No, that’s not my entry for understatement of the decade. It is a follow up to my post last week about the impossibility of comprehensive health care reform given today’s rather difficult environment.
Yet a recent editorial in the New England Journal of Medicine says Congress and the President-elect can deliver on reform, if they move quickly, act forcefully, and ignore costs. The piece is an excellent analysis of how Medicare came to be, paying particular attention to political maneuvering and manipulation.
As good as it is, I have a major bone to pick – the authors’ rather cavalier approach to the cost issue.
Here’s how they put it:
“The expansion of health care to large populations is expensive, and presidents may need to quiet their inner economists.[emphasis added] [then-President Lyndon] Johnson decided, in effect, to expand coverage now and worry about how to afford it later. Accurate cost estimates might very well have sunk Medicare. In fact, this generalization holds across every administration from Harry Truman to George W. Bush. Major expansions of health care coverage rarely fit the budget and generally drew cautions (and often alarms) from the economic team. Of course, under current federal budgetary circumstances, managing the economics of health care reform may be more difficult than ever before.”
Well, it’s safe to say we know a heckuva lot more about costs, drivers thereof, and implications of governmental programs than they did forty-five years ago. As an example, I give you Medicare Part D. After Part D, the largest expansion of government-assisted health care since 1964, went into effect drug manufacturers raised prices by an average of 7.4%. Why? Because they knew there was a large new customer base, eager to get drugs, that was not very concerned about cost.
The passage of Part D was a boon for big pharma, as the industry enjoyed a substantial increase in profits and revenues attributable to Part D. Part D did not benefit the managed care firms; many have not profited from their offering, and more than a few (see Humana) got hammered. For 2009, the big Part D carriers are raising premiums significantly; Humana by 51% and United Healthcare by 18%, with copays also on the rise.
On a national scale, the program is a disaster. The ultimate liability for Part D is $8 trillion, a liability that is unfunded. This is what we can expect if Congress passes and President Obama signs into law national health reform that does not aggressively, and forcefully, address cost – a deficit explosion that will make the cost of the current bailouts look like lunch money.
Simply put, you just can’t ignore cost. Even if the Democrats tried to push thru universal coverage without strong cost controls (which they won’t) the Republicans would crucify them (which they should).
But, with one exception, the current bills before Congress and ideas floating in Washington don’t address cost. There’s talk about fraud and abuse, electronic medical records, prevention and wellness – all the usual sound bites. What there is not is any meaningful discussion of cost control.
(The Wyden-Bennett Healthy Americans Act was carefully analyzed by the Lewin Group before it was released (the analysis indicates it will actually reduce costs). Sen Wyden (D OR) is astute enough to understand that any reform bill that does not explicitly address costs is a waste of time, dead before it even hits the floor.)
So what do we do? We obviously can’t rely on private insurers, as they have demonstrated absolutely zero ability to manage costs. I’ll take that up tomorrow.
Dec
3
“We obviously can’t rely on private insurers, as they have demonstrated absolutely zero ability to manage costs.”
Joe – I think private insurers are perfectly capable of managing costs in theory. The problem is that they lack the perceived moral authority to do so. For example, suppose one or more private insurers decided to follow the UK’s NICE guidelines in deciding whether or not to pay for ultra expensive cancer treatments that only extended life by a few weeks or months, but Medicare continued to pay for everything that won FDA approval. There would be a firestorm and a backlash and it wouldn’t be tolerated. However, if CMS made the same decision and private insurers followed their lead, it would be OK because CMS has the perceived moral authority, mainly because profit is not part of its calculus, though budget constraints are or at least should be.
Despite all the talk about 30% or more of medical care being wasteful or unnecessary, it is easier said than done to identify such care in advance at the individual patient level. The most effective way to start to bend the cost curve, in my opinion, is to identify treatments that are deemed not cost-effective using QALY metrics or some similar approach and refuse to pay for them. Patients that want them can spend their own money. Tort reform that would make it virtually impossible to successfully sue for a failure to diagnose if national evidence based standards were followed would also be helpful as would more widespread use of living wills and advance directives to preclude unwanted aggressive interventions at the end of life.
At the end of the day, we have to ask the question: How much is a life worth? In a real world of finite resources, the answer is something well below infinity. While we might opt for a QALY threshold well above what the UK uses, I think their approach is the direction we need to move toward.
Two points. One, I agree wholeheartedly that Wyden’s plan is still the best. The only problem with it I can see is that there’s too much upheaval for our status-quo heavy country. but from a pure policy perspective, I love it and wish we had it today.
Two, I really think Barry is right. Managed Care is very good at limiting costs from a conceptual perspective, but whenever they try to do it in practice, they get killed by the 6 o’clock news.
They’ve always been terrible at managing customer expectations and burying limitations in the fine print only to carry them out when it looks like it’s to maximize profit. I think managed care would need to get better at it, too. The standards board can’t do it all for them.
I agree with your comments about cost with a minor difference thus my question. As the number of uninsured decrease will this not drive overall costs down? Hospitals only collect 20 – 30 percent of actual charges.