My healthcare credo to date

As an amateur healthcare student, every now and then I like to pause and take stock of the convictions I've picked up by osmosis -- by deciding, consciously and unconsciously, what (and whom) to credit in what I read and hear. Here's a short set of hypotheses (and suspicions).

1. The single most important means of healthcare cost control is uniform or at least coordinated pricing: single payer, all-payer, or, maybe in the U.S., private as a fixed percentage of public. The U.S.'s  unique every-payer-for-itself system is the main reason Americans pay far more per procedure than citizens of any other developed country.

2. The evils of market consolidation are likely to outstrip the virtues of coordinated care.

3. Which treatments and drugs are covered by insurance, and to what level (ideally by all payers in concert, and. by Medicare and Medicaid in our current system) should be informed by outcomes research and price/benefit calculations.

4. The wisest words ever spoken by a public health official: "We cover everybody, but not everything."*

For pharma and medical device makers, U.S. is The Big Rock Candy Mountain

The New York Times' Elisabeth Rosenthal is out with another front-page chapter in her incomparable epic detailing the dysfunction of the U.S. healthcare system. She's spotlighted (1, 2, 3) price-gouging by various physician specialties, hospitals, and now medical device makers and pharma.

Rosenthal focuses mainly on diabetes treatment. It really has improved radically over the past two decades, with ever-more sophisticated insulin pumps and accouterments, and synthetic human insulin.  But near-monopoly pricing power -- unmitigated, in the U.S. alone, by strong government pushback -- forces many patients to buy more sophisticated treatment than they need, at astronomical markups. As is de rigeur in Rosenthal's pieces, the contrast with other wealthy countries hurts most. The contrast with the U.K. highlights strengths and, to a lesser extent, weaknesses of a system that contrasts starkly with our own:

In Britain, each hospital negotiates for pumps for its patients, getting prices that are typically less than half those in the United States, Dr. Pickup said. The vial of insulin analogue that Ms. Hayley gets for $200 at an American pharmacy is typically bought by British pharmacists for under $30 and dispensed free....

Picking at the healthcare Gordian knot

It's no secret that there's a grotesque hierarchy in U.S. healthcare pricing. Medicaid pays the lowest prices, followed by Medicare, then by private insurers.. and then, at the bottom of the totem pole, by uninsured individuals, who, as Steven Brill documented in grotesque detail, may pay three or ten or fifteen times what Medicare pays for a given procedure.

This system is not only grossly unfair, it's the chief reason Americans pay more than twice the OECD average per capita for healthcare than people in other developed countries. Notwithstanding a wide variety of payment systems, countries with universal health insurance -- that is, every other wealthy country in the world -- almost universally empower government to impose uniform pricing. In Japan, for example, where most people get health insurance through private, nonprofit plans provided by their employers (generally with a 30% patient co-pay), the government publishes a uniform price schedule. T.R. Reid, in The Healing of America, describes it:

[the medical price schedule is] published in a thick book--about the size of the Tokyo telephone directory--that anybody can buy. This hefty volume, the Shinryo Tensu Hyakumihyo ("Quick Reference Guide to Medical Treatment Points"), sets forth exactly what a doctor, therapist or hospital will be paid for any treatment or medication. There are tens of thousands of different treatments in the book: "throat swab,", "application of plaster cast, ankle," "sutures, outer arm," "X-ray, simple, neck region, rear," etc., etc. For almost all of these, the price is extremely low...(p. 91).

Is health care price transparency possible without price uniformity?

The Times has an article today about fledgling efforts to introduce price transparency into U.S. health care:

But there has been no easy way for consumers to shop for the best deal on a colonoscopy or blood test. A start-up financed by prominent venture capitalists and the Cleveland Clinic, Castlight Health, aims to change that by building a search engine for health care prices. Patients using Castlight could search for doctors that offer a service nearby and find out how much they will charge, depending on their insurance coverage....

Price transparency could significantly change the way health care is bought in the United States. The notion “seems ridiculously simple and obvious, and in any other industry, you would say, ‘Duh, we already have that.’ But in health care, it’s revolutionary,” said Alan M. Garber, a professor of medicine and the director of the center for health policy at Stanford, as well as an investor in Castlight.

Pricing transparency is better than pricing opacity. But you can't have a truly efficient and cost-effective health care system with price uniformity. The most revealing fact in the Times story is this:

But so far, prices have been very difficult to find because health insurance providers and doctors negotiate rates and often agree not to reveal those numbers for competitive reasons. The Cleveland Clinic, for example, has about a hundred different contracts with insurance carriers, each with a different rate for a given procedure.

Oh for a health care monopsony

Those who blame for-profit health insurers for high U.S. health care costs usually focus on administrative and marketing costs. As Ezra Klein has highlighted, however, these are difficult to calculate; they're not always significantly higher in the private sector than in the public; and they don't fly as a primary cause of the U.S.'s uniquely high per capita health care spending.

Yet our Balkanized health care payment system does have a huge impact on health care costs. Klein again, citing Kaiser Permanente CEO George Halvorson pointing out that CT scans cost about 3x as much in the U.S. as in Europe, links to a 2003 study published in Health Affairs ("It's the Prices, Stupid...", Gerard F. Anderson et al. ) analyzing why procedures cost so much more in the U.S. than in OECD countries with universal healthcare.

The conclusion of this study bears out T.R. Reid's reporting in The Healing of America. Countries with universal health care all accord government the power of monopsony - "a state in which demand comes from one source." That is, the governments of France, Germany, Japan, Canada and England all set the prices for every procedure (or patient, in a capitated system) -- regardless of whether or not payments are funneled through private (nonprofit) insurers. All of them, by American standards, squeeze doctors and hospitals. Anderson et al:

In the U.S. health system...money flows from households to the providers of health care through a vast network of relatively unccordinated pipes and capillaries of various sizes. Although the huge federal Medicare program and the federal-state Medicaid programs do possess some monopsonistic purchasing power, and large private insurers may enjoy some degree of monopsony power as well in some localities, the highly framented buy side of the U.S. health system is relatively weak by international standards. It is one factor, among others, that could explain the relatively high prices paid for health care and for health professionals in the United States.

In comparison, the government-controlled health systems of Canada, Europe, and Japan allocate considerably more market power to the buy side...

Even a pure monopsonist is ultimately constrained by market forces on the supply side -- that is, by the reservation (minimally acceptable) prices of the providers of health care below which they will not supply their goods or services. But within that limit, monopsonistic buyers enjoy enough market clout to drive down the prices paid for health care and health care inputs fairly close to those reservation prices. It can explain, for example, why Fuchs and Hahn found that "U.S. fees for procedures are more than three times as high as Canadian fees [and] the difference in fees for evaluation and management services is about 80 percent."

From this perspective, individual health insurance companies are not "to blame" for high U.S. health care costs. But the system that allows them to exist is. When the government abjures monopsony power, patients lose.

Doctors do consider themselves underpaid and in some cases overmanaged in monopsony systems. On the other hand, they generally have to cope with zero medical school debt, piddling malpractice insurance fees, and minimal administrative burdens (in France, where national health cards record every procedure and fee, the time and money doctors spend on administration is close to zero). Ironically, one reason U.S. insurers pay doctors and hospitals so much more than their rich country peers is that the balkanized payment and claims system imposes onerous admnistrative costs on providers.

A mantra for true health care reform

My takeaway from T.R. Reid's comparative look at national health care systems, The Healing of America, is distilled in this mantra from former British health minister John Reid:

We cover everybody, but not everything (p. 221).

That is the key to equitable, effective, sustainable health care delivery. As (T.R.) Reid's tour of successful health care systems makes clear, the very different systems at work in France, Germany and Japan (which channel payment through private but nonprofit insurers), Canada (single payer, Medicare model) and Britain (direct government funding) share these three elements:

1. Everybody has the same access to the same treatment
2. Every provider of each treatment (or of each patient, in a capitated system) gets the same pay as every other provider of that treatment.
3. One entity sets all treatment prices for the whole nation (or province, in Canada's case).

Establishing these conditions doesn't make cost control easy. It just makes it possible.

The health care reform bills pending in the U.S. won't create these conditions in one fell swoop. At best, they will establish adequate minimum insurance coverage standards and create viable nonprofit alternatives to the for-profit industry. Then, if we're lucky, those nonprofit options will indeed kill off for-profit insurance, exactly as AHIP fears.

Health care endgame: lobbyist pressure vs. "deficit neutral" pledge

Raising a front-page alarm, the Times' David Kirkpatrick warns that lobbyists are knocking the teeth out of all the significant cost control measures in pending health care legislation. This narrative cuts against the grain of the media attention focused on the CBO's verdict that the Baucus bill would reduce the deficit by $83 billion over ten years and by more in the second decade.

While the Baucus bill seems also to be the White House's template, Kirkpatrick usefully points out that it's only one of five bills making their way through House and Senate, and that under intense lobbyist pressure House Democrats have lined up against two central cost-cutting measures, the independent "MedPAC on steroid" commission (dear to Obama's heart) empowered to make regular recommendations for Medicare cost savings, and the excise tax on so-called "Cadillac" health care (expensive) plans that some employers offer to (mainly unionized) employees. Resistance to lobbyist pressure against the MedPAC proposal has been undercut by the Obama Adminstration's side deals with pharmaceuticals and hospitals to limit the amount that MedPAC could cut their payments -- now all other interest groups are clamoring either for equivalent carve-outs or to kill MedPAC altogether.

Negotiation between the House and Senate could cut two ways. The House wants a public option -- arguably the strongest cost controlling measure on the table, which allegedly lacks support in the Senate. The Senate, in turn, is more amenable to the Baucus cost controls opposed by Democrats in the House. One would like to think that the natural compromise would be "both/and" -- a public option and an excise tax and MedPAC. Alas, that would mean frustrating all the lobbying interests. On the other hand, there is genuine pressure for the bill to be scored as deficit neutral -- so a compromise can't cut out all cost control measures regarded as credible by the CBO. So the worst-case compromise -- no public option and no MedPAC or attempt to tax expensive benefit plans -- is likewise hard to imagine. Perhaps we'll end up with a weak excuse for a public option (or potential, to-be-triggered public option), a wholly or partially neutered MedPAC, and other tax substitutes for the excise. That would mean getting two thirds of the way toward universal coverage in five years while leaving serious cost control to another, still-more-desperate day.

In fact, T.R. Reid's survey of national health plans that work makes it pretty clear that there can be no significant health care cost control unless the government sets the rates for all procedures offered by all providers, either through a single payer system or through a tightly regulated, probably nonprofit, insurance industry. As long as health insurance is dominated by for-profit insurers with the freedom to set their own rates and coverage rules, the U.S. will continue to spend twice as much as other developed countries on health care. The only hope I see is either a strong public option or other nonprofit alternative slowly killing off the health insurance industry -- or else, continued inflation so out of control that universal desperation finally becomes strong enough to legislate the death of the industry.

It should be remembered that Obama is a long-range planner, committed by philosophy and inclination to effect change by "turning the battleship a few degrees" at a time. Bill Clinton confessed, while chronicling other achievements, "We bit off more than we could chew on health care." Obama, using Clinton as cautionary foil as much as George W. Bush did his father, decided from the start to enlist the health insurance industry rather than fight it head on. I hope and trust that he recognizes that the U.S. will never have an efficient, affordable health care delivery system as long as private for-profit insurers are free to operate as they do now -- with broad freedom to set coverage rules and repayment rates (in the current legislation, there will be some curbs on their freedom to set coverage rules, but probably not enough). Newt Gingrich's long-range plan for Medicare -- "first we're going to cut it off, then we're going to kill it" -- should define Obama's approach to the U.S. health insurance industry.

Brooks v. Brooks on the Baucus bill

David Brooks continues to write nonsense about health care.

Professing ambivalence about the Baucus bill, he complains in one breath that it "will retard innovation by using monopoly power to squeeze costs." Two paragraphs later, lauding the bill's "many provisions to make government-run health care more rational," he includes that it "would create a commission to perpetually squeeze costs," also cataloging specific measures favored by health care experts -- bundling payments, encouraging doctors to work in teams, improving IT, measuring comparative effectiveness. He acknowledges that savings from these measures "could be significant."

As for that free market shibboleth that cost controls are always bad: in health care, virtually every industrialized nation has found them necessary. Is Brooks aware that in France, Germany and Japan, three countries that get better health outcomes than the U.S. at half to two-thirds the cost, the central government sets prices for every medical procedure performed in the country, and all insurers are required to pay all bills submitted under that schedule by all providers? That those countries provide universal comprehensive coverage at minimal cost to their citizens? That the fee schedules are completely transparent, posted on doctor's office walls in France, available in a phone book-sized reference in Japan? (For a doctor's- and patient's eye view of these systems, see T.R. Reid's The Healing of America.)

The only "innovation" squeezed by governmental cost controls is the innovation of insurers, ingeniously determining how not to cover procedures or how to wring out maximum premiums by charging different rates for different levels of coverage.

Yes, health care providers in all three countries feel squeezed by government cost controls. Yes, they make much less than doctors in the U.S. They also come out of medical school with zero debt, pay pennies by US standards for malpractice insurance, and spend almost no time or money on administrative costs -- in contrast to American doctors, who have to employ whole staffs to deal with the byzantine billing and claims approval processes of multiple insurers.

Brooks also claims that the Baucus bill (or any set of subsidy levels for people purchasing insurance on exchanges) "will impose huge costs on people as they rise up the income ladder, distorting the whole economy."

Subsidies keyed to income are only relevant to those who do not get insurance from their employer, including the self-employed. Right now, such people suffer "huge costs" indeed -- buying individual insurance on the open market with no subsidy. For many, a rising income will be the result of better employment, which likely means employer-provided health care. For the self-employed or those who work long-term in workplaces that don't provide insurance, it seems perverse to complain that reducing subsidies as their income increases is an imposition of "huge costs."

T.R. Reid: For-Profit Insurance Destroys Health Care Delivery

T.R. Reid's indispensable book about successful national health systems, The Healing of America, provides a patient's- and doctor's-eye view of health care delivery in France, Germany, Japan and other countries that provide complete coverage for all residents and pay half to two thirds of what the U.S. pays for health care (as a percent of GDP) with better outcomes. The book induces startling clarity about the key dysfunctions of our system.

Our primary dysfunction is simple. While France, Germany and Japan all rely on private insurance to pay for comprehensive health care, the private insurers are all nonprofit. In all three countries, the government sets uniform rates for all procedures; all providers charge the same rates, and all insurers must pay all claims. In France, every citizen's complete medical history, including procedures performed and their costs, are embedded in a national health card (the carte vitale). Doctors simply record each service performed - and get paid by one of the country's fourteen insurers within a week.

The lesson is clear: U.S-style for-profit insurance for basic comprehensive health care is purely parasitical (for-profits are in the mix in The Netherlands, but they're subject to strict price controls and risk equalization, by which plans with a higher concentration of sick members are paid more). Our for-profit health insurance industry creates a needless bureaucracy, matched in no other country, which it pays itself handsomely to manage, and it makes money by denying claims.

Any reform that makes health insurance available and affordable to all Americans is worth doing. Mandates requiring insurers to cover all eligible comers without differentiating cost according to condition are key; so are mandates laying out minimum coverage standards.

But to meaningfully narrow the gap between health care costs in the U.S. and other rich countries, reform would have to kill for-profit insurance, quickly or slowly. Health care co-ops are actually closer to the system that works so well in France and Germany than a single "public option." But in those countries, the "sickness funds" did not have to evolve in competition with for-profits.

Every industrialized country is wrestling with rising health care costs. In France, the sickness funds operate at a deficit; in Germany, doctors are up in arms because the government keeps imposing new limits on permissible treatments for given conditions. But both countries are continuing to reform from a position way ahead of us, with complete universal coverage, costs 1/2--2/3 of ours, and the government in complete control of rates and mandated coverage.

None of this should be secret. Legions of American health care experts know how things work in Europe and Japan. Senators are reading Reid's book. But as Reid stresses, it's political anathema in the US to suggest cribbing from other countries' successes. Our national 'debate' is obfuscated by lack of full discussion of how successful systems work.