CHAPTER 5 CHAPTER 5Most people, when confronted with two perfectly convincing but utterly contradictory interpretations of the world, experience feelings of disorientation and profound discomfort—what psychologists call a cognitive dissonance. That might be a good description of the current American view of the health care industry.
A 2013 Barron’s investors’ report declared health care stocks to be one of “the healthiest sectors” in 2012, with “unstoppable earnings growth” and a “big pickup in the productivity of drug discovery.” “Biotech stocks were on fire.” Twice as many “very exciting novel compounds” were likely to be approved in 2013, and “a variety of advancements were under way in the treatment of cancer.” Indeed, as this book goes to press, a consortium of big private equity funds—KKR, Blackstone, Carlyle—are circling around a possible multi-billion-dollar bid to take over Life Technologies, Inc., one of the world’s leading “biotool” producers, working at the intersection of the twin revolutions in microprocessors and biotechnology to produce advanced tools for developing drugs and diagnostics.1
At about the same time, William Baumol, a celebrated economist, released a book that characterized health care as a “stagnant service,” while a paper by two blue-ribbon health care economists lamented the “deadweight” of health care on the economy. That was consistent with a 2009 analysis by the president’s Council of Economic Advisers, warning that the continued growth of health care threatened to drag the entire economy into the mire.2
One source of the dissonance is that economists usually count Medicare and Medicaid payments as simple transfers of wealth to the elderly and poor, as the “deadweight” paper seems to have done. But that is not what happens. Suppose an elderly woman gets an open-chest heart valve replacement, which might cost Medicare $100,000. The old lady receives the valve and followup services, but the $100,000 is spread among heart surgeons, operating room nurses, the high-tech firms that equipped the operating room and made the heart valve, and a long list of other medical professionals. The old lady triggers the expense but doesn’t make off with the money. Health care is a vibrant industry, with some 14.5 million mostly middle-class workers providing direct services, plus another 1.2 million employed in the pharmaceutical, medical device, and health insurance industries.3 During the recent, and still-lingering, Great Recession, health care added two million workers. The recession would have been much deeper without them.
One can complain that health care is not efficient and often overcharges, which is true, and I will return to that. But many industries share those faults. Besides being a case study in overcharging, the finance sector occasionally wreaks economic havoc. A London energy think tank reports that the oil companies charge three times the cost of production for their crude, which may be a deadweight record.
The Baumol “stagnant service” hypothesis seems similarly misconceived. Some personal services have little room for productivity improvements. Staging a Molière play takes roughly the same number of person-hours in preparation and performance as it did in the seventeenth century. Kindergarten teachers may also fall into that group, but the concept applies only to segments of health care workers, like home health aides.
Baumol seems to ignore the enormous expansion of health care’s technical capabilities. For example, he writes: “people who quit smoking after their first heart attack had much higher rates of long-term survival. Smoking cessation remains a prime means of reducing health-care costs.”4 He has that backward. The data, although sparse, pretty clearly suggest that smoking saves health care dollars, not the other way round. Smokers on average die younger and quicker than other people. They are less likely to go on Medicare, and spend fewer years on it. In fact, extending the life of anyone who’s already had a heart attack, smoker or not, always increases health care spending. Saving heart attack patients is one of the major triumphs of post–World War II medicine, and it is fiercely expensive. It is the ever-increasing power of health care technology that is driving the spending increases.
Anyone who survives a heart attack becomes a permanent resident of the medical mansion. Heart attack survivors need regular prescriptions, frequent specialist checkups, and usually additional interventions, like stenting; many develop kidney problems. They’re a quintessential high-cost patient. If extending the lives of heart attack survivors contributed to “reducing health-care costs,” private insurance vendors wouldn’t search so diligently for pretexts to cut them off their rolls. The range of problems and the methods for attacking them has expanded at the same time—valve replacements (many now implanted without opening the chest), ventricular assist devices for congestive heart failure, genetic therapies for myocardial decline, and within just a decade or so from now, compact mechanical hearts. Productivity in health care doesn’t come from washing bedpans faster; it is embedded in the vastly greater powers that technology confers on practitioners.
Oncology is now making a similar rate of progress: survival rates among cancer patients have been rising steadily, and the range of cancers susceptible to successful interventions are growing apace. From 1990 through 2008, the age-adjusted mortality rate dropped by about a third in throat and lung cancers for men, in colorectal cancers in both men and women, and in breast cancer, while prostate cancer death rates dropped by 42 percent. Among the major cancers, the only stable death rate during that period was for women’s throat and lung cancers, although the rate was still about a third lower than the improved rate for men.5 The cost of followup care for cancer survivors is at least as expensive as that for heart attack survivors.
The clearest case of the cost of medical success is AIDS. A few decades ago, the opera diva and impresario Beverly Sills mourned the long string of funerals for talented young artists she had been attending. Once the virus was in your body, it quietly destroyed the immune system, until it triggered full-blown AIDS, which almost invariably led to an early, gruesome death. But over time, an international scientific collaboration, including the major pharmaceutical companies, pushed out the boundaries of bioscience and brought the disease under control. Now AIDS patients who take care of their health and stick to their drug regimens can lead more or less normal lives. But it didn’t come cheap, and all AIDS patients are very expensive. Rising healthcare costs are, therefore, partly a measure of the success of pharmaceutical technology. Technological success has created new markets—literally: previously, the customers would have perished.
I got a first-hand look at the state of cardiac technology when I spent most of a year shadowing an elite cardiac unit.* The technological transformation is much deeper than, say, the array of new equipment in an operating room. The assault on heart disease required a cardiac infrastructure far beyond new cardiac ICUs or heart transplant units, including the equipping and training of EMT units and emergency room (ER) staff. A critical ER challenge is knowing whether a presenting patient is having a heart attack, for there is a brief window of time after onset when certain drugs are effective. But if the patient is not having a heart attack, the same drugs can kill him. Voilà, a bedside test kit to detect the protein marker of a true heart attack. It takes a big and smoothly humming research machine to produce such quotidian marvels. Even the simplest and least expensive therapies aren’t cheap. Taking a daily aspirin to forestall a first heart attack has arguably contributed as much as heart surgery to lowering the cardiac death rate. But making that discovery required quite a large standing research capacity, involving both university networks and private companies, capable of managing large population panels over many years.
A substantial slice of academic literature on health care attempts to pin down the productivity of health care by calculating the economic returns from lives saved.6 With all respect, I think the economists are making a category error—applying a standard from one realm of discourse to another where it isn’t appropriate. Leaving aside the simplest cases (e.g., should a professional pitcher be willing to pay for his own Tommy John surgery?), there is no way to measure the economic return of big-ticket health care spending. The “value of a life saved” is just a metaphor; the return, whatever it is, doesn’t appear on anyone’s income statement. It is also an unrealistic gloss on the real world. The heart surgery patients I saw at Columbia were generally in their late seventies or early eighties, and they mostly did well. The thirty-day mortality rates of such surgeries, even at that age, is only about 2 percent, and about the same percentage end up with major impairments. Some 95 percent or so go home, stiff and sore to be sure, but with their heart problem cured. At the six-week return examination, they usually looked fine, and were glad they’d done it. But they’re not going to earn the country hundreds of thousands of dollars in new output; it’s more likely to cost much more than that in additional medical care.
We perform heart surgery on young and old alike because we value human life: if we can save a life by a reasonable intervention that is likely to succeed, we do it. (Good people will strongly disagree on the meaning of “reasonable intervention” and “likely to succeed,” but the principle still holds.) The shifts in heart, cancer, and AIDS care are high-profile examples, but the same forces have been in play throughout health care, far beyond the treatment of life-threatening diseases. New products and services like lap-band surgery, implantable electrodes to control Parkinson’s, injectable drugs to manage chronic psoriasis, all genuinely help people. They also expand the range of medical offerings and increase the customer base. While they have little effect on death rates, they greatly improve the quality of life, but that’s what most consumer products do. Refrigerators, cars, computers: medical treatment is another high-tech consumer product that is as desirable as it is marketable. In fact, it’s the whole point of economic growth.
The successes of the assault on cardiac disease prompted a number of other big-science “wars” on specific conditions, with coordinated, mostly university-based research, and large infusions of federal money. The rollout of new technologies visibly increased health care spending pressures by the early 1970s. The Nixon administration responded by pushing health maintenance organizations (HMOs). A cost-saving priority of the HMO movement was to shift care as much as possible from expensive hospitals to outpatient centers. “Surgi-centers,” or “Doc-in-a Box” offices started popping up in shopping centers. The early emphasis was on getting patients out of emergency rooms to avoid heavy hospital overhead charges. Reimbursement rules were modified to favor ambulatory services—in effect, splitting the cost-savings with the doctors.
A radical transformation ensued, with utterly unintended consequences. Vast swaths of medical technology, especially in surgical practice, were virtually reinvented. Instruments and procedures were redesigned for minimally invasive practices. Band-Aid–sized incisions, tiny fiber-optic cameras, tricky keyhole maneuvering of long-handled instruments are now completely routine across the surgical spectrum, including inpatient settings. Patients often insist on it—no more big scars. The movement has gone well beyond surgery; even hospices are moving away from the inpatient setting. Remote monitoring, along with traveling nurses, perfusionists, and other professionals, can provide quite a good service for patients who would rather die in their homes, and usually with higher provider profit margins.
A 2008 McKinsey research report noted the sweeping nature of the transformation, which was unique to America. While the analysts conceded that “the shift has been highly beneficial” in many respects, they noted with alarm that “due to its greater convenience to patients and availability of services” utilization was rising rapidly.7 Health care economists also frequently lament the lack of savings from simpler, less invasive, surgeries.
But the laws of supply and demand also apply to health care. The old open gall bladder surgery imposed a heavy cost on the patient—a long incision, one or two nights in a hospital, a lot of soreness, and perhaps a week away from work. Most patients had to be doubled over with pain before they decided to do it. With the new procedure, patients are in and out in a half day or so, with only a few Band-Aid-sized incisions, and usually back to work by the third day. So the demand curve shifted. Doctors appropriately advised patients to take care of the problem earlier; there are risks in living with a diseased organ. The data cited by the McKinsey researchers saw no pattern of overpractice. It was simply that the standard of medicine had changed to incorporate a new capability.8
That same kind of demand-shifting product development accounts for much of the rise in health care spending. Modern pharmaceuticals are making major inroads in the treatment of depression, hypertension, diabetes, arthritis, and other chronic diseases. Surgical interventions to replace hips, knees, and eye or ear parts, help people stay active and live longer. MRIs have replaced older, invasive, and often dangerous diagnostic procedures, while advanced PET-CT–scanning systems facilitate informed interventions against cancers and heart and brain diseases. In most such instances, if by no means all, product costs go down. Treating depression with Prozac and similar antidepressants is cheaper and more convenient than talk therapy, and usually as effective. Since millions of people can take advantage of the new drugs, spending on depression has skyrocketed. From the time of Adam Smith, we’ve known that lower costs and improved convenience expand markets.
But that leaves the question. If technology is improving so fast, why is American health care such a mess?
Consider two galaxies in collision. The first is the modern American health technology infrastructure, constantly in flux and ever expanding, spinning out one new marvel after the other, some of which will eventually become stars in the medical firmament, but many more that flare brightly for a while then flame out and disappear. That first galaxy is crossing paths with another galaxy altogether, the American medical profession. The collective self-image of American doctors is still redolent of the Norman Rockwell Post covers, the solo practitioner, a friend and sagacious counselor, putting in long hours at modest pay, his file drawers stuffed with never-to-be-paid receivables from struggling families. In actuality, however, the medical industry has transformed into a formidable money-seeking organism. Doctors increasingly ply their trade within various forms of corporate organizations devoted to exploiting the hallowed fee-for-service payment paradigm by ping-ponging patients between as many diagnostic tests and minor procedures as they can.
Despite the trend toward group practice, individual doctors are still extremely independent in the details of their practice patterns. While most belong to HMOs and other nominal “managed care” programs, those are rarely more than billing and infrastructure cooperatives. A behavioral research paper by Cornell’s Richard Frank reports that doctors tend to develop practice patterns by emulating their peers, rather than from journals or published professional standards, in part because it’s the easiest way to minimize second-guessing. He also provides a realistic account of the energy and effort it takes to convert, say, a journal report, into a new practice protocol that runs counter to the local peer consensus.9
Since there are thousands, perhaps hundreds of thousands of local physician peer groups in the United States, it is a classic setting for rapid “evolutionary drift.” Small variations in initial practice patterns will gradually evolve into something approaching different species of care. Wide variations in practice patterns and costs, in short, would be the normal case, not a suspicious anomaly. At the same time, fee-for-service medicine, the American penchant for rapid technical progress in treatments, and pressure from drug and device companies ensure that the drift will generally be in the direction of higher spending.
In real life, when there is a clear and publicized consensus on correct treatment at the medical societies, practice does converge, but it can take a long time. At present, it appears that some 50–60 percent of cases fall squarely into well-defined patterns with only minor practice variations. But that still leaves very large areas where drift is the normal case. There is a similar pattern in hospitals. A recent study using national hospital data on caesarean sections for women who had not had a previous C-section, who were delivering single babies carried to term and not breech, found that the rate of C-sections varied from 7 percent to 70 percent.10 It has also been extremely difficult to get all hospitals to practice simple, and demonstrably effective, methods of infection control, despite their benefits for patients, for a hospital’s reputation, and for the national medical pocketbook.11
The surgeon-journalist, Atul Gawande, examined the reality of drift in a 2009 New Yorker article, an account of a visit to McAllen, Texas, one of the very highest-spending health care locales in the country.12 Strikingly, neither the doctors nor the hospital managers he spoke to were aware of their lavish spending patterns. But wherever there is a degree of flexibility in choosing a treatment path, McAllen’s doctors seem to pick the most expensive one. The city of El Paso, with an almost identical demographic, has a markedly more conservative practice pattern. There is no lack of venality in the McAllen practice patterns—the doctors themselves cite plenty of examples. But Gawande, correctly I think, pinpoints McAllen as an “outlier.”13 In the evolutionary drift that characterizes US medical practice, some locations must end up at the far end of the distribution.
But evolution still has a history. The story Gawande pieced together from his interviews in McAllen was that in the early 1990s a few strong personalities with entrepreneurial instincts became influential in the local societies, and the medical community gradually became more revenue-driven. Over time, they built the most modern facilities, and gradually opted for the most expensive treatments, often with double the national-average volume of procedures and tests. Younger doctors who joined McAllen practice groups took the pattern for granted. Becoming the country’s revenue champ was never their objective, but once there, it’s an attractive place to be, and they are resistant to change; indeed some engage in ethically ambiguous behavior to preserve the status quo.
Certainly, we should crack down hard on unethical behavior. And there are a number of obvious conflict-of-interest situations, like self-referral, that should never be permitted. One study showed that doctors with ownership stakes in local radiology centers were four times more likely to refer patients for screenings.14 Promoters of a new spinal insert offering dubious relief to back-pain sufferers pointedly solicit spinal surgeons as investors.15 Urologists who own biopsy testing facilities order 72 percent more tissue sample tests than a control group.16 The government has several times declared war on self-referral but has never really seen it through. It would be more appropriate, perhaps, for the profession to adopt it as an ethical canon.
The money-driven behavior of doctors, deplorable as it sometimes is, pales by comparison with the big drug and device vendors and the hospitals that profit by enabling them. Steve Brill, in a splendid, angry, piece in Time magazine focused on the bizarre charging schedules that hospitals maintain that incorporate list prices that are five to ten times higher than what they negotiate with Medicare and private insurance companies—for example, $24 for a generic pill that costs a nickel in a drugstore and double-and triple-billing for minor amenities. Aside from extorting large sums from wealthy medical tourists, they weigh tragically on the near-poor who have no health insurance—like the $902,000 bill handed to an uninsured widow whose husband had received home services over the final eleven months leading up to his death. Even religious hospitals supposedly pursuing their mission in “the healing spirit of Jesus” set the lawyers and debt collectors on such people, dunning them for whatever they can get. That kind of exploitation should fade away as the new national health insurance program takes hold. But Brill’s cases highlight the enormous profits built into the supply chain, as well as the escalating salaries of hospital administrators.17
Perhaps the most egregious current example of hyperexpensive services of questionable benefit is the current boom in proton beam centers. They cost up to a quarter billion dollars to build, and require a football-field-sized particle accelerator. Because the US Food and Drug Administration (FDA) treats most new devices as simply modifications of the established tools, regulatory approval usually requires just a showing of the commonalities. So seventeen such centers—costing conservatively $3.5 billion in total—are either in operation or under construction, and many more are being planned.
Proton beam centers are an alternative to traditional radiotherapy. All forms of radiotherapy carry cancer risk. Protons, like the photons or electrons of traditional therapies, act like so many tiny, inert bullets that can muck up the cellular reproduction machinery and cause cancer. Proton beams can be more precisely controlled, however, so the smaller area of exposure should lower cancer risk. Since most radioactivity-induced cancers have long latency periods, proton beam therapy would be especially attractive for pediatric radiation treatments, which is too small a population to justify a national program. Currently, the primary proton beam treatment population—accounting for about 75 percent of the patients—consists of prostate cancer patients, who are predominately older men. The hope is that the greater precision of the beams will result in less collateral damage. At least one proton beam center had to be built to test that hypothesis, but the industry had no interest in waiting for confirmation. So far, there has been only one small retrospective study of prostate cancer outcomes after proton beam treatment. It turns out that they are about the same as with the standard radiation, and possibly a little worse. A gold standard double-blind study is underway, but it will be some time before its results are known. The mega-billions boom in proton beam centers is less about medicine than about market shares and prestige.18
And then there are the drug companies. Besmirching their reputation is probably not possible at this point; the impersonal villain in current thriller movies is now as likely to be a drug company as a financial conglomerate. To be fair, big pharma can turn out wonderful drugs. A Sloan-Kettering doctor once asked me rhetorically: “Who finally came up with the AIDS drugs?” The basic research is typically performed in government-funded laboratories, usually in universities. But converting a promising compound into a usable drug is a science all its own. (Huge swaths of your internal chemistry exists just to kill off alien invaders like drugs.) So it is depressing to read each year the list of criminal and civil settlements the Department of Justice has made with the drug companies. In 2012, GlaxoSmithKline paid $3 billion to settle charges that they had unlawfully marketed drugs* for unapproved purposes, had misrepresented “best prices” to the government (to get better Medicare prices), and had paid kickbacks to doctors. Abbott Labs paid $1.5 billion to settle similar charges, while Merck paid $441 million to clear up the last charges relating to its Vioxx fiasco. In 2011, the government reached settlements with eleven companies for a total of $1.4 billion, down from $4 billion in settlements against 21 companies in 2010. Rolling the calendar back produces just more of the same—the same companies, the same offenses.19
So why do we put up with it? In part because all big businesses have been coddled in recent years, but mostly because Congress won’t let Medicare use its purchasing power to negotiate pharmaceutical and medical device prices—which is disgraceful, since it’s the norm in all other advanced countries.
So is modern health care just a “Ponzi Game,” as an angry senior financial executive said to me a short while ago? No, it’s not. To be sure, it’s often overpriced and overused. But for the most part it is effective. There have been a number of academic studies of the contribution of technology to improved survival rates among patients. Almost all show strong increases as technology improves—people who have had a stroke, patients with various cancers, neonates, car crash victims. Improved medical interventions have reduced the murder rate by a factor of five since the 1960s. The economist Frank Lichtenberg carried out a series of studies comparing outcomes of like patients by the vintage of drug or other intervention used in the care setting. Patients with newer vintage cardiovascular drugs had significantly lower cardiovascular hospital admissions and lengths of stay and lower cardiovascular death rates. Controlling for demographic variables, a longitudinal study of longevity changes in Medicare patients across all states found significant correlations between longevity and the use of advanced imaging technologies, newer vintage drugs, and the average quality of medical schools attended by physicians. (The centers that used the most modern tools also had roughly the same per capita costs as the ones that didn’t.) Two other studies showed that the use of newer technology significantly reduced cancer death rates and improved the “activities of daily living” (ADL) scores of long-term nursing home patients. Finally, in a study of post–age-twenty-five survival rates in thirty countries from 2000 through 2009, the average vintage of pharmaceuticals used was the only variable that significantly related to all measures of longevity improvement; newer drugs accounted for three-fourths of the overall longevity improvement over the period.20
In other words, it isn’t the usefulness of technology that is the problem, it is the chaotic mismanagement of the overall health care system.
Far more than any other country, the United States has attempted to manage the direction of health care by tweaking payment incentives. It hasn’t worked, and unintended consequences, like the vast expansion of outpatient spending and the extreme complexity of billing and payment processes, abound. The worst of the unintended consequences may be that the focus on money has made doctors very conscious of their bottom line. Doctors now talk and think like business school graduates, tracking their market shares and figuring the payback from equipment investments. The whole idea of managing so layered and complex a system by distant manipulations of monetary microincentives is misconceived—another example of a category error.
Proposals for making health more consumer-driven are equally benighted. Measured by spending intensity, the typical Medicare patient is a little old lady with multiple chronic conditions, on multiple drug regimens that leave her foggy and confused, and possibly festooned with tubing and stitches. There is no central record of which doctors she’s seeing or what other medications she’s taking. If she is at an end-stage disease point, her family may be insisting on every possible measure to keep her alive, or may be relieved at the prospect of her demise, or may be in violent disagreement with each other. In such a setting, “consumer-directed care” is a nonsense.
The clear pathway to reforming American medicine is to replicate true managed care plans along the lines of Kaiser Permanente and Mayo Clinic models. Doctors work on salary, so there is no jockeying to maximize fees. At Kaiser,* there is a conscious injection of an overhead medical management layer—run by doctors, not economists or B-school grads. Senior Kaiser doctors in each specialty regularly assess best-practice standards, and over time have developed dozens of “care pathways” covering the bulk of presenting patients. Innovative treatments are adopted when there is evidence to support their use; staff doctors may not adopt any hot new idea. The care path also stretches across the institutional spectrum, from outpatient through inpatient and rehabilitative care. In other words, unlike the standard American group practice—solo practitioners sharing common housing and office facilities—Kaiser is a real system. Patients are not left to find their way through a medical maze; instead, they are directed by Kaiser, and are monitored through each stage of the care pathway.
Kaiser also tracks outcomes by doctors and treatment modality to feed back into the care pathways. Peer review meetings keep medical performance under continuous surveillance. There’s no black magic here. The heart surgeons at Columbia do that too, but they have a small, contained, operation. The Kaiser achievement is to bring it to scale. Kaiser plans are not necessarily the cheapest care; they tend to be roughly in the middle, which sounds right if they are reducing excessive care while using case tracking to ensure care follow-through.
Now that Obamacare seems to be secured, the best path for reform would be to gradually convert the state exchanges, and all of the federal exchanges, into Kaiser/Mayo-style staff-doctor practice plans. A number of surveys suggest that doctors are becoming more willing to work on a salaried basis; the gradual feminization of the profession also pushes in that direction, since it’s easier to combine professional and family lives. Over a longer time frame, assuming that Obamacare evolves in such a direction, it would make no sense to maintain Medicare and Medicaid separately. As it stands, a large number of working poor are likely to bounce back and forth between Medicaid and Obamacare. Their lives are hard enough without such complications. The same is true for seniors. Kaiser/Mayo-type programs may want to start geriatric planning for some people before the age of 65, but there may be little point in doing so if the patient is changing systems at her next birthday.
The administration’s “accountable care organizations,” (ACOs) may possibly be a way-station toward a true group practice, but they are unlikely to be successful as they stand, since they are another version of the strategy of managing fee-for-service doctors with overriding monetary incentives, which has never worked. But they might turn out to be a useful transitional platform. If practice groups with strong internal links gain a major role as exchange service providers, it may be easier to take the final step and reorganize them as true managed-care programs.
My guess is that some 60 or 70 percent of American patients will gradually be drawn into federally-sponsored managed care plans, which provide evidence-based standard care at reasonable prices. The result will be a distinct tiering of care plans: one for the average joe, and a large array targeting the moderately well-to-do through the upper 1 percent. There’s nothing wrong with that. The government shouldn’t subsidize luxury care, and in particular, should not allow company-supplied luxury care to be tax deductible. (Or the level of the deduction could be limited to the amount of the average cost of the standard federal programs.)
Such an evolution, however, would require significantly upgraded data systems to track and monitor care pathways. The Kaiser system has been evolving for some twenty years now. It ought to be embarrassing that the United States, the world leader in applying information technology to business challenges, is dead last among the industrial countries in applying systems to health care. A second major benefit of good data systems is that newer techniques of statistical analysis can simulate long-term, large-population studies of procedures, devices, and medications that are not feasible with the current reliance on clinical trials.* (It was the Kaiser data systems that first flagged the problem with Vioxx.21)
To get the most out of such systems, Democrats would have to drop their opposition to medical malpractice reform. Standardized case records, with only patient names expunged should be available to public authorities for quality analysis and empirical quality ratings, just as airline flight records are. Compensation for injury would be best administered through a workmen’s compensation-type system with clear and consistent standards for awards.
There are other straightforward cost savings that could be implemented with the stroke of a pen. One would be to sharply restrict “Medigap” insurance, that covers all or most of the Medicare copays and deductibles. It has been amply documented that it greatly increases utilization. The impact on low-income seniors could be mitigated by means-tested copay and deductible schedules.
There are, at the end of the day, three reasons why health care in America costs more than in other countries. Medical professionals generally get paid more in the United States than in other countries, but so do lawyers, veterinarians, and most other professionals. That won’t change. Secondly, the radical shift to outpatient service provision brought more convenience, less trauma, and usually lower prices. That is a good thing. Sales naturally went up, which is not awful either. Other countries are gradually moving in the same direction, and their costs are now mostly rising faster than in the United States. (In an analysis of per capita health spending in twenty-six OECD countries between 2004 and 2010, twenty-one of the twenty-six had higher growth rates than in the United States.22) Finally, the freewheeling process of American technology adoption generates a lot of wasteful spending on untested procedures that are highly profitable for drug and device manufacturers, undermine the ethics and integrity of the professions, and often enough put patients at risk.
It is this last feature that should be the object of public policy. And we know how to fix it. Make better use of federal bargaining power in setting vendor payments. Establish a more organized context for medical practice, preferably along the lines of the Kaiser/Mayo group practice models. That will take a while, but the process could be expedited by consistent pressure in that direction through the new Obamacare machinery.
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* It was in 2006, with the cardiac surgery unit at the Columbia University Medical Center. I observed dozens of operations, went to most of their meetings, including those that dissected case failures, went on a transplant organ run, interviewed patients, and basically had the run of the unit. It is one of the top heart centers in the country, and does the most transplants. Overall, I was deeply impressed with the group’s professionalism, their skills, and their ethics. A couple of decades before that, I was part of a venture that developed some of the early for-profit HMOs and so have some appreciation of the cost/quality tradeoff s in any insurance scheme.
* Once a drug is approved by the FDA, doctors may prescribe it for any purpose, but the manufacturer may advertise and promote it only for the approved application. Marketing drugs for off-label uses is a felony. But companies routinely do it—not by mere hints and suggestions—but in the form of all-out marketing campaigns with expert spokespeople, in country club settings, with prepared literature, the works. NB: A December 2012 decision by a New York federal appeals court, found that the marketing rule was a violation of the marketer’s rights of free speech. That could be a dangerous development. Assuming the ruling is appealed and upheld by the Supreme Court, it could eviscerate the drug regulatory apparatus.
* I have spent time researching the Kaiser practices, but have never visited Mayo, so I don’t know the details of the Mayo protocol management process; although from everything I have heard they operate in a broadly similar way.
* The modern “gold standard” for clinical effectiveness is the randomized, double-blind clinical trial. In real life, it is a highly porous, easily finessed, hurdle. Drug companies are masters at manipulating trial size to disclose effectiveness against a placebo while missing remote side effects. Large-sample, long-term, trials are expensive and difficult to administer, and trial subjects tend to be younger and healthier than typical patients. The most powerful of the newer statistical techniques may be “propensity scoring,” which facilitates the retrospective creation of control and trial groups from large patient databases. While the comparisons are not as clean as those from a true double-blind study, they can be built relatively cheaply, can quickly analyze very large populations over much longer time periods, and are usually far more revealing than the trials used for FDA approvals.