City Journal Magazine | David Gratzer | Summer, 2007
Socialized medicine has meant rationed care and lack of innovation. Small wonder Canadians are looking to the market.
Mountain-bike enthusiast Suzanne Aucoin had to fight more than her Stage IV colon cancer. Her doctor suggested Erbitux—a proven cancer drug that targets cancer cells exclusively, unlike conventional chemotherapies that more crudely kill all fast-growing cells in the body—and Aucoin went to a clinic to begin treatment. But if Erbitux offered hope, Aucoin’s insurance didn’t: she received one inscrutable form letter after another, rejecting her claim for reimbursement. Yet another example of the callous hand of managed care, depriving someone of needed medical help, right? Guess again. Erbitux is standard treatment, covered by insurance companies—in the United States. Aucoin lives in Ontario, Canada.
When Aucoin appealed to an official ombudsman, the Ontario government claimed that her treatment was unproven and that she had gone to an unaccredited clinic. But the FDA in the U.S. had approved Erbitux, and her clinic was a cancer center affiliated with a prominent Catholic hospital in Buffalo. This January, the ombudsman ruled in Aucoin’s favor, awarding her the cost of treatment. She represents a dramatic new trend in Canadian health-care advocacy: finding the treatment you need in another country, and then fighting Canadian bureaucrats (and often suing) to get them to pick up the tab.
But if Canadians are looking to the United States for the care they need, Americans, ironically, are increasingly looking north for a viable health-care model. There’s no question that American health care, a mixture of private insurance and public programs, is a mess. Over the last five years, health-insurance premiums have more than doubled, leaving firms like General Motors on the brink of bankruptcy. Expensive health care has also hit workers in the pocketbook: it’s one of the reasons that median family income fell between 2000 and 2005 (despite a rise in overall labor costs). Health spending has surged past 16 percent of GDP. The number of uninsured Americans has risen, and even the insured seem dissatisfied. So it’s not surprising that some Americans think that solving the nation’s health-care woes may require adopting a Canadian-style single-payer system, in which the government finances and provides the care. Canadians, the seductive single-payer tune goes, not only spend less on health care; their health outcomes are better, too—life expectancy is longer, infant mortality lower.
Thus, Paul Krugman in the New York Times: “Does this mean that the American way is wrong, and that we should switch to a Canadian-style single-payer system? Well, yes.” Politicians like Hillary Clinton are on board; Michael Moore’s new documentary Sicko celebrates the virtues of Canada’s socialized health care; the National Coalition on Health Care, which includes big businesses like AT&T, recently endorsed a scheme to centralize major health decisions to a government committee; and big unions are questioning the tenets of employer-sponsored health insurance. Some are tempted. Not me.
. . . more
On another thread, a great deal of energy was expended on insisting that a feeding tube should not be withdrawn from a PVS patient, that a tremendous injustice was done and that an act of “murder” occurred because of the liberals’ errant “view of man”.
So let’s create a different scenario here. Someone collapses on the street from a heart attack. As they were recently laid off from their position of 5 years, there was a lapse in their medical coverage as their previous employer was exempt from COBRA. They are taken to the hospital where they enter into what physicians diagnose as PVS. The family can dip into their savings for the medical expenses thus far, but continuing for an indefinite amount of time would wipe them out within months or weeks.
What is the hospital supposed to do? If they are morally obligated to continue sustenance via the feeding tube, who pays for it? (The estimated cost of providing 1 year of feeding via PEG – or percutaneous endoscopic gastrostomy – is $31,832). If it’s okay to discontinue, on what grounds is it acceptable?
I don’t see how one life is more or less valuable than another, just because they may or may not be able to afford coverage. What kind of “view of man” does this suggest?
Missourian writes: “Why is it the employer’s duty to provide health insurance? Why isn’t it the individual’s duty?”
Well, traditionally that’s how most people get health insurance. Individual coverage is a lot more expensive because there is no risk pool upon which to predict costs. There are other ways of doing it, but until then this is the system that we have.
Missourian: “Second, major/medical health insurance from BC/BS for a single man in his 20’s costs about $40.00/month with a $1,000 deductible. Even my interns could afford that.”
Great for people in their 20s. Here’s a real-world example. I get health insurance through my wife. Last year she changed jobs, and we had to do the COBRA thing for three months until her new coverage kicked in. The insurance alone was $900 per month. Additional copays and deductibles were another $200 to $400 per month. Not everyone could afford that. In fact, probably most couldn’t.
Missourian: “Third the average car payment in America is around $400. Most households have two vehicles, that is $800.000, many have three. Americans CAN afford two or three vehicles, a RV, a motorboat, vacations, lunches out but they CAN’T afford health insurance.”
Some people have a lot of toys, but most people I know don’t. In the above list, all I have is lunches out. In my state median income for a family of four is $60K per year. Drop another grand in insurance and medical expenses every month on those people and that’s 20 percent of their income. I think that would push many people over the edge.
Missourian: “My younger employees weren’t even that interested in health insurance because it just doesn’t mean that much to them. This, perhaps, is not wise, but, there it is.”
There are two other problems. In the event that a younger employee gets very sick, he’s not going to be able to pay for medical care. The costs of that care will then be paid for by us. Also, if we allow young people to opt out of health insurance, then that basically fragments the risk pool, and everyone else has to pay a lot more. I was covered by health insurance for years before I ever needed anything more than an occasional doctor visit. Now I’m older and use more services, but in a sense the many years that I and my employer paid into the system when I rarely needed anything helps to balance that out. This is why it’s important to bring everyone into the health insurance system.
Missourian: “Dean, you are creating a problem by deciding that “all must have health insurance” Second, you are deciding that you should have the political power to force me to pay for other people’s health insurance? This is totalitarianism which is always ushered in in the name of compassion.”
If you want to avoid cost-shifting and fragmentation of the risk pool, then yes, everyone has to be part of the health insurance system. That’s just a statistical fact of life. When employers don’t offer health insurance, that simply shifts costs to the employees and to everyone else. I guess it’s a good gig if you can get it, especially if you can find employees dumb enough or desperate enough to play along.
Here is an interview with health care strategist Matthew Holt that is well worth reading. Holt is sympathetic to the health insurance industry, (his customer base), yet he warns that major changes are looming on the horizon
http://www.connextions.com/images/pics/Thought%20Leadership%20Profiles%20Issue%20One.pdf
Conservatives, like Missourian, describe Americans who complain about the health care system, as lazy slackers who refuse to buy their opwn insurance. In America, however, even purchasing health insurance is no guaratee that your medical bills will be covered.
When staying alive means going bankrupt:
Health insurance didn’t keep cancer-stricken California woman solvent,
MSNBC, Aug 15, 2007
NOte 54, Dean, The Left’s debating tactics versus the hard work of making good policy
Making good policy
Making policy is first about underlying values, then about collecting objective data about the conditions existing in the country as a whole. After this data is collected, then reasonable people can develop alternative solutions. Various solutions are then compared and weighed, guided by the values of the decision maker, a final choice is made. The best choice is that which benefits society the most, both in the short run and the long run.
Dean’s first approach is to demonize his opponent. The Left’s demonizing concepts of choice are: selfish, greedy, racist, …. the list goes on. The idea is to throw a ad hominen attack against a person. The Left want their opponent to be thrown back on his feet as he struggles to defend himself as a person. I’m just a miserable sinner anyway, so there’s not a big issue on that point. You are fully free to agree with me that I am a miserable sinner.
Dean’s second approach is to trot out the hardship case
There is an old saying in law “hard cases make bad law.” Her is an example, an pregnant woman is being driven to the hospital by her husband, he runs a red light. This is a case in which the red light was a barrier to what we all would have wanted to happen, a quick arrival at the hospital for the pregnant lady. The question is should be repeal traffic laws which set up red lights at various intersections? No, the “hard case” of the pregnany lady notwithstanding red lights should remain at intersections.
This particular hardship case We simply don’t have enough information about the situation to make policy based on this case. We don’t have enough information about this lady to make a judgment
Always ask what the person is selling What is Dean selling? He is selling “universal health care.” However, as we have seen from studies of England, Canada and France. There is no such thing as universal health care, there is heavy taxation and waiting lines.
NOte 54, Dean, The Left’s debating tactics versus the hard work of making good policy
Making good policy
Making policy is first about underlying values, then about collecting objective data about the conditions existing in the country as a whole. After this data is collected, then reasonable people can develop alternative solutions. Various solutions are then compared and weighed, guided by the values of the decision maker, a final choice is made. The best choice is that which benefits society the most, both in the short run and the long run.
Dean’s first approach is to demonize his opponent. The Left’s demonizing concepts of choice are: selfish, greedy, racist, …. the list goes on. The idea is to throw a ad hominen attack against a person. The Left want their opponent to be thrown back on his feet as he struggles to defend himself as a person. I’m just a miserable sinner anyway, so there’s not a big issue on that point. You are fully free to agree with me that I am a miserable sinner.
Dean’s second approach is to trot out the hardship case
There is an old saying in law “hard cases make bad law.” Her is an example, an pregnant woman is being driven to the hospital by her husband, he runs a red light. This is a case in which the red light was a barrier to what we all would have wanted to happen, a quick arrival at the hospital for the pregnant lady. The question is should be repeal traffic laws which set up red lights at various intersections? No, the “hard case” of the pregnany lady notwithstanding red lights should remain at intersections.
This particular hardship case We simply don’t have enough information about the situation to make policy based on this case. We don’t have enough information about this lady to make a judgment
Always ask what the person is selling What is Dean selling? He is selling “universal health care.” However, as we have seen from studies of England, Canada and France. There is no such thing as universal health care, there is heavy taxation and waiting lines. This lady could have died in a Canadian waiting line, in America she got treatment and bankruptcy
Note 54, Dean, in Canada she could have died in line, in America she got treatment with bankruptcy
See my longer answer in previous note. Sure, we can improve our health system, it is a complex problem.
Just remember that Dean is always, always, always selling socialism. He is selling us the Canadian system, the British system and the French system.
These are the systems that Canadians have sued to be free of.
There will never be perfection on this earth, we still have a duty to do the best we can, however, Dean uses imperfection to sell us into slavery.
Dean, first of all you mischaracterize Missourian’s reponse; second, no one is arguing that the health care system does not have serious problems. What remains unclear is why you think a government takeover of healthcare is a viable solution. You keep giving us horror stories without explaining why the US will not experience the problems endemic to the Canadian and English systems except to deny they really have serious problems. Why switch from one set of problems to another, especially when the second is potentially must worse?
Actually I haven’t advocated a “government takeover of the health care system”, where all medical professionals literally work for a National Health Care system. I have discussed a single payer system, where private doctors and hospitals are paid by the government, the same way they are paid by Medicare now. It is an option we should consider because it seems to produce certain efficiencies and economies of scale that can help us arrest the growth in medical spending which is currently rising at a rate that is fiscally unsustainable over the long-term. It is a viable solution because it appears to have been implemented successfully by other modernized countries.
Another option I have discussed, and probably the one that is more politically feasible, is the “regulated public utility” model where we keep private insurance but it would operate in a much more tightly regulated environment, Government would take steps to mandate individual or employer coverage, much the way auto insurance is required in many states, and the ability of insurance companies to deny coverage to the sick, expensive-to-care for would be eliminated.
As a taxpayer and citizen I am interested in seeing the taxes I pay that are directed towards health care be spent in the most efficient manner possible. As a breadwinner, husband and father I want to be able to secure health care for my family in a manner that does not expose us to medical or financial risks. As a Christian I believe we have a moral imperitative to work for universal coverage regardless of the model that we eventually select. We are witnessing the gradual development of a two-tiered system of care based on economic class that is at opposites with Christian values.
My frustration with my conservative friends is their failure to propose comprehensive solutions and to attack those who do as “socialists”. I stand by my earlier comment that tax credits, health savings accounts, tort reform, and discounted generic drugs at Walmart are gimmicky, piecemeal, band-aid solutions that nibble at the edges of the problem rather than attack it in any meaningful way.
We used to be the country that put a man on the moon, and hopefully still are. Why can’t we address our health care crisis with the same unfettered, can-do spirit?
“My frustration with my conservative friends is their failure to propose comprehensive solutions and to attack those who do as “socialists”. I stand by my earlier comment that tax credits, health savings accounts, tort reform, and discounted generic drugs at Walmart are gimmicky, piecemeal, band-aid solutions that nibble at the edges of the problem rather than attack it in any meaningful way.”
You have seen conservative proposals other than those you just mentioned. I’ll leave it up to you to figure out whether you are a socialist or not. The proposals I suggested would address root causes.
Medicare is not efficient. It caps reimbursements, and the private sector makes up the difference elsewhere. If everyone is on a plan like Medicare, with similar caps on reimbursements to medical providers leaving them nowhere else to turn for healthy profits (i.e., incentive to stay in business), scarcity would necessarily result. The only way to reduce cost and avoid scarcity is to address the root causes, which merely switching to a single-payer system does not do.
If economy of scale is reason enough for the government to control health insurance, it should control every sector of the economy, shouldn’t it?
Yeah, conservatives typically brand any solution that has any governmental involvement as “socialist.” But many of these solutions can actually reduce costs.
For example, The State could control what hospitals can offer certain services. At the merely suggestion of that, a true conservative’s blood would boil. But if you think about it, it makes sense.
Most hospitals are non-profit, and thus are not driven by the desire to make a large profit. But they are driven by issues of perception and prestige. Let’s say that Hospital A has an ongonig heart transplant program. Hospital B says “hey, we want a heart transplant program too” — not because they could do it better, and not because the area needs another program, but just because it’s a “status” thing.
So Hospital B starts a heart transplant program. In order to do that they have to establish a whole program of services with high overhead costs. Now half the patients get transplants at Hospital A and half at Hospital B. What was once a high-quality program at Hospital A is now a crippled program. Because fewer patients get transplants at Hospital A, the physicians and other staff get less experience with transplants and post-transplant care. Hospital B also has a crippled program, for the same reason. So we go from one hospital with a thriving program, with staff getting lots of experience, to two crippled programs with no one getting enough experience. In addition, the expensive program costs at both hospitals are now distributed over half the number of patients.
Bottom line — both hospitals end up with weak programs, patients get worse case, and expenses in both hospitals are higher. And all of this so that Hospital B can say “we have a heart transplant program too!” The lesson is that not all competetion is created equal, and competition doesn’t always lower costs, especially in healthcare.
#61 Mr. Holman,
By your logic, shouldn’t any industry with significant overhead costs and work that benefits from experienced practitioners be controlled by the government?
Imagine the better quality that would be obtained if the government specified bridge-building to one civil engineering firm, or awarded sewer construction to a single contractor. I’m sure the government officials making these decisions would not be swayed by which firms would offer the best bribes or campaign cash. I’m sure we could all rest well knowing these decisions would only consider which firm is right for the job. And the firms would not have to waste as much money and time advertising, recruiting employees, etc. The cost savings would be passed down to the consumer, right?
Oh, wait a minute, I almost forgot that without the threat of competition there is no incentive for better quality control or reduced cost.
D. George. Does the market for health care services conform to the classic economic definition of a “perfect market”? The economist Milton Freidman wrote:
http://www.memepolice.com/phpbb/viewtopic.php?p=556&sid=b3bec2eb97b98787f57b61b9f5f46e53
Now ask yourself, if these conditions ever exist in the health care industry.
If your physician tells you you need a certain procedure, do you have the same perfect knowlege of medicine that he does, or is are you at an informational disadvantage because you didn’t go to medical school?
If there are two or three hospitals in your town, is there perfect competition so you able to know whether any of them are over-charging you or undercharging you for the services they provide?
If you need a medical procedure within the next 24 hours do you have perfect mobility to wait and shop around, or are you forced by concern for your health to make a quick decision?
By its very nature the market for health care services can never conform to the perfect market definition and operate efficiently as a free market. Instead we see that it will always be subject to various forms of inefficency and market failure, such as moral hazard (were patients and providers face no consequences for excessive use of services) and adverse selection (where insurers have a financial incentive to shift coverage away from the sickest and needist of patients). Because health care is so important to us both as individuals and as a society, government must intervene to address these market failures.
#63 Mr. Scourtes:
“Because health care is so important to us both as individuals and as a society, government must intervene to address these market failures.”
I have argued previously that the government needs to intervene (I am not a libertarian), but not in the way that you suggest it should.
Greater transparency in pricing (a suggestion you made) may not result in a theoretically perfect market, but it would go a long way to improving the one we have now.
D. George writes: “Imagine the better quality that would be obtained if the government specified bridge-building to one civil engineering firm, or awarded sewer construction to a single contractor.”
Well, yes, actually that’s what you would want to do. It is just the concept of the “prime vendor” applied to construction services.
What you would do would be to have a competitive selection process in which one (or possibly a few) contractor was selected for a long term construction contract for specific services. Because of the large volume of work, the prospective contractor can offer lower rates — in other words, the contractor gets a smaller sliver of pie, but from a much larger pie. Because of the large volume of work at stake, the contractor has a great incentive to do quality work. Bad quality = cancelled contract.
The advantage for the government is that they don’t have to go out to bid on every job. That lowers the overhead costs of getting the work done. Another huge advantage is that you actually know who has done the work. Otherwise, if there is a problem, after a few years, utilizing many contractors, you have no idea who has done what work, and it is impossible to hold anyone accountable.
So you have suggested what really is a very good business model for work like that.
D. George: “I’m sure the government officials making these decisions would not be swayed by which firms would offer the best bribes or campaign cash.”
That sort of thing like more likely to happen with smaller contracts that have a very low level of review. Larger contracts are more visible and have more levels of review. I mean, what you’re suggesting is that public contract staff would commit felonies in awarding large contracts. I suppose that’s always possible, but no more likely in prime vendor contracts than for any other kind of contract.
D. George: “Oh, wait a minute, I almost forgot that without the threat of competition there is no incentive for better quality control or reduced cost.”
The issue is not lack of competition, but where and how the competition occurs. Do you want to have a competitive process for one big contract, or do you want to have a competitive process every time there’s a pothole or a leaky pipe, or peeling paint?
D. George: “Greater transparency in pricing (a suggestion you made) may not result in a theoretically perfect market, but it would go a long way to improving the one we have now.”
Hospital “prices” mean almost nothing. In my hospital years we used to call it “funny money.” That’s because most reimbursement is not based on what is charged. What is actually paid is based on contractual relationships between hospitals and insurance plans.
It’s quite possible that shopping around might not save you or anyone else any money. Example: your insurance plan has contracted with local hospitals to pay $800 for CT scans. Your out of pocket is going to be $160, or 20 percent. So anywhere you go, the hospital will end up with $800. The insurance plan will pay out $640. You will pay $160. Shop around all you want, neither you nor anyone else will save a dime.
Or — your insurance plan contracts with a single provider for CT scans. So there’s only one place for you to go. And if you don’t go there, you pay everything out of pocket. There again, no real reason to shop around.
As Dean as said, the whole way that the medical industry operates is very different, and the normal rules don’t apply.
D. George and Father: I’m going to shock you by agreeing with some of your comments.
First, I read an article that reported that large physician groups that have implemented electronic medical records and other technologies are already saving significant anounts of money compared to smaller phsycian groups still keeping records on paper. So D. George, you are right there are savings to be realized there without the governments help.
Second, I read this article about the Dartmounth Atlas, a highly respected survey of health care costs througout the nation. Check out this article, it is very revealing. The Dartmouth researchers continue to find huge geographic variations in cost throughout the US for the same exact conditions. More importantly these variations are reflected in the amounts Medicare pays hospitals and physicians throughout the US. For example:
In fact the researchers found that if Medicare paid every hospital and physician the same amount as they paid in Salt Lake City the program could save a whopping 32%. So Medicare itself, while administratively leaner than private insurance, also lacks sufficeny mechanisms for controlling costs.
Third, politicians in Washington are aware of these overpayments but contuinue to maintain them as a sort of pork-barrel rewards system for local constituents. So your point about Government being subject to corrupting influences that decrease efficiency is demonstrated here.
Well enough agreeing. I still want to hear the conservative solution for acheiving universal coverage in the US, which i think is an absolutely non-negotiable goal. Matt Miller writes in Time magazine:
http://www.time.com/time/magazine/article/0,9171,1651525,00.html/
A better link to the Dartmouth Atlas:
http://dartmed.dartmouth.edu/spring07/html/atlas.php
The geographic variation in cost of care for identical medical conditions reflect poorly on the US health care system. However it also does not reflect well for governemt since suprisingly, Medicare payments also vary widely by geographic region for treatment for the same medical conditions.
Insight into the Canadian system as a free-rider on the American system
Source: http://www.americanthinker.com/blog/2007/08/canadas_universal_health_care.html
Note 63, Dean, response to “perfect market” straw man
First, the “perfect market” hypothesis is something used in theoretical economics to set up a model. Every economist recognizes that “perfect markets” are theoretical and that every real market market is an approximation. However, there is no doubt that real markets (although less than perfect) work very well to increase productivity and quality of output.
The entire history of the world demonstrates that. The wealthiest societies are those with the freest markets. One to your specific quotes:
I
Ever hear of a “second opinion?” I would greatly encourage anyone with a serious medical condition to visit more than one doctor before signing on to a major medical procedure. Dean apparently believes that we should bow to ou medical masters and never question or check their recommendations.
There exist well-developed markets for professional services: these include pharmacists, laywers, accountants and consulting engineers. The same paragraph could have been written by merely substituting the word “lawyer” or “engineer” or “accountant” for doctor above.
I recently had surgery on my left eye. I paid $5,000 for the service of the hospital. All the surgeon needed was a basic, standard sterile operating room with basic equipment, lights and a sterile field. We have 15 or more hospitals in my metropolitan area but nothing in the system allowed to phone around and fine out what each would have charged. Maybe another hospital would have had the excess capacity and would have allowed them to charge me less.
This is not the Middle Ages, we peasants don’t stand in mystified awe before our medical masters. They can compete for our business.
This is a non sequitar, since insurance companies are capaple of keeping totally up-to-date records of what hospitals and doctors charge. Insurance companies could keep these records open to the public and up-to-date, the issue could be solved with one phone call.
A characteristic of the “universal health-care” system that Dean endorses is that the system significantly narrows the definition of what is an emergency that requires immediate care. People in Canada are put on waiting lists for what is considered urgent care in America.
Try again Dean, no score.
Dean, why no call for “comprehensive overhaul” of the
Canadian system
When I and other commenters document that people die waiting for surgery in Canada and that Canadians have to go to America to get certain types of health care not available in Canada, why don’t you call for “comprehensive overhaul” of the Canadian system?
After all, even a single negative anecdote, justifies a “comprehensive overhaul” of the American system?
Is it because the Canadian system is already the single-payer, government run system you really love anyway?
#65 Mr. Holman:
Good points about the construction business, but there is a difference between the way those contracts are awarded and your proposal for medical care. In the case of road builders, there are usually a number of projects in an area, and contractors can bid on each project. A diversity of contractors is maintained.
Awarding all of the heart bypass surgeries in an area to one medical provider for a certain number of years, on the other hand, would shut out all other providers. The next time the contract was up for bid, there would be no credible providers of that service in a particular area that could compete. The existing provider would have a tremendous advantage in having equipment already set up, expertise already in place, etc. This would result in a monopoly that would be hard to break.
I still maintain pricing (both those prices set by insurance contracts and out-of-pocket prices) could be more transparent. You said the normal rules don’t apply. I agree, and I think that is part of the problem. It is unusual for it to be so difficult to obtain a cost estimate prior to service.
#66 Mr. Scourtes:
“D. George and Father: I’m going to shock you by agreeing with some of your comments.”
I’m not shocked. You were the one who first mentioned that efficiencies could be gained by converting to electronic medical records.
I think that if we attacked four or five different problems (many mentioned above) through either legislation or just implementation of new technology (perhaps with short-term tax or other incentives to speed implimentation of technology), the cost of medical care in this country would be much reduced. I do think this would require some government involvement, particularly regarding how we handle (or don’t handle) immigration, and getting more transparency in pricing, etc. I support a massive overhaul of the system. I just think that leaving the system in the private sector is probably better than socializing it.
“I still want to hear the conservative solution for acheiving universal coverage in the US, which i think is an absolutely non-negotiable goal.”
Reduced medical care costs would result in much cheaper insurance. Most people would purchase insurance, and most employers would offer it. That is not the case now because it is so expensive. Of course, there is no perfect system. There will always be some very poor, even homeless, people that do not thrive even under the best of circumstances. With much reduced cost of care, the government would be able to step in and provide medical care as a welfare program for this small minority of people. I’m not totally against government assistance, I’m just against setting up the system so there is incentive to abuse the system (as in the case of mass illegal immigration today, or welfare back in the 1970s and 1980s).
D. George writes: “Awarding all of the heart bypass surgeries in an area to one medical provider for a certain number of years, on the other hand, would shut out all other providers. The next time the contract was up for bid, there would be no credible providers of that service in a particular area that could compete.”
I’m not thinking in terms of the state awarding a contract, but of the state regulating hospitals somewhat like how public utilities are regulated. Such regulation would involve any large new programs or large increases in existing programs. The point would be to ensure that hospitals don’t end up building excessive capacity or unnecessarily duplicate services.
For example, if you had four hospitals in an area and three of them offered advanced trauma care, and those three programs had a good geographic distribution, then you wouldn’t need a fourth program. But as the population grew, or as population densities changed over the years, then a fourth trauma program might make sense.
Likewise with transplant programs. Let say (just throwing out a number here) that a good heart transplant program needs to do at least 40 cases a year. If the area generates that many cases a year, then one program is all that is needed. If the number of cases grew sufficiently beyond that, then it would make sense to have another program.
In other words you manage expensive health care as a resource. Hospitals would still compete in the vast majority of services. They would still have contracted rates with insurers. They would still have incentive to contain costs. You simply end up avoiding unnecessary program and capital construction costs and the whole system works better.
D. George: “I still maintain pricing (both those prices set by insurance contracts and out-of-pocket prices) could be more transparent. You said the normal rules don’t apply. I agree, and I think that is part of the problem. It is unusual for it to be so difficult to obtain a cost estimate prior to service.”
They can give estimates for specific services (e.g., CT scan) but it is much more difficult to give estimates for other treatments (e.g., treatment for lung cancer.) That’s because it’s not clear what the treatment will involve. Radiation? Chemo? Surgery? Also, as I mentioned before, for insured patients, most of the payment rates to the hospitals are already set. If you’re a Medicare patient, Medicare is more or less going to pay the same amount wherever you get the treatment. In one sense Medicare has already “shopped around” for you and developed a standard rate wherever you go.
But I think you might have the wrong model in mind. Do you watch your own family’s expenses closely because you “compete” with the neighbors? Of course not. You watch your expenses because you have to live within a budget. That’s pretty much the case with non-profit hospitals. A hospital has to put around 6 percent on the bottom line every year in order to have funds to maintain the physical plant, purchase equipment, and generally keep things updated. You don’t have that and your facility starts to deteriorate. (In other words, a hospital that “breaks even” is actually losing money.) That’s the financial reality for hospitals, and it provides an incentive to control costs.
The Dartmouth Atlas clearly shows that much of the abuse rests with hospitals and other providers. Why is it for example that the Mayo Clinic, one of the finest medical facilities in the world, is able to function with half as many physicians per capita thatn UCLA? Why does Medicare pay some California hospitals four times more than others, without improving outcomes or patient satisfaction?
But here is some good news. The Bush administration got something right:
Medicare Says It Won’t Cover Hospital Errors
The number of Americans who die annually from medical error is equivalent to a jet airliner crashing every day of the year.
Dean writes: “The Dartmouth Atlas clearly shows that much of the abuse rests with hospitals and other providers. Why is it for example that the Mayo Clinic, one of the finest medical facilities in the world, is able to function with half as many physicians per capita than UCLA?”
As a former hospital medical data analyst, I wouldn’t call it “abuse.” Hospitals and physicians function largely independent from each other. In other words, it’s not like all the nephrologists in an area get together each month to discuss the financial implications of various treatment and diagnostic options for patients in renal failure. In fact, beyond their own professional fees, most physicians don’t actually know how much all of this stuff costs. Frankly, probably many of them don’t even know off the top of their heads how much their own fees are. Physicians go into medicine because they want to help people, not to be accountants. Most physicians I’ve known find the whole financial and insurance thing to be an annoyance if not a downright impediment to the practice of medicine. Christopher’s wife is a physician; it would be interesting to hear her take on this.
Another issue is that many Medicare patients see a number of different physicians. The primary care physician isn’t going to know anything about the cost of care provided by the orthopedist, or the ophthalmologist. The ophthalmologist isn’t going to know about the cost of care provided by the oncologist.
But this brings up an interesting point related to single payor systems. In a single payor system, all the medical and financial data reside in one system. The only way you can even do a study like the one mentioned in the Dartmouth Atlas is if you have access to all the data. With the single payor system you can see what’s going on with each patient no matter what physicians or hospitals they go to. That way you can look at the financials of tens or hundreds of thousands of similar cases around the country and look at variations in costs and treatment patterns across all these cases. Outside of a single payor system, it would be the labor of Hercules to try to do something like that.
Call it socialized medicine if you want, but a single payor system can provide a huge advantage in controlling medical costs through the development of best practices based on actual clinical and financial data.
Dean: ” Why does Medicare pay some California hospitals four times more than others, without improving outcomes or patient satisfaction?”
Because no one knows that until someone does the study. And no one can know it without the data. From my years in the hospital world I can tell you that information is gold, even in a single hospital. I once did a study on the number of typed and crossmatched units of blood in various surgical cases. You’d see things like physicians ordering anywhere from one to four units of blood typed and crossmatched for the same kind of case. And then you find that over the last two years, no more than one unit was ever transfused during the procedure. Using that information you can then establish standards that can save tens of thousands of dollars in lab costs every year. And that’s just in one hospital. Imagine what you could save throughout all hospitals.