Excellent Article About the Rhetoric of Rationed Care

This isn't from my favorite New York Times writers Tom Friedman or Paul Krugman. Yet it is one of the best articles on an important health care topic (or any other subject) I've seen in a long time.

I'm referring to "Health Care Rationing Rhetoric Overlooks Reality" by David Leonhardt appearing today in the NYT. It makes the case that health care rationing is occuring in reality in the US already, just in a worse way overall than other developed countries that have universal coverage supported by public funding.

I hope President Obama and the public spirited policy makers (who haven't been entirely bought over by industry interests) get to read this and pay serious attention to it.

Overseas, Truth Under The Knife

Expert opinion under the guise of objectivity can be highly persuasive. Three US doctors on June 10 wrote in The New York Times to rather subtly undermine the push towards medical tourism.

In their Op-Ed "Overseas, Under The Knife" Drs. Arnold Milstein, Mark Smith and Jerome Kassirer begin by praising medical tourism's "allure of good care at half the price." They also say "total fees at well-regarded hospitals like Apollo and Wockhardt in India are 60 percent to 90 percent lower than those of the average American hospital."

Then they change tack to slant some statistics, and play on patient fears and insecurities about medical tourism. Those in the industry should know better but the average reader will likely buy their story.

Interestingly, Nicholas Kristof has an Op-Ed of June 11 in the NYT cautioning against the scare tactics of health insurers against a public plan. It applies to many admonitions by Dr. Milstein et al. They denigrate medical travel by saying: (a) it won't save much money overall; (b) it poses risks and difficulties for patients; and (c) too little is known about quality of care and we should first set up protocols and collect extensive data before seriously considering this option.

Towards the end of the article they do suggest useful steps like Medicare prescribing uniform reporting and tracking of treatment information by US hospitals, and inviting foreign hospitals to participate. The data includes surgical outcomes, risk factors, complications rates and comparable measurements of long term success. Still, this doesn't allay my concerns about other parts of the article.

Some of their assertions I take issue with are below (in italics), along with my comments:

• Offshore surgery cannot substantially lower health care costs. Less than 2 percent of spending by American health insurers goes to the kind of non-urgent procedures that Americans seek overseas. --- Huh? In our May 27, 2008 Op-Ed in the WSJ we had identified 30 such procedures with a spending of $220 billion in 2005. For 2006 the figure is $270 billion. This is 13% of the $2.1 trillion total healthcare spending, or almost 42% of the $649 billion spent on hospital care. Of this, the spending on just the top six "exportable" surgeries (3 in cardiac - valve, bypass and angioplasty; and 3 in ortho - hip replacement, knee replacement and spinal fusion) is $100 billion. That alone is 4.7% of the total health bill, or 15% of the hospital bill. Another way of looking at it is that medical tourism potentially offers bigger savings than the $1.2 trillion dollars over the next decade promised by the health industry groups amidst much fanfare to the Obama administration.

• Compared with low-cost American hospitals, the offshore fees are 20 percent to 50 percent lower. --- This significantly understates the cost differential as well as the incentive to go abroad. Even compared to negotiated rates of cheap US hospitals (leave alone the atrociously high "list" prices) top Asian hospitals charge a lot less. A heart valve replacement costing over $100K in a typical US hospital may cost $50K in a cheap US hospital, but only $10K in Wockhardt or Apollo in India. For a heart bypass, the comaprable figures are $70K typically in the US, $40K in a cheap hospital, and $10K in India. That's offshore fees 75% - 80% lower, which is very different from a "mere" 20% - 50% differential.

• Other negatives are obvious: people having surgery done halfway around the world are far from their regular doctors as well as friends and family. Consider, also, what happens if an American abroad falls victim to negligent care. Arranging transfer to another hospital may be difficult. --- If the authors insist on playing this "fear" card they should at least mention that the patient is far less likely to have an adverse outcome in a top foreign hospital than in an average US hospital. Take heart bypass: the US overall mortality rate for this is over 2%. It is only about a third of that (0.6% - 0.8%) at Apollo or Asia Heart Institute in India with similar favorable comparisons for infection rates, other complications and other procedures like hip resurfacing. Also, most of these foreign hospitals are multi-specialty with good general care, and in any case located in the largest cities like Delhi, Mumbai or Singapore with a profusion of other hospitals. So in the rare event of a transfer being needed it's likely easier done abroad than in the patients' home place. It's only a matter of time as one can't keep beating the odds, but as of now I haven't heard of a single fatality of a US medical tourist in the top hospitals in India and Singapore. For all this the authors only say "There is reason to think the quality of care at some foreign hospitals may be comparable to quality in the United States."

At least there's one positive to this article - someone (other than Prof. Bhagwati and I) is discussing medical tourism as an option. So far the Obama administration and lawmakers in Congress have been totally quiet on the subject.

Omitted Trade Option Again Highlighted in FT

Today on June 1st the Financial Times published another letter by Prof. Jagdish Bhagwati that stresses our findings about the benefits of trade in lowering US health costs and improving access to providers. We had earlier written about this on December 23rd, 2008 as also reproduced in my post of that day.

The Obama Administration continues to ignore this option of importing doctors and exporting patients (medical tourism) despite its immense promise. The probable reasons? Expected opposition by a powerful lobby like the AMA, and misplaced protectionism. I call protectionism "misplaced" here because the scarcity of skilled health care personnel in the US is artificially jacking up prices and making it unlikely that medical tourism will contribute to greater unemployment. On the contrary, lower US health care costs as a result of trade may make broader US goods and services more competitive internationally.

Here is Prof. Bhagwati's published letter:

Sir, Krishna Guha’s excellent article (May 28) on Barack Obama’s plans for healthcare reform makes it clear that the president’s economic and medical advisers continue to ignore altogether the most important way in which comprehensive coverage could be facilitated by significant saving in costs and by easing the shortage of doctors and medical personnel: namely, a full-throated embrace of international transactions in medical services.

Sandeep (sic) Madan, of Global Healthnet, and I have argued extensively that costs (whose fiscal magnitude crippled the attempt to introduce comprehensive coverage in California) can be reduced massively with augmented measures to “export patients” and to outsource claims processing and customer service. These savings exceed those claimed with fanfare for the technocratic Obama proposal to computerise medical records.

Again, “importing doctors” and medical personnel represents an excellent way to alleviate shortages (such as those that have afflicted comprehensive coverage in Massachusetts). Independently, Fredrik Erixon of the European Centre for International Political Economy has long advanced similar proposals in the European context and recently extended his arguments to the Obama administration’s omissions in this regard to date.

Perhaps the administration’s de facto antipathy to trade lies at the bottom of this glaring omission; if so, it is costing the president’s major reform agenda!

But perhaps it is also because of the American Medical Association’s fear that international transactions in medical services will harm the earnings of their members. But, in that case, what happens to the president’s frequent claim that his administration will bring an end to the lobbying as we knew it?

Professor Jagdish Bhagwati,
Council on Foreign Relations,
New York, NY, US

Failure Through Compromise?

Make no mistake. The health industry likes the status quo and wants health reforms to fail. Why? Because "what the rest of us call health care costs, they call income" as Paul Krugman noted on May 10. A meaningful reform package will drastically cut costs that will affect all or most players, so the industry has strong incentives to unite to oppose it.

President Obama ought to fully know this even as he lauded the health industry's promise to cut $2 trillion in costs over the next 10 years. The industry is doing this to get a seat at the table on health care reforms. Pundits and reformers are rightly suspicious of industry intentions. Krugman in his May 21 column exposed insurer moves to kill the public insurance option in a repeat of the Harry and Louise ads that helped sink Clinton's 1993 reforms.

This public option is vital for the US unlike other countries like the Netherlands as explained in my previous two posts - because engineered provider scarcities in the US require a centralized entity with buyer's clout to keep pricing reasonable. The cost-effectiveness of the public option will essentially sink the private insurers as the private market is likely to shrink to less than a fifth of its current size. So yes, I empathize with the desperation of private insurers. The question for Obama and Congress is, whose interests should be paramount? The American public whose health care costs can be chopped dramatically, or the employment and profits of private insurers?

Despite the obvious answer, reforms may be stymied as in decades past. With so much at stake, private insurers will spare no efforts to buy over lawmakers, and advance fallacies of "free market" virtues and "socialized medicine" evils to sway public opinion. The biggest hurdle is the US Senate where Republicans are a 40% minority, but can be joined by enough Democrats to block the most useful changes through "compromise legislation." Such Democrats call themselves "centrists", but like good and bad cholestrol, such centrists can be good or bad types depending on how they choose to accomodate Republicans.

An example of a bad centrist is Democratic Senator Ben Nelson who opposes the public option and gave eight easily refutable reasons for doing so, and basically parrots Republican objections. Then you have Sen. Charles ("Chuck") Schumer ostensibly addressing Sen. Nelson's objections in a compromise proposal by handicapping the public option and constraining it to pay providers higher rates than Medicare. Just as in G.W. Bush's ill-conceived drug plan for seniors, what's the point of not allowing the government to use its buying power to lower costs, particularly to counter monopoly or scarcity pricing by providers?

President Obama's Administration can of course use his high popularity and his bully pulpit to call out the Democratic Senate hold-outs. They will support the public option without undue handicaps if they fear a voter backlash from failure to do so and heightened suspicions of their backroom dealing. Obama at times seems over-eager to be inclusive, but it's early yet and I hope my misgivings are misplaced. We will know soon.

Finally, an aspect that escaped comments by Krugman and other experts is about the numbers in the health industry's promise to cut costs. They'll cut $2 trillion over ten years by reducing the projected annual growth rate of health costs by 1.5%. Is that it? While $2 trillion sounds like a lot, it's under 5% of cumulative costs. Given our outrageously high costs and pricing compared to peer economies we should be aiming for over a trillion dollar reduction per year at current levels. That's about $15 trillion over ten years.

Deceptive Arguments Against Reform

Republicans have been vociferously opposing two key features of health care reform: universal coverage and public insurance alongside private options. Till recently they mainly combined backroom obstruction with shallow slogans like "socialized medicine" or "save taxpayers". Now they offer more detailed arguments, like in three articles appearing in major newspapers. Their objections may sound convincing but are deeply flawed.

The first of these articles is Ramesh Ponnuru's April 9 Op-Ed in The New York Times about "The Misguided Quest for Universal Coverage." He uses some clever phraseology and statistics to argue against guaranteed health coverage for all that are summarized (in italics) below, along with my comments:

• Universal coverage will not save money, but instead may cost more. The cost shifting effect of uninsured people raising premiums for everyone else is very little, and will likely be outweighed by money needed to extend proper health care to all. --- I agree with all this, but talk of a red herring. Reformers have never used this cost saving argument to push for universal coverage. Instead, they acknowledge it will take some additional resources but consider it very worthwhile on grounds of public benefit and moral responsibility. It's actually the health industry interests and their Republican allies who push this "cost-shifting" as one excuse to justify exorbitant US prices for treatment. Now, there arguably ARE two economic second order benefits of universal coverage that Ponnuru does not try to counter: (i) Timely care will avert some more serious problems, lost productivity and more costly emergency treatments. This creates some offsetting savings. (ii) A lot of waste and expense will be eliminated, associated with private insurers' trying to screen out sicker applicants, and providers trying to recover dues from uninsured patients.

• Universal coverage cannot be achieved using free market methods. It will require regulating private insurers, subsidizing them and/or introducing public insurance. --- Even if this is correct, so what? A "free market" however you define it should be a means to an end of greater prosperity and well being of the overall society. It makes no sense to bear huge burdens and inefficiencies just to maintain a convoluted concept of free market health care. And why should public insurance be banned from competing with private plans in a really free market? That said, the Dutch health care system is an example of (appropriately regulated) private insurers alone doing a good job of delivering universal care. Finally, the US already has public insurance in the form of Medicare for its senior citizens. Extending something like it for all Americans is not such a large conceptual leap.

• It's possible that money spent on universal coverage can be spent more efficiently or effectively on something else (e.g., clinics, reducing medical errors, nutrition, or even improving education.) --- No supporting facts or proof are offered that would indicate this. It's as ridiculous as saying you shouldn't treat patients in hospitals because the resources involved could just be better utilized for something else that you can't specify. Ponnuru raises other open-ended questions in his piece without offering any facts to establish the legitimacy of his concerns.

• Voters want lower health costs more than they want universal coverage. During the Democratic presidential primaries, Hillary Clinton repeatedly attacked Barack Obama’s health care plan for not covering everyone — and as you may have noticed, he survived. If Democratic primary voters are not wedded to universality, the larger public surely is not. --- First, as you may have also noticed, Obama roundly beat McCain who wanted the precise health care system advocated by Ponnuru & Co. Second, Obama was as much for universal coverage as Hillary was, and only differed on the way to achieve it. Hillary wanted to mandate that everyone had or bought coverage beforehand. Obama wanted to give people the option of obtaining it whenever they wanted it, even after falling sick. That is like being allowed to buy insurance and fix your car with it after having an accident. This of course went down very well with voters, and its problem is viability for the insurers. Third, given the economic uncertainties, even the covered Americans are fearful of losing their benefits. Most of them want the safety net of universal coverage that incidentally is already available in every developed country except for the US.

• The best way to go forward is to allow private insurers to offer any plan only to customers they want, so that they can lower prices of coverage. People with preexisting conditions or who develop chronic problems subsequently should be able to turn to the government or public funding for help. --- This is of course very convenient: private insurers cover healthy people profitably, and abandon others or make taxpayers pick their tab. It's part of the joke about Republicans wanting to privatize all gains while socializing all losses.

• People shouldn't be forced to have or buy health insurance in a free country. --- First, even in a free country you have and need laws to protect people from their own idiocy or neglect, like those requiring seat belt use in cars. Second, in humanitarian free societies the uninsured will likely still not be completely abandoned, so society and providers will incur expenses for their care in any case. For example, we have longstanding US laws requiring hospitals to provide emergency care to patients regardless of their ability to pay. So it's better and fairer to require coverage for all.

The other two Op-Eds appear in the Wall Street Journal, "The End of Private Health Insurance" of April 12, and Kerry Weem and Benjamin Sasse's "Is Government Health Insurance Cheap?" of April 14. Both make the case against public insurance being allowed to compete with private health insurers. Here's what they - and I - have to say:

• Democrats intend to game the system to precipitate -- or if need be, coerce -- an exodus to government from private insurance. Soon enough, that will be the only "option" left.
  As people gravitate to "free" or heavily subsidized care, the inevitably explosive costs will be covered in part with increased outlays to keep premiums artificially low or even offer extra benefits. --- There's no evidence at all of this sinister Democratic intent. In fact in the case of Medicare vs. the private Medicare Advantage plans, subsidies have been flowing the opposite way. Private insurers have been paid 12.4% more per member than what the government spends on its traditional Medicare patients. The Obama administration's move to simply level the payments is facing stiff opposition. And a public insurance plan can very well be like Medicare for all.

• Public insurance with its enormous buyer clout (monopsony) can force providers to accept much lower prices than private insurers and enjoy other scale economies. So private insurers cannot compete effectively, and will be squeezed out of a lot of business. --- This is correct, and only underscores the need for a strong buyer to counteract the pricing leverage of providers as a result of lack of competition and engineered scarcities (e.g., a shortage of doctors.) Whose interests should the lawmakers and government serve - its citizenry or industry interests? Why should Americans be prevented from signing up with a more efficient and cost effective public insurer just to enable costlier private insurers to retain more business? If the supply of providers is improved over time (something the lawmakers and administration should have addressed long ago) the private insurers should be able to do better.

• As more people switch to a public Medicare-type plan the providers will have to do more cost-shifting, making private plans more expensive. --- This argument is invalid for several reasons. First, providers voluntarily accept Medicare patients, and wouldn't do so if they were losing money on them. Second, Medicare payments are quite high compared to the rates in other developed countries. It's just that providers get away with charging even higher prices because of the frictions and scarcity-induced market distortions in US health care. Third, even Ponnuru acknowledges that any cost-shifting effect is minuscule - about 1.7% of private insurer premiums (I'd of course challenge even that number.)

• Public insurance will be wasteful and open to fraud, and so will actually cost more. --- These critics should make up their minds. First they attack public insurance as being too cost effective for private insurers to be able to compete. Here they say it will be so wasteful as to fritter away taxpayer dollars. Anyone seeing the numbers on Medicare vs. private Medicare Advantage will realize the public option costs less overall.

Obama seems to have rightly decided to go ahead with health reforms even if it involves bypassing a Republican filibuster though with Sen. Arlen Specter's defection that may not be necessary.

Why We Need Government Run Health Insurance

In a search for a real world model for health care reforms, there is good news and bad news.

The good news is that any of the health care models in highly rated countries will be a huge improvement over that in the US for most of its population. There are many different models and The Commonwealth Fund in March 2008 described some of the disparities even within West Europe. Some countries like the Netherlands since 2006 operate almost entirely through private insurers and providers while offering wide choices. It ranks No. 1 in the Euro Health Consumer Index for 2008. On the other side the No. 2 and No. 3 ranked health care systems of Denmark and of Austria (that rate even higher than The Netherlands in other studies) are mainly government run and financed, with fewer choices. Almost all of the other countries have heavy government involvement through public health insurance and/or regulated pricing (as in Singapore) for many medical services. But the systems vary enormously from country to country.

The bad news is that this wide variation in the health care structure in top ranked countries muddies the picture for reforming US health care. It allows special interests and the lawmakers under their influence to argue against the Democratic consensus on the need for public health insurance as an alternative to private insurance. When driven by the public outcry to lower costs and cover the uninsured, they can point to The Netherlands and the more expensive (but still a third cheaper than the US) private insurance system of Switzerland as examples that we don't really "need" public health insurance in the US. But this is a highly flawed contention, and I'll explain why.

Largely through industry influence and aided by bad planning and happenstance the US has a shortage of providers. Take the important case of doctors. Both The Netherlands and Switzerland have 3.8 doctors per 1000 population, which is above the OECD median of 3.4. So private insurers can get competitive deals and pricing with providers in these countries. In the US by contrast we have only 2.4 doctors per 1000 population so it's entirely a seller's market. That's the main reason many US doctors are opting out of Medicare because of low rates even though these are generous by European standards. We have a similar though smaller problem with hospitals. Due to lax anti-trust oversight we have allowed many hospitals and chains to consolidate so there is now reduced competition and low consumer choice of hospitals in many places.

Detractors will be quick to point out that some (though few) developed countries with less doctors do manage to have relatively good and inexpensive care. Specifically these exceptions are Singapore, Canada, Japan and UK. They have 1.4, 2.1, 2.1 and 2.5 doctors per 1000 population and health care expense per capita of $1,170, $2,578, $3,678 and $2,760 respectively in 2006, compared to $6,714 for the US. But all these countries have managed to keep costs and prices low precisely through heavy government intervention. Singapore directly imposes price controls and restrictions on most hospitals and providers, and has a younger population needing less health care (only 7% are over 65 years old, compared to 14% in the US.) The other three, Canada, Japan and UK all have public insurance playing a huge role that determines pricing.

In other words, when we have a constrained supply of providers as in the US, we also need the purchasing power of a dominant buyer like the government (i.e., a monopsomy) to keep prices in check. Private insurers and their supporters say that this huge buying power of a public insurer gives it an "unfair" advantage, but unfair to whom? Yes, going by the West Europe as well as Medicare versus the private Medicare Advantage enrollment experience, I fully expect that over 80% of the business will go to the public insurer if it were created. That's precisely because this public insurer offers by far the best value, and only the very affluent or those with generous employers will opt for the much more expensive private insurance.

Let's be clear though: public insurance provides the means to drive down prices but does not guarantee it. There still has to be sufficient oversight and proper execution to ensure that special interests don't exert undue influence to come away with overly generous reimbursements. Think Blackwater, no-bid contracts in Iraq and after Hurricane Katrina... But this should be less of a concern post 2008 elections, with the high profile of this issue and a better administration in place. Also we need to separately address the issue of provider shortages.

Back to public insurance the primary responsibilty of US policy makers is to set up a high quality, cost-effective and universal health system for US consumers. It's not to steer business towards private insurers by selling out the public interest. Unfortunately, this is precisely what they did in the Bush era when they created the complex Medicare Part D's drug program for seniors. This barred Medicare from negotiating drug prices and is rightly viewed as a giveaway to drug companies, private insurers and middlemen.

Given its importance will Obama and the Democrats be able to stand firm and set up a public insurance program to run alongside private ones? Or will they submit to "compromise" that eliminates or postpones this step? It's a huge deal that will radically affect health care costs, and is a fitting test of the commitment and effectiveness of the new administration. We'll see.

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.