Innovation in the PPACA

Via Kevin Drum, a serious effort to incentivize efficiency in Medicare:

Under the new health law, Medicare will reduce payments to hospitals if too many patients are readmitted after treatment for heart attacks, heart failure or pneumonia. In addition, Medicare will cut payments to hospitals if they do not replace paper files with electronic health records, and it will further reduce payments to hospitals with high rates of preventable errors, injuries and infections.

This sounds like a great idea, so long as we can keep it going the route No Child Left Behind tended to force poor schools to take:

Administration officials said they were aware of concerns that some hospitals might try to increase their performance scores by avoiding high-risk patients. The officials said they would watch closely for signs of such a problem.

I'm not 100% positive that I'm on board with this plan, but it's certainly a step in the right direction.


Also, via Drum, more doctors prefer a national single-payer system:

Remember this was support for federal legislation to establish National Health Insurance. That’s far more radical than the PPACA. And 59 percent of physicians supported it. That was an increase of 10 percent from what we found five years earlier, and it was statistically significant. More than half the respondents from every medical specialty supported it, with the exception of surgical subspecialties, anesthesiologists and radiologists. That means support included a majority of general surgeons, medical subspecialists and obstetricians/gynecologists. 

Most significantly, in pretty much every specialty we measured in both years, support went up from 2002 to 2007.

If doctors aren't the leaders of the resistance to national health insurance, who is left?  Hospital administrators? 

Ryan v. Klein

Took me more than a day.  I'd suggest reading Ezra's response in full, 'cause it's not that long and he really eviscerates Ryan for his dodginess.  But here's my critiques of Ryan's response:

First line:

Experience and economics support the view that the best way to control costs without sacrificing quality is to give consumers more power to act as a check on erratic pricing, deteriorating quality and excess care. 

This is a bold statement, and one that doesn't have any real grounding in reality.  Unless you live in a major urban area, you probably don't have many choices of hospital-level providers (about 3 out of 5 of my clients are hospitals that are the only ones in their immediate area, i.e. within about an hour's drive).  Further, as I constantly lament, it is rare that a consumer of health care services gets full, complete information on pricing prior to receiving care.  That's slowly changing in some areas, and non-essential things like elective cosmetic procedures and Lasik have had it for years, but for most medical services there just is no option to see what something's going to cost you ahead of time.

Some have argued that we can somehow fix this by removing elected officials from the process of managing Medicare. That we should instead empower unelected bureaucrats to achieve the results our political system has been unable to produce. Even accepting the dubious proposition that we could separate these bureaucrats from the influence of politics, or that such a thing would be consistent with our principles as a nation ruled by a constitutional, limited, and democratic government, I do not share your faith in the ability of small groups of experts to make wise decisions about treatment options on behalf of tens of millions of seniors. (bold mine- JG)

 This is a swipe at the IPAB, Medicare's medical procedure review committee that steers Medicare dollars toward the most cost-effective treatment.  What Ryan is saying here is that costs will be lower and health care outcomes will be better if we just take the doctors out of the equation.  This seems, to me, a bit silly on its face- if consumers could make healthcare decisions better than doctors, why have doctors at all?


What Ryan is really saying here is the dodge libertarian-conservatives tend resort in discussions about effective policy, namely resorting to a pure values argument.  It sidesteps the policy issue entirely and reframes the question as a moral issue, which would be fine if we were having a debate over the morality of universal health care, but we're not!  Ryan's plan concedes the moral case for providing healthcare for all (at least, all seniors) before he even sets out explaining how he's going to make it happen- but when a tough policy decision rears its head, he ducks back behind a moral argument that leaves no room for policy options.


 It's also a pretty transparent exploitation of  political buzz-words. "Unelected bureaucrats" sounds bad, but what he could also call them is "doctors and medical professionals".  I'd be willing to bet that most people don't want a "government bureaucrat" advising them on healthcare decisions, but would gladly welcome the advice of a doctor.  Does a doctor's advice become invalid because he draws a paycheck from HHS?  And if so, why is it less valid than advice from the doctor who gets paid by a hospital or HMO, which benefits financially if costly and unnecessary tests are run?

And it forces 20 million additional Americans into a broken Medicaid system that is already failing the Americans it serves. Our budget moves health-care policy in the opposite direction — away from government-centered health care and toward patient-centered health care that promotes competition and consumer choice.

This line strains my ability to be non-partisan.  Broadly speaking, Medicaid is a broken system because it is always first on the chopping block whenever budget cuts are an issue (which they almost always are).  Conservatives have been trying to starve Medicaid to death for years, and have largely succeeded.  


That said, speaking as someone who would have killed for Medicaid coverage for my loved ones in the last few years, I would certainly have welcomed being "forced" into such a system.  My only "choice" was to take out loans to pay for student insurance plans in school and then find a job that provided health insurance.  Both plans covered a majority of the cost of our care, but even the leftover costs were still ruinous.  My cousin, by comparison, has been on disability Medicaid for cancer for years and gets essentially free coverage, including testing and prescription drugs.  She remains poor, but only because it is difficult for her to find work due to her chronic illness, not because she accrues health care debt in excess of 50% of her yearly gross income like yours truly.

However, if we reform Medicare so that it looks more like the system that members of Congress enjoy — in which federal employees choose from a list of competing plans and get the coverage that delivers the best value to them

Members of Congress enjoy access to competing plans that have offer lower out-of-pocket costs because of the enormous risk pool that the federal government brings to the table.  Most employer-provided insurance is not nearly this generous, and those that are represent companies with thousands of employees.  This is important, because only with a large risk pool can an insurance company afford to insure everyone cheaply- they need several relatively healthy people paying regular premiums to make up for the cost of just one chronically ill person.  Now, it is possible to have everyone purchase individual health insurance, essentially making every citizen a member of an enormous risk pool- but costs will only remain under control if you ensure that all the healthy people pay into the system to support the sick ones.  In other words, you need an individual mandate.


The rest of Ryan's responses fall into the same general categories: Medicaid is failing, choice will mean lower costs,  government is bad, inefficient, etc.  He also points out that some foreign country's plans have problems (using some remarkably cherry-picked data without any relevant comparison to how much worse our healthcare system is doing).


All this said, I think Ryan's responses are some of the most cogent and thoughtful of any Republican or conservative politician on the issue of the rising cost health care.  It would be nice if Rep. Ryan could give us a fully policy-oriented response without resorting to conservative shibboleths (government bad!) or ducking behind moral arguments (also, government bad!).  This is especially ironic considering that what became PPACA started out as the conservative response to single-payer.  The right won that argument, but here we are with the right-wing bloc in Congress arguing that what was the conservative pole of the issue a decade ago is now an indefensibly liberal position.


I wonder where we will be in another ten years.

More on Puncture

This time from DOTmed:

In the suit, Shaw claimed, in essence, he was shut out of the hospital market and nearly driven out of business because of exclusive supply contracts between the other syringe-makers and the GPOs that, in some cases, could prevent hospitals from buying needles from smaller suppliers -- such as Shaw's company. The defendants claimed Shaw's product was rejected for market reasons, such as its high cost.  

But in July 2003, Tyco, Premier and Novation settled with Retractable. The settlement was sealed, but a 2005 Fortune article said the defendants together coughed up about $50 million. Premier and Novation also said they would change their business practices. Although Becton Dickinson initially appeared to hold out, in 2004 it agreed to pay Retractable $100 million to settle the claims of illegal market manipulation, making Shaw, in the words of the Fortune article, "the richest citizen in Little Elm, Texas." 

Good for Shaw but bad for us, as these practices continue unabated.  I didn't know BD had settled either- $50M between Premier and Novation isn't chump change, but that $100M figure should be a red flag that something terribly fishy was going on at Becton Dickinson.

Old but still relevant Ezra

Ezra Klein links to an old column he wrote for TAP.  I missed it back in the day, but it's so good you should read the whole thing.  Some especially salient points (to me) below:

Where Canada's system has a high floor and a low ceiling, France's has a high floor and no ceiling. The government provides basic insurance for all citizens, albeit with relatively robust co-pays, and then encourages the population to also purchase supplementary insurance -- which 86 percent do, most of them through employers, with the poor being subsidized by the state. This allows for as high a level of care as an individual is willing to pay for, and may help explain why waiting lines are nearly unknown in France.

France's system is further prized for its high level of choice and responsiveness -- attributes that led the World Health Organization to rank it the finest in the world (America's system came in at No. 37, between Costa Rica and Slovenia). The French can see any doctor or specialist they want, at any time they want, as many times as they want, no referrals or permissions needed. The French hospital system is similarly open. About 65 percent of the nation's hospital beds are public, but individuals can seek care at any hospital they want, public or private, and receive the same reimbursement rate no matter its status. Given all this, the French utilize more care than Americans do, averaging six physician visits a year to our 2.8, and they spend more time in the hospital as well. Yet they still manage to spend half per capita than we do, largely due to lower prices and a focus on preventive care.

(...) 

A wiser approach is to seek to separate cost-effective care from unproven treatments, and align the financial incentives to encourage the former and discourage the latter. The French have addressed this by creating what amounts to a tiered system for treatment reimbursement. As Jonathan Cohn explains in his new book, Sick:

The French do the same for pharmaceuticals, which are grouped into one of three classes and reimbursed at 35 percent, 65 percent, or 100 percent of cost, depending on whether data show their use to be cost effective. It's a wise straddle of a tricky problem, and one that other nations would do well to emulate.

In order to prevent cost sharing from penalizing people with serious medical problems -- the way Health Savings Accounts threaten to do -- the [French] government limits every individual's out-of-pocket expenses. In addition, the government has identified thirty chronic conditions, such as diabetes and hypertension, for which there is usually no cost sharing, in order to make sure people don't skimp on preventive care that might head off future complications.

Look, I bag on the French like any other good red-blooded American.  I've been to France a couple of times, and it's not a place I'd want to live (but visiting is fun).  But they really seem to be on to something here with their health care system.

Ezra doesn't get into the active military system or Tricare, probably because they're not great examples of cost control on the payor end (the US government) but on the consumer end my wife and I couldn't have asked for a better or more generous system while I was in uniform.  He does mention the VHA:

As Longman details, the VHA suffers from none of these problems. Its patients are patients for life, so investing early and often in their long-term health is cost-effective; the system was set up to deal with the sick, so the emphasis is on learning how to best manage diseases rather than avoid the diseased; and the doctors are salaried, so they have no incentives to either over- or undertreat patients (emphasis mine- JG). Moreover, the VHA is not only empowered to bargain down drug costs; it also uses formularies (lists of covered drugs), and so is actually empowered to walk away from a pharmaceutical company that won't meet its offer.

Now, talking up the French system and even suggesting that we'd be better off if all doctors were salaried employees of the state has undoubtedly eternally damned me to the special hell reserved for communists and people who talk at the theatre, but you can't argue that these measures don't answer some of the biggest underlying problems in our current system.

It was true four years ago when Ezra wrote it, and remains true today.

Medicine vs. Consumerism

Jonathan Chait:

With most market goods, the seller is supposed to maximize his profit. You may have good reasons not to try to fleece your customers, but if you're selling cars, you have every reason to steer them toward the more expensive (or, at least, more profitable) model. The traditional basis of medicine is not based on the market for very sound reasons. Doctors have a massive information imbalance over patients. That's why we don't set them up as parties to a financial transaction. The doctor is a kind of secular clergy presumed to be acting in a way synonymous with the patient's interest.

This is a situation that I am all too personally familiar with.  My wife has successfully battled cancer twice in her life (leukemia, then breast cancer) and is a regular patient at Houston's excellent M.D. Anderson Cancer Center.  For a patient with her history, doctors have a need to be extra-cautious, so just about any complaint is justification for an expensive battery of tests.  On her most recent visit, she complained of frequent headaches (acute sinusitis is another curse that she has lived with for years) so her doctor (actually a nurse practitioner who works for her oncologist) ordered a full-body MRI, a test that typically runs in the vicinity of several thousand dollars.  She is lucky enough to have extensive insurance via her employer (a major university) but even then we determined that our out-of-pocket cost for the procedure would be prohibitively high.  Previously, we had the option of shopping around for a cheaper MRI provider- there are any number of hospitals and private surgical centers that have these machines.  Not this time, said the nurse, the hospital wants you to have it done here, and we won't take anyone else's tests.

Which now puts us in a bind.  The nurse practitioner and oncologist clearly think this is a necessary test for her to rule out any new cancers, but we simply do not have the cash to afford it right now (we waived bye-bye to our credit long ago... cancer, even with insurance, is insanely expensive) and are not allowed to even explore the option of getting it somewhere else for less.  So we really have no options: no scan will be done (for now).

Now, I admit that I resent the hospital somewhat for putting me in this position.  On the surface, I feel like I'm being fleeced- aren't there other, cheaper tests that could be done?  Why was cost not a factor in this decision?  Do they expect me to sell my car or rob a bank so that my wife can have her scan done sooner rather than later?

No, the truth is, nobody is getting fleeced here.  This is the best, most comprehensive test available, and I personally believe that no effort should be spared if it means possibly catching another cancer early enough to treat.  The doctor is doing exactly what I want her to do- take whatever steps are necessary to keep my wife well.  The fact that MRI machines and the techs to run them are expensive, that even good insurance isn't ever going to be good enough (as an actuarial liability to the insurance company, my wife is like a black hole down from which no money escapes), are not factors that her doctors consider when making purely medical decisions- and that's the way it should be.  I don't want her doctor to have the attitude that medicine needs to take a back seat to considerations of the lightness of my wallet.

The only question is, are we better off as a society when we leave it to individuals to shoulder all of the financial burden of the right attitude in making medical decisions?

A Brief History of GPOs

Noah has asked for a more thorough explanation of what Group Purchasing Organizations are and how they affect the healthcare debate.  Since he is currently my only reader, I shall oblige him.

Group Purchasing Organizations, or GPOs, leverage the increased purchasing power of a group of purchasers to obtain lower prices from suppliers.  In theory, the GPOs obtain the lowest possible prices by bargaining aggressively with vendors, who lower their prices in order to access the big chunks of the market that the various GPOs represent.  Since pricing outside of a GPO agreement is (again, in theory) always higher, there is a big incentive for hospitals to do the bulk of their business through a group buy contract.  In the U.S., this means that the majority of hospital purchasing, from consumables to capital equipment, is handled through GPO contract pricing.  

A bit of history: the first healthcare GPO was founded in 1910 by the Hospital Bureau of New York as a response to price-gouging on the part of suppliers in the Manhattan area.  Hospitals in the same city realized that they were paying wildly different prices for consumables like bandages and bed linens.  The Hospital Bureau organization allowed them to get together and bargain collectively with their vendors to obtain better pricing; in exchange, the most aggressively priced vendors would be able to move greater volume by selling to all area hospitals at once.

The advent of Medicare (and, to a lesser extent, Medicaid) in the late 60s fostered a boom in healthcare GPOs.  Suddenly, elderly people of all income levels represented a guaranteed stream of income from the federal government to the healthcare industry.  Medicare reimbursement rates were (and always have been) low compared to market rates, but the reliability of those payments compared to cash or the fledgling private insurance business led to Medicare becoming one of the most important pillars of the hospital community (more on the importance of Medicare to hospitals later, for now, we focus on GPOs).  Flush with cash, the medical device and consumable markets, and with them, the GPO industry, boomed.

One problem with GPOs was traditionally their sources of funding.  The slew of GPO startups in the 70s and early 80s focused on not charging fees to hospitals for their services, instead, (and this is the important part) they took from their contracted vendors a percentage of sales to cover their costs.  The more money a vendor made, the more money the GPO made, essentially incentivizing GPOs to find the highest price that they could get away with and still be able to claim "savings".  If this seems counterintuitive to you, you're not alone.  The problem was exacerbated by the emergence of the first Integrated Delivery Networks (IDNs), parent corporations that owned both the hospitals and the GPOs that supplied them, which found they could take a slice of the money leaving the hospital (in the form of payments for supplies and equipment) by simply setting up the GPO as a required middleman between vendors and hospitals.

In 1986, Congress granted the first of several "safe harbor" exemptions for GPOs from federal healthcare-related anti-kickback laws that threatened to undo an industry that had relied on what were, for all intents and purposes, direct payments from vendors in exchange for access to a hospital's business.  Healthcare Group Purchasing Organizations now had legal cover to operate in a way that would get any other kind of healthcare entity in hot water with the Feds.  The justification at the time was that GPOs were so integral in reigning in the cost of healthcare (proved by a series of GPO-sponsored studies) that they deserved a special exemption that allowed them to continue to operate as they had been.  

In a coming post, I will explain how the current state of the GPO field is making healthcare more costly, the studies both by both private and public institutions that point this out, and the enormous political power GPOs and IDNs wield to defend themselves and their business practices from reform.

Why Patients Are Not Consumers

Movin' Meat:

1. Health care is generally not a refusable or elective service.By this, I mean that in most cases, the health care costs are driven by medically necessary procedures. You get pneumonia. Your knees wear out. You find a lump in your breast. You notice blood in your stool. Barring the denial/self-neglect approach that some people take, when you develop a medical problem, you need to spend money to remedy it. While the timing of your knee replacement may be elective, whether to do it or not generally is not, if the alternative is being disabled and non-ambulatory. It is an inelastic demand, like the demand for gas. When gas gets more expensive, you still have to fuel your car, and except for very small variations, the demand for gas does not vary with the price. Similarly, the demand for medically needed care is not going to be terribly price responsive. When your doctor tells you that you need chemotherapy, you don't make the decision to proceed based on the cost, but on the need. And the number of recreational colonoscopies performed is actually very low.
It is true that some medical costs are elective and price sensitive -- preventative care, luxury procedures like Lasik, some office visits. These, however are a tiny fraction of overall health care costs. As in my analogy, some people do drive less when the price of gas goes up -- they take the bus instead -- but this does not reduce demand enough to make a difference in the price of oil.

2. There is an asymmetry of informationThis asymmetry relates to both price and necessity. When your orthopedist tells you that your knee pain is due to a degenerated meniscus and that the best treatment for that is athroscopy, most consumers are going to simply accept the surgeon's advice. Now, as it happens, there is good evidence that arthroscopy of the knee provides no more benefit than placebo, but 99% of patients are not going to be aware of this and are not going to bother to do the research to find it out. Those that do, might find that the surgeon has an explanation why, in your case, he thinks it will be helpful despite the studies showing otherwise for other people. In most cases, the patient must trust the physician to provide accurate information on what is really needed. And if you should ask your surgeon what the cost of the arthroscopy will be, the answer will probably be "I don't know." Price transparency is poor to begin with but there is the very real fact that based on a patient's individual payer status the cost will vary dramatically, and the surgeon probably does not know what the cost will be for your case. Finally, when consumers make health care providers compete against one another to decide by whom and where the care will be given, they tend to be concerned primarily with quality and with cost as, at best, a secondary concern.
All these factors greatly inhibit competition and the development of a free market. To some degree it is possible to mitigate these, through, say, all-payer price setting, and mandatory disclosures and publishing outcomes data, etc. However, the third variable, in my opinion, makes the rest all-but-moot.

3. Purchasing power is concentrated in the hands of a very small number of "consumers"This is the wooden stake through the heart of the idea that consumer behavior can effect cost containment. The functioning of a free market is dependent on the ability of consumers to vary their behavior to force suppliers to compete. However, you and I can be as scrupulous and cost conscious as we like. We are not sick. (Well, I'm not anyway. I hope you're OK.) The driver of cost is the small fraction of people who have serious medical conditions. It's the old 80/20 rule writ large.

I've heard of some doctors performing "recreational colonoscopies" on irritating patients.  Tip from the pros: always be nice to your gastroenterologist.