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Archive for August 17th, 2009

As referenced in the title of this post, the Atlantic magazine has an article that I believe is the best that I’ve read regarding health reform in the United States. The article is long, but 15-20 minutes of time to garner some great insight into this debate is probably not a bad investment. The entire article can be found here.

For those who just want a quick take on the article (and are planning to read the whole thing later), I’ve excerpted a few particularly salient paragraphs. For those ideologues, who aren’t interested in facts or debate, you can just skip to the bottom and start posting.

I will start with one piece of information from the article. From the time you begin work at ~22 years old until the time you die, a minimum of $1.77 million will be spent on you, your spouse, and your two minor children’s health (much more if your spouse also works). That is an amazing number in itself.

The operating premise of the article can be summed up in the following quote which is found near the end of the article:

But let’s forget about money for a moment. Aren’t we also likely to get worse care in any system where providers are more accountable to insurance companies and government agencies than to us?

I couldn’t have said it any better myself. The author of the article, David Goldhill, starts with a bit of background about healthcare evolution in our country, but then shares the following so that the reader understands Mr. Goldhill’s particular point of view…

I’m a Democrat, and have long been concerned about America’s lack of a health safety net. But based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system—largely problems of incentives—our reforms won’t do much good, and may do harm. To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.

The housing bubble offers some important lessons for health-care policy. The claim that something—whether housing or health care—is an undersupplied social good is commonly used to justify government intervention, and policy makers have long striven to make housing more affordable. But by making housing investments eligible for special tax benefits and subsidized borrowing rates, the government has stimulated not only the construction of more houses but also the willingness of people to borrow and spend more on houses than they otherwise would have. The result is now tragically clear.

So bi-partisan manipulation of the housing market to make home-ownership easier led to a financial disaster because people and businesses spent more than they would have spent if left to their own choice. How does this play out in healthcare? Again, to Mr. Goldhill:

Insurance is probably the most complex, costly, and distortional method of financing any activity; that’s why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you’ve paid your share. An expensive and wasteful absurdity, no?

The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year—$654 and $583, respectively. But they spend wildly different amounts of other people’s money—$3,809 and $1,103, respectively. Sometimes the uninsured do not get highly beneficial treatments because they cannot afford them at today’s prices—something any reform must address. But likewise, insured patients often get only marginally beneficial (or even outright unnecessary) care at mind-boggling cost. If it’s true that the insurance system leads us to focus on only our direct share of costs—rather than the total cost to society—it’s not surprising that insured families and uninsured ones would make similar decisions as to how much of their own money to spend on care, but very different decisions on the total amount to consume. [emphasis is in original article]

OK, so insurance is a problem the way we have it structured — to pay for everything, versus just catastrophes. However, those greedy insurance company profits ought to be used for everyone’s benefit. Wouldn’t that be a major plank in solving the problem, Mr. Goldhill?

For fun, let’s imagine confiscating all the profits of all the famously greedy health-insurance companies. That would pay for four days of health care for all Americans. Let’s add in the profits of the 10 biggest rapacious U.S. drug companies. Another 7 days. Indeed, confiscating all the profits of all American companies, in every industry, wouldn’t cover even five months of our health-care expenses.

So, if it isn’t the rapacious greed of capitalists and investors, how do we pay for our health? Where will we get the $$$?

Let’s say you’re a 22-year-old single employee at my company today, starting out at a $30,000 annual salary. Let’s assume you’ll get married in six years, support two children for 20 years, retire at 65, and die at 80. Now let’s make a crazy assumption: insurance premiums, Medicare taxes and premiums, and out-of-pocket costs will grow no faster than your earnings—say, 3 percent a year. By the end of your working days, your annual salary will be up to $107,000. And over your lifetime, you and your employer together will have paid $1.77 million for your family’s health care. $1.77 million! And that’s only after assuming the taming of costs! In recent years, health-care costs have actually grown 2 to 3 percent faster than the economy. If that continues, your 22-year-old self is looking at an additional $2 million or so in expenses over your lifetime—roughly $4 million in total.

So, today there is between $1.77 million and $4 million that will be spent on us health during our lives. Why is it spent so poorly?

The government regularly tries to cap costs by limiting the reimbursement rates paid to providers by Medicare and Medicaid, and generally pays much less for each service than private insurers. But as we’ve seen, that can lead providers to perform more services, and to steer patients toward higher-priced, more lightly regulated treatments. The government’s efforts to expand “access” to care while limiting costs are like blowing up a balloon while simultaneously squeezing it. The balloon continues to inflate, but in misshapen form.

I think that the balloon analogy is a fantastic description. We all want our healthcare “balloon” to be a nicely shaped balloon, but what we’ve got is a freakish looking monstrosity that no self-respecting child would want tied to their wrist. What are some of the results of this misshapen form?

[A]lthough the population is rapidly aging, we have few geriatricians—physicians who address the cluster of common patient issues related to aging, often crossing traditional specialty lines. Why? Because under Medicare’s current reimbursement system (which generally pays more to physicians who do lots of tests and procedures), geriatricians typically don’t make much money. If seniors were the true customers, they would likely flock to geriatricians, bidding up their rates—and sending a useful signal to medical-school students. But Medicare is the real customer, and it pays more to specialists in established fields. And so, seniors often end up overusing specialists who are not focused on their specific health needs.

Since government bureaucrats are not medical innovators nor do they use the entire system, they don’t know what the tens of millions of Americans want in their health care. So, the government can only fund what it knows — missing huge parts of the market, driving up costs in one place, and under-providing services in another.

What if we just went to a single payer system? We could standardize payment information, lower marketing costs, and direct more dollars into the system, right? [This is not my opinion, just a literary device to get to Mr. Goldhill's next point]

Many reformers believe if we could only adopt a single-payer system, we could deliver health care more cheaply than we do today. The experience of other developed countries suggests that’s true: the government as single payer would have lower administrative costs than private insurers, as well as enormous market clout and the ability to bring down prices, although at the cost of explicitly rationing care.

But even leaving aside the effects of price controls on innovation and customer service, today’s Medicare system should leave us skeptical about the long-term viability of that approach. From 2000 to 2007, despite its market power, Medicare’s hospital and physician reimbursements per enrollee rose by 5.4 percent and 8.5 percent, respectively, per year. As currently structured, Medicare is a Ponzi scheme.

So, Medicare, like Bernie Madoff, is a Ponzi scheme. The costs are not borne by the current users, but by the next generation (like social security, but that’s another issue). But, still, won’t a single payer system hold down costs?

From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.

So, the UK & Canada are having cost growth similar to the US? So, single payer systems are not holding down costs? But we have to do something because we need to cover all the uninsured. Their only health care is very expensive Emergency Room care, which is the most expensive place to receive health care…

[Let's] consider the oft-quoted “statistic” that emergency-room care is the most expensive form of treatment. Has anyone who believes this ever actually been to an emergency room? My sister is an emergency-medicine physician; unlike most other specialists, ER docs usually work on scheduled shifts and are paid fixed salaries that place them in the lower ranks of physician compensation. The doctors and other workers are hardly underemployed: typically, ERs are unbelievably crowded. They have access to the facilities and equipment of the entire hospital, but require very few dedicated resources of their own. They benefit from the group buying power of the entire institution. No expensive art decorates the walls, and the waiting rooms resemble train-station waiting areas. So what exactly makes an ER more expensive than other forms of treatment?

Perhaps it’s the accounting. Since charity care, which is often performed in the ER, is one justification for hospitals’ protected place in law and regulation, it’s in hospitals’ interest to shift costs from overhead and other parts of the hospital to the ER, so that the costs of charity care—the public service that hospitals are providing—will appear to be high. Hospitals certainly lose money on their ERs; after all, many of their customers pay nothing. But to argue that ERs are costly compared with other treatment options, hospitals need to claim expenses well beyond the marginal (or incremental) cost of serving ER patients.

Ouch… So, hospitals manipulate their accounting so that the ER carries more of the hospital’s expense so that they can claim that their charitable activities are larger than they are. Still, a single payer system could just mandate reimbursement rates to move those costs back out of the ER. Wouldn’t moving the money to other areas improve health? Mr. Goldhill then describes, once again, why universal, government-controlled, healthcare does not improve outcomes….

What amazed me most during five weeks in the ICU with my dad was the survival of paper and pen for medical instructions and histories. In that time, Dad was twice taken for surgical procedures intended for other patients (fortunately interrupted both times by our intervention). My dry cleaner uses a more elaborate system to track shirts than this hospital used to track treatment. [Charlie's note: my dry cleaner uses a better system than our Department of Corrections, too.]

Not every hospital relies on paper-based orders and charts, but most still do. Why has adoption of clinical information technology been so slow? Companies invest in IT to reduce their costs, reduce mistakes (itself a form of cost-saving), and improve customer service. Better information technology would have improved my father’s experience in the ICU—and possibly his chances of survival.

But my father was not the customer; Medicare was. And although Medicare has experimented with new reimbursement approaches to drive better results, no centralized reimbursement system can be supple enough to address the many variables affecting the patient experience. Certainly, Medicare wasn’t paying for the quality of service during my dad’s hospital stay. And it wasn’t really paying for the quality of his care, either; indeed, because my dad got sepsis in the hospital, and had to spend weeks there before his death, the hospital was able to charge a lot more for his care than if it had successfully treated his pneumonia and sent him home in days.

I think that this previous paragraph really drives the point home… Vendors & suppliers respond to customer needs, and we all know the Golden Rule — He who has the gold sets the rule. So, hospitals, doctors, surgery centers, etc. are all driven by the same source: the government bureaucrat (or in the case of an HMO, an insurance industry bureaucrat). Can a normal person fight this? Can I price shop and go where I want in today’s system?

[W]hen we were preparing for the birth of our second child, I requested the total cost of the delivery and related procedures from our hospital. The answer: the hospital discussed price only with uninsured patients. What about my co-pay? They would discuss my potential co-pay only if I were applying for financial assistance.

Keeping prices opaque is one way medical institutions seek to avoid competition and thereby keep prices up. And they get away with it in part because so few consumers pay directly for their own care—insurers, Medicare, and Medicaid are basically the whole game. But without transparency on prices—and the related data on measurable outcomes—efforts to give the consumer more control over health care have failed, and always will.

So, we can’t negotiate price, the insurers and government are in charge, costs keep going up, what is your solution?

The most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers—by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care—we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.

You’ll need to read the end of his article to get the full details of his thoughts, but he hasn’t missed much, IMVHO.

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