Bin Laden, Pakistan And US Health Care

This April 12 WSJ article "Medical Schools Can't Keep Up" quotes the AAMC as saying the US facing a shortage of 150,000 doctors in 15 years.  Actually, we're 350,000 short right now as compared to OECD averages,with the problem worsening over time.  Steps by the government to rectify this in the short and the long term as outlined in  my September 11, 2010 post are straightforward, but no one seems bothered.

This doctor scarcity is not accidental.  Apart from causing hardship to an under-served populace it is the biggest cause of US health care overpricing per my Feb. 10 post.  I see parallels between  Osama Bin Laden hidden away in Pakistan and this health care situation in the US.

• OBL hid "in plain sight" under the nose of the Pakistan government for years.  Ditto for managed US doctor shortages that have escaped US government and media attention for decades.

• Pakistan and its ISI was either colluding with OBL in keeping him hidden, or amazingly incompetent.  Given the location and size of the hideout it's probably the former but we don't know for sure.  Either way it shatters notions of Pakistan being a satisfactory partner in combating terror. The US government and lawmakers are either deliberately allowing doctor scarcities, or are amazingly ignorant of it.  Given that they inexplicably legislated caps on funding medical residencies to make an awful situation even worse, it's probably the former but we don't know for sure.  Either way they have seriously undermined public interest.

• Pakistan and the ISI selectively target some terrorist networks like the Pakistan Taliban while ignoring or shielding arguably bigger ones like the Afghan Taliban and Haqqani network that further their interests. US lawmakers and health experts espouse health remedies like use of electronic health records, prevention and wellness measures, anti obesity campaigns and (for Paul Ryan) shifting costs to consumers.  But they avoid exposing and moving against the biggest sources of gain for their benefactors - doctor scarcity and hospital market ("monopoly") power that jack up prices and overall costs. 

• After OBL's killing and the resultant questions about Pakistanis' role in his hiding in their midst for so long, Pakistan indignantly asserted that it aided the capture of more terrorists than any other country.  It's just that they "overlooked" the worst and biggest ones.  In the US there's no dearth of organizations, publications, expert opinions and articles on how to improve health or health care.  Every major magazine or newspaper has a section on "health."  Government bodies like the CMS, CDC and CBO have millions of pages of health data.  Notably absent is material comparing payments for procedures, medical fees to doctors, true doctor earnings, drug prices (particularly for generics where no royalties or patents are involved) in the US with other countries.  CMS with its (and perhaps IRS) vast databases can task a handful of its analysts to compile and disseminate all such information within a week if they so want.  Instead, even the little data they put out on payments for some procedures was horribly flawed and (no surprise) heavily understated.

• Ongoing terrorism can be good business for Pakistan.  Pakistan gains in military and financial aid so long as the threat of terrorism against the West continues in this region. Excess earnings by the health industry can be good business for US politicians and health experts.  Even a fraction of a percent of these can be plowed back for substantial payoffs and political contributions.

• Even those in Pakistani establishment who genuinely want to combat all terrorism can be pressured by public sentiment and risk to their well being and careers, or seduced by blandishments to help some groups. The same way, US health experts avoid exposing overpricing and other key aspects behind excess expenditures, because of the way medical groups can control their careers, funding and research grants. The editorial boards of health publications are dominated by doctors so even pure academics telling inconvenient truths can suffer in their "publish or perish" world. And public health officials are aware of lucrative post-government opportunities (as in Thomas Scully's case) so long as they serve and shield their industry well.

• Bin Laden, terror networks and Mideast wars have caused trauma, suffering and deep financial loss to the US.  There were almost 3,000 deaths on September 11, '01 and another 6,000 military deaths (600 annually) in subsequent wars costing about $100 billion per year.  Doctor shortages and overpriced US health care impose suffering and financial burden that is far higher.  The excess expenditure compared to peer economies is already over $1 trillion a year and getting worse. And 45.000 die annually due to inadequate care and lack of insurance.

I'm obviously not serious about equating health industry abuses with terrorism.  It's just that double dealing and conflicts of interest can be endemic in foreign relations as well as domestic situations.  In the latter we fortunately have more control in taking corrective action once there is public awareness and resultant pressure.

Helping Leaders Heal Health Care

Solving US health care problems and the resultant budgetary morass is not that hard.  Taken together, the steps laid out in my March 28 post do not fall into either ideological extreme, and balance each other out in terms of right versus left dogma.  Moreover, embracing trade per my April 7 post results in rapid and dramatic benefits and savings.

Increasing provider availability and competition should suit Republicans who are for free markets and supply side economics, while Democrats get universal coverage without increasing health spending.

Instead, the Republicans' Paul Ryan plan only caps future federal outlays on Medicare and Medicaid and shifts the onus of health coverage to the states and individuals.  All the cost savings are supposed to come from "flexibility" to be enjoyed by the states, and competition among private insurers who are an added layer of middlemen.  While some like BusinessWeek on April 6 seem to laud "The Audacity of Paul Ryan", Paul Krugman in his Times April 7 and April 14 columns exposes the disastrous implications of Ryan's undermining of the health safety net.

Interestingly, Ryan opposes the Independent Payment Advisory Board created by the new health care law to curb Medicare spending, that can cut Medicare rates to providers.  His Republican colleagues and even some Democrats also oppose this expert led Board.  It would reduce their political powers to favor or protect providers (and receive payback in return.)  They of course advance different reasons for their stance, calling this panel a "rationing board" that "punts difficult decisions on health spending to an unelected, unaccountable board of bureaucrats.”  Krugman in his Times April 21 column exposes the flaws in the Republican rationale in more detail.

On the Democrat side the initial 2009 attempts at cost control were confined to cutting out private insurers through single payer, or keeping them in line through a strong public option.  Both of these failed. Now President Obama on April 13 has at least pledged to protect most of the Medicare and Medicaid benefits.  But his plan of cumulative savings of $480 billion through 2023 and $1 trillion in the following decade is uncertain of success and sets too low a target at the same time.

There is pressing need to control costs, yet the Republicans and their experts avoid directly confronting root causes like high provider prices.  Obama and the Democrats do so, but only in a timid and limited way.  The reason is obvious - no one wants to lose the largesse or attract the opprobrium of one of the most well endowed industries.  Ironically, the very distortions in our system that have unjustly enriched the industry have added to the resources and leverage of the players to block corrective measures.

The direct political contributions as compiled by the likes of followthemoney.org for the health industry or by opensecrets.org don't even come close to giving the full picture.  That's because the special interests including this industry are keenly aware of public scrutiny and of the negative perceptions about their campaign financing.  So they can cover their tracks by using artifices like super PACs with sister corporations (this was added here on Oct. 1) or by funding through proxies.  As an example of the latter, doctors, legal and insurance professionals can contribute to candidates favored by their associations through their spouses and dependents.

Other than such legal workarounds to disclosure rules there's also the universe of employment favors or rich "consulting contracts" for relatives, or outright bribes.  Unless someone is foolish or careless most of such goings on don't come to light.  In sum, as against publicly disclosed contributions of a "paltry" $100 - $200 million annually, the actual payoffs by health industry players may well be over ten times this amount.  Even "honest" politicians can be compromised if they hesitate to annoy interest groups that can run massive ad campaigns against them or fund their opponents.

Can payers and patients do anything to counter health industry influence and help lawmakers act in the public interest?  Actually, they can.  Health overcharges are at best a zero sum game where every unnecessary dollar going to a provider or middleman comes out of the pocket of a payer.  I say "at  best" because many are heavily "negative sum" thanks to "friction" - the gainer gains much less than the loser loses.  For example, trial lawyers gross revenues are less than $5 billion annually from malpractice litigation, but they block tort reforms that eliminate defensive medicine and court costs that may exceed $100 billion.  But even in the zero sum case there are in theory losers who can neutralize the industry gainers through their own influence and financing of decision makers.

The reason this does not happen is because the losers are a diffuse populace (e.g., 300 million patients) who succumb to the "free rider" effect ("let others do this, not me, even if I benefit if they succeed.")  The special interests in contrast are a select group (doctors, hospital and insurance executives, hedge fund managers, bankers - you get the idea) who stand to gain a lot more individually and can act in unison.

This brings me to the main point of this post.  Are there any influential groups that can exert countervailing influence?  (I'm talking of other than the likes of MoveOn.org or the AARP that have broader agendas and / or can't match the financial clout of the health industry players.)  Happily, there are, and they can play a much bigger part than at present to help themselves as well as the American people.

We should look to the large employers who according to MEPS pay for over 75% of their employees and their families health costs, and this accounts for over 12% of their payroll. They are better suited than the US Chamber of Commerce, whose large membership includes small businesses providing less health benefits, that oppose some reforms.  Besides, this Chamber includes health providers (hospitals, medical groups, device makers, drug makers and middlemen) that are the likely target of reforms.

Among the large employers the most promising subset are their biggest, like the Fortune 500.  They are a concentrated group offering the most generous benefits.  They almost all pay for the bulk of the health costs of their employees and their families, and sometimes for their retirees.  Even better, they already have their own organization solely focused on their health care issues and concerns, the National Business Group on Health.  The 300 or so NBGH members include nearly two thirds of the Fortune 100, and cover health care needs of over 50 million Americans, incurring (at a guess) up to a tenth of the national health care costs.

The NBGH is engaged in "representing large employers' perspective on national health policy issues and providing practical solutions to its members' most important health care problems." While it is doing useful work, its resources, role and impact can all be elevated orders of magnitude higher.  It can enable the right health reforms by sponsoring objective studies untainted by industry influence, shape public opinion through massive media initiatives, and through lobbying and campaign contributions. 

Other than helping Americans, making the US labor more competitive and earning goodwill as good corporate citizens, what do NBGH members get for their extra effort and invested resources?  Improved bottom lines and employee welfare as a result of a sharp decline in health care costs and better care.  They collectively spend over $200 billion annually on health care.  Supply side measures, competition and resultant price corrections alone can reduce health expenditures by a quarter so these NBGH members stand to save over $50 billion annually with the "right" reforms.  Investing a small percentage of this can give NBGH billions in resources to help make this happen.

Of course, these large employers not only serve themselves well, but in this scenario also have a much bigger impact on the US economy.  Other payers including small businesses and self paying patients all benefit as well.  And since over half of US health expenditures are met by public funds, the government (which cannot lobby itself) and taxpayers save five times as much as NBGH members. 

The course of health reforms will be strongly determined by the influence over Washington and the states.  The largest employers can step in to play the system to help themselves, while this also makes them the good guys to bring about the best outcome for the rest.

How Trade Can Transform US Health Care

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

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

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

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

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

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


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

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


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


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


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


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

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

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

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

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

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

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

Do This To Fix Health Care And Our Budget

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Better US Health Care At Half The Cost

The main problem with US health care is its high cost.  A surprisingly unmentioned fact is that this "high cost"  is actually due to exorbitant pricing, as compared to all other countries.  Why is this important?

It's because correcting these prices is the quick and painless way for Americans to address the health crisis and achieve universal coverage.  It is the closest to having our cake and eating it too.  We can achieve universal coverage, hold the line on spending or even reduce it, avoid additional taxes, and all without trade-offs on the quality or the amount of care.

Yet this approach is suppressed and ignored.  It is anathema to the health providers and middlemen (like PBMs) who benefit from the current system.  They and their "experts" instead plant the false notion that our care is so costly because we're getting much more of it than elsewhere.  They imply that Americans utilize more resources in getting more treatment, more time with providers or in hospitals, more or better medication, and more diagnostic and imaging tests.

Only the last about imaging tests is true, with very limited effect, as the OECD health data shows, and Americans actually lag behind their first world counterparts in the other parameters.  True, Americans average 92 MRIs and 230 CAT scans per 1000 population annually, as against the OECD median of 37 MRIs and 119 CAT scans.  But that translates to less than 3% of extra costs even at inflated US prices.  These and any other "excesses" are more than offset by Americans seeing their doctors 40% less often and being in hospitals 20% less than the OECD median.

So what's behind US prices being over twice as high as in Europe, and 5 - 10 times higher than in the top Asian hospitals popular with medical tourists?  It is mainly tightly restricted supply, limited competition (as I've written earlier about doctors and  in regard to hospitals) and a system that simply lets providers get away with it.  An example of the last: unlike other countries the US bars its federal agency (HHS or Medicare) from directly negotiating drug prices for publicly funded patients, so these are double those in Europe.

Provider groups use their financial leverage and lobbying to sustain the current price regimen, while dodging adverse public scrutiny.  Some interesting aspects are:

• Doctors and hospitals vehemently protest impending Medicare rate cuts under SGR.  But they'll carefully avoid any comparisons with other countries.  That's because Medicare rates on which they claim to lose money are actually far higher (even after cuts) than prices anywhere abroad.   
• The lure of industry largess and fear of career suicide seems enough to stop health care experts and academics from discussing or publishing work on US health pricing. The bulk of academic endowments, research grants and other funds flow from provider organizations.  Moreover, the editorial boards and review committees of health journals are dominated by doctors who can blacklist authors of inconvenient articles exposing their industry. 

• The experts' reticence results in wider ignorance and misconceptions in the public.  The popular media looks to research and analysis in respected publications for answers to the health crisis.  Their own journalists haven't realized that pricing alone plays a much bigger role in health costs than all the other reasons trotted out by the experts as Op-Ed writers or talking heads on TV. 

•  Even the HHS / Medicare does not compile and publicize data that exposes the pricing anomalies and actual doctor earnings, that can justify the government's case for SGR cuts.  This is less surprising once you realize that HHS / CMS employees have a symbiotic relationship with the health industry players.  They are aware of the revolving door and subsequent lucrative employment opportunities if they oblige the industry.  Ex-CMS Administrator Thomas Scully is an example.  The current CMS chief Dr. Donald Berwick is an excellent choice, but he too has to tread cautiously as a recess appointee in a precarious position with many GOP foes.

Law makers can easily take measures to correct pricing anomalies in a relatively short time, and apart from all the economic benefits, this should go down well with voters.  But they are either bankrolled by the provider groups, or fear funding of election bids against them if they overly annoy providers.  So their inaction and silence extends to both sides of the aisle, though more so by Republicans who have closer industry ties.

In fact, cynical politicians can go the opposite way if their actions remain beneath the public radar, and the ill effects are only felt long after they are gone.  In his Jan. 19 WSJ Op-Ed the CEO of NY Presbyterian Hospital describes a bipartisan panel proposing a $60B cut through 2020 of Medicare funds to train new doctors.  It's like meeting grain shortages by eating the seed for future harvests:  worsening doctor scarcity, further raising prices for their services, and increasing overall costs and patient misery. 

Is pricing the only problem leading to higher US health care costs?  Obviously not.  We have the usual causes widely discussed in the media.  The waste and duplication in the private health insurance industry. The distortions in provider incentives under the fee for service system.  Malpractice laws and defensive medicine.  Lack of proper end of life planning (Sarah Palin's "Death Panels") and public funding guidelines about treatment of patients with terminal illness.  Inadequate research and dissemination of information on comparative effectiveness (including the cost) of treatments and consequently deficient policies.  Cost of care fully borne by third parties that removes the patient's incentive to look at costs.  Insurance and Medicare fraud, and so on.

But the savings potential from addressing these other causes is dwarfed by that from correcting prices.  The latter is the richer, low hanging fruit in terms of administrative ease and voter acceptance.  Consider this: effective steps to bring health care prices down so that they are "just" 30% higher than in Europe will reduce the annual US expenditure of $2.5 trillion by $1 trillion, half of it in public funding.  Other reforms can of course result in further savings and improve the quality of care.

Key measures that were shot down by Republicans and some Blue Dogs (or not even pushed in a misguided attempt to "compromise") could have had an indirect but strong bearing on prices.  A single payer ("Medicare for All") system would have concentrated buying power into a single governmental entity that could dictate more reasonable prices even in the face of provider scarcity.  That's in addition to it streamlining payments, improving efficiency and effectively increasing doctor / provider supply by freeing up their time spent chasing payments and instead devoting more of it on patients.  That's how countries like Singapore, Japan, Taiwan and even UK are doing well with fewer providers. A strong public option would have also helped (though not quite as much) for similar reasons.

But too many Americans swallowed the propaganda that this "socialized medicine" would limit their choices and worsen their care - never mind that most seniors love their Medicare.  Where do we go from here?

We face the reality now of Republicans controlling the House, having expanded ability to filibuster in the Senate, and trying to limit a government role, including by undermining "Obamacare." Recognizing the central role of high prices and the core causes behind it can enable us to skin the cat another way - finding solutions palatable to the Republican supply side and free market ideology.  

These steps involve expanding provider capacity, allowing more competition including free trade in health services, reducing unneeded regulation and (for limited benefit) reforming malpractice laws.  Taken together they may work just as well or better than just a focus on single payer, and save a lot of money for taxpayers and businesses.  More on these in my next post.

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(Footnote: As in my March 1, 2010 post, I've pointed to the Obama administration's failure to publish data on true doctor earnings and hospital payments per procedure. Now the HHS is a year behind the rest of OECD in reporting even basic health data statistics as above.  This hadn't happened even in the "Heck of a job, Brownie" days of  G.W. Bush.  It underscores how the government apart from policy making also needs to pay attention to routine administrative efficiency. 

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.

Easy Domestic Fixes For Doctor Shortages

Doctor shortages typically occur in poor countries that lack the resources to train physicians, or to sustain enough of them to provide proper care.  Only in the US is there a wholly different reason - their supply is tightly controlled in several ways by private doctor dominated bodies with cross-memberships.

The medical schools numbers and overall capacity is controlled by the AAMC (Association of American Medical Colleges) and the LCME (Liaison Committee on Medical Education).  LCME members are appointed in equal parts by the AAMC and the AMA.  In the 1980s and 1990s they allowed only one medical school to be added, though now they've belatedly allowed an 18% increase over the current 131 schools.  It still isn't enough.

They discourage applicants another way.  In all other countries students typically enter medical school straight after high school.  But the US medical schools require a college degree, even if it's in something as unrelated to future medical practice as art history or Slavic languages.  This needlessly adds a crushing expense and burden of four extra years of college, thus taking at least 11 years post high school in the US to become a doctor, as opposed to seven elsewhere.  It also means four less years in these doctors' medical career.

Still, a lack of medical school graduates can be made up by foreign medical graduates who comprise over a fourth of US doctors (Table 108 of NCHS (CDC/HHS) Health publication, 2009).  A much worse restriction on supply is the national cap on medical residencies imposed by the ACGME and the RRCs (again, private doctor bodies). You can't practice in the US without such residency.

Then there was an amazing coup in freezing doctor supply through the passage by a Republican / Gingrich controlled Congress of the Balanced Budget Act of 1997.  Sneaked into this 537 page long Act are sections 4621 and 4623 that froze the future number of medical residents to 1996 levels, for whom Medicare had long paid almost the entire cost of training and salaries. The Medicare direct and indirect payment to hospitals for each of the roughly 100,000 residents, amount to $10 billion a year.  The freeze "saved" incremental payments of $1 billion or so, but resultant scarcities of doctors in subsequent years enabled excess fees hundreds of times greater.  This is like "saving" by denying a patient cheap medicines now, leading to hospitalization costing a hundredfold more.

As a result of these freezes on residents in the Act the doctor trade associations could now sit back and escape adverse notice.  Henceforth this restrictive legislation under the guise of savings would do the job for them by blocking the much needed doctor expansion.  Notably, the provisions capped the number of residents, rather than the total sum of money for payments, which remained very high per resident, averaging over $100K per year.  Why does this matter?

Because it prevents the HHS from obvious solutions like spreading the same pot of money over more residents, thereby increasing doctor supply at no extra cost.  For example, reducing Medicare payment from $100K annually per resident to $75K would allow a 33% increase of funded residencies with the same resources.  There will be plenty of takers.  Residents are eagerly sought by hospitals since they form a vital part of the operations. At an annual salary of $50K, they are remarkably cheap and underpaid.

Hospitals pay nothing for them presently, and will readily pay them $25K if the other $75K ($25K towards salaries and $50K for training and tuition) comes from Medicare.  Reducing Medicare payments per resident may also encourage privately funded or self-funded residencies, which will then face a less steep differential than the current $100K.  But as I said HHS hasn't been allowed this option even though it can dramatically expand doctor supply at no extra cost.

All this has created long standing shortages, with the US having only two thirds of the average doctor density in other developed countries.  This strikingly impacts the price and availability of services.  US doctors earn well over twice as much as their first world counterparts, both in absolute terms and relative to the average incomes in their respective countries.  It is one of the top three contributors to the inflated price of US health care, right up there with hospitals and providers saddled by inefficiencies, over-regulation and legal exposure, and a dysfunctional, complex private insurance system.

Not surprisingly, doctor groups and their experts dispute such nexus between doctor scarcities and inflated provider costs and earnings.  Their counter-arguments are flawed as described in my June 27 post.  There I also stressed the need to import doctors to address shortages, for at least the next ten years.  This is the lead time for any policy changes on domestic supply to have an impact.

But over the longer term these coveted and high paying physician positions can and should be filled by Americans.  The good news is that the solutions need little or no funding, are administratively straightforward and easy to put in place.  The biggest obstacle may be the opposition and fierce lobbying by doctors' bodies.  However, an enlightened administration and lawmakers should be able to do the right thing.  Especially if they are prodded by the increased (and overdue) public awareness of the issues involved, and the potential to add good American jobs.  Besides, if we have new laws that let in foreign doctors to ease shortages, doctor groups may no longer see any benefit from restricting domestic supply, and drop their opposition to such changes.

Here are the fixes that will make it easier and cheaper for talented Americans to pursue medical careers without compromising quality, and eventually internally meet all our doctor requirements:

1)  Medical schools should drop the college graduation requirement and like in all other countries, allow in high school graduates.  The core subject requirements can be met through prescribed AP courses in high schools, with the MCAT typically taken around the same time as the SAT.  The four years of time and resources for college education that is saved can instead be applied to residency training and the actual practice of medicine.

2) The expansion of medical schools and setting up of new ones should not be constrained by the AAMC and LCME with an eye to future demand for doctors.  They should only concern themselves with determining whether such institutions meet the appropriate academic and quality standards.  If the AAMC and LCME refuse to go along the government can replace them with other bodies that it sets up for control over establishing, expanding and accrediting medical schools.

3)  All residency caps imposed by the ACGME and the RRCs should be eliminated.  These bodies should only set professional standards and test procedures, and assess candidates, not determine the quantity of intake.  Like in other professions and disciplines, let the free market prevail. Teaching hospitals can determine how many residencies they want to offer keeping in mind their needs as well as the demand by candidates looking to their own future career prospects.  Of course, almost all residencies presently are wholly supported through public funding, although this shouldn't necessarily continue to be the case.  So residencies will still be constrained by the availability of such funds.  But the decisions on such funding (and consequent availability of residencies) will be made by committees of public representatives looking to ensure adequate future supply.  Not by private doctor bodies whose members benefit from scarcities.

4) The government should be prepared to counter resistance to (3) above, since the ACGME and the RRCs as private bodies may insist on capping residencies as they've been doing so far.  But they derive their power from the government recognizing them as the authority for assigning and filling residency positions.  If they do not cooperate, the government can set up other bodies to implement these functions, either in place of, or in parallel to, the ACGME and the RRCs.

5)  The ill-advised provisions of the Balanced Budget Act of 1997 that restrict the number of residencies should be repealed.  The funding for residencies by Congress will still be needed as it was before 1997, through normal appropriations.  The HHS can seek such funding based on projections of future need for doctors, estimated by an appropriate body of unbiased experts, while erring on the side of oversupply.

6) Doctor fears of future unemployment can be assuaged by guaranteeing their employment by public agencies, so long as they are qualified and competent.  Their minimum salary can be set at a decent, say, $150,000 - $200,000 annually depending on experience and specialty, and they can be employed in public clinics and the like.  Such salaried doctors patterned on UK's NHS will be cheap by US standards and save Medicare and Medicaid money if patients go to them instead of other doctors.  At the same time these salaried doctors will not be spending time chasing insurance payments or running a practice and consequently enjoy a better work-life balance.  Under such a public employment guarantee scheme, doctors will likely be less opposed to the other changes proposed here.

7) Finally, Americans can be quite naive and vulnerable to propaganda by special interests, as shown by public opinion against the March 2010 health reforms and even more so, the failed 1993 reforms.  So the government will need to stay on top and ahead on the message.