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.

Savings Through Free Trade - Telemedicine

You've probably heard it often. The recently enacted health reforms are great for increasing coverage of Americans, but not (in Obama's words, despite his assertions) for "bending the cost curve." The HHS experts said they will actually increase costs (though there are benign views of this). Millions of the newly insured will also further strain our health resources.

To lower costs, plus improve access and quality, Prof. Jagdish Bhagwati and I have long espoused free trade in health care. Here's a closer look at telemedicine, the first of the four types of trade in health services.

There is a commonality in these true-life (except for the last) stories:

• Our older daughter Sheena was visiting us on a Thanksgiving weekend when she developed high fever with chills. I took her to our Danbury Hospital emergency room. A physician's assistant examined her, ordered chest X-rays and preliminary treatment while consulting with the supervising doctor (who subsequently billed for his services). She was diagnosed with pneumonia, and three hours later we were back home with prescribed antibiotics that subsequently cleared her condition.

• Our younger daughter Rubina had an MRI taken of her injured knee (all fine now) at St. Luke's Hospital in New York. Of the payment of $2,000 for the MRI, $400 went to the radiologist who studied the MRI and reported his findings.

• In October 2008 Daddy (my father-in-law) suffered grave complications after a surgery in Inlaks Hospital in Pune. I learned that his surgeon Dr. P sought and received guidance from Dr. L who is very well regarded, and the head of surgery at Inlaks. When I subsequently spoke with Dr. L he knew all the details and assured me all will turn out well. Fortunately, it did.

• In the famous TV serial House, the brilliant and eccentric Dr. Gregory House has a team of diagnosticians reporting to him about patients with complex diseases. In a typical episode House orders a series of tests and treatments while playing mind games with his hospital colleagues and mulling over feedback from his team. He finally arrives at a brilliant solution that saves the patient's life.

In all these instances the doctor in question was never in the same room as the patient. Sheena's doctor guided his assistant from a different part of the hospital. Dr. L needed just to see the charts and hear the accounts about Daddy's condition from Dr. P. The same holds for House except that he generally ends up coming to the patient to make some caustic personal remark while announcing his conclusions and the cure. Rubina's radiologist got all information and images digitally on his computer screen and sent reports back the same way.

Any of these tasks could be performed by an appropriately qualified doctor half way around the world. Online access and video conferencing would give that doctor even closer contact with the patient than in the instances above. Given the scarcity of doctors in the US and their extreme prices, remotely delivered services hold vast promise provided we can overcome the obstacles and entrenched interests. In time, even complex medical interventions can be done routinely and cost effectively through remote surgery. Over three years ago a surgeon in New York removed a woman patient's gall bladder in France 4,000 miles away, and the technology is maturing.

The biggest obstacle to such treatment of Americans by foreign doctors is that they need to be licensed in the state where the patient resides. The license requirements typically include clearing all three parts of an examination (USMLE) that in turn require completing at least a year of US residency. So these very residency slots that constrain US doctor supply prevent foreign doctors from treating US patients as well.

But here's the kicker: it looks like any of the states can break free of this restriction. They can set up parallel criteria to let foreign doctors get licensed to practice within their jurisdiction, including through telemedicine. The states of course can and should impose stringent eligibility and screening criteria to ensure they permit only eminently qualified foreign doctors. Ideally the federal government should lead in orchestrating the requirements to be adopted by the states. There will of course be strong political pressures and lobbying against this by special interests. After all, even ideas since 1998 for telemedicine within the US across state lines have gone nowhere.

Still, the states are free to proceed on their own even if such a federal initiative is lacking. In particular, the states with large under-served areas and/ or those facing big health care budget shortfalls can benefit themselves and their residents by going this route. They can require information about all foreign doctors and their qualifications to be explicitly disclosed so that patients can stick to US trained doctors if they so want. That will conform to the mantra of consumer directed choice, free markets and transparency of information.

If it's allowed to happen the enormous benefits of this approach will depend on how well it is conceived and implemented. Some aspects and ways to make it more effective:

• Emphasize quality. Restrict eligibility only to foreign doctors who have substantial experience and are trained in reputed, approved institutions, so they are expected to be on par or better than their typical US counterparts. They should clear the USMLE provided the doctor dominated bodies sponsoring the tests agrees to let them participate.

• Even if only highly qualified foreign doctors are licensed the price difference can be enormous, and should be fully leveraged. For example, such doctors in India charge about $5 per consultation, and (after taking the trouble to fulfill US licensing requirements) can be paid, say, just $10 per remote consultation.

• Make the most of health IT and electronic medical records so that these doctors can readily see the patient's reports and medical images, prescribe medication, refer to other doctors (including US based ones) as needed, and bill for their services.

• Offer patients multiple ways to consult the doctor. They can do it right from home, either over the phone, or by video conference since Skype, cheap broadband and PCs make it all too easy. Even a "copay" of $10" covers the full cost while virtually (pun intended) making it as convenient and effortless as an instant house call. Or the patient can be allowed to walk into any of the designated facilities staffed by nurses who can participate in the consultation, follow the doctor's directions, take measurements, draw samples for testing, etc. Again, since a US doctor's services are not involved, the copay can be waived or kept very low so both the patient and the insurer/payer benefit.

What are the expected savings? Here are ballpark figures under some realistic assumptions:

• Primary care. CDC's NAMCS 2008 report estimates 902 million doctor office visits in 2006. Of these 50.6% or 458 million were to primary care doctors in general or family medicine, internal medicine or pediatrics. Assuming an average payment of $70, and 25% of these off-shored through telemedicine at 20% of the cost, the total primary care savings are $6.4B annually.

• Specialist care. Of the remaining 49.4% or 444 million specialist visits with an average payment of $140, assume 10% can be substituted by off-shore telemedicine at 20% of the cost. The savings are $5B annually.

• Diagnostic radiology. According to CDC's National Center for Health Statistics in its 2009 complete report (Table 108) there are over 17,000 diagnostic radiologists. RSNA news says they bill $1.46 million on average, or $25B annually. Assuming a fourth of these are off-shored at a fifth of the payment, the annual savings are $5B.

So apart from meeting the crisis of extra demand, telemedicine saves over $16B annually as in 2006, about half of this in public funds, in proportion to their share of the total US health expenditure. The 2006 total health expenditure was $2.1 trillion and the CMS Actuary projections (Table 5, p. 37) over the next 10 years is over $35 trillion. Using this extrapolation, telemedicine will save $267B over 10 years, of which $133B is in public funds.

These figures don't factor in the effect of extra competition and supply of physician services that will almost certainly help reduce the "scarcity premium" in US physician prices. This can dwarf even the considerable direct savings projected above, not to mention the benefit of increased and convenient access to services by patients.

Finally, all this is from just one (the remotely delivered kind) form of trade in health services, out of the four modes envisaged by GATS. More on the remaining three later.

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.

Will These Reforms Set Back Democrats?

Finally, the health reforms bill passed by the Senate and now the House has been signed into law. Paul Krugman calls it transformational and a triumph over fear-mongering even though it is far from ideal and a parallel legislation to fix some flaws is going through contentious reconciliation. This legislation is also expected to clear. With all the Democratic missteps along the way, this is a historic moment.

Reformers had wanted President Obama to do much more and earlier in time, but his final push was key in getting enough Democratic Congressmen to sign on. Among the side shows the Catholic nuns commendably came forward to support the health reforms bill even as the Conference of US Bishops opposed it on tangential abortion issues. More worrisome are possible accommodations made to get the support of the AMA and the pharmaceutical industry. That's because this bill does little to fulfill the other vital imperative of lowering costs, that will require follow on action affecting the interests of these providers.

The most credit goes to House Speaker Nancy Pelosi, whose quiet resolve and deft dealing with Democratic colleagues has been highlighted by the WSJ.

What about the dire Republican warnings of Democrats paying the price in the 2010 mid-term elections? Obama and other Democratic leaders have publicly accepted this assessment. It's a wise move showing their pro-reform lawmakers in shaky seats as sacrificing their political future for doing the right thing. This paradoxically may help these very Democrats come November.

Anne Kornblut in an MSNBC discussion also rightly opined that the health care issue may well recede from center stage come November, with some other issues driving voter decisions. In any case the Democrats would have lost a lot more if they failed to accomplish health reforms.

In a rational world the reformers should face no downside. The vast majority of Americans either benefit or (for those insured through employers) lose nothing while having the security net of affordable coverage even if their circumstances change. The people who pay more through higher taxes are a small minority of tax earners and some businesses on whom the mandates are accompanied by some offsetting (may be even over-compensating) concessions.

With the increased number of Americans covered the providers all gain up to this point. It is definitely a mixed bag for private insurers whose practices on pre-existing conditions, lifetime caps, rate hikes and recissions will be banned. But even they may benefit in the net, and the stock prices of Aetna and other insurers have risen after passage of this bill.

Still, the voters haven't always been rational in the past - they did elect GWB to a second term in 2004. There's also the uncertainty injected by 13 Republic state attorney generals challenging the law that will take over a year to wend its way and be decided by a Republican leaning Supreme Court. So I'll allow Republicans their hopes and the Democrats their nervousness, though I wouldn't bet with the many pundits on Democratic reversals as a result of these health reforms.

Simplified, Compromise Health Reforms?

I've quoted my brother Viranjit's friend Jonathan Starr before, as he's an avid and thoughtful health reforms enthusiast. To break the health reforms impasse he's acted on President Obama's call for "any other ideas."

Here's his compromise, simplified "Starr Plan" for health-insurance reform, sent to his California Senators and Congressman:

1) Increase Medicaid coverages and reimbursement rates to equal those of Medicare.

2) Allow everyone to buy into Medicaid coverage, at rates scaled by income (still starting at $0 for very low income people).

3) Pay for this program with a combination of participant premiums and a Medicaid tax similar to the present Medicare tax.

4) Exempt employers from their share of this Medicaid tax if they provide health-insurance to their employees (that meets federally-established quality standards).

5) Require all Americans to obtain health-insurance that meets federally-established standards, whether provided by an employer, purchased from a private insurer, or purchased from Medicaid.

6) Prohibit denial of coverage due to pre-existing conditions, as long as the person has previously consistently complied with the requirement, above, to obtain health-insurance.

7) Prohibit rescission of coverage for any reasons other than non-payment of premiums.

8) Prohibit federal Medicaid funds from being used to cover abortions, but allow state Medicaid funds to be used for this, at the discretion of the individual state.

That is basically it. Other issues (e.g. Medicare reforms, medical malpractice tort-reforms, insurance anti-trust exemptions and cross-state sales restrictions, prescription-price negotiations, taxing health-insurance employee-benefits, etc.) would be handled separately, in their own debates and legislation.

This approach has many advantages, including:

A) It would bring health-insurance coverage within reach of all Americans.

B) It is simple. It would involve far fewer changes to American society than the present proposals, and would entail a much shorter bill.

C) It is self-funding. It does not require modifying other programs to try to gain offsetting savings.

D) The cost of supporting the program is distributed largely by ability to pay.

E) It takes advantage of existing infrastructure and existing programs, reducing the cost of implementation and administration.

F) It avoids involving the American government in directly facilitating the transfer of funds to private insurance companies.

G) The question of funding abortions is handled according to the long-standing compromise embodied in the present Medicaid program.

So what do you think of this? Overall, I think this is an excellent approach and outline for effective legislation. The "compromise" here is with the holdout Democrats, as the Republicans collectively have pretty much dug in to oppose any reform package that meaningfully covers the uninsured.

Adopting Starr's proposals needs to be in conjunction with the House also passing the bill that was successfully cleared by the Senate last December. That way all the needed changes look as if they can clear the Senate through reconciliation. This is important, since reconciliation requires only 51 Senate votes, otherwise an all but impossible 60 votes are needed to overcome an expected Republican filibuster.

This proposal reintroduces the public option, in much more potent form than the House bill H.R. 3962 passed on Nov. 7, '09. Cost containment is more effective than anything else being seriously considered by Congress. That's because Medicare and Medicaid already have the infrastructure in place so incremental administrative costs are low. Moreover they enjoy the purchasing power and simpler payment process to be able to pay providers much less than what private insurers can negotiate, thus saving money.

Of course the very inclusion of this robust public option is the reason these proposals won't be liked by private insurers and their supporters in Congress. Point (2) of Starr's proposal can be refined so that the same subsidy on basis of low income is available to the recipients if they choose private insurers over Medicaid. Private insurers will still find it hard to match Medicaid's cost efficiency, leave alone have something left over for profit. Keep in mind though that much of Medicaid is outsourced to private HMOs and over a third of Medicaid beneficiaries are served in this way.

Starr's proposal also offers some financial flexibility. The total cost of the bill will depend upon the amount and the thresholds for income based subsidy, and that can be bargained over and decided in the legislative process. If Congress wants to limit additional public expenditure to say, a trillion dollars over the next 10 years, then they can adjust the subsidy levels and the eligibility criteria accordingly. As also recommended by others the proposal envisages the remaining contentious issues to be dealt with separately.

Politics will (naturally) play a big role in the final outcome, but good ideas can show the way forward. For American liking this proposal Starr urges sending it to your Congressman (Representative) and your Senators so they are at least in the know and hopefully act on it.

Doctor Earnings - and Why They Matter

President Obama and the Democrats may salvage something of health reforms using reconciliation to get past recalcitrant colleagues and a united Republican opposition. It's a far cry from what could have been achieved through a better, more proactive approach in the past year, yet a third of a loaf is better than none.

Administrative lapses have heavily contributed to the political stumbles. The Obama administration has failed to compile readily available data and publicize findings that undermine claims by special interests and their political allies who oppose reform. Reforms aimed at drastically curbing costs are bound to hurt some or most industry players, so they are all pointing elsewhere in the race to pin blame for health costs.

While the focus has been overly on insurers, a Feb. 25 study in Health Affairs by authors from a non partisan research group shows how hospitals and doctors bear much responsibility. The negotiating power lies with consolidated hospital chains facing little competition, and physicians increasingly banding together to command yearly double digit payment increases. (The study is limited to California, so it does not touch upon the national scarcity of doctors that contributes to their leverage.)

So how can Obama's administration including the HHS help simply by putting the facts out? One example is making widely available Medicare's true rates data, as described in my Nov. 21, '09 post. Another is shedding light on "true" doctor earnings.

Doctor and clinical services make up 21% of all US health care expenses, or half a trillion dollars annually. And this does not include the significant chunk going to salaried doctors directly employed by hospitals that account for an even larger 31% of total expenses. It is common knowledge that US doctors make much more than their counterparts elsewhere. According to available statistics it is twice or thrice as much as in other industrial countries. There are plenty of surveys on US physician earnings, but even these understate reality as elaborated subsequently.

This information is important for many reasons:

• It helps justify what are reasonable payments under the existing system, by Medicare as well as other payers who often use Medicare rates as a basis for their own negotiations. Medicare payment cuts to physicians under the Sustainable Growth Rate (SGR) legislation have been threatened since 2002 and amount to over 21% for 2010. Facing doctor protests, Congress has always suspended any cuts after 2002 and the whole formula will likely be scrapped under pending new legislation. Any new system should factor in reliably ascertained doctor earnings.
• It enables comparison of doctor earnings across specialties within the US, as well as across countries, particularly the first world peer economies. This tells us where the health dollars are going, and high salaries as a group are likely to indicate scarcity in specialties, needing policy corrections.
• It helps to determine if the problem is one of egregious waste or of egregious overpayment, and to consequently identify appropriate solutions. For example, a diagnostic radiologist drew in revenues averaging $1.46 million while earning "only" $438,000. Where does the remaining $1 million go? (It's not towards equipment and its usage as that is billed separately.) If it's mostly waste then a different model (say of radiologists employed on fixed monthly salary with reasonable performance bonus) can save a lot. On the other hand, the real earnings may simply be much higher than even the reported numbers. That strengthens the case for bringing them down through cutting payments, increasing radiologist supply domestically, and trade options.

While the reported earnings of US doctors have attracted some attention for quite a while, even these figures likely heavily underestimate true earnings for the following reasons:

• Almost all estimations are based on optional surveys with no penalties or safeguards against incorrect answers by doctors or other respondents. Doctors are acutely aware of public sensitivities about their earnings, and how this can impact Medicare payment rates that largely underpin their entire compensation structure. So they have every reason to under-report earnings.
• The studies most relied upon like the Occupational Employment Statistics and AMGA survey only include salaried physicians. According to BLS, self-employed physicians overall earn more than salaried ones, thus skewing the results downwards. Even including the self-employed may not help, given the greater propensity and leeway in this category to understate earnings.
• The response rate in these surveys is very low (e.g., under 9% according to p. 10 and p. 18 of the AMGA 2009 Executive Summary.) If the higher earning practices are reluctant to disclose "inconvenient truths" and shy away from participating, this again skews numbers downwards.

For all these reasons the Obama administration should compile the true doctor earnings statistics and make them public without further delay. This is a purely administrative task needing no legislative clearance and can even be done entirely under the political radar.

What's more, there's a ridiculously simple, quick and cheap way to accomplish this. How? By tapping into the already available sea of past IRS audited data on physician tax returns. Physicians as a higher earning group would have a higher proportion of returns subjected to audit. These audited returns will yield a much better representative, "non-optional" sample, not just for correct earnings but also to study expense patterns to identify waste and scope for reforms.

They've Protected Us From Health Reforms

It's champagne time for reform opponents. Scott Brown's win over Martha Coakley puts to rest any lingering fears of health care changes that seriously damage interests of any major health industry players. Of course, all of them support the "right" reforms that won't diminish their own prosperity.

But any meaningful measure that cuts expenses (possibly excepting EHRs and tech savings, which are therefore over hyped) adversely affects some influential participant. And full reforms that tackle the whole trillion dollars of annual waste and overpayment to bring US costs in line with West Europe will likely take a big bite out of all players' earnings.

Now any effective reform proposals relating to cost controls have been stymied and even the weak Senate version of the health bill may not be passed into law. It's a remarkable outcome given the public outcry and election rhetoric over soaring health costs and uninsured Americans a scant year ago. To paraphrase a pundit, the industry hasn't just dodged a bullet, they've dodged a cannon fusillade. The credit for this upshot goes to many, as listed and recognized below:

• The Congress. Apart from Republican lawmakers firmly in their pocket the industry got vital support from "centrist" Democratic senators who refused to let their 60 votes block a filibuster. It's sound economics. The industry collectively needs just a fraction of a percent of its trillion dollars of excess revenues to have billions of dollars to buy or influence crucial lawmakers. Methods can range from outright bribery (underpaid lawmakers come cheap) to legitimate campaign contributions and threat of funding opponents in weak re-election bids. Now the Jan. 21 Supreme Court ruling undoing many campaign finance reforms and restrictions adds to the power of special interests.
• Good RNC and industry sloganeers. Terms like death panels and socialized medicine are catchy regardless of accuracy. Slogans like "don't let a bureaucrat come between me and my doctor" or "government takeover of health care" played well as if government loves paying patients' bills. Never mind that it's like Haitians earthquake victims protesting about aid groups coming between them and their rescue. The Roves and Cheneys managed to, say, link Saddam's Iraq with 9/11 attacks in the public mind. Their compatriots while outside of government used the same approaches to sow voter misgivings about health reforms.
• President Obama. In the 2008 elections John McCain was weakest on reforms ideas and most likely to maintain the status quo. But Obama too has proved to be sufficiently inept, unlike Hillary Clinton who was the biggest threat to the existing system. He didn't use his bully pulpit and vaunted oratory skills to whip up public opinion and preempt lawmakers (especially "centrist" Democrats) from opposing big reforms. He gave a free pass to doctors, hospitals and trial lawyers in cost control, and made easy deals with drug makers who escaped government negotiating drug prices or allowing cheaper re-imports. Why? Because he was eager for industry (rather than public) support for changes aimed largely at private insurers who are a small part of the cost equation.
• The media. Journalists and pundits seem to have been diverted from health factors leading to high costs (high provider prices, doctor scarcities, hospital concentration, unnecessary treatment, malpractice burdens, etc.) to mainly the issue of private insurer practices, the public option and covering of the uninsured. That took the heat off most other interest groups. And as countries like The Netherlands (top ranked by Consumer Health Powerhouse) show, even private insurance is very compatible with an excellent health care system, so long as you ensure an adequate supply of providers. Though incomplete it's also useful to see the OECD health head's September 2009 report comparing the US health care system with others.
• Practitioners as writers. Health groups have their own members whose writings project views and can protect collective well-being. For example, Dr. Atul Gawande's (seen here on TV) long New Yorker article from a year ago that so impressed President Obama ignored high provider prices (twice those in Europe). It instead focused on much smaller contributors to overall US health costs - unnecessary tests and treatment - and offered no solutions. In another long article ("Testing, Testing) of Dec. 14, 2009 he advocates intensive experimentation that can postpone roll out of reforms tackling pricing and costs by years if not decades. Other US doctors and the AMA have dissed competing medical travel overseas while ostensibly evaluating it objectively. Of course, all or most writings aren't self-serving by any means.
• Enemies helping enemies. Expedience makes strange bedfellows. Doctors and hospitals hate trial lawyers and want tort and malpractice reform. Yet it is mainly fear of US "jackpot" lawsuits in case anything goes wrong that holds back private insurers from medical tourism that lowers costs for them and their customers. Hospitals and doctors also complain about heavy regulation. But it is regulatory barriers that largely prevent more hospitals from being established and offering competition. Or prevent highly qualified foreign doctors from practising in the US and easing the acute doctor shortage. This greater supply and competition would have enabled insurers and payers to secure better rates. Doctors traditionally support Republicans. But is is Democratic bias against free trade and "jobs going overseas" that hold back Medicare or Medicaid (who face less legal exposure than private insurers) from using medical tourism to save taxpayer dollars.
• The "independent" voter. The latest climbdown on health reforms has come because of the Democratic loss of Kennedy's senate seat. It is considered heretical and political suicide to question the wisdom of the voter. But as the Massachusetts election shows, many voters can blame the wrong party for failed legislation. More union households voted for Scott Brown than for the Democratic Martha Coakley. They feared a tax on their "Cadillac" health plans even though they were exempted before the election. They also failed to make the connection between lowered health costs and higher take home pay. The "independent" voters may be those who are free from letting their choices be guided by rationality or self-interests.

Where do we go from here? Paul Krugman strongly argues on Jan. 22 for House Democrats "to do the right thing" by passing the Senate version of the bill and possibly ironing out some parts through reconciliation. This view is echoed in today's NYT editorial. This is quite a happy state of affairs for the health industry since the Senate bill is quite favorable to them overall, and was decried as a sellout by liberals a short while back.

A simple but somewhat drastic alternative is suggested by Ezra Klein to lower the Medicare age from 65 down to 50 and to double the income limits for Medicaid recipients. Such a bill can pass through the reconciliation process in the Senate that requires only 51 votes, instead of the 60 to overcome a filibuster. It doesn't address many aspects of private insurance reform like dropping of coverage, denial due to preexisting conditions and coverage caps. Yet it hits private insurers by advancing a single payer model for more Americans. However, this idea is unlikely to be acted upon. We may even see little change till after the mid-term elections.

In sum the health industry can collectively relax a bit and thank the folks listed above who helped thwart more serious reforms.

The (Deliberately?) Overlooked Promise of Free Trade in Health Care

Congress labors to find savings of about $900B over 10 years to fund pending health care reforms and covering the uninsured. It has even cut $43B or 13% of Medicare spending on home care, which is arguably a cheap and efficient alternative to far more expensive hospital or nursing home care.

Yet there is almost total silence on the most promising and quick way to exceed the desired savings, while improving care for patients. I'm talking about the trade solution that Prof. Jagdish Bhagwati and I wrote about in the WSJ on May 27, 2008, (with a more detailed version posted on our website.)

Of the four modes (types under GATS) of trade in health care, our annual savings estimate from just the first two is $120B. This consists of $75B from remotely delivered services like tele-medicine, claims processing and customer service (mode 1), and $45B from medical tourism (mode 2). About a fourth of these savings is the government or public share that can be "scored" by the Congressional Budget Office (CBO), given the right trade-friendly steps. This is $30B of annual savings that over a 10 year period covers over a third of the funding required for the health reforms pending consideration in Congress.

Modes 3 and 4 of health care trade can actually realize far higher savings than the first two, though they may be hard to quantify (and hence not adequately count) in the strict CBO methodology.

Mode 3 with hospitals established abroad is of particular interest in the establishment of foreign-run medical facilities in the US. It is also one in which our thinking has evolved in terms of estimated potential savings. We thought foreign establishments could lead to price reductions, mainly by offering competition to the increasingly concentrated medical industry. A Report in February 2006 from the Robert Wood Johnson Foundation has described this trend to concentration since 1990 and has concluded that 90% of the larger metropolitan areas now face concentrated markets.

What we hadn't considered explicitly was the concept and power of reverse innovation in driving down US hospital prices. For instance, US hospitals trapped in the straitjacket of their current mindset and practices have a hard time lowering the package price of their heart bypass surgeries much below $60,000. Yet Dr. Devi Shetty makes a profit in India while charging just $2,000 per procedure. He is setting up a large hospital in the Cayman Islands to serve US patients at low prices. But why not make legislative and regulatory changes to allow such new hospitals in the US itself?

Mode 4 encompasses importing foreign doctors into the US. Even if the seriously flawed US policy responsible for acute doctor shortages is corrected, a big if, it will take more than a decade for the domestic supply to ease the imbalance. While these scarcities are a bonanza for US doctors in terms of inflated salaries and guaranteed over-employment they impose a huge cost on payers and patients. Extending coverage to the uninsured and swelling the ranks of patients exacerbates the crisis.

Allowing highly qualified foreign physicians trained in accredited international institutions to practice in the US after clearing board exams can ease shortages without compromising quality. Given the doctor pay disparities between the US and other such places (including Europe) and the benefit of broadened experience it will be easy to attract the right doctors even with temporary visas or limited US rotations. To ensure that such imported doctors fill the highest need, their visas and their permission to practice can even be made conditional on their working in designated under-served areas.

This easing of doctor scarcities will improve patients' access to health care and quality of care, while also helping rein in excessive salaries that are over twice the European average. While the CBO may refuse to factor all these benefits, one saving that it can quantify are the Medicare cuts of fees to physicians under the Sustainable Growth Rate (SGR). These never take hold in large part (other than lobbying pressures) due to the fear that then an insufficient number of physicians will agree to see Medicare patients.

The imported doctors can be expected to accept the reduced fees or agree to a fixed salary model that is more cost effective, and yet generous in comparison to their earnings in their home country. To make matters even more certain the admittance of these foreign physicians into the US can also be made contingent on their acceptance of such terms and fees as the administration sees fit. As the House bill passed on Nov. 19 shows, the cost of doing away with these cuts is $210B.

In sum the collective benefits and savings of trade in health care dwarfs the measures being considered by Congress now, and debated in the media. These options seem to have so far been studiously ignored or kept off the table, as lawmakers avoid antagonizing industry interests. But the huge social cost of neglecting this potential and a lack of good alternatives makes a strong case for lawmakers rethinking their stance.