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POLICY: How dumb is this, part 34

Ricardo2_1Study Says Medicare, Health Insurance May Be Major Cause of Hospital Spending Growth. The Galen crowd are all over this study from an Asst Professor at MIT because it tells apparently a new tale which is that the spread of insurance, especially Medicare, has had the effect of increasing health care spending—rather than the BS foisted by the health care industry which explains that their costs have gone up because of the new medical technology that people want.

Brilliant and totally new, other than the minor fact that it is a concept called derived demand first coined by David Ricardo in the 1820s.

"It is not really true that the price of corn is high because the price of corn land is high. Actually the reverse is more nearly the truth; the price of corn land is high because the price of corn is high!"

Substitute the words health care for “corn” and medical technology for corn land and you have exactly the same thing. (If anyone’s got the brilliant poem about the corn and the hogs from the original text book, please add it to the comments)

So we added a huge amount of fuel to the fire by extending Medicare and private insurance, we left a mechanism where the providers made more money by doing more, and faced no restrictions on what they did, and we developed a medical and social culture where doing more was always regarded as better than doing less (or doing something was regarded as better than doing nothing). Exactly what did we think would happen, given those incentives? Providers would do more, get more medical technology and blame it all on patient demand for more technology. And we agreed to keep paying more. And that has never stopped in the last 75 years.

And of course the HSA crowd think that they have the solution. I’d be a damn site more impressed with this new discovery if Alain Enthoven hadn’t been ascribing the blame for increased health care expenditures to “cost unconscious” demand since the mid-1980s. He had a solution then and one that is much more comprehensive than the “let consumers spend their own money up to the deductible” mantra being quoted now. He just couldn’t get it past the health care industry…and there’s not much reason to think that the HSA backers will have much of a better experience. But at least Enthoven didn’t claim to have introduced the concept of derived demand.

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  1. The ICU stats I found in those comments that I cut and pasted above, but I don’t know the source. Maybe some of the difference, if the numbers are accurate, are due to the French system allowing terminal patients to expire. I don’t know. Would have to know the source of the stats and do some investigating, but of course time is a factor.

  2. pgbMD and JD – The ICU mortality stats were toward the end of the comment section of Ezra’s piece on the French healthcare system.

  3. I got the stat from the ezra website, but I don’t know its source. I will do some investigating and get back to you on this string.

  4. pgbMD:
    I haven’t looked into the different mortality rates of US vs. French ICUs, so I really can’t answer that. So far, most of my research into French and European systems has been at a more macro level. I have as a long-term goal to learn more about institutional details like this one. Where did you get this statistic, by the way? Was it in something I linked to?

  5. “1. Many highly ambitious people would go into other professions, and those whose ambitions focus around money would go into whatever is reliably more lucrative.”
    True. Unfortunately, almost all of the great advances in medicine/surgery (discounting pharma/devices) in last 40 years and earlier have come from those ambitious and highly intelligent individuals.
    “The average IQ may go down a little, but I’m not worried about it threatening competency in part because we’re talking more about a personality difference than an intelligence difference. This is why I said I thought you would get more women in medicine if the salary (and competitiveness, long hourse, etc.) went down.”
    This may hold true for the NP and primary care realm, but not for the specialists, particularily interventionalists/surgeons. As a surgeon, the most simple and benign of procedures requires a significant amount of intelligence/experience for good outcomes. I have two female partners and they are both very competent, but only want to do the simpler cases and go home at night. In fact, they both work what we would consider part-time.
    “3. Medical school will be less of a pressure-cooker and it will either be subsidized more heavily by the govt or the cost will be reduced some other way. Otherwise, there will be a physician shortage. We may have a few years of low enrollment before med schools and the govt respond.”
    I hate to be the bearer of bad news, but we are already seeing a significant shortage of surgeons and this will only be compounded by the fact that 50% are now over 50 years of age and nearing retirement, additionally, we now are seeing a higher surgical acuity in our population with the aging of the baby boomer generation. Many ERs are having an extremely difficult time getting emergency surgical coverage.
    Looking at the French system, how do you account for the 35% ICU mortality rate compared to the 14% mortality rate in the US?

  6. pgbMD:
    I can’t address everything in your last two posts. A few observations: you’re right that if average physician/provider incomes go down that a different sort of person will tend to be attracted to medicine. If the average physician salary were in the 70th percentile rather than the 95th percentile, I think we would see a number of changes:
    1. Many highly ambitious people would go into other professions, and those whose ambitions focus around money would go into whatever is reliably more lucrative.
    2. Many intelligent people who want to care for the ill but are currently put off by the heavy work-loads and highly competitive nature of medical school would replace those who left. The average IQ may go down a little, but I’m not worried about it threatening competency in part because we’re talking more about a personality difference than an intelligence difference. This is why I said I thought you would get more women in medicine if the salary (and competitiveness, long hourse, etc.) went down.
    3. Medical school will be less of a pressure-cooker and it will either be subsidized more heavily by the govt or the cost will be reduced some other way. Otherwise, there will be a physician shortage. We may have a few years of low enrollment before med schools and the govt respond.
    These are just my opinions, of course. We all must wait for events to answer our questions.
    As for your experience with the French system, I’ve heard people say very good things about their experiences with it and also bad things. I’m sure there is wide variation in quality across the system, much as there is here. Perhaps there was another hospital across town that was better, and locals know which is better?
    If you measure a hospital by mortality rates and other outcomes, I’m sure the French system isn’t worse than ours.
    As for mistakes and having a lax attitude towards them in France and Spain, this is the first I’ve heard of it. I will keep an eye out for more evidence of this.
    And now the final point I’ll try to address: statistically controlling for health status/morbidities, etc. I’ve seen conflicting data on this. Americans do appear to be fatter and unhealthier, but by how much is not clear. I wish I could find an article I recently read that said it only appears that Americans are fatter than the English because we obsess about it and measure it, while they don’t.
    While I grant that some of our higher costs are the result of demographic factors and lifestyles, don’t underestimate how much diversity (and unhealthiness) European populations have. There are now huge immigrant communities in Europe. These groups are ethnically distinct, often poor and with a different culture/language that creates barriers to accessing preventive healthcare. The suburbs of Europe (especially those of former colonial powers) are filled with immigrants from their old colonies.

  7. Great site! Still working the pages of info. Have many concerns and found 2 interesting posts by Joel Anderson that pointed out horrific ICU mortality data for French hospitals. Maybe not so rosy on the other side, but I will keep an open mind and keep reading…
    Um, have you used a French facility lately? I used St. Roch Hospital(Allegedly one of the best in France), and I found it to be a dump. The ED was unclean, and even telling the incompetent attempt at a doctor that i have asthma and I needed nebulized albuterol. It took the moron about 30 minutes to realize this, until I showed him my blue cross insurance card and telling him I was leaving and will fly back to America to get proper treatment and someplace better than that remblai (which is a French word for a dump). Only after hearing my loud wheezing and me yelling at him in French did the moron realize something was the matter. This is not the only experienc, I have had other friends with similar experiences.The best and brightest minds go into buisness and law instead of Medicine (as they do in the US), and it shows with low spending combined with overutilization and underpayment of physicians. I had the fortune of staying with a South African Family, who currently resides in France for occupational services, as a sister city exchange on a protion of the trip, and the mother in the family returned to South Africa 5 years ago to have a Mitral Valve repair surgery; she returned there to have the surgery as there was not a decent facility in France. Although the US appeare to have slightly more years of potential life lost in the above article, do you take into consideration that: 1. The US has the highest obesity rate in the world in terms of population percentage. 2. The US is one of the most violent developed nations in the world with a homicide rate that is 4 to 5 times greater than in France. 3. There are more minorities in the US, and someo of them, BY THEIR GENETIC CODES ARE MORE CONGENITALLY PRONE TO CERTAIN DISEASES, THUS REDUCING THEIR LIFE SPAN. 4. I saw an article analyzing ICU mortality in France; of patients between the ages of 40 and 71, (mean of 54.2) and in Frances “best teaching hospitals” (if they do exist) the mortality rates for 7 medical ICU’s and 4 Surgical ICU’s, overall, are 33.6 percent. When compared to an American ICU’s, the average mortality for Medicare Patients (those whom are 65 and over), according to Consumers Checkbook and a link from AARP, The National Average (for all hospitals in the US, not just the high amount of brilliant facilities like Mayo or Mass General) Medical ICU rate is about 15.29% and for Surgical ICU’s its about 2.43%, that is considerably lower for a significantly older population. For heart attack mortality it shows as well; US Avg 9.89% Canada Avg 15.66% French Avg, according to Dr. Brien Colliet, is 31.12%. Trauma mortality in is also similar: Israel-1.8% US 6.1% with about 15% penetrating trauma France 17.8% with about 1.7% pentrating trauma. Thats a significant difference- according to Dr. Collet again, and it shows that when you pay physician better, you get more for your $. I know our system is not perfect and has many flaws, it is not nearly as flawed as the French system. Although our Avg life spans are slightly similar: US 77.57 France 78.38; The French live significantly healthier lives, maintain much better diets, live with much less stress, and excercise much more that Americans. However, if you were to risk-adjust this, or acuity adjust this, Americans are far better off than the French.
    The lates CDC report states that the avg life span in 2004 went up to 77.9, in the United States.By the way, I saw a link with Australian physicians and their salaries, and they are socialized, and have some issues with tehir system, however their physicians are still paid quite well. I noticed a post for a cardiologist, just a general diagnostic one, no interventional, and the pay, when converted to American Dollars, was about $265,000. Along with this, they are reimbursed for their cars and for 19.2-24.4% of their mortgages That is near the avg strting for a US cardiologist of the same type, which is at about $255,000. The Australian physicians compensation is thus better than Franch compensation, which explains why their results are better than the French. In an ICU Mortality survey at the Royal Brisbaine, the US Predictd Average, using our scales from medicare, was about 14.2%, their actual waswas about 15.8%, so they have similar performance as ours, and much better performance with the French. Although French physicians may appear nice, their incompetence is overlooked by their “niceness”, so it kind of has a used car salesman effect; they portray themselves as caring, when they fail to be as effective as American, Islandic, or Australian physicians; many times, subsequently, Joe Average does not, nor will not, notice the difference. On a further note, with medical mistakes issues, as Americans, we are perfectionists, and we will try to prevent mistakes whenever we can, as long as we know they are being committed. However, the French and the Spanish, do not live up to, nor expect the very best (subsequently explaining their declining economies and high unemployment and high striking frequencies)in performance, especially that of their healthcare system.

  8. JD – Thanks for the detailed response to my questions.
    The more I learn and read, the more optimistic I am that we can find enough savings within our current system to cover the uninsured while holding overall healthcare spending to the current 16% of GDP. While most of the potential changes will encounter significant opposition, I think the oppsisiton will dissipate over time, especially if the interest groups are more aggressively challenged to come up with viable alternatives besides raising taxes ever higher, especially on high income people. Possible sources of savings include:
    1. End of life care. I think we have already seen a gradual increase in the number of terminal patients opting for hospice care instead of surgery and other aggressive treatment. More widespread use of living wills and advance directives could reduce the amount of often unwanted care that is rendered to terminally ill patients.
    2. Further consolidation among insurers and making it easier for individuals to band together into large groups for the purpose of purchasing health insurance. Developing standardized forms and interoperative electronic health records would also contribute to reduced administrative costs. If the insurance industry needs an anti-trust exemption to get together to develop such a system, I think we should give it to them (for that purpose only, of course).
    3. The current tax preference afforded to employer provided health care should be capped and gradually phased out. If this form of compensation were put on the same tax footing as wages, lower cost, higher deductible health plans would suddenly look a lot more palatable, and more “skin in the game” would be a good thing. We could increase the standard deduction and reduce income tax rates (especially in the lower tax brackets) to insure that overall tax revenue does not rise.
    4. Complete pricing and quality transparency throughout the system would allow healthcare to function much more like a normal, rational market except for care delivered under emergency conditions.
    5. The emergence and spread of walk-in clinics (with complete pricing transparency) in retail stores will provide a new low cost alternative for accessing care for relatively minor, routine medical issues. These could also help to take some of the pressure off of overcrowded emergency rooms.
    6. More aggressive use of sophisticated software tools to combat fraud in the Medicare and Medicaid programs could reap significant savings, I believe. Futhermore, using such tools to challenge and investigate, if appropriate, unusual and expensive practice patterns would be helpful. An example would be the recent disclosure of a group of cardiologists in Elyria, Ohio performing angioplasties on Medicare patients at four times the national average rate. As a taxpayer, I find it exasperating that Medicare and Medicaid seem to routinely and mechanically pay many of these questionable bills and then have the gall to brag about how low their administrative costs are as a percentage of healthcare spending compared to private insurers!

  9. JD:Actually the French system does seem appealling. From what I understand, doctors can have private contracts with patients and still be in the national healthcare system. Increadibly, their system does appear to have more freedom when compared to Medicare. I would like to see unbiased data on how much their system costs the taxpayers. I am sure it is not cheap. Do you have any summaries on the French system? Thank you.

  10. pgbMD:
    “To say that all doctors must become salaried is intellectually lazy.”
    I didn’t say that. I said that I thought it would be better if they were. It would also be better if most were, and some remained outside in a private system–sort of like regular teachers (salaried) and special tutors that the rich or slow use (fee for service).
    “Fortunately in this country (unlike our idealist friends in western Europe) we do have many protected freedoms.”
    This is absurd. I don’t even know where to start with such a statement, except to enumerate all the rights that Europeans in various countries have. In some cases, they are more extensive than our own, particularly after 9/11.
    “If you want to see a salaried doctor go to Kaiser, the UC medical system, etc. There are many good doctors working in salaried positions. Maybe all lawyers should be salaried as well? That would certainly cut down on all the frivolous lawsuits!”
    That’s an interesting point. I’ve wondered whether it would be better if lawyers were in general salaried. Actually, aren’t they? Corporate lawyers are salaried as a rule, as are prosecuting attorneys. But trial lawyers are not. I’m not sure what system we would institute to pay them.
    “This attempt by the socialists in this country to further capture a huge chunk of the US economy (I believe nearly 1/3 of GDP) is frightening. I point again to the great failed socialist experiments (Medicare/Medicaid, SS, welfare, education, etc). We just can’t afford to expand the entitlement programs in this country any further. In fact we need to be thinking about reducing them.”
    How is social security a failed system? It simply isn’t, despite the hype. It is no more failed than our corporate pension system is failed. Actually, less. Neither can currently pay off all their obligations, but in both cases responsible parties can be expected to increase the accordingly. Socialism in itself is no solution. Neither is putting everything in the private market.
    “You keep crying that European doctors make less than doctors in the USA.”
    Crying? Are we in third grade again?
    “US CEOs, lawyers, and nearly all professionals make significantly more than their European counterparts.”
    And that is part of why our educational system is coming apart.
    I spoke recently with a German doctor that I met at a conference and his annual income actually was not too shabby (over $300k/year). Additionally, he mentioned that all his kids go to university on the government’s dime and he had no loans to pay off from medical school. He also worked only 4 days per week and has 10 weeks of vacation per year! There is a reason Germany’s GDP is stagnant and their unemployment rate is sky-high. I don’t think the US needs to head in their direction.
    Don’t confuse nominal GDP with quality of life. The germans, as you point out, get lots more vacation, better health care, free education, etc., etc. They earn less in part because they have to pay less for many things. You earn more, but it goes right out the door again to pay for things that a German gets at a lower price by paying taxes (think education and healthcare, in particular).
    “Finally, last time I checked neither education nor healthcare were rights afforded by the US constitution.”
    You’re absolutely right. I didn’t mean to imply that they were. What I meant was that if we are able to treat education as a basic right (call it a right based on stanrdards of decency), then why not the same for healthcare? Where you and I disagree is that I see it in our self-interest to insure everyone, just as it is in our self-interest to educate everyone. Leaving it up to the market doesn’t work. Show me where it does. Oh, and before you talk about how European systems give you so much less choice, more rationing, etc., take a close look at the French system.

  11. Barry,
    Thanks for the response and questions. I’ll answer each as best I can.
    1: Regarding the cost and potential savings of end of life care, I can give some rough guidelines from memory (with some searching you could find it using google). Close to 50% of all health spending is for care in the last 2 years of people’s lives. I think David Cutler said it was 50%, but I’ve read that it’s around 35-40% elsewhere. If our system were half as expensive as it is (more like European nations), we could save perhaps 15% of all healthcare spending even without changing the amount of end of life care, and save a total of 20-30% if we also cut down on the amount/type of care delivered to be more like Europe. These are just back-of-the-napkin estimates.
    2: Part of what I meant about Medicare/Medicaid freezing rates is that the programs would also be expanding to cover the uninsured, and perhaps to cover everybody (as under some Democratic proposals). Yes, some doctors would opt out and go into a purely private system, but not very many could afford to. They would be very unhappy, especially at first. But don’t expect the number of physicians to go down by much. Those doctors who are in it just for the money may try to get into law or get MBAs, etc. The rest will stay, especially if they don’t have to deal with as much paperwork regarding insurance. Don’t forget that people who get Ph.D.s spend their 20’s in school as well, and they tend to make considerably less than physicians. The big change would have to be in the area of education: Medical training would have to be made less expensive so that MDs don’t enter practice with $100K or more in debt. This is part of what gets them so obsessed about money. Again, other nations have as many physicians per capita as we do. One prediction: as medicine becomes less lucrative, the ratio of men to women will shift towards women.
    3: You’re right about admin costs getting lower the more consolidation there is. Not just for insurers, but for providers as well since there are fewer plans to deal with. Also, if health insurers and providers get together and standardize forms, adopt interoperable electronic health records, etc., this will cut down on admin regardless of (a) whether we have universal healthcare and (b) whether this universal healthcare is single-payer or some amalgam like the Massachusetts system. As for fraud, you’re probably right that it’s worse for ‘caid and ‘care. But how much worse, I have no idea. Also, the fraud does not have to continue to be as bad as it is. New York, for example, is starting to get serious about oversight after years of looking the other way. It would be instructive to see how other nations deal with it, and whether it is as bad there as it is here.
    4: On malpractice and defensive medicine there is some very good research indicating that it is a factor, but not all that large. The Commonwealth Fund and Health Affairs (two excellent sources of information, btw) have both looked at costs here and abroad. About 1% of total expenses relate directly to malpractice (awards and premiums). The cost of defensive medicine is harder to assess. Partisans on the right give estimates in the double digits, though I have never seen a convincing case made for this. My own guess: no more than 2-3%. Here is the problem with the high estimates: much of what gets passed off as “defensive” medicine is actually “offensive” medicine, or is some mixture. Take the classic example of ordering more tests than is medically necessary. Obviously, the fact that physicians/clinics often get reimbursed more for more tests plays a role. Physicians don’t just try to avoid lawsuits, they seek additional income. When practices own their own diagnostic equipment, and so capture all testing-related revenue, the rate of testing goes up substantially. That is not defensive medicine. (This is one reason why I think going from FFS to salary would be ideal, though I’m not holding my breath.)
    On point 5: I am so far away from a position of power that could affect meaningful system change that it doesn’t make sense for me to invest too much in any such change. However, I do intend to continue with the only thing I can do at this point: keep writing as persuasively as I can in favor of a better system. Maybe someone important will read something I write and a light will go off. Stranger things have happened. Plus, I enjoy writing.
    Finally, question 6: the best European system and the one most compatible with our culture. Unfortunately, I don’t think these are the same system. Of those I know, the closest to our system is the Swiss. They have a system of mandatory insurance run by private or quasi-private companies. It isn’t very far from the system Massachusetts is moving forward with. Switzerland, however, has the highest healthcare costs in Europe per capita, and as a percentage of GDP. See here, starting on p.10: http://www.who.int/nha/docs/en/Basic_patterns_in_national_health_expenditure.pdf#search=%22national%20health%20expenditures%20switzerland%22
    Germany is a little further from us, with “sick funds” that are sort of like health care utilities and are paid through employer taxes (for the employed). I think the unemployed are given coverage wit general tax funds. The German system is the one that the Clintons modeled their proposal after. It is probably more acheivable now than 15 years ago, though I don’t think it is the most efficient. Both the Germans and Swiss spend about 10% of GDP on healthcare, compared to 16% for us.
    France has one of the best systems, with regional health authorities that combine provider/insurance and are free to choose how they deliver care within fixed budget constraints. Here’s a quick link describing the French system in comparison with others:
    http://ezraklein.typepad.com/blog/2005/04/health_care_fra.html
    They have less rationing than we do, they have more choice of providers than we do, and they spend only about 9% of GDP on healthcare. Given their slightly lower per capita GDP, this comes out to spending about half as much per person as the US. I don’t think the employer/union co-control would work here, but we could find some substitute that introduced more stakeholders.

  12. JD: A salaried position works well in many venues (academic, government/military, etc), but to say that all doctors must become salaried is intellectually lazy. Fortunately in this country (unlike our idealist friends in western Europe) we do have many protected freedoms. If you want to see a salaried doctor go to Kaiser, the UC medical system, etc. There are many good doctors working in salaried positions. Maybe all lawyers should be salaried as well? That would certainly cut down on all the frivolous lawsuits!
    This attempt by the socialists in this country to further capture a huge chunk of the US economy (I believe nearly 1/3 of GDP) is frightening. I point again to the great failed socialist experiments (Medicare/Medicaid, SS, welfare, education, etc). We just can’t afford to expand the entitlement programs in this country any further. In fact we need to be thinking about reducing them.
    You keep crying that European doctors make less than doctors in the USA. That is true. So what? US CEOs, lawyers, and nearly all professionals make significantly more than their European counterparts. I spoke recently with a German doctor that I met at a conference and his annual income actually was not too shabby (over $300k/year). Additionally, he mentioned that all his kids go to university on the government’s dime and he had no loans to pay off from medical school. He also worked only 4 days per week and has 10 weeks of vacation per year! There is a reason Germany’s GDP is stagnant and their unemployment rate is sky-high. I don’t think the US needs to head in their direction.
    Finally, last time I checked neither education nor healthcare were rights afforded by the US constitution.

  13. JD – That was a very interesting and informative post. I would be interested in your insight into the following issues and questions:
    1. If we approached end of life care the same way that European countries do (with or without UK style QALY metrics), how much of the current 16% of GDP that we currently spend on healthcare could be saved? Could it be as much as 1% or $100 billion?
    2. With respect to doctor compensation, I don’t have any data on this, but I get the general sense that most doctors could have earned considerably more in business or law while investing fewer years in study and training to prepare for a career in one of those fields. If Medicare and Medicaid froze reimbursements for 10 years, wouldn’t there likely be a large increase in the number of doctors who refuse to take on new patients with that insurance coverage? Medicare and Medicaid already reimburse at considerably lower rates than private insurers, yet they still can’t control their costs.
    3. With respect to potential savings in administrative costs from a single universal system, large employers who self insure only pay insurers about $12-$18 PMPM for claims processing and about another $10 PMPM or so for managed care fees, network access and, perhaps, actuarial consulting. If we had a lot more consolidation among insurers and most non-Medicare and Medicaid eligible people were members of large health plans, the administrative savings from a universal system may be far less than advocates think could be realized. I also suspect that much more money is lost to fraud in the Medicare and Medicaid systems as compared to private insurance.
    4. I wonder what your guess is as to how much incremental cost we incur related to fear of litigation driven defensive medicine as compared to the European systems. This is another cultural issue that would be difficult to change in the short run, even if we moved to specialized health courts as the mechanism for settling medical disputes.
    5. I fully agree with letting the wealthy opt out of a universal system and either pay cash or buy private insurance. Your education system analogy is quite appropriate. This is not an issue that we should waste any time, effort, emotion or political capital on when the task of finding an affordable way to achieve universal coverage is already so difficult.
    6. Which European healthcare system do you think does the best job and would be the best fit with our culture?

  14. To pgbMD, Barry Carol and jason d:
    First, jason:
    I am aware that end of life care is much lower in Europe than here. However, you have a selective portrayal of why it exists and you overplay its significance. There is less end of life care there in large part because of cultural differences. People don’t insist on it there like they do here. Not everyone believes intensive chemo for stage IV cancer when the prognosis for survival is very low is a good idea. Different cultural attitudes get expressed in what people are willing to pay for in the way of a health insurance system. But all that aside, it matters enormously that the same amount of end of life care in Europe does not cost the same as it does here. Because the providers get 1/2 to 2/3 as much money as they do here, intensive care costs less.
    They get less in part because administrative costs are far lower there, and they are lower largely because there is a unified universal insurance system. They also get paid less because providers simply don’t make as much money there.
    To answer Barry, yes, we do need to lower what doctors and hospitals get paid. We simply cannot make healthcare affordable (and we certainly cannot make universal healthcare affordable) so long as the average specialist makes over $300K a year and the average night’s stay in the hospital costs $3-5K. These number have to be reduced. No, I don’t think the government can or will just dictate lower prices. What it can do is bring more people into a Medicare-like basic system, and then refuse to raise (average) pay rates to providers for a period of, say, 10 years. Obviously, the devil is in the details. But Medicare and Medicaid are both already on the path to this. So far, the AMA and AHA have fought enough rear-guard actions to prevent full success, but it will happen eventually. It has to.
    That said, some of the reduced pay to providers is really a matter of reducing overhead in a universal healthcare system, and won’t reduce their take home pay.
    pgbMD: Ultimately, for what it’s worth, I think that the best system is one in which physicians are salaried rather than paid on a FFS basis, and they are part of combined medical systems in which physician, hospital, clinic and insurer are all part of the same organization. The VA and Kaiser are good examples. Many other nations have set up regional health systems that operate on budgets provided by local/federal government and augmented in many cases with employer-specific taxes. Yes, that’s a big leap. I have no idea if or when America will be ready for it.
    Oh, and to be clear: there is no reason to insist that the only kind of insurance be government-provided. The Canadian system is too restrictive. Other nations allow the wealthy to opt-out and get private insurance or just pay cash for services outside the national system. It’s much like our educational system, which allows people to get a private education if they want and can pay for it. What the heck is wrong with that? Why is healthcare any more or less a right than education?

  15. “Second, it is NOT well-established that “western European powers” get most of their health care savings through rationing care. In some countries, like Canada and England, rationing plays a substantial role, but most European countries don’t ration any more than we do.”
    Europe saves most of their money by rationing “end of life” care, in addition to “premature baby” care.
    IN Europe, if you give birth to a 25 weeker, they observe the baby to see if it survives on its own. they dont ventilate, they dont put the baby in NICU, they dont give a panel of expensive drugs. They observe. If the baby lives, fine, but if the baby stops breathing or never breathed at all, the doctor goes back to the mother and says “your baby is dead” and thats the end of the discussion. European doctors are very critical of teh US for all the so-called “life saving” interventions we do for prematures. As a result, the US literally spends 50 times more money per premature birth than Europe does.
    Another example is terminal cancer. In hte USA when somebody gets stage IV breast cancer, we give them the full workup. 100k round of chemo here, repeat 50k surgeries there, we spare no expense in doing absolutely everything possible.
    In Europe, its different. When you get diangosed stage IV over there, the state wont pay for chemo, they wont pay for surgery. They will pay for pain meds and they will pay for placement in hospice care with nursing support. As a result, the USA spends 100 times more money on terminal cancer than Europe does.

  16. “Now for my background. A little varied but take your best shots even if its not related to healthcare. I may have the same criticisms as you about the fields I was/am in. Sales(Insurance, Industrial), landlord (that’s an good opening), investor, real estate mortgage holder (maybe another good one for you), bought/repaired/sold/rented mobile homes as my own business(maybe something there for you).”
    Not much for me to aim at here. Seems like you are the good old fashioned hardworking American jack-of-all-trades.
    By the way I did somewhat agree with your New Orleans article if that was you.
    Additionally, I do agree with revamping the SS mess as well. Do you support the MA mandatory health insurance experiment? What are your thoughts?
    Cheers

  17. Posted by: pgbMD | Aug 17, 2006 5:27:10 AM
    “If you paid attention to my posts, I am all for the dismantling of medicare and the restructuring of medicaid.”
    Are you for the dismantling of Social Security too? Not that its related to healthcare, well maybe, but I just wanted to get a feeling for ideology.
    I’m not sure how that (dismantling medicare/medicade) would solve the problem of cost and access, but it seems it would solve the problem of reduced payments to docs by those programs. If your replacement of those plans is the AMA “Uninsured” proposal, which I surveyed, then I’m not sure I am convinced that it will do much to control costs, it does seem to ensure docs are in the drivers seat when it comes to income protection. The proposal calls for “mandatory” purchase of health insurance, if the one I read was the latest version. That’s a fair proposal, what it does not do is say how costs are going to be controlled other than relying on “market forces”, which has kinda got us into this situation now. Car insurance is mostly mandatory, but the other side of the contract is that states control premiums by determining claims/loses/profits. Insurers have to submit maximum proposed premiums and on occassion, in this state anyway, we have gotten refunds. Maybe you have even gotten a refund in your state. So with the mandatory requirement there is consideration on both sides of the contract – fair. I don’t trust maket forces in the medical industry. As well once the market sees a big infusion of cash from mandatory premiums, then it will take advantage of that. As one of Matts topics stated – “It’s the price of corn, not the price of land.”
    “To make this bantering fair, please provide us all with your profession so we can drop some bombs on you too.”
    Now for my background. A little varied but take your best shots even if its not related to healthcare. I may have the same criticisms as you about the fields I was/am in. Sales(Insurance, Industrial), landlord (that’s an good opening), investor, real estate mortgage holder (maybe another good one for you), bought/repaired/sold/rented mobile homes as my own business(maybe something there for you). There’s a couple more but not too much to give you much ammunition. There knock yourself out.
    I should say that I do write with an eye on the dramatic at times. Seems to be a way for me to make a strong point. Sometimes it’s done with “tongue in cheek”. There are no emotion icons on this blog. But I have found that usually when I hit a raw nerve doing that I tend to have struck the underlying truth, and that is why the reader gets so upset. As to not responding to my posts, I think another doc (Scott?) used a set-up question recently which he knew would lead to his ability to post the same “threat”. His question was only meant to lead to an already composed answer. All I have to say is, “You’ll be missed.” But I think that from what I’ve seen on this blog, I am the only one taking the positions I am taking,(at least from a posters point) maybe except Matthew. So I think with those “contra” postions the other side won’t be able to contain themselves since my opinions and observations are so threatening to that side. Cheers, no hard feelings.

  18. Peter:
    If you paid attention to my posts, I am all for the dismantling of medicare and the restructuring of medicaid.
    To make this bantering fair, please provide us all with your profession so we can drop some bombs on you too.
    pgbMD

  19. Posted by: pgbMD | Aug 16, 2006 10:23:17 AM
    “I guess in your utopia everyone will have unlimited access to healthcare paid for by the government.”
    If you have paid attention to my posts you will have seen I am a strong advocate of cost controls – hardly a utopia of unlimited accsess. Docs seem to want unlimited access to tax dollars for medicaid/medicare.
    “As a side note, I will stop responding to your comments if you continue to demean yourself with the pathetic/childish potshots you constantly take at MDs.”
    From the MD posts here, well deserved “potshots” if you like. What’s the matter, thin skinned? I certainly have had a few “potshots”, (pathetic/childish) most I have ignored and moved on with the discussion. Please produce one post with name calling.

  20. JD – Are you suggesting that if we could just cut doctor and hospital comp in half, we could have low costs too? I won’t hold my breath waiting for that to happen.
    I also don’t understand how comparing hospital LOS between Germany and the U.S. is indicative of rationing or anything else when we don’t know anything about the mix of conditions that hospital inpatients are suffering from. If we had data on LOS for the same condition like heart bypass surgery without complications, it might be more informative but still not indicative of rationing.
    There could well be significant differences in how the two countries deal with such issues as end of life care when the outlook is hopeless, at what age will certain operations will no longer be performed, and defensive medicine in light of differing legal climates.
    Finally, my understanding is that employed Germans pay for their health insurance via a 14% payroll tax while their equivalent of social security is a significant additional burden. I doubt that Americans would tolerate adding a payroll tax of that magnitude to pay for universal healthcare to what many feel is an already hefty combined federal, state and local tax burden.
    I suspect that if we, as a country, pushed for what are now being called high deductible health plans 30 years ago, we probably could have had universal coverage at reasonable cost then. But since politicians insisted on overreaching for a comprehensive system that insulated people from virtually all healthcare costs, we wound up with today’s high cost mess.

  21. JD what is your healthcare utopia? Of course our costs will be more compared to the welfare states in Europe, b/c there is more choice. It is comparing apples to oranges. Would you prefer the government dictating how you should get your cancer treated if you develop one? I prefer to have the choice and the brownian motion of a free system.
    My suggestion to you is to first fix the great society experiments that are pathetic failures currently before trying to governmentalize another huge portion of the US economy. Please fix the failed public school system, the judicial system, the prison system and Medicare/Medicaid before talking about totally nationalizing healthcare. After you show me vast improvement in those government run systems then we can talk. Until then we can swagger in this hybrid system that we have.

  22. pgbMD, you write:
    “It is well established that the “great” economic western European powers that you so admire, ration their healthcare and still can’t control the spiraling costs.”
    This is flat-out false. First, they have controlled their costs far better than we have over the last 50 years. 50 years ago, we had health care costs on a population basis that were about the same. Today, our costs are twice as high. Sure, their costs are increasing faster than inflation at the moment, but compared to us they have controlled costs quite well. To suggest that they haven’t done a far better job than we have at controlling costs is intellectually lazy and false (and if you didn’t mean to suggest this, your point loses its force).
    Second, it is NOT well-established that “western European powers” get most of their health care savings through rationing care. In some countries, like Canada and England, rationing plays a substantial role, but most European countries don’t ration any more than we do. For example, the average LOS (length of stay) in hospitals is far higher in Germany than it is in the US, as is the number of bed days per 1,000. We ration hospitalization more than the Germans and many other countries do, through our insurance providers. You need to read the comparative literature on this that DOESN’T start out with an axe to grind.
    The way that other countries get most of their savings is by controlling payments to providers. Hospitals and physicians get paid much less than those in the US…roughly half as much on the whole. The math on this is immediate and clear. And no, in general they don’t have fewer physicians per capita than we do. Of course, that is a reality you do not want to face. But don’t get angry with me, go and look at unbiased studies (hint: if it is by the Cato institute, discard it). Or if you believe unbiased studies don’t exist, just try a wider range of studies and you may find some pretty startling facts neglected in the ones you seem to have read thus far.

  23. I guess in your utopia everyone will have unlimited access to healthcare paid for by the government. I will suggest then that your utopia then is located in Canada not here in the USA where we pride ourselves on limited government.
    Where does this stop? Should we provide a home, car, and cellphone for everyone too? The great socialist economies in western Europe and Canada are stagnant and can’t even be compared to our own. Do you want to head in their direction by tagging the American taxpayer with unlimited taxpayer funded healthcare for all? I know your answer.
    “Would any of the above be related to the “R” word – Rationing?”
    I don’t really understand your point here. It is well established that the “great” economic western European powers that you so admire, ration their healthcare and still can’t control the spiraling costs. Their governments are going bankrupt with their cradle to grave socialist/welfare programs. One great eye-catching example of healthcare rationing is the status of western European dental hygiene. Quite a glaring travesty.
    “You must feel there is nothing wrong with the costs being spent in relation to the results. Being an MD (I assume), on the provider side, I think you are in a good position to rake in all you can from an inefficient system.”
    I believe that the in order to contain healthcare spending, the consumer/patient needs to be brought back into the loop and reintroduced to the actual cost of healthcare. The great mistake has been to divorce the patient from the true costs of healthcare in the form of the third party payer system. HDPAs are a great start. Apparently the number of HDPAs are skyrocketing much to the chagrin of the Left.
    As a side note, I will stop responding to your comments if you continue to demean yourself with the pathetic/childish potshots you constantly take at MDs.

  24. Well pgbMD I did read your link as well as the Part 2 version. Mr. Sowell questions every study, report, conclusion ever done, even questions the global warming ones – I can get that from Rush Limbaugh. What he does not do is offer his research to counter the claims. Just says we can’t believe anything, especially from the left and the status quo is just fine thanks.
    As to your statement that health is just a matter of how you feel, not how your are;
    – Uninsured adults are more likely to go without medical care than insured adults.
    – Uninsured adults are less likely to have a personal doctor or health care provider than insured adults.
    – Uninsured adults are more likely to report ‘poor’ or ‘fair’ health than insured adults.
    – Uninsured adults are less likely to receive preventive services than adults with coverage.
    Would any of the above be related to the “R” word – Rationing?
    Kaiser reports: (biased of course, can’t be proved)
    – People without health insurance receive less preventive care and are less likely to have major diseases detected early.
    – The uninsured are more likely to die prematurely than the insured, with various studies putting the mortality rate for the uninsured somewhere between 1.2 times to 1.6 times the rate for the insured.
    – Uninsured infants have relative odds of dying that are 1.5 times higher than infants with private insurance.
    Show me studies that the uninsured are more healthy, or at least nor as sick than the insured, that they live longer, and receive the same care.
    Now I read a study that said Canadians receive less aggressive heart attack treatment than U.S. patients, supposedly due to less access to those types of services, and consequently have higher mortality rates. What the report did not say was what type of aggressive heart attack treastment the unisured got here in the U.S. or those on medicaid. It did not say the age of the population not receiving aggressive care or their general health related to their heart condition, I would think all factors needed to know. But if you take the report for what it is, how do you think Canadians could change access and treatment for heart attacks? Well they could petition their political reps to allocate funds to that disease. Not a bad system in a democracy.
    As to the cost/benefit of the U.S. system how do you equate those two? You must feel there is nothing wrong with the costs being spent in relation to the results. Being an MD (I assume), on the provider side, I think you are in a good postion to rake in all you can from an inefficient system. I have never argued that providers were not doing well, only the payers.

  25. “then what about those single payer government plan countries which have the ultimate third party payer”
    Those countries control their costs by severely rationing care. Fortunately the British and Canadian style government controlled healthcare systems are not constitutional and can never be copied here in the US. In fact, the current Medicare system needs to challenged in the SCOTUS in terms of the 2yr opt out window for physicians and the barring of private contracting b/w patient and physician. Both issues are clearly unconstitutional.
    “And the U.S. population is not as healthy.”
    This should read, ‘and the U.S. population does not FEEL as healthy’. To correlate how people feel about their health to the form of healthcare delivery system is a mistake. As I have said in the past many of these biased “studies” are agenda driven and devised in order to justify a move towards a single payer system in this country. Please read the linked article by Thomas Sowell that discusses biased “studies”.
    http://www.capmag.com/article.asp?ID=4759

  26. For those that think the high costs are because the healthcare consumer is disconnected from the reality of expense due to third party payors, then what about those single payer government plan countries which have the ultimate third party payer – the government. Those countries have about half the per capita cost of healthcare as the U.S.’s $5600. Canada’s GDP to healthcare is about 10% while the U.S. is about 15%. And the U.S. population is not as healthy. Right now there is no incentive to reduce output of care or costs for the consumer because those driving the system are making money from its inefficiencies. It just remains to be seen as to how long this Titanic has.

  27. The whole good doc/bad doc thing is a sham. Sure there are dangerous docs out there but they are exceedingly rare. The licensing boards should grow teeth and revoke those licenses from the bad ones. Unfortunately, the state licensing boards are not doing their jobs and this needs to change. I wonder what they are doing with all the money they are charging for licenses. I guess probably paying for their employee healthcare and retirement!!
    As for weeding out the bad docs to bring down the malpractice insurance for those good docs out there, don’t believe the hype. It won’t happen. They will just jack up the rates on the bad docs and keep the rates the same for the good docs. The insurance companies already know who the bad docs are anyways. Let’s get real here.

  28. “Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party – an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own.”
    -Milton Friedman, “How To Cure Health Care,” 2001.
    If you look at how investments in medical technology have grown, and how much productivity loss they offset, and how they have contributed to longer productivity in the form of longer life, it’s very much worth it. Technology does not drive cost increases. Mr. Holt is right; that argument is pretty much BS. _Of course_ the innovation is worth it. Again, this is old hat. Here’s another paper I read from 5 years ago, from back when I was in school:
    http://www.laskerfoundation.org/reports/pdf
    /cutler_mcclellan_2001.pdf
    We’ve going round and round blaming each other for this for a while now. Providers are greedy. Health insurance companies are greedy. And patients are greedy, especially the older ones, which we subsidize under a regressive tax for some strange reason, that have been voting themselves entitlement rights for 40 years, having gone from one of the poorer sections of society to one of the richest. The average CMS beneficiary has twice as much wealth as the average person who pays for the care (US Natn’l Bur Labor Stats). This argument was settled many posts ago, and, indeed, many years ago.
    The fact is that the competitive model in healthcare is broken. Why? Because there’s no competition on value per unit cost, and since there’s no information on value or cost, insurers and the government and even patients have made healthcare a commodity, despite that fact that, as Dr. Novack states, the multifactorial nature makes it anything _but_ a commodity. This is, in part, the price that providers pay for not wanting to be measured: the good providers end up subsidizing the lousy ones. In a market with proper metrics, the lousy ones would either have to reduce prices or be driven from the market. But this doesn’t happen, since our value-based competitive model is broken.
    However, in the absence of any real empowering information, a variety of scary lobbyists not keen on competition based on value, efficiency, or case-mixed adjusted cost-effectiveness, and much finger-pointing, this is what we’ve ended up with.
    …And for those angry docs out there, this practice, due to the above absence of information and metrics, spills over into your malpractice insurance, as rates go up everywhere, since insurance companies have no idea which ones of you are lousy docs versus which ones are great docs. So everyone pays higher rates, since such a group is impossible to cheaply and efficiently insure; good docs are punished, and end up subsidizing the bad ones. Kind of makes the argument for quality accountability seem a little more appealing, no?
    One might even say that “lousy” providers have the greatest incentive to fight such accountability the most. Perhaps a good tactic would be to identify the providers that are whining about change the most…and then go somewhere else. Maybe the same goes for insurers…

  29. Let me play the uninformed one… I have not yet read the 40+ page study from MIT (though I suspect almost no ne else here has either).
    Healthcare costs are due to- and follow me through this very great and oft-used medical term– multifactorial. That is to say, there are many factors involved.
    For the most part, the standard line has been to say that technology is the primary driver of cost increases. So all this study is saying is that perhaps technology is not the primary driver, but rather that a third party payment system is the top driver of costs. But it does not exclude the role of technology, liability, etc.
    None of which answers the issue that is the biggie in healthcare– how to address the utilization of healthhcare services by the small group of the population that uses healthcare the most. Everything else is helpful, useful, and worthwhile, but in the end is window dressing to the cost issue of healthcare.

  30. It then follows that to reduce healthcare increases we should all arrange to die fast and die young. Let me pause and light my cigarette while drinking my Jack Daniels, riding my Harley without a helmet to play rugby or Russian Roulette and think about this some more. No wonder health economists are dismal.

  31. Matthew:
    Thanks for making this point. When I first saw this study reported in Business Week I thought: What’s new about this? The concept of insurance-fueled demand is well-known. In fact, the influence of insurance on health expenses, is often cited by advocates of HSAs and related types of insurance, as the reason it is important to make healthcare consumers more aware of the true cost of medical care.
    Thanks again for this great post.

  32. I suspect that, without Medicare and private insurance coverage, many of the high cost, high technology procedures and services, along with new biotech drugs that sometimes cost upward of $100,000 per year would never have been developed because very few people could afford to pay for them from their own resources.
    The culture of doing more rather than less or doing something instead of nothing, along with the pre-DRG cost plus payment model for every procedure, of course, contributes to costs but is a different issue, I think.
    Insulating patients almost completely from the cost of their healthcare will certainly increase demand as well as make them insensitive to costs which can be mitigated, at least to some extent, if they have more “skin in the game,” even if only up to a higher but still manageable deductible.
    Interestingly, the cost of primary care physician’s time has not increased much more than inflation in the last 30 years despite the presence of Medicare, Medicaid and private insurance. I remember in the early 1970’s, the cost of a routine office visit with my PCP was $15 whereas now it’s around $75, only slightly greater than the increase in the Consumer Price Index during that period. By contrast, when I had a surgical procedure at a New York City hospital in 1976, my semi-private room was billed at $150 per day. Today, the same room is billed at more than $2,000, I believe.
    I strongly suggest that the market opportunity for expensive hospital services, high tech imaging, sophisticated surgery, and specialty pharmaceuticals would be much smaller and the prices would be a lot lower if insurance were less widely available or non-existent. On the other hand, most people in middle class and higher socio-economic groups can afford to pay for well care (routine office visits, screenings, etc.) out of pocket if they have do, and the market for those services is likely to be much more rational with prices moving more in line with general inflation over time.

  33. When you divorce the consumer from the cost of the product, demand for the product will increase indefinitely. HSAs are just a means to reintroduce the consumer to the true costs of healthcare. Economics 101.

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