This is a guest post by Jeff Mosenkis, a freelance producer with Freakonomics Radio who holds a Ph.D. in psychology and comparative human development.
Ezekiel Emanuel has a series of columns in The New York Times exploring healthcare costs that’s worth examining. Emanuel is an oncologist and prolific bioethicist. He has an M.D. and a Ph.D. in political philosophy from Harvard, where he also taught. He advised the White House on healthcare and was recently named chair of the bioethics department at Penn. And yes, he’s the older brother of Chicago mayor Rahm Emanuel and Hollywood agent Ari Emanuel (fictionalized by Jeremy Piven on Entourage).
(Stethescope)
Two weeks ago, Emanuel pointed out that even though the U.S. outspends every other country on healthcare ($2.6 trillion a year; the equivalent of France’s entire GDP), we’re nowhere near the healthiest country. This week, he debunks ideas from the Left and Right about how to fix soaring costs. Emanuel starts by noting that healthcare spending “typically increases by about $100 billion per year.” He sets a modest goal of cutting 1 percent of total spending, which comes to $26 billion a year; then does something politicians rarely do in stump speeches: he runs the numbers.
First up, rallying cries from the Left: Could the solution be reining in profits of greedy insurance companies?
[I]t turns out that the combined profits of the country’s five largest for-profit health insurance companies — United, WellPoint, Aetna, Humana and Cigna — were $11.7 billion, only 0.5 percent of total health care spending. Even confiscating every penny of those profits would add up to less than half of the cost-saving threshold.
So what about drug companies who charge more for brand name drugs and more to U.S. customers than those in other countries?
Between 2004 and 2009, generic drug use rose from 57 to nearly 75 percent of all prescriptions. Paradoxically, over those same years, the total amount Americans spent on drugs actually increased by 31 percent — the same rate as overall health care expenditures. Even the best estimates suggest that savings from expanding generics’ use even further are, according to the Department of Health and Human Services, “likely to be small relative to total spending on drugs.”
Same problem for re-importation from Canada:
Pharmaceutical costs account for roughly 10 percent of total health care spending, some $260 billion in 2010. Importing brand name drugs from abroad would cut about 2 percent from that — $5 billion per year.
Next he looks at ideas from the Right, like reforming the legal system. Right now, doctors’ costs are driven up by malpractice insurance, and they’re incentivized to practice “defensive medicine,” ordering extra scans and tests. Emanuel cites a CBO report finding that aggressively capping lawsuit non-economic and punitive damages would save a good chunk of money, but not enough on its own.
A package that included a $250,000 cap on noneconomic damages, a $500,000 cap on punitive damages and a one-year statute of limitations for claims by adults would save about $11 billion a year — 40 percent from reduced malpractice premiums and the rest in the form of fewer defensive procedures like M.R.I.’s.
Capping costs of the few super-expensive patients (refusing them additional treatment), even if we could identify them in advance, would also only go so far, as he cites insurance company data showing there were only 255 patients whose care cost over $1 million in 2010, which again would save only 0.5 percent.
Even if you quibble with Emanuel’s numbers, the idea that each of the “magic bullet” solutions is only a drop in the bucket shows how hard it is to fix a complex system with actors whose incentives don’t always align. And let’s not forget that healthcare is more complicated than most systems – diseases often don’t act predictably, and neither do patients. Emanuel will offer some of his ideas in his column next week (he’s obviously been thinking about these issues for a while), but can you think of a precedent for the kind of reform we’re talking about here?
And just for fun, you can see a conversation with all 3 brothers here.
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Fact is, healthcare costs are being driven by the patient. We all feel like we’re getting ripped off by the system so we do everything we can to get as much out of the system that we can. This perverse vicious cycle creates a nocebo – a negative placebo – where people are actually making themselves sick so they don’t feel like they are getting ripped off.
We must tip the system on its head. Those who indulge in the myriad of self-destructive habits that cause the preventable chronic conditions that constitute 75% of our healthcare spending should subsidize the health insurance costs of those who eat healthy, exercise and avoid self-destructive habits.
Right now it’s the other way around. The healthy become financial enablers for the willfully unhealthy. The fit subsidize the unhealthy habits of the unfit.
By flipping the system on its head and forcing the self-induced-chronically-ill to subsidize those who do everything in their power to be healthy, we would create a race toward health. It would light a fire under those currently unmotivated to change. It would reengage the all-powerful placebo effect by forcing the willfully unhealthy to pay their own way.
I will have to see where he goes with this next week to make final judgement, but his numbers are somewhat cooked here and indicate an agenda. The most egregious is the claim the reimporting drugs would cut drug costs by 2%. The U.S government is the #1 purchaser of meds in the world and pays the highest prices for those meds. In many cases, those prices are 2-10 times what other countries pay. The generics argument is also invalid, because the cost of many generics has exploded. Either there is inadequate competition, or there is price fixing. This is an enormous problem. I could cite example after example from what the North Carolina State Health Plan pays. These errors of omission or whitewash are so egregious that I believe Emanuel is going to put forth proposals directly from Pharma and the Hospital lobby.
To truly cut health care:
1. Negotiate drug prices.
2. Refuse to pay for branded generics. For example, Solodyn is generic minocycline packaged in a once a day formulation. It sold $880 million lasy year. Generics would’ve cost $50 million.
3. Require all brand pills to be released as once a day pills. This is easy to do. It also clearly improves outcomes: people are more compliant with once a day meds. This would prevent the Solodyn strategy, which is commonly used when patents run out on major drugs. Lipitor will be released as a once a day right after the patent expires, mark my words. This does nothing for patient care.
Together these would halve Pharma costs.
4. He is an oncologist right? Why hasn’t anybody proposed a national oncology database? The U.S. through Medicare, Tricare (military), and Medicaid covers roughly half of healthcare dollars and a larger share of chemo and radiation therapy. Ok, pay every Oncology visit $20 or $25 more and require the Oncologist to have all the relevant information entered. In three years we would have far more cancer outcomes knowledge than has been accumulated in the history of humankind. This is not a huge outlay, perhaps $150 million a year. The government would recoup that simply by stopping paying for certain chemo drugs that are discovered not to work. It may help to know that chemo protocols vary widely between institutions for many cancers, so there will be plenty of variation to study.
5. Reduce bureaucracy. This is the behemoth that no one wants to tackle. My practice employs 18 people if you include outsourced billing. In 1990 that would’ve been 11. All those extra people do is work claims, fill out outrageously long and wasteful charts and forms, and spin wheels for Medicare, Medicaid, and other insurance companies.
6. Require electronic medical records to address workflow needs. All the gov’t incentive programs do is serve to help overcome severe flaws in these systems. A simple demonstration of this: all us docs have smartphones. No one had to incetivize us to buy them. We bought them because they help us. There is NO widely used EMR that comes anywhere near what Google or Apple or Microsoft would produce. Many do not allow patients to enter their own healthcare data from the web. All require ridiculous numbers of clicks to perform simple tasks. None allow automated faxing of clinic notes to patients’ other docs. Instead a person has to manually call up numbers and fax them. It goes on and on and on. They are grossly inefficient. The incetive program is a giant subsidy to an incompetent industry.
7. The inefficiencies in hospitals are legendary. All this added bureaucracy for Accountable Care Organizations and the Emanuals and President Obama fail to pick the low-lying fruit. Want to save a ton of money? Require all hospitals to report outcomes data on a defined list of adverse events, like post-op infections, central line infections, wrong medication events, wrong patient events, and so on. Spend money auditing charts to ensure compliance. Then publish the data and let market forces finally force hospitals to take long-known effective safety measures, like bar code or equivalent scans for every med and every patient before giving the med, following the recommended protocols for central line insertion and care, and using simple surgical soap baths pre- and post-operatively to reduce surgical infections. There are enormous savings and health gains to be had here.
It’s late, but I could go on and on.
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I know two medical disciplines where costs have decreased at the same time treatment has improved dramatically: Plastic Surgery and Laser Eye Surgery. Anybody know what those two have in common? And what they don’t have in common with all the other medical costs that are skyrocketing?
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The answer is they aren’t generally covered by insurance so patients set the market.
I wish I could “like” this over and over.
The main problem is this: We don’t know how much stuff costs BEFORE OR AFTER we have them done, and the current system of insurance only makes the prices more confusing.
“Doc, how much is this back injection going to run me and what are the chances that it helps my bulging disk?”
“I don’t know how much it costs, you have to work that out with your insurance company. We don’t really know if it will work, it might.”
So I shell out $2,000 for a back injection that “might” work. And I’m STILL getting bills in the mail from all kinds of people that say they were involved in this five minute shot.
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Dr. Emanuel has a gift for the obvious. “Obvious” in that all of this has been well known for some time now in the healthcare community. And something else that is obvious to those who work in quality improvement in healthcare: Attempts to impose healthcare “fixes” from the outside will all fail miserably; they must come from the inside of healthcare organizations – where estimates of waste range from 25-50%.
This isn’t a “magic bullet” solution to this complex problem, but it seems that almost every country except for the United States gives a higher priority to preventive healthcare. How much could this save us, no idea. But if this could help lower our healthcare costs, how would you incentive doctors and hospitals to preventive healthcare when we have for-profit hospitals and drug companies?
The answer is simple. Regulate the insurance company. It is an industry that has the country by the shortys.
It amazes me the degree to which the author in the New Yorker doesn’t understand basic economic principles.
The idea is not “someone comes into the emergency room and haggles with the doctor.”
The idea is that, presented with two options (say, “a cheap course of drugs with 90% effectiveness, and an expensive surgery with 95% effectiveness), the patient has more incentive to pick the cheaper course than the doctor.
Interestingly, the article talks about what different hospitals can do to reduce costs without reducing care – but refuses to make the connection that the only reason to *incentivize* hospitals to do that is to make patients care more about their care costs. If I can get the same care a county over for half the price, I’ll go there. If I can get the same care for the same cost to *me*, but twice the cost to my insurance… I’m not really going to care.