Thought du Jour

The US spends twice as much per capita on health care as other developed countries, and it is not because Americans are notably less healthy, nor do they visit doctors, clinics and hospitals more frequently. The main reason for the outrageously high expenditure, writes Princeton economist Uwe Reinhardt, is that prices are outrageously high. Moreover, prices in the United States are not uniform. They vary markedly, and the patient typically has no idea of what the bill will be until after a service is provided.

In most other countries, prices for health care goods and services are not negotiated between individual health insurers and individual physicians, hospitals or drug companies, as they are in the private insurance sector in United States.

Instead prices there either are set by government or negotiated between associations of insurers and providers of care, on a regional, state or national basis. ….

[Americans pay high prices for health care because] the payment side of the health care market in the private sector is fragmented, weakening the bargaining power of individual insurers, especially vis-à-vis the increasingly consolidated hospital sector, although other factors, including malpractice premiums, play a part as well.

To endow the payment side of health care with more market muscle, I have proposed an all-payer system based on the models used in Germany or Switzerland or in the state of Maryland. In these systems, government does not dictate prices. Instead, health care prices are negotiated at what Europeans call a “quasi market” level.

… [T]he variation of prices for identical items within the United States – even within a single city – dwarfs the cross-national variation in prices for the same item. That phenomenon has begun to attract attention in the news media only lately.

As Consumer Reports noted in an illuminating article, “Health care prices are all over the map, even within your plan’s network.”

Uwe E. Reinhardt. “U.S. Health Care Prices Are the Elephant in the Room“, Economix, New York Times, 29 March 2013.

There is much more in the full blog. Read it to become informed, especially if you reside in the United States.

More pets than humans are without medical insurance in the United States, but this is changing. (I am not sure in which direction!)

Natasha and Chris Ashton were a month into their MBA programme at the Wharton school at the University of Pennsylvania when their year-old cat, Bodey, stopped eating. After a visit to the local clinic Bodey was … placed in intensive care for almost a week. Total bill: $5,000. ….

In retrospect, Bodey’s bout of pneumonia (the cat made a full recovery) might have been the best thing that happened to the entrepreneurial couple. On graduating from Wharton in 2003, the Ashtons founded Petplan North America, a pet insurance company … that provides insurance for emergency veterinary costs and hereditary and congenital conditions. ….

In the UK, the Ashtons’ native country, nearly 30 per cent of animal owners have insurance for their pets …. However in the US … that figure hovers at between 1-2 per cent. ….

Advances in veterinary medicine and technology have allowed vets to keep animals healthier for longer but the price of treatment is steep. For instance, treatment for pet cataracts can cost up to $3,000 per eye and canine hip replacement surgery between $3,000-$5,000. ….

[The Ashtons] … looked for an insurance company willing to back them and created company infrastructure to sell policies. Petplan North America’s policies cover emergency treatment, not routine care or vaccinations. The average annual premium is about $400.

Rebecca Knight, “Entrepreneurs see pet project develop into a thriving venture“, Financial Times, 25 March 2013.

The birth control pill almost everywhere is available only by prescription. Tim Taylor thinks that we should “stop using the contraceptive pill as a sort of carrot-and-stick to encourage regular doctor visits by women. It should be available over the counter.”

Almost two decades ago in August 1993, a doctor named David Grimes wrote in the American Journal of Public Health: “On public health grounds, oral contraceptives could be made available in vending machines and cigarettes by prescription only. … Our society’s approach to these two agents, both widely used by young women, is paradoxical. Cigarettes, which are readily available even to children, kill over a thousand persons each day. In contrast, oral contraceptives prevent unwanted pregnancy and improve women’s health. Nevertheless, the medical profession poses numerous obstacles to this method of contraception, including a physical examination, a prescription, often a pharmacist, and an impenetrable package insert. … [T]hese medical requirements neither serve nor protect women; they are merely impediments.”

Timothy Taylor, “The Pill Over the Counter?“, Conversable Economist, 17 December 2012.

Another great blog from Tim Taylor, “the conversable economist”.

Back in July [2007], while trying to justify his opposition to expanding government health care coverage for children, President Bush made a telling comment. The uninsured, he said, “have access to health care in America. After all, you just go to an emergency room.”

That remark stuck many as blithe and callous, and in many ways it was. The uninsured don’t receive in ERs anything like the full array of health care they need. Indeed, one of the abiding arguments for universal health care is that patients often wind up in the emergency room with acute illnesses that could have been treated earlier, and more cheaply, had they been able to afford regular doctor’s visits.

Still, there was a kernel of truth to Bush’s comment ….

Counterintuitive as this may seem, in health care less is often more. The uninsured are virtually immune from receiving unnecessary surgery or other forms of overtreatment that the system constantly encourages. Once uninsured patients are through the door, they cost the hospital money until its doctors make them well enough to leave. There is no incentive to give them treatments they don’t need. Since about 20 percent to 30 percent of all health care spending in the United States goes for overtreatment—much of it dangerous—this is no small advantage.

It’s also true that the nation’s public hospitals, while they may have a Dickensian atmosphere and lack the very latest imaging machines, tend to deliver higher-quality health care than their more prestigious counterparts. For example, Dartmouth researchers John E. Wennberg and Elliot S. Fisher have found that among Medicare patients who are not terminally ill, and who share the same age, socioeconomic, and health status, the chance of dying in the next five years is greater if they go to a high-spending hospital than to a low-spending hospital. Whether suffering from heart attacks, colon cancer, or hip fractures, patients live longer if they stay away from “elite” hospitals, with their overabundance of specialists, and choose a lower-cost St. Elsewhere. Given this unexpected reality, it is perhaps not surprising that patient satisfaction also declines as a hospital’s spending per patient rises. It’s not fun to be overtreated, even if you get valet parking and the finest in pudding.

None of this is to minimize the plight of the uninsured, who die at higher rates than the rest of us in large part because they don’t have access to affordable primary care. But the fact that uninsured patients receive higher-quality acute care than do those with insurance ought to make us think twice about all the plans being put forth by presidential candidates to expand health insurance.

Phillip Longman, “Best Care Everywhere“, Washington Monthly, October 2007.

There is much more in the full article. Read it. Then read Longman’s first article, on the Veterans Health Administration (VHA):

“The Best Health Care Anywhere,” Washington Monthly, January/February 2005.

and, finally, his follow-up article, on healthcare information systems:

“Code Red: How software companies could screw up Obama’s health care reform“, Washington Monthly, July/August 2009.

All three papers can be downloaded freely, without cost.

More than four months ago (5 August 2012) I quoted Princeton economist Uwe Reinhardt on the Veterans Administration (VA) health system:

So far I have not received a satisfactory answer from detractors of “socialized medicine” to my question of why we have the V.A. health system when socialized medicine putatively is so evil.

Do you have an answer?

Since then, I came across a post by libertarian economist John C. Goodman that takes up the challenge of Professor Reinhardt.

Don’t you think our military veterans deserve decent health care? I certainly do. That’s why I like Mitt Romney’s idea of setting the veterans free. Give them the opportunity to choose private health care alternatives to the Veterans Health Administration (V.H.A.), a system that too often fails them.

Why can’t we do for veterans what we do for seniors? About one in every four Medicare beneficiaries is not actually in Medicare. They have enrolled instead in private health insurance plans operated by such entities as Aetna, United Health Care, Cigna, etc. Why can’t we give people who risked their lives for the rest of us similar options?

John C. Goodman, “Free Our Veterans Now“, Town Hall, 3 December 2011.

Those private health care plans for Medicare beneficiaries cost taxpayers more than than traditional Medicare does, a minor problem that Mr Goodman overlooks.

Mr Goodman faces another problem. The VA system is widely believed to perform better than private insurers in provision of health care. There is even a book in print, authored by journalist/demographer Phillip Longman, with the title Best Care Anywhere: Why VA Health Care Would Work Better For Everyone (Berrett-Koehler, 3rd edition, 2012). There is no equivalent book with the title “Worst Care Anywhere” or “Free our Veterans”! Wikipedia, in reference to evaluation of the Veterans Health Administration (VHA), has nothing but praise for the agency. Here is the relevant section, in full:

“Patients routinely rank the veterans system above the alternatives, according to the American Customer Satisfaction Index.” In 2008, the VHA got a satisfaction rating of 85 for inpatient treatment, compared with 77 for private hospitals. In the same report the VHA outpatient care scored 3 points higher than for private hospitals.

“As compared with the Medicare fee-for-service program, the VA performed significantly better on all 11 similar quality indicators for the period from 1997 through 1999. In 2000, the VA outperformed Medicare on 12 of 13 indicators.”

A study that compared VHA with commercial managed care systems in their treatment of diabetes patients found that in all seven measures of quality, the VHA provided better care.

A RAND Corporation study in 2004 concluded that the VHA outperforms all other sectors of American health care in 294 measures of quality; Patients from the VHA scored significantly higher for adjusted overall quality, chronic disease care, and preventive care, but not for acute care.

A 2009 Congressional Budget Office report on the VHA found that “the care provided to VHA patients compares favorably with that provided to non-VHA patients in terms of compliance with widely recognized clinical guidelines — particularly those that VHA has emphasized in its internal performance measurement system. Such research is complicated by the fact that most users of VHA’s services receive at least part of their care from outside providers.”

“VA Today: Overall Evaluation“, Veterans Health Administration. Wikipedia, accessed 25 November 2012.

John C. Goodman, in his post, attempts to show the VHA in a poor light, but much of the ‘evidence’ that he cites shows, at best, that VA health care is equal to private care. The only source that he shares with Wikipedia is the 2004 RAND Corporation study:

To the V.H.A.’s credit, a RAND study concluded that overall the V.H.A. is providing higher quality care than other patients receive, although it also noted that the system does best on the quality metrics it measures than on the ones that go unmeasured. …. On the most important quality measure of all — did the patient survive? — V.H.A. patients appear to do no better than other patients.

The RAND Corporation study was published in the Annals of Internal Medicine, 21 December 2004.

The Veterans Health Administration (VHA) is a giant bureaucracy. As of 2011 it had nearly 280,000 employees and an annual budget of $47 billion. More than six million veterans are VHA patients, but the VHA is set up to attend primarily to service-connected disabilities, so there is a large overlap of veterans enrolled also in Medicare and Medicaid.

In the mid-1980s and early 1990s, the VHA was widely criticised for poor quality care and high mortality rates. President Bill Clinton in 1994 appointed Dr Kenneth W. Kizer, a physician trained in emergency medicine and Public Health, to reform the VA health care system. The changes were profound, and the quality of care increased markedly, along with patient satisfaction.

Two entries in the Wikipedia article caught my attention. The first refers to pioneering use of electronic records, an important component of Dr Kizer’s reforms:

VHA is especially praised for its efforts in developing a low cost open source electronic medical records system VistA …. With this system, patients and nurses are given bar-coded wristbands, and all medications are bar-coded as well. Nurses are given wands, which they use to scan themselves, the patient, and the medication bottle before dispensing drugs. This helps prevent four of the most common dispensing errors: wrong med, wrong dose, wrong time, and wrong patient. The system, which has been adopted by all veterans hospitals and clinics and continuously improved by users, has cut the number of dispensing errors in half at some facilities and saved thousands of lives.

The second refers to the cost of physician services:

Doctors who work in the VHA system are typically paid less in core compensation than their counterparts in private practice. However, VHA compensation includes benefits not generally available to doctors in private practice, such as lesser threat of malpractice lawsuits, freedom from billing and insurance company payment administration, and the availability of the government’s proprietary VistA electronic records system.

Phillip Longman discusses his book, Best Care Anywhere, in this YouTube interview. There is also a link to the article on which the book was based.