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November 14, 2007

More on Universal Health Care and Innovation

I'd endorse Kevin's suggestion for using Medicare as a model for what universal health care will and will not do, but it's worth being a bit careful here. We often say that Medicare's current performance is not, in fact, a good guide to how a reformed system would perform. Medicare is a creature of the system that's currently in operation, and has not been charged, and has shown no interest in using its weight and market share to push towards reform. A Medicare single-payer plan with price controls could operate very differently. And since one of our big arguments for reform is the need for cost control, we can't assume Medicare will operate as it currently does -- spending almost whatever is asked on whatever treatment is recommended.

But nor are price controls being contemplated. A lot of the current thinking has to do with funneling research dollars towards studies that will demonstrate the cost-effectiveness of various therapies and the comparative effectiveness of similar treatments. Additionally, changing how we treat chronic diseases -- which is to say, moving from an acute care model to coordinated, maintenance oriented model -- offers an enormous amount of hope, as 70 percent of our spending is on chronic conditions. Add in electronic records, a reduction in incentives for physicians to overprescribe treatments, administrative savings, and all the rest, and you have some real hope for cost savings that have nothing to do with price controls, or indeed any policies that would impede useful innovations. There will, presumably, be fewer incentives for the development of me-too drugs, and the prescription of unproven therapies, but those are good things.

Which gets to the final point: With the possible savings, you could plow more money into the National Institute of Health, put more funds behind the FDA (thus speeding up the drug review process), establish prize funds for pharmaceutical development, and do much more that would actually accelerate innovation. We can construct a universal health care program in any way we want and if we'd like to retain something near current levels of spending in order to increase the likelihood of medical breakthroughs, we can do that too.

November 14, 2007 in Health Care | Permalink

Comments

Well, add in a pony, and we can have rides in the back yard... I mean "changing how we treat chronic diseases -- which is to say, moving from an acute care model to coordinated, maintenance oriented model -- offers an enormous amount of hope, as 70 percent of our spending is on chronic conditions. Add in electronic records, a reduction in incentives for physicians to overprescribe treatments, administrative savings, and all the rest, and you have some real hope for cost savings that have nothing to do with price controls, or indeed any policies that would impede useful innovations...." all sounds very nice, but getting all of this is the question, now, isn't it? And in a system that has, to a large degree, not done any of it, it's hard to see how we expect Medicare to suddenly become the cost effective health care system that at this point doesn't exist. As an argument against price controls... sure, I guess this would be great. But that's not what we have and if this is what we want, then we need to think a lot harder about how to get it.

Posted by: weboy | Nov 14, 2007 5:08:48 PM

Ezra,

But nor are price controls being contemplated.

They are being contemplated. Democrats have been talking about "negotiating" directly with pharma companies instead of the current private drug plan approach. Monopsony power does not negotiate, it dictates prices, i.e. price controls.

This is much more real in a political sense then the pie-in-the-sky ideas you're suggesting above. The presidential candidates have talked about ideas similar to what you write, but the price controls are actually what's being debated in Congress. This other stuff isn't.

A little reality here, please.

Posted by: wisewon | Nov 14, 2007 5:10:46 PM

And have you seen proposals for that in a universal health care plan? Since that's what we're talking about here, that's where you need to find your evidence.

Posted by: Ezra | Nov 14, 2007 5:15:39 PM

I think Wisewon has a point, one which I don't generally discuss because I think it's a bit premature, but I fully expect that if we move to government organized or managed Single Payer, we will, in some sense be talking price control, in some form or fashion. It would be odd to me if political actors wouldn't see their poeition as managers necessitating some elements of close control. Moreover, as with prescription drugs, I think it would be irresponsible not to; some things will need intervention into the markets to reduce overall cost, and if we have that power in single payer, it should be used. I think cost cutting can achieve a great deal, but managing cost is a big argument, it seems to me, for single payer, not against it.

Posted by: weboy | Nov 14, 2007 5:27:50 PM

"moving from an acute care model to coordinated, maintenance oriented model -- offers an enormous amount of hope, as 70 percent of our spending is on chronic conditions. Add in electronic records, a reduction in incentives for physicians to overprescribe treatments, administrative savings, and all the rest"

You mean the U.S. government is going to cause all of those wonderful changes to occur? The government of the farm bill, the ever more complicated tax code, the nearly 3,000 page Harmonized Tariff Schedule, etc., etc., etc? That government? Not a chance. None.

Posted by: ostap | Nov 14, 2007 5:29:15 PM

"well, add in a pony and we can have rides in the backyard."

"we could have gotten one american family in three a pony for the price of the iraq war."

i see there has been some discussion here of giving out free ponies in the last two days.
i love ponies...is there a new plan that i dont know about?

Posted by: jacqueline | Nov 14, 2007 5:31:52 PM

Who said there is no innovation in socialized medicine?

http://scotlandonsunday.scotsman.com/health.cfm?id=1641252007

Giving patients poo to eat that's the innovation you can expect!

Posted by: jenga | Nov 14, 2007 5:32:50 PM

But Ezra--that entire list of changes is entirely possible now, under Medicare, except MAYBE "administrative changes."

So why not restructure MediCare so it works like the proposed UHC plan?

Posted by: SamChevre | Nov 14, 2007 5:33:10 PM

I try not to take campaign proposals that seriously, and I don't really consider a lot of these plans to be a good starting point. Most of them would be acceptable final deals, but they just don't ask for enough for them to be whittled down without gutting them. I don't trust rebates on my Satellite bill, and I sure as hell don't trust them from the people who tax us. Just one more excuse to audit the poor while the rich make rob the treasury blind.

Posted by: soullite | Nov 14, 2007 5:52:27 PM

um, not sure if I'm reading you right Ezra, but are you saying Medicare doesn't have price control? Congress set's provider reimbursements, not sure how much more control you can get then that. They don't pay whatever is asked, they pay their price how ever many times you ask. To counter that you need utilization control, that dreaded rationing, which I thought we where assured wouldn't happen?

Posted by: Nate O | Nov 14, 2007 6:03:50 PM

AMA and many other provider organizations have declaired if forced to except Medicare reimbursement rates for all patients they can not survive. Is this aspect of reform going to be discussed at all before it is passed or are we to just not worry about it, everything will be ok. The only way to deliver the supposed "performance" of medicare efficency would be to include it's legislative pricing and procedure dictation. You do things the way Medicare tells you to do them and at the price they tell you or bylaw you can't treat their patients, pretty powerful.

Posted by: Nate O | Nov 14, 2007 6:10:58 PM

Ezra, major points off as the left's preeminent health care blogger for misunderstanding or misrepresenting how Medicare works. I am really suprised at how badly you missed the boat. Medicare has price controls right now. Every year I get a CD saying for any procedure (including office visits) what the price Medicare considers reasonable and customary for my region of the country. It is off this price, not other price that I might come up with that Medicare will base their reimbursement. Physicians, if they are a "non-participating" provider cannot bill more than 115% of the Medicare rate, and participating providers must accept the Medicare rate. The Medicare rates are less than what private insurers pay.

What Medicare doesn't do is prospectively deny a procedure that it has agreed to pay for. With few exceptions, there isn't a need to check with anyone before doing a procedure. This certainly contrinbutes to Medicare's low administrative costs. Medicare do a retrospective audit, and demand the money back if procedures were not justified.

Medicare also doesn't pay for everything. Vagus Nerve Stimulation, an expensive treatment which was approved controversially for the treatment of resistant depression by the FDA, was deemed by Medicare to have insufficient evidence to warrant paying for it. So there is also a check on unproven therapies on the front end.

Your vision of a new Medicare's cost savings would require a lot of management and "administrative costs," much like the HMOs of today. It might be better health care, but you've got to build and maintain a lot of infrastructure.

Posted by: umbrelladoc | Nov 14, 2007 6:58:36 PM

Ezra,

And have you seen proposals for that in a universal health care plan? Since that's what we're talking about here, that's where you need to find your evidence.

HRC's plan verbatim on page 10:

This plan will tackle drug costs by allowing Medicare to negotiate lower drug prices...at least $4 billion in savings

Its mentioned multiple times throughout under auspices of "fair prices" for drugs.

Obama's plan verbatim, also on page 10 of his plan:

Obama will repeal the ban on direct negotiation with drug companies and use the
resulting savings, which could be as high as $30 billion,50 to further invest in
improving health care coverage and quality.

This is a clear mea culpa for you, Ezra.

Posted by: wisewon | Nov 14, 2007 7:12:30 PM

umbrelladoc, if you where forced to accept Medicare Reimbursement on all patients you treat would that have any effect on your pratice?

Posted by: Nate O | Nov 14, 2007 7:23:22 PM

One more question umbrelladoc, my memory failed me on this and I can't find the information anywhere. I work for a TPA and we use to Administer a Medicare Supplment for Hartford. 2-4 years ago congress retroactivly increased provider reimbursement. This was a nightmare for us as we had to reprocess like 3 months worth of claims to pay providers litterally a couple extra cents. Do you remember what year that was and how much they increased your reimbursement?

Posted by: Nate O | Nov 14, 2007 7:26:39 PM

A lot of things need to come together for this to work. As Sam points out, Medicare could do some of this today, but doesn’t. Also, this only addresses supply side costs with little emphasis on the demand side. Lastly, I think you have too much faith in our government’s ability to efficiently organize such a vast program over a large population and area.

Posted by: DM | Nov 14, 2007 8:11:01 PM

For the last three decades of his life, my father was in a Medicare HMO, first in Nevada, then here in Arizona. I was surprised at how well covered he was. The HMO actually covered a lot of things--like ambulance service--that Medicare does not. My own medical insurance is Medicare, with a supplemental insurance (TriCare, DOD-provided) that covers everything except dental, and I've been very happy with the coverage. This is entirely workable as an expansion program.

Posted by: Terry in AZ | Nov 14, 2007 8:32:33 PM

Nate, I'm in an academic practice, which is why I have time to post comments on blogs, so I wouldn't be as affected as my colleagues in private practice. But I estimate that 2/3rds of patients are not on Medicare, and if Medicare rate is on average about 75% of what private insurance pays, that works about to losing about 16% of revenue.
As for the rest, in 2005 Congress reversed the 4.4% cut in Medicare reimbursement in the middle of the year. For the last few years, Medicare has decreased the reimbursements in actual dollars. So I first hand experience in the power of monospony. The other thing that people don't often realize is that under Medicare, my mentor who is one of the best doctors in his field gets reimbursed exactly the same as someone who has just finished training.

Posted by: umbrelladoc | Nov 14, 2007 11:57:30 PM

Thank you umbrelladoc, Medicare and the powers that be never cease to amaze. Just when I think they couldn't conceive a more convoluted way to administer something they come through. Unfortunately these gems aren't reflected in data that reformers base their plans on, and no one budgets for them either, but they are very real.

We where a small claims processor so it didn’t cost us a fortune, but think how many total claims where processed for Medicare beneficiaries between the start of the year and when congress decided to reverse the pay cut. Every single one of them had to be redone to pay an additional 4.4%. My company paid the Medicare Supplement which covered the 20% Medicare doesn’t pay, so for a $40 office visit we had to send the provider an additional $0.352. On paper reformers think Medicare is more efficient but in reality it is a mess. Until you actually work with the system you can’t appreciate the flaws and waste.

A few people have mentioned in other post we need more doctors, how many people remember that in 1997 Medicare paid hospitals to not train doctors. For every residency slot they left vacant they paid them $100,000. Hospitals where being paid simultaneously by Medicare to train and not train doctors.

The list of absurdities is endless. After working in insurance for 15 years I can’t imagine any measure by which government could deliver better healthcare at a reasonable cost. The politician tax is to great, they have that magic ability to turn a $5 hammer into $100 porker.
.

Posted by: Nate O | Nov 15, 2007 12:25:01 AM

jenga: A tube through the nose into the stomach? Good grief, no wonder the NHS is having problems. The Canadian version involves a kitchen blender and an enema. Cheap and inventive. More wonders of socialized medicine!
http://www.cbc.ca/health/story/2007/11/13/fecal-transplant.html

Posted by: mijnheer | Nov 15, 2007 2:34:59 AM

Potential logic conflict to follow. Forgive me please.

Why do free-marketers think it's a sign of the markets' health when, for instance, Wal-Mart can strong-arm a supplier to accept reduced margins, but that it's wrong for a single-payer plan to use the same kinds of economies of scale to get the consumer better prices on prescription drugs and health insurance?

Do free market proponents think there's no government involved in proper regulation of large private concerns? There's a cost added to Wal-Mart and other mass-retailers' low prices; that cost is what we pay to have functioning government oversight of fair trade.

I just don't understand the resistance by some of a government-run insurance pool. It doesn't preclude one getting private insurance (although I could see tax breaks being reduced to employers who offer health plans to their workers). Moreover, we have two examples --VA and Medicare -- that show how well the US government can run an adequately-funded insurance benefit.

It's like the opponents of universal or single-payer plans actually PREFER to pay hidden costs. Weird, since there doesn't seem to be much benefit in it, other than pissing off Democrats.

Posted by: Jamey | Nov 15, 2007 9:01:27 AM

moving from an acute care model to coordinated, maintenance oriented model -- offers an enormous amount of hope, as 70 percent of our spending is on chronic conditions. Add in electronic records, a reduction in incentives for physicians to over prescribed treatments, administrative savings, and all the rest

Other than cutting over prescribed treatments (we would probably end up cutting all treatments, over and under prescribed treatments) it seems to me the other savings noted are illusions that will never be realized. If we insist that government cover everyone and spend less we will save money because we will get less care. This will affect our health insignificantly but if done it will affect our wallets significantly.

It has been my position that Government should cover everyone for they spend now but reading the democrats on this board’s attitude to school spending makes me reconsider my position. If Government healthcare is extended to everyone will democrats continuously push for more funding for medical care because poor people remain less healthy that the rich and middleclass? This is what they have done on the issue of schooling?

BTW drugs seem to deliver more health per dollar than most other medical care. Why the constant attack from the left on drug companies?

Posted by: Floccina | Nov 15, 2007 9:27:18 AM

And one example of very poorly run one by the same government. Single payor advocates never mention the Indian Health Service.

Posted by: jenga | Nov 15, 2007 9:45:24 AM

Nate O. wrote:

I can’t imagine any measure by which government could deliver better healthcare at a reasonable cost.

How about far less healthcare at a lower cost but people get to feel that they are covered. The cheap stuff (vaccinations, antibiotics, vitamins, aspirin etc) gives most of the positive impact on the general population. Is it better to have more money and less healthcare like the French have. The French spend less per capita on healthcare than our governments do. How could we get medical spending in the USA down to the French without single payer? Some of us would rather have another cigarette per week than insurance that helps us linger longer if we get a dread disease.

One good thing might be to get insurance companies to pay out cash to policy holders on diagnosis (Apollo healthcare here we come).

Posted by: Floccina | Nov 15, 2007 9:54:54 AM

Jamey
Why do free-marketers think it's a sign of the markets' health when, for instance, Wal-Mart can strong-arm a supplier to accept reduced margins, but that it's wrong for a single-payer plan to use the same kinds of economies of scale to get the consumer better prices on prescription drugs and health insurance?

Wal-Mart is a big customer but not the only customer.

Posted by: Floccina | Nov 15, 2007 9:58:14 AM

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