OP-ED

What We Don’t Know Can Hurt Us

As the health insurance exchanges find their footing and potentially millions of Americans gain access to insurance, this may be a good time to step back and take a longer term view of the ACA. When you get down to it, expanding health insurance coverage was the easiest and least controversial part of health reform. There is no shortage of ways to expand health coverage and almost any credible health reform proposal would have done the job, provided enough money was thrown at the problem.

In designing the ACA, perhaps as a result of political pressure, President Obama opted for a combination of heavily subsidized individual insurance exchanges and generous expansions of Medicaid. Freed from political constraints, he might have instead pushed for the single payer system that many of his most ardent supporters desired. Republicans inclined to expand coverage (at least one of us is proof that unlike the unicorn these do exist) might have pushed for a pure voucher program that harnessed market forces.

All of these options would expand coverage to the degree that policymakers were willing to fund them. So while we congratulate the President for his political success (we doubt the other options could have made it through Congress), it is a simplistic mistake to evaluate the implementation of the ACA by counting the numbers of uninsured or waiting for the monthly updates on the enrollment figures from the exchanges website. Any regulator with a big enough purse can, in the fullness of time, expand access. Frankly, that’s the “easy” part of healthcare reform.

But what about the other elements of the so-called “triple aim” of health reform: cost and quality? You see, while we agree that liberal, moderate, and conservative health reforms can all improve coverage, they each will have very different effects on the other important outcomes. Consider for example the oft-discussed “Medicare for all”; i.e. a single payer system. This would increase access without the messiness of the exchanges. It would also allow the government to flex its monopsonistic muscles and quickly reduce costs – though likely at the expense of quality. In contrast, relying on markets may not reduce costs in the short run, and may not necessarily reward real quality (though it has a better short than single payer in this regard).

Evaluating health reform in the context of the “Triple Aim” is important, but even that approach is not nearly enough. There is a broad consensus among that technological change is the most important long run driver of cost and quality. It follows that the most important element of health reform is its impact on technological change.

To understand how technological change affects all of us, consider the profound impact of the top ten medical advances in the last ten years, as listed by CNN:

1. Sequencing the human genome
2. Stem cell research
3. HIV cocktails
4. Targeted cancer therapies.
5. Laparoscopic surgery


6. Smoke free laws
7. The HPV vaccine Gardasil
8. Face transplants
9. Drugs reducing or eliminating periods
10. Bionic limbs

Going forward, it is hard to imagine not enjoying the benefits of these advances. So we wonder which, if any, of these advances we would be enjoying today if a single payer system or even the ACA had been enacted 20 years ago. We can’t provide a precise answer to this question, but we have a strong intuition about the direction of the effect.

Consider these three stylized facts:

1) Considerable private sector investments were required to translate most of the ten advances from the original basic research into viable medical treatments.
2) If researchers and private firms do not expect to cover the costs of their investments, then research will dry up as capital flows towards more productive ends.
3) In health systems that regulate prices (i.e., every industrialized country except the U.S.), governments are able to use their market power to reduce prices down close to marginal costs.

The stylized facts lead inexorably to the conclusion that medical innovation depends critically on profits reaped from American consumers. From a pure equity standpoint these facts are not great for Americans, as the rest of the world free rides off our largess. However much we lament this outcome, it is hard not to think of an even worse situation. Had the United States adopted single payer health reform in the 1980s, then by now, we would have largely solved our access problems. Unfortunately, what we might also find is that we’ve made sure that everyone has access to the essentially the level of technology available to the 1980s medical consumer, and the innovations on CNN’s list would look much different, and much less innovative. Imagine having to move forward without some of these innovations. Which would you sacrifice? Targeted cancer therapies? The HPV vaccine? Here is a situation where death is an option.

By changing the rules affecting payment rates and technology adoption, health reform affects the incentives for medical innovation. Leave the status quo, and incentives remain high. While we readily acknowledge that the current “market” based system might inappropriately reward technologies that provide few benefits, witness Da Vinci surgical robots and Proton beam therapy, it also leads to innovations like the ones on CNN’s list. We wonder how many of us would give up targeted cancer therapies and bionic limbs so as to avoid paying for Proton beam therapies. Not us. On the other hand, if we implement draconian rules, then the innovation pipeline may run dry.

Twenty years from now, some future version of CNN will publish a new list of the top medical advances. The health policy decisions that we make today will shape that list, yet no one is discussing them. How will planned reductions in Medicare payments affect innovation? Will efforts to promote pricing transparency, in the absence of comparable data on outcomes, drive consumers away from providers who use more costly technologies? Will narrow network plans be followed by narrow technology plans (that limit reimbursements for expensive technologies?) How will the newly created independent payment advisory board (IPAB) weigh the role of innovation incentives when establishing payment rates for existing technologies? Will further government encroachments into health care system, perhaps by taking a step closer to a single payer model, avoid draconian cuts in payments for technology?

In the absence of a debate about these issues, we worry that the federal government will take the politically expedient view by saving money today while sacrificing innovation in the future. After all, we will all reward politicians for the cost savings, but how can punish them for innovations that are never realized? If we implement the wrong policies, then Americans (and the rest of the world) might find themselves in a perverse version of Waiting for Godot, waiting in vain for medical advances that can only be dreamed of, because the innovators lack the financial incentives to turn dreams into reality.

As we continue to evaluate the launch of the exchanges, let us remember that expanding access is the easy part of health reform. Getting right the dynamics of technological change is much harder, and, we believe, much more important. Let’s start having that conversation before it is too late.

David Dranove, PhD is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.”

Craig Garthwaite, PhD is an assistant professor of management and strategy at Northwestern University’s Kellogg Graduate School of Management.

Dranove and Garthwaite are the authors of the blog, Code Red, where this post originally appeared.

 

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Jack McCallumJoel Hassman, MDPolicywonkAurthurDr. Rick Lippin Recent comment authors
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Jack McCallum
Guest
Jack McCallum

The CNN list is easy to pick on, but here I go. What has sequencing the human genome accomplished, exactly? I was under the impression that doing so had posed more questions than it answered. While I certainly agree with HIV cocktails, Laparoscopic surgery (I’m a surgery resident) and the HPV vaccines, I question the actual value realized to date by stem cell research, proton beam therapy, and face transplants. I don’t mean to sound anti-basic-science, just that many basic science models don’t pan out. I would instead promote less sexy but more widely adapted advances such as the advent… Read more »

Joel Hassman, MD
Guest
Joel Hassman, MD

You all need to talk a lot about the IPAB, and the way the legislation has it set up to rule. And that is the operative word there for the IPAB, “rule”. They will have no accountability, no supervision, no one to answer to. Another perk to passing the bill and then reading about it later. Nancy Pelosi, you should have been the Prime Minister of England in 1939 and negotiated with Germany, what a shining moment that would have been for freedom and prosperity. “Let’s agree to let the Nazis do what they want and we will learn about… Read more »

Bob Hertz
Guest

The horrors in the UK are real, but I do not think they come from price controls.

They seem to come from lazy unionized work forces and lazy administrators in government owned hospitals.

This was a problem in France also during their killer heat wave in 2004.

Nothing like this seems to happen in the nations I mentioned.

archon41
Guest

Let us not speak of the health care horrors that have come to light in the UK.

Peter1
Guest
Peter1

Good point, we can learn from them so we don’t make the same mistakes.

I wonder why we aren’t learning from our own heath care horrors – maybe you like them more, after all they only happen to the “other” people?

archon41
Guest

Pretensions to moral authority are particularly unseemly when made by those who have practiced the deceptions necessary to the passage of Obamacare.

Peter1
Guest
Peter1

Maybe you can outline my evil “deceptions” and how they had such great persuasive powers.

Bob Hertz
Guest

Price controls on health care seem to work OK in Germany, Japan, Sweden, France, Israel, Swtizerland and probably some other places I have not thought of.

By “work” I mean that all citizens get decent care (if not always superb care),
and health care costs do not drain all federal and state and personal budgets.

Price controls do have downsides. But I made the point earlier in this exchange that the good effects may outweigh the downsides.

Policywonk
Guest
Policywonk

“Many providers would comply with maximum prices if they knew that their billings could be legally reduced later.”

Didn’t we already learn over 40 years ago that price controls simply do not work?

Peter1
Guest
Peter1

“Didn’t we already learn over 40 years ago that price controls simply do not work?”

Was that a rhetorical question.?

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/23/steven-brills-26000-word-health-care-story-in-one-sentence/

archon41
Guest

The more prudent among us planned our careers around the availability of quality health insurance, foregoing many a promising opportunity lacking that benefit. Now those who took the paths less traveled tell us they have a “right” to the same quality of care as ourselves, at our expense. This is not only unreasonable, but impudent.

We are given to understand that there is no middle ground between letting people expire on the streets and “equality of access.” Duh.

Bob Hertz
Guest

Note to BC: my Health Courts would be quite large. I can see a need for at least 500 courts throughout the country. The federal government would pay all court costs, so a patient could access the courts without a lawyer and at no charge. Probably a $500 million expense for the government.

The goal of the courts would be to put fear into the providers who engage in medical price gouging. Many providers would comply with maximum prices if they knew that their billings could be legally reduced later.

BC
Guest
BC

Bob:

Thx for clarification. Perhaps not such a bad idea. Important to keep big players honest.

Dr. Rick Lippin
Guest
Dr. Rick Lippin

“FACE TRANSPLANTS”???-

I guess I posit that while bio-medical technology has been nothing short of miraculous that the most important issues that we are facing now have little to do with more advances in bio-medical technology.

They have MUCH more to do with morality, justice and ethics.

The single most important issue around which our former profession on Medicine and for that matter our culture can mature is the death and dying issue in my opinion

Also this important link has little to do with technology?
http://www.unnaturalcauses.org

Peter1
Guest
Peter1

“the failure of “management” to realize or address this will result in the dreaded slow fail.”

BC, the “management” is both parties, not some cohesive corporate structure. The Republican side wants a failure. How can any management team succeed if 1/2 torpedo any “adjustment” other than killing it.

Don’t forget the ACA is meant to address a small portion of the total in/uninsured market. Unless the employer subsidized group starts to see unacceptable cost increases/benefits erosion there will not be enough political power to fix this. We will be left to rot.

BC
Guest
BC

Peter: For starters, I’d say start-up management based on experience can be far from cohesive. This said I agree with your point though I’d say some repubs like Ryan did try to offer a plan and he was rebuffed. You are correct in that the majority of repubs wanted to do nothing to fix HC and now are salivating at the thought of ACA failing. The Dems on the other hand have an attitude of my way or the highway and are fatally wed to the idea that big government must do it all. So is the Dem goal health… Read more »

archon41
Guest

“Nationalized healthcare is the arch of the socialist state.”
Vladimir Lenin

“Basically,” confided Pajama Boy, “I just wanna feel good about myself. Health care oughtta be be like packets of Nestle hot chocolate mix: uniform, standardized, general issue. Who’s this Vlad dude, anyway?”

Peter1
Guest
Peter1

Yes 41, red-baiting is the preferred tool of the power elite that attempts to prevent advance of human rights.

BC
Guest
BC

What we don’t know or most don’t know is that ACA is a start-up albeit a very large one. Geoffrey Moore wrote an article in the October 1999 issue of Red Herring magazine discussing why and how start-ups fail. One of the reasons given was the slow fail, which is when start-up management will not budge from their initial business plan even though market conditions dictate that they must. This is exactly the problem facing ACA. It is not workable in its current form, requires a great deal of adjustment and the failure of “management” to realize or address this… Read more »

Bob Hertz
Guest

Note to Swag:

In my writing I advocate the creation of Health Courts, which would have the authority to reduce outrageous bills by hospitals for care which could have been done far more cheaply elsewhere.

America can clear up a lot of its cost problems by aggressive regulation of hospital charges.

Bob Hertz, The Health Care Crusade

BC
Guest
BC

Bob:

How big would such a health court system have to be? It seems to me this would only increase costs and complexity.

Is it possible just to pass laws that limit outrageous bills or am I missing something?

Peter1
Guest
Peter1

“Consider for example the oft-discussed “Medicare for all”; i.e. a single payer system. This would increase access without the messiness of the exchanges. It would also allow the government to flex its monopsonistic muscles and quickly reduce costs

– though likely at the expense of quality.”

Define “quality”.

“There is a broad consensus among that technological change is the most important long run driver of cost and quality.”

“Among” who? Prove to me that technology reduces cost – FOR THE PREMIUM PAYER.

Why isn’t prevention the “most important driver”? Because it would reduce the health care take?

Perry
Guest
Perry

We have a friend who is practicing as a radiologist in Canada. She actually favors the system so far. There is one payer, the workload is reasonable, and I am assuming there are not a slew of regulations to deal with from her standpoint. The patients do not have access to an MRI on every corner (which is really not unreasonable), and care seems to be more focused on routine than a lot of ER care, because our friend is not unduly busy during call nights. I think in some ways, American physicians would be open to single payer, if… Read more »

primary care doc
Guest

USA: Number one in cutting edge R&D on motorized scooters.

Peter1
Guest
Peter1

“At little to no cost to you”

Aurthur
Guest
Aurthur

I believe I will attempt to crowdfund the grant writing proposal for a government sponsored investment for a solar powered MRI machine. Sure, no one could get an MRI at night, and a few people in Seattle will have to fly to Arizona to get a scan, but at least in won’t be profitable. How does SoWhatLyndra sound?

BC
Guest
BC

LMAO. Watching a bit too much daytime TV I see!