Tag Archives: health care

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.

On Airlines, Hospitals, Blizzards and Flu Outbreaks

Here is a really interesting article comparing the airline industry to the public health system, with full service hospitals being the legacy carriers, serving everyone and subsidizing low fare services with high fare ones. Specialty hospitals are the upstart airlines, able to focus on only providing profitable services. And as they all cut capacity to remain profitable, what happens when crisis hits? We just saw what happens to airlines when a blizzard strikes; so what happens to hospitals when a pandemic hits?

Less Health Care Will Lower Costs

Interesting piece from the NY Times about how if we plan to cut health care costs (which EVERYONE agrees we have to do) it is going to mean changing the general view that more care is always better. The facts indicate that more care is often not better, and is certainly more expensive.

If you want to see a prior post about health care rationing, it’s right here.

Tea Party Goes Racist

In a tea party-led protest of the health care bill outside the US Capitol yesterday, protesters started chanting the N-word at John Lewis, a black congressman from Georgia and a giant of the civil rights movement. I understand (although don’t agree with) fighting against the health care bill, but yelling racial epithets at anyone, let alone 70-year old men, is another clue that, as I’ve discussed before, parts of the tea party are crazy.

Why Health Care is a Disaster

Today’s Wall Street Journal had a must read story with an example of why health care costs are out of control, and why a significant overhaul is going to be needed to fix them. In 2007 a major study demonstrated that in most cases, inserting a stent (a $15,000 procedure) to help chest pain was no more effective than using drugs alone. The study laid out the circumstances in which this was the case, and made clear that performing a stress test to determine the cause of the chest pain was a good idea before inserting a stent. The head of the American College of Cardiology called the study a “blockbuster.” Awesome: fewer surgical procedures, cheaper health care, same outcome. Good news, right?

Wrong! The study made no change in the number of stent procedures in the US. Why? Well for one thing, cardiologists make $900 per stenting procedure, which is why the average interventional cardiologist makes $500,000 per year, up 22% over the last decade after adjusting for inflation. As the author of the study put it, “What’s going to continue to drive practice is reimbursement.” But if the only challenge was the greed of doctors (regular Thoughtbasket readers know how I feel about doctors who see their practice as a path to riches), that could be addressed. Insurance companies could just pay less.

But insurance companies face a competitive problem: if one cuts payment for stents, maybe customers will go to another insurance company that doesn’t. Plus, since insurance companies usually mark up the cost of procedures anyway, they often don’t have a great incentive to push down the price doctors charge.

When Washington state tried to use the study to change its Medicaid rates, and wanted additional data, the stent makers and cardiologists in the state (including the cardiologists at the University of Washington…employees of the state!) refused to cooperate. Washington had to give up.

And patients get some blame too: as one cardiologist put it, if your doctor says “let’s try drugs first, and then maybe we’ll stent later,” you are likely to just find a doctor who will stent immediately. Americans tend to expect an immediate fix from their doctors.

So doctors, insurance companies and patients all essentially conspire to have unnecessary treatments that cost about $5 billion per year. That is $5 billion, each year, or 5% of the total cost of the health care bill currently in Congress. If something so simple and so clear is so hard to fix, how do we expect to bring other health care costs down?

CEO Council Issues Liberal Recommendations

The Wall Street Journal recently gathered a large group of CEOs together to discuss the top issues facing the country. The broad theme was “How to Rebuild Global Prosperity.” Under that theme were four subsections, and in each subsection a committee of CEOs produced five recommendations. What was fascinating to me was how each set of recommendations matched up with generally liberal positions.

The Energy and the Environment committee recommended:

  • Diversify U.S. energy
  • Promote energy efficiency
  • Cap-and-trade bill
  • Federal plan for electric grid
  • Diversity transportation systems

The Economy and Finance committee recommended:

  • Sustainable job creation
  • Bring back winning spirit in U.S.
  • Build greater certainty
  • Enact global trade pact
  • Tax reform

The Educated Work Force committee recommended:

  • Education is our top priority
  • Council for educated work force
  • Reward effective teaching
  • World-class teacher corps
  • Mobilize parents for change

The Health Care committee recommended:

  • Reform health-payment system
  • Measure health outcomes
  • Hold patients accountable
  • Reform medical malpractice
  • Promote integrated care

I’m not saying that these are a super-liberal set of recommendations. Certainly if Mother Jones or Howard Dean issued a set of recommendations on these topics, they would be different, although there would definitely be some overlap. But if you take the entire set of recommendations, I would say that they match up more closely with the Democratic platform than with the Republican platform. And if you take the Tea Party wing of the Republican Party, I’m not sure that they would agree with any of the CEO recommendations.

What does this all mean? That when you get outside of Washington DC, the country isn’t as polarized as the media makes it seem. A collection of the most powerful CEOs in the country comes up with recommendations that are mainstream liberal. The majority of citizens are sitting solidly in the center, and if politicians and pundits would stop acting like jerks – if they would stop, listen and think – then maybe we could actually solve the big problems that our country faces.

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.