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A Mostly Misguided Long Slog
on January 19, 2013
David Goldhill's 83-year-old father died of a hospital-acquired infection in 2007 after being admitted with pneumonia. 'Catastrophic Care' is a new book by Goldhill, largely created by painfully stretching out the six pages of a similarly titled September 2009 article in 'The Atlantic' into his now 384 page book. Worse yet, Goldhill's prescriptives are largely built on lambasting health insurance and applying standard economics to health care, oblivious to the facts that health-care doesn't begin to meet standard economic assumptions, and the supposed moral hazard created by insurance is a relatively minor problem.
One major difference - health care is a service with an extremely inelastic demand curve, even without insurance. Stated alternatively, increased health care competition, ceteris paribus, doesn't drive down costs, it simply makes things worse as the added entrants make more services more readily available, as well as encouraging their use. Health care economists have demonstrated that repeatedly.
A second significant deviation from standard economic assumptions - despite author Goldhill's example of the benefit of price-shopping for an MRI, it is very difficult to compare prices in health care, even more so when one wants to take quality into account. I've recently verified that personally in instances involving dental care ('depends on the case; we have to see it, and that will cost $X'), and medications (depends on your insurance coverage, and few pharmacies want to take the time to provide the data). As for outcomes/quality, a major determinant is provider volume ('practice makes perfect') - difficult to ascertain unless your state collects provider-specific procedure-specific data, makes it available, and you happen to be a skilled programmer. (I've done this in Arizona, but the state has since stopped collecting and making that data available.) New York State does an excellent job of making data available - for CABG surgery, and the death rates have dropped sharply since the first publication. Published peer-rankings are much better than no information at all, but subject to distortion by provider personal popularity. One cannot even rely on disciplinary actions by the local Board of Medical Examiners - investigators have repeatedly found them loathe to take any action, except when several patients die while treated in a non-hospital setting, or some sort of sex-crime is involved.
A third major deviation from standard economics - health care generally lacks informed consumers. Part of the problem is eg. pharmaceutical company shenanigans, leaving out unfavorable data, testing only selected populations, failing to look for long-term side-effects, comparing with dosage levels for other drugs known to be ineffectual, etc. More importantly, few people are going to contravene physicians (highly regarded by most) in a complex case - his/her financial incentive is try most everything, and patients are likely to agree; those that choose to limit the care provided risk being labeled as a 'quasi-death panel' and sued.
To be fair, Goldhill does call for increasing the collection and dissemination of data on costs and outcomes; unfortunately, he also pans the ACA's ('ObamaCare,' aka the Affordable Care Act) mandate for electronic data collection, failing to see the obvious link between the two. True, electronic medical records have not proven to lower cost yet, but several entities (most recently Mayo Clinic and United HealthCare in a joint venture) plan significant mining of this new source in the hope this will help identify the most effective treatments. Further, its already proven useful in detecting drug interactions.
Thus, Goldhill's recommendation that patients' shop around and research more cannot be scaled up to an impactful level. As for his suggestion that workers be incentivized to switch form PPOs to HSAs (Health Savings Accounts) when beneficial - that simply amounts to moving patients and costs from one pot to another, with no ultimate impact on total system costs; nor does it begin to address the shortcomings of HSAs overall for those with limited incomes.
Two important examples were included by author Goldhill: 1)Medicare's cost-plus pricing can encourage use of high-priced medications/treatment, and 2)a 2007 NEJM article estimated about half the recent decrease in coronary vascular disease was attributable to lifestyle changes (less smoking, better diet, more exercise) and only 7% to expensive treatments like angioplasty and bypass rugery. Both are serious problems and need to be addressed; unfortunately, change in the first area is vulnerable to 'death panel' demagoguery, and history has shown both that changing lifestyles takes decades and reducing the 'moral hazard' posed by insurance hasn't been effective.
Goldhill disparages the ACA's creation of ACOs (Accountable Care Organizations, aka HMOs) and assuming risk, detailing how a hospital would lose revenue doing so. True, but what about an ACA that managed the care but did not include hospitals within its group? (On the other hand, HMOs are very similar, perhaps identical, and have largely failed to control costs - thanks to litigious doctors left out of their networks and 'death panel' fear-mongering by politicians and patient groups.)
Goldhill supports his recommendation for limiting the role of health care insurance via data from declining Lasik prices. True - but Lasik surgery doesn't fall in the category of 'highly inelastic demand' that most health care is, and his example thus is irrelevant.
Goldhill's fundamental error is failing to broadly compare America's health care costs (about 18% GDP, world's highest by far - Switzerland is #2 at only 12% GDP) with other leading nations. Japan, South Korea, and Taiwan are major economic competitors vs. the U.S., and their health care costs are around 8% of GDP. Then Goldhill should have asked, 'What do ALL these other developed nations do differently than the U.S.?' The answer - their governments impose strict price limitations on providers, and in some cases even limit the total spending nationally and by district (eg. Taiwan). Further research in other nations such as Germany and France would be advantageous as well.
Goldhill did compare the U.S. with one nation, Singapore, which spends only 4% of GDP on health care. However, Singapore is somewhat of an exception in that it does not regulate overall charges and expenditures; it does, however, provide government-run hospitals (80% of all hospital care, with 20 - 80% of the costs subsidized for most) and clinics that help keep private provider costs in check. Their Ministry of Health also provides a web-page listing costs for a wide set of conditions and procedures; worker contributions to 'Medisave' is mandated (6.5 - 8.5% of pre-tax income). Singapore also limits prices for all services and procedures delivered in public hospitals - including those for the financially well-off. The government also sets predetermined amounts to be given to hospitals each year - they do not have a blank check to provide an open-ended number of treatments and hospital stays. New, unproven technologies are restricted as to how fast they can be introduced into government hospitals, and the number of beds a hospital can have are also limited. Finally, the government controls the number of medical graduates produced by local universities and the number of overseas medical schools whose degrees are recognized in Singapore, and limits the proportion of physicians that can be specialists (40%).
Singapore's costs continued to rise at an unacceptable rate after increasing the proportion of direct payment from patients (57.7%, in 1995), and did not come under control until the supply-side controls, price caps, and bed limits. Thus, the higher proportion of funds contributed by Singapore patients vs. Americans has little to do with Singapore's success in holding down costs, contrary to Goldhill's claim.
Finally, Goldhill also misses the low-hanging fruit offered by the complexities posed by multiple differing insurance requirements and coverages - simply replace them all with a single payer, single level of coverage plan, such as Taiwan.
Bottom-Line: Author Goldhill is entirely correct that American health care is a mess, but not nearly so when he posits that the providers play no role in creating that mess or blocking its correction, or fail to take advantage of it. Matching Singapore's performance would save about $2.2 trillion/year, wipe out about $30 trillion in unfunded Medicare and Medicaid liabilities, erase much of federal and state debts, and place us at a competitive advantage vs. most other nations. Preventing supply-driven over-treatment, and reigning in free-market forces gone wild are the keys. Goldhill should read Atul Gawande's article exploring Medicare cost differences between El Paso and McAllen Texas. And he couldn't be further from the truth when he tries to apply traditional economic remedies to health care.