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June 26, 2007
Every Man A Doctor, Purchaser, and HMO
It's pretty funny to watch Michael Cannon explain how, if you didn't hurt yourself too badly, and you happen to be a professional health care expert deeply steeped in theories of consumer cost control, you can use an HSA to bring down costs on your torn ACL. So we get lines like "I heard a tear, not a crack — which suggested soft tissue damage, but no broken bones. The only reason I used that information to rule out an X–ray was because I had a financial incentive to avoid unnecessary spending." That's all for the good, when it's all for the good. On the other hand, that's just a hop, skip, and a jump away from "She had shortness of breath, but no radiating arm pain, so she decided to wait through the weekend because she couldn't afford the ambulance ride. She died."
That's not my collectivist impulses spinning some implausibly hellish scenario, by the way. A recent study looked into what happens if you increase cost sharing on pharmaceuticals in Medicare. In other words, what happens when the patients have what Cannon calls a "financial incentive to avoid unnecessary spending." The answer? "[S]ubjects whose benefits were capped had higher rates of nonelective hospitalizations, visits to the emergency department, and death. In addition, subjects whose benefits were capped had lower pharmacy costs but higher hospital and emergency department costs, with no significant difference in total medical costs between the two groups."
They did try and bargain down care, and even skip some pharmaceuticals. But their choices led to neither better outcomes nor lower spending. Instead, they died more often, and we paid for their ambulance rides more frequently. Everyone's a loser!
Luckily, you can bring down health spending on the supply side, not only the demand side. Rather than asking each patient to serve as their own doctor, purchaser, and HMO, we can get the government to bargain with all providers to bring down prices for everyone. If Michael Cannon still wants to barter for lower MRI prices, he should. But for those who don't know how to direct their own care, and aren't sure whether they heard a tear or a crack, they'll still be getting lower prices, too. Just like they do in every other country.
June 26, 2007 in Health Care | Permalink
Comments
My wife used to be a retail pharmacist. What would frequently happen is customers would come from their doctor with 4 prescriptions and they would say to my wife, "I only have $100 to pay for my medicines. Which prescriptions should I have filled?" Then my wife would try to figure out how important and how expensive each prescription was and then try to develop a plan for the patient to maximize the effectiveness of their limited amount of money. My wife is a wonderful pharmacist, but she shouldn't be making these kind of decisions for her patients.
Posted by: Dennis_D | Jun 26, 2007 11:20:38 AM
Good entry Ezra. Quick question. How is Cannon's attempt to decrease over use different than the French system's attempts to limit Moral Hazards? Maybe I misunderstand this aspect of the French system but don't they also use co pays to "level out" over use of the system?
Posted by: Phil | Jun 26, 2007 11:23:14 AM
Cannon wrote an excellent piece that should be required reading for everyone in the progressive blogosphere. It shows beautifully the type of delusional arrogance one requires to be a Libertarian or libertarian-leaning conservative.
Cannon is showing the hoi polloi how it's supposed to be done, financially and physically, when one has an injury. And of course he was right in both his diagnosis and decisions about treatment.
I would say that it'll be interesting to read a piece from him describing assumptions on his part regarding a health event that turn out to not be true, but even if he survives that kind of thing I doubt he'd be willing to show such vulnerability. I hope for his sake he's a lucky man.
Posted by: Stephen | Jun 26, 2007 11:24:03 AM
Ezra,
Two thoughts:
1. How does this reconcile with your own thoughts on targeted first-dollar cost-sharing?
2. The government (and insurers, for that matter) negotiate based on leverage-- not's what makes most sense from a cost-quality tradeoff. I'd suggest that the imperfect solution of consumers making decisions based on their perceived cost-quality tradeoffs, in conjunction with their physician (with substantial increase in data transparency on cost and quality needed first) will be a better solution that having the government "bargain" with providers based on leverage.
Posted by: wisewon | Jun 26, 2007 11:27:22 AM
My wife used to be a retail pharmacist. What would frequently happen is customers would come from their doctor with 4 prescriptions and they would say to my wife, "I only have $100 to pay for my medicines. Which prescriptions should I have filled?" Then my wife would try to figure out how important and how expensive each prescription was and then try to develop a plan for the patient to maximize the effectiveness of their limited amount of money. My wife is a wonderful pharmacist, but she shouldn't be making these kind of decisions for her patients.
Exactly-- that discussion should happen with the physician before they get to the pharmacy.
Posted by: wisewon | Jun 26, 2007 11:28:31 AM
So we get lines like "I heard a tear, not a crack — which suggested soft tissue damage, but no broken bones. The only reason I used that information to rule out an X–ray was because I had a financial incentive to avoid unnecessary spending."
Ah yes, the culture of self-diagnosis which really does distinguish my experience of healthcare in the US. My wife literally spent dozens of hours recently trawling various medical websites in an attempt to work out whether her symptoms were best addressed by a neurologist, an endocrinologist, or some other specialist.
Why? Because her primary care physician thought she was 'a fascinating case' and had previously recommended lots of MRIs (up-front fee, $1,000 a time, because of deductible), a lumbar puncture (up-front fee, $1,200, because of deductible) and various other expensive tests. Afterwards, said physician shook her head and said, 'you know, you really are a fascinating case.'
American healthcare pushes self-diagnosis and self-medication, in an environment where Big Pharma has prime-time commercials and infomercial hucksters peddle supplements while conspiratorially mentioning the Secret Cures Doctors Won't Tell You About.
This isn't to say that Doctor Knows Best is the ideal alternative: one criticism I do have about the NHS is that it encourages a degree of passivity towards one's care. But if it's down to a choice between those alternatives -- and it's not -- I'd go with the one that leaves diagnosis to, y'know, doctors.
Posted by: pseudonymous in nc | Jun 26, 2007 11:37:52 AM
This is why I believe in targeted cost sharing. I think there should be a well-funded federal commissaion amassing reams of data on different treatments, and fully subsidizing the use of some, and putting others into categories that require more cost sharing. You want a lumbar surgery? You're paying for it. The doctor says you need an MRI? We'll pay for it, and bargain down the cost for you. Some first-dollar sharing is useful, but not on things like statins and emergency care.
Posted by: Ezra | Jun 26, 2007 11:38:46 AM
Exactly-- that discussion should happen with the physician before they get to the pharmacy.
Doctor's are trained to make people better. They shouldn't have to spend time figuring out a cost effective planning system for patients and neither should their pharmacist.
Posted by: Phil | Jun 26, 2007 11:41:13 AM
Maybe I misunderstand this aspect of the French system but don't they also use co pays to "level out" over use of the system?
Small co-pays in France (10-15 euro) mean you've got a financial incentive not to see a doctor when a pharmacist could guide you to an over-the-counter or behind-the-counter medicine. It's a bit different from encouraging people to be their own quack.
Posted by: pseudonymous in nc | Jun 26, 2007 11:44:28 AM
Why is that preferred to having the insurance company play the part of "we"?
As I've said before, the inefficiency of the federal commission idea is it won't have the right answer for everything-- and with a single-payer, you're going down one path, for better or worse.
If instead you had a similar body (similar to what HRC and Obama have proposed with a public-private institute) on what's best practice, cost-effective, etc. you can allow some experimentation and nuance on how that information is used. One plan may cover MRIs as you suggest-- where another may require higher cost-sharing with certain diagnoses.
The single-payer system forces one interpretation of the commission data-- the reality is that most cases are not so black-and-white-- we need a little more flexibility to experiment with different ideas and learn what's best in the long-term.
Posted by: wisewon | Jun 26, 2007 11:44:33 AM
Next up: Michael Cannon explains how he saved thousands of dollars by fashioning a cast from mud and straw. He also notes that leeches are widely available in several parts of the US, and that amputations can be cheaply performed with a hacksaw from Home Depot.
What century are we living in again?
Posted by: pseudonymous in nc | Jun 26, 2007 11:48:30 AM
To all the useful commenters, you're doing sterling work, I realise today that wisewon is slowly shifting his views and it's down to your hard work arguing with him. Good going people. It's a hard road, but we'll get somewhere sensible one day.
Michael Cannon, however, I fear, is a lost cause. Perhaps someone can invent a new kind of device that can teach him what "information asymmetry" means...
Posted by: Meh | Jun 26, 2007 11:49:45 AM
Ezra,
Let me add a little more.
Let's take the lumbar surgery example. If there are a group of people that are willing to pay more for a plan that includes lumbar surgery-- we all benefit.
Why?
Now the neurosurgeons and device manufacturers involved can continue to improve their product (whether it be reducing procedure time or lowering cost of devices) such that in their will be more investment in this area, more innovation, and potentially a solution in the long-run that is more cost-effective that justifies broader coverage.
With single-payer, all of this is lost because a commission determined its not cost-effective, the government doesn't cover it, and neurosurgeons/device companies move onto something else.
Posted by: wisewon | Jun 26, 2007 11:51:10 AM
Shifting views?
Where?
I'm honestly curious.
If you're mistaking me for someone who thinks the current system is fine-- then you've misunderstood me. I've been consistent about the following-- I completely agree about the problems, but think the system is best solved through a private market approach with sufficient oversight and regulation. That's been my approach for the start- would be very curious to hear about my posts that aren't consistent with that.
Posted by: wisewon | Jun 26, 2007 11:55:07 AM
Or if you mistaken me for a pure market approach, a la Cannon-- you've also not understood my views as well.
Posted by: wisewon | Jun 26, 2007 11:56:14 AM
The single-payer system forces one interpretation of the commission data-- the reality is that most cases are not so black-and-white-- we need a little more flexibility to experiment with different ideas and learn what's best in the long-term.
Simple enough: implement it on a state-by-state basis. That also allows fine-tuning for state demographics such as population density and the rural-urban mix.
Your repeated concerns on this subject are based upon the premise that the only way to ensure efficiencies is by keeping the private sector in the game. That doesn't follow. If the private sector were structurally better at providing cost efficiencies, it would be doing it already.
Posted by: pseudonymous in nc | Jun 26, 2007 11:56:31 AM
it would be doing it already.
No it wouldn't. That's my point. We don't have the right regulations in place to incent companies to compete on the things we want them to compete on-- if we change the regulations appropriately, then it would be different.
Your repeated concerns on this subject are based upon the premise that the only way to ensure efficiencies is by keeping the private sector in the game.
I ain't an idealogue, my friend, I use specific examples, just like I am using in this thread. I engaged the commission idea-- not dismiss it out of hand as a government idea.
Posted by: wisewon | Jun 26, 2007 12:00:45 PM
Let's make a distinction. I think that private insurers have demonstrated that they think of cost-efficiency in terms of squeezing the insured. I don't think they deserve a seat at the table: they had their chance and blew it. Let them compete over supplementary insurance, and if people are using it for lumbar surgery, to use that example, and the diagnostic numbers are favourable, then they benefit.
Private providers, on the other hand, are likely to be an even greater source of cost efficiencies once they're no longer dealing with the morass of private insurers.
Posted by: pseudonymous in nc | Jun 26, 2007 12:17:01 PM
The problems with prescription drug compliance can be huge. I work with a health care plan that had extremely low caps on prescription coverage -- $1,500 a year per person. We had data analyzed on compliance by participants with respect to cholestorol, diabetes, and high blood pressure. In each of these huge categories, the percentage of people taking their medication in accordance with their doctor's recommendations ranged between 57 and 62%. In other words, roughly 40% of the participants were risking heart attack, stroke, amputations, blindness, and other complications from diabetes because they could not afford the preventative medication. And, perversely enough, all of the expensive treatements that these complcations would cause, would be paid in full once the participants satisfied a deductible and maximum out of pocket of around $2,000.
By the way, the hubris of the self diagnosis defies parody.
Posted by: Klein's Tiny Left Nut | Jun 26, 2007 12:24:56 PM
"Government can bargain down the price." That sounds so wonderful in the abstract, but in no way is it grounded in reality. This comes from the same guy who criticizes Wal-Mart for its monoposony power over its suppliers.
Posted by: Jason | Jun 26, 2007 12:40:36 PM
"we can get the government to bargain with all providers to bring down prices for everyone"
For such a bright guy, you sure do believe some strange things. Federal price controls as a solution. Amazing.
Posted by: ostap | Jun 26, 2007 12:41:57 PM
For such a bright guy, you sure do believe some strange things. Federal price controls as a solution. Amazing.
You can throw out rhetoric like "price controls evil..muah ha aha ha ha" but the emperical evidence is staggeringly against you
Posted by: Phil | Jun 26, 2007 12:52:34 PM
Does the extra time Cannon spent count as a cost?
He had to bargain with the MRI doctor for months, yuck.
Posted by: MarkT | Jun 26, 2007 12:55:22 PM
You can throw out rhetoric like "price controls evil..muah ha aha ha ha" but the emperical evidence is staggeringly against you
You mean the empirical evidence that price controls have rarely worked if ever, and in almost every case led to shortages or inflation in other prices. Oh wait, that is just silly Econ 101.
Posted by: Jason | Jun 26, 2007 1:01:00 PM
Oh wait, that is just silly Econ 101.
Spoken like someone who didn't take any courses other than 101.
Posted by: pseudonymous in nc | Jun 26, 2007 1:38:17 PM
Oh wait, that is just silly Econ 101.
Hee hee. My favorite pseudo-argument.
This is how we know economists are stupid: they keep taking courses even though everybody knows that all economic models, theories and questions are addressed and answered in Econ 101.
If we could just duplicate the platonic perfection of that course in other disciplines, we could do away with costly and time-consuming 4 year degrees, let alone all the graduate work people are suckered into doing.
Posted by: Stephen | Jun 26, 2007 1:40:20 PM
Jason, please, please believe me when I say that there is a difference between "price controls" and "bargaining". Really, there is. Even when one of the bargaining parties is the government. That's why, even though the Pentagon bargains for it through regular competitive bidding, there is no shortage of 5.56mm ammunition. Just to take one example.
Also, while on the subject of monopsony, trust me when I tell you that the US government is not the only consumer of pharmaceuticals. You see, there's this little thang we call "the entire rest of the world". You've probably never actually seen it, as you don't have a passport.
Posted by: ajay | Jun 26, 2007 1:43:44 PM
Jason, drug companies would be able to sell their drugs at any price they wish. However, if a single-payer entity would only be willing to pay up to a pre-negotiated amount, much like any monopsony buyer does. One should hope that the GSA uses its leverage to negotiate better deals on other purchases all the time.
And for the record, Ezra has said one of the things he likes about Wal-Mart is that it uses its monopsony power to drive down prices for goods. It's when it uses its leverage to drive down wages of its own employees that he finds morally execrable.
Posted by: Tyro | Jun 26, 2007 1:44:39 PM
I'm with wisewon--I think the private sector would be better if regulation were appropriate.
So here's my "modest proposal".
Let's have a commission, like the one that developed the Oregon plan. Their job is to rank treatments in order of cost-effectiveness.
If you offer insurance (private or government), you can cover treatments up to any point on the list--but you MUST cover every treatment up to that point. Courses of treatment can be included (MRIs are covered after physical therapy at #500, but before at #1000.)
Posted by: SamChevre | Jun 26, 2007 1:53:25 PM
"I think there should be a well-funded federal commissaion amassing reams of data on different treatments..."
Great idea, but for many treatments the data just aren't available. The commission would have to spend billions of dollars to conduct, or to pay others to conduct, large-scale randomized trials of all sorts of therapies. Otherwise they'd be dependent on external parties, often with vested interests in the outcomes, to provide data (much like the FDA is now).
I also wonder just how financially effective such an endeavor would be. One can certainly try to channel large groups of patients toward statins and away from lumbar surgery, but there won't be anything stopping doctors from telling patients "sure, it's not covered, but the only real hope you have to reduce your pain is that lumbar surgery."
Don't get me wrong -- I'd love to see more data, and more data-based medical practice -- but until profit incentives are minimized across the board the benefits from this sort of thing will be blunted.
Posted by: tinman | Jun 26, 2007 2:01:33 PM
I'd suggest that the imperfect solution of consumers making decisions based on their perceived cost-quality tradeoffs, in conjunction with their physician (with substantial increase in data transparency on cost and quality needed first) will be a better solution that having the government "bargain" with providers based on leverage.
50% of the people in this country don't believe in evolution. How are they going to cope with modern medicine's complexity to decide which treatment is best? This isn't a car they are buying. There is no definitive source that will give them an answer that will assure a positive outcome. And who will be responsible for assembling this cost/quality data? The government or the insurance companies?
Posted by: Col Bat Guano | Jun 26, 2007 2:02:01 PM
Phil,
Doctor's are trained to make people better. They shouldn't have to spend time figuring out a cost effective planning system for patients and neither should their pharmacist.
Someone needs to make the quality-cost tradeoff. If its not the doctor and patient, who is it, the government?
Posted by: wisewon | Jun 26, 2007 2:04:13 PM
NC,
Let's make a distinction. I think that private insurers have demonstrated that they think of cost-efficiency in terms of squeezing the insured. I don't think they deserve a seat at the table: they had their chance and blew it.
I think private insurers have demonstrated that they put profits and shareholders interests above everything else-- just like every other industry. Every other industry is similarly looking to squeeze customer for their own advantage-- the difference with health care is that its currently easier to do because of the information gaps that exist- i.e. if the government published % of claims denied, customer satisfaction ratings, quality outcomes that were comparable across insurance companies-- insurance companies would look to maximize profit differently.
The failure has been insufficient regulation in this industry.
Posted by: wisewon | Jun 26, 2007 2:09:30 PM
pseudo,
Small co-pays in France (10-15 euro) mean you've got a financial incentive not to see a doctor when a pharmacist could guide you to an over-the-counter or behind-the-counter medicine. It's a bit different from encouraging people to be their own quack.
Co-pays in France are not small, and are likely to increase in the future as France tries to rescue its health care system from bankruptcy. For prescription drugs, the government pays only 35% or 65% of the "Tarif de Convention," depending on the class of drug. For doctor visits, the government pays only 70% of the "Tarif de Convention." The "Tarif de Convention" is the government's estimate of the usual cost of the service. It is similar to what U.S. private insurers call the "usual and customary" charge for a service. The actual cost of the service is often much higher. The uncovered costs can obviously be very large. That is one reason why most French people buy private health insurance.
Like Britain, Canada and other countries with failing single-payer systems, France is moving in the direction of private insurance and user fees.
Posted by: JasonR | Jun 26, 2007 2:16:09 PM
Tinman,
Great idea, but for many treatments the data just aren't available. The commission would have to spend billions of dollars to conduct, or to pay others to conduct, large-scale randomized trials of all sorts of therapies.
First, these are dollars extremely well-spent if done correctly (i.e. if we start with the big ticket items, cardiac stenting, arthroscopic knee surgery, etc.)
Second, the trials don't need to be expensive. If we had a health care system that was using interoperable EHRs, than data could be mined retrospectively-- i.e. everyone is participating in multiple "trials" everyday through regular medical practice.
HRC and Obama's proposals provide the beginning structures (best practice institute, investment in health IT) for this type of approach (although I don't think either has made this explicit linkage).
Posted by: wisewon | Jun 26, 2007 2:17:07 PM
ColBatGuano,
There is no definitive source that will give them an answer that will assure a positive outcome. And who will be responsible for assembling this cost/quality data? The government or the insurance companies?
Agreed- there is no source today, and its absolutely essential. I think there is a clear role for government in driving this initiative, potentially as a government agency or as a public-private partnership (i.e. government could fund the research and collate data which is conducted by private groups-- a la NIH).
Posted by: wisewon | Jun 26, 2007 2:20:41 PM
Chevre,
Proposal is a little over-simplified, but in full agreement in principle. Government sets the standard for minimum coverage in all plans, but allows people to choose more expensive plans that move further down the list.
Posted by: wisewon | Jun 26, 2007 2:22:20 PM
Yes--it's a short statement of a large plan for top-to-bottom reform of the healthcare system.
Note, though, that the "must cover" is to apply to government too. If Medicare/MedicAid/VA were run on an "most efficient spending" basis, it would push the health-care system in that direction even without mandates on private insurers.
Posted by: SamChevre | Jun 26, 2007 2:29:35 PM
This is a great thread. As a quick clarification on my own view, my preferred system has a base of government provided insurance, and then folks can buy private, supplemental policies atop that. If you want insurance that covers back surgeries fully, go for it.
As for price controls, France has government bargaining and they do great.
Posted by: Ezra | Jun 26, 2007 2:34:59 PM
Ezra,
my preferred system has a base of government provided insurance, and then folks can buy private, supplemental policies atop that.
What is the advantage of that system versus the government mandating basic coverage for insurance plans, but allows them to add bells and whistles, sort of like cable TV? packages. I see definite advantages to this approach rather than the French system.
Posted by: wisewon | Jun 26, 2007 2:41:02 PM
Ezra,
My preferred system has a base of government provided insurance, and then folks can buy private, supplemental policies atop that.
I would have no objection in principle to such a system.
However, you are going to have a problem.
If the system covers everything that Medicare covers, it covers pretty much everything--there's not much room for supplementary insurance. (Everything that Medicare covers--everything up to the same benefit/dollar' I realize that Medicare doesn't cover, eg, childhood vaccines.)
If the system doesn't cover everything that Medicare covers, current Medicare beneficiaries will be very displeased.
Posted by: SamChevre | Jun 26, 2007 2:53:06 PM
Doctor's are trained to make people better. They shouldn't have to spend time figuring out a cost effective planning system for patients and neither should their pharmacist.
Why not!? Every other profession has to do it.
If getting an MRI improves my chances by only .001%, why shouldn't it cross his mind that maybe it isn't necessary.
Posted by: Jason | Jun 26, 2007 2:53:37 PM
Jason, please, please believe me when I say that there is a difference between "price controls" and "bargaining". Really, there is. Even when one of the bargaining parties is the government. That's why, even though the Pentagon bargains for it through regular competitive bidding, there is no shortage of 5.56mm ammunition. Just to take one example.
Also, while on the subject of monopsony, trust me when I tell you that the US government is not the only consumer of pharmaceuticals. You see, there's this little thang we call "the entire rest of the world". You've probably never actually seen it, as you don't have a passport.
The thing is, monopolies should be avoided if they can. We have to collectively bargain with defense contractors because we are the only ones buying tanks and F16s. We have to set up utilities with monopoly power because there is no point in laying multiple sets of water mains. But setting up monopolies comes with a lot of problems: bureaucracy, lack of innovation, lower productivity, etc. This is why conservatives/libertarians prefer to do as much as possible in the private market: competition is the most powerful force for promoting innovation and pushing prices down. We should only turn to government monopolies when the situation is unavoidable. When I look at health care, I see the possibility of inducing competition. We should therefore work to establish institutions that can best promote a competitive private health care system.
Posted by: Jason | Jun 26, 2007 3:04:02 PM
Jason, drug companies would be able to sell their drugs at any price they wish. However, if a single-payer entity would only be willing to pay up to a pre-negotiated amount, much like any monopsony buyer does. One should hope that the GSA uses its leverage to negotiate better deals on other purchases all the time.
It just doesn't fix anything. Drugs cost a lot of money for a reason, not because Big Pharma is trying to exploit the world. So giving the government bargaining power isn't going to fix anything. All we will achieve is 1) prices that eat into the profits that fund research for new drugs, or 2) no significant discount. In the case of #1, we can already achieve that by just shortening the lifetime of patents. And it creates room for political abuse by lobbyists and special interests, givens government the power to abuse pharmaceutical companies, and will add extra uncertainty that will harm companies trying to innovate.
Posted by: Jason | Jun 26, 2007 3:11:18 PM
50% of the people in this country don't believe in evolution. How are they going to cope with modern medicine's complexity to decide which treatment is best? This isn't a car they are buying. There is no definitive source that will give them an answer that will assure a positive outcome. And who will be responsible for assembling this cost/quality data? The government or the insurance companies?
I must admit, I don't know much about cars. I wouldn't be able to look through a car I'm about to purchase and figure out whether everything was done right. But guess what, I don't have to. Through competition, I can trust that most of the cars out there are pretty decent cars. Car companies trying to get ahead by getting you more bang-per-buck end up making the other car companies try and get ahead as well. Doesn't mean a bad car won't get out there, but market forces tend to adjust quickly (much more quickly than government).
The same can occur in health care, even if we can't foresee it right at this moment (we don't have the proper institutions in place as of yet to create this kind of environment). So no, I don't have to be an expert in a market-based health care system.
Posted by: Jason | Jun 26, 2007 3:20:00 PM
Ah, I feared that JasonR the bullshit artist would arrive to spoil things. Perhaps you could go away and let the adults handle this one?
Like Britain, Canada and other countries with failing single-payer systems, France is moving in the direction of private insurance and user fees.
Cite, please? Or are you going to argue that the CMU was 'a move in the direction of private insurance and user fees'? (Also, the UK doesn't have a single-payer system, but we've already established your shakiness on basic concepts.)
If the system covers everything that Medicare covers, it covers pretty much everything--there's not much room for supplementary insurance.
Well, Medicare doesn't cover long-term custodial/residential care, and that's doubtless an area where an ageing population has an impact.
Drugs cost a lot of money for a reason, not because Big Pharma is trying to exploit the world. So giving the government bargaining power isn't going to fix anything
Even though larger buyers currently negotiate more competitive prices? Aren't you enough of a libertarian to want Americans in a better negotiating position by comparison with Canadians and Europeans?
Posted by: pseudonymous in nc | Jun 26, 2007 3:21:29 PM
Through competition, I can trust that most of the cars out there are pretty decent cars.
Ah, that's the problem with Econ 101.
Akerlof, Spence and Stiglitz got themselves the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel for pointing out how asymmetrical information works in car sales.
You may say 'that only applies to used cars'. True. But one big reason Ford and GM have got behind is their healthcare bill.
Posted by: pseudonymous in nc | Jun 26, 2007 3:28:21 PM
wisewon, I am still trying to get my head around your private market/regulation ideas. You state that a single payer system is a single road, but wouldn't a course of regulation also be a single road and one that would be more of a headache to try and tweak over the long term?
Once we get a single payer system going it will be much easier to effect change within that system without always going to Congress for a legislative remedy. Under your plan all it takes is a series of poorly written, loophole ridden legislation to make the system even worse.
I don't think private industry has done as much for medical science as it has for its own bottom line. Most of the real medical discoveries are coming from government-funded research not from private industry. Too much of our pharm industry is focused on knockoffs and drugs that aren't more effective just different enough to ensure a new patent. New surgeries and techniques rarely follow from cost-saving exercises, but from people engaged not for profit but for pushing the edges of our knowledge. We need to get back to funding science on our campuses because that is where the groundbreaking discoveries will continue to happen.
Posted by: Ricky | Jun 26, 2007 3:41:33 PM
Ah, that's the problem with Econ 101.
Akerlof, Spence and Stiglitz got themselves the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel for pointing out how asymmetrical information works in car sales.
How come the used car market isn't full of lemons? Oh wait, a whole system of certifications, VIN lookups like CarFax.com, etc. The private market adjusted for its own dysfunctional markets.
Posted by: Jason | Jun 26, 2007 3:45:30 PM
Even though larger buyers currently negotiate more competitive prices? Aren't you enough of a libertarian to want Americans in a better negotiating position by comparison with Canadians and Europeans?
My argument was that competition would do better than a single entity bargaining down prices.
Posted by: Jason | Jun 26, 2007 3:46:25 PM
Ricky,
You state that a single payer system is a single road, but wouldn't a course of regulation also be a single road and one that would be more of a headache to try and tweak over the long term?
It wouldn't. Read the thread above for more detail-- government mandated basic coverage, with flexibility for all companies to add-on beyond that allows for the types of cost-control methods, types of consumer choice and types of procedures covered (from experimental to standard-of-care). See in particular posts to/from Sam Chevre and posts to Ezra such as lumbar surgery example of ideas/concerns.
I don't think private industry has done as much for medical science as it has for its own bottom line. Most of the real medical discoveries are coming from government-funded research not from private industry. Too much of our pharm industry is focused on knockoffs and drugs that aren't more effective just different enough to ensure a new patent. New surgeries and techniques rarely follow from cost-saving exercises, but from people engaged not for profit but for pushing the edges of our knowledge. We need to get back to funding science on our campuses because that is where the groundbreaking discoveries will continue to happen.
I'd disagree on a number of points here-- but the larger point is this. Your criticism here leads to a solution far bigger than single-payer, far bigger than a single provider a la VA or UK's National Health Service-- you're talking about nationalizing a whole industry that's roughly 20% of our entire economy. Is that where you're going?
Posted by: wisewon | Jun 26, 2007 3:49:06 PM
My argument was that competition would do better than a single entity bargaining down prices.
Indeed. Competition is bargaining down prices elsewhere in the world, to the detriment of Americans.
Posted by: pseudonymous in nc | Jun 26, 2007 4:08:21 PM
Indeed. Competition is bargaining down prices elsewhere in the world, to the detriment of Americans.
Yeah, like when the computer destroyed a bunch of jobs, we were worse off afterwards.
Posted by: Jason | Jun 26, 2007 4:12:18 PM
Yeah, like when the computer destroyed a bunch of jobs, we were worse off afterwards.
Huh? Now that's a non sequitur.
I'll grant you a point on Carfax. Now admit that there's competition in bargaining down drug prices, and American buyers lose out by comparison.
Posted by: pseudonymous in nc | Jun 26, 2007 4:33:00 PM
Now the neurosurgeons and device manufacturers involved can continue to improve their product (whether it be reducing procedure time or lowering cost of devices) such that in their will be more investment in this area, more innovation, and potentially a solution in the long-run that is more cost-effective that justifies broader coverage.
With single-payer, all of this is lost because a commission determined its not cost-effective, the government doesn't cover it, and neurosurgeons/device companies move onto something else.
Good point.
I think that private insurers have demonstrated that they think of cost-efficiency in terms of squeezing the insured. I don't think they deserve a seat at the table: they had their chance and blew it.
The moral fault theory of health care systems? The point is that the perversities of insurance have been driven by bad regulation, not by some inherent problem with insurers. I don't think bad regulation is the only problem--lack of information about insurer performance is also a big problem, for example--but bad rules are defeinitely a big part of it.
Let's have a commission, like the one that developed the Oregon plan. Their job is to rank treatments in order of cost-effectiveness.
If you offer insurance (private or government), you can cover treatments up to any point on the list--but you MUST cover every treatment up to that point. Courses of treatment can be included (MRIs are covered after physical therapy at #500, but before at #1000.)
Interesting idea.
If the system covers everything that Medicare covers, it covers pretty much everything--there's not much room for supplementary insurance.
Also a good point.
Posted by: Sanpete | Jun 26, 2007 4:37:20 PM
I just read the article itself, as much as I could stand to. i love, love, love the idea that its terribly easy and cost effective to argue over the bill--and I've done it, by the way very sucessfully over stuff my insurance company wouldn't pay for. But that depended on getting someone sympathetic on the phone, and having a good story, and lots of time to negotiate and call back. Small bills that I've ignored because I thought that eventually my insurance company would get around to paying them, or small bills I couldn't figure out if I actually owed? I've had them turned over to collection agencies within a month of the first failed payment. The idea that you would get months to negotiate, that they wouldn't demand payment right away, that you wouldn't find yourself with your credit ruined and hostile harrassing phone calls almost instantly is a sign that this guy is very, very, upper class and utterly full of shit.
And by the way ,when poor people get their medical care through the emergency room and default on payment people like this guy routinely deride them as losers, deadbeats, and scum not "canny consumers." why is that? Refusing to pay 50 percent of an inflated price for something needed isn't really that much more noble that refusing to pay 99 percent of an inflated price for something needed?
aimai
Posted by: aimai | Jun 26, 2007 4:38:37 PM
As a quick clarification on my own view, my preferred system has a base of government provided insurance, and then folks can buy private, supplemental policies atop that. If you want insurance that covers back surgeries fully, go for it.
That may not be so different from what we already have. There are large federal/state programs providing comprehensive health care coverage for the elderly, the poor, veterans, and government employees, and smaller federal, state and local programs providing a variety of free or low-cost health care services to those who are otherwise uninsured. The difference between what we have and what you seek is largely a matter of just what would be covered under the "base of government provided insurance" you mention.
Posted by: JasonR | Jun 26, 2007 5:10:48 PM
pseudo,
Or are you going to argue that the CMU was 'a move in the direction of private insurance and user fees'
No, I mean the increasing role of private insurance and out-of-pocket fees and the declining role of the public insurance fund. Between 1980 and 2000, the percentage of the French population with private health insurance increased from 69% to 86%. The decline in the role of public funding has been especially large for outpatient services. As of 2004, the share of French health care financed by private insurance was the third highest among all OECD countries, behind only the US and the Netherlands. The continuing large deficits in the public insurance fund suggest that its role will continue to decline.
The trend in France is clear: More reliance on for-profit (horrors!) private insurance and less reliance on government.
Posted by: JasonR | Jun 26, 2007 5:26:44 PM
The difference between what we have and what you seek is largely a matter of just what would be covered under the "base of government provided insurance" you mention.
You minimize the importance of who would be covered, and how securely. The free and low-cost programs you mention don't come very close to providing the security a decent insurance plan would give. A universal insurance plan would make a big difference for a lot of people.
Posted by: Sanpete | Jun 26, 2007 5:31:40 PM
Now admit that there's competition in bargaining down drug prices, and American buyers lose out by comparison.
According to an executive from Novartis, drug negotiations in Europe go something like this: The government tells each manufacturer of a drug in a particular category (statins, hypertension, etc.) that it will only allow a preferred position on its formulary for two drugs (there might be five or six that can do the job). One of the two will be chosen based on low price and one will be based on superior efficacy with the latter getting a 10% or so higher price than the former. The end result is that the patient and the doctors wind up having to choose from a highly restrictive formulary. If a non-formulary drug works better for a particular patient, the patient presumably has to pay for it out-of-pocket, at least to the extent that the price exceeds the cost of the drugs on the formulary. Our VA system is similar with only about 1,300 drugs on its formulary or about one-third of the number available under the typical Medicare Part D plan. The government has no leverage to bargain down drug prices unless it is prepared to adopt a restrictive formulary. Legislators don't seem to be supporting that approach because seniors wouldn't like it.
Since the U.S. is still an uncontrolled market for prescription drugs, Europe, Canada, Japan, etc. have been allowed to, in effect, free ride on U.S. R&D. If the U.S. went to a similar approach, the risk is that there could be a significant adverse intermediate to longer term impact on innovation to the detriment of everyone.
In the same vein, when Medicare squeezes provider payments, hospitals, doctors, and others still have the opportunity to cost shift to commercial payers. On average, commercial insurers pay doctors and hospitals 120%-125% of Medicare rates according to Charlie Baker, CEO of Harvard-Pilgrim Healthcare, a highly regarded non-profit insurer in Massachusetts. If hospitals suddenly had to accept Medicare rates from all comers, their revenue would decline at least 8% - 10% even after receiving Medicare rates from previously uninsured patients. Since many hospitals have profit margins of 5% or less, their ability to maintain their current quality standards, especially at the Academic Medical Centers could be threatened.
Posted by: BC | Jun 26, 2007 5:36:57 PM
I am amazed that there are people taking issue with the government's ability to bargain discounted drug prices based on volume. That's exactly what all the private sector pharmaceutical benefit managers (PBMs) do for various health plans across the country. The difference is that PBMs extract a hefty profit for their services. If the government is the primary source for prescription drug payments as in a single payer setting and it does not take the kind of profit that the large PBMs such as Expressscripts, Merck Medco, and Caremark take, which it won't, then how can it be argued that better pricing and greater efficiency won't be the result?
I am not suggesting by the way that the pharmaceutical companies be deprived of a profit. But there is no reason for consumers to be hostage to the excess profits extracted from the American market.
Posted by: Klein's Tiny Left Nut | Jun 26, 2007 5:42:32 PM
GDP per person (1, 2)
U.S. $43,500
Cuba $3,900
Annual healthcare spending as percentage of GDP (3,4)
U.S 15.4%
Cuba 6.3%
Annual healthcare spending per person (3,4)
U.S. $6,096
Cuba $229
Longevity at birth for males (3,4)
U.S 75
Cuba 75
Longevity at birth for females (3,4)
U.S 80
Cuba 79
1. https://www.cia.gov/library/publications/the-world-factbook/geos/us.html
2. https://www.cia.gov/library/publications/the-world-factbook/geos/cu.html
3. http://www.who.int/countries/usa/en/
4. http://www.who.int/countries/cub/en/
Posted by: anon | Jun 26, 2007 5:46:46 PM
BC,
Almost every private sector health plan in the U.S. has a formulary with a three tier co-pay for generics, preferred name brands, and non-formulary name brands. Many are in the process of adding a fourth tier for so-called bio-tech drugs or injectables. There is no reason that such a system could not be used in a single payer setting.
What single payer would eliminate is the grotesque profits realized by non-health care providers in the system, i.e. the insurance companies (including the so-called non-profits, the PPO providers, the PBMs, and the various and sundry entities that suck out a huge amount of our health care dollars and yet don't heal a single patient.
Posted by: Klein's Tiny Left Nut | Jun 26, 2007 5:48:33 PM
Mr. Nut, profits aren't only a cost to the system. If the system is structured well, they're an incentive to better products and services. What do you think of wisewon's point at 11:51:10 above?
Posted by: Sanpete | Jun 26, 2007 5:55:04 PM
sanpete,
The free and low-cost programs you mention don't come very close to providing the security a decent insurance plan would give. A universal insurance plan would make a big difference for a lot of people.
Would it? Do you have any evidence for this claim? How big a difference? For how many people? How do the services available for free or at low-cost to uninsured Americans compare to the services available to the typical Briton or Canadian under their nations' "universal insurance plans," for example? Even if a certain service is not available for free or at low cost to an uninsured American, he may still receive that service long before he would have done so in Britain or Canada, given the long waiting lists for consultations and treatments that plague the British and Canadian "universal" health care systems.
Posted by: JasonR | Jun 26, 2007 6:12:51 PM
What single payer would eliminate is the grotesque profits realized by non-health care providers in the system
Here we go again. Hey, while we're at it, let's have a single-payer computer industry too, to eliminate the grotesque profits realized by Apple and Google and Microsoft. And a single-payer health care delivery industry, to eliminate the grotesque profits made by doctors and hospitals and drug companies and MRI machine manufacturers. Hell, let's just have single-payer everything.
Posted by: JasonR | Jun 26, 2007 6:19:13 PM
Do I have evidence that decent health insurance would be a big improvement for most of those who currently lack such coverage? Not handy, if by that you mean links to studies and such. There's been plenty posted here over the several months I've been reading. I do have some idea about what people who don't qualify for Medicaid and don't have insurance pay for major health care treatments, and it adds up very fast, despite the programs you listed.
I don't see anyone arguing that Canada and Great Britain are the best examples to follow, but they're a great deal cheaper than what we have, at least. What's your objection to a program like Edwards has put forward, to mandate coverage through either private insurers or a Medicare-type plan, the choice to be made by the consumer?
Posted by: Sanpete | Jun 26, 2007 6:28:55 PM
Sanpete,
At the risk of sounding glib, I would say that there are good and bad profits that can be made in the system. Profits for providers, including the pharmaceutical manufacturers are good within reason. As I think you and I may have discussed in a thread some time ago, I am not so enamored of the profit paid to entities that essentially serve as piecemeal aadministrative adjuncts to the system, i.e. the PBMs and PPO providers, because I think these roles can be filled by the government for a much lower cost.
Wisewon's point about a single payer system squelching innovation is not persuasive in my mind. First of all, I don't think that it can be argued that there are not innovative treatments developed in countries with single payer systems. Moreover, it is not like the private insurers in the U.S. will pay for experimental procedures. These types of treatments tend to be adopted in teaching hospitals and ultimately are covered by plans when there efficacy has been proven. When I started working with health care plans in the mid-80s, things like liver transplants were deemed experimental. Over time coverage was extended as techniques improved and value in the procedure was shown. I don't think that the situation is necessarily different in the single payer context. Indeed, most of the plans that I work with looked to Medicare to be the arbiter of what would be considered experimental or not and hence, subject to coverage.
Posted by: Klein's Tiny Left Nut | Jun 26, 2007 6:33:18 PM
sanpete,
Do I have evidence that decent health insurance would be a big improvement for most of those who currently lack such coverage? Not handy, if by that you mean links to studies and such.
Color me unsurprised.
There's been plenty posted here over the several months I've been reading.
I would be most interested to see your links to those posts. And I do mean posts supporting your specific claim here, namely that "decent health insurance would be a big improvement for most of those who currently lack such coverage." Of course, until you explain what you mean by "decent" and "big improvement," at least roughly (do the Canadian and British systems provide "decent" coverage?), your statement isn't terribly meaningful.
What's your objection to a program like Edwards has put forward, to mandate coverage through either private insurers or a Medicare-type plan, the choice to be made by the consumer?
I wouldn't necessarily oppose a mandate. But the devil is in the details. Edwards' "program" is so woolly and vague, the conditions under which his individual mandate would go into effect so ambiguous, that it's hard to know what it would really mean in terms of concrete change.
Posted by: JasonR | Jun 26, 2007 6:48:04 PM
Ktln,
With respect to drugs and PBM's, Medco, for one, claims to make fully 50% of its profits filling prescriptions for generics by mail. The PBM's and the large drug retailers (Walgreens, CVS, etc.) all claim that they make very little profit from brand name drugs. The drug retailers, in fact, say they actually make more gross profit dollars filling a generic prescription than they do on a brand even though the generic is about one-quarter the price on average. This is why both the retailers and the PBM's have plenty of incentive to switch a prescription for a brand name drug to a generic every chance they get. Generics now account for over 50% of all prescriptions but only 15%-20% of the dollars spent on drugs. Biologics are considered a separate category called Specialty drugs. Even Wal-Mart says that its buying power is not much help in buying brand name drugs more cheaply than much smaller competitors can buy them. Apparently, the drug companies' attitude boils down to: if the docs prescribe it, you have to carry it. For generics, where there are multiple manufacturers of the same compound, high volume translates to lower per pill prices just like in any other competitive market. The PBM's and retailers do make high margins on generics, but, according to McKinsey, generics are still actually 10% cheaper, on average, here than in other countries.
The best drug retailers and PBM's have after tax profit margins of 3%-4% of revenues, hardly a grotesque or obnoxious figure. Moreover, regarding the tiered copays that you referred to, even a $40 or $50 copay for a Tier 3 drug may still insulate the consumer from most of the actual cost. My understanding of the formulary approach in other countries is that if it's on the formulary, it's covered, and if it's not, it isn't. Or at best, it's only covered up to the price the government or sickness fund pays for the formulary drug. Please correct me if I'm wrong on this.
Posted by: BC | Jun 26, 2007 6:53:14 PM
anon,
Average life expectancy at birth is meaningless as an indicator of the quality or effectiveness of a nation's health care system, because there are so many other things that have a much greater effect on average lifespan than health care interventions.
Posted by: JasonR | Jun 26, 2007 6:54:47 PM
Y'know, JasonR, we've come to expect your double-faced attitude to assertions (i.e. yours can't be challenged, other people's are worthless). But repeating a pile of cherry-picked strawman bullshit doesn't make it any truer
The trend in France is clear: More reliance on for-profit (horrors!) private insurance and less reliance on government.
Bullshit point, bullshit language: the French don't 'rely' upon private insurance, since it's by definition supplementary to the CMU. It is offered as a supplement, it is used as a supplement, and it works as a supplement. Plus, your comparison to other OECD nations' private insurance spending is a complete non sequitur.
Even if a certain service is not available for free or at low cost to an uninsured American, he may still receive that service long before he would have done so in Britain or Canada.
May, indeed? Cite, or admit you're talking shite.
And you still appear quite ignorant of just what sort of health system the UK has. And you've yet to come back with facts on it that were requested of you in earlier threads.
Posted by: pseudonymous in nc | Jun 26, 2007 7:20:12 PM
Mr. Nut, wisewon's point doesn't imply that innovation depends solely on profit motive, so the fact that innovation also occurs without it isn't really an adequate response. It's a matter of how much, and how useful. The point about experimental treatments not being covered is good, but not applicable to a good deal of what wisewon was referring to. Lumbar surgery, for example, isn't really experimental, only presently of somewhat marginal benefit. It's the kind of thing that some insurance will cover and some won't. Having a variety of plans available increases the range of treatments on which work continues.
Color me unsurprised.
I color you needlessly and rather self-obliviously snide, Jason. You haven't provided any good evidence that folks don't need better coverage. You were pushing the free and low-cost care stuff without any evidence that those programs actually accomplish much. Did you look around the website for the government program you referred us to? Doesn't inspire confidence, and it's very hard (if even possible) to gather information on it about what they actually provide.
You'll have to browse Ezra's archives (I suggest using the health care category) to have any hope of finding the evidence I've seen here. I haven't kept track of it. I'm not that interested in pressing the point here because I think anyone who has been conscious for the last ten years has seen more than plenty of evidence that a great many people have poor or no health insurance, and that this causes various serious problems for them and the rest of us. This isn't an especially controversial point. If you're not too put off by a proposal like Edwards', I don't think there's that much to argue about.
Posted by: Sanpete | Jun 26, 2007 7:30:40 PM
pseudo,
the French don't 'rely' upon private insurance,
Yes, they do. As I said, as of 2004, the share of French health care financed by private insurance was the third highest among all OECD countries, behind only the US and the Netherlands. French people rely on private insurance to cover most of the difference between the amount of money they are charged for health care services by providers and the amount of money the government reimburses them.
since it's by definition supplementary to the CMU
Er, the CMU applies only to the poor. As of 2004, it was available only to individuals with monthly incomes below 562 Euros. That's only 8% of the population.
Cite
You're not in a position to demand citations, since you don't provide any to substantiate your own factual claims.
And you still appear quite ignorant of just what sort of health system the UK has.
No, I'm well aware of what sort of health system the UK has (a bad one). You don't seem to be aware of the meaning of the term "single-payer."
Posted by: JasonR | Jun 26, 2007 7:38:24 PM
sanpete,
You haven't provided any good evidence that folks don't need better coverage.
In that case, you haven't provided any good evidence that people do "need" better coverage. "Need" is yet another in your endless stream of terminally-vague weasel words. Lots of people would certainly benefit from better coverage, but of course that's not the same thing.
You were pushing the free and low-cost care stuff without any evidence that those programs actually accomplish much.
No, I pointed out that such programs exist to rebut the false claim, repeated on a regular basis by many obviously uninformed commenters on this blog, that poor and uninsured Americans don't have "access" to health care services and don't receive health care services. I cited a RAND study that found that uninsured Americans receive about half the health care services that insured Americans do. That is indeed evidence that programs for the uninsured "accomplish much."
You'll have to browse Ezra's archives (I suggest using the health care category) to have any hope of finding the evidence I've seen here.
As I've told you before, it's not up to me to look for evidence substantiating your claims. That's your job.
Posted by: JasonR | Jun 26, 2007 7:49:10 PM
Klein,
Wisewon's point about a single payer system squelching innovation is not persuasive in my mind. First of all, I don't think that it can be argued that there are not innovative treatments developed in countries with single payer systems. Moreover, it is not like the private insurers in the U.S. will pay for experimental procedures. These types of treatments tend to be adopted in teaching hospitals and ultimately are covered by plans when there efficacy has been proven.
A few thoughts:
I generally have two points on innovation, neither of which is captured in the excerpt above. There are different types of innovation in health care. One type clearly lost by a single-payer system I described earlier in this thread: methods of cost control, types of consumer choice (rather than simple covered versus not) and experimentation with the types of procedures covered (spectrum of experimental to standard-of-care). In other words, there are a lot of good ideas about how to manage the cost-quality tradeoff (we can't have everything) but no one frankly knows which method is best. A single-payer system takes you down one path, and one path only, rather than learning from multiple approaches across insurance companies and implementing best practices as they emerge in the marketplace.
This then impacts the second aspect of innovation, which is access to new medical technologies. This is NOT about which country develops technologies and which doesn't. The reality is that the biotech, pharma, medical device industries in other countries ARE pursuing entrepreneurial activities-- to meet the demands of the global health care system, irrespective of their native country. (As a small tangent-- I should point out that health care innovation is heavily slanted towards the needs of our country, as the US is typically ~50% of the total market value for a given product. If the US doesn't have a market demand for a particular technology, its significantly less likely to be pursued as an idea.) What is typically lost by a single-payer is access to innovation, as the "covered or not" approach does not allow consumers in other countries to have variable levels of coverage. Hence, the lumbar surgery example above.
Posted by: wisewon | Jun 26, 2007 8:39:52 PM
Huh? Now that's a non sequitur.
I'll grant you a point on Carfax. Now admit that there's competition in bargaining down drug prices, and American buyers lose out by comparison.
Excuse me, I misinterpreted your point.
I don't know if I'd call it "competition." I would agree that pharmaceutical companies charge Americans higher prices because they get less revenues abroad (from countries that do collective bargaining). For example, if it costs a pharmaceutical company $100 million to research a new drug, and they only get $40 million in revenues from Europe, they must raise $60 million in the United States.
I think that is unfair, and drug companies only do it because we ban drug reimportation. If we removed that ban, people could arbitrage pharmaceutical products and it would force the European and Canadian systems to pay a fair market price and would help lower American prices.
However, the inherent problem -- that drugs cost a lot of money -- is not cured by collective bargaining in general. Producing drugs is expensive, and it has to be paid for in some way. Any regulation that attempts to restrict how much revenue they rake in will only diminish the quality of drugs coming to market.
Posted by: Jason | Jun 26, 2007 9:05:50 PM
BC,
With respect to PBMs, I have a hard time speaking to the level of profitability that they enjoy because they are notoriously untransparent in their dealings. I've negotiated contracts with most of the major players over the years (not a lot of true negotiating by the way) and they are deeply jealous of their propietary information. As far as discounts, they typically claim to deliver discounts on the name brand drugs that are equivalent to Average Wholesale Price minus 13%. I believe that a government entity could achieve deeper discounts and save us the profit paid to the PBMs. I am not certain what the copay versus formularly issue works out to be in many of these systems, but I don't see why a 4 tier system couldn't work here.
Posted by: Klein's tiny left nut | Jun 26, 2007 9:26:17 PM
Producing drugs is expensive
Actually, producing drugs (other than biologics) is really very cheap – measured in pennies per pill. It's R&D, including clinical trials that's very expensive, especially when you consider that many new drugs do not make it through the clinical trial process.
Importation is unlikely to work, mainly because of the risk of counterfeiting.
To me, the issue for Big Pharma is how profitable does it need to be in order to attract the capital it needs to do its work and to provide investors with a decent risk adjusted return? I don't know the answer, and I don't believe in price controls, but my sense is that the industry historically has been more profitable than it needs to be. When you consider that people don't buy these products because they want to but because they have to in order to treat their condition(s), the industry could be more sensitive to the affordability issue than it has been historically.
That all said, prescription drugs still only account for about 10%-12% of our total healthcare spending. Even if DTC advertising were eliminated and sales forces were streamlined with the savings passed through to consumers in lower prices, our $2 trillion healthcare system would hardly notice it.
Posted by: BC | Jun 26, 2007 9:40:50 PM
Drugs cost a lot of money for a reason
That reason is supply and demand. As I said, drug companies are free to charge whatever they want, however, large entities buying in bulk will have a large amount of negotiating leverage-- leverage that works in favor of both parties involved.
Already, drug companies are forgoing revenue because many potential consumers of their drugs cannot even afford to buy them. It strikes me as an awfully good use of my tax dollars to allow the government to negotiate such deals on my behalf.
Posted by: Tyro | Jun 26, 2007 9:55:02 PM
I cited a RAND study that found that uninsured Americans receive about half the health care services that insured Americans do. That is indeed evidence that programs for the uninsured "accomplish much."
It is if the study shows how much of that care comes from those programs. The poor often pay out of pocket, and sometimes they end up not paying for various reasons that indicate failure of programs, not success. I don't doubt that some programs, such a Medicaid, do a lot. I have my doubts about the collection of health centers whose addresses are strung together at the website mentioned above.
"Need" is yet another in your endless stream of terminally-vague weasel words. Lots of people would certainly benefit from better coverage, but of course that's not the same thing.
If everyone were as anxious to quibble as you are, you probably would find that you're wasting your time making this kind of point, when you saw your own points pointlessly quibbled with. Whether people need additional coverage is in fact the relevant question in the context of your claims that they already have access to care. Is it enough access, by whatever standards you think should apply, or is more needed, by those standards? That's a driving question in this whole debate. And I shouldn't have to explain that.
As I've told you before, it's not up to me to look for evidence substantiating your claims. That's your job.
As I just explained to you, I see no need to do that in this case.
Posted by: Sanpete | Jun 26, 2007 9:56:33 PM
Tyro raises a good point. Although the profit margin may be reduced, pharamceutical companies would benefit by being able to sell more of their products and the public would benefit by increased compliance to deal with the major preventable conditions that add to public health costs.
BC,
I think we focus on pharamceuticals in part because of their role in preventative care, in part because of the ubiquity of their advertising, and lastly, because they have probably been the major driver of much of the recent spate of medical inflation.
One topic that does not get discussed much because it is difficult is the amount of money spent on futile end of life care. Very few people take advantage of hospice care and many end their lives with levels of medical intervention that are absurd and unproductive. I am aware of a woman who recently died of complications from suregery for stage IV breast cancer who spent her last few weeks on a respirator. This kind of care is something we as a society need to think about. And no, I'm not a euthanasia advocate, but someone who thinks excellent pain management in a home setting would be a preferable way to go.
Posted by: Klein's tiny left nut | Jun 26, 2007 10:11:59 PM
Ktln,
I'm with you 1,000 percent on the futile end of life care issue. I've written on that subject many times. I think we could make a much more aggressive effort to increase the percentage of the population that has executed a living will or advance medical directive, possibly even making it a requirement of health insurance. As I understand it, only about 25% of the population has a living will today.
I think it might also be helpful if we had a more complete understanding of how other countries deal with this. Are people elsewhere more inclined to choose hospice care and/or comfort care for cultural reasons? Or, is that the default protocol elsewhere (as opposed to do everything in the U.S.)? Or, do the differences relate to how the medical profession in different countries defines good, sound medical practice (standard of care)? Given the high cost of healthcare here, the fact that it continues to rise faster than inflation and GDP and that we still have 45 million people without health insurance, our approach to end of life care seems incredibly wasteful to me.
Posted by: BC | Jun 26, 2007 10:25:45 PM
sanpete,
If everyone were as anxious to quibble as you are
Your posts are full of statements that refer to what is "needed" or what is "adequate" or what is "enough" but that lack even a rough explanation of what those terms are supposed to mean in context. "Adequate" for what? "Need" for what? Obviously, a level of health care coverage that is "adequate" by one standard may be highly "inadequate" by another. Prevailing standards of coverage differ greatly between countries and between different groups of people within a single country. Unless you articulate some reasonably clear description of the standard you have in mind, your claims about what is "needed" or "adequate" have no clear meaning. It's just an abstraction.
The uninsured in America have "access" to a wide range of free and low-cost health care services, from primary care to specialized care for serious illnesses. We also know that the uninsured are not a fixed group of people, but a group whose membership is constantly changing. Census Bureau data indicate that the median period without insurance is only 5 or 6 months. So even if a person is uninsured today, and unable to obtain some health care service because he lacks insurance, there is a good chance he will acquire insurance in the near future. We also know that shortages and waiting lists for consultations and treatments are common in at least some nations that have "universal health care" funded by taxes (your stated goal), such as Britain and Canada. In light of these facts, it is not clear that even the typical uninsured American has less "access" to health care services than the typical Canadian or European, let alone that Americans as a whole do.
Posted by: JasonR | Jun 26, 2007 10:39:41 PM
Going back to the health care system in France (since Ezra and other reform proponents so often cite it favorably), here is a description of the costs of medical treatment for a minor accident. It's written by Peter Owen, an expatriate Brit living in France:
Consultation with PCP:
Cost: 40 euros
Reimbursement: 13 euros
Balance of cost to patient: 27 euros
X-Rays:
Cost: 135 euros
Reimbursement: 94 euros
Balance of cost to patient: 41 euros
Painkillers:
Cost: 15 euros
Reimbursement: 10 euros
Balance of cost to patient: 5 euros
Consultation and treatment by specialist:
Cost: 60 euros
Reimbursement: 18 euros
Balance of cost to patient: 42 euros
So out of a total cost of 250 euros, the government paid just 135 euros, or a little more than half. The patient had to come up with the other 115 euros out of pocket, or through private insurance. 115 euros is about $155.
Gotta love that "free" universal health care.
Posted by: JasonR | Jun 26, 2007 11:15:09 PM
That reason is supply and demand. As I said, drug companies are free to charge whatever they want, however, large entities buying in bulk will have a large amount of negotiating leverage-- leverage that works in favor of both parties involved.
Already, drug companies are forgoing revenue because many potential consumers of their drugs cannot even afford to buy them. It strikes me as an awfully good use of my tax dollars to allow the government to negotiate such deals on my behalf.
They still are subject to the laws of supply and demand, which means if they charge $1,000,000 per pill, almost no one will buy the drug. So they have to price their drug at a somewhat reasonable price, even if only more wealthy citizens can afford it. It is often said, "people have to buy these drugs," but rarely do you see a drug that so dramatically saves lives so as to be worth, say, $100,000. So the drugs are priced for profit-maximization, even if the price is significantly higher than the natural price.
The "buying in bulk" argument is pretty weak. The high price of drugs has nothing to do with a lack of bargaining power. Like I said earlier, the price comes from expensive R&D expenditures and (necessary) patent protections. Collective bargaining will do little unless the government uses coercive bargaining power, but the net result will either be 1) cheap drugs for some and expensive drugs for others, or 2) lack of quality drugs in the future.
Posted by: Jason | Jun 27, 2007 12:25:55 AM
Occasionally it does happen, though.
Doctors are excited about the prospect of Avastin, a drug already widely used for colon cancer, as a crucial new treatment for breast and lung cancer, too. But doctors are cringing at the price the maker, Genentech, plans to charge for it: about $100,000 a year.
Posted by: Neil the Ethical Werewolf | Jun 27, 2007 12:49:58 AM
Jason, a belabored quibble is still a quibble. You have a remarkable and curious tendency to focus on one aspect of what I've said while ignoring the part that directly responds to your reply to it even before you make it. As I plainly said, use "whatever standards you think should apply" to interpret terms like "need" and "enough." That's what the rest of us do. If it turns out our standards are very different, that will become apparent. (You can practice with "very" in that last sentence.)
In light of these facts, it is not clear that even the typical uninsured American has less "access" to health care services than the typical Canadian or European, let alone that Americans as a whole do.
Actually, it's pretty clear the uninsured do, from the studies I've seen, at least, especially in comparison to some of the European countries, who still manage to spend far less than we do. No, I won't try to find some study showing that.
On your France anecdote, you did notice that the story was apparently selected to help sell supplemental insurance, right?
Posted by: Sanpete | Jun 27, 2007 12:58:46 AM
You're not in a position to demand citations, since you don't provide any to substantiate your own factual claims.
LOL.
I will revise and extend my remarks to say that the French 'rely' on a CPAM, or CMU when not qualified. My point about the supplementarity of supplemental insurance still holds, because it's not the
But well done for driving away on a tangent's worth of quibbles, when the fucking thread was about the apparent libertarian wonders of self-diagnosis, something that no-one in France needs to do.
(I did notice that you cherry-picked your figures on France to end just before the introduction of the CMU. Or perhaps the one Cato propaganda piece you lean on like a crutch did the U-pik.)
Thus, the JasonR argumentation method: "low burdens of proof for me, impossible burdens of proof for thee." Are you a claims adjuster for a private health insurer?
Posted by: pseudonymous in nc | Jun 27, 2007 2:19:18 AM
Occasionally it does happen, though.
Doctors are excited about the prospect of Avastin, a drug already widely used for colon cancer, as a crucial new treatment for breast and lung cancer, too. But doctors are cringing at the price the maker, Genentech, plans to charge for it: about $100,000 a year.
Ha, wow. Doesn't make sense, though. First, a $100,000 price doesn't seem to be a profit maximizing price. If only 1 person can afford $100k, but 4 people can afford $50k, they are missing out on $100k income. Second, economist David Cutler argues a year of life is worth $100,000 if one wishes to calculate the costs/benefits of a treatment plan. Not sure they would use a $100,000 drug. :)
Posted by: Jason | Jun 27, 2007 2:30:23 AM
Ugh: 'it's not supplementary insurance that covers your cancer treatment or your contretemps with a bus.'
In light of these facts, it is not clear that even the typical uninsured American has less "access" to health care services than the typical Canadian or European, let alone that Americans as a whole do.
'Not clear'? Only because you're an obfuscating bullshitter. Your standard pseudo-logic:
1. There's lots and lots of free! free! healthcare out there, just trust me on it.
2. There are waiting lists in other systems.
3. Therefore I win.
What utter toss.
Posted by: pseudonymous in nc | Jun 27, 2007 2:32:59 AM
Klein,
because they have probably been the major driver of much of the recent spate of medical inflation.
Let's clear up a common misperception. Prescription drug spending has been growing at faster rates than other components of health care spending-- but from a smaller base. Meaning that when drug spending was $100 billion a year growing at 15%, that was an increase of $15B that year.
While the growth rates are interesting, the absolute dollar increase is what drivers overall medical inflation-- i.e. if we are at 2 trillion in expenditures this year and 2.2 next year-- the increase in $200 billion is new spending. New drug spending will only be around $15-20 billion of that new spending.
A long answer for saying the following-- according to CMS these are the greatest drivers in health care cost growth.
1. Hospital services
2. Physician services
3. "Other spending"
4. Prescription drugs
The order of magnitude between 1 and 2 and 4 is around 5-6 fold. So for those who are serious about looking at curtailing costs -- look at those two more closely (particularly because there are reasons to suggest that prescription drug spending may actually flatten or slightly decline as a number of blockbuster drugs move off patent-- consistent with their slowing growth rates-- single digits-- over the past two years).
I'll throw one more curveball out there: pharmaceuticals do lower the need for other types of medical interventions. For example, when proton pump inhibitors came out (Zantac, Prilosec), the number of ulcer surgeries which used to be bread and butter for general surgeons, dropped precipitously. You would think that given the number of these key pharmaceutical advances, utilization of hospital and physician services would go down somewhat. The reality? They outpace inflation ever year. But given that when these service grow annually, that have to both fill-in gaps from lost services (i.e. ulcer surgeries) and continue to grow larger than that base-- their true growth rates are misleadingly low.
Posted by: wisewon | Jun 27, 2007 7:54:13 AM
Jason,
The high price of drugs has nothing to do with a lack of bargaining power. Like I said earlier, the price comes from expensive R&D expenditures and (necessary) patent protections.
You have this backwards. The price does not "come" from expensive R&D expenditures-- its needed to justify high R&D expenditures-- future ones. The prices of drugs are about bargaining power-- relative to the need for access. When a payer negotiates with a drug company, they have made an assessment of need for medical access for their patients. They have a P&T committee, made up of physicians and pharmacists, who determine if this is a must need drug (hence no bargaining power), a "need to have, but doesn't need preferred access (some bargaining power) or unproven/not justified cost (huge bargaining power, and rare occurrence).
The concern with a government plan, is that it wouldn't necessarily need to play by the same rules. Since the government wouldn't have to worry about patients switching to a different plan if they don't provide access to certain drugs (or more simply tarnish their brand from attracting new customers), they can play more hardball with pharma companies, even when they shouldn't-- i.e. with a drug that patient do need access to (category 1 above). If government does this a few too many times-- R&D will be impacted because the message from government is clear-- they are more concerned with absolute price levels rather than price relative to degree of innovation. True innovation is much riskier, which costs more dollars-- and there is not a pharma company around that would continue do that if the payoff isn't appropriate.
Posted by: wisewon | Jun 27, 2007 8:07:46 AM
Wisewon,
I don't disagree with you about the proportion of prescription drug costs versus hopitalization, surgical, etc. However, inflation in the prescription drug area has been trending higher than overall medical inflation and is starting to make up a more substantial part of health plan outlays, something that will only be exacerbated by the continued development of and broader use of specialty drugs. Hopefully, there is some substantial offset in the need for surgical and other interventions as a result, as well as significant improvments in quality of life.
I think the bottom line is that the current rate of medical inflation is unsustainable and that we are getting a rather poor return on our investment in terms of health outcomes, all of which lead many of us to think single payer could ameliorate substantially these trends while also taking care of the uninsured, delinking health care from employment, and letting employers focus on what they should be focused on.
Posted by: Klein's Tiny Left Nut | Jun 27, 2007 8:26:35 AM
I think the bottom line is that the current rate of medical inflation is unsustainable and that we are getting a rather poor return on our investment in terms of health outcomes, all of which lead many of us to think single payer
Other countries with single-payer or nationalized health care systems are growing at the same rate-- so single-payer has clearly not been the answer for that issue.
As I've said before, health care cost growth is THE biggest issue we are facing right now. UHC, community rating, etc.-- those have policy answers that are relatively clear and could be addressed via single-payer or regulation of a private market system-- a la HRC and Obama's proposals.
However, the cost issue does not have any good answers right now. The point I've been saying in this thread is that a private market system will do a better job in the long-run in holding down costs. This is of course relative to innovation. Government could very easily refuse any reimbursement for new medical technology, which would be surest way to hold down cost. Assuming we are looking to continue adopting new technologies that are cost-effective and improve quality of life-- I've had a number of posts in this thread explaining why a private market approach to health care provides significant advantages in managing the cost-quality/innovation tradeoff.
Posted by: wisewon | Jun 27, 2007 10:05:23 AM
I am not sold wisewon. You continue to praise the magic of private markets. The whole reason we are having and have been having the debate about health care and the cost of health insurance for the past 20 years is because the markets have failed to deliver anything but greater profits for themselves. I'll take the chances on a single path that at least comes attached with my vote every 2 years rather than relying on the magic of private markets that currently have more voting power than I do to make sure a regulatory path is to their benefit not mine.
Posted by: Ricky | Jun 27, 2007 10:25:30 AM
You have this backwards. The price does not "come" from expensive R&D expenditures-- its needed to justify high R&D expenditures-- future ones. The prices of drugs are about bargaining power-- relative to the need for access. When a payer negotiates with a drug company, they have made an assessment of need for medical access for their patients. They have a P&T committee, made up of physicians and pharmacists, who determine if this is a must need drug (hence no bargaining power), a "need to have, but doesn't need preferred access (some bargaining power) or unproven/not justified cost (huge bargaining power, and rare occurrence).
I'm not saying you can't get some decrease in price by buying in volume. But you aren't going to get a $10,000 drug therapy down to $15. A drug company has to make $X hundred million to make up for R&D expenditures, and creating a government monopsony won't change that.
Posted by: Jason | Jun 27, 2007 11:25:13 AM
Jason,
You're missing my point because your example is extreme. The government COULD get the price from $10,000 to let's say $5,000 because a company isn't going to risk $500 million in sales if that's the only game in town.
If the government says $5,000 is the price, the pharma company has two choices: accept it, or not bring the drug on market and hope that the public clamors enough for it to be revised. You are the CEO of the company, and while you had projected $1 billion in sales based on a $10K price when the drug was in development, you now have to decide whether to take the projected $500 million in sales (based on a $5,000 price) or not put it on market and hope something changes.
Now try this exercise with a $7,000 price and $700 million. A $9,000 price and $900 million. The government will leave enough dollars on the table such that a company would be foolish not to take it. That's the point-- the government can win this game of "chicken" every time if it wants to.
In today's environment, an insurance company 1) is less likely to play this game, because they are competing for patients and need to give patients access to good drugs (based on categories I described above) 2)even if they do make a decision to play hardball and don't come to terms with pharma-- the CEO isn't making a $500 million gamble that patients will force them to reconsider, he's making a $5-10 million dollar gamble. Huge difference.
Posted by: wisewon | Jun 27, 2007 11:56:52 AM
One other point to add:
The $7000 price or $9000 price does make the company whole. They aren't making as much profit as they expected, but they ARE profitable.
But they aren't going to keep spending R&D dollars on drugs they think are worth $10,000....
Posted by: wisewon | Jun 27, 2007 12:02:32 PM
This particular study worries me by only having a single binary variable to capture socio-economic status, which we would expect to be a huge confounder - low status people are likely to have less generous drug benefits. The study claims "In sensitivity analyses, we used a five-level indicator for socioeconomic status, which did not alter our estimates of the cap effect " but I'm always suspicious of such footnotes - why didn't they include that in their main results? Its not like it would have taken them any more space to show those results instead.
Nonetheless, drugs are a part of medical spending that is most plausibly valuable, and some cross sectional studies suggest drugs have benefits while other medical spending does not. So if we are going to subsidize something, drugs are one of the best candidates.
Posted by: Robin Hanson | Jun 27, 2007 6:08:16 PM
To Jasonr:
Sorry, but you should cite.
I wonder how France with only complementary assurance being private comes third after the US and Netherlands in the share of private insurance, if out of my head:
- Switzerland and Singapore system do private only
- Germany has a big chunk of the population with private insurance only.
My only guess: you count the mandatory single payer going over para-governmental organisation instead of the CPAM for some categories as private. But please, I don't want to second guess you, just give your source for the ranking.
About the anecdote you give:
- you misread: the guy got 70%-65% of the specialist costs, that is about 41€ back from 60€ (for a plaster and a specialist visit, I remind our american readers) and not 18 € as you say.
- it is anecdotal at best: you have a guy selling advice about complementary insurance telling you an anecdote about how important complementary insurance is.
- it is funny, as a proof that your guy is paying through the nose over the mandated reimbursement price. I guarantee you it is not the price that 90% of the people pay for the same services: 40 Eur a GP in a rural region?
Why? My guess: because he wanted to speak English and ended with business savvy docs catering to high income foreigners, and wants to/can afford to choose a doc over-charging because he has a generous supplementary assurance covering a lot of over-charging by the provider (exactly the advice he is selling, incidentally).
If you have a CMU and break your arm, you will be taken care of exactly like your brit expat, and pay maybe 10€ out of pocket.
I would say 0€, but cover my ass with 10€ because I am not so sure how the "first visit" contribution put in place recently works out today for someone with a CMU.
If you are employed and don't have a CMU, you will have a complementary insurance, so your point about out of pocket is moot (your complementary insurance comes with your job).
Posted by: Singaporedoubter | Jun 28, 2007 2:50:28 AM
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