Harvard economist Anna Sinaiko has an article in Health Affiars suggesting that the SB 2 (or Prop 72) “pay or play” law will cause unemployment and reduced wages for those Californians it covers should it pass. Her analysis is manna from heaven to those opposing the bill. Here’s the key conclusion.

Implementing SB 2 will change the behavior of employers affected by the legislation, with consequences for California’s labor market and uninsured citizens…A more likely scenario is that some of the cost of health insurance will be passed to consumers, some felt by workers as unwelcome wage reductions, and some avoided by firms as they restructure their workforces. In California, workers at firms not offering benefits are more likely to be young males earning less than workers at firms that offer insurance; SB 2 will affect this group most adversely.

As a forecaster I was trained to that there’s a big difference between being broadly accurate and precisely wrong. Sinaiko’s detailed analysis of Prop 72’s likely impact falls into the latter category. Increasing labor costs (which is what SB2 will mean) may result in overall lower wages, but increased labor costs are more likely to result in lower profits. Sinaiko never mentions profits as a share of corporate revenues. A senior VP from Fidelity said, in a talk I heard on Monday, that corporate profits as a share of revenues are currently at an all time high, while wages are at their lowest in real terms for 30 years. Why should the costs of SB2 come out of wages rather than profits, given that one of them has been going up and the other down?

Sinaiko correctly points out that the vast majority of jobs affected by SB2 cannot be moved out of California, unless San Franciscans want to drive to Reno to get a cheeseburger. So the total amount of money going into these businesses is likely to stay roughly the same. She almost neglects to mention that the wages of many of those covered by SB2 are at minimum wage or the equivalent (and legally enforced) “living” wage in some cities, so their wages can’t be reduced, and the cost of hiring and managing more part-time employees may exceed the increase in labor costs from SB2.

The broad analysis tells us that, whatever the libertarians say, laws demanding an increase in the lowest levels of compensation (which is in effect what SB 2 is) have almost no impact on unemployment rates, which are driven by the overall economy I lived in the San Francisco Bay Area in 1999 when no amount of money could hire people. I was here in 2002 when you couldn’t get a job no matter how little money you’d work for. (And according to another talk from a different Fidelity executive, all the jobs that could be, had already been moved to India). At both times the minimum wages was the same. In the UK the Labour government brought in a minimum wage in 1999. Today the unemployment rate in the UK is the lowest it’s been since 1972, and studies show no negative impact on employment among low wage workers.

Common sense also suggests that the people who oppose Prop 72 think they have something to lose. Who are those people? They are the big fast food chains and the non-unionized discount stores, who have spent over $8m against it. If they believe that they’ll be able to push all the costs of Prop 72 into their “labor” segment and have none of it come out of their “profit” segment, why would they bother opposing it?

UPDATE: Health Affairs has published a rather more academic version of this letter in its online section.

Ken Thorpe writes in the NEJM on the uninsured. He’s been in the Clinton Administration, and he’s the author of the study that says the Kerry plan’s cost will be in the $650 billion range rather than the AEI’s $1.5 trillion estimate. So you can take his view the way you want to. But what he basically says is that both Bush and Kerry’s plans are incremental and neither of them will cure the problem of the uninsured. Then again I just had dinner with an (only) Fox-News watching, Bush supporter from Texas who told me –in all seriousness–that not only was my analysis of the health care system biased because the richest people in the world come here for their medical care (the Sultan of Brunei?) and so we have the best system in the world–whatever the Economist (which prefers the Swiss system) and WHO say (they rank the French first). He also told me that Iraq is in good shape, the Abu Grahib scandal wasn’t a big deal, all the networks are biased in Kerry’s favor and that uninsurance for 45 million wasn’t a problem. So given that’s the attitude of many on the Republican side (and I’m sure it is), it’s unlikely that this post is going to change many minds. However, Thorpe correctly says that:

Adults and children without insurance are given diagnoses at later stages of illness, receive fewer preventive and curative medical services, and have worse health care outcomes than those with insurance…..First, Kerry would extend coverage by Medicaid and the State Children’s Health Insurance Program (SCHIP) to people who are currently ineligible for such coverage — single adults and childless couples living below the poverty line and parents with incomes of less than 200 percent of the poverty line. He has also proposed extending the same coverage to more children by raising the cutoff level to 300 percent of the poverty line. Instead of continuing today’s federal–state matching arrangements in these programs, Kerry would have the federal government finance 100 percent of the costs of the expansion. Full federal funding is likely to result in higher rates of program enrollment.

This past week a progressive pressure group, Vote Kids, introduced several leading pediatricians in a Washington DC press conference to make a joint statement about children’s health care in America. The pediatricians included six past presidents of the American Academy of Pediatrics all supporting Kerry’s effort to extend coverage to all children. HHS Secretary Thompson responded to this week’s activity by calling the pediatricians “demagogues“ and said: “It is absurd and despicable that doctors are playing politics with children’s lives“. That sounds a little over the top to me, even though Sydney at Medpundit points out that some doctors (including her) don’t agree with the AAP on this. (Syd also has this great post on the relative risk of Vioxx, which I agree with BTW, showing my libertarian side…). Mitch Arnowitz from Vote Kids wrote to me saying:

8 million children and youth don’t have health insurance. We think that the present administration does not have a plan to provide health coverage to America’s children, and that their current tax and budget priorities are eroding hard won health care gains for children.

That statement is undeniably true so I’m going to respond to my Texan friend’s charge of bias by being biased in favor of the truth. I try not to use this blog as a soapbox, but try reading this story about a young woman born with a “pre-existing condition” who is disabled and has a terrible story, and you’ll understand why emotionally I feel that we need a single universal insurance pool for the most vulnerable. Kids are the cheapest and easiest to cover, and there is no way that even the crustiest Texan Republican can explain to me that its their fault if they are uninsured. So morally I think we should get them coverage.

You can give to Vote Kids, here. And in equal fairness you can give to Bush here. How unbiased is that?!!

UPDATE: Linkmeister Steve accuses me of going into “he said, she said” here without actually calling Thompson or Vote Kids on the truth. He cites a neat article from the Columbia Journalism Review, which tries to tell the truth on the candidate’s health care plan objectively rather than just allow each side’s spin to come out unhindered. The way it should be done is “he said, she said, we say”.

I honestly think I do the “we say” bit but let me reiterate. Vote Kids is right, in that there are more than 8 million uninsured kids and that uninsured kids (and adults) tend to be poorer and get fewer health services than insured ones. The KFF factsheet shows that. Tommy Thompson claims that Bush has done great stuff for kids–and to be fair the number of uninsured kids has gone down, due to SCHIP and Medicaid. But that’s not good enough, and the Bush “program” has no plans to further reduce that number. The Kerry plan, not that it’ll pass as is, does. And furthermore, insuring kids is relatively cheap and very good value in terms of future benefit to society–second only to getting them an education. We wouldn’t (I hope) as a society accept non-universal education for kids. At least Kerry wants to get us there for healthcare.

Proposition 72 is a referendum on the California pay or play bill that passed in the waning days of Gray Davis ill fate-second term before the Governator swept all before him a year ago. The Yes on 72 bill has been out with some TV commercials–most of their money comes from Unions while the players like Wellpoint are neutral. The opponents are the large fast food chains who would be forced to provide health care coverage to their workers. I listed out who was pro- and con a while back, with the those opposing having raised much more money, of course.

The bill won’t do too much about California’s uninsurance crisis–maybe putting 1.4 million out of 6 million uninsured into coverage. The problem is concentrated in smaller firms, who politically can’t be forced in providing coverage. But a band-aid on a wound is better than nothing for supporters of universal insurance. My feeling is that big businesses that do not offer benefits (e.g. the Walmarts of the world)are competing unfairly with those who do–while the taxpayer picks up the tab. A RAND study shows that 95% of businesses with more than 50 workers already offer insurance to their employees. (I mean offer insurance that is taken up, as offering insurance that the worker can’t afford is a cop out). But 15% of all workers in that size of firm do not get coverage, mostly because they can’t afford (see chart 9). The bill maxes out the workers premium share at 20%.

So it’s the big businesses paying low wages (i.e. fast food) that are being targeted here. And most of them can’t easily move, unless Los Angelinos are prepared to drive to Phoenix for their burgers. Of course the No on Prop 72 folks are keen to suggest that this bill will put mom & pop businesses under, but the bill doesn’t apply to businesses with fewer than 50 employees. So it’s a little amusing that the “No on 72” guys got caught faking their most seen ad. It was supposed to be a poor immigrant restaurant owner. But the restaurant in question wouldn’t be affected by the bill, and the “owner” was an actress. Oops.

For more on this and other California propositions see the California HealthCare Foundation site.

A couple of days back in a piece on HSAs I challenged someone, anyone to speak up for HSAs against this criticism from Don McCanne. While I’m not a straight single payer advocate like Don, we both believe in one risk pool/universal insurance. And HSAs destroy that concept. Here’s Don’s logic in full:

Imagine everyone having a health savings account (HSA) and a low cost, high deductible insurance plan. Now let’s fund our entire health care system, currently at $1.8 trillion, with the HSAs and high deductible plans. Keep in mind that 80% of health care costs are used by the 20% of individuals with serious acute and chronic disorders.

Current contributions for HSAs are capped at $2600 for individuals and $5150 for families. For illustrative purposes only, let’s assume that each individual has $2000 in an HSA. That means that the 294 million U.S. citizens would have $588 billion in HSAs. For the 20% with significant needs, their $117 billion would be rapidly depleted, having been spent of health care. The healthy 80% might use an average of $300 per person in incidental health care costs, depleting their accounts of $70 billion. The “beauty” of HSAs is that the $401 billion remaining in the HSAs of the 80% who are healthy will be converted into retirement pensions. That’s a great deal for the majority of individuals who remain healthy. But that removes about $400 billion from the $1.8 trillion that we are already spending.

HSAs will have funded $187 billion of the $1.8 trillion, leaving costs of $1.61 trillion for the catastrophic care of the 20% of individuals with greater needs. But after the HSA funds are removed from the equation, there is only $1.21 trillion left to pay for care that currently costs $1.61 trillion.

Where will the $400 billion shortfall come from? Not from most of those with greater needs since current health plans already fail to provide adequate financial security, and this would add an average additional burden of $6800 per person. The only practical solution would be to increase the premiums for the high deductible coverage to a level that would fund the full balance of the $1.8 trillion that we are spending.

There are two significant consequences of this. First, the low cost, high deductible plans would no longer be low cost. Second, there is a perversity of the fundamental principle of health insurance, in which funds of the healthy normally help to pay for care for the sick, in that, with HSAs, the funds of the sick help to pay for the retirement accounts of the healthy.

Landon Alger (the government employee you may recall from his contributions a few weeks back) took up the challenge, and just to really annoy The Industry Veteran, I’m printing it here. Interestingly enough there is a teensy bit of common ground between him and McCanne, the single payer advocate. I’m coming over all moderate and centrist. Perhaps I’d better go sit down. Here’s Langdon’s piece:

Single payer lunatic Don McCanne provides a simple example of what can happen when HSAs are applied on a macro-scale. The healthy 80% realize savings not just on health insurance premiums, but also on actual healthcare costs. They are definite winners (therefore implying a loser) that get a nifty new savings vehicle-a health pension. These individuals have no need for the single payer paradigm and would not benefit from such a system. For these 80%, the single payer system introduces inefficiencies and would add to our national healthcare expenditures.

The remaining 20% that need 80% of the healthcare dollars (these ratios are not set in stone and one of the goals of national healthcare policy should be to flatten the curve) are now definitely losing out at this point. They need the taxpayer subsidized single payer type system and aggressive, outcome-incentive based disease management programs on a national level. While it is surely difficult to implement a system where individuals must qualify into the “single payer system” (yes, I know, it’s really not pure single payer anymore), there is no definite exclusiveness of HSAs and single payer. McCanne isn’t wrong, just incomplete.

Additionally, current HSA law does have a few flawed provisions. The HSA should only be able to be used for healthcare costs, and not simply another IRA once a person gets to age 65. And at death any remaining HSA balance should be forfeited into the single payer system.

So the nice folks at Harvard Business School publishing invited me to attend the Michael Porter virtual seminar, and very interesting it was too. Porter says that the overall problem is that we haven’t defined health care as the delivery of value to patients. We need to get innovation within the system at the patient level. That’s what he said in his article published back in June (here’s an interview about it as the whole article is sub only), backed up with the version of the article presented in his talk. Most of his criticisms of the system are very familiar to THCB readers. And we mostly agree about what’s wrong.

There was also some new research from Porter’s team discussed in the seminar, which is about how to get “there” from “here”. For example, Porter believes that there is little benefit in broad provider networks, but instead providers they should try to be excellent and unique regionally and nationally. Porter also suggests that providers should consider one bill (as a patient I applaud this!) and organize around one practice area for each disease state. In order to get this team unity potentially hospitals should hire physicians and put them all on salary. In any event providers need to organize themselves surrounding the patient practice areas and move away from procedural functional areas as they are now organized. In addition providers should separate diagnosis and treatment into different functions (Ed note: Isn’t that what managed care tried to do with outside review? Maybe, but with very limited success). What Porter was leading up to is that providers need to be distinctive and have a market niche or brand strategy that’s comparable to other businesses in other industries. He then proceeded to give several examples of providers that have made big improvements by adopting some of these innovative business methodologies.

Porter continually stressed that the local versus regional/national axis is a really important one for providers to focus on, and that excellent providers should expand regionally and manage care on a much wider level. Interesting idea and the branding impact may have some impact, but how can it be a major trend when health care is produced and consumed locally, mostly because people want their services delivered locally? Incidentally, the reason for horizontal hospital mergers was to amass local monopsony power versus strong regional payers. Any hospital backing out of that for some mythical value creation strategy is looking at economic suicide given the current incentives in the market. It’s the Sutter Healths of the world using their market clout to jack up fees and revenue who are doing well!

On the insurance side, Porter believes that health plans should stay independent from providers and should stay in market–he thinks they can “add value”. But not by extending the managed care network control model, which he believes has failed. He thinks health plans will provide value in 3 areas –providing information, helping support consumers and efficient claims processors. But he notes that patients don’t trust their health plans, and that was the political reason for managed care network model’s failure. But the reason health plans went away from the narrow network model is because their customers (plans and employers) asked them to, and were prepared to pay more (the increases of the last 5 years) for those wider networks. And the last 5 years have been very profitable for plans that have gone back to the old ways of picking their risks very carefully.

In my interpretation Porter gave a fascinating lecture about how health care providers might have changed had Enthoven-style managed competition become a dominant force in American health care. Unfortunately for political reasons managed competition didn’t become that force and without the financial incentives, providers didn’t have to change what they did. What Porter says is, thankfully, more coherent than Reggie Herzlinger’s notions about a consumerized system, but everything he says about provider innovation being possible Alain Enthoven said 15 years ago. These include single prices and bills for a lifecycle of care, which sounds a lot like capitation or defined costs for DSM to me! Porter says that health plans need common information protocols, as there are no common standards, and people need to be able to understand the choices they make based on good information. All standard stuff I heard in Enthoven’s lectures in 1990 (and he’d been saying them for more than a decade by then).

But it’s where Enthoven went next was important. He said that to get to the type of innovation Porter wants you’d need a) a significant change to the incentives in the system brought about by tighter (or more accurately) very different regulation of health plan behavior and the insurance market, and b) that consumers needed help from intermediaries to understand what they were buying because it’s too hard for them to figure out the differences based purely on price without understanding outcomes.

In this lecture Porter never got to these points. He managed to talk for 45 minutes about how providers should change behavior without mentioning incentives. I asked a question about why he felt that the system might change in the absence of Medicare or any other big payer pushing a change in incentives. As part of the question I mentioned that the changes he wanted were the same ones that Enthoven’s managed competition would have brought into fruition. Porter was pretty dismissive of managed competition and Enthoven, saying that there was no such thing as competition that could be “managed”, but here he’s just wrong. Any market is bounded by regulation and market players are acting out their rational incentives within that regulatory framework. If the government uses regulation and subsidies to change the market, in one way or another it’s “managing” competition. And governments do this in every market either by deliberate action or by inaction.

Health care is a prime example. The incentives are wrong because the regulation allows them to be. For instance, Porter’s patient-centered value delivery sounds very like disease management to me. So why has DSM failed? Mostly because health plans and payers have competed to get rid of patients from their plans who need that DSM, and because providers haven’t been rewarded based on patient outcomes. The reason that providers are rewarded the wrong way is due to the historical fee-for-service system that was set up by insurers and adopted by government. And that system is still the basis for healthcare incentives. Unless Porter has repealed the laws of economics providers will still, more or less, follow the money.

In the rest of his answer to my question, Porter said that although Medicare is important, we don’t need it to change for the system to adopt his principles. He still thinks that we could have dramatic improvements in care cost and quality and providers can do well doing it, in the absence of policy change (although he grants that it would be helpful). He believes that providers are driving this change, and are integrating their care around practice areas. One of his prime examples (mentioned several times in his talk) was Intermountain Health Care. You’ll get no argument from me that they are doing great work. Unfortunately historically very few organizations have been copying them. Intermountain had the luxury of a wealthy benefactor–the Mormon Church–insulating it from market incentives and helping it get set up to do the right things, such as comprehensive care management, reducing medical errors, and cutting waste by getting procedures right the first time. More importantly they have been leaving money on the table by doing that!! Their quality guru, Brent James said so himself on the front page of the NY Times last year, and Michael Millenson wrote much more on the providers who “got quality too early” to their own fiscal detriment in his book “Demanding Medical Excellence”.

Porter thinks that we don’t need to wait for public policy, although some of the changes he advocates are sensible like a move to a defined benefit package along the FEBHP lines (something again from Enthoven c. 1985). But Porter said loud and clear that everyone in health care should move in the direction he advocates even without regulatory change and would do better financially by doing so. While they might follow his lead, it is extremely unlikely whether the typical provider or plan would benefit from doing so.

Instead of looking at the big-name outliers and assuming that they’re the ones who are going to do well, Porter needs to realize that it’s the mass of American physicians and hospitals who are going to have to change for the overall patient experience to change, and they have no incentives to do so. When, as Wennberg shows us, providers in Florida are practicing on patients at three times the rate as those in Minnesota, there’s a reason for it. They get something like three times the money!

There are ways out of this, and to be fair Porter mentions them in his paper, even if he belittled them in his talk. Putting Medicare into a Pay for Performance mode is one important element, Changing regulations governing the insurance system so that health plans are rewarded for better handling of the treatment of sick patients is another. But HSAs and Association Health Plans are pushing incentives in the opposite direction, and the Medicare P4P movement is very, very nascent. Porter seems to think that the system can change itself. As the old joke about the light bulb and the psychiatrists goes, the system has to want to change. And right now it doesn’t. And there’s $1.5 trillion worth of political influence to stop the reforms needed to make it change.

I think looking back in 10 years Porter’s ideas may share Enthoven’s fate. He’ll be wondering why no one paid attention given that the solutions were so obvious. Unfortunately this is typical of a really bright person entering health care from another perspective and being totally bewildered by the ferocity of the political reaction they’ll get. Porter comes from the rarefied air of international business, but this also happened to Enthoven even though he was one of Macnamara’s whiz kids at Defense Dept in the 1960s.

For now Porter will raise some fuss on the conference circuit, and these ideas may be fad of the month at hospitals, just as integrated delivery systems were 10 years ago. But unless he wants to go to Washington and explain how public and private payers need to change their incentive structures and get the lawmakers to agree over the interests of their campaign contributors, few of the provider-specific innovations that we all agree are needed to promote value in health care will survive in the current market.

There’s a not bad description of the different proposals from Bush (what there is of one) and Kerry about health policy from the AMA News this week. It gets it about right on several of the key points, not the least of which is that Kerry’s plan is unlikely to get past the current Congress even if he is elected, but that Bush’s plan does nothing for the uninsured. It also ends with the fact that people are likely to vote about what is best for their health care rather than for the healthcare system as a whole. That’s a sensible point, although (tangent warning!) in the last 24 years the Republicans have managed to get people to favor tax cuts that (for most people) actually hurt themselves while favoring the 2% of the population that earns more than 5 times the national average household income. (OK, OK I know it’s complicated but if you factor in the benefit of mortgage and health insurance tax deductions to high earners, the increase in social security and Medicare taxes over the past 2 decades, and the increase in state taxes and charges for things like education to cover the reduction they are getting from the Federal pie as that gets diverted to paying interest, then it’s true).

Alright. Back on message (I’d never make a Republican, would I?). There are a couple of issues that the article does have wrong. It quotes an administration official in this section:

Bush favors establishing a monetary cap on damages for pain and suffering as part of a larger package of tort reforms that also would ease liability concerns for other industries. “HHS came out with a study that said we waste between $60 billion and $108 billion because of frivolous lawsuits, that this is money going out of the system, not to take care of patients, but to pay off personal injury lawyers,” Hauck said. “The president has a proven, common-sense medical liability reform proposal that has worked in the states.” Campaign officials argue that capping awards will discourage trial lawyers from filing meritless lawsuits that are blamed for driving up liability premiums.

Well unfortunately that number is flat wrong. The $60-108 billion number is from a paper by Mark McLellan (amazingly enough now CMS head) and that’s his estimate of the cost for the “defensive medicine” practiced by doctors who are scared of lawsuits. The actual cost of the lawsuits including settlements is around $4 billion, which is just a rounding error on a $1.5 trillion system. The trial bar-hating Republicans and their fellow-travelers in the AMA argue that if we get rid of the law suits, we’d get rid of the costs. Unfortunately, there are two reasons for defensive medicine. The first and much more minor is the fear of lawsuits. The second is that those in the system who do all the medicine associated with that “dee-fense” gets paid for doing it! There’s no evidence that anyone in the system (especially not AMA members) wants to get paid less, so the chances of actually saving $108 billion are about zilch — it’s a canard.

The other area that requires fisking here is the AHP concept. The article correctly says that:

Bush would like to see association health plans regulated by the federal government instead of the states. His proposals are expected to reach an estimated 2.1 million uninsured Americans at a cost of $90 billion over 10 years. But Bush faces some stiff opposition to his proposals. “Association health plans [are] the only policy that I’ve seen in the history of mankind that uniquely brings together governors, insurers, insurance commissioners, providers and consumers against the policy,” Jennings said. (Jennings was a senior White House health policy adviser during the Clinton administration). Those groups have complained that AHPs would destabilize the insurance market and actually raise premiums.

The issue is that AHPs are usually prevented by state law from cherry picking the best risks. For example in California we have a law that says that if you’ve had health insurance for the previous 6 months you can’t have a pre-existing condition excluded from coverage (you can though pay through the nose to get that coverage, BTW). At the moment an AHP has to obey that law. If Bush has his way, it won’t have to, which will leave the rest of the plans covered by the state law entering that insurance death spiral where the healthy people all bolt for the newly cheap AHP. And of course the additional costs incurred by the plans staying under state law will end up meaning that they rise their premiums — so that the net result may be that we end up with more rather than fewer uninsured. That’s why the current coalition mentioned by Jennings is so opposed to them. However, in any event it’s a modest change in the overall system. Meanwhile the AHPs might as well be called the Any Heist Plan, so frequent is fraud and abuse in them and their predecessors the METs. However, even if they weren’t fraudulent and made health care insurance cheaper, it’s totally disingenuous to say that they’d reduce uninsurance more than marginally. So for Bush to say that he has a commonsense plan for spreading insurance and reducing health care costs is, as you might suspect, another canard. But then again, who’s going to stop him saying it?

On the other hand Jacques Sokolov has a couple of interesting things to say about Kerry’s plan.

“Sen. Kerry believes that there will be significant savings over 10 years in the adoption of these advanced technologies, to the tune of approximately $200 billion,” Dr. Sokolov said. “Many people think those numbers won’t go very far in Congress because they’re unrealistic.”

The same thing applies here as in defensive medicine. That $200 billion is someone’s income and they don’t want it to go away! Sokolov sums it all up by saying:

Both campaigns are offering valid approaches; it just depends on your perspective, Dr. Sokolov said. “If you were an individual who fundamentally believed that there should be less government intervention in health care, you would be very much focused on the President Bush perspective. If you felt you wanted to enfranchise 26 million more people because we don’t have affordable health care in this country, you’d embrace the Kerry proposal,” he said.

In other words, on this like on so much else, we’re a nation divided between a dogmatic supposed “free-market” ideologue and a wishy-washy centrist who wants to use a third-way public-private approach to fix a problem that has only been fixed elsewhere in the world by massive regulation and intervention.

Meanwhile, as for now the recent Bob Blendon article in the NEJM last week showed health care is only fourth on the list of things voters worry about — but it’s just behind terrorism (Iraq and the Economy top the list). So whoever wins and whatever passes, the American health care crisis — high costs and high uninsurance — will make a return visit at the time of the next recession; say in time for the 2012 election?

Go read Ross’ fun piece on who’s winning in the Pharma vs Insurer death match. It’s called Medicareless: Formu-hilarity

The casual reader who’s been following the health care system and the election–which has had a touch of health care injected into its rhetoric recently–might believe that a nation spending 15% of its GDP on health care, while having a few other “priorities” in places like Eye-Rak, perhaps ought to be wondering about how to slow down its health care spending. Other readers might have noticed that pharmaceuticals are very expensive compared to other countries, and that the odd rogue representative from that industry is starting to suggest that the industry might think about how to moderate those costs. But of course you wouldn’t get to be the CEO of a major pharma company if you thought like that.

Instead you’d think like this. First, health care spending ought to be 18% of GDP. And that spending should be funded by middle and upper-income individuals saving up to 10% of their incomes in special accounts to pay for it because, well, because you just can’t trust those government people. Second, the health care system should be rebuilt with Medicare changed to focus on integrated patient care (presumably with the government taking a lesser role). Third, people need to shape up and practice personal responsibility and pay for their own preventative care. Fourth, the environment for brave pharmaceutical companies who take such high risks should be made easier, and the politicians–instead of criticizing them–should realize that the font of all wealth and success in the modern world comes from pharmaceutical research.

If you think that this is a strategy for a more efficient cost effective health care system, delivering more of its products and services to a wider population more equitably, then you too are probably in line to be the CEO of a major pharmaceutical company, or maybe you already are.

Although he says one or two sensible things about Medicare and school meals, Fred Hassan’s Four Pillars of Wisdom Health Care Reform might look to the outside observer as being just a leetle, leetle bit self-serving. But he has his supporters on the libertarian right. At Tech Central Station, which BTW genuinely doubles as a PR agency for oil companies that for some obscure reason don’t believe in global warming, libertarian columnist Arnold Kling thinks that critics of the system hate those “producers” in the industry. Those people who hate the producers include Uwe Reinhardt, who complains about the high cost of health care and attributes it to the high cost of services. Kling feels that Uwe’s counting the wrong things (services) and that really we should be looking at those outputs–although he doesn’t explain what outputs are, and that everyone who understands health care knows that outcomes (one version of “outputs”) are poorly counted and often just plain poor in American healthcare.

But while they are loathe to criticize producers of health care services, especially producers of very expensive medical technologies which enjoy monopoly protection, those on the political right of a more fiscally-conservative ilk are starting to complain about the costs that are being dumped into new government programs–which will end up being transferred to those producers under our current system. Blogger Josh Clayborn is one such conservative who maintains that these government programs are something we can’t afford. Although the cynical amongst us might note that while we can’t “afford” to borrow money to offer drugs to Medicare recipients, apparently we seem to be able to afford to borrow money to give huge tax breaks to the super-rich.

But those of us who think that the health care system consumes too much money inefficiently have a little bit of ammunition. For the perfect Adam Smith market to appear in health care, information and expertise has to appear on the consumer side, and monopolies have to be broken on the producer side. Well anyone who knows anything about health care knows that we are far from that happy state. While Fred Hassan is unhappy about alleged government interference in the pharma business stopping his precious innovation, the real story is that he doesn’t seem to be objecting too much to the government interference in the market that allows his industry to routinely increase prices and play all sorts of games to prevent competition.

And while we’re on the subject of consumer knowledge, it’s worth taking a quick look at this table which shows that only 33% of Americans believe that we spend more on health care for the elderly than we do on health care for kids. Given that level of understanding of the health care system, its hard to imagine that the “consumer” versus the “producer” is a fair contest. And fifty years of “free market” health care shows that it hasn’t been. Which is why the single payer crowd and the managed care/managed competition crowd all believe that some specialist entity needs to at least be attempting to level the playing field.

And when a major pharma CEO is promulgating about how the rest of us should be funding his retirement fund (rather than our own), well one of my correspondents suggested that it reminded him of when the Chicago press would interview Al Capone in the 1920s and Scarface Al would opine on topics ranging from the changing status of women to juvenile delinquency and government policy for small business. The less amusing aspect of all of this is that health policy in the first and (gawd help us) second Bush term is being run by Hassan and his cohorts in big pharma, so we can expect the current level of producer versus consumer imbalance to continue. Unless of course I’m wrong and the CDHPs first become common and then work to restrain health care costs. But I’m not holding my breath.

And you thought all the verbal jousting was happening in the swing states. We at THCB find that nothing gets the blood and vituperation flowing as much as talk about drugs and money changing hands, such as these contributions from last week. As you might expect, one particular contributor was not too impressed by what he read. Herewith, the temperate and dulcet tones of The Industry Veteran on the complications of free market analyses (or why the free market in healthcare won’t work, but free trade/reimportation of drugs might), and on the sad downward spiral of the editorial function at THCB:

What the hell is going on? Are you turning your Blog over to free-market assholes ideologues? What’s next, changing the name from THCB to SSOB (Softer Side of Bush)? Who are your recent contributors, physicians? As many times as I’ve told you, you still don’t seem to get it. Whenever a physician says anything involving money, presume until proven otherwise that his/her motives are venality and avarice. It is not for nothing that pharmaceutical reps (i.e., salaried corrupters) refer to the physicians in their territories as “my whores.”

Well it’s a slow morning, so let me again show how your new contributors’ brains are on drugs.

1. The market is the true faith of right-wingers.
The bedrock premise of your poison pen jackals consists of their belief that the market will remedy all the ills of our healthcare system. Are drug prices and health insurance premiums too high? Is access too limited and quality too disparate? The market in its omniscient wisdom will cure all. Were it only so.

Healthcare in the US is such a corrupt racket that it actually would improve if it moved to either a more socialized or a more genuine market system. Several endemic factors, however, make the idea of a self-correcting market system little more than a dream of the great beyond. Contrary to the requirement of multitudinous producers, none of whom can affect prices, most of the manufacturing markets (drugs, diagnostic and therapeutic devices) are oligopolies. Competition among them is thwarted by an anti-competitive, patent system. The top of the labor component, physicians, is a market-snuffing guild that defies supply and demand — a higher concentration of physicians in a geographic area drives up their fees, rather than the converse. The distribution of knowledge among component segments of the healthcare system is wildly asymmetrical, something that allows physicians (and manufacturers who promote to these dishonest brokers) to enjoy an inherent, conflict-of-interest position. I could go on, but suffice it to say that US healthcare can never be more than a Frankenstein’s monster version of a market system.

2. A single payer system inevitably produces rationing that reduces the access and quality of healthcare.
This is ultimate fright wig that greedheads pull out of the closet to discourage a more centralized government planning and paying role. Those poor, neglected Canadians. They live longer than us, they suffer lower rates of infant mortality, and their other indices of health quality are better than ours. The US healthcare system is so demonstrably superior that we pay more per capita for healthcare than any country in the world but our rank in terms of results places us 12th or 14th.

3. We should clamp down on reimportation because the pharmaceutical industry’s charity programs are all we need to provide drugs at affordable prices.
…and the Easter bunny puts quarters underneath your pillow when you lose a tooth. Shame on you, Matthew, for recirculating this garbage. Didn’t a recent posting of yours link to a study that showed the thorough inadequacy of the drug company cards? Why are you trying to court favor with these theocratic fascists? They have enough outlets of their own.

4. Reimportation brings in dangerous drugs.
That’s pure fiction, but if your Dick Cheney-Zell Miller contributors suggest that it’s inefficient for a large segment of the US population to receive its medications through Canada and the UK, their observation about a dog walking on four legs is hardly worthwhile. If the drug supply of a country with high quality standards becomes problematic because of sales back to the US, one of their politicians will relieve the supply problem without choking off a source of domestic profits by invoking compulsory licensing, i.e., breaking the patents and allowing the production of rigorously monitored generics.

Instead of trying to strong-arm other countries into paying what your greedheads call “their fair share,” Big Pharma and its US government lackeys will have to learn that they can still do very well by trading away price in return for added volume. I know that malefactors of great wealth seldom relinquish their cartels voluntarily, so Big Pharma will be brought kicking and screaming into some new realities. In the meanwhile, the sophistry and plutocratic rationalization (i.e., bullshit) for exorbitant pricing that one of your posters throws around (an “insurance policy” against “an increasingly hostile and unpredictable global regulatory environment”) is nauseating.

5. US drug prices are actually lower than Canada’s.
Tell your right-wing posters to kiss my colitis-scented ass. If I’m not mistaken, didn’t you also have a prior posting that exposed such PhRMA-sponsored drivel for the fraud that it is? If I remember correctly, they played fast and loose with generic products so that their results were not an apples-to-apples comparison. If one compares the prices of branded drugs in the two countries, the Canadian prices are 30%-50% cheaper.

If my tone seems overly hostile, it reflects my sorrow at the abuse you’ve permitted these recent posters to inflict on THCB. Over the years THCB has been an unfailing source of clear thinking and truth about a subject regularly obscured by lowlifes. Why now, of all times, would you bring this vermin in the back door?

Prompted by a couple of posts from my favorite medical bloggers Robert Centor at Medrants and Sydney Smith at Medpundit, I’ve gone back to my old files (and I mean old). When I was a grad student I spent a lot of time looking at the Japanese health care system, and by now THCB readers know that I’ve spent enough time looking at Canada’s and the UK‘s to be dangerous….

MedRants had this to say in a longer article about private medicine in the UK earlier this week:

The BMJ has run two articles to support the NHS. I would argue that these articles are far from objective. I often rant about the deficiencies in our system. We could certainly use our resources more efficiently. But our system trumps the NHS regularly. Regardless of payor status, if you are truly sick, our system responds. We could do a better job supporting primary care – but even here we trump the NHS

Meanwhile Sydney had rather more vicious things to say about Japan and John Kerry (which are connected in her mind by more than by their first initial):

Single Payer Systems: Japanese doctors are in dire straits:

Doctors in Japan have warned that there could be an exodus from the medical profession unless the of health and welfare ministry increases the fixed fees that doctors receive for treating patients. The ministry–in Tokyo–sets the sums that doctors and hospitals are reimbursed for consultations, treatment, and operations by the country’s social security system. But the Japanese Medical Association says that hundreds of hospitals and general practice clinics are now facing financial ruin because they are being forced to rely on very low, government fixed prices for their income. The situation has become critical, they say, because the cost of treating patients is soaring while the fees have continued to languish at a low level for decades.

The Kerry plan, alive and not-so-well in Japan.

Much as I respect these two bloggers for their writing, not least while they both keep up full time medical practices, sometimes they need to be called on what they say. Particularly when it’s not true.

Robert’s claim that the US trumps the UK may be true in lots of categories but ignores two vital facts.

First, in many ways the UK absolutely trumps the US on primary care. Every UK citizen has a dedicated primary care doctor who is broadly responsible for their overall care. While there are many problems with that system and it does restrict access to expensive specialists and technology, it alleviates the problems both of Americans who do not have access to primary care–especially the uninsured– and that of those patients on dangerous polypharmacy regimens who end up on those dangerous drug combinations by doctor shopping. Virtually all British GPs have computer systems that track their patients’ care. They can tell you pretty instantly which patients are on what drugs, they get reminders out for screenings and tests for things like diabetic eye exams, and since this year, they are actually getting paid for performing to accepted standards. For a variety of reasons this just doesn’t exist in more than a tiny minority of cases in the US. I find it hard to believe that we’re “trumping the UK” in primary care.

Secondly, even if we were trumping the UK, we’re doing it at three times the cost. So at a relative pay for performance level, we’re not doing well at all. But then again our doctors get paid much better.

And apparently physician pay is of great interest to Medpundit Sydney Smith, so much so that she’s upset about its apparent collapse in Japan. Syd should save her tears and perhaps brush up on her language skills and put in for a transfer from Ohio to Osaka.

Japanese private doctors are the highest paid in the world. They are the only ones that make more than Americans. Most of the salary data that’s available conflates this by usually reflecting the salaries of hospital based physicians, who tend to work for the government. The majority of Japanese doctors are independent and run their own clinics. How this works is a little complicated. They also tend to own small hospitals attached to their clinics, and in the Japanese fee-schedule, which is the equivalent of a Medicare-fee-schedule for all, there is no distinction between physician and hospital fees, because hospitals were traditionally extensions of physicians’ practices, as were pharmacies. Hence physicians also dispense (and of course prescribe) drugs. The end result of this was that average earnings for private Japanese physicians in the early 1990s were much higher than those of American physicians. Unfortunately I’m dragging this out of my memory bank (as I don’t have the OECD or Japanese publications available), but my recollection was that it averaged around $300,000 a year back then.

Now there are plenty of other little wrinkles in this, such as the fact that although for-profit hospital chains are banned, there were in fact several chains of clinics owned by wealth physician families (shades of HCA). The Japanese Medical Association, which is the organization complaining about the latest government price reductions, was for years the most powerful force in Japanese medicine, and a relatively much more powerful player in national politics there than the AMA is here. For example some of the early meetings during which the dominant Liberal Democratic party was formed were hosted by the long-time JMA president Taro Takemi. The JMA of course represents mostly these private doctors.

Meanwhile the Ministry of Health and Welfare like other government bureaucracies in Japan sets policy to a much, much greater extent than elected politicians. Over time MHW in Japan put in place several structures that governed the system. They limited the number of physicians in practice. They instituted a single unified fee-schedule that covered every insurer (and tends to reward high-volume but low intensity medicine such as Rx and diagnostics over surgery). That’s right, there is no single payer in Japan, it’s predominantly an employer-based system, but there is a single unified fee-schedule controlled by the Ministry. And of course the JMA and the Ministry are going to fight over that–Duh! But you’d do well not to listen to the rhetoric of just one side in that negotiation. There are some other wrinkles, such as in 1960 the municipal system for the indigent and elderly was expanded so that there are no longer uninsured in Japan, and then in the 1970s a transfer tax was introduced so that the employer groups had to subsidize the public system based on the age of their members.

This was all completed by a slow evolution over time, but the result was that most Japanese kept both the employer based insurance scheme that they were familiar with, and the physicians and providers kept the same format they knew well. So universal multi-payer insurance with free choice of doctor can exist, and can also exist at a reasonable cost. Not much of that is in the Kerry plan, but none of it is in the Bush “plan”.

If you have Health Affairs access, it’s worth reading the article by long term observers of the Japanese scene, Ikegami and Campbell, which details how costs were constrained in the system during the long recession of the 1990s, and even reduced by careful adjustments to the fee schedule and the introduction of user fees. The discussions about these changes were well under way when I was working with health ministry officials in 1991. That they weren’t introduced until 1997 shows the patience of the bureaucrats–a luxury of the Japanese political system. But there is also a sense of noblesse oblige, which the Japanese actually had beaten into them by the New Deal Democrats who ran the initial post-war occupation. One quote from Ikegami and Campbell is well worth pulling out:

Any system of universal health care coverage requires cross-subsidies from the healthier and wealthier segments of the population. Political resistance is inevitable and will intensify in a sour economy. Japan seems to be improvising piecemeal structural reforms to deal with these pressures. However, if the past is any indication of the future, these reforms are likely to be in the direction of more equality, which will be in line with reforms in Europe and stand in marked contrast to those in the United States.

Maybe that sounds like the Kerry plan, but nothing much else about the Japanese health care system does. Adopting something like the Japanese system, unlike the Canadian and British systems, wouldn’t require too much realignment of the existing US system, but it would require a redistribution from the rich and healthy to the poor and sick. That currently appears to be beyond us as a nation.