THE REAL CAUSE OF OUR BROKEN HEALTHCARE SYSTEM

This nation spends 3 trillion dollars yearly on healthcare, representing 17% of our total economy, which is—per capita—about double that of other western nations. Of that total, 40-50% goes to hospital charges, 20-30%, to tests and other services, 20% to doctors, 15% to drugs and devices, and 5% to nursing homes.

Conventional wisdom teaches us that prices for healthcare should come down when subjected to “free-market” forces, i.e. supply and demand, like the pricing of automobiles, household goods, etc. But nothing could be further from the truth! When did we see hospitals advertise the lowest rates in town, or healthcare purveyors state that hip replacements or cataract surgery was going on sale next month—or any month? Or, when confronted by an emergency, the cost of an ambulance would be based upon a prearranged lowest competitive price to transport a stricken patient to a nearby hospital offering competitive daily occupancy rates? And this extends to virtually all of healthcare. If we are lucky enough to possess good insurance, we may not worry about these charges, but history shows that once a procedure is covered by insurance, its sticker price generally goes up because patients (and physicians) are largely insulated from the costs, and this further prevents a “free market.”

In the face of rising healthcare costs in the early 20th century, Medicare first entered the market and covered usual charges from 1965 until the 1990s, but because of rapidly increasing charges, Medicare began limiting payouts, which served as a partial restraint on some of the rising charges: For instance it applied a system to bundle and restrain allowable hospital charges for given diseases/and or treatments. Also Relative Value Units extended to physicians’ compensation. But such limits don’t extend to private insurance or to the uninsured, unless by negotiated agreement.

Working through private insurers, the ACA (Obamacare) has provided some financial support for people needing insurance, but it also provided no effective means to control healthcare charges, which are continuing to spiral even higher. Notwithstanding Medicare, there are no real limits on most charges, meaning that most healthcare facilities can charge what they wish, free of any governmental or outside interference.

For instance, hospitals can pad their bills through the use of inscrutable charges that include all sorts of add-ons such as “facility fees,” needles, pills, laundry, multiple doctors, various tests etc. Moreover, excessive hospital charges encompass administration that often rewards CEOs with millions of dollars yearly, includes billing and collection costs, extensive gardens and physical additions, etc. Despite their being called “non profit,” most hospitals are de facto private entities, calling profits “operational excesses” and reaping the benefits of the avoidance of local taxes, while, at the same time, encouraging tax deductible contributions.

With regard to drug prices, there are no effective restraints on pharmaceutical companies’ charges. Unlike other countries, our government-run Medicare program is prohibited by federal law from negotiating lower drug prices with manufacturers. Prices for newer patent protected drugs are often excessive, and overcharges for older, generic drugs are also commonplace. In the case of certain cheaper generic drugs whose interest and availability are waning, they may become subject to a single company’s seizure of exclusive control of limited supplies, and then becoming a de facto monopoly, allowing for prices to suddenly surge to stratospheric levels. Collusion between competitors has also been alleged as another means to raise these latter prices.

In contrast with all western countries save New Zealand, pharmaceutical companies in the U.S. are legally allowed to advertise prescription drugs on television, provided that they list various side effects and dangers as well. Predictably these products are regularly expensive and may or may not be superior to older generics. Advertising costs these drugs generally account for about 30% of the companies’ expenditures, whereas research in new drug development amounts to a paltry 15%.

In order to deal with our broken healthcare system, we can learn from other countries’ experiences. Although some pundits claim otherwise, our outcomes are clearly not better than those of other advanced countries, meaning that our profuse money outlay is largely wasted. Although there are several contrasting methods, they all contain governmental price controls and universal participation. The best examples are provided by Germany, Japan and Belgium, in which rates for all services are set that include upper caps. In Germany, for instance, most individuals must purchase state sponsored insurance, with premiums based upon one’s income. Private insurance is allowed and may supplant the base insurance for the few who can afford deluxe services. Canada, Australia, the United Kingdom and Denmark, use variants of a single payer system, all of which couple price limits for services together with a mandate that the entire population will be insured.

The U.S. could adopt any of these methods, but a single payer (“public option”, or Medicare for all) would seem to be the most cost-effective. Administrative costs for Medicare average about 2-3%, in comparison to about 20-30% of most private insurers.

Expanded Medicare would not preclude the addition of supplemental private insurance, as we now have in combination with its basic coverage. An overall plan directed by the single payer must be empowered to control prices for all methods and procedures, allowing us to approach costs of other western countries. A single payer system would also simplify record keeping and unify documents, reducing time required by physicians and office personnel. It could be phased in gradually by lowering age eligibility for Medicare.

Given these facts, the underlying problem becomes clear: We are overpaying for virtually all components of our health care system, and governmental restraints on charges are necessary. This must be coupled with universal participation.

 

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AMERICAN HEALTH CARE: WHAT MOST PEOPLE DON’T REALIZE

      There are those who believe that health care lends itself to the usual market forces, meaning that competition will bring about the best products at the lowest prices. For instance, comparative quality ratings and pricing for items such as autos and vacuum cleaners allow us to obtain the best products at the lowest possible costs.

But do these principles apply to health care? Clearly not, for several reasons. For example, if we suddenly become ill and need an ambulance, we summon the nearest local provider with its prevailing charges (which can be substantial), then taken to a nearby medical facility and usually charged exorbitant rates for emergency and/or hospital services.  If you are lucky enough to possess decent insurance, you will be billed according to whatever has—or has not—been agreed to with the ambulance service and hospital as reasonable compensation, and you will usually be required to ante up for any co pays or deductible amounts in your contract. All prices are entirely out of your control and obviously not subject to free market forces. And so it goes through the entire spectrum of medical care that includes drugs and devices, doctors’ fees, and numerous tests and additional services. At the end of this process, you are apt to receive an incomprehensibly large bill that is not coupled with reality or market forces, and even if you aren’t responsible for most of the payment, the money must come from somewhere, for your insurance carrier is not a philanthropical organization.

So, how much are we contributing as a nation to these healthcare expenditures? The bills total approximately $3 trillion annually, or about 17% of our overall economy. Of that total, hospital bills account for 40-50%; tests and ancillary services, 20-30%; doctors, 20%; drugs and devices, 15%: and nursing homes 5%. These amounts generally are twice the total expenditures of other western countries, which generally range from 6-11% of their respective economies. Since our outcomes seem not superior to those of the aforementioned nations, some experts even argue that our illness and mortality rates are even worse than those of other countries. But complicating factors such as obesity, poor lifestyle choices and others, may account for poor outcomes in this nation. Nevertheless, at best, our healthcare system is providing no clear advantage over those of other nations.

So how do we explain all this? We are overpaying for virtually all components of our health care system. We are doing so because there are few if any restraints on the charges. For instance, Obamacare put no controls on the pricing of drugs or clinical care. Pharmaceutical companies’ charges are not only unrestrained, but they can often “game” the system to overcharge for older, generic drugs. The insurance carriers were granted unrestricted leeway in setting premiums and deductibles in exchange for allowing policies that provide maternity and preventive care and that mandate coverage for patients with preexisting conditions.  Hospitals can pad their bills through the use of opaque charges that include all sorts of add-ons and “facility” fees, making them all but impossible to decipher. Fortunately, Medicare serves as a partial restraint on many of these excesses: For instance it applies a so-called Disease Related Grouping (DRG) system to bundle and restrain allowable hospital charges for given diseases/and or treatments. Although this system does restrain charges somewhat, medical purveyors often use other means’ to circumvent these amounts, and hospitals can still bill private insurers at higher rates, depending on prior agreements. Also, coding of procedures and even physician’s services has become a science of gaming to extract the highest possible tariffs. In all cases, those who are uninsured—and are least likely to afford them—receive the highest bills.

In order to understand these large expenditures, we can learn from other countries’ experiences. Although there are several contrasting systems, they all employ governmental price controls coupled with universal participation. In Germany and France, for instance, all individuals must be insured. Most people purchase state sponsored insurance, with premiums based upon one’s income. Private insurance is allowed and may supplant the base insurance for the few who can afford deluxe services. In Canada and Australia, a single payer system is used, analogous to Medicare for all, making private insurance unnecessary. In the United Kingdom and Denmark, an extensive health care structure includes a single payer system with state ownership of hospitals and medical infrastructure. Notably, all these systems couple price controls for services, together with the requirement for participation by the entire population, a factor that spreads the costs widely and is sufficient to cover all those with “pre-existing” conditions.

The U.S. could adopt any of these methods, but a single payer (“public option”, or Medicare for all) would seem to be the most direct and cost-effective. Administrative costs for Medicare average about 2-3%, in comparison to about 20-30% of most private insurers. Even under the mandate by the ACA (“Obamacare”) to limit these costs provided by private insurers to 15% of total outlays (the other 85% devoted the health care), this is still a significant amount. Moreover, private companies can encourage larger medical bills, thus increasing the overall size of their pool but passing on the costs to those who are insured. This means that the 15% could be substantially greater as a portion of the larger pie, allowing CEOs and other directors to receive millions in compensation.

Expanded Medicare would not preclude the addition of supplemental private insurance, as we now have in combination with its basic coverage. An overall plan must be empowered to limit prices for all drugs, procedures, and hospital bills, which would control the entire cost structure of the medical system, allowing us to emulate costs of other western countries. Nationwide pharmaceutical prices must be subjected to negotiated limits as placed by Medicare or related agencies.  A single payer system would also simplify record keeping and unify documents, reducing time required by physicians and office personnel.

Obviously this is but a start, and other issues must be addressed that are too numerous to enumerate here.

In all cases, rational solutions must contain two vital components: 1) Mandatory participation by the entire population. 2) Careful and rational control of all expenditures

Any program lacking these two vital components will be, at best, too costly, or, at worst, socially unacceptable or disastrous.

 

 

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LOSE OBAMACARE AND WE ALL SUFFER

Although Trump’s food policy agenda is unclear, his anti-regularity, anti-science leanings in general should be a major cause of concern to all of us.

If the Affordable Care Act (“Obamacare”) is repealed, not only could 22 million Americans face the devastating prospect of losing their health insurance, but all of us would lose several other health benefits as well.

First we would lose the opportunity to see how many calories are in thousands of foods, for, starting May 1st, 2017, we could lose the ACA rule that requires the listing of calories on menu boards of chain restaurants, movie theaters, supermarkets, delis, and convenience stores. The new administration could scrap the whole effort—as some in the food industry have urged. Moreover, the Federal Drug Administration (FDA) has told companies to disclose added sugars on Nutrition Facts labels by 2018. Since the new administration will likely sack the current physician FDA leader (Robert Califf, MD) in favor of a politically motivated layman, this regulation also could well be eliminated or delayed for years.

Second, the Obama administration proposed voluntary targets for cutting sodium (salt) in foods, which, as I have explained, would save tens of thousands of lives every year (http://www.mortontavel.com/2014/10/06/). Again, the present administration could scrap the whole effort—as some in the food industry have urged.

With regard to our children, two members of the Trump campaign’s agriculture advisory committee have worked to roll back the progress we’ve made in improving school lunches and removing junk foods from school vending machines. Can anyone doubt the potential damage of this measure?

The new administration may be inclined to grant the food industry’s request to continue to use heart-damaging trans fat (http://www.mortontavel.com/2014/) in many processed foods.

What about safe food protections? Who knows what to expect from a president whose campaign accused the “food police”—the FDA—of inspection “overkill.”

All these threats, as noted above, serve as a potential detriment—if not an outright danger—to the health of the general population. We should all follow these issues closely and become engaged, whenever possible, in the political process itself.

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AFFORDABLE CARE ACT (ACA): REPORT CARD

As the Affordable Care Act (ACA) enters its third active year, we’re taking a look at an interesting summary of its benefits and barriers to health care so far that was recently published in The New England Journal of Medicine.

In this paper, Dr. Benjamin Sommers, assistant professor of health policy and economics at the Harvard T.H. Chan School of Public Health, explains that the number of uninsured individuals in the United States has fallen from roughly 50 million in 2010 to between 30 and 34 million as of 2015.

This coverage expansion has resulted in modest improvements in access to primary care and medications, the affordability of care, and self-reported health.

Yet despite the successes so far, approximately 30 million Americans remain uninsured for a variety of reasons, including:

  • 3 to 4 million Americans live in states that have opted not to expand Medicaid
  • Approximately 5 million Americans do not qualify for ACA coverage options because they are undocumented.

In addition, many people who would qualify for subsidies through the exchanges have not signed up for coverage despite the mandate to do so, primarily because they are not aware of the options, or because it is still cheaper to take the tax penalties than to buy insurance.

For those who have received coverage through the ACA, two main barriers limit access to primary care. The first is the burden of cost sharing. For instance, Deductibles often range from $3,000 to $5,000. And according to a recent NY Times and Kaiser Family Foundation poll, about 20% of individuals who have insurance still struggle to pay their medical bills. Second, provider networks are narrow. Reports suggest that some plans even exclude certain specialties, particularly endocrinology, rheumatology, and psychiatry according to one recent analysis.

           Where does the ACA take us?

Although increasing numbers of people now have health insurance, it is far less than the 30 million many advocates had predicted.  And while health care costs have been growing more slowly than before the ACA, it isn’t clear if that’s been the result of the ACA itself or the general economic downturn. Even though the improvements in patient-reported access and overall health have been modest thus far, the ACA deserves a few more years before we can draw firm conclusions.

Unfortunately the ACA will likely prove little more than a temporary Band-Aid for our ailing health care system.  In my opinion, the most systematic and equitable approach to expanding coverage and access would be a comprehensive, national health care program, i.e., based upon a single payer (see http://www.mortontavel.com/2015/12/31).

But perhaps more important: regardless of how we expand coverage, we must keep our sights on the ultimate goals. Beyond increasing coverage or even access to primary care, we need to provide high-quality, comprehensive, accessible, and patient-centered care to everyone.