Category Archives: Health Economics

Opponents of health reform tell us our non-system provides the best health care in the world and that we don’t “ration” health care.

In fact we have had economic rationing of health care for years. Arizona’s repulican governor Brewer’s denying transplants for medicaid patients is just the latest example. The Times looks at this policy of “death by budget cut.”

Effective at the beginning of October, Arizona stopped financing certain transplant operations under the state’s version of Medicaid. Many doctors say the decision amounts to a death sentence for some low-income patients, who have little chance of survival without transplants and lack the hundreds of thousands of dollars needed to pay for them.

Francisco Felix, 32, a father of four who has hepatitis C and is in need of a liver, received news a few weeks ago that a family friend was dying and wanted to donate her liver to him. But the budget cuts meant he no longer qualified for a state-financed transplant.

Such high drama is unfolding regularly here as more and more of the roughly 100 people affected by the cuts are becoming known: the father of six who died before receiving a bone marrow transplant, the plumber in need of a new heart and the high school basketball coach who struggles to breathe during games at high altitudes as she awaits a lung transplant.

Medicynical Note: This is the future of the U.S. non-system of health care without reform. The facts are that we need to find ways to be more efficient, provide value in care and assure that those who can be successfully treated receive that treatment.

At present our non-system is inefficient, provides poor value (we’re #1 in the world in percapita costs by 50% or more) and have numerous people who are being denied care on economic grounds. This in what was once the most successful economy in the world.

Article at the National Bureau of Economic Research by David Cutler notes: (Body of article is behind pay wall)

Cutler begins by noting that productivity growth has been much slower in health care than in most other sectors of the economy. In other industries, productivity growth has been driven primarily not by the development of new goods but by new ways of organizing production, distribution, and sales, changes that jointly have resulted in more output per dollar of inputs. In health care, by contrast, there has been very little organizational innovation.

His analysis of the process of medicine identifies three issues resulting in high cost and inefficiency. First, in many instances such as prostate cancer and coronary artery disease and cancer of the elderly we provide expensive aggressive interventions that yield little survival benefit. Second he notes the poor coordination of our system so that for example diabetics often do not get optimal care–in the summary he does not discuss the influence of cost on this lack of care. Third he comments on the high cost of providing care and suggests greater use of technology and such interventions as checklists to improve the outcomes. I’m unconvinced by this part of the analysis

Medicynical Note:  Participants in our non-system  game it to increase revenue and profits  for providers–procedures over other care– suppliers, and insurers.

Quality, efficiency and value are not part of the equation.

Our health care non-system is remarkable for it’s high cost and the resultant inability of individuals to afford insurance and care (50,000,000 uninsured).  Ewe Reinhardt’s discussion on hospital pricing helps understand the exceptional costs we pay for hospitalization and the inefficiency of the system.

He notes the origin of the Medicare hospital reimbursement mechanism:

this was a home-grown American idea that Presidents Ronald Reagan and George H.W. Bush embraced and introduced to Medicare.

He explains the differences between the amount paid by private insurers and Medicare:

Private insurers pay hospitals mainly on the basis of negotiated per-diem rates,

A natural byproduct of one-on-one negotiations is price discrimination, which means that a hospital charges different insurers different prices for the same service, and that a given health insurer pays different hospitals substantially different prices for the same service Medicynical Note:  Some remarkable price differences   without evidence of difference in outcomes.

Medicare pays on a different basis:

Medicare uses what is known as the “case base” system for paying hospitals for inpatient care, which means that hospitals receive one single payment for an entire inpatient episode of a given type.

The medicare payment is corrected for a number of factors including case severity, type of hospital, the amount of non-reimbursed care offered by the hospital and so on –read the article for more.

Medicynical Note:  Medicare’s system seems reasonable, though there have been noted to be wide geographical variations in payments reflecting differences in local economies, local inefficiencies and gaming of the system.

As we work to make Medicare more efficient and economical perhaps with a budget based system, reimbursements  will need to be rebalanced with fewer rewards for procedures and high tech interventions and more for those involved in face to face care.

Interesting comparison in costs of health care here.

Medicynical Note: Argument in favor of these costs is that we, an altruistic nation, pay more to encourage innovation.

Argument against is that we are suckers, padding the profits of international and domestic corporations who don’t give a damn about health care. Our non-system is simply the least efficient and most costly in the world.

Take your pick.

This from Health Care For America.

The six largest investor owned health insurance companies recorded huge profit gains in the third quarter of 2010 by spending a smaller share of premiums on medical care, purging unprofitable members and burdening consumers with higher cost-sharing limits.

The companies, Wellpoint Inc., United Health Group Inc., Aetna inc., Humana inc., Cigna Corp and Coventry Health Care

made combined profits of $3.4 billion in the three months ending Sept. 30.

Medicynical Note: The money came, in part, from reducing the proportion of premiums spent on health care–Coventry is down to 76.8%, Aetna at 80.5%.

In 1993 95% of premium dollars went for health care. By 2007 the average amount spent on care was down to about 80%,

In comparison with other industrialized nations:

Performance on measures of health system efficiency remains especially low, with the U.S. scoring 53 out of 100 on measures gauging inappropriate, wasteful, or fragmented care; avoidable hospitalizations; variation in quality and costs; administrative costs; and use of information technology. Lowering insurance administrative costs alone could save up to $100 billion a year at the lowest country rates.

Only in America would such inefficiency tolerated. Amazing.

The issue of testing advances for efficacy and value in health care is one of the sticking points for our conservative friends. They oppose such testing and feel that everyone should have infinite choices, no matter the cost or limited efficacy. And Medicare and many other insurers should simply pay and pass through the additional costs. How else to interpret their criticism of comparison testing and evaluation of efficacy in the health reform bill–and the cost savings built into it.

There is however a voice of reason somewhere. (Financial Times November 7, 2010)

But the principle is justified: a centralised body is needed systematically to assess whether a drug offers therapeutic advantages and is cost-effective. Otherwise, in a health system with finite funding, such treatments will squeeze out others offering better outcomes.

In practice, Nice should be involved in establishing value too. Its role could be extended to rule on what constitutes a fair price at the time of launch with periodic amendments as greater clinical use better demonstrates value.

Medicynical note: Of course in the U.S. we don’t have finite funding. We think it’s perfectly all right to spend twice as much as other industrialized countries per capita on health care and eat up almost 20% of GDP. Value in medicine? An archaic concept when the profits of the medical industrial complex are involved.