By Doug Gentry, on February 8th, 2012
Princeton economist, Uwe Reinhardt, contributes regularly to The New York Times Economix Blog. Recently he wrote, in
“Health Care Payers Push Back Against Costs“ that high U.S. healthcare costs are driven by several factors:
- American’s over-use of high-cost/high-tech services owing to some American’s being over-insured.
- High administrative costs (mostly in the health insurance area)
- Higher prices paid by Americans for healthcare services and products
On this latter point – higher prices – he points to an imbalance of power between the buyers (and payers) vs. the suppliers of healthcare.
[...]higher prices are the product of a deliberate strategy, hashed out in our political bazaars between the supply side of health care and state and federal legislators, always to keep the payment side of our health system fragmented and relatively weak vis à vis the supply side of health care.
He also notes how difficult it is for patients to do price comparisons – “price opacity” he calls it. He saves his strongest reaction to the system of price discrimination found in healthcare today. Providers charge (and are paid) differently depending on who pays the bill. Insurance companies demand substantial discounts from hospitals, and Medicare reimbursements are significantly lower than provider costs.
Reinhardt warns providers to prepare for an era of increasing price information and comparisons, along with other purchasing initiatives.
To add my own commentary: Our public discourse on complex problems often veers towards finding the villain – the “bad guy.” Once identified that villain gets all of our intention, and if the political stars are aligned government legislation and regulation results. If healthcare costs are an inflated balloon, then pushing in on one portion will only cause the balloon to bulge out elsewhere. It would be a mistake to assume that our healthcare challenge would be fixed by just getting providers to reduce their prices.
More open price comparisons and a more straightforward pricing mechanism are two important elements in successful healthcare reform. With only some exceptions, providers (physicians, hospitals, drug companies, tech companies) are not looking for ways to extract more money from patients. They are taking steps to survive in a broken marketplace. Changing public attitudes about appropriate care, changing insurance to give patients more exposure to their decisions and choices, giving providers incentives to prescribe cost effective care, opening scope of practice laws to let well-trained but less expensive professionals provide some care, and maintaining vigilance over abuse of the patent and malpractice systems are all important steps to take.
By Doug Gentry, on January 13th, 2012
In honor of the first week in our Healthcare Economics class, and the beginning of a 6 week session on healthcare via OLLI, here is an interesting report from The New York Times.
National health spending rose a slight 3.9 percent in 2010, as Americans delayed hospital care, doctor’s visits and prescription drug purchases for the second year in a row, the Obama administration reported Monday.
The recession, which lasted from December 2007 to June 2009, reined in the growth of health spending as many people lost jobs, income and health insurance, the government said in a report, published in the journal Health Affairs.
 from The New York Times There are a couple of takeaways from this news.
First, the reduction in spending on healthcare could mean a welcome, albeit temporary relief to those governments and organizations that pay for healthcare….BUT…no real relief for state and local agencies which provide/finance healthcare for poor people. Recessions, of course, result in greater numbers of people qualifying for government-supported care.
The other point is a reminder that some portion of healthcare services are discretionary. When healthcare spending was growing by 10 percent or more each year in the 1980s, that growth probably wasn’t driven by an increase in the need for services. Likewise the slower growth over the last several years is probably not due to the population getting healthier and needing fewer services. Instead, people moderated their demand for healthcare. They put off diagnostic tests, or did not follow through on treatments or prescriptions. Going in the other direction, hospitals routinely see increases in elective surgeries near the end of a calendar year, as people have already met insurance deductibles, and decide to seek care before those deductibles are reset in the new year.
Is this good news? Not necessarily. To the extent the people put off truly necessary tests and treatments, those delays may cost us more in the long run. To some extent, though, tough economic times force us to be more cautious about discretionary spending, and there may be very little impact on long run health status. There is the old saying that if you get a cold, it will take 7 days to go away, but if you see a doctor you’ll be cured in a week! One important element of effective healthcare reform is to introduce that sense of caution in our population. It is a delicate balance – not wanting to interfere with early testing and early, cost-effective treatment, but also discouraging care that has less impact on long term health.
Prices for medical care services and supplies also stayed roughly on par with general inflation during this last year, which is a change from the decades of the 1980s and 1990s where the medical care component of the consumer price index routinely outstripped regular price increases.
I wouldn’t have to polish my crystal ball very much to predict that spending increases for healthcare will pick up speed as the economy recovers. This remains the single most important issue in our nation’s federal deficit struggles.
By Dr. Jane Orient, on October 21st, 2011
When I went into solo practice of internal medicine in 1981, it was very easy to get a doctor to see a Medicare patient. All I had to do was make a phone call. A courteous receptionist answered. If the doctor couldn’t come to the phone right away, I could count on a prompt callback.
Consultants saw patients quickly, and generally called me to discuss their findings and advice. And very often there would also be a letter in the mail: “Thank you for referring this delightful patient to me.”
How things have changed! Now a doctor gets the phone menu, just as the patients do, and it often ends in voice mail. It might be a few days before a staff member calls back—usually with the news that “we are not accepting any new Medicare patients.” At best, my patient might be offered an appointment in several months.
One very fine gentleman, who had recently moved to a rural area, found it easier to fly to Tucson to see me than to get in to see a local internist. That was in 2009. Recently, he has become unable to travel, so I needed to find him a local doctor.
I tried to expedite matters by ordering him an immediate diagnostic test: an abdominal CT scan. I don’t think anyone could argue that it wasn’t indicated under the circumstances. One little problem: I am not enrolled in Medicare and don’t have the proper government-issued number to enter into the computer. A license to practice medicine is not enough. This National Provider Identifier (NPI) is supposed to protect the system against being defrauded. Without that number, the imaging facility could not get paid by Medicare.
“Why not use the radiologist’s number?” I asked. After all, he was the one who would get paid. Nope, a referral was required. How about a self-referral from the patient? Nope, we can’t allow patients to decide what tests they need. “The patient is willing to pay for his own test,” I said. Nope, if he’s on Medicare, they aren’t allowed to take his money.
They gave the patient 24 hours to find a properly enumerated doctor to countersign my order. Fortunately, he found a specialist willing to do so, and assume potential criminal liability for committing “waste, fraud, and abuse” by ordering a “medically unnecessary” study. (Fortunately for the patient, he turned out not to have cancer, but that could be bad news for the doctor.)
So this is the status of retired Americans. They can’t just walk into a facility and request a medical test, and pay for it with their very own money.
A man may be qualified to pilot a 747 across the Pacific, but once he’s on Medicare, he is unfit to make an unsupervised decision about his own medical care.
I did find my patient a doctor. None of the internists within a 150-mile radius who “take Medicare” are willing to take on a new Medicare patient. But through the website of the Association of American Physicians and Surgeons (www.aapsonline.org), I found a link to the Medicare carrier’s list of opted out physicians. They don’t “take Medicare,” but many are pleased to see older patients, for a reasonable fee. There was one internist on the list, 150 miles from my patient. She has a courteous and helpful assistant who actually answers the phone, and told me the charge for a new patient visit: $300.
Things could be worse—and already are much worse in Canada. The “soul-destroying search for a family doctor” is described in the Globe and Mail on Aug 21. The Ontario government’s program called Health Care Connect manages to link only 60 percent of patients with a doctor—although you might find a concierge doctor for $3,000 a year.
That’s the cost of medicine when it’s “free”—if you can find it at all. If ObamaCare is implemented, all Americans will be in the same boat. And guess who will get thrown overboard first.
By Christopher Briem, on October 14th, 2011
Some new data out on Small Area Health Insurance Estimates from the census folks.
They have a tool there you can use to look this up yourself, but what I get is that for children (age 18 and under) in Pennsylania, Allegheny County is tied with Montgomery for the lowest percentage without health insurance at 3.9%. The highest: 10% in Lancaster County. Data is for 2009.
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By Simon Grey, on June 7th, 2011
The United Kingdom, where, on average, people live longer than in the U.S., spends only about 9 percent of gross domestic product on medicine, compared with our 18 percent. The British control costs in part by having the will to empower a hard-nosed agency, the National Institute for Health and Clinical Excellence, to study treatments and declare some ineffective. Some hope the United States will create a similar agency, but I fear it would be hopelessly politicized and declawed.
My solution: admit we are cost-control wimps, and outsource our treatment evaluation to the U.K. Pass a simple law saying Medicare (and Medicaid) won’t cover treatments considered but not positively appraised by the Britain’s national health institute.
Even better, use clinical evidence evaluations of the British Medical Journal. They’ve classified more than 3,000 treatments as either unknown effectiveness (51 percent), beneficial (11 percent), likely to be beneficial (23 percent), trade-off between benefits and harms (7 percent), unlikely to be beneficial (5 percent) and likely to be ineffective or harmful (3 percent). Let’s at least stop paying for these last two categories of treatments! And to put pressure on doctors to collect evidence, let’s stop paying for “unknown effectiveness” treatments after 10 years of use.
As I’ve said before, and will continue to say until everyone in this world understands, universal health care plans will never work. Resources are limited, and no amount of political posturing will change that fact. As Robin Hanson notes, there will come a point where the government must cut back on providing health care, and that’s because there are simply not enough resources available to make sure that everyone is always in perfect health. Anyone who says otherwise is stupid, ignorant, or lying.
By TamzinRosenwasser, on June 6th, 2011
Suppose you went into a grocery store, and found no prices on anything. You ask a clerk how much five pounds of potatoes would be, and he asks you whether you are 65 or older. Youre taken aback, but you tell him you are 64, and he asks whether your income is less than $40,000.00 a year. Startled, you say it is more than that, and then he asks whether you have food insurance. Why would the
price of potatoes depend on the buyers age, income, and insurance status, rather than on the cost of growing, transporting, and stocking the potatoes? That would be absurd.
Yet thats how it is with medical care. I would be unable to find out, for example, the cost of an echocardiogram from the hospital where I did my residency. The price is different for different people. The government instituted this ridiculous situation, in 1965, with Medicare and Medicaid. There is a lot of mythology about these programs, but few people understand them like the physicians who are on the front lines actually seeing the patients. For some of them, it has been a gravy train. They game the system. For others, it has been a disaster to go through medical school and residency, and come out a de facto servant to government programs, but of
course, without benefits or retirement. If you are scrupulously honest, these programs will bankrupt youeven while turning you into Public Enemy #1.
Senators Ron Wyden and Charles Grassley have put forth the Medicare Data Access for Transparency and Accountability Act (the DATA Act) to open a database so that everyone can see how much money Medicare has sent to any physician enrolled in it. Regardless of the cost to provide medical services, the price the taxpayers are forced by the government to pay for other peoples medical care has gone down and down per procedure, per diagnosis, per office visit.
The public wont see that, but it will hear about some isolated cases; for example, an Oregon neurosurgeon who allegedly performed multiple spine surgeries on the same patient, or a Florida physician accused of $3 million dollars in Medicare fraud.
Gaming the system is fraud. But the biggest fraud is the one perpetrated on the working people of this nation who are forced to pay for other peoples medical problems. When Medicare was first instituted, Americans were reassured that it would never cost the taxpayers more than $9 billion a year. It is more like $500 billion a year now.
Patients learn to game the system too. Workers must pay through their taxes for even the most trivial complaint when someone on Medicare makes an appointment for it; say for a cosmetic skin lesion that has been present for 30 years without causing any problem. Working people are also forced to pay for the consequences of other peoples smoking, excess drinking, or risky lifestyle choices. Thats fraud, perpetrated by the government on taxpayers. Its hidden behind political smoke and mirrors.
Amazingly, we managed somehow for 189 years after 1776 without Medicare and Medicaid, and things were getting better and better until Lyndon Johnson came up with a good fraudulent vote-buying scheme, and then a lot of people decided there was money to be made off medical problems with the taxpayers the losers.
So, Wyden and Grassley, open your database. But include a list of all the procedures and diagnoses, and what Medicare and Medicaid actually send the physicians as reimbursement so people can see that physicians who spent years of their life in training while incurring tremendous debtare paid about the same as auto mechanics. And also account for where the rest (about 80%) of the
$500 billion goes.
That would be a good start for medical price transparency. And a good precedent for another database, one detailing just how much value politicians give taxpayers who pay their salaries.
About the Author:
Dr. Tamzin Rosenwasser earned her MD from Washington University in St Louis. She is board-certified in Internal Medicine and Dermatology and has practiced Emergency Medicine and Dermatology. Dr. Rosenwasser served as President of the Association of American Physicians and Surgeons (AAPS) in 2007-2008 and is currently on the Board of Directors. She also serves as the chair of the Research Advisory Committee of the Newfoundland Club of America. As a life-long dog lover and trainer, she realizes that her dogs have better access to medical care and more medical privacy than she has, and her veterinarians are paid more than physicians in the United States for exactly the same types of surgery.
By Winton Bates, on May 31st, 2011
‘The Taskforce says that prevention is everyone’s business – and we call on the state, territory and local governments, on non-government and peak organisations, health professionals and practitioners, communities, families and on individuals to contribute towards making Australia the healthiest country by 2020.’ (Extract from ‘ Taking Preventative Action’, the federal government’s response to the Report of the National Preventative Health Taskforce).
I find the sentiments in the quoted passage objectionable for two reasons. First, preventative health care is not ‘everyone’s business’. Individual adults have primary responsibility for their own preventative health care because no-one is better able to exercise that responsibility than they are. Individuals who are persuaded that preventative health care is a collective responsibility could be expected to look increasingly to the various levels of government, non-government organisations, health professionals and practitioners, communities and families – everyone except themselves – to accept responsibility for what they eat, drink and inhale.
Second, the goal of making Australia the healthiest country by 2020 is being put forward as though it is self-evidently desirable collective good that should be pursued by any and every means available to everyone. The goal is not self-evidently desirable. Individual health is not a collective good. And the end does not justify the means that are being proposed to pursue it.
If you delve behind the spin about making Australia the healthiest country by 2020, the underlying goal seems to be to raise average life expectancy in Australia to the highest level in the world by reducing the incidence of chronic disease. What does this entail? It would be hard to object to the goal of enabling individual Australians to reduce their risk of chronic disease. The problem is that the government’s strategy is more about achieving national goals than providing better opportunities for individuals – more about behaviour modification than about ‘enabling’ individuals to reduce their health risks.
The government claims that analysis of ‘the drivers of preventable chronic disease demonstrates that a small number of modifiable risk factors are responsible for the greatest share of the burden’. The behavioural risk factors led by obesity, tobacco and alcohol apparently account for nearly one-third of Australia’s total burden of disease and injury. The chronic conditions for which some of these factors are implicated include heart disease, stroke, kidney disease, arthritis, osteoporosis, lung cancer, colorectal cancer, depression and oral health problems.
Since these risk factors stem from individual lifestyles it is obviously desirable for individuals to be aware of them. There may be a role for governments in provision of this information. Perhaps governments should also be involved in helping people in various ways to live more healthy lifestyles. It is questionable how far governments should go down this path, but it is difficult to object to modest efforts by governments to improve opportunities for people to live healthier lifestyles.
However, rather than helping people to help themselves the federal government has chosen the path of Skinnerian behaviour modification. It has chosen to drive changes in behaviour through what it describes as the ‘world’s strongest tobacco crackdown’. (This is one instance when I hope the government doesn’t actually mean what it says – some people in Bhutan have apparently been jailed recently for possession of more than small amounts of tobacco products.) The government’s strategy also involves ‘changing the culture of binge drinking’ and ‘tackling obesity’, but in this post I will focus on smoking.
Some of the tactics being used in the tobacco crackdown involve information and persuasion but there is also an element of punishment involved. The tobacco excise has been increased to over $10 for a packet of 30 cigarettes and legislation is proposed to require cigarettes to be sold in plain packaging. It seems to me that this amounts to persecution of smokers and their families. It will reduce the amount of household budgets available to be spent on other products and encourage some to avoid excise by obtaining tobacco from illegal sources.
As a former smoker, I am probably more strongly against smoking than most people who have never smoked. I encourage other people to quit smoking and discourage young people from taking up the habit. But having given up smoking several times, I know how hard this can be. Governments have no basis on which to judge that people are not in their right mind if they consider that the pleasures they might obtain from additional years of life are not worth the pain of giving up smoking.
In my view this question of whether smokers are capable of judging what is in their own best interests is at the crux of the matter. The politicians and bureaucrats who seek to modify the behaviour of smokers may see themselves as enhancing the capability of these people to have lives that they ‘have reason to value’, in accordance with well-being criteria proposed by Amartya Sen. If so, their attitudes highlight a major problem with Sen’s approach. Governments have no business deciding what kinds of lives individuals have reason to value.
Enrolling into a drug rehab program can be the hardest thing to do but it can save a life.
By Simon Grey, on May 13th, 2011
Putting aside, for the moment, the details of the Ryan plan, what many voters refuse to understand is the unpleasant choice they inevitably face. Either cost-control by the consumers or cost-control (aka rationing) by the State. The issue is stark.
Either consumers directly or indirectly will communicate to healthcare providers the need to economize or the State will put limits on what people can get. The thing is Americans don’t want to have to do the former nor allow the latter to happen. The “advantage” of State limits is that they feed fantasies Americans may still have about State magic. Stones into bread, and all that. We can all get the best care regardless of cost. (Keep in mind I want the best care regardless of cost too!)
The underlying problem with government-run health care programs is that they fail to solve the problem of scarcity. Politicians may promise unlimited resources and voters may believe those promises, but the simple fact of the matter is that there are not, in fact, unlimited resources available.
That resources are scarce implies that there MUST be some form of rationing. Democrats and their lapdogs in the mainstream media mocked Republican candidates for claiming that ObamaCare would lead to so-called “death panels.” And the Republicans are right: Government appropriation of health care doesn’t alleviate the need for rationing. Since health care costs are highest for the elderly, and the highest medical costs occur during the last year of one’s life, some sort of “death panel” rationing system is not entirely inconceivable.
Thus, the debate is erroneously framed as unlimited health care versus elitist limited health care. (This is, of course, a hyperbolic simplification. However, the general point remains.) The debate would be more accurately framed if it were described as state-based rationing versus market-based rationing of health care. This way, citizens would more inclined to compare the relative equitability of the competing methods of rationing, and would hopefully be more likely to make the better choice.
By Russ Nelson, on April 27th, 2011
People are bringing up the point that people simply don’t shop for health care. That we’re not consumers. Usually that people are non-economists, like some ER doc who thinks that he had to study for 8 years to become a doc, but that economists are just people with opinions. Or like Paul Krugman, who gave up any claim to be an economist years ago.
To these people, I say: just *try* to be a consumer. Presume that somebody actually could act as a consumer, and go buy their health care. An honest seeker after the truth will quickly realize that so few people pay for their own health care that prices aren’t available. Go into a doctor’s office and say “I’d like a 20 minute visit with the doc — how much will that cost?” and the staff will be flabbergasted. Chances are very good that they won’t know what to tell you. This could make the point that people who consume health care aren’t consumers (although it’s hard to state that relationship without using the “C” word). I think, instead, that it makes the point that people are consumers, but they’re not purchasers.
By B.P.T., on February 13th, 2011
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