The Rural Conundrum
Photo by Gentleman of Decay
How do we preserve services in sparsely populated areas where there isn’t enough business to keep some providers in town?
According to Becker’s Healthcare Review, 80 rural hospitals nationally have closed since the beginning of 2010, with more in trouble currently. The combination of aging populations, poor payer mixes, and declining reimbursements have made this a tough decade for rural hospitals.
An example of this trend is St. Andrews Hospital in Boothbay Harbor, Maine. Facing declining volumes and multimillion dollar losses over the preceding decade, St. Andrews’ parent, MaineHealth, made the decision in 2013 to remove the inpatient beds from the facility. They referred the inpatient volume there to another hospital in the next town, Miles, about 30 minutes away. Outpatient services like the emergency room, imaging, lab, and physical therapy remained.
But before its acquisition, SAH was a local nonprofit, supported by community donations and volunteer efforts. Many residents had come to depend on its proximity, and protested vehemently over its conversion to an outpatient only facility. Where were the fruits of all their efforts to maintain the hospital for over a century, they asked?
This scenario is being repeated all over America with increasing frequency. Here in Colorado, there is a bill in our legislature that attempts to shore up funding for some of these rural hospitals. The Colorado Hospital Association has estimated that up to ten rural hospitals are at risk of closure or loss of services if they can’t find additional funding.
How did this happen?
Many of these hospitals have been sustained by a status called Critical Access Hospital designation. Congress created this status as part of the Balanced Budget Act of 1997, and it increased Federal reimbursement for these facilities. This was done at a time when the high cost of running hospitals was forcing closures much like we are seeing now.
But some trends in medicine are placing even more strain on these facilities. While it can be different in different places and at different times, overall there is a steadily decline in hospital days used per thousand people in the country, and has been since the 1980s. This makes sense, as more and more things can be done in the outpatient setting and even in people’s homes. The need for hospital facilities and their expensive brick and mortar is gradually declining.
Another trend is that as medicine has progressed, we are able to do more and more miraculous things, like cure Hepatitis C outright. The catch? A course of the appropriate antiviral agents is in $50,000-100,000. This is part of why medical services costs are increasing at a rate faster than general inflation. But in a stable or shrinking small town, the revenue base to support a hospital or health care in general is also stable or shrinking. Thus, you have only a few choices:
- take up more and more of the available money in the town,
- find someone outside of town to subsidize the growth in services (like state or federal governments),
- make the services cheaper, or
- cut services altogether.
It appears that we are exhausting options one and two. The only things left are options three and four, making services cheaper or cutting services. While it isn’t any small town’s first choice, finding a cheaper way to deliver the same care may be the most feasible of the alternatives. This may involve telemedicine to larger population centers. Telemedicine can provide a population base large enough to justify the super-specialization we see in medicine these days.
For example, there are studies that suggest it takes about 100,000 people to have enough business to support an endocrinologist. That rules out all but about ten Colorado municipalities, and seven of those are part of the Denver metroplex. What about everybody else? If a town can only supply half the number of patients needed, then either those visits have to be twice as expensive, or the endocrinologist has to take in half the money, which isn’t sustainable, since that won’t even cover her overhead. Telemedicine creates the opportunity to overcome distances so that a specialist can have enough patients to make her business run.
We will no doubt see further innovations develop as long as we remain out of money to spend more on health care. Already there is a trend toward “minihospitals”, smaller facilities of eight or ten beds in some metropolitan areas. These facilities take care of common ailments like pneumonia, whereas patients with more complicated conditions go to a regional center. The same kind of facility might work in rural areas; indeed, the ones that survive might downsize into exactly this kind of arrangement. But one thing seems clear: our current supply of rural hospital beds isn’t sustainable with current payment mechanisms. We will have to pay more for them collectively, make them cheaper, or lose them altogether.
Surgical checklists work–at scale
In an article in the Annals of Surgery this week, some of Dr. Atul Gawande’s team at Ariadne Labs demonstrated that widespread implementation of his surgical checklist lowers mortality on a massive scale: the entire state of South Carolina. Lead author Dr. Alex Haynes showed that not only does a standardized procedure work in particular settings, the benefit of the checklist can be implemented at scale.
Working with the South Carolina Hospital Association, they enrolled fourteen hospitals across the state to use the checklist as standard operating procedure, and then compared their surgical mortality over a three year period with the 44 hospitals that didn’t adopt the checklist. Mortality at the beginning of the trial was comparable between the two groups of hospitals, about 3.4-3.5%. After implementation of the checklist, the surgical mortality in the implementing hospitals dropped to 2.84%, while the control group mortality actually rose to 3.71%. This amounted to a relative reduction of 22%. Surgical mortality had been cut by almost a quarter, though the use of a simple questionnaire.
Why is this a big deal? So many times we find that something exciting happens in a small, controlled environment, but we are frustrated when we try to make it “just the way we do business”. What we don’t recognize is that while we consider the environment surrounding the experiment to be normal for us, significant conditions can be very different in other places at other times. For example, some of Jack Wennberg’s early experience in sharing variation among surgeons in New Hampshire was that once he showed them how differently they practiced, their variation narrowed almost automatically. For Wennberg, doctors taking action on data was normal.
But what Wennberg perhaps didn’t appreciate was the setting in which those conversations occurred. They occurred within communities in which the surgeons knew each other well, and trusted each other’s judgment. This was normal for them. In other settings without that community feel, many of us have been frustrated that changes sometimes take much longer to happen, or sometimes don’t happen at all.
So for Dr. Haynes to demonstrate that despite the likelihood that his sample of hospitals differed significantly in their characteristics, on average, using checklists saved lives. Patients did better even when the hospitals weren’t exactly like one another. And that is a significant and hopeful finding.
Why physician leadership is now in demand
Photo by Damon Sacks
The end of infinite power for infinite responsibility
Lately there have been articles in journals like JAMA and Health Affairs discussing the need for physician leadership in reshaping the system. It isn’t that there hasn’t been this need before. Because of the central role granted to physicians by law and by culture, we have always needed physicians to agree, explicitly or implicitly, to changes to the delivery system. Indeed, I call the last model of physician accountability for health care the “infinite power for infinite responsibility” model. Because we had no way of measuring physician performance in the last age, how else were we going to deal with matters that were literally life and death? If you are dealing with a phenomenon that frightens us all, you want to give your agents all the power you can.
But in the Age of Information That Is Cheaper Than Zero and massive computing power, suddenly we can measure physician performance. With the knowledge that all physicians are not created equal (much less perfectly), we are left with a disturbing reality: physicians, like everyone else, need to be engaged in continuous improvement, simply in order to stay even with consumer expectations. I realized the other day that one reason this is so is that we are increasingly expecting human performance to be like computer performance. Computers are performing highly complexity and nuanced tasks, and doing them with greater reliability and reproducibility than humans can. What do you think is more reliable, asking a stranger for directions to a restaurant in a strange city, or Google Maps? Me, I like the app. So is it any wonder that we get annoyed when someone can’t remember if it’s ten or twelve blocks to the Café Boeuf?
Meeting ever rising requirements requires change and change management, and lots of it. Some theories of leadership state that leaders are really only necessary when dealing with change. When everything is stable (I remember a time once when I thought things were), leaders have limited utility. If I can get by doing tomorrow what I did yesterday, who needs leaders? I’m on autopilot. But in a time when people are radically changing what they want, how they pay me, with whom they expect me to work, and most importantly, how they judge my work? Yikes. And thus, physician leadership is the topic of the day.
I personally think physician leadership is a hot topic now because we’re quite simply out of other options. As Jerry Garcia said, “Somebody has to do something, and it’s just incredibly pathetic that it has to be us.” We’ve tried every option that doesn’t involve physician leadership and buy in, and none of them work. Health plans and mother-may-I managed care failed. Why? Because studies show that 40% of physicians admit to lying to get services for patients. That’s 40% who admit it; who knows how many it really is? Hospitals acquired physician practices thinking buying accounts receivable is almost like buying buy in, but find out, not so much. Way back when in the 1990s, practice management firm like Phycor did the same thing, and with the same disastrous results.
Okay, to brass tacks then. What will it take for physicians to do the Nixon-to-China about face, and actually embrace the Medicine of Limited Resources, the end of society’s blank check, and the upward slope of increasing accountability? Here are some suggestions:
- First, embracing limits cannot be primarily about making people money, even for the docs themselves. Fundamentally docs have to look themselves in the mirror in the morning, and no one likes to see someone who hurts other people for money looking back. If money is the sole appeal to changing to a population health approach, it will not be sustainable as a motivator.
- Second, there must be a positive reason to learn new skills and engage in the process. These positive reasons are different for different people. For some, it is the recognition among peers that they are the highest value provider in the land. For others, it is the sense that by making the system more efficient, they are preserving resources that allow other patients to get decent care. But for the largest proportion of providers in my experience, it’s when they see that things like coordinated care are actually better for patients. When someone comes back to the office and says, “My mother looks so much better with the additional help that Karen (the care manager) is giving her. Thank you so much for getting her that.” How do you stop doing that, even if it is a little more trouble for you as the doc? How do you refuse to offer it to every patient out there whose life is strung together with baling wire?
- Third, docs are like other humans. We like things like a sense of our own competence, autonomy, and relatedness. In many ways, external coercion works against these basic human sources of satisfaction. But if docs can feel like they have the tools to lead well, the ability to really make a difference, and the support of peers, this is a much different proposition that the bad old days of managed care. It reminds me of the saying, “People don’t resist change—they resist being changed.”
In essence my hope is that in order to avoid being changed, we physicians will own the change ourselves. None of this is easy or simple, because nothing involving humans and emotional processing is. But now is the moment we must test these theories, and as a physician community, either own this challenge or turn over the reins to someone else. I know which option I prefer.
Five things I think I think about the next phase of health care reform
Photo by Jon Collier
This is not the end of Obamacare; it’s the beginning
In a surprising move, Paul Ryan pulled the American Health Care Act, the Republican ACA repeal and replace bill, last Friday. It had become clear that there was no movement to the left or the right that would garner enough votes to allow passage in the House. Even if it had passed in the House by moving right, much of that movement was likely to be stripped out in the Senate, where the Republican majority is slimmer, but no less internally conflicted. The president has stated he is moving on to other issues like tax reform and infrastructure building.
So you might think that health care reform on the federal level is done for now. Whether that is true or not, it is also pretty clear to me that there is still a great deal of work to do to stabilize and improve the ACA. Cost constraints are still lacking, and insurance marketplaces at the state level are still suffering from shrinking insurer participation. While coverage has vastly improved under the ACA, affordability remains elusive if you don’t qualify for a subsidy.
Where are we going next? Some (including me) are hoping that this opens the door to real bipartisan negotiation. Here’s the theory. The Trump administration cares about the appearance of winning, not ideology. If you can’t work over the Freedom Caucus to get the votes, you go to the Tuesday Group, a group of moderate Republicans. Perhaps they’ll even appeal to the next group over from them, moderate Democrats, to get onboard for something.
Here are five things I observed from this last round of negotiations:
- The Freedom Caucus has a literal interpretation of the phrase “repeal and replace”. All the rhetoric about removing Obamacare “branch and root”? Turns out it wasn’t simply rhetoric for them. They believe that Medicaid expansion to childless adults must be removed entirely, because it is enabling able-bodied citizens to get care without working for it. All the headlines about 24 million more uninsured shocked many of us, but for conservatives was actually not a bad thing, and for some a desired outcome, judging from the rhetoric surrounding the debate.
- Loss aversion works. One of the truisms of behavioral economics is that fear of loss is about three times as motivating as desire for gain. This has been shown over and over again by people like Amos Teversky and Danny Kahnemann in psychology experiments. Thus, some people didn’t like the Affordable Care Act until they faced the possibility that they would lose coverage if it was repealed. For the first time in years, public approval of the ACA is greater than disapproval. (By the way, now that the immediate threat of repeal is gone, I predict those numbers will reverse again.) If you want people to value something, don’t try to sell it to them; give it to them and then try to take it away (the Classic Coke strategy).
- Trying to sneak legislation through in the age of Twitter is like trying to sneak to the bathroom in your pajamas through Grand Central Station. Hiding stuff so you don’t get criticized for it doesn’t work. Nor does speeding up timelines for the same purpose. We may have to do this a few more times before people get it, but the old days of passing legislation that hasn’t been dissected under a microscope I think are gone. There are too many smart people out there with time on their hands and a Twitter following to feed. They have an immediate platform to do the Roman thumbs up or down on literally everything in view, and are just waiting for something to tweet about.
- The emerging centrist view is that we need to maintain coverage for everybody who has it now, but get to cost containment to make the system sustainable. In a previous post, I talked about the hard truths that both sides are avoiding by blaming the other guy. But what do we do to control costs? The conservative answer is market forces, and the progressive one is government regulation. Neither one has a great track record when it comes to health care. So what’s an industrial superpower to do? There was funding in the ACA to set up CMMI, and much of their work has been on alternative payment models intended to bend the cost curve over time. But pragmatically the experience has been mixed for medical homes, bundled payment, and population-based payment. Rollout has been slower than many would like, and affect too few providers to declare it a success. I would love to see a real and thoughtful bipartisan discussion on some hybrid possibilities.
- And there is no guarantee the next move is toward bipartisanship. Winston Churchill said, “Americans will always do the right thing—after exhausting all the other possibilities.” If the last twenty years teaches us anything, it’s that governing from the extremes doesn’t work very well. So you’d think that the next move would be to try to govern from the center. But this is one of those Clayton Christiansen moments. Christiansen says that the winners of the last game are unlikely to be the inventors of the new game, since the new game displaces the old one. The existing game goes like this:
- Point out what’s wrong with any plan offered by your opponents, which is much easier to figure out than how to make things work (boring). It also gets a lot more attention on Twitter. And, the bonus is that you get to go home to your district and tell people you stood on principle, and that everyone else has the morals of a used car salesman.
- Foment anger and frustration, and promise that you are the only person capable of breaking through the mess. Do this, while you are all the while perpetuating the mess.
- Repeat, and fund-raise.
Both parties have had the chance to be in the majority and the minority in the last two decades, and both have gotten pretty good at the existing game. It will take a sea change to find the next game that rewards centrist compromise. Here’s hoping we exhaust all the other possibilities sooner rather than later.
CBO score shows 24 million more uninsured by 2026 under AHCA
Photo by Andrew Malone
Getting everyone into the tent proves trickier than anticipated
On the surface, it can be confusing what Republicans are trying to accomplish with their recently introduced American Health Care Act (AHCA). After all, no one consciously drafts a plan to reduce coverage and raise premiums; the ever-rising cost of health care will do that quite well on its own. The CBO score shows higher costs in the near term, but then a 10 percent reduction in projected average premiums vs. the status quo in 2026. CBO also projects that we will have 52 million uninsured in 2026, or an increase of 24 million over today. As discussed in a previous post, for progressives this is ideologically unacceptable since they consider health care to be an absolute right. Others with concerns likely fear the use of the increased number of uninsured as a campaign issue in the next election cycle.
Well, exactly what were the drafters trying to accomplish? As we discussed in a previous post, many of the maneuvers in AHCA are purposed to draw in young, healthy people into the insurance pool, in order to offset the cost of older and sicker people. In the conservative view, it is wrong for government to mandate the purchase of health insurance; instead, the product must be made attractive enough that young invincibles buy it voluntarily. The increase in the allowed rating multiple from 3:1 to 5:1 does this, since having older people pay more means younger people pay less. Another measure is the $100 billion Patient and State Stability Fund, which is money in the bill that is likely to be used by some states to make reinsurance payments to health plans, thereby lowering everybody’s premiums somewhat.
So could that work? It’s possible to make insurance more affordable for the young by taking those steps, in my opinion. The problem is that those actions also have other consequences:
- First, when you shift the cost of insurance away from the young and healthy, you have to put it somewhere, and that appears to be to the old and sick. Premium projections for poor 60 year olds net of subsidies go up by about $10,000 a year. For someone in this working poor group, the premium could be half of their entire salary. As a result, CBO projections suggest that the uninsured rate for those age 50-64 making <$30K/yr. will rise from 12% to an impressive 30% of the population. Again, no plan is able to take the same benefits and make the cost lower for everyone; if somebody pays less, somebody else has to pay more. In essence, some of the people you were trying to subsidize in the first place end up uninsured as a consequence of the effort to make it more affordable for the young invincibles.
- Second, the CBO projections say that by 2020, about 9 million fewer people will be buying coverage in the individual market. By 2026, those losses shrink to 2 million less, but this is largely because the CBO anticipates some employers stopping providing insurance as a benefit altogether, shifting people from employer-sponsored insurance to the individual market. The CBO agrees that more young people will sign up, but that will be more than offset by older people dropping coverage because they simply cannot afford it. The reasons are complicated, but have to do with the CBO’s lack of confidence that the penalties in the AHCA for being uninsured will be as compelling as the individual mandate in the ACA.
The AHCA still has to work its way through more committees before it makes its way to the floor of the House. There may still be amendments and revisions along the way. There is even talk about a “sidecar” bill addressing sale of insurance across state lines and association health plans. But currently, this shift of cost from younger and healthier to older and sicker is a big issue for Democrats and moderate Republicans (not to mention AARP, who have termed the AHCA an “age tax”). That, in addition to the substantial increase in the uninsured rate, makes this bill tough to swallow for a broad swath of Congress and its constituents. Whether it can survive with this shift is something that will be hotly debated in the next couple of weeks before Congress’ Easter recess.
It’s here, it’s here, the House Republican ACA repeal and replace bill!
How it’s evolved since A Better Way
House Republicans released their draft of the ACA repeal and replace bill, the American Health Care Act, they have been working so hard on. To the surprise of many, several parts of the ACA that were in question (esp. the first two) survive in this bill:
- Essential health benefits, including maternity care
- Prohibitions on annual and lifetime limits
- Dependent coverage until age 26
- No raising rates for pre-existing conditions
- Medicaid expansion through 2020
In addition, there were things expected that didn’t materialize (both of which might be inappropriate in a budget reconciliation bill):
- Sale of insurance products across state lines
- Association health plans
In a prior post, I talked about high-risk pools, and how simply segregating people with high cost doesn’t change the overall amount paid for the care, just how the cost for that care is redistributed. What this is looking more and more like, in my opinion, is very similar coverage paid for through alternative mechanisms. Because AHCA repeals all of the ACA’s taxes on the wealthy and industry, this largely results in substantial tax relief for the wealthy, and additional cost for the sick and the poor.
In addition, since AHCA allows the premium multiple for older people to be as much as five times that for the young, older Americans on average are likely to see rising premiums, while younger ones will see reductions in prices. Again to cite the prior post, this and continuous coverage provisions are how Republicans seek to draw young invincibles into the pool, without an individual mandate.
All in all, this bill seems to me to be much closer to what John Boehner said a few weeks ago at HIMSS: “They’re basically going to fix the flaws and put a more conservative box around it.” There are ideologic points made in it. They did get rid of the individual and employer mandates, and replaced it with a 30% premium penalty for going without insurance and then enrolling when you get sick. The jury is out on whether that’s a strong enough incentive to maintain continuous coverage, as the Republicans hope. But if the penalty is only 30% for a year, then a young invincible could go without coverage and make up the penalty by staying healthy for a mere four months. Why would I buy insurance under that scenario, until I absolutely needed it? That then risks setting off a death spiral, where there are not enough healthy people in the pool to offset the cost of the sick.
Various organizations are reporting big increases in premiums are the likely result of the tax credit levels proposed, netted against the subsidies that will be lost on the exchanges, especially for older and sicker adults. Defenders of AHCA seem to imply that these increases will be offset by the appearance of cheaper policies that are the result of lifting many of the essential benefits provisions of the ACA and the formation of high risk pools. But again, recall that high risk pooling doesn’t lower overall cost per se, only who pays and how much. And as we saw at the beginning of this piece, many of the provisions that raised the cost of ACA-compliant policies are still in AHCA.
The early reporting on AHCA is that neither moderate nor conservative Republicans are happy with the bill (Democrats are counted as an automatic no). Almost certainly there will be revisions as the relevant committees get to dissect it and weigh in with changes. But it is likely that movement to the left will strengthen resolve on the right, and vice versa. The window of acceptability to both poles is likely pretty narrow, if indeed it exists at all.
Boehner says you can’t repeal and replace quickly—and he’s tried
Winning was easy. Governing’s harder.—Cabinet battle #1, Hamilton the musical
In one of the more surreal moments lately (and there have been a few), former Speaker of the House John Boehner said at HIMSS 2017 that Republicans would not be able to repeal and replace the Affordable Care Act. Here’s the quote:
The irony of this is that it was probably politically impossible for him to say that while he was Speaker. There is a scene from the Aaron Sorkin drama The West Wing in which a political consultant chides one of the characters for resolving what would have been a juicy campaign issue. “You don’t want the money, you want the issue.” The ACA was too juicy an issue to resolve in the simple manner Speaker Boehner describes, and that many of my Republican friends have been advocating for, for years. Resolving it would have removed a campaign issue that was a slam-dunk-automatic-applause-getter winner for Republicans in this last election cycle. You don’t want to resolve the issue; you want angry voters mobilized against the other guy.
But like the proverbial dog that caught the car it was chasing, it isn’t clear what Republicans can actually do quickly to unravel the complexities of the ACA. I think the ACA probably deserves a fair amount of criticism for its complexity, but then again, the issue of sustainable health coverage in the era of billion dollar medical miracles is, well, pretty complex. You want to make things affordable, but you also want to give people comprehensive coverage so they don’t worry they’ll lose everything they have in a single medical event. If you ask the American public which one they want, they’ll say, “Both, of course!” Me too. But that involves getting healthy people to buy insurance, while guaranteeing everyone can buy it, while subsidizing a fairly large segment of the population that can’t afford to be as sick as they are. Each of these aims works against the other two.
It strikes me that the hard reality of complex subjects in the nanosecond attention span world in which we live is this: it’s a lot easier in fifteen seconds to make something complex sound bad than it is to make it sound good. This is supported by a lot of neuroscience and behavioral science work in the last two decades that show that our first response to anything novel is to evaluate it as a threat, and then only when we’re sure it’s not, can we engage in rational thought. So guess which kind of problem governments typically are asked to solve?
So I don’t blame John Boehner for not saying what he said at HIMSS back when he was Speaker. After all, he didn’t make the rules, he just played the game as well as he could. The bigger question is, how do we reduce the reward for making complexity bad, and increase the reward for thoughtful problem-solving?
Is A Better Way Actually Better?
Is Paul Ryan’s world view a place we want to live? We’re about to find out.
Photo by Tony Alter
In the current debate over the Affordable Care Act’s repeal and replacement, we are watching the collision of two world views. While partisans on both sides are likely to disagree, here’s my mini sketch of each of those views:
Progressives
- Health care is a right. Everyone, regardless of ability to pay, has the right to whatever the rest of us have access to.
- The main cause of the high cost of health care is profiteering by health care companies, whether providers, pharmaceutical manufacturers, or insurance companies. If profit was eliminated and health care made a utility, it would be affordable for the average American.
- The influence of the free market should be minimized in health care, since that’s the source of that unreasonable profit in the first place. Lots of entities have made lots of money trying to avoid getting people necessary care, instead of providing it when it’s needed. That’s just wrong.
- Bigger insurance pools are better, because they are more stable, have economies of scale, and it’s easier to pay for new stuff when you can spread the cost over lots of people. The best insurance pool would be one big national pool with everyone in it. This is called a single payer solution.
- Government systems are less expensive and fairer than private systems, because there isn’t a profit in government enterprises. All that running away from expensive people that private insurances do? Government aren’t allowed to do that.
Conservatives
- Health care is a right, but it comes with responsibility, too. You should get access to care if you participate in the system. It’s your individual responsibility to take care of yourself so that you’re not needlessly draining our shared resources. This includes working to the degree possible so that you’re paying your own way as much as you can.
- The main cause of high cost in health care is overregulation and litigation. If health care weren’t so burdened by trying to prevent things that are almost never happen in the first place, and provide services you didn’t ask for, the cost would be much lower. That overregulation also stifles innovation and competition, which is what makes goods and services in this country affordable for the average person in most other industries.
- The road to restoring affordability is to unleash the power of the free market. First, make people spend more of their own money using Health Savings Accounts. Then they’ll care about the price of medical stuff, which they don’t right now because insurance pays for most of the cost. And people will only shop effectively if they’re spending their own money, not somebody else’s.
- If you truly can’t contribute to your own health care cost, we’ll give you the money to do it through refundable tax credits, and then you can shop for your own care. After all, who can shop for you better than you? Inevitably when government shops for you, they do a bad job and load a bunch of requirements and benefits in there that don’t address your individual circumstance. That’s waste, and it’s expensive.
- Private insurance is the best vehicle to cover everybody where possible. This is because private vendors respond to customer needs much more quickly and nimbly than governments can. Yes, there is profit in health care, and there should be. Why else would anyone redesign a system to make it more efficient, if they didn’t get profit as a reward? Price controls simply create more friction and waste in the market, as people will find a way to get what they want one way or another.
Who is right about this? Which world view is most true to reality? I think there are elements of truth to both points of view. But there are also a few inconvenient truths that neither side wants to acknowledge:
- For progressives, the profit in health care is a problem, but mostly they talk about that profit in drug/device companies and insurers. In fact, most of the profit in health care is in providers. For example, where are we more different from western Europe, the amount of stuff we use, or the prices of that stuff? It turns out that it’s the prices of the stuff that account for most of the cost variance. When you look at the amount of stuff we use like hospital days or doctor visits, we actually look pretty competitive vs. western Europe. This was the source of Uwe Reinhardt’s Health Affairs article in 2003 entitled, “It’s the Prices, Stupid”. Providers in our systems, whether doctors, nurses, or hospital administrators make much more than their counterparts in other countries, and that’s all loaded into the cost of insurance.
- For conservatives, the evidence that markets in health care operate like other goods is quite limited. Some will say: “Look at Lasik! Look at cosmetic surgery! You can’t tell me that medical services are that different.” They’re right, Lasik and cosmetic surgery in particular are a lot like other discretionary goods, say, the eyeglasses and make up they replace. You get to elect to use those goods or not, and you can shop for them by comparing prices for a standard, understandable service or set of services. But much of the rest of medicine isn’t that kind of shoppable service. Rolling into an emergency room, nobody comparison shops and asks to be taken to the next emergency room because of price. Then, after you start treatment, a lot of your purchasing decisions are made by your doctor, using your Mastercard (insurance) liberally. Not the price-regulating market proponents would like to see. Try this sometime: ask your doctor what a particular procedure or drug costs. Mostly you’ll get blank looks, or a reassurance that your insurance will pay for it. But actual prices, not so much.
- For everybody, the rapidly increasing cost of health care has a lot to do with our rapidly increasing ability to actually stave off death and cure stuff with technology in ways that are downright miraculous, in addition to insurance company profit and filling out forms for burdensome regulations. Stuff like being able to cure cancer or hepatitis C, or turn AIDS into a chronic disease. Would we be willing to forego such miracles to lower the cost of health care overall? Well, that depends, for many people, on whether they can see themselves having one of those diseases. If yes, then the billions spent to develop those treatments are well-spent. If you look at where the eye-popping drug costs are these days, they’re associated with just these kinds of miracles. The adult conversation we haven’t gotten to is how much of our GDP we should devote to such miracles that will benefit an unknown few of us who could be any of us, versus broad-based benefit for the many, like improving education.
It should therefore not be surprising that there is a royal disagreement in DC these days about whether/ how to repeal and replace the ACA. The ACA is founded on a progressive worldview, and the replacement will be founded on a conservative one. And conveniently, by arguing about whose view is right, we can pretend we don’t see any of the difficult issues above, and blame continuing price increases on flaws in the other guy’s theory. But if we are to get to coherent public policy, we will have to face those truths and make hard decisions as a society. Anybody on the left or the right who claims otherwise probably doesn’t have an acquaintance with these inconvenient truths.
Undoing American Healthcare
Why assuming we’re rational about health care may be a dangerous assumption
Photo by Torbakhopper
I am reading a wonderful book called The Undoing Project by Michael Lewis, about the development of behavioral economics by two of its pioneers, Daniel Kahneman and Amos Tversky. One point of their work over five decades is that while we think we make decisions rationally and objectively, in actuality our thinking and valuation of things are fluid, and uses different criteria with different weights at different times. For example, if I am weighing where to take a vacation trip, I might choose the beach if I’m particularly tired one day, but the mountains if I’m not. Both choices would be rational ones, but not consistent from moment to moment, and therefore seemingly illogical. Which do you want, the beach or the mountains? Make up your mind!
In health care reform there are many reforms that assume consistent values and rationality: health savings accounts, reference pricing, narrow networks. All these phenomena have in common a belief that if you have people spend their own money, they’ll rationally find the best value and shift their buying choices toward those that serve them best. But what if the perceived value of services shifts depending on my circumstances as a consumer? For example, if I am buying a health insurance policy, and at the time I’m perfectly healthy, what would I choose? Most likely I would be buying strongly based on price at that moment. If I never see the doctor, I’m not actually buying medical services at that time; more likely I’m buying relief from worry that if I get sick I’ll go broke. In that case, I’m buying the cheapest policy available that allows me to sleep at night.
And, in that same case, let’s say I get diagnosed with diabetes while holding that cheapest policy. Suddenly my priorities shift. I now want a policy that gets me all the care I need at the lowest price. I am no longer as interested in cheapness, and more interested in comprehensiveness. Will I be able to go to an endocrinologist, or even an academic diabetes center? How low can I keep my copays and deductibles and still get the best care in my mind? My focus shifts partly from what I’m paying to what I’m getting.
There are instances where market theory seems to work well. The classic is Lasik eye surgery to correct nearsightedness or farsightedness. Market proponents correctly cite the steady drop in the cost of that service. But Lasik surgery has some special circumstances attached to it:
- First, no one dies without Lasik. I could get that procedure because I’m nearsighted, but glasses have worked for me since I was 10, so it’s purely elective for me.
- There are advertisements online all the time, and I can readily get pricing and a sense of how often a given surgeon performs the procedure. (This relates to safety and likelihood I’ll get the result I want.)
- I am spending my own money because the procedure isn’t covered by insurance in most cases, so I have a natural incentive to shop around.
But me rolling into the ED after a car accident? It’s possible that none of the three conditions above apply at that time. And thus the conundrum that our thinking when we purchase insurance policies may be different than when we consume services: which do you want, cheap or comprehensive? Make up your mind!
Pundits debate how much health care is like Lasik, and how much it’s like a car accident. Is it purely elective, or is it a bolt from the blue? Can I shop for it and control costs, or am I at the mercy of the provider in an emergency? The debate rages on, and we are about to see a shift in worldview in the federal government from a belief in health care’s unpredictability to it being elective and shoppable. Which do you think health care is, mostly elective, or mostly unpredictable?
Secretary Price’s ACA Replacement Plan
Is the Price Right?
Photo by Gage Skidmore
On February 10th, Rep. Tom Price was confirmed as Secretary of Health and Human Services on a party line vote, 52-47. As such, it seems prudent to learn a bit about his plans for reshaping American health care. The good news is that there is already a document that gives us a detailed view of what he’d like to see in law: he was lead sponsor of the Empowering Patients First Act, that passed the House in 2015. The bad news is that it’s 242 pages long. So here are some important points about it:
- EPFA has many of the elements Republicans have been clamoring for during the last eight years, including expansion of Health Savings Accounts, selling insurance across state lines, association health plans, and high risk pools.
- To replace the individual mandate, there are continuous coverage provisions. This allows insurance companies to charge a premium for those who have not had recent coverage, as a deterrent to those who would otherwise wait until they’re sick to get insurance.
- To replace the Cadillac tax on especially rich health coverage, there is a limit on deductibility of health insurance for companies. While wonks will argue about the difference between these two arcane provisions, the intent and effect of them are the same. Both are intended to blunt the effect of rich health coverage on increasing utilization. This isn’t popular with some in the Republican party, but it’s in here nonetheless.
- To replace the subsidies in the marketplaces/exchanges, there are refundable and advanceable tax credits. So instead of using federal dollars to make coverage more affordable, Dr. Price uses federal dollars to make coverage more affordable. EPFA is different, however, in that while the ACA subsidies are only available to lower income individuals, everybody gets access to the tax credits regardless of income. So even the wealthy will get some federal dollars to buy health insurance.
- EPFA contemplates the return of annual and lifetime maximums. Effectively this opens the door to “running out of insurance” again, not a comforting thought but something that will make insurance cheaper for everyone else. You get what you pay for.
- Medicaid provisions are a bit vague, but speak about states needing to submit plans to insure 90% of children under government programs or commercial insurance. Notably missing are details of coverage for childless adults, a big portion of the expansion population. This leads many to conclude there might not be coverage for those folks under a Price HHS.
There are other competing Republican plans out there, and it remains to be seen how much the final repeal and replace effort resembles Secretary Price’s plan while a member of the House. But it is noted in the press that his plan is one of the more aggressive in rolling back key provisions of the ACA. Many of these same provisions appear in the draft that just came out of the House, which was drawn on A Better Way, the speaker’s plan. 
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