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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
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