The ACP Advocate Blog

by Bob Doherty

Wednesday, November 30, 2011

Why is health care so costly? Hint: it’s not (mostly) how much care we get.

Conventional wisdom is that the high cost of health care in the United States is principally caused by overutilization—that is, excessive volume of tests, procedures, and treatments, much of which may have marginal clinical effectiveness.

But if higher spending is the result of higher volume, then it would stand to reason that Americans get more health care services than other countries with lower costs, right? Not so, writes Washington Post columnist Robert Samuelson, citing data from the Organization of Economic Cooperation and Development (OECD):

“Indeed, by some indicators, Americans get less medical care than do people in other advanced countries. The number of practicing U.S. doctors (2.4 per 1,000 population) is less than the OECD average (3.1 per 1,000), as is the number of annual doctor consultations (3.9 per capita in the United States versus 6.5 for the OECD average).”

If we aren’t getting more health care, then why do we spend more on it? The answer, Samuelson argues, is higher prices:

“What propels U.S. health spending upward? The . . .answer comes in two parts: steep prices and abundant provision of some expensive services. In 2007, an appendectomy cost $7,962 in the United States, $5,004 in Canada and $2,943 in Germany. A coronary angioplasty cost $14,378 in the United States, compared with $9,296 in Sweden and $7,027 in France. A knee replacement was $14,946 in the United States, $12,424 in France and $9,910 in Canada. Knee replacements in the United States were almost twice as common per 100,000 population as in the rest of the OECD. So were MRI exams and angioplasties.”

In other words, the higher the price, the more services we get, and the greater the cost. Throw in the lack of price transparency and competition, low patient cost-sharing, and a whole lot of lawsuits, and it is not hard to understand why the United States spends more on health care than just about anyone else.

Samuelson offers two options to drive down prices: “a voucher system that, through tax credits and fixed Medicare premium subsidies, would allow patients to shop for the best health plan. Competition, the theory goes, would force hospitals and doctors to restructure the delivery system; health plans would compete on the basis of price and quality. The other way is a government-run, single-payer system that would — somehow — include strict budget limits on doctors, hospitals and other providers.”

But both of these options have their own problems, practical and political. Vouchers shift more costs onto the individual, making them responsible for the costs of care that exceed the voucher amount, yet they don't really give patients the levers to control the cost of the care they receive. And where is the evidence that insurance company competition will lower costs? Plus, voters don’t want vouchers—look at the intense public opposition to Rep. Paul Ryan’s proposal to replace Medicare with a voucher program. A single payer, government run health care system runs against the grain of American individualism and distrust of government (now at an all-time high), and likely would carry with it price and capacity controls that would limit individuals’ access to care (rationing, anyone?).

There are other alternatives that might be considered. Instead of competition among insurance companies, how about we eliminate price controls, get insurance company middleman out of the equation except for catastrophic care, enroll people in high deductible health savings accounts, and allow doctors and hospitals to compete based on price and quality? Sounds good—in theory—but the reality is that patients are not likely to shop around to find the cheapest care at a time when they are seriously ill and have the greatest need for it. Also, knowing the price charged for an office visit or procedure tells little about the actual cost. (See my October blog about why buying health care isn’t like shopping for a can of soup).

Another approach would be to give health plans and government the tools to drive down prices. Allow Medicare to negotiate drug prices with pharmaceutical companies. Pay physicians based on the value to the patient of the care being provided, instead of their relative costs (RBRVS). Allow Medicare to use “dynamic pricing” so that it could pay more for therapies with "superior" clinical results and less for therapies with poorer results. These options could potentially lower the price of care—and overall costs—but would be difficult to fairly administer (how can value to the patient be measured?) and would face intense opposition from providers who benefit from higher prices.

There you have it: high health care spending in the United States has more to do with higher prices than higher volume, yet the policy tools to lower prices all carry with them significant political and practical challenges. But as Samuelson concludes, “One way or another, if we don’t act, we’re surrendering our future to runaway health spending.”

Today’s questions: Do you agree that the price of health care is the biggest reason why the United States spends more than other countries? If so, what should be done about it?

Tuesday, November 22, 2011

“Can’t anybody here play this game?”

In a moment of justifiable exasperation, Manager Casey Stengel blurted this out to a reporter about his hapless 1962 New York Mets—the team that ended up with the worst single season record in baseball history. The same might be asked of the 112th Congress, says Michael Hirsh of The Atlantic. He wonders “whether any Congress has ever been more dysfunctional, with less cause, than this one?”

Yesterday’s spectacular failure by the “Super Committee” to produce a bipartisan deficit reduction package certainly hits new heights—or depths, if you prefer—of being dysfunctional. (As bad as it was, though, it doesn’t come close to matching Congress’s lowest points during the decade leading to the Civil War. In 1856, Senator Charles Sumner of Massachusetts barely survived a brutal caning at the hands of Rep. Preston Brooks of South Carolina. It is a small comfort that Congress today wages its fights via talk shows, blogs, and Twitter, not in hand-to-hand combat!)

But by modern standards, Hirsch is right on the mark: this Congress is the most dysfunctional of any I’ve seen in my 32-plus years of advocacy in Washington. It is singularly incapable of finding the compromises needed to move essential legislation forward.

(Incidentally, comparing the 112th Congress to the '62 Mets isn’t fair—to the Mets. By playing poorly, the Mets disappointed millions of fans—yours truly included—who gave them our misguided support, but no one really got hurt. And for all of their 120 losses, the Mets at least were entertaining to watch because of the unsurpassed level of incompetence. Marvelous Marv Throneberry, the Met’s first baseman, made fans both laugh and cry because of his stupendously dumb base-running mistakes and poor fielding.)

But I am not entertained by the antics of Congress, because the stakes are so much higher.

It is no laughing matter that Congress’ failure to reach an agreement on the deficit puts the health of millions of seniors, military families, and disabled patients in great peril, as ACP pointed out in a blistering statement released yesterday on the wreckage left after the failure of the “Super Committee” process.

Because the Super Committee process failed, doctors face a scheduled Medicare payment cut of more than 27 percent on January 1, 2012. Congress is likely to take up legislation soon to avert the January 1 cut, but organized medicine’s efforts to get permanent repeal bundled into the deficit reduction package itself has been dashed by the Super Committee’s failure.

Because the Super Committee process failed, another $1.2 trillion in cuts in federal spending will automatically go into effect, through a process called sequestration, starting on January 1, 2013. Kaiser Health News reports that under the automatic sequestration cuts, funding for non-defense discretionary programs will be cut by 7.8 percent next year, dropping each year to 5.5 percent in 2021—with the CDC, NIH, and prevention and wellness programs being particularly vulnerable.

Already, there is talk of Congress passing a law next year to prevent the sequestration cuts from going into effect, but President Obama has promised to veto such an effort. Obama held out the possibility of signing into law a replacement measure that restores at least some of the cuts if it offers a “balanced” package of tax increases and spending cuts.

For all of the uncertainty, several things are clear.

First, Congress must act before January 1 to prevent the 27.4 percent Medicare physician payment cut.

Second, there will be a big debate in the 2012 election year about how best to reduce the federal deficit, with the huge 2013 cuts mandated by sequestration looming in the background.

Third, there is no reason to believe that the current Congress will finally figure out how to play the game right.

More likely, they will continue to show a singular inability to put their partisan interests aside and do what is best for the American people. There’s a reason that Congress’ 9 percent approval rating is lower than Nixon’s during Watergate, or BP’s during the oil spill, or the number of people who approve of the United States going communist, or polygamy or pornography, for that matter. And this is based on polling that took place even before the public has digested the Super Committee debacle!

Today’s question: What do you think of the “Super Committee” debacle? And do you agree that this Congress is the worst in modern times?

Monday, November 14, 2011

Doctors’ Rx for America: More government regulation*

*of everybody but physicians, that is

I blog today from the American Medical Association’s House of Delegates meeting in New Orleans, where the organization’s House of Delegates—its policy-making body—will soon take up dozens of reports and resolutions. Reading through the delegates’ handbook, I am struck by the seemingly counterintuitive fact that much of it calls for more government regulation of health care, even as the organization pledges fealty to free market principles. Plus, many of the demands for more government regulation are coming from some of the most conservative factions in the AMA—state medical societies from areas of the country shaded red.

To illustrate, the delegates will be considering policies to:

· Give the federal government the authority to negotiate drug and medical device prices.
· Require physician supervision of nurse practitioners.
· Prohibit investors from investing in medical malpractice lawsuits.
· Require automated external defibrillators in all nursing homes.
· Require states to appoint physicians to the governing boards of health exchanges.
· Mandate that all insurance companies pay for all current CPT codes billed by physicians beginning on January 1 of each year.
· Require insurance companies to pay no less than the Medicare rates for covered preventive services.
· Mandate that insurance companies raise payments for vaccinations.
· Prohibit health insurers from dropping physicians from their panels “without cause” during an enrollment year.
· Promote model state legislation to mandate that insurers use a “transparent and accountable” process in developing and implementing coverage decisions.
· Establish uniform prior authorization requirements for drug benefits.
· Require pharmaceutical manufacturers to report on drug shortages.
· Require hospital drug pharmacies to report outpatient controlled substance prescriptions to an appropriate regulatory tracking program.
· Require veterinarians’ prescriptions of controlled substances to be reported to regulatory authorities.
· Require FDA regulation of “potentially hazardous” energy drinks like Red Bull.
· Mandate nutrition labeling in school cafeterias.

Now, not all of these proposals will be approved by the House of Delegates, and to be sure, the delegates also will be considering numerous proposals to decrease regulation—of physicians, that is. And some of the calls for increased regulation are surely right on the mark.

But physicians, like the rest of us, are hardly internally consistent when it comes to their views on government regulation. No one really wants to be subjected to rules and mandates, so we fiercely object when someone tries to impose them on us. Yet, at the same time, we can usually find plenty of grounds to justify imposing regulations on someone else! We are against government, except when we are for it. Just ask the good doctors at the AMA.

Today’s question: Do you agree that physicians—and just about everyone else, for that matter—are internally inconsistent in being against government regulations that apply to themselves, but in favor of more government regulation when it comes to others?

Wednesday, November 9, 2011

Magical Thinking

When it comes to deficit reduction and controlling health care spending, liberals and conservatives alike are guilty of magical thinking, holding certain beliefs that are not supported by science or evidence.

Take the issue of deficit reduction. Washington Post columnist Robert Samuelson (who is no fan of the Affordable Care Act, by the way) writes that it is time to “banish the budget fictions of left and right.” First, he takes on conservatives:

“. . . plausible savings don’t match conservative rhetoric. All the suspect 'discretionary' programs come to tens of billions, not hundreds of billions. Culture subsidies total about $1 billion annually; community block grants in 2010 were $4 billion. Meanwhile, total federal spending was $3.5 trillion. Do conservatives really want to eliminate the national parks? The FBI? Highways? Food inspections? Social Security and Medicare savings could be greater. In 2010, these programs cost $1.2 trillion. But there’s a catch. Savings from lower individual benefits will be offset by more beneficiaries: retiring baby boomers. By 2025, Medicare and Social Security enrollment will rise 50 percent from 2010.”

Then he challenges liberals:

“Next, the liberal fiction. Contrary to liberal dogma, the rich already pay plenty of taxes. . . For most millionaires, federal tax rates — the share of income taxed — exceed 30 percent. Some rich have lower rates. Raising these rates is justified but wouldn’t balance the budget. . . As for the Pentagon, the military was cut sharply after the Cold War. Combat forces are half to two-thirds of 1990 levels. Defense spending as a share of national income is headed toward its lowest level since 1940. What liberals don’t say is this: Unless Social Security and Medicare benefits — the bulk of the budget — are reduced, we face three dismal choices. Huge, unsustainable deficits. Massive tax increases on the middle class, as high as 50 percent over 10 to 15 years. Or draconian cuts in the discretionary programs that liberals accuse conservatives of wanting to gut.”

The same kind of magical thinking can be found on cutting health care spending. Writing for the Freakonomics blog, Jeff Mosenkis writes about former White House staffer Dr. Zeke Emanuel’s efforts to debunk liberals’ myth that you can control costs by going after insurance companies and big pharma and conservatives’ myth that tort reform is the solution.

“Turns out that the combined profits of the country’s five largest for-profit health insurance companies — United, WellPoint, Aetna, Humana and Cigna — were $11.7 billion, only 0.5 percent of total health care spending,” Emanuel writes.

How about drug company profits?

“Between 2004 and 2009, generic drug use rose from 57 to nearly 75 percent of all prescriptions. Paradoxically, over those same years, the total amount Americans spent on drugs actually increased by 31 percent — the same rate as overall health care expenditures. Even the best estimates suggest that savings from expanding generics’ use even further are, according to the Department of Health and Human Services, ‘likely to be small relative to total spending on drugs' . . . Pharmaceutical costs account for roughly 10 percent of total health care spending, some $260 billion in 2010. Importing brand name drugs from abroad would cut about 2 percent from that — $5 billion per year.”

What about conservatives’ favorite whipping boy: the trial lawyers?

“Right now, doctors’ costs are driven up by malpractice insurance, and they’re incentivized to practice ‘defensive medicine,’ ordering extra scans and tests. Emanuel cites a CBO report finding that aggressively capping lawsuit non-economic and punitive damages would save a good chunk of money, but not enough on its own. A package that included a $250,000 cap on noneconomic damages, a $500,000 cap on punitive damages and a one-year statute of limitations for claims by adults would save about $11 billion a year — 40 percent from reduced malpractice premiums and the rest in the form of fewer defensive procedures like M.R.I.’s.”

So there you have it: neither the right nor the left is being honest about what is driving the federal budget deficit and health care spending, and the solutions they offer are not up to the challenge. But who can blame them? It is, after all, the American people that punish politicians who tell the truth and reward those who offer painless, magic bullets instead of honest answers.

But the country’s economic health depends on all of us abandoning our magical thinking. As Samuelson concludes, liberals and conservatives “need to come clean with reality. For years, they’ve exuded self-serving platitudes. Conservatives should acknowledge that Big Government is a permanent part of the social fabric and that much of what it does is popular. It needs to be financed. Liberals should concede that Big Government can become so big that its crushing taxes weaken the middle class and economic growth. Government then promotes conflict and degrades social justice.”

Today’s question: What do you think about the “magical thinking” of conservatives and liberals alike on reducing the deficit and controlling health care spending?

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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