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June 07, 2007

It's Not About Age

In my vast storehouse of boring, wonky hobby horses, an old favorite is that it's not Medicare which is in financial crisis, but health spending more generally. The question is one of cost inflation, not aging, or underfunding. So I'm glad to see David Leonhardt get his hands on this CBO graph:

Health Spending Growth

If the issue were simply aging, cost containment would be, at best, a minor problem. It's health spending. And the growth is actually slightly faster in private insurance -- which we'll all be paying for, but because it's not coming from taxes, we get fewer nifty graphs and newspaper articles on the problem. But in the end, there's no solution here that doesn't reform the whole system. Cost containment really is key -- and it needs to fixed systemwide.

Part of that is encouraging less treatment. Lumbar surgeries, which are increasingly common, aren't particularly effective. The evidence in their favor is very, very weak, and often contradictory. Many patients recover just as well, and often better, without any surgery at all. But there's another driver too. "Doctors are almost always better off if the surgery is done," writes Leonhardt. "The typical hospital bill for lumbar fusion is roughly $50,000."

June 7, 2007 | Permalink

Comments

OK, I get that costs increases are out of control. What I don't get is how the total spending is divided up by cost components. Where does the money go?

My suspicion is that unneeded, marginally ineffective procedures are NOT the major cost sinks. I know that end of life procedures are a huge hit, but I don't know how much this is in aggregate or per person. What else drives cost? Administration/paperwork is likely a bit hit, as well as underwriting costs in private insurance (eliminating costly applicants, and reducing payments to providers). Most MDs are not making an income that is outlandish - a relatively few probably are. Other medical personnel are not over-compensated. How does our spending of technology (equipment) compare to non-US developed countries?

Where are the inefficiencies that are easy or only moderately hard to do?

Posted by: JimPortlandOR | Jun 7, 2007 2:23:04 PM

wild-ass guess here, but: obesity?

Posted by: fiat lux | Jun 7, 2007 2:40:23 PM

Jim: I don't think that the slope of the cost line is governed by inefficiencies. The position may be, but I think that the increasing costs basically come from discovering/creating new medical techniques and technologies and drugs that can potentially help people, but are very expensive to create/perform/manufacture. And then people get them.

Out of curiosity, doesn't Ezra's lumbar surgery example basically equal moral hazard? I thought that people who were in favor of socialized medicine were of the opinion that moral hazard was an unimportant factor in health-care costs.

Posted by: Michael B Sullivan | Jun 7, 2007 3:02:29 PM

Administrative costs are high, but I don't think they're a big reason for *rising* costs. And doctor salaries are also high, but they aren't rising at double digit rates. Malpractice isn't the answer either.

Basically, it's pharmaceuticals, which we use a lot more of; lots of expensive new procedures that didn't even exist 20 years ago; and a medical system that rewards doctors for driving up costs. End of life costs, for example, are both high and rising, but they don't have to be. In a lot of regions those costs are relatively low without any negative effect on outcomes. We just need a system that doesn't reward doctors for tossing everything but the kitchen sink at the elderly.

That's some of it, anyway. Ezra probably can provide a lot more detail.

(It's worth noting, BTW, that healthcare costs in other countries are lower than ours, but they're still rising at about the same rate as in the U.S. It's a global problem.)

Posted by: Kevin Drum | Jun 7, 2007 3:10:48 PM

When will we all wake up and realize that medical expenses in this country are increasing exponentially due to the bureaucracy necessary to manage the government's involvement in the industry. If we did away with most indirect govermental subsidies of medical care in this country, prices would come down. Do away with ERISA. Do away with employer deductions for medical insurance, and let the market decide.

In other words, get business out of the health industry. Without the horizontal and vertical monopoly, cost of care would become manageable.

Posted by: Tom Whittaker | Jun 7, 2007 3:22:23 PM

"a medical system that rewards doctors for driving up costs."

dingdingdingdingding!

Case in point; many developed nations understand the benefits of midwifery (and even home birth) for low risk pregnancies as a low-cost, effective, and safe form of birthing. The US prefers as many women as possible in the hospital, drugged, anesthetized, and c-sectioned, ostensibly as "liability protection" but more likely, because it's easier to schedule and requires more specialists and fees. We have a c/sec rate much higher than European countries with comparable populations but saner policies; at the same time, our infant and maternal mortality rates are worse. OBs are very hostile to midwives generally, and see them as a threat; in many states it's becoming harder and harder to practice midwifery because of pressure from ACOG and related groups.

Our system is the definition of dysfunctional; it rewards bad behavior, and punishes good behavior.

Posted by: emjaybee | Jun 7, 2007 3:29:34 PM

Jim: I don't think that the slope of the cost line is governed by inefficiencies. The position may be, but I think that the increasing costs basically come from discovering/creating new medical techniques and technologies and drugs that can potentially help people, but are very expensive to create/perform/manufacture. And then people get them.

Just wanted to reiterate this point. This is fundamentally, the issue we face as a society. The admin costs that are so heavily focused on by single payer advocates, are a one time drop in costs of the system. As Ezra notes, other countries' costs are rising at the same rate, so the problem will still exist (and in my opinion will be worse-- because you now are depending one one entity-- the single payer-- to fix the problem, rather than allow a robust set of methods of cost-control be tested in the market).

Posted by: wisewon | Jun 7, 2007 3:46:47 PM

Ezra,

Part of that is encouraging less treatment.

Would love to see some clarity on how you would view this occurring in a single-payer system. Are you in favor of a NICE-type of organization that makes these decisions?

Posted by: wisewon | Jun 7, 2007 3:49:29 PM

I'm actually in favor of shifting somewhat more spending to first dollar, non-preventive, care, and creating differential reimbursements for doctors depending on the proven efficacy and cost effectiveness of the treatment.

Posted by: Ezra | Jun 7, 2007 3:52:19 PM

Jim, uneccessary care drives costs. The Dartmouth Health Atlas shows that practice variation drives costs way up, by 30 percent just in Medicare. Imagine what we could do with an extra 180 billion a year? Some MD's make 4 to 5 hudred thousand dollars a year. Its probably worth it to pay them that much, but it is alot of cash.

Michael, as to your moral hazard theory, the problem with that is most patients aren't choosing to go with more invasive, expensive care. They simply choosing to do whatever their doctoc tells them to do, so the person driving up costs isn't really the patient.

What we need to do is incentivise healthy cost effective choices via savings sharing and self rationining. You choose the 5 dollar drug instead of the 105 dollar drug you get 15 bucks and your doctor gets 15 bucks. That way we save money, get better outcomes, and increase patient choice. This would be even more effective with high cost procedures.

Posted by: j | Jun 7, 2007 3:54:51 PM

Interesting-- then we are closer on this issue than I thought.

So the single-payer would differentiate treatments based on their assessment through something like HRC/Obama's proposed best practice institute?

I'd also suggest that the "tiering/differentiation" should take place at the level of the patient cost/co-pay/etc rather than at the physicians reimbursement level. Best practices/population medicine is extremely effective to a point-- there are justified reasons for deviation-- and the physician shouldn't be incentivized to prevent the patient from choosing a better option for them. We should be encouraging a dialogue between physicians and patients around what is the best option medically and whether its worth the cost. Putting the cost question in the hands of doctors prevents this from happening-- it encourages relatively blind allegiance to evidence-based practices (because they would get reimbursed the most for this), when a different option may be best for a patient.

Posted by: wisewon | Jun 7, 2007 4:04:33 PM

One of the big cost-drivers is the drug industry. Every time an older drug that works is replaced by a newer still-under-patent drug, costs go to the sky.

When it comes to pain medication they get a "twofer" by being actually able to force doctors to prescribe, and patients to use, expensive "new" drugs, under the rubric of the drug wars. Having at one time reviewed the prices charged by the hospital for the meds doled out to the patients, I feel confident in saying that the "new" drug usually is about ten times as expensive as the old one.

Another way this scam works is to provide insurance coverage for generics, but not dispense the generics. Humana, the insurer, is also Walmart, the dispenser, so the asthma sufferer who looks for albuterol (a generic) is told that the "new" albuterol (changed to eliminate CFCs) will cost them $65, instead of the $5 co-pay they expected. Multiply this times the number of asthma sufferers in America, and we're talking real money.

A timely reform would be not to allow advertising or sales efforts by the drug companies as a deductible business expense. Plus, what Ezra said- we need a single payer to walk softly with a big stick to the bargaining table.

Posted by: serial catowner | Jun 7, 2007 4:42:03 PM

"OBs are very hostile to midwives generally, and see them as a threat; in many states it's becoming harder and harder to practice midwifery because of pressure from ACOG and related groups."


thats crap. Midwives are registered as independent providers for childbirth services in all 50 states. If a woman wants a midwife, all she has to do is look one up in the phone book. There are no laws restricting their ability to deliver babies to any willing woman who wants one.

Posted by: joe blow | Jun 7, 2007 5:14:41 PM

The best practices approach is going to be a major sticking point with enormous political infighting over the composition of whatever body gets to rule on the issue. E.g., a committee of OB's is not likely to push midwifery, nor is a committee of orthopedics and neurosurgeons likely to restrict back surgery. Libertarians, and the wealthy, are likely to resist any effort to curtail their freedom of choice even if it is manipulated by their treaters (for good or selfish reasons.) So, Ezra, my question is do you have a suggestion as to who should have the power to say yae or nay on "best practices.?"

Posted by: JackD | Jun 7, 2007 5:16:44 PM

Some MD's make 4 to 5 hudred thousand dollars a year. Its probably worth it to pay them that much, but it is alot of cash.


Yeah, like less than 5%. The average doc (across all specialties) according to the US Labor Dept makes about 150k per year. Average lawyer according to the US Labor Dept makes about 115k per year.

YOu can reduce doctors incomes to a certain degree but its not the big difference maker you are making it out to be. Even if you reduced all doctor incomes to 115k (the average for lawyers) the US would still have the most expensive system in the world, by far.

If you reduced doctor incomes to LESS than 115k or what a lawyer makes, then say goodbye to the profession. The reason French doctors settle for 55k per year is that there is no alternative that pays more. EVERY profession in France makes shit wages. The US is obviously entirely different. Doctors do have an alternative and they will exercise it if you reduce their wages to below what other professionals make.

Remember that lawyers only need 3 years of training past college, the minimum for doctors is 7.

Posted by: joe blow | Jun 7, 2007 5:18:56 PM

I remember Ezra citing a RAND study not too long ago that shows that Americans get only 50% of the healthcare they are supposed to. I read that study, and it focused ONLY on care that was "missing", not any excess care that was rendered but inefficient.

If the RAND study is any example of what a "best practices" institute is going to say, then you can expect helathcare costs to DOUBLE, not decrease.

Posted by: joe blow | Jun 7, 2007 5:22:37 PM

> thats crap. Midwives are registered as
> independent providers for childbirth
> services in all 50 states.

Maybe - maybe - Certified Nurse Midwives are licensed in all 50 states. Getting the CNM on top of the RN is about 1/3 of the way to the MD however, and they have to charge rates accordingly, so I suspect that is not what the poster above was referring to. And even at that the CNMs are in constant conflict with the OBs.

Cranky

Posted by: Cranky Observer | Jun 7, 2007 5:31:11 PM

Great question joe blow. The answer is that the care that they need keeps them from getting the care that they don't need. For instance in the Dartmouth research, providers that were getting the best quality outcomes also happened to have lower average costs, even when factoring for chronic disease prevelance and the like. Getting statins will save you from the angioplasty, get it? Nobody thinks of the Mayo Clinic as cheap care. Quality care is cheaper because it prevents waste and redunancy.

Also, while I don't think that messing with physician salaries is the way to cut cost, I still think we should be honest about the fact that doctors get paid alot of money.

Like I said before, I think we need to incentivise care best practice care, which you can do without cutting the ffes for "non best practices care". Although I like the talk about a best practices institute, why don't we just direct more money into the Agency for Health Research and Quality within CMS. They have already been doing this kind of research for years, lets just put the weight of incentives behind their findings. That way you wouldn't have to fool with adjusting everybody's prices, you just pay more for the cost savings.

Posted by: J | Jun 7, 2007 5:44:58 PM

Blaming administrative costs, greedy doctors is a cop-out argument for socialized medicine. The real problem is the moral hazard of our current system: we expect to get premium medicine and be insulated from the costs. The only way to deliver top-notch, affordable health care is to make the consumer a more active participant in the process of consuming health care.

Posted by: Jason | Jun 7, 2007 5:48:27 PM

"Maybe - maybe - Certified Nurse Midwives are licensed in all 50 states. Getting the CNM on top of the RN is about 1/3 of the way to the MD however, and they have to charge rates accordingly, so I suspect that is not what the poster above was referring to. And even at that the CNMs are in constant conflict with the OBs."


To become a CNM is a 2 year program after a bachelors in nursing. So thats 6 years total compared to 12 years for an OB doctor. And CNMs actually make what RNs average or even less.

Again, there is no required relationship between CNMs and OBs. CNMs are free in all 50 states to practice independent childbirth with no doctor involved whatsoever. Furthermore, insurance companies in all 50 states are REQUIRED BY LAW to cover childbirth services rendered by a CNM.

Now if you go to an OB and ask to be referred to a CNM, then its possible you will encounter some resistance because they are in fact competitors. But its totally stupid to get an OBs referral anyways, WHEN YOU DONT NEED ONE TO USE A CNM. You can call any CNM directly out of the phone book, no referral required. Your insurance company might require that you actually get a positive pregnancy test before they will pay for a CNM visit, but that has absolutely nothing to do with OB doctors.

Posted by: joe blow | Jun 7, 2007 6:10:24 PM

Actually what we found when we looked at spinal fusions was that not only does it often hurt in that people take more pain medication for up to a year after but people were not getting the recommended physical therapy afterwards. i think that this is also a huge problem with the current fragmented system - no one is incentivized to keep track of the patient after the expensive procedure is done and "healed". This is where we kindof threw the baby out with the bathwater with the shift out of HMOs. In a PPO/FFS world it is incredibly hard to measure outcomes and responsibilty for the patient.

Poor prescribing patterns of drugs do cost money. Prescribing what one of our more enlightened provider partners call "stupid" drugs... but also doctors buying advanced imaging machines and doing an MRI on everyone who has back pain. But to measure and legitimately pay for quality is really hard because there is no one coordinating body for that like Medicare to piggy back off of and not a lot of evidence that the process measures we are starting to attempt to measure are really indicators of quality. When you get into the nitty gritty doctors will fight you on every attempt to actually pay them based on effective care - in their little fiefdoms they want to be god. (Can you tell that I think the medical lobby is a huge, huge obstacle to actually making progress on the paying for effectiveness) Personally I think that more staff model HMOs are the way to start to make a dent - but HMOs have a bad rap now - not entirely undeserved but people are happy that they have the option to choose a ridiculous ineffective surgery if whatever doctor of whatever quality tells them they need it.

Posted by: Rebecca | Jun 7, 2007 6:17:42 PM

Several thoughts on savings:

First, national healthcare would mean, or should mean, standardized paperwork. Big administrative savings right there, I think.

Second, if it means the government regulating the amount of fMRI machines in a certain area, or saying that it's only going to be a payer to 12 out of 17 hospitals in a major metropolitan area that have fMRI equipment, so be it.

Third, that in turn may drive some doctors away from some specialities. But, many doctors go there in the first place to recoup the high U.S. cost of medical school. This backdoor pressure itself wouldn't be enough to drive down med school costs, perhaps. Maybe other things would, such as higher student loan rates for specialization, or to flip that, lower student loan rates for non-specialization. Expansion of programs, such as working in Indian Health Service hospitals, to ameliorate loans, could be part of this.

Posted by: SocraticGadfly | Jun 7, 2007 6:35:21 PM

Try this as a cost driver:
It's a positive feedback loop, medicine is habituaing. Once you've begun treatment for whatever, you're more likely to get treatment for whatever.

- you are in the system, so appointments are easier, and you are learning about possible procedures, asking questions about unrelated owies and aging parts.

- things tend to go wrong with procedure A, requiring mitigating procedure B. My suspicion is that the cascade of new problems from the old problem is hidden in the paperwork, but talk to folks with recent treatment, and you'll find that it's not that rare to be treated for things that went wrong with the treatment.

Posted by: David Wagner | Jun 7, 2007 6:36:16 PM

joeblow,

YOu can reduce doctors incomes to a certain degree but its not the big difference maker you are making it out to be.

Just so we have actual numbers-- CMS data shows that physician services accounts for $420 billion of the total $2 trillion in expenditures. If we took your reduction of $150k to $115k in salary that would save $100 billion per year.

Remember that lawyers only need 3 years of training past college, the minimum for doctors is 7.

One, it doesn't need to be so long for physicians. Medical training is in need of serious reform-- the inefficiencies forced upon those who train to be physicians, by making them train longer than necessary (with several years of training that is ultimately not relevant) do translate into demands for higher salary. It backwards, fix the training system, reduce the number of years (2-3 years less is possible) and then fix salaries concurrently.

Second, I'll point out that technically you're wrong as well. Depending on the state, most can technically get a license to practice medicine after 1-2 years of post-graduate training (i.e. total of 5-6). Technically, a license is all you need to practice medicine-- any type of medicine. Only industry norms require physicians to have training in their specialty of choice. Similarly, if you looked at law, the "training" doesn't end once you graduate law school. If someone wants a lawyer with a certain specialty, one would typically look for that person to have spent several years in that legal specialty before being considered a specialist, i.e. in the associate role, before moving to "partner."

Posted by: wisewon | Jun 7, 2007 6:45:38 PM

I'd have to see some kind of data to be convinced that a substantial portion of medical costs come from doctors actively pushing more expensive/not useful treatments. Letting patients know about them, and then agreeing to perform them (and, thus, perhaps aiding and abetting)? Sure. But I think that the person driving the decision-making is overwhelmingly the patient.

Not that I doubt that it happens that the doctor pushes the expensive treatment from time to time (what's the fancy-schmancy economic term for this? Rent-seeking?). But I'm unconvinced that it drives a significant percentage of these decisions.

Posted by: Michael B Sullivan | Jun 7, 2007 6:51:16 PM

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