Matthew Holt

What’s good for General Motors is good for America

In 1953, Charles Erwin Wilson, then GM president, was named by Eisenhower as Secretary of Defense. When he was asked during the hearings before the Senate Armed Services Committee if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation “because for years I thought what was good for the country was good for General Motors and vice versa”. Later this statement was often misquoted, suggesting that Wilson had said simply, “What’s good for General Motors is good for the country.” (From Wikipedia’s History of General Motors)

The American auto industry exploited the loophole by ramping up production of big passenger vehicles that sat on truck beds. The mini-van evolved into the the extended pick-up trucks and SUVs that proliferated during the next two decades. The American public loved the big vehicles, which were affordable because national energy policy made low gasoline prices a priority. The SUVs and trucks were hugely profitable for the manufacturers, offsetting losses incurred partly because of labor-related costs. Detroit’s dependence on these vehicles though was risky, as became clear last year when fuel prices rose steeply and the industry effectively crashed. (Peter J Boyer, The Road Ahead, The New Yorker, April 27, 2009)

This has been a tough couple of weeks for anyone believing in radical change, Obama-style. There has been unnecessary compromise over closing Gitmo and investigating torture. The lobbyists for America’s health care immediately recanted their promised voluntary cost cutbacks. The response so far from the White House has been a statement from Orszag that’s none too radical, essentially saying that bending the curve is OK.

And now there’s the revelation that some idiot at Blues of N. Carolina had already planned a smear campaign against reform, even while the AHIP crowd seems to be winning, as represented by the mealy-mouthed proposals coming out of Baucus’ committee—as Baucus himself ducks meaningful dialogue over alternatives.

So realistically, as I’ve been saying for several months, the best we can hope for from the current body politic is some kind of national exchange and a sorting out of the scummy underbelly of the individual health insurance market. (Incidentally I was watching The Rainmaker, made back in 1997, over the weekend and life has totally imitated fiction in the individual market since then—yes, I’m talking about MEGA but not just them!).

But even if we get some kind of exchange with some kind of vaguely unenforceable individual mandate and some type of guaranteed issue, the basic structure of health insurance passing through the excesses of the FFS system won’t change. Real sustainable change will only happen if we create a single universal pool and give the insurance intermediary some type of global budget, such as a fixed voucher payment per member. No one in the Baucus world or the White House, with the exception of Zeke Emmanuel is talking about that, so it’s not going to happen. And the second best choice—the establishment of a competing public plan that is budget limited—is likely to be bargained away.

So unless some secret mechanism that we’re not being told about will be sprung from the wings, realistically the best that can be done is that we’ll end up with the Massachusetts scenario. More people insured at more cost, unsustainably. And widespread practice and cost variation will continue.

The data of course tells us that on any metric you pick, spending doesn’t equal quality. Just this week the Dartmouth guys found a nil or negative correlation between spending per patient in individual hospitals and outcomes. It’s got to the point when you barely need to read the abstract on these studies. (I guess if you like you can read Atul Gawande running through the numbers yet again in this weeks New Yorker)

But if something can’t for on forever, it will stop (known as Stein’s law). Which is why I opened this piece with a reference to that wonderful New Yorker article about the meltdown in the auto industry.

The auto industry’s last two decades resulted from three irrational government policies that were kept in place by a weird combination of political forces. First, fuel prices were kept artificially low—in part by a deal between Reagan & the Saudi’s to break the Russians, and also by the reticence of American politicians to put European-level taxes on gasoline. Of course, fossil fuel producers and users didn’t have to bear the real costs of these cheap prices. But the planet and its (present & future) inhabitants do.

Second, as pointed out in the New Yorker article, the CAFE standards ridiculously excluded SUVs and mini-vans—proving that partial regulation is much worse than using taxes to do the same thing. We’re still waiting for a sensible carbon tax. Third, partial taxation is just as bad. For weird historical reasons there is a 25% tariff on foreign trucks and SUVs which means that the Japanese couldn’t compete effectively (e.g. destroy the lumbering big 3) in that market, and the big 3 could make far more profit on the SUVs than they would have done in a free market. A combination of the auto companies, the oil companies, the unthinking consumer, and bought-and-paid-for politicians enabled this to happen.

The parallels are obvious. In American health care policy, for the Big 3, substitute the AHA, PhRMA, AHIP, ADVAMED and the AMA. For the dumb carbon fuel policies, substitute an irrational employer-based insurance system with a wrap-around and uncontrolled Medicare and Medicaid system, all paying suppliers using Fee-For-Service. For the problems of global warming and pollution substitute the societal ill-effects of spending too much money on health care services that make outcomes worse, and leave less money for education, infrastructure and other more worthwhile spending. For SUVs and mini-vans substitute cardiology, orthopedics, neuro-surgery, general surgery, oncology drugs, and all the other service-lines that make hospitals profitable, but do very little for the overall health of the population. And of course the whole thing stays together because Congress is in the special interests’ pocket, the public responds well to prods from special interests (especially doctors), and it doesn’t understand the raw deal it’s getting in the bigger picture.

There’s even a parallel lies and dissemination industry. The auto and oil industries fund their “global warming is a myth crowd”, health care has Betsy McCrackers, Grace Marie Turner and the rest of the free-market nut-jobs—all on the teat of some sub-segment of the health care business which should rationally be put out to pasture.

So assuming that we don’t fix this problem in 2009, what happens when health care has its meltdown moment, or when as Alan Greene and George Lundberg like to say, the health care bubble will burst?

Lundberg argued earlier this month on THCB that there was an excessive trillion dollars spent in health care—somewhere around 40% of current spending. Actuarial firm Milliman did more work on this and suggested that we can move health care spending from the current 16% of GDP to 12%. Now they and fellow travelers like George Halvorson seem to hope that this can be done in some seamless and painless fashion. But that hardly seems realistic. Instead my scenario is that some future cataclysmic event finds the next President offering the health care industry the kind of choices that Obama has just been offering the auto industry.

Which takes me back to Boyer’s wonderful piece about the auto industry. Essentially the industry has been given extremely limited choices of how to restructure itself. They were told to:

  • Massively restructure their obligations to their retirees and employees
  • Change their work arrangements to match those of the Japanese transplant factories
  • Close many factories and lay-off many employees
  • Change their present and future product mix to reflect the worldwide energy crisis
  • Reeducate the buying public as to what to expect from a car (50 miles range and being plugged in nightly?)

Note that many of the Senators from “transplant states” with like Tennessee and Alabama felt pretty aggrieved that GM and Chrysler were getting all this help to compete with their “foreign” imports. Those of you who get Sen Dave Durenberger’s occasional (and prescient) health policy commentary emails may note that he frequently describes Medicare as being a redistribution mechanism whereby doctors and hosptials in high costs states like Louisiana and Florida get subsidies from taxpayers in low cost ones like Minnesota.

The way these hard choices were made at GM and Chrysler were essentially that the Treasury took over the companies and their strategy. Both the CEOs of GM and Chrysler are either gone or going, and the Federal government is directing traffic.

There isn’t quite the centralization of production in health care that there is in autos, but a 40% fall in revenues would effectively mean the government would take over the industry. So what might the equivalent of a fast GM-type restructuring look like in health care?

  • Massively restructure their obligations to their retirees and employees. The health care industry mostly rewards specialists, technology & pharma manufacturers, and certain segments of the hospital business. Those payment schemes would necessarily be slashed. We’re not talking about narrowing the RVU imbalance here, we’re talking about some kind of massive fee-cut backed up by a global budget cap.
  • Change their work arrangements to match those of the Japanese transplant factories. No prizes for guessing this. Virgin Mason and a few others have already significantly reduced all of their costs by introducing Japanese-style quality innovation process. Under current payment schemes that was a crazy thing to do. But in this scenario those hospitals and physician groups that survive would not get the choice. If the accountable health care organization, or medical home ever gets off the ground, the customary relationship of referrals from PCP to specialist and from specialist to hospital will change remarkably.
  • Close many factories and lay-off many employees. If you replace the word “factories” with the words imaging center, hospitals and clinics, you’re getting the picture.
  • Change their present and future product mix. From inpatient care and intensive procedures to prevention and primary care, with extreme makeovers in terms of chronic care process management.
  • Reeducate the buying public as to what to expect from a car. This may be one of the hardest parts of all. The American public regards $4 a gallon gasoline as a pestilence sent to punish them. Similarly, the move to reduce inappropriate health technology use, overhauling end of life care, and changing how people approach their health, is fraught with political peril. But the need is the same, and at some point we’re all going to have to realize that the consequences of our orgy of medical care overuse are dreadful.

Any restructuring like this will cause extreme pain. In addition, we need to make sure that the reduction in health care spending is balanced by a comparative increase in wages, or other spending. In other words, we can’t suck 3–4% out of local economies without adding it back in.

But in the end, like the auto restructuring, we desperately need this health care restructuring. And what’s now necessary for GM will end up being a good thing for both the nation’s health care system and the nation.

This doesn’t mean it will happen, or at least not soon. But one way or another, the health care system needs to share Detroit’s fate.

Coda: Mike Cassidy, San Jose Mercury News Columnist wrote a not dissimilar piece piece on Saturday which I saw on Sunday. I’d started this piece last week, so this is a case of great (?) minds thinking alike—not plagiarism, honest!

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MD as HELLKarl MarxNateJamesDM Recent comment authors
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MD as HELL
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MD as HELL

Today GM is bankrupt. Tomorrow the USA is gone, crushed by unfunded liabilities. Keep it up and no one will get healthcare.

Karl Marx
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Karl Marx

Americans just don’t like Communism and Socialism. Get used to it.

Nate
Guest
Nate

Why does the left have such a hard time with basic facts? “might make some sense if private health insurance — which these days comes primarily via HMOs” Is Paul Krugman really that much of a cave dweller? First if HMOs are so bad why are we giving their father Ted Kennedy a seat at the reform table again? Is the thinking he can’t screw up that bad a second time? Why did Ted make it a federal law employers had to offer HMOs? Now the left is complaining that employers actually followed the Federal Law? On the purely factual… Read more »

Deron S.
Guest

James – I agree that the potshots are not productive. Neither side of the ideological fence has all the answers, although they claim they do. There’s no room for ideologically driven decisions right now. We need to prioritize the cost drivers and develop solutions that hit them head on. The order of attack will be key, because addressing certain drivers early on will make addressing certain other drivers easier. For example, I feel we should go for some quick wins on the cost side before we open up the flood gates to universal coverage. There’s some low hanging fruit to… Read more »

James
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James

“There has been unnecessary compromise over closing Gtimo and investigating torture.” When 95 members of the senate – with your party in firm control – vote against you, then any compromises made are not “unnecessary”. They are actually considered “dealing with political reality” where I come from. “We’re still waiting for a sensible carbon tax.” The wait will be a long one, as there is no such thing. Raising energy prices is also one of the most regressive forms of taxation you can conceive. How can the left possibly support it? It just hammers low-income people who have kids, drive… Read more »

DM
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DM

This has been a very interesting discussion. I am a cardiology sub specialist and agree that reasonable health care reform needs to happen. I have one comment and then a question: Comment: “The lobbyists for America’s health care immediately recanted their promised voluntary cost cutbacks.” The promises were not from lobbyists. They were from representatives from the various health care governing bodies like the AMA, AHA, ACC, etc. All parties acknowledge that change is necessary. They agreed to cut costs. Their stance is that they did not agree to specific dollar amounts or percentages. I don’t think their intention was… Read more »

jd
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jd

Deron S, you had me until the last paragraph. Personal vows will not get us out of this mess, only coordinated action (almost certainly through government) will. Matt, great post, and it kicked off a nice discussion with a little more (helpful!) navel gazing than usual. For my own .02, I think there is way too much impatience and hand-wringing about reform. The healthcare sector will not turn on a dime. It is worse than trying to turn the proverbial battleship…more like turning a flotilla and driving it against the current, when you have admirals from multiple nations each in… Read more »

The Liberal Democratic Party USA
Guest

If you want to get change done in Washington, do what Gandhi would do, boycott the friends of the government and the minority party in government.
For single payer health care, sign these petitions and take other action on the petition web page.
http://bit.ly/single_payer
http://bit.ly/single_payer_baucus

rbar
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rbar

I want to come back to the issue that Dr. Val raised: I too believe that a large subset of US Americans favor high tech medicine in shiny buildings and the newest drugs advertised on TV (or promoted to doctors), without getting much bang for the buck. To stay with the analogy, there were enough people buying all these SUVs, despite only minimal advantages in comfort and great disadvantages re. economic and ecologic cost. I think you can differentiate the mindset when people are recommended a borderline necessary test: (in my view) reasonable people ask whether the test is really… Read more »

Deron S.
Guest

As long as there is pure capitalism, we will experience these problems. I agree that the buck stops nowhere. Patients are not innocent victims in all of this. The blame is so widespread, which is why we’re struggling to get a handle on it. Until we all get an IV with social responsibility directed into our veins, we will face these problems. At least other countries have some semblance of it. There are forces at work that are far stronger than anything United Healthcare or Rick Scott could muster, so let’s find some perspective. Today it’s the healthcare and financial… Read more »

David C. Kibbe, MD MBA
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David C. Kibbe, MD MBA

tcoyote and all: Right. Let’s have a friendly discussion, it’s much more interesting. 😉 Here’s my point: if 5 years ago, one of your friends had predicted that on May 27, 2009, the federal government headed up by an American president of color, would own 70% of General Motors’ stock (one could say assets instead), well…I think most of us would look the friend staight in the eye and search for some Thorazine, because we just wouldn’t believe anyone would say such a stupid thing unless seriously psychotic. It would be unthinkable! General Motors? GM? One of the biggest, richest… Read more »

Rick
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Rick

I’m not sure why tcoyote thinks the end game of government takeover is so incomprehensible that he says, “There isn’t a chance in hell that the government ends up with a 70% equity stake.” When you add up Medicare, Medicaid, FEHBP, Indian Health Service, the VA, TRICARE/CHAMPUS and the dependents and retirees thereof, the federal government is already the payor, carrier or sponsor of well over 55% of the medical expenses covered in this country right now. Throw in state and local government employees, and we’ve probably got some government or other on the hook for close to 60 percent… Read more »

Health Insurance Guy
Guest

Emphasis must also be put on keeping people in better health. How do we reward people who lead healthier lifestyles? Who knows, it’s not very democratic.
I will say that trying to insure the masses without some type of price constraints will end in epic failure.

Dr. Val
Guest

I think the real problem is a philosophical one: are Americans prepared to put aside their personal interests for the good of the population? Hollywood offers us a fascinating look at our own ideology with its blockbuster plot recipe: lay it all on the line to save a few in a dramatic way. Now, at the risk of giving away my Memorial Day social calendar… Star Trek was about fierce individualism – Kirk is constantly doing what HE thinks is best, not what’s in the best interests of the majority. Terminator was about risking the lives of others to save… Read more »

tcoyote
Guest
tcoyote

Kibbe comments are gone and apologies offered. Twice is too many times. Why fight when we agree on so much? I just think we’ve had enough of the “End of The World Is At Hand” stuff. It’s getting old and the catastrophizing isn’t helping us. Neither our country nor our health system are going bankrupt. And the analogy Matt offered just doesn’t wash . My problem with Matthew’s post is simply that GM is a firm. Firms have owners, debt and shareholders and, most importantly, managements that owners expect to perform. This was, at bottom, a catastrophic management failure. What’s… Read more »