Health Policy

The Efficiency Mandate: To Achieve Coverage, the U.S. Must Address Cost

By MIKE MAGEE, MD

It is now well established that Americans, in large majorities, favor universal health coverage. As witnessed in the first two Democratic debates, how we get there (Single Payer vs. extension of Obamacare) is another matter altogether.

295 million Americans have some form of health coverage (though increasing numbers are under-insured and vulnerable to the crushing effects of medical debt). That leaves 28 million uninsured, an issue easily resolved, according to former Obama staffer, Ezekiel Emanuel MD, through auto-enrollment, that is changing some existing policies to “enable the government agencies, hospitals, insurers and other organizations to enroll people in health insurance automatically when they show up for care or other benefits like food stamps.”

If one accepts it’s as easy as that, does that really bring to heel a Medical-Industrial Complex that has systematically focused on profitability over planning, and cures over care, while expending twice as much as all other developed nations? In other words, can America successfully expand health care as a right to all of its citizens without focusing on cost efficiency? 

The simple answer is “no”, for two reasons. First, excess profitability = greed = waste = inequity = unacceptable variability and poor outcomes. Second, equitable expansion of universal, high quality access to care requires capturing and carefully reapplying existing resources.

 It is estimated that concrete policy changes could capture between $100 billion and $200 billion in waste in the short term primarily through three sources.

1. Lowering drug prices:  Our 4% of the world’s population is currently responsible for nearly half of the world’s drug spending. Total health spending per capita in the US in 2018 was $1,443 annually, 54% more than the 2nd biggest spender, Switzerland. Nearly 13% of that spend was on drugs.

2. Capping hospital private insurance fees: According to a recent RAND study, hospitals now charge the private insurance companies which insure 160 million Americans 141% more than they do for Medicare patients. It was 6% more in 1996, and 75% more in 2012. If we mandated that charges could not exceed 120% of Medicare charges, it would capture $90 billion in savings a year according to a 2015 NBER policy analysis. Just freezing fees where they are would capture $30 billion.

3. Reforming billing practices: After WWII, American taxpayers funded the creation of national health plans (through the Marshall Plan) for Germany and Japan. Both countries have hundreds of insurance companies but centralized clearing houses for billing and insurance processing result in low billing cost. Were we to implement this in the US (where we have 16 health care employees for every one doctor), we would save $90 billion a year.

The Medical-Industrial Complex has burdened the United States with an untenable and flailing health care system. Extending coverage and access to this highly variable and markedly inequitable system may improve the lives of some, at the margins. But to truly make a difference in our nation’s health and productivity, and the creation of healthy Americans, true reform with a focus on cost efficiency and true health planning will be required.

Mike Magee is a Medical Historian and author of “Code Blue: Inside the Medical Industrial Complex” (Grove Atlantic/June, 2019).

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Maggie MaharPaul @ Pivot ConsultingLLCRobert MeroldMike MageeBarry Carol Recent comment authors
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Paul @ Pivot ConsultingLLC
Member

The only way to reduce the waste of over-treatment and to drive efficiency is to free patients and doctors from the onslaughts of the “reformers” and allow patients and doctors to work together in a trusting relationship to improve the patient’s health. This will happen only when we patients can directly reap financial benefit by reducing the billions being wasted via overconsumption and (and excessive hidden prices) in health care services. All of the experts, however, seem to postulate that patients are too dumb or too unsophisticated to wisely consume health care. The reality is that these are fat times… Read more »

Mike Magee
Member
Mike Magee

Paul-
I agree that we routinely understate the knowledge and judgement of patients and their families in making informed and wise decisions. What many fail to appreciate is that the absence of a rational, consistent, and universally accessible system further undermines patient involvement and decision making. Tying coverage to employment, and selling patients on high deductible worthless coverage plans only serves to further undermine confidence and expand patient fears and risks of medical bankruptcy.
Best, Mike

Paul @ Pivot ConsultingLLC
Member

The ACA has what I call Frankenstein high deductibles…agreed that were/are counterproductive.

However, see this from the perhaps definitive study from Rand in 2011:
“The largest-ever assessment of high-deductible health plans finds that while such plans significantly cut health spending. ..

Studying more than 800,000 families from across the United States, researchers found that when people shifted into health insurance plans with high deductibles, their health spending dropped an average of 14 percent when compared to families in health plans with lower deductibles.”

Paul @ Pivot ConsultingLLC
Member

When we added a high deductible option for employees we made a substantial contribution to employee hea!th savings accounts. …presto!…employees became more prudent users of medical services without risk of medical bankruptcy as we had generous catastrophic coverage once deductibles were met.

Robert Merold
Member
Robert Merold

Applaud the objective. Two of your three recommendations are imposition of price controls which changes, but never solves, the problem. Efficiency is about doing more with less, as your smart centralized billing proposal would create. Health care is 20 years behind every other major industry in driving efficiencies (think Wal-Mart, Amazon) which were driven by data/analytic driven efficiencies. Health care lags because the data sucks, because we essentially are asking physicians to become data entry clerks. Every major medical society is now sponsoring clinical data registries, where members contribute their EMR data sets. Many are becoming quite large. These hold… Read more »

Mike Magee
Member
Mike Magee

Thanks, Robert, for your thoughtful comment. I am a strong believer that trustworthy and reliable data and evidence, in concert with realistic application of technology, can be very helpful as we plan for and execute a comprehensive universal health care system. That said, these actions are no substitute for appropriate transparency, high integrity research reporting, and governmental oversight free of conflicts of interest. It is interesting to note that the budgets of both the AMA and the AAMC now rely on the sale of proprietary data products for over 50% of their revenue. In addition, as detailed in CODE BLUE,… Read more »

Maggie Mahar
Member

Dr. Magee, Thank you so much for your candor. As you say, our “Medical-Industrial Complex that has systematically focused on profitability over planning, and cures over care.” This is why we spend twice as much as other industrialized nations. Meanwhile, extensive research, published in U.S. medical journals, show patient outcomes in the U.S. are generally no better than in countries that spend half as much. It’s worth noting that the U.S. is the only nation in the developed world that has chosen to turn healthcare into a “for-profit” enterprise. This helps explain why, even though we spend so much, U.S.… Read more »

Barry Carol
Member
Barry Carol

Maggie, I would like to offer a few thoughts in response to your comment. First, health outcomes are usually measured by life expectancy and infant mortality. Both of those are heavily influenced by the incidence of poverty. We also have a higher rate of suicides, murders and drug overdoses in this country all of which have little or nothing to do with the healthcare system. Drug treatment has a huge relapse rate. Suicides are exacerbated by the easy availability of guns our high murder rate is also driven by the availability of guns and, to some extent, a culture of… Read more »

Mike Magee
Member
Mike Magee

Barry- You are absolutely correct to note that a range of social determinants adversely impact the health of Americans – especially at-risk populations. In all countries with national health plans, including Germany and Japan whose systems were recreated with our taxpayer funding after WW II, strategic health plans integrate funding and strategies to address these social factors. It is worthwhile to note that the U.S. is the only nation in the world that spends more on health delivery than all other social determinants (housing, nutrition, safety and security, education, environment) combined. A comprehensive approach to national and universal health care… Read more »

Mike Magee
Member
Mike Magee

Maggie- Thanks so much for your thoughtful comments and kind support. As I outline in CODE BLUE: “To embrace true reform, we must follow the money and follow the data, and build on progress already made. Clearly the time has come for the US to join the rest of the industrialized world and consolidate health insurance into a standardized single-payer/multi-plan system that provides a secure package of basic benefits for all. The first step should be establishing minimum standards and a centralized control system, which would trigger a cascading series of changes leading to more detailed answers to the question… Read more »

Barry Carol
Member
Barry Carol

There are a lot of moving parts in any single payer plan beyond lowering administrative costs and drug prices. Most of those relate to the actual delivery of care as opposed to the financing of care. If reimbursement rates are pushed too low and the ability of hospitals and other providers to expand is curtailed, it could significantly increase wait times which will likely produce a backlash, especially among the upper middle class and probably the middle class as well. Personally, I think single payer advocates put way too much weight on keeping administrative costs as low as possible. Investing… Read more »

Maggie Mahar
Member

Mike–Yes!! Everything you say is so very true. I would only add that that “multi-plan” system that you suggest should include private insurers, not just govt plans. Why? In the U.S. any govt plan (Medicare, Medicaid, etc.) is controlled by Congress. And sadly, lobbyists representing drug-makers, brand-name hospitals & specialists have great control over our Congress, thanks to the $$ they donate to campaigns. As a result, Congress insists that Medicare pay huge fees for treatments that we know do little or no good: most backsurgeries for lower-back pain, mastectomies to remove small,”in situ” tumors that, in most cases, will… Read more »

Paul @ Pivot ConsultingLLC
Member

I agree with much of what you say…except that our so called “non-profits”(nsurers and hospital systems ) …are equally involved in the game.

Mike Magee
Member
Mike Magee

Barry-
Many thanks for your thoughtful comment. As you lay out, there are a wide range of opportunities to achieve efficiency while addressing the pressing need for universal and equitable access to high quality care. In CODE BLUE I list the major opportunities and advocate for reinstitution of critical checks and balances, elimination of waste wherever possible, and careful strategic national health planning. Addressing fraud in pharmaceuticals, including generics, and elimination of DTC advertising and the promotion and overuse of pharmaceuticals are low hanging fruit. Finally, consolidating billing would bring wells relief to both patients and their physicians and nurses.
Best, Mike

Barry Carol
Member
Barry Carol

First, with respect to prescription drugs, some 90% of all prescription are now for generic drugs which are, on average, actually cheaper in the U.S. than in most other developed countries. It’s the specialty drugs that are killing us. They account for about 2% prescriptions written but 37% of our drug spending and growing. The question I always ask is how profitable to drug companies need to be in order to provide their investors with a satisfactory risk adjusted return vs. other investment alternatives? I get that new drug development is expensive and there are many failures along the way… Read more »