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. 

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.

When the Bad Guys Win

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

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

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

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

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

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

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

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

Savings Through Free Trade - Medical Travel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Easily Conned?

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

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

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

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

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

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

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

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

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

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

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

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

Don't Confuse Corruption With Centrism

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

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

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

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

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

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

The Vast Left-Wing Courtspiracy

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

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

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

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

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

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

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

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

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

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

Different This Time?

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

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

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

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

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

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

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

Major Reform Steps or Media Hype?

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

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

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

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

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

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

Acting Now On Health Reforms

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

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

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

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

Nice`Little Surprise In Hillary's Health Plan

You may miss it unless you look closely. And I'm not surprised Hillary doesn't talk about it as it can turn off an important Democratic constituency. I'm talking about that last little point tucked away in Hillary Clinton's 7 step strategy for controlling healthcare costs. This point relates to putting in place "common-sense" medical malpractice reforms.

Although her plan does not elaborate very much on this, it is remarkable that a Democratic candidate had put this on the table in early Primaries season, in May 2007. To my knowledge there is nothing equivalent put forth by Obama or former trial lawyer John Edwards. The American Bar Association and its subset of trial lawyers wield disproportionate influence on Democratic hopefuls. Anything smacking of malpractice caps, however necessary, has been the exclusive domain of Republicans, even if it is vital to controlling runaway US healthcare costs. This may signal Hillary's determination to address healthcare reforms in a sincere and non-partisan manner.

Of course, medical malpractice insurance or payouts are a miniscule part of healthcare expenses - less than 2%. The most damage is done because of the modifications induced in the behavior of providers because of this fear of expensive lawsuits. This includes both stultifying procedures and bureaucracy meant to reduce legal exposure that creates inefficiencies adding about 10% to treatment expenses, plus another 9% because of unnecessary tests and treatments through so-called defensive medicine. Malpractice reforms will not eliminate these wastages by any means, but can considerably reduce them, and so should be part of any bipartisan healthcare reforms.

How this all plays out if a Democrat is elected President remains to be seen but I see the very mention of malpractice reforms in Hillary's plan as an encouraging first step.

So What's Wrong With HillaryCare?

Somehow Hillary Clinton's opponents on the Right have managed to make HillaryCare sound pejorative. But it's Hillary and John Edwards who have come out with healthcare plans that can tackle the biggest issue of the uninsured or underinsured in the US. Hillary's plan has been recently announced and positively addresses the three basic questions that determine if it is meaningful and workable:
(a) Does it commit to ensure everyone has coverage? Any plan that doesn't is insufficient.
(b) Does it require pooling of risk (i.e., are the healthy forced to get coverage and thus pay into the system?) Without pooling the concept of insurance does not work. This is where Obama falls short.
(c) Is it sensibly funded , i.e., doesn't necessarily lead to breaking the bank of public and private resources? This is the toughest challenge for Edwards and Hillary, but their repeal of tax cuts and forcing large employers to pay into the system or cover employees seems that it can do the trick.

The Republican candidates can only answer positively to "c" above, so their plans are hardly worth talking about - they too seem to realize this and try to avoid the subject or fall back on "Beware HillaryCare" slogans.

Hillary has even left a role for private insurers, saying that they can provide the necessary coverage, even to the currently uninsured. That's quite a contrast from the Michael Moore "Sicko" denunciations. Yet her proposals make sense. Private insurers need to make a profit, which imposes a cost on the system, as Michael Moore and economist Paul Krugman rightly point out. But on the other hand, private insurers can offset these factors and earn their keep if they can discharge the payment and reimbursement function more efficiently, and curb fraudulent billing by providers more efficiently than the government. And the "risk pooling" requirement that insurers cannot turn down or charge more from sick applicants or those with pre-existing conditions removes a big source of inefficiency.

Hillary's plan says nothing about some other big factors behind the high healthcare costs - malpractice and litigation fears; drug pricing and doctor shortages. The first of these is the biggest (and the one that Democrats are least likely to address through tort reform) but it is encouraging to see this Businessweek article of April 30th about the vanishing jury trials.

Mitt Romney has been denouncing Hillary's plan which largely incorporates the features of his own Massachusetts State plan. Romney is the ultimate Chameleon candidate - he seems to have reversed himself on nearly every big issue since his quest for the White House. On healthcare I think he would have been better served even during the primaries by sticking to his earlier stance. After all many Republicans too are worried about healthcare and want meaningful solutions. But this may be a moot point as Romney's so far behind the front-runners.

Healthy Response To "Sicko"

What most surprised me about "Sicko" was how it was funny and entertaining even as it packed a powerful message. It is doing well at the box office with current revenues of $19M according to Rotten Tomatoes, and as significantly, has been getting very good reviews both from critics as well as from users.

The other notable thing as I mentioned in my earlier post was that contrary to Dr. Sanjay Gupta's and CNN reports it was surprisingly free from any factual errors. I had thought of Michael Moore as a kind of a liberal rabble-rouser who would bend statistics to overstate his case. But he didn't. What he did do of course was to play up that hilarious trip to Guantanamo Bay and Cuba to highlight how Americans without coverage are worse off meeting healthcare needs than the denizens of both those places.

Other countries that he featured certainly have their shortcomings and it is an imperfect world. But they manage to achieve a lot more with their resources, and tellingly, those from Canada or the European countries would never trade their healthcare system for ours.

"Sicko" almost exclusively concentrates on two aspects of US healthcare - the role of private insurers and the pharmaceutical companies. These are responsible for about half the price differential between the US and Europe (where prices are roughly half those in the US.) The other two factors that "Sicko" doesn't mention contribute the same amount to higher US prices. These are malpractice laws and litigation (that leads to defensive medicine and other forms of waste) and artificially induced doctor scarcity that I have talked about earlier.

Still, I can appreciate why Moore stuck to two causes instead of trying to deal with all sources of US healthcare woes. There's only so much you can put into a two hour movie without over-burdening the audience. He did emphasize the high US costs, and didn't want to dilute the basic message of the need for universal coverage.

In short, I highly recommend the movie, whether you watch it in theatres or subsequently on DVD.

Murder On The Healthcare Express

In Agatha Christie's classic "Murder On The Orient Express" the famous detective Hercule Poirot is unable to solve a murder because the clues point to twelve people on the train. So he cannot identify the killer among them. Turns out that all twelve were involved.

This helps us understand the state of US healthcare. Okay, so it's not really murder of healthcare. Just a trillion dollars of annual extra spend (or half the US total) compared to say, France or Germany for same or worse care. As my article implies, roughly a third of the trillion dollars go to extra profits or earnings above "free market rates" to providers - drug companies, doctors, hospitals. The remaining two thirds of a trillion dollars is the inefficiency or "lose-lose" costs of keeping the current system in place.

How does this relate to the novel? If the high US healthcare prices were due to one factor unfairly enriching just one player, then that factor would have quickly been singled out and eliminated amidst the full glare of media and political spotlight. Instead we have multiple factors at play that enable each industry player to blame others and thus all can get away with "reasonable doubt."

Then of course with about $300 billion in excess rents at stake it is a no-brainer for the industry players to collectively plunk, say, a mere billion dollars annually to buy off (or "influence") policy makers. This helps to maintain the status quo or even alter it to further benefit the players. It's no accident that the drug benefit for seniors (Medicare Part D) costing about $43 billion annually are largely a giveaway to drug companies and private insurers with far less value to the seniors who are the professed beneficiaries. And Paul Krugman in one of his several articles describes how positive government involvement such as a VA (veteran's) health system built up in the Clinton era is stymied by business interests and their Conservative allies.

Lest all this is too general, let me recap some activities by industry players contributing to high US healthcare prices:

• Trial lawyers and the ABA styming tort law reforms and capping of malpractice damages.
• Drug companies overcharging for drugs by mislabelling government negotiations as "price controls" and taking advantage of a system where patients pays a fixed deductible. So patients don't care about prices, even when drugs have only marginal extra benefit.
• Doctor bodies controlling the physician pipeline to ensure that there's a shortage of doctors, instead of letting free market forces determine the supply.
• Hospitals consolidating to gain monopoly pricing power, and refusing to provide transparent pricing. In the process they often charge outrageously ($10 for an ibuprufen or aspirin pill or $75 for a box of tissues.)
• Private insurers opposing a competing public plan. I'm all for private insurance, but why not allow competition without unfair subsidies by a government institution? (P. 4 of 7 of John Edwards' plan envisages this.)

That's only five activities and players. Apparently you don't need twelve like in the novel to get away with it.

Misdiagnosis And Cure For Florida Doctor Shortages

There's this joke about the researcher who taught a flea to jump when he said "Jump." He proceeded to remove the flea's legs one by one and ordered it to jump. The flea did so every time till all six legs were removed and then it did not jump. So the researcher concluded that when a flea loses all its legs it goes deaf.

Now relate this to a chain email that I received a couple of days back:

"A recent Physician Census by the Palm Beach County Medical Society confirms that the patient access to care crisis in Florida will worsen as the shortage of physicians reaches dangerous levels. In Florida, like many states across the country, patients can't get the care they need when they need it. Medical lawsuit abuse is forcing good doctors to flee the state, cut back on vital services, or leave medicine altogether. This update to the study shows that the shortage of neurosurgeons is even worse than indicated in the original Physician Census.
Palm Beach County currently has serious shortages of neurosurgeons, general surgeons, and family physicians. The Physician Census confirms that the patient access to care crisis will only get worse and that by 2011:

• Only 70 general surgeons will service an estimated population of over 1.4 million—a number that falls far short of the 208 needed for adequate patient care;
  
• Just 194 general and family physicians—not even close to the 373 needed—will be active in the county;
  
• Only seven neurosurgeons will treat emergency patients while 20 will be needed to meet demand;
  
• Physician shortages of 33% or more will exist among seven essential specialties, including obstetrics and gynecology, thoracic surgery and radiation oncology.

Dr. Jose Arrascue, President of the Palm Beach County Medical Society, cites medical lawsuit abuse as the reason for the bleak outlook for Palm Beach County patients. He says, “too many good doctors view this as a hostile market, with high malpractice premiums [and] no protection from lawsuits.” Most simply decide to practice elsewhere.
With forty-two states now considered to be "in crisis," "verging on crisis," or "experiencing serious problems," Florida patients aren’t alone. And there’s no time to waste. We must work together to fix our nation’s broken medical liability system. Please take a moment to

pass this information along to your friends, family, neighbors and colleagues and ask them to stand with us to protect each and every patient’s access to quality medical care and stop medical lawsuit abuse once and for all.

Thank you for your continued support.

Doctors for Medical Liability Reform317 Massachusetts Ave., N.E.Suite 100Washington, DC 20002
Phone: 1-877-9REFORM dmlr@ProtectPatientsNow.org "

Ironically, this email itself mentions the fact that "Florida is not alone" but "one of the forty two states" that faces doctor shortages. In other words, the root of the problem is a NATIONAL shortage of doctors who therefore have the luxury of picking the place where they want to work. The genesis of this is the artificially constrained pipeline and supply of doctors that I've mentioned in my blog yesterday. Malpractice caps and other tort reforms are certainly necessary but they at most shift the doctor scarcity from one place to another without solving the underlying problem.

Now consider the fact that excellent and highly experienced foreign doctors would swarm into Florida with or without malpractice reforms if only they are allowed to practice here without the bottleneck start-at-the-bottom residency requirement. Fear of importing incompetent or undertrained doctors or those with degrees from dubious institutions? How about allowing in medical graduates only from world class and reputed foreign institutions AND requiring them to pass a rigorous set of Board exams before being licensed?

Such a measure will truly "Protect Patients Now" (the website name of the body behind the email campaign) but expect the physician lobbies to vehemently oppose this. Not surprisingly, they instead push the wrong conclusion, like in the flea joke. Meanwhile, Florida has already enacted some tort reforms. For those still interested at this point here's an article that provides some details in a balanced perspective while questioning the assertions of widespread doctor flight from Florida:

http://www.floridatrend.com/print_article.asp?aID=46144