Sep 20, 2018

The Din of Healthcare

Myths, Marvels, and Meditations
Robert Graboyes Senior Research Fellow

This is the first installment in a five-part series on the fallacies and gaps in America’s healthcare debate. 

Three sets of rhetorical and analytical problems corral our national discussion of healthcare policy into useless cul-de-sacs and skew our policies in unfortunate directions.

  • There are widely held propositions, perceived as truths, which are (or may be) exaggerations, half-truths, non sequiturs, or outright falsehoods. Many are accepted by the political left, right, and center, as well as by political agnostics. They lead policymakers into futile efforts to solve problems that don’t exist and to ignore problems that actually do.
  • Innovators and entrepreneurs are busily and successfully rolling out new and miraculous tools for bringing better care to more people at lower cost. Yet healthcare professionals and public policy-makers are surprisingly unaware of many of these developments. Where they are aware, they often show needless and destructive antipathy out of fear, self-interest, or willingness to impose subjective preferences on others.
  • Perhaps more than in other human activities, the economics and ethics of healthcare are bound together like the twin helices of DNA, adding layers of complication to the challenge of setting healthcare policy. Policies that solve an economic problem may generate multiple ethical conundrums. Attempts to satisfy our ethical inclinations can generate unpleasant or ruinous economic side effects.

This first installment gives an overview of the four later essays. I’ll cover the conflict between perception and reality in the second installment of this series: “Myths and Maybes.” The unawareness of and antipathy toward new technologies and organizational structures in healthcare will be the subject of the third installment: “Marvels and Makers.” The sometimes-maddening tradeoffs between economics and ethics will be the focus of the fourth installment: “Meditations and Medications.” The fifth installment, “Modern, Merciful, and Modest” will summarize ways in which we can lift the conversation above the din, moving our conversation and debate toward more productive ends and public policies.

I’ll use this series to revisit some writings that I’ve done, and some that others have done. The hyperlinks will serve as a literary portal for those who wish to delve deeper.

The Rut We’re In

In Fortress and Frontier in American Healthcare, I argued that the political left and right fight each other viciously over healthcare, but that without realizing it, are philosophically on the same side (for the most part). Since World War II, both have obsessed over “coverage”—how many people have plastic health insurance in their pockets—while downplaying or ignoring the far more important questions about how much care we get from those cards, and of what quality. Debate has largely concerned federal insurance laws and regulations, giving short shrift to non-insurance matters (e.g., Food and Drug Administration and hospital issues), to state laws and regulations, and to private agencies (e.g., medical societies) that possess quasi-governmental authority. Furthermore, that paper argued, "the most important fact about American healthcare policy is that left and right actually share a detrimental worldview—an excessive aversion to risk and a deference to medical insiders—and that this consensus slows the rate of technological progress in healthcare."

If you’re left-of-center, you likely rooted for the Affordable Care Act (ACA, or “Obamacare”). If you’re right-of-center, you almost certainly hated the law. Obamacare became an ideological chasm between left and right, spawning the Tea Party and the Republican takeovers of both houses of Congress and, to some extent, the White House. And yet, the astonishing thing is how little the ACA changed healthcare (and how arbitrarily). Equally surprising is how little mainstream conservative plans to replace the law would likely change things.

The ACA did little to change supplies of healthcare resources in America—the numbers of doctors, nurses, hospital beds, laboratories, drugs, devices, and so forth—or how we use those resources in providing care. The country’s health metrics changed little after implementation. Overall healthcare spending didn’t change much. Obamacare enthusiasts can tickle the data to make the case that the law slightly reduced the level of healthcare spending, while opponents can ply the data to argue that the law pushed spending a bit upward. In truth, whatever the law did to spending, it didn’t do much of it.  

The ACA was largely redistributive. Some people now receive more care then they did before the law. Others now receive less care than before. Some people pay less for coverage and care than before; others pay more. The same would likely be true if Republicans succeeded in replacing the law with something more to their liking.

Just to mention in passing: In 2018, the turbulent discourse has shifted to “Medicare for All” (M4A)—the single-payer plan introduced by Senator Bernie Sanders (I-VT). If enacted, M4A would move virtually all healthcare expenditures onto the federal budget. Some of the topics discussed in this “Din of Healthcare” series will be relevant to the discussion of M4A, but the focus here will not be on that 2018 hot-button topic. To avoid getting bogged down, this link summarizes some of my writings on M4A: “Medicare for All/Single-Payer FAQs.”

Myths and Maybes

The first problem with our national healthcare discussion is the widespread agreement on a number of propositions which are actually myths or maybe-myths: exaggerations, half-truths, non sequiturs, or outright falsehoods.

For example, malpractice litigation and defensive medicine are perceived as enormous cost-drivers in American healthcare. Rep. Tom Price (later Health and Human Services Secretary) suggested in 2016 that one out of every three or four dollars spent on healthcare in America goes to defensive medicine—unnecessary tests and treatments prescribed to stave off litigation. Price put the dollar figures at $600 to $800 billion a year—theoretically avoidable with better tort law.

However, academic studies of medical torts—litigation, malpractice insurance, and defensive medicine—tend to place the total costs much lower. A 2010 Health Affairs study estimated that the medical liability system—insurance premiums, judgments and settlements, and defensive medicine—add roughly 2.4 percent ($55 billion in 2010) to US health expenditures. PricewaterhouseCoopers put the estimate at 10 percent, on the high end for such studies. To put this into perspective, imagine if the true figure were three percent, and tort reform could cut those costs in half. That would reduce healthcare costs by 1.5 percent reduction—equivalent to reducing September 2018 healthcare spending back to, say, June 2018 levels. And no one is nostalgic about June 2018.

For another example: One of the ACA’s prime selling points was the notion that the uninsured foist enormous costs on the rest of us. The Obama Administration and pro-ACA group Families USA referred to this as a “hidden tax.” Generally speaking, the left saw this as reason to pass the ACA. Those on the right often agreed that the proposition was true but argued there were better ways than the ACA to deal with those costs. Pre-ACA (2009), uncompensated care (e.g., hospitals footing the bill for uninsured visitors to emergency rooms) amounted to around $62.1 billion a year.

While that raw number sounds large, it was approximately 2.4 percent of total healthcare spending. Totally eliminating that expenditure would, once again, have meant a one-time drop in overall healthcare spending numbers to levels of two or three months earlier. Plus, some scholars argued that the actual burden of uncompensated care was considerably less. But even more problematic, the dominant argument in 2010 wasn’t that the ACA would make these expenses go away. Rather, they would simply be paid from a different checkbook—financed by the same taxpayers and paying patients. Two other facts are worth remembering. Some of those benefitting from uncompensated care actually had health insurance (or were entitled to Medicaid but simply hadn’t signed up). And many uninsured patients did, in fact, pay for emergency room care, offsetting a considerable portion of uncompensated care costs from the non-payers.

None of this means that malpractice or uncompensated care are unimportant. But it does mean they’re not as important as many imagine. And it does mean we may be pursuing problems with the wrong tools.

Other myths and maybes I’ll deal with in the second article will include international comparisons of healthcare systems, the importance of insurance to health, the significance (or lack thereof) of opinion polls, the compressibility of administrative costs, and the uniqueness of healthcare.

Marvels and Makers

For the past quarter-century, I’ve given countless talks to physicians and other healthcare professionals. For 19 years, I taught the economics of healthcare to mid-career providers at five different universities. The students were among the brightest, most competent people I’ve ever met. Their accomplishments were breathtaking.

But time and time again, I described state-of-the-art developments in healthcare technology and management and received, in return, looks of astonishment. Healthcare professions are far more backward-looking (or at least concerned with today’s status quo) than they ought to be.

A number of stories about new developments and their creators fill my lectures. In “Marvels and Makers,” we’ll address a number of these stories and what they say about the future of healthcare. Here’s an example.

For me, the most inspiring healthcare innovator in the world today is Dr. Devi Shetty, CEO and Founder of Narayana Health—a chain of around 20 surgical hospitals in India (and one in the Caribbean serving Americans and others from the Western Hemisphere). Dr. Shetty was a personal physician to Mother Teresa, and she implored him to develop systems to bring quality healthcare to the poor of India. He took her plea quite seriously.

Today, Narayana has some of the finest facilities on earth. Western doctors who visit Shetty’s hospitals tend to come away dazzled. Their success rates in cardiac surgery are legendary. With a minimum of expensive technology, they have radically reduced the incidence of post-operative infection. A cardiac bypass surgery costing over $100,000 in the US or Western Europe costs under $2,000 at the Narayana hospitals in India. And the difference is not explained by lower salaries in India. Rather, the explanation lies in Narayana’s lean production methods, economies of scale, and constant learning and re-learning at all levels. Shetty’s hospitals operate according to methods similar to those employed at Toyota automobile plants.

Importantly, Narayana is a for-profit venture, with much of the patient base paying for care out-of-pocket rather than through insurance. Thus, Narayana flies in the face of arguments made in America that the path to lower costs lies in taking the profits out of healthcare and covering more costs via insurance.

Other marvels and makers we’ll discuss in the third segment include breakthroughs in home diagnostics, 3D printing, drones, biomanufacturing, artificial intelligence, biohacking, telemedicine, direct primary care, and transparent pricing.

Meditations and Medications

The most daunting aspect of designing healthcare policy may be the entanglement of economics and ethics. A number of examples fall within the realm of adverse selection and moral hazard.

Narayana Health, described above, raises one of these questions. As mentioned, Narayana’s revenue stream relies heavily upon cash-paying patients. There is no government agency, for example, covering these costs. As a result, Narayana has a powerful motive to take steps to lower its costs in order to attract patients—an effort that has proven fabulously successful. The hospitals have to earn sufficient profits to stay in business. Since stable teams are part of their cost-containment model, they have to pay surgeons and other staff well enough to retain them over the long haul. If India were a single-payer country that paid, say, $75,000 for any patient receiving a bypass, then Narayana would have far less motive for cost-cutting (particularly if cost-cutting led to lower reimbursements).

Our humane side tells us, “A patient needing a bypass shouldn’t have to worry about the costs of paying for it.” But the pragmatic side says, “But if they do have to worry, then entrepreneurs like Devi Shetty will have reason to find ways to cut those costs.” The economics and ethics are locked in combat. Over time, the question comes down to: “Which is better? A world in which cardiac bypasses cost $75,000 and are paid for by insurance? Or a world in which bypasses cost $1,000 and are paid for out of pocket by patients?”

There is no easy answer. And insistence by the political left and the political right that easy answers are out there for the plucking may be the greatest obstacle to civil debate and rational policymaking.

Modern, Merciful, and Modest

In the fifth and final installment, we’ll try to blend these three discussions—Myths and Maybes, Marvels and Makers, and Meditations and Medications—into a whole. A way forward for more productive discussions and more satisfying policy-making. An attempt to move toward a more modern system of care, one that builds on our desires for merciful treatment of patients, and yet modest in ambition (by necessity). 

Photo credit: Stephen Morrison / Epa/Shutterstock

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