complex insurance plans, regulations and payment procures, and the practice of defensive medicine. The US also has a higher proportion of women doctors (who typically work shorter hours).

The WSJ on April 12 reported on a looming crisis of doctor shortage. But Dean Baker in his April 16 critique pointed out that neither the Journal nor experts talk about the protectionism that brings this about, or the obvious solution of allowing in foreign doctors. Here are answers to typical questions and objections over just this proposal, from genuine doubters as well those benefiting from physician scarcity:

• a) Adding doctors won't save money, as more of them peddling their costly services will instead add to the overall cost. This is the (unfounded) logic of "supply-induced demand" as in this rather shallow and disappointing McKinsey Quarterly December 2009 article on managing the clinical workforce. This and even Clay Christensen in May 2009 argue that having more doctors will increase use of their services and further inflate the bill. If this analogy holds, our energy costs should shoot up when there is a glut of natural gas, or of crude oil. Countries like India and China with their vast work force should have the highest labor costs. Exactly the opposite happens, because prices drop a lot more than demand rises. This is also the case with medical services for which (as economists will say) the demand is not very elastic. Another fact contradicts the McKinsey and Christensen assertion. In their world the surplus doctors should be readily accessible to patients. Instead, US patients typically face wait times stretching to several weeks to see their doctors, including specialists.

• Doctor scarcity is not the reason for the high cost of their services. After all countries like Japan, Singapore and UK have the same or fewer doctors. This argument overlooks two things. First, in all these countries it's the government that pays most of the bill, and doctors tend to accept whatever price is decided by the government. Second, simple payment and regulatory structures ensure that their doctors spend most of their time attending to patients. This vastly increases their actual capacity of collective medical services, eliminating the kind of "scarcity premium" that their US counterparts command.

• The brain drain of importing the best doctors does their countries of origin a disservice when they are facing acute doctor shortages themselves. Such concern for developing countries by US doctors is like US workers opposing imports out of professed concern for foreign workers toiling in sweat shops. Dean Baker in a May 18, '09 article "The Health Care Industry: Protectionism the Free Traders Love" suggests the US pay "a fee to compensate for the medical training offered to foreigners, so that two to three doctors could be trained for every one that practiced in the United States." But even this is unnecessary. The investments in and remittances to their home countries by such doctors in well paid US jobs would generate enough resources for this task anyway. This is typically the case with other immigrant professionals from other developing countries - why should this be any different here?

• These well paying and good American jobs should be preserved for Americans, and not go to foreigners. At present we do not have enough Americans for such jobs. Over a fourth of our doctors are foreign born even today, except that we are only taking them in as residents whose total numbers are capped to artificially constrain supply. The result essentially is that foreign medical residents displace Americans from those coveted slots. Importing fully trained and experienced doctors on the other hand will actually increase overall supply. Consider also the indirect but heavy impact of sharply lower health care costs through such a step. This can make hiring US workers cheaper for employers and increase their international competitiveness. This can create millions of additional jobs as compared to, say, the 100,000 doctors needed to be imported to relieve doctor scarcity.

• Why import doctors? Why not take in more Americans to make them doctors? See answer above. But yes, our long term policy should be to ensure that future requirements are met internally, and our educational and training efforts are expanded accordingly. More on this later. When - and if - we finally decide to sufficiently increase domestic supply, it'll take a decade before the first of them start to practice. Then it will be another decade or more for the deficit to be corrected. By bringing in qualified foreign doctors we can have enough within a year or two.

• Doctors are NOT overpaid due to scarcities. They face high education debts, long years of training, and malpractice costs. And now Medicare cuts are further squeezing them. Going by media accounts of Medicare cuts and hardship stories it would appear that doctors are facing tough times and their earnings are getting squeezed. But a closer look at CPI data by category shows that medical professional earning rates have risen at one and a half times overall averages (3.19 times 1982-84 rates as against 2.14 times overall.) Even in the past 2008-2009 recession period, when the overall index declined by 0.4%, medical professional services rates increased by 2.7%. The official statistics data also shows how US doctors earn twice as much as their West European counterparts. Their average education loans of about $100K - $150K on completing training are comparable to those in other disciplines, and amount to about 6 months of their starting income. Further, as described in my March 1 post, the HHS and CMS haven't bothered to check and correct numbers, and US doctors on average earn much more in reality. Of course, once they are used to such compensation levels, any correction, however justified, is met with considerable angst and opposition.

• Foreign doctors unfamiliar with US practices, regulations and the English language may provide substandard care and put US patients at risk. This is protectionist propaganda at its best, cloaked in feigned concern for patients. Here you have the chance to attract the best and brightest experienced doctors from around the world. How then do you expect them to be inferior to the average domestic physician? Suitable systems and criteria can easily be set up to ensure that the approved doctors are the same or better than domestic ones. They can be required to have been educated and trained in one of the approved list of the best foreign medical institutions. They should pass rigorous Board and competency medical exams, as well as clear a test of English. They can also be required to possess some minimum experience, and their visas be tied to their practicing in designated under-served areas.

A logical and effective way to import doctors is for the federal government and Congress to lay policy, make the necessary legal and regulatory provisions, and orchestrate the initiative. But if politics come in the way, the states also can make changes on their own for some of this happen. For instance, as mentioned in my April 30 post, the states can allow foreign doctors possessing the right qualification and under conditions that they stipulate, to be licensed to practice. This will doubtless face vociferous objections and vigorous lobbying by domestic doctor bodies, but can help solve states' shortages and increase leverage in setting medical service rates. In this scenario the foreign doctors will still face visa issues, but some can find their way in, for instance, by marrying US citizens or permanent residents.

Allowing in foreign doctors can have a silver lining for US doctors who find greater opportunities to work abroad and make this more of a reciprocal trade.  How?  Many reputed foreign medical facilities will strive to be included in the US approved list of those whose doctors are allowed to practice in the US.  This will be like a super-certification, better than the JCI, which lends added prestige and recognition to the foreign institution, even for its home clientele.  Such facilities will seek US doctors who can enhance their standing, spread awareness of the best US practices and procedures, and thus help these institutions to obtain the coveted accreditation.  This will vastly increase the demand and employment opportunities abroad for US doctors.  Still, this may not fully offset the effect of improved US doctor supply in reducing "excess" earnings here.  So political leaders will still need the courage (and public pressure) to do the right thing in the face of opposition from a powerful lobby.

How many doctors do we need, and what are the expected savings and other benefits? If we want to increase availability from the current 2.4 per 1000 people to 3.0, that will be an additional 25%, or close to 200,000 additional doctors.

For projecting savings, a narrow way is to assume that we will then have enough doctors to implement the sustainable growth rate formula (SGR) for Medicare rates. According to the SGR (much decried by the AMA and other doctor bodies) Medicare rates for doctor services were to be cut by 21.2% this year. As in prior years, due to protests by doctors and the fear they will turn away Medicare patients, this cut has been temporarily suspended by Congress. Instead, it has been replaced with a 2.2% raise through November, amounting to a 23.5% difference. Even such reduced Medicare rates compare favorably with payments in West Europe, for example of about 25 euros for a primary care doctor office visit, and 40 euros for a specialist.

Private insurers' rates tend to be negotiated as a premium on the Medicare rates, so overall expenses can drop in the same proportion as Medicare's. With physician and clinical services making up 21% of the health care bill, a 23.5% reduction would amount to $109 billion in 2007. Adding back the costs of the additional doctors the savings may drop to "only" $79 billion, or $1.26 trillion over the next 10 years, half of it in public spending.

But correcting an imbalance in doctor supply can do a lot more than reduce payment rates. It can make doctors available for a new approach that utilizes their services more efficiently. The present fee for service system rewards excessive treatment, creates adverse incentives for providers, and raises costs. Doctors and their staff also waste time and effort chasing payment for services rendered, maintaining accounts and in related administrative work. But it pays very well, so it's hard to recruit doctors for alternative systems, for example, where they work on a base salary averaging say, $150K a year for primary care providers and $200K for specialists, with a target bonus of 30% based on criteria like the number of patients seen, quality and patient satisfaction scores, etc.

Having enough doctors may enable a switch to this model that enormously lowers costs while maintaining or improving patients' health. And in exchange for a lower but steady pay check, doctors will bear much less administrative burden and business worries, and can devote more time to patients in an improved environment. They will still earn substantially. Consider hypothetically if all one million doctors (800K currently plus the additional 200K) were put on salary with average annual pay and benefits of $400K each. This totals $400B going forward, as compared to the tab of $479B in 2007.