Category Archives: Health Economics

The health reform package’s basic tenet is that we spread; the risk of illness by charging everyone the same premium.

Economist James Kwak has these observations

• “If you’re a profit-maximizing insurer, what do you do? You try to cherry-pick the healthy, since the revenues will be the same as for the sick and the costs will be lower. If you can do this successfully — say, by only advertising in gyms and in Runner’s World, or maybe by offering additional benefits that only the healthy will want — then you can dump the sick on someone else.” Medicynical note: This is of course an extension of our current system.

So how will the disparity in healthy patients be balanced. In the Baucus bill it states: .

• “The Secretary would be required to pre-qualify entities capable of conducting risk-adjustment and the states would have the option to pick among those entities. The entities pre-qualified by the Secretary cannot be owned or operated by insurance carriers. The Secretary of HHS would define qualified risk-adjustment models which can be used by states. States can also choose to develop their own risk-adjustment model but it must produce similar results and not increase Federal costs. After risk-adjustment is applied, reinsurance and risk corridors (described below) would apply.”

Kwak observes that this is inadequate and the whole area vaguely covered in the bill. It would have been no problem in a single payer system.

Medicynical note: In our money driven business culture, we can expect such loopholes to be gamed by insurers. Their goal is profit, not a equitable health care system.

The CBO has done an analysis of the effect of malpractice reform on costs. In return for removing a citizen’s unfettered right to sue we get a cut in healthcare spending of .5%/year. (54 billion dollars over ten years)

The CBO noted:

• “CBO now estimates that implementing a typical package of tort reform proposals nationwide would reduce total U.S. health care spending by about 0.5 percent (about $11 billion in 2009). That figure is the sum of a direct reduction in spending of 0.2 percent from lower medical liability premiums and an additional indirect reduction of 0.3 percent from slightly less utilization of health care services. (Those estimates take into account the fact that because many states have already implemented some of the changes in the package, a significant fraction of the potential cost savings has already been realized.)”
• “Enacting a typical set of proposals would reduce federal budget deficits by roughly $54 billion over the next 10 years, according to estimates by CBO and the staff of the Joint Committee of Taxation. That figure includes savings of roughly $41 billion from Medicare, Medicaid, the Children’s Health Insurance Program, and the Federal Employees Health Benefits program, as well as an increase in tax revenues of roughly $13 billion from a reduction in private health care costs that would lead to higher taxable wages.”

It depends on how you spin this. .5% seems an insignificant decrease in the trillions of dollars spent on health care, but it does amount to 54 Billion over ten years. That’s not chump change. What was it that Everett Dirksen said………..

Medicynical Note: Will this change our culture of over-utilization. Probably not until we remove the profit motive. In locales, such as Texas (and here) where there was a tort reform measure enacted there has not been a cost savings. Over-utilization appears to be dependent more on it’s contribution to a supplier’s (provider, institution, patent holder) income than fear of malpractice.

This is from the McKinsey Global Institute: (FYI ESAW is Expected Spending According to Wealth)

They observe:

• Provision of health services is highly profitable, both patients and provider lack value consciousness
• We spend $650 Billion, yes Billion, more than we should.
• Our drug costs area 50% higher on average, 77% higher for branded drugs, 35% for biologics. Interestingly our costs for generics are 11% lower.
• Administrative costs are driven by the multi-payor system that lacks standardization and has high marketing, underwriting and claims costs.

McKinsey concludes that our (non) system provides “incentives optimized for suppliers of healthcare products and services. Supplier actions are perfectly rational in response to incentives.” Our excess spending results in no extension of life and that the “lack of objective value coupled with continued growth at current rates is likely unsustainable.”

Medicynical Note: McKinsey recommends a realignment of incentives, addressing the issues of supply, demand and intermediation (whatever that is) and withstanding the reactions of existing stakeholders.

In other works out current system is not sustainable we need reform.

Here is RAND on health care waste.

How do we rank on administrative costs?

• “For example, there are significant differences in administrative overhead between public and private insurances, leading some to conclude that the excess spending by private insurance companies must constitute administrative waste. Estimates indicate that overhead/administrative costs (premiums minus claims payments) make up 14 percent of total private insurance expenditures, compared with 3–5 percent of spending in public sector programs such as Medicaid”

Medicynical note: The article points out that between $100 billion and 300 billion can be saved from health costs by curbing administrative waste.

Operational Waste?

• “Paul O’Neill, former U.S. Secretary of the Treasury and former CEO of Alcoa, garnered wide attention for his claims that achieving perfect operational efficiency could reduce health care costs by 50 percent while improving the quality of care (“Editorial,” 2005). While leading the Pittsburgh Regional Health Initiative, O’Neill implemented simple process improvements to reduce “defects in the production of care in intensive care units that resulted in significant reductions in patient infections and deaths.” According to O’Neill, the goal of the health care system should be perfection, particularly in the area of patient safety and the reduction of medical errors.”

Medicynical note: O’Neill is right in his belief that we can cut costs with more efficiency. Now health care operates on a cost plus basis–there is no incentive to be efficient at any level. With change we can achieve substantial savings, but not 50% in my view.

Clinical Waste:

• “Overall, these studies indicate that one-third or more of all procedures performed in the United States are of questionable benefit. (See, for example, Bernstein et al., 1993; Hilborne et al., 1993; Kleinman et al., 1994; Winslow et al., 1988.) Such procedures may constitute clinical waste.”
• “After adjusting for age, sex, and race, per capita Medicare spending in 2000 in New York City was more than twice as much as it was in Portland, Oregon ($10,550 versus $4,823) (Fisher, 2003). Such differences stemmed from differences in practice patterns rather than from differences in price or underlying illness, and outcomes were unaffected. Spending variations that do not result in improved clinical outcomes may constitute clinical waste.”

Medicynical Note: Many interventions are simply ineffective or cost too much for very limited benefit. We, both the consumer and the health care providers, need help in deciding the proper course. Comparison studies are essential to health care reform. One would think that everyone would favor finding our what works better, but guess who opposes this? Amazing!

See the article for references and full explanations.

This has been widely reported. Census data show falling income — latimes.com

Among other facts:

• “In 2008, the median household income in the United States plummeted 3.6% from the year before, and the percentage of people living in poverty soared to an 11-year high”
• “The data show the devastation of the recession through various economic indicators, such as the real median household income. In 2007 it was $52,163. A year later it dropped to $50,303, the lowest level since 1997.”

Medicynical Note: Meanwhile health care cost inflation is estimated at approaching 10% for 2009 by Price Waterhouse.

I don’t like anecdotes but it seems to be the currency of the debate on health care. So………

Case 1:
While at a local tumor board this week we encountered the case of a young woman with Hodgkin’s disease, a curable lymphoma. It’s curability depends in part on the stage of the disease–early is better than late. In this case the patient delayed calling attention to the mass in her neck for six months because she had no health insurance.

If Hodgkins disease is local, that is one or two lymph node areas involved, it can be treated with irradiation alone, i.e. without chemotherapy. The further advanced the disease the more extensive, expensive and toxic the treatment. Chemotherapy is necessary for most cases when the disease advances.

So this young woman went from have a disease amenable to local (extended field) irradiation to a situation where she will now require both systemic chemotherapy and irradiation. In addition to the immediate toxicity, her future fertility will likely be compromised–as well as her chance for cure. Guess who’s paying?

Case 2
This is the story of a young woman with headaches who earlier this summer delayed seeing a doctor because she had no insurance. The headaches persisted and while on a hike with a friend in the mountains, she collapsed and died. She undoubtedly had a leaking aneurysm which finally burst. Delay in seeking care in this case was fatal.

These are two cases from my personal experience in the last 3 months. Only in America would this be allowed to happen and only in America would people call such a dysfuntional non-systematic health care establishment the “best in the world.”

We need health reform to assure access to care. It’s literally killing us!

Last week the President met with financial leaders and proposed reform and regulation of their market. You would think after the hundreds of billions spent to keep them afloat after their meltdown that they would be receptive to anything that would decrease the risk of a recurrence. But no, in typical american fashion, they seem to bridle under the accusation that their problem was self inflicted, that it would happen again and that some type of restraint (regulation) was necessary.

In health care we see similar NIMBY traits. No one wants to give an inch. Insurers want to continue their profligate policies that guarantee profits but not access or quality. Providers fear the unknown and are the most vulnerable so they are wary of change. Patent holders (technology or pharmaceuticals) oppose change because it might infringe on their profits. Parenthetically all are afraid that their cost plus gravy train is jeopardized.

You would think with the hundreds of billions wasted yearly on health care the players would be receptive to proposals that would decrease costs and improve efficiency. But no, in typical american fashion, they seem to bridle under the accusation that their problem is self inflicted, that it will continue and/worsen in and oppose the notion that some type of reform (regulation) is essential for improvement.

In reality there is no “free market” in health care, nor, for that matter, is one possible. For example, our patent system offers long protection to new drug developers and guarantees their monopoly. Some free market, particularly when they charge thousands of dollars/month for a drug alone–which accrues over 12 months to more than the yearly average income! This is particularly aggravated by the fact that in health care there is no assured access to full information; optional approaches are not fully explained, understandable to the average person nor universally available; the buyer is under duress; and the providers charge whatever they wish without relation to true cost.

As a result we ration access (50 million uninsured) and care by cost. That’s our non-system.

It’s distressing to see what’s happening in our congress. Their timidity and responsiveness to the health care lobby quite depressing.

This was in Bill Moyer’s Journal week of July 9. Wendall Potter, an executive at CIGNA, reveals the other worldly quality of health insurers decision makers; their insular goals–and they are not improving health care; and explains his motivation in giving the interview. Worth seeing.

Medicynic: It really is about the money–insurers, high salaries and profits. Amazingly our legislators seem reluctant to reform our non-system. The industry seems to have them in their pocket–I mean pocketbook. We’ll need to drag them kicking and screaming into change.

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