Tag Archives: health care reform

Why is Health Care So Expensive?

According to Steven Brill, whose 26,000 word article in Time is getting all kinds of attention, one big factor is price negotiation. An uninsured patient can’t negotiate at all, so they get charged $1.50 for a single Tylenol in a hospital. Insurance companies negotiate on their customers’ behalf, so they get charged less. And Medicare, which is the biggest player of all, negotiates hard — volume discounts and all, just like any big customer anywhere in the world — and thus pays the least for the same products and procedures.

Interestingly, Brill steps away from one obvious solution — have Medicare cover everyone — because he says it will leave doctors underpaid. Felix Salmon takes him to task for this, pointing out that Brill never states what “underpaid” is. Since my greedy doctor post remains my most read and commented of all time, I feel a certain obligation to chime in here. I have never seen any analysis that tries to show what doctors might get paid in an all-Medicare system. Maybe it would be pretty low; if GPs maxed out at $50,000 per year, they probably wouldn’t spend all that money and time at medical school. But maybe doctors would still get paid what they do now, and it would be hospital administrators (whose multi-million dollar salaries are the true villains in Brill’s piece) getting a pay cut. Or maybe it will be CEOs of drug companies getting paid less; who would complain about fewer $78 million severance packages being paid to CEOs?

You can read more commentary regarding Brill’s article here and here.


VA System: Best Healthcare, Lowest Cost

Check out this article, from 2007, on how the Veterans Health Administration has gone from scary run-down hospitals to the provider of the best care in the country, at the lowest cost. The VA secret: a large, single provider focused on quality. Duh.

Fund Healthcare Reform With Drug Company Ad Spending

One of the big concerns in the debate over health care reform, and rightly so, is how we’re going to pay for the costs of insuring millions of additional Americans. People are looking at various taxes and rate reductions and other mechanisms, with an emphasis on driving waste out of the system. As long as we’re talking about waste, I’d like to point out that drug companies spend tens of billions of dollars a year on marketing.

Pharmaceutical marketing expenditures generally fall into three categories: direct to consumer advertising, sales reps and samples. There are some other buckets, but these three are the biggies. From the drug company perspective, these expenditures are not wasteful. They drive market share gains for particular drugs; if they weren’t effective, the drug companies would not do them. But from a systemic standpoint they can be wasteful. Since doctors should make their prescription decisions based on data, all they need is education. Any efforts to “sell” them drugs are, theoretically, unnecessary.

Direct to consumer advertising, which is around $4 billion per year, is clearly wasteful to the system. The average person has no ability to judge between competing statins or anti-depressants or erectile dysfunction drugs. Asking your doctor for Lipitor because you saw a commercial with a pretty woman has nothing to do with data or drug efficacy. People do it all the time – that’s why we keep seeing those ads – but from a societal standpoint, that $4 billion is money being flushed away.

Sending sales reps into doctors’ offices to tell them about drugs (called “detailing” in the business) costs drug companies between $10 billion and $20 billion per year, depending on whose data you use. Part of detailing is educational – somebody has to give data to the doctors – but a large part of it is salesmanship, with lunches and perks being provided to the doctors. The fact that most drug reps are young, attractive, and nowhere near as knowledgeable about science and medicine as the doctors they are “educating” gives you some sense of what detailing is really about. As The Atlantic says, “Drug reps today are often young, well groomed, and strikingly good-looking. Many are women.” Or, in a NY Times article about how drug companies recruit college cheerleaders to be sales reps, Dr. Thomas Carli of the University of Michigan notes “There’s a saying that you’ll never meet an ugly drug rep.”

Samples cost drug companies between $6 and $16 billion, again depending on the data source. I don’t know if those figures are retail value or cost; if they are retail value, then the actual cost to the drug companies is clearly much lower, given the high margins on drugs. It would seem like sampling is unnecessary. If doctors are making their prescribing decisions based on published data, they probably shouldn’t be telling their patients “here, try this one. I got it from my rep, so it don’t cost nothin’.” On the other hand, samples give patients a period of free drugs before they have to start paying for their prescriptions, so I’m calling this a wash overall, rather than a waste. Plus, I have been the beneficiary of several courses of free drugs courtesy of samples and my awesome GP.

I know that trying to limit drug company marketing expenses is politically impossible. I also recognize that there could be 1st Amendment issues in trying to prevent companies from marketing. But with $15 to $25 billion per year being wasted, it sure would be nice if we could deploy some of that money on care instead of selling.

NY Times is Copying Me

I’m not here to criticize Nicholas Kristof; not only have I linked to him before, but he is a two-time Pulitzer Prize winner and a Rhodes Scholar. But his most recent column says exactly what I’ve been saying recently.

First he says that “universal health care is not an economic or technical question but a moral one.” That is precisely what I said in this post. Then he quotes the new study showing 45,000 annual deaths from lack of insurance. Just as I did in this post. Then he closes by calling America a “great nation,” which is pretty similar to my phrasing: “the greatest…country.”

I’m not saying that Kristof is plagiarizing me. Let’s be honest: I’d be freaking psyched if a NY Times columnist stole my words. I’m just saying that if you want to know what the Times is going to say a fortnight hence, read Thoughtbasket now.

A Market Approach to Health Care

As regular readers know, I am focused on health care reform and am frustrated by the general dysfunctionality of the American health care system. My few posts have approached the problem from the perspective of working within the system we have, in particular by pushing doctors to emphasize patient care instead of revenue generation.

However, the latest issue of The Atlantic magazine has a fascinating article that takes the entire system to task and suggests a radical new approach. The author, David Goldhill, is a businessman rather than a policy guy, but he was driven to explore the health care system after his father died from a hospital-acquired infection. (Disclosure: I know David and am friendly with him) This article has been praised from the right and the left, and even has its own Facebook page.

Goldhill starts from the specifics and moves outward. He notes the 100,000 deaths per year in the US from hospital-acquired infections, and how hard it is to convince doctors to adopt a checklist that has been proven to dramatically reduce infection. “But many physicians rejected the checklist as an unnecessary and belittling bureaucratic intrusion, and many hospital executives were reluctant to push it on them.” He wonders how a society that shuts down restaurants for a single case of food poisoning tolerates this.

As a businessperson, Goldhill assumes there must be a reason for these terrible facts. Since people respond to economic incentives, the incentives in health care must be deeply flawed for our system to work as poorly as it does. Goldhill’s diagnosis: rather than following a market system, where consumers drive providers to lower costs and improve service, our health care system is a patchwork of information-obscuring insurance and lobbying-influenced regulations. In a market system, DVD players get better and cheaper, while in the health care system, nothing ever gets cheaper.

Goldhill’s treatment plan is to make health care more like a standard consumer product. Everyone will have catastrophic insurance, but in his system, those plans will have a deductible of $50,000 rather than the usual $2,000-$4,000. The government will provide subsidies to make this insurance affordable. But for most medical expenses, consumers will pay for them out of income and savings. Where will they get the money for this? Under Goldhill’s plan, since employers will no longer need to provide insurance ($12,000 per year for the average family), workers will be paid more, and thus have money to spend on medical expenses. If consumers are paying for most things themselves, the entire system will be subject to market forces, which improve quality and decrease cost.

I’m not doing justice to Goldhill’s solution. When read in full, it makes a lot of sense. Goldhill notes at the beginning of his piece that he is a Democrat who believes that everyone should be covered, and his system would do that. Ignoring the fact that Goldhill’s system will never happen (the insurance and hospital lobbies are way too strong), I have only one general critique, which has that Goldhill has, I think, too much faith in the market, which we have seen over the past two years is not always efficient, and is sometimes capricious and cruel. It’s bad enough when the market screws up your mortgage, but if it ruins your health care….

Here are two specific examples where I think Goldhill overestimates the wisdom of the market:

  1. Goldhill says that if companies did not have to provide insurance, all the money saved would go to the workers as increased salary, so they could afford their own health care. But we all know that the majority of the savings would actually go to executives and stockholders, and workers would be left uninsured and unable to pay for visits to the doctor.
  2. I certainly agree that we want people to be better informed consumers in the health care market, but as the mortgage debacle has shown us, many people are simply incapable of making intelligent decisions in a complicated environment. If somebody is unable to figure out if they can afford an adjustable rate mortgage, can we really expect them to intelligently perform the cost-benefit analysis between possible treatment plans for their cancer?

Medical Doctors: Stop Being Greedy

Check out this article about the panel that decides how Medicare reimburses every procedure, doctor visit or call in the medical world. The panel is completely run by the AMA, and dominated by specialists. So, big surprise, specialist visits and procedures are continually going up in value, while simple visits to your GP stay static. And the government does nothing to stop this; instead, the AMA — an organization of doctors — gets to decide how much doctors should get paid. Paid by taxpayers.

This is why simple tests cost $3,000, or why my GP tried to charge me $250 to spend 90 seconds freezing off a wart (I refused to pay). I have commented before on how greedy doctors are no better than subprime mortgage traders on Wall Street, and this article adds evidence to my viewpoint. A system where people get to decide on their own compensation is a bad system, and a world where jerk off dermatologists (yes, I’m talking about you, Dr. K) think they deserve $500k per year is a world with misplaced priorities.

So, AMA, organization of money-grubbing doctors that has fought health care reform for the past 60 years, I say to you: stop being greedy and screwing over your patients.

Greedy Doctors Are The Same As Wall Street Bankers

Given the current legislative efforts to reform health care, it’s not surprising that there are plenty of articles being written on the subject. But I was surprised that in just one day last weekend I managed to read three articles that blamed doctors for a decent chunk of our out of control health care costs. More interesting, not one of these articles was talking about defensive medicine or a focus on high tech care; no, they were all basically saying that too many doctors are greedy for money.

First there was this article in the NY Times, which discussed how the AMA has since 1929 (yes, 80 years ago) fought against systems (such as cooperatives) that would potentially limit doctor incomes by creating a salary structure rather than a fee for service structure. Although some cooperatives were formed, it was over the objections of the AMA. Not coincidentally, the two medical groups that are continually held up as paragons of cost-effective and world-class care, the Mayo Clinic and the Cleveland Clinic, are both cooperatives. At a recent conference on cost-effective care, most doctors and hospital executives agreed that the fee for service system is “archaic and fundamentally at odds” with good practice.

Next was this article by Dr. Atul Gawande in The New Yorker, in which he investigates why health care in McAllen, Texas is so much higher than the national average. In fact, he notes, McAllen’s health expenses are twice as high as El Paso, Texas, which has the exact same demographics. Gawande explores a number of reasons – service quality, technology, legal environment – but ultimately concludes that it comes down to massive overuse of medical care. Doctors in McAllen do far more tests and scans and procedures than average.

But Gawande goes even further. He blames this overuse not on a surfeit of caution, or desire to better treat patients, but on doctor greed. Doctors make more money when they do more procedures, and if they have ownership stake or revenue sharing agreements with imaging centers or labs or hospitals (and many of them do), then they have financial incentive to send patients to those facilities. Interviewing doctors in McAllen, Gawande uncovers a culture of greed, where doctors are in it for the money. Or, as a McAllen cardiac surgeon says, “Medicine has become a pig trough here.”

I sent Gawande’s article to a friend of mine, who is a doctor in a family practice, but who also has a Master’s in Public Health and did a fellowship in preventative medicine. My friend agreed with Gawande’s conclusions, noting that “nobody wants to give up that $500k+ salary, and the AMA is a huge lobby.”

Finally, The New Republic had a piece that sort of summed it all up, noting:

“Given how much of the game of reining in costs hinges on doctors–whether they see themselves as profit-maximizing small businessmen (or, for that matter, large businessmen), or as fundamentally involved in healing patients and receiving fair compensation for that service–I think we have to think about the kinds of people who go into the profession.”

And this is where I get to have my say. Because if someone is going into medicine because they want to make a million dollars, I say they should go to Wall Street instead. As this chart shows, it isn’t exactly like doctors are hurting for money. Practicing medicine isn’t a license to print money, and when a doctor orders an extra $1,000 procedure, while he gets to keep that $1,000, we all have to pay for it through higher insurance premiums. At which point he is no better than the greedy mortgage-backed security trader whose huge bonus ended up being subsidized by taxpayers.

This just in: right before posting, I read this article in the Wall Street Journal about how the AMA and the American College of Surgeons both came out against the idea of a commission setting Medicare payments to doctors. These groups continually lobby against reductions in Medicare payments.

Added bonus links:

  • Slate article describing how a Supreme Court anti-trust decision gave rise to doctor-owned hospitals and other greedy doctor abominations.
  • Denver Post article about a woman who died when a doctor-owned specialty hospital that didn’t have the resources necessary to handle her post-surgery complications.
  • Book review by Harvard Medical School professor Arnold Relman, who attacks the “medical-industrial complex” and the whole concept of profit-driven medicine: “in no other country is medical care marketed and advertised so aggressively, as if it were just another commodity in trade.”
  • New York Times article describing how the greediest hospital in Gawande’s article is one of the largest contributors to Democrats this year as it lobbies “to soften measures that could choke its rapid growth.” This lobbying has been successful, as language limiting physician ownership of hospitals has been stripped out of bills. According to Democrat Pete Stark, the physicians “just thought they could buy their way out of it, and it’s a sad commentary on the Congress.”