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I have finally admitted to myself that I am going to have to do this in parts. It is hard for me to write about health care. Health care in America is an emotional topic for me as I think it is for everyone. Health care costs are rising and they are doing so out of proportion to benefit. In fact when you compare our expenditures with the United Kingdom a nation with half our per person, per capita, expense you find that the money that we are spending does not translate into better health. Among developed nations, we lag in rates of infant mortality and healthy life expectancy and lead developed nations in high rates of obesity, smoking and HIV. As a nation we have proven that throwing money at a problem like health care only increases costs and does not improve outcomes. Our health care system is so crazy that at one end we can have a woman petition her health care provider to pay for a highly experimental procedure to help her manage her fibroid uterus and abnormal uterine bleeding and at the other end another woman goes without the basic health care screening needed to keep her healthy. The patient petitioning her insurance company already has about a dozen proven ways to deal with her problem, but no, she wants the experimental procedure and she wants someone else to pay for it, i.e. her insurance company. In our society we want and expect everything at little personal expense. There is a significant difference between denying access to care and denying access to experimental procedures or demanding that patients share a significant portion of the financial burden to benefit from experimental procedures, but as a society we deny that there is a difference. We use ridiculous idioms like “death panels” to stoke the fires of hysteria and forestall meaningful debate. We make incredible investments in technology most of which are not proven to provide any real benefit over the treatments currently available while whole segments of the population lack access to immunizations and health screening proven to prevent cancer.
In America we want it all. We want complete access to the most expensive treatments and we want to pay the least possible for it. I have written in previous posts that America is ill. We suffer from a Walmartization of our very consciousness. And that Walmartization extends to health care. “I have good insurance, so I may as well use it,” is a phrase that I hear often spoken by friends and family to justify very frequent doctor’s visits to specialists. We say that good insurance is the insurance that provides the broadest coverage with the least out of pocket cost for us. But is that the way we really ought to be thinking about what is essentially a scarce resource? What do I mean by Walmartization? Walmart sells a lot of stuff cheap. So cheaply, in fact, that they have to sell a lot of stuff to make a buck. Walmart has brought to reality the concept that the things we need ought to be cheap. There is a public perception that health care which is intrinsically expensive ought to be cheap.
Why is health care intrinsically expensive? It is intrinsically expensive because it requires training and lots of it. The moment that you can remove the skill require to do a task from the task, is the moment that you can lower costs. The reason that mass production works is that individuals on an automobile assembly line, don’t have to know and probably don’t know how to assemble an entire automobile. They just know their one task on the assembly line and to that extent they are entirely replaceable driving the overall costs of production down. The cars that cost the most today are the ones that are in limited production and are essentially hand crafted or who have a high percentage of human craftsmanship.
While I was in medical school little attention was paid to the business of medicine. By that I mean how to run a business. When we graduate residency training we will become one of two types of physician, 1) the business owner or self employed physician or 2) the employed physician who is an employee of an HMO, university or the US Federal Government. In the 1980s the concept of managed care began to gain traction in an effort to control rising health care costs. This concept used a system of gate-keepers, primary care physicians, who essentially controlled access to more costly sub-specialists. Here is the reality, managed care works. Patients didn’t like it because they felt it restricted access to doctors doctors didn’t like it because they thought it restricted access to patients. It did, and, so what, that was the point. I refer you to Paul Krugman’s articles over the past 2 years. Health care costs were actually flat during the period of managed care. There were concepts that arose during the managed care period. Those concepts were that before a claim is made there should be adequate, which turned out to mean exemplary in actual practice, documentation of physician work and that that work should be assigned a value and standardized across a given region. That valuation of work is called the RVU and it was intended to allow insurance companies to characterize a medical practice and fix reimbursements across a given region.
So where does Medicare fit in? Medicare was enacted into law in 1965 as part of sweeping legislation that really did change the landscape of America. In order to get doctors to buy into a program that represented huge government incursion into the market place, Medicare agreed to pay usual and customary fees to physicians. Medicare is paid for by a payroll tax that both the employer and employee pay. The total tax is 2.9% with each side paying 1.45%. This tax goes to fund Medicare part A, Medicare part B is funded by direct premiums paid by Medicare recipients. Part A covers in-patient care and part B covers out patient care. Congress made assignment of RVUs part of Medicare part B law in 1989.
Medicare Part C is actually parts A and B combined into a single policy and is administered by insurance companies. Let’s think about this a moment. Medicare is a government program but for consumers who want the ease of a combined policy (in patient and outpatient care) the government allows a middle man, the insurance company, to stand between the government and the consumer and administer part C. Insurance companies are in the business to make a profit. So get this visual: grandma gives $10 dollars to a guy called Big G for her insurance needs, Big G then gives the $10 to Smart I to give back to grandma for health services. Smart I has to take his cut so how much do you think those dollars are worth by the time they get back to grandma? $8. It is magic, grandmas $10 dollars buys $8 dollars in health care. Actually the health care reform bill was supposed to have addressed this very issue, but that is for another blog post.
Nice graphs from the Cato Institute show that heath care costs began to climb sharply when the government entered the market place through its Medicare and Medicaid programs. In the Institute’s 1994 policy analysis “Why Health Care Costs Too Much”, Stan Liebowitz argues that because consumers actually pay so little of the true costs of health care, they have little incentives to act like smart consumers. The case of the woman with the fibroid uterus is a true example and would tend to support Dr. Liebowitz’s claim. The problem with Dr. Liebowiz’s argument is the artisan model of health care, that health care is provided by skilled workers that are not readily subjected to the mass production model. Health care costs are only going to go so low; the consumer cannot vote with his feet and go down the street to see physician A because physician A is offering colonoscopies for $800 dollars as opposed to physician B who is offering them for $1500 dollars. Prices are not advertised in that way, maybe they should be but prices are only going to go so low for a reason: it takes a minimum of 11 years to make a physician and the physician you get after 11 years of training generally cannot do surgical procedures, that takes an additional 1-7 years of training.
I talked about three concepts in this post:
1) the concept of mass production producing cheaper goods and how that does not apply to health care services
2) managed care was intended to restrict access to care and thereby lower costs and also provide a way to standardize value of work over a region
3) Medicare was enacted as part of sweeping social change in 1965 and was initially part of the fee for service paradigm paying physicians usual and customary fees for care.
You can gain access to the World Health Organization’s health tables here and compare the US with other countries yourself.