Dr. Eric Novack is an orthopaedic surgeon practicing in Phoenix, Arizona. A frequent contributor to THCB, he has been following the recent debate over universal insurance with a growing sense of disbelief. Eric is also the host of The Eric Novack show, which airs every Sunday
on KKNT 960 AM in Phoenix. You can find an archive of his recent shows here.

Wow.  Wow.  The Rocky Mountain News, in an editorial today, writes what many of us have known for a long time:

As the clamor for a universal (meaning: single-payer) health-care system rises, one factoid needs to be discredited: the notion that the federal administration of medical services would be dirt cheap.

"\[T]he overhead for Medicare," says Dr. Stephen Rous of Brown University, a single-payer advocate, "is 1 percent to 2 percent. The overhead for various private insurance plans (HMOs, etc.) is 15 percent to 25 percent."

Not so fast. Medicare indeed reports administrative costs of less than 2 percent – it claimed $5.2 billion in costs and paid $273 billion in benefits in 2003. But those figures don’t include the costs of paying claims and tracking down fraud – those are accounted for by the Justice Department and other federal agencies, not Medicare. Nor do they include the building costs and taxes paid by insurance companies, doctors and private hospitals.

The Council for Affordable Health Insurance, a free-market think tank, pegged the actual cost of Medicare compliance at 5.2 percent. And since Medicare spends more than twice as much per recipient as the average private health provider, $6,600 vs. $2,700, the gap shrinks even more.

Even the council pegs overall private costs as more than those for Medicare. But as the debate over the proper medical system for Americans moves forward, the least we can ask for is an honest comparison of the sort the council attempted.

At a time when I am becoming skeptical about our ability to have an honest debate about healthcare, it is nice to see occasional rays of sunshine.

Jess Parks co-founded VISICU, Inc, was a partner at Accenture, and most recently was COO of Aveta, Inc., a Medicare Advantage plan. Jess thinks that, if he hasn’t solved it, he’s at least figured out the problem of irrational technology adoption in health care. See if you agree:

This past week I read two interesting articles that, when taken together, illustrate one of the most fundamental problems in today’s US health system. The first article was Ron Winslow’s piece in the Wall Street Journal: “The Case against Stents: New Studies Hint at Overuse”. Winslow writes that the explosive market adoption of drug-eluding cardiac stents has been well out in front of hard scientific evidence supporting stents’ efficacy for large swaths of the population with cardiac disease. The second article was by David Leonhardt in the New York Times: “What’s a Pound of Prevention Really Worth?” Leonhardt chronicles the experience of Dr. Arthur Agatston, the South Beach Diet doctor.  Dr. Agatston has built a medical practice that focuses on prevention of heart attacks in patients with cardiac disease, and has achieved some remarkable outcomes.

So what’s the “fundamental problem”? Our medical system has delivered billions in profits to the providers of stent treatment for cardiac disease (with suppliers, hospitals, and cardiologists all benefiting), while Dr. Agatston’s practice is virtually the only one of its kind, and loses money because the preventive medicine he delivers is inadequately reimbursed. The two articles illustrate the powerful and pervasive incentives for our healthcare system to allocate resources aggressively and disproportionately to profit-making activities. They also highlight the sub-optimal alignment between the potential for profits and the potential to drive the key outcome we all desire for our healthcare system – namely a healthier life lived for all.

Now don’t get me wrong, we need the profit motive in health care. Profits drive innovation, change, and operational discipline – there is no substitute and we would not have our system’s continuing stream of life-saving advances in treatment were it not for the profit motive. In fact, I’d argue that all the world’s nations benefit from the profit motive in US healthcare (yes, they are free riders!). And our system does make significant efforts to align profitability and desired societal outcomes through regulation, e.g. the FDA, provider licensure, underwriting regulations, the orphan drug act, etc., etc., not to mention the Hippocratic Oath. However, the alignment we have achieved falls short of what we need: insurers still cancel policies, the poor still have markedly reduced access to services, information exchange standards still do not exist, and we still suffer from countless wrong-headed resource allocations – paying more for amputation of feet than for regular preventive podiatric examinations of diabetics who are at high risk, more for invasive end-of-life heroics than for preventive community or home-based monitoring of at-risk elderly with chronic disease. I could go on.

There are major opportunities all around us to improve health outcomes, and these opportunities are obvious to all market participants. However, they will continue to sit latent and unfunded – because activities that do not increase insurance profits (today) or provider/supplier reimbursement (today) simply do not get funded and/or adopted by our healthcare markets, no matter how efficacious they might be. I know that many feel that the growth of so-called “disease management” programs sponsored by insurers are an example of how markets are working to align profit and outcomes. Sadly, I disagree, but that is another topic.

If we consider a list of key contributing factors to greater health for our society, the misalignment becomes very evident. Here is the list:

1. Risk identification (that is, identifying risks while there is still time to mitigate them)

2. Behavior modification (patient behavior)

3. Affordable access to healthcare delivery services

4. Identification of best practice in healthcare delivery operations (e.g. medical research, public health research, health services research)

5. Consistent adherence to acknowledged best practice operations within the clinical AND non-clinical components of healthcare delivery

6. Development of superior healthcare treatments (diagnostics, drugs, devices, supplies, procedures).

So I will ask the rhetorical question: in which category will an innovation be rapidly adopted by the healthcare market? The answer is clearly #6 – new healthcare treatments – because suppliers and providers can easily and directly make profits from introduction of superior treatments. And since all industry participants compete for resources, those that offer a clear and rapid return on investment command the majority of the healthcare market’s discretionary capital resources. If you were a venture fund with $1 million to invest, would you put it to work researching a new breakthrough treatment for breast cancer, or would you fund health services research on reducing nosocomial infections in hospitals via improvements in nursing assistant hygiene? Even non-profit charitable organizations (taken collectively) tend to allocate resources disproportionately to treatment R & D, primarily because this is where the greatest and loudest demand is coming from.

To make matters worse, success has driven industry behavior into a rut (albeit a well-greased one). Because the profits available from new treatments are so significant, the supplier / provider industry has over years invested billions to develop an industry-wide infrastructure for promoting and adopting new treatments. From the IRB to FDA approval to physician detailing to payer reimbursement the path to adoption is so well-tread that alternative promotion efforts for other types of solutions seem “unofficial”. If you are competing with this market adoption engine for physician or institutional attention, you have a very hard road ahead of you, even if your solution has good profits to offer.

For example, take #4 or #5 on my list. There are many operational process modifications – in many cases enabled by technology – that can make profits and improve outcomes for hospitals or home health providers or any other provider under PPS reimbursement. However the barriers to development and widespread, consistent adoption of these modifications are very high: 

There is in most cases no entity, let alone industry segment, that directly or significantly profits by market adoption of operational process improvements (some consulting firms promoting the change process may profit indirectly), so there is no investment in a cross-industry scaffolding for market adoption (despite their incredible value, I don’t consider organizations like the Institute for Healthcare Improvement or NCQA to be very effective in promoting adoption). As a result, every institution has to mount its own internally developed and internally funded effort for promoting and implementing the solution.

Rather than “adding” an element of care delivery, technology and process changes often focus on avoiding waste, redundancy, and/or inappropriate utilization, raising the burden of proof for efficacy and ROI significantly higher and making the solutions a target for patients, advocates, lawyers and physicians

Return on investment is complex, hard to measure, and usually delayed; in comparison to the ROI of learning/equipping to do a new procedure, doing it, and getting paid, or replacing a supply item that costs $10 per use with one that costs $8.

Imagine if stents were presented to the market this way:  “Hey, Mr. Hospital Medical Director, IHI says you really ought to convince your cardiologists to use drug-coated stents instead of referring their patients for bypass; they do have better outcomes for some patients… oh, there’s no payment for them, and you may lose some bypass volume, but we think it’s best practice…and almost forgot, you have to buy a two years’ supply of them and train the cardiologists before you get started.” Absurd, right? But that’s the message that many promoters of technology and process innovations are delivering today!

Continue reading…

I was at a conference on Saturday when the Asst Sec of HHS in California and the former sec of HHS in Massachusetts managed to twist their tongues around how they were getting to mandates, with shared responsibility, provider contributions, employers cost-sharing, blah blah blah—and never a mention of a thing starting with T and ending with an ax.

John Edwards has decided to be brave and say that he can insure the uninsured with just that—a tax raise. Brave man. Foolhardy, perhaps! Especially as there’s plenty of money in the system now to do it—with just a little bit of redistribution (which Schwarzenegger is also pointing out).

At any rate the vaunted National Federation of Independent Business is out with its head firmly stuck up its rear. So perhaps he’s doing something right.

The National Federation of Independent Business, a powerful lobby that represents small-business owners, said such mandates amounted to a job-killing tax on small companies. “Health care mandates are a nonstarter for our members,” said Stephanie Cathcart, a spokeswoman for the federation.

I’ve said in polite terms what I think about the NFIB’s logic over at Spot-on a while back. Basically their members just can’t add up.

So now it’s time to be a little more direct. The best way to do this is perhaps to let you in on a little email chat with one of their number who thought that I would support his quest to get the Shaddeg bill into law. Clearly not a man who knows his audience. Here goes:

From: Ragley, Jay [mailto:Jay.Ragley@nfib.org] Sent: Wednesday, December 20, 2006 1:23 PMTo: tips@thehealthcareblog.comSubject: Small Business Health Insurance EditorialTo Whom It May Concern at The Health Care Blog:

I don’t know if you link to published editorials, but I would submit the following editorial on some ideas our organization and our members are beginning to suggest in South Carolina.  If you choose to link it, I appreciate it and if not, I appreciate your consideration.

(Link to pro-AHP/Shaddeg bill article, which I didn’t link to—surprise surprise—whatever Eric Novack would like me to do!)

Jay W. Ragley

State DirectorNFIB/South Carolina

So I wrote back:

From: Matthew Holt [mailto:matthew@matthewholt.net] Sent: Wed 12/20/2006 4:59 PM To: Ragley, Jay Cc: Subject: RE: Small Business Health Insurance Editorial

Jay

You’re kidding right? Have you ever read THCB? I think that the NFIB is so, so dumb about this issue that it’s unbelievable. NFIB members offering health insurance are the group that would benefit the MOST from a national health insurance single payer scheme, and yet you insist on getting behind ridiculous solutions that make matters worse and will continue the cost escalation with no controls that cause the problem.

I’ve written about this here http://www.spot-on.com/archives/holt/2006/05/small_businesses_that_cant_do.html#more and I’m not going to berate you further. but I do invite you to respond to my basic assessment of why your position is so wrong for your own members.

 

All the best
Matthew

To which he gamely responded.

From: Ragley, Jay [mailto:Jay.Ragley@nfib.org] Sent: Wednesday, December 20, 2006 4:12 PMTo: matthew@matthewholt.netSubject: RE: Small Business Health Insurance Editorial

Matthew:

 

Thanks for your response.  I did read some of your blog but obviously not enough.  I’m new to NFIB and have been trying to work more with bloggers as most of the MSM don’t care about small business issues.  I’m not aware of any health insurance blogs in South Carolina (mostly political ones down here).

 

I did read the blog posting you sent me and I hope you understand how NFIB determines its public policy positions.  We send ballots to our members throughout the year on a variety of issues.  So, when NFIB supports repealing the death tax, it’s because a strong majority of our members (not a 51% majority) support that position.  So believe it or not, it is the small business membership of NFIB that determines our public policy positions.

 

But as far as a single-payer system, I will ask the same question I asked folks when I worked in DC.  As a supporter of single-payer system, can you claim with any degree of confidence that a government-run health insurance system will not bankrupt the government, the economy or both as we know it in the USA?  Whatever tax you choose to impose to pay for this system will, in all likelihood, lead to lower economic growth, which will lead to lower tax revenues and thus produce deficits, assuming that all other government spending is held constant (a big assumption given the recent spending increases in many government programs besides health care).  So the economy will sour to a degree, the treasury will collect less revenue and the government will have to a) borrow b) cut spending c) raise taxes again.  Seems to me the most likely scenario is raise taxes, which will only exacerbate the problem.  There is no free lunch.

 

So unless the single-payer crowd can find a way to not wreck the federal budget and the world’s most dynamic economy, my members will keep telling me to find free-market solutions.  They’re risk takers and would rather have the opportunity to grow at the best rate possible.I guess small business owners aren’t happy with a Japan-like growth rate; they want the opportunity to grow at any rate they desire and create for themselves, business, employees and family.

By now of course I’m getting a little feisty on that basic math question:

 

From: Matthew Holt [mailto:matthew@matthewholt.net] Sent: Wed 12/20/2006 6:34 PM To: Ragley, Jay  Subject:RE: Small Business Health Insurance Editorial

I understand that you represent your members and that their policies are what you follow. I would also humbly ask how many of your members know what share of GDP is spent on health care here versus Japan, Korea, Taiwan, Germany, France et al…you know the answer. Those countries spend virtually 50% the amount we do on health care. So you explain to me how spending 50% less on something bankrupts us faster than spending at our current rate (and our faster growth rates).

If government imposes a tax to pay for health care, but at the same time removes the cost of providing health care from business, how does that hurt business? It’s a revenue neutral move. And more importantly in the long run the example of all those other countries is that government (or some proxy for it) has a much better shot at controlling health care costs because the taxpayer realizes the correlation between increasing costs and their taxes going up. But in this country we don’t bother making that equation, and so we keep paying more and more for health care.

But I guess if you pay money to a private insurance company that incidentally keeps 15-25% of your money in its pocket for doing not much, then that’s not a tax–so it’s OK to spend money on health care that way. But I get very confused when you tell me other countries are "going bankrupt" when they are containing spending much better than us, because they are using the government rather than an ineffective insurance sector to control spending. Are you telling me that if they spent at our rates of GDP they would be better off?

And BTW whatever you believe about the Laffer curve, you may have noticed that taxes going down can also lead to huge government deficits. Or were you not paying attention for the last 5 years?
Matthew

To which, like a true booty-mercantilist, he resorted by appealing to my own best interests!

From: Ragley, Jay [mailto:Jay.Ragley@nfib.org] Sent: Wednesday, December 20, 2006 4:51 PMTo: matthew@matthewholt.netSubject: RE: Small Business Health Insurance Editorial

Matthew:

 

Lots to digest here but not enough time tonight for a response.  Will get back to you.  Although I have to wonder, wouldn’t your consultant company go out of business with a government health insurance system?  I mean, you would have to get a job with the government I guess.

 

JWR

And I’m afraid I went for the non-technical KO:

From: Matthew Holt [mailto:matthew@matthewholt.net] Sent: Wednesday, December 20, 2006 4:55 PMTo: ‘Ragley, Jay’Subject: RE: Small Business Health Insurance EditorialSo is it about doing the right thing, or hanging on to my business at any cost? Sounds like a paper-pushing unionized bureaucrat’s view to me!

And don’t worry–there are LOTS of people for whom a single payer system WOULD be very bad news (Insurers, drug cos, many doctors, many hospitals, etc) I just don’t think that small businesses can be counted amongst them!

Matthew