Will Telemedicine Save Money?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Quarter of a Loaf is Better Than None

By the Mar. 31 deadline for 2014 health coverage enrollment of 7.1 million subscribers under the Affordable Care Act (Obamacare) has exceeded the original projection of 7 million.  This has happened despite the inexcusable initial problems with the federal enrollment website, some ongoing glitches including on the last day, and fierce Republican propaganda against this program. 

Given their ineptness this should hardly have been "a victory lap of the Obama administration" with Health Secretary Kathleen Sebelius "beaming in the front row during the Rose Garden ceremony".  But at least the administration can heave a sigh of relief, then set about trying to fix the other glaring deficiencies of Obamacare and our health care system. 

Chief among them is the failure to effectively address overpricing which is the root cause of our colossal health expenditure.  A single payer system or a strong public option in Obamacare would have been far more effective in matching the market power of providers with a dominant buyer. Reform opponents that include private health insurers and a majority of the health industry outplayed the Obama administration in 2009 and 2010 and thwarted this.  Provisions under Obamacare like Accountable Care Organizations (ACO) or even the stalled Independent Payment Advisory Board are unlikely to drastically dent costs.

Still, there are other effective ways to slash our prices and bring them close to European levels by using supply side economics (more hospitals and doctors and competition among them).  These steps are not hard as I laid out back in my Mar. 28, '11 post.  The difficulties are primarily political, with the health lobby spending half a billion dollars annually to protect their advantage, and this is just the "official" money changing hands.

There are some encouraging signs.  I have repeatedly stressed the need and ways to expand our doctor supply, e.g., in this Sep. 11, '10 post.  It would be best to remove residency caps for all specialties altogether, but now Obama is at least seeking an extra $5 billion from Congress to train more doctors.  It may be an isolated step or signal the Obama administration is finally turning to fix supply imbalances and foster more provider (not just insurer) competition. I hope it's the latter.  Combined with the enrollment projections being achieved we're still very far from where our health care needs to be, though on a much better track than the Republicans' "Repeal and Replace" mantra.

Health Secretary Should Do Much More

In fairness Health (HHS) Secretary Kathleen Sebelius has done more than most of her predecessors going back to the Nixon Presidency.  The top spot should go to Donna Shalala who at the end of her tenure in the Clinton presidency was described by the Washington Post as "one of the most successful government managers of modern times."  Sebelius comes second but that's a low bar to cross. 

Why? Because Republican administrations tend to favor providers and industry players over consumers, and Republican appointees account for ten out of the last 14 health secretaries.  That leaves just two other Democratic appointees, Joseph Califano and Patricia Harris.  They each lasted two years under President Carter - too short a time to make a big impact in a presidency facing many challenges and distractions.

Sebelius on the other hand is enjoying a long tenure at an extraordinary time when the crushing US health care burden and its affordability are prime public issues.  2009 and 2010 were ideal years for an optimal overhaul because of the focus on health care reforms and Democratic control over both houses of Congress plus the White House.  Sebelius could have helped achieve this through insightful ideas, sound advice to the President, and publicizing compelling data to pressure lawmakers beholden to industry interests.  She didn't do this and compounded President Obama's failure to achieve a better outcome.

While Obamacare is better than nothing it falls far short of "Medicare for All" that would have simply extended a popular and streamlined program while dramatically cutting costs.  Lowering the age of Medicare and paying for it by raising taxes needed only a House majority (which Democrats had till 2010) and 50 Senate votes and hence could not be filibustered.  This approach could at least have been used as a credible threat or bargaining chip to overcome Republicans opposition to a so-called strong public option.  That meant a Medicare style choice for Americans under 65 competing with private plans that again would have lowered costs and forced efficiencies.  Ezra Klein floated a version of this idea in the Post back on Jan. 20, '10 and Sen. Bernie Sanders (I-Vt.) another on Feb. 25, '10.  Neither happened and the watered down Obamacare that emerged is in essence a national version of Romneycare.

Apart from being unwieldy and complex Obamacare fails to substantially address the root cause of high US costs, which are exorbitant prices for health services and products.  These in turn are due to lack of market competition and cleverly engineered scarcities of providers, particularly doctors. Sebelius and HHS have done pitifully little to lower prices, but there's time even now for them to lay the foundation for dramatic improvements down the line.  HHS can say they're too embroiled and overwhelmed presently with getting all those health exchanges under Obamacare up and running, but this excuse for inaction shouldn't last beyond Feb. 2014.

I had outlined the path for systemic health care reforms in my March 28, 2011 post.  Sebelius can help move many of these along.  The actions she should take can be divided into three categories:

a) Revelations that enhance general awareness and other indirect actions to influence or pressure Congress into passing remedial laws that restore efficiency and market competition.

b) If Congress at (a) still doesn't act, working with other agencies including the states to achieve much of the same reforms.

c) Take corrective administrative actions where no changes in laws are necessary.  This should be the easiest being totally within her control, if the Obama administration is on board with it.

There are some key steps in each type. 

A) HHS INFORMATION AND PROPOSALS TO GET CONGRESS TO ACT

Sebelius should use her vast data, research and legal resources to compare the US system with those of other leading economies, proposing specific  legislation that corrects anomalies.  She should have respected experts without industry loyalties (they are a miniscule percentage of the total but enough can be found) to estimate resultant cost savings.  There's no reason why US health prices shouldn't drop down to approach those in "inefficient" Europe that otherwise has a higher cost of living. Her actions should include:

• Highlighting the impact of doctor shortages and the trend of doctor practices merging or being bought over by hospitals.  This increases provider market power enabling them to defend or worsen pricing abuses and resist cost-containment reforms, like replacing fee for service with "outcomes-based payment".  Such revelations will push lawmakers towards allowing increases in doctor supply internally and from abroad as described in my Sep. 11, 2010 post. As part of this Congress should promptly undo their awful 1997 provision freezing medical residencies. Doctor lobbies snuck it into the Balanced Budget Act, neatly shifting the job of choking doctor supply from their own private bodies on to the government.  Just raising the cap on residencies isn't enough - the whole provision and the concept of the cap needs to go.
• Estimating and then publicizing the savings attainable if Medicare is allowed to directly negotiate drug and medical device prices with manufacturers.  This is the way public health agencies abroad do it, paying under half the price charged in the US.  Congressional Republicans have opposed this ostensibly to avoid Big Government but the savings can appeal well to their own Tea Party faction that pushes for lower spending.  The timing may be opportune since Tea Partiers are getting used to finding common cause with liberals in another area - opposition to military intervention in Syria.  Ideally, the whole wasteful G.W. Bush era Medicare Part D (drug plan for seniors) should also be overhauled so it is directly administered by Medicare.  Seniors can then get their drugs more easily and completely free, at lower cost to taxpayers than the present system needlessly involving and favoring private insurers as middlemen.
• Reviving the case for a strong public option while quantifying the savings from increased buying leverage and cutting out private insurer overheads and profits.  Republican aversion to a bigger government role can be balanced out by their desire to cut spending as well as taxes.  Savings that reduce Obamacare subsidies and health costs can facilitate these objectives, and be well timed as a way out of the looming clash on budgets and raising of the debt ceiling.

B) HHS WORKING WITH THE STATES

If Congress remains intransigent or gridlocked, I spelled out on Aug. 25, '12 how HHS can achieve a lot of reforms simply by working with the states and other federal agencies.  That's because a lot of barriers to health  market competition and efficiency are a result of state laws that can be remedied and updated by them without need for federal action.  These include licensing and US residency constraints that keep out well qualified foreign doctors, hurdles in establishing new hospitals, and burdensome regulations and malpractice laws. Some actions by Sebelius should be:

•  Advising states on ways to ease provider shortages and lowering prices.  To achieve this HHS should ideally consult with states and come up with model state legislation that willing states can adopt to replace their existing laws. Such state laws can include allowing foreign doctors to practice without US residency requirements, telemedicine, ease in setting up new hospitals, tort reforms and malpractice caps. 
• Working with other federal agencies like the USCIS to allow in more foreign doctors on professional visas.  Also with the anti-trust authorities to block mergers of hospitals and physician practices that are likely to increase their pricing power.  When such mergers are cleared on claims of increased efficiency and economies of scale there should be an automatic policy to get an equal number of new hospitals and doctors in the area.  This way the provider marketplace will remain competitive and negotiating leverage of public and private payers will not decline.
• Encouraging and enlisting the support of powerful yet presently comatose non-governmental bodies for health reforms.  Topping my list of such bodies is the National Business Group on Health (NBGH) as I wrote in March.  These large employers can collectively counter-lobby and neutralize the influence and the financial contributions of our powerful health groups to political leaders.  If their backing of reforms causes health prices to drop dramatically, the large employers will derive almost unimaginable savings and return on investment on their reform drive. They and their employees incur about 10% of national health care expenses.  And thanks to them the other 90% of savings will lift the government budgets and all other payers.

 

C) HHS ACTING ON ITS OWN

 

Actions that HHS should take on its own - but hasn't so far - will hugely help patients and payers.  Some big ones are:

• Eliminate the about 80% higher payments for doctors employed by hospitals which are billed as "outpatient services", as compared to identical services by doctors in private practice. This has enabled hospitals and doctors to game the system and is behind the rapid trend of hospitals employing doctors.  Medicare and other payers consequently pay much more for the same services, often delivered at the same location.  Why didn't HHS spot and stop this anomaly beforehand and is still taking so long to fix it? The extra amount paid is a "facility fee" to ostensibly cover hospital overheads.  This is unjustified considering that their centralized system for handling billing, appointments, etc., and their economies of scale should lower, not raise costs. 
• Simplify and make transparent the very complex system of payment rates to hospitals and providers.  Flat, national base rates for procedures and treatments should be modified by only a couple of parameters, like cost of living index and malpractice insurance rates. In doctor payment rates there are well publicized problems of their imbalances between primary care doctors and specialists, and across specialties.  Fixes include changing the assignment of relative value units (RVUs) across specialties, and HHS can and should expedite this process.
• HHS should use its enormous resources of data and researchers to compile accurate statistics on revenues and salaries of providers, payment rates, and how they compare with other countries.   My Mar. 1, '10 post describes how our privately compiled data heavily understates incomes of doctors.  Health experts and academics are silent on where all the excess money paid for overpriced treatment goes, especially with hospitals showing so little profit or net cash flow. HHS should get all the facts out, enabling better policy and decision making. 

HHS has recently released useful information that can help consumers at the expense of the industry.  But even this has been done belatedly and incompletely, seemingly under pressure from above, or to comply with obligations under Obamacare.  For instance Sebelius made public charges and Medicare payments data for the top 100 procedures and for 3,000 hospitals. This was readily compile-able all along and I wish she'd done this in 5 months instead of taking 5 years.  Worse, it understates total payments by only revealing the hospitals' take.  It excludes major items like surgeon and anesthesiologist fees without explicitly clarifying this fact.  This makes apple to apple international comparisons difficult since foreign hospitals typically quote package prices that include everything. 

In sum, Sebelius and HHS can easily rev up efforts as described above if they're motivated by public spirit or pressed by the Obama administration to do so.  That can dramatically change the trajectory of health prices and expenditures, while maintaining or improving quality.  The WSJ on Sep. 18 reported on the expected slowdown in health expenses to an "only" 6.1% increase next year and a slower move up as percent of GDP going out.  But with the right steps I'd expect far better results, with expenses static or actually declining as percent of GDP from the current 18% over the next couple of decades.

 

Write and Wrong

There are - finally - more articles in the popular media exposing price gouging as the root cause of high US health costs.  But two big concerns remain.

First, such writings are still too few and far between to sufficiently penetrate public consciousness to create the political climate and pressure for reforms that align health prices with other countries.  Besides, the message continues to be drowned out by the flood of red herrings and misinformation put out by pundits funded by the health industry, and naively accepted by the media.

For example, type something like "why are US health prices so high" into Google search and you'll get a stream of articles and quotes blaming unnecessary care or treatment for high costs.  This "quantity" argument is quite false since Americans in aggregate get far less care than Europeans in terms of doctor visits (40% less) and hospitalization (20% less) according to OECD health data. This dwarfs any "excess" care Americans receive in the likes of MRIs, heart bypasses and knee replacements. There are also the many sins of omission - you'll see very few articles in health journals on US pricing anomalies, and none that honestly analyze the reasons for them, or how they can be addressed.

Second, and a bigger concern is that even articles sounding the alert on prices contain serious mistakes about root causes and where the money goes, which derail the quest for best solutions.  Why does this happen? One reason is that the authors have spent so much time unearthing and exposing the fact of overpricing that they've little left over to go into tedious research about the reasons.  Most or all authors happen to be "outsiders" getting little help (or even deliberate misinformation) in quest of answers from health experts and academics beholden to their industry.

There's also a psychological mindset as we tend to ascribe the best motives to our doctors who typically care deeply about their patients.  We (wrongly) transfer this trust in doctors to their powerful associations like the AMA that seek to maximize their members' benefits.  To achieve such objectives these bodies manipulate the political system to the extent it lets them, even at heavy cost to the overall economy or societal welfare.  Writers who don't see this are giving a free pass to our doctors while blaming greedy management, bureaucrats, insurers, drug companies and trial lawyers with less benign personae.  While all these players contribute to higher prices the maximum benefit goes to doctors, so the most needed reforms  will cause their earnings to drop.  And conversely, avoiding reforms opposed by doctor groups almost guarantees continuance of overpricing. 

 Here to my mind are five examples of some welcome facts mixed with misstatements and oversight that can lead away from good solutions:

1) Steven Brill in his famous Mar. 4 / Feb. 20, '13 "Bitter Pill" Time article admirably exposed outrageous charging by US health providers.  He further drove home this message in various media interviews, including on Jon Stewart's Daily Show on Feb. 21.  His biggest mistake lay in ignoring his own dictum of "following the money" to declare that "Everyone in health care makes money (from overpricing) except for doctors."  He says most of the excess money goes to the hospitals' top executives, citing hospital CEO salaries even in "non-profit" University hospitals that are multiples of those of their university presidents.  Actually, under 1% of large hospital revenues typically go towards C-Suite (including CEO) salaries.   Also, administrative heads of departments in hospitals are not bureaucrats but invariably senior doctors in a dual role.

So where do most of hospital excess revenues (i.e., those over and above what their European counterparts would take in for equivalent services) go?  A lot of it goes to doctors either in the form of salaries or perks hidden (for PR and tax purposes) as expenses. About the latter, think of lavish family vacations passed off as conferences, luxury cars expended as work vehicles, and payments on large homes treated as home offices.  Hospitals zealously guard their books which is why Brill who spent most of his energies digging into details of overpricing may not have grasped how the money is really spent.  Other than excess compensation there are of course other big buckets of unnecessary expenses or inefficiency as well.  These include bottlenecks due to regulations or union contracts, administrative costs due to a complex insurance system and fear of litigation, and sheer ineptness in a system devoid of market competition.

2)  Bill Keller, former executive editor of The New York Times and as well informed a person as any, acknowledged how even he was led to believe that high US health costs were due to too much care.  As he wrote in the Times' "Carrots for Doctors" on Jan. 27, '13 he finally learned the true culprit was prices.  His main point was that pay-for-performance (P4P) will do little to improve "our absurdly priced, underperforming health care system" and he did well to highlight the role of pricing. 

But Keller remains mistaken about the true cause of overpricing (which is managed scarcity of doctor supply and the market power of hospitals) and ways to correct this.  He is duped by the doctors' propaganda of "the high price of malpractice insurance being a favorite, and genuine culprit."  (It actually averages just 3.2% of doctors' revenue according to this site.)  He also over-emphasizes the role of single payer systems in keeping prices down, suggesting a damaging converse that in its absence (as it's "politically unpalatable") we must live with high prices.  See examples in the point below to debunk this.

3) Ezra Klein has been key in mainstream coverage of pricing issues as in his Mar. 3, '12 "Why an MRI Costs $1,080 in America and $280 in France".  However, his views like in his Feb. 25, '13 Wonktalk with Sarah Kliff discussing Brill's Time article overemphasizes the need and role of "rate-setting" as the answer.  Rate-setting is where the government, typically in a single payer system according to Klein, lays down the rates that hospitals can charge for various services and procedures.  This implies that prices can only be brought down significantly if we bring about a single payer system, which is a non-starter with Republicans.  While I'm all for single payer which can solve a lot of problems it is by no means the only viable option.

A parallel route can achieve similar or better results while being acceptable (at least in theory) to Republicans and free market thinkers.  This includes introducing real competition through trade, allowing new hospitals with disruptive business and operational models be set up and letting the supply of doctors rise.  Take the example of top Indian and Thai hospitals with prices that are a third of European hospitals (or a sixth of what US hospitals typically get) that are magnets for medical tourism.  Their prices are not determined by any kind of rate-setting but by market forces, and unlike US hospitals they disclose their "real" prices for various procedures and services up front.

4) Scott Gottlieb in his "The Doctor Won't See You Now..." March 14 Op-Ed in the WSJ lambasts Obamacare for "making the local doctor-owned medical practice a relic."  He says this happens because Obamacare (a) favors hospital owned accountable care organizations (ACOs), (b) replaces fee-for-service with flat pricing, and (c) is "mandating all medical offices install expensive IT systems."

 Dr. Gottlieb rightly questions the savings potential of ACOs, and the long standing anomaly of Medicare paying higher rates for services by doctors as hospital employees than those in private practice.  But most of his remaining narrative is flawed.

Rates paid to US doctors in private practice are multiples of those paid to their European counterparts - it's just that prices for doctor services in hospitals is more egregious.  So it isn't a case of hapless doctors being so squeezed as to throw up their hands in private practice, but of being lured into hospitals with even more lavish pay packages and shorter hours.

Flat pricing is what takes away the incentive for wasteful and unneeded care, not to talk of stopping to reward bad care and medical mistakes with more fees for additional services.  World class hospitals abroad that attract medical tourists have flat pricing. This enables them to quote up front for surgical packages, in contrast to the hideously opaque US pricing system.

The government is right to use the carrot (subsidies for conversion) and stick (lower payments for holdouts) policy to get medical establishment to migrate to electronic health record keeping (EHR).  It improves efficiency, makes prior patient history easily accessible and exchangeable for better treatment, lowers costs long term and reduces medical mistakes.  Thanks partly at least to the government push over half of doctors and 80% of hospitals have switched to EHRs, up from 17% and 9% respectively in 2008.

5) Lisa Krieger in her Feb. 5, '12 "Cost of Dying" in Mercury News exposed overpricing without even realizing it as she was focused instead on unnecessary end of life care for her 88 year-old father. She doesn't question the $323,000 charges at Stanford Hospital for 10 days of stay with mostly standard tests and care.  Just the stay in their intensive care unit (ICU) was billed at $25,000 per day.  Ms. Krieger sympathizes with the hospital for receiving "only" $67,800 from Medicare ($6,780 per day!) so that, according to her, they'd need to make up their losses by overcharging private insurers. 

In contrast my 94 year-old father-in-law was taken to one of Pune's (India) best hospitals - Ruby Hall Clinic - this past month.  He was there for eight days receiving essentially the same treatment and tests as described by Ms. Krieger for her father.  It included MRI's, CT Scans, pathology tests, feeding tube, oxygen mask, round the clock nursing care, etc.  He too was in the ICU, in the cardiac care section (CCU) with a deluxe private room.  He passed away after eight days despite all efforts.  There isn't a more upright, decent and engaging person than he was, but that's another story.  His total bill as a private and cash paying patient was about $3,000, or $400 per day, that too at the most upscale and priciest hospital by Pune standards.  That's 6% of the rate at which "stingy" Medicare paid Stanford Hospital, or 1% of what Stanford would have charged an uninsured patient.

Our sky-high health care prices and resultant financial and budgetary morass is an offshoot of a corrupt legislative environment influenced by powerful medical interests.  While the popular media articles drawing long overdue attention to such prices are welcome, the above examples show the need for much more in-depth reporting of the true reasons and fixes for this.  Only then can public awareness and outrage rise enough to force politicians to act.

Part Remedy Beats Poison

A rare  Sep. 25 Op-Ed in the conservative Wall Street Journal counters attacks on the Affordable Care Act (Obamacare) by Romney-Ryan, and demolishes their own alternative proposals.  The authors are Ezekiel (older brother of Chicago mayor Rahm) Emanuel, Neera Tanden and Donald Berwick, former administrator of Medicare (CMS) under President Obama.

They repudiate the key premise of Romney-Ryan that delivering Medicare benefits through competing private insurers will lower costs.  Adding a layer of middlemen while fragmenting buyer power will bump up costs instead, as logic and prior experience with private Medicare Plus indicate.  This is apart from other problems with "Vouchercare" as described by Paul Krugman in his Times Aug. 30 column. And on Oct. 4 in "Romney's Sick Joke" Krugman scathingly exposes Romney's false claims about covering pre-existing conditions and the uninsured under his plan.

Still, Obamacare has severe shortcomings, thanks mostly to a handful of Democratic lawmakers who joined Republicans in killing vital features like a strong public option.  Private insurers rightly saw the public option as threatening most of their business.  That's because of its greater efficiency through simplified choices and procedures, and centralized buying that would counter the market power of providers facing little competition.    In his Sep. 29 Times Op-Ed J.D. Kleinke describes Obamacare as essentially a brainchild of conservatives that they now hate because Obama embraced it.  It does nothing about exorbitant prices that are the (hidden) root cause of high US costs. 

Instead, savings are sought by reducing the amount of services consumed, hopefully by cutting down waste and unnecessary treatment so as not to compromise patient well-being.  What's wrong with that?  Well, nothing, so long as it is done in addition to lowering prices closer to European levels that achieves far more cost reductions without hurting patients.  But that's not the case - in an "instead of" approach, the "less care" advocates use their pitch to divert attention away from over-pricing.  This benefits the health industry (who are thus paid over double of what they "deserve") while imposing an enormous burden on payers, including taxpayers, employers and individuals.

Almost no health pundit or politician points out that Europeans already receive more treatment overall than Americans.  Americans do get more imaging tests (MRIs, PET and CAT scans) and heart bypasses and joint replacements, but this is more than offset by their getting less of other types of care.  OECD Health Data 2012 shows this.  Americans see their doctors 40% less often and are hospitalized 20% less than citizens in other advanced economies.  Yet US health expenses in 2010 were $8,233 per capita and 17.6% of GDP, as compared to the OECD average of $3,268 per capita and 9.5% of GDP. 

So just to be clear, imagine this: If we simply cut our prices to OECD levels without any changes to the amount of care we receive, our health expenses drop to less than half of what they are now.  Instead, our policy makers and pundits focus on "cutting waste" by reducing the amount of services rendered, pushing them further below OECD averages, while hardly touching our sky high prices.  Higher prices are partly due to private insurers with their complex offerings, payment bottlenecks and need for profits that introduce middleman inefficiencies.  But much more of the proceeds go to providers who simply get to charge more because of their market power, lack of competition and political clout in thwarting Medicare from cutting payments.

If neither Obamacare nor Romney-Ryan's "Vouchercare" directly address prices, is there a difference in controlling these under the two alternatives?  The answer is yes. 

That's because Obamacare like Medicare at present prevents providers from getting extra payments from patients.  At some point rising costs and the drain on public resources imposes constraints on healthcare prices through taxpayer resistance, especially if the defined benefits cannot be decreased.  In addition, Medicare is still by far the biggest buyer of health services, with corresponding leverage over providers. 

The Romney-Ryan plan in contrast does away with both these points of leverage.  Its intent to let private insurers compete to offer Medicare plans has the opposite effect of fragmenting buyer power in negotiations with providers.  Moreover, with the "better" and costlier plans that can be offered under their plan the insurers (and hence providers) get to realize additional payments from patients, in addition to Medicare vouchers.  Finally, insurers will naturally try to maximize profits by cherry picking the actuarially attractive patients, leaving the "money losers" in the traditional Medicare plan. Of course there is talk of risk adjustment to increase voucher payments for sicker patients, but to the extent these tricky adjustments are imperfect there will be scope for insurers to game the system.  So we end up with higher costs and less check on prices under Romney-Ryan proposals, with either the extra costs borne by Medicare recipients or by the government. The WSJ on Oct. 16 also confirms this as resulting in higher premiums, based on a study by the non-partisan Kaiser Family Foundation.

In sum, with all its flaws Obamacare in addition to its primary objective of extending health insurance to most Americans also has some secondary effects on curbing prices.  The Romney-Ryan plan rolls back the safety net while having fewer checks on prices, with the resultant higher costs met either by public funding, or (as Republicans prefer) by private payers.

A concluding side question: If prices are by far the main villain behind high US costs, why don't we hear much about this fact, leave alone have any serious proposals to lower them?  You don't see high prices mentioned in discussions in the media (it's just "costs"), including in recent Presidential or Vice Presidential debates. It's because the extra revenues generated by over-pricing has created enormous surpluses, a fraction of which goes to sustain an ecosystem of beneficiaries who  want to let the good times roll.  These include politicians, health experts, private insurers, trial attorneys, and even HHS / Medicare officials looking for subsequent industry fed opportunities through a revolving door.

So to the above question the short though dramatic answer is that there is a conspiracy of silence on the issue of over-pricing. The ones who suffer are mainly of course the payers.  Can payers or a body of them not exert counter leverage that can correct prices?  Not so far, but they certainly can and should.  I have talked about this in the past and will elaborate in my next post.

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. 

Role Of Agency Betrayals In Our Health Woes

Our soaring US health care costs are primarily the result of egregious prices that are twice as high as in "expensive" Europe, not to speak of multiples of Asia's best providers.  Other factors like excessive or unneeded care play a part of course, but are also ploys by health industry apologists to draw public attention away from the pricing issue.

Aligning US health care prices with Europe's will vastly benefit Americans and satisfy objectives of both political parties. It will solve our deficit problems without raising taxes, lower employer costs, create jobs through a more cost competitive work force, and free more public resources for education, worker training, infrastructure, and defense.  Yet real reforms to correct prices are almost non-existent.  Why?

It's due to various forms of the principal-agent problem that is widely studied in economics and political science.  It involves situations where a body of people like the American public or companies or other entities (the principal) has to act through a representative (the agent).  The agent should act in the best interests of the principal, but may instead follow a different agenda if incentives are misaligned.

The US story is one of betrayal by several types of agents, primarily those acting on behalf of the public, who are bought over or intimidated by a health industry awash in money.  Understanding these agency issues can help us to identify barriers to reform as well as ways to overcome them.

Lawmakers (senators and Congressmen) are elected agents of the American people.  They can fix the two biggest sources of abnormal pricing by easing provider scarcities and allowing more hospital competition.  The third major source, private insurance complexity and middleman inefficiencies could be eliminated through single payer or at least a strong public option.  Excessive drug prices and malpractice / regulatory burden are other contributors to high costs, and are also eminently addressable.  Yet lawmakers have largely failed the public trust on all these fronts.  Far from helping, in 1997 Newt Gingrich and Co. actually legislated caps on medical residencies funded by Medicare, to worsen doctor shortages and elevate prices for their services.

The President is an agent of the American people, but he is also a principal with the HHS and Medicare (CMS) as his agents in public health care.  Now CMS should use its vast resources to collect and publicize the kind of facts that would pressure lawmakers to enact the right reforms to end the rip-off of payers. But CMS fails to properly compile and report the most obvious data, like (high) prices of medical services, or true earnings of doctors which are much higher than shown in faulty surveys. Why such lapses?  Any ineptness or apathy aside, HHS and CMS folks may simply identify less with public welfare than with a health industry that rewards them for protecting its interests.And this can be by acts of omission (like failure to look deeply or to publicize damning information) rather than commission.

Moreover, the natural  tendency of officials in government is to expand their departmental empire, not to shrink it.  A larger payout for health care services means a bigger budget for CMS, more clout and opportunities to accord patronage, and receiving payback in return.  Blandishments include lucrative post-government careers for obliging officials.  GWB era CMS director Thomas Scully parleyed multi-million dollar private earning opportunities even as he was driving Medicare to pay for drugs for seniors that enriched the pharma industry.

So strong external pressure is needed, primarily from the President under advice from his treasury and economic advisers, to get HHS and CMS to control spending.  Yet President Obama, Treasury Secretary Tim Geithner as well as prior administrations have instead largely left it to the "experts" in HHS to come up with savings ideas and deliver on them.

The media has been similarly naive in relying solely on health care pundits whose allegiance to their industry trumps any objective presentation of facts and suggested solutions to runaway health costs.  An example is Dr. Sanjay Gupta of CNN who speaks knowledgeably about purely medical aspects of patient care and treatment.  But he served up a highly biased and distorted "fact check" on the movie "Sicko" that exposed US health industry shortcomings.  Very few experts even mention the role of high US prices, leave alone core reasons for it like market power, stifled competition, artificial scarcity of providers.  The few that do so seem to lose their nerve when it comes to offering up real supply side solutions (including global options) that will shrink the size of the bloated industry pie.

Among journalists there are positive developments.  A handful like Ezra Klein on March 2 in the Washington Post and Todd Hixon on March 1 in Forbes are (at last) highlighting the role of overpricing while discounting some red herrings as to the causes.  They should amp up their message of this problem as well as the fixes that are easier than they realize through straightforward legislative and administrative steps.  That will build up popular awareness and pressure lawmakers and public officials to do right by their constituents.

If the media needs objective guidance from experts it can turn to those who don't have strong US health industry ties and yet have useful knowledge and insights to offer.  They can seek health experts outside of the US, like those in the WHO or in Europe who have studied our system.  Another option is US academics outside of the health industry.  For example John Cochrane, a prominent professor of finance in the University of Chicago has an op-ed "What to do on the day after Obamacare" in the WSJ on April 2.  Even as a strong Republican (as evident from his numerous WSJ op-eds) he talks of US health provider supply constraints, lack of competition and need for imports that no health expert has dared touch upon.

Are there agents for private payers that can counter industry influence?  As I described on April 21, '11 the most potent one is the National Business Group on Health (NBGH).  NBGH represents a concentrated base of almost 350 of the largest employers who cover 50 million people and pay about 10% of all US health care expenditures.  This employer group has the financial clout as well as the incentive to push solutions that align US health care prices with peer economies, and NBGH is uniquely placed to channel its members' efforts.  The right price corrections alone can cut a trillion dollars annually from national health expenditures of which NBGH members' collective savings of a tenth of that is a staggering sum.  Of course health expenditures won't abruptly plummet that way, but rather flatten in nominal dollars as reforms take root over the next few years.  That means health expenditures will decline as percent of GDP (an unimaginable scenario according to health pundits, instead of shooting up per current projections) and converge towards European levels.

But of all of NBGH's many activities and initiatives, some of which have been recognized with awards, none focuses meaningfully on prices.  At least nowhere with the scope and scale in the political sphere and in shaping public opinion as an antidote to industry influence.  It's as if NBGH is happily mining for silver when even larger quantities of gold are lying about untapped.  NBGH achievements in furthering quality, wellness and procedural efficiencies is probably saving its members billions of dollars.  Yet this very fact may lull its governing Board and management into ignoring healthcare fee anomalies whose elimination will realize for their members (and the US as a whole) savings that are orders of magnitude higher.  There are several other reasons why NBGH may not be going there that can and should be surmounted.  I'll cover this in a separate post.

The point is that many health reforms can drastically lower costs without compromising quality or even patient choice.  But they're stymied when principals and agents (especially for public interests) have divergent agendas.  A more discerning media and agents for a concentrated body of private payers like the NBGH can be key to getting public agents to solve our "real" (read price-based) health cost issues and resultant economic crisis.