Archive for category Macro Economics
The above chart is from data just released from the National Resident Matching Program. This is about doctors who completed medical school and now according to their preferences are matched with training programs in various specialties. This is for the first year of residency, but it should be noted physicians may branch out to other specialties later in training. Internal medicine is a good example since those physicians branch out to later be general internists, hospitalists, cardiologists, pulmonologists, gastroenterologists, diabetologists, and nephrologists among others.
The point of this chart is to show how the shortfall in US physicians is being filled by foreign physicians. The foreign physicians are good doctors, in fact, some of the best in the countries they come from.
The obvious question is WHAT IS WRONG WITH THE US PHYSICIAN TRAINING PROGRAM? It obviously is not keeping up with demand. Thousands of US students desperately want to go to medical school, but there is no place for them. Certainly, cost is a definite issue — many who would like to go to medical school just can’t secure the funding or don’t want to go into debt for hundreds of thousands of dollars. So, the inadequacy of US medical training is resolved from afar.
Other countries, like the UK, solve this problem by offering aspiring doctors the funds to go to medical school in exchange for becoming a specified type of doctor and practicing (for a number of years) in a specified location. It seems to work.
Attracting good doctors from other parts of the world sounds attractive but it’s not so nice for those other countries losing the doctors. The US has a significant physician shortage which is getting worse. Since the US does not have a healthcare system it is not possible to respond to the shortage. The free market system fills the lucrative specialties in the nice locations leaving the non-urban communities to go without or hopefully attract a foreign medical doctor. In many rural communities there are no US trained physicians.
US healthcare quality is at the bottom of industrialized countries. Access to healthcare declines in large part due to a shortage of providers. Since there is no organized healthcare system no resolution is in sight. It’s staggering to realize even Cuba has more doctors per capita than the US. The discussion and legislation so hotly debated currently seems oblivious to the shortage of physicians for which insurance is no solution.
Start over. Begin again. Throw out the mess.
Usually, complicated problems are solved incrementally by finding each small problem and fixing each one until the huge problem is resolved. This approach has failed healthcare in the United States. The evidence is overwhelming.
- rising cost
- declining health
- inability to train enough workers
- high infant mortality
- inability to control drug costs
- focus on cost instead of health
- fragmented improvement efforts
THE UNDERLYING PROBLEM IS THE US DOES NOT HAVE A HEALTHCARE SYSTEM: NO SYSTEM TO CORRECT, NO SYSTEM TO MEASURE, NO GOALS TO MEET, NOBODY WHO IS ACCOUNTABLE.
The measure of a healthcare system is an average. It’s not whether one guy is cured from leukemia but whether the average baby survives, the average citizen can get a doctor appointment, can purchase medications, and can have surgery if needed.
Sadly, if you are a legislator every problem looks like a financial problem — you can pay more or pay less. You tried the first option so now you want to try the second option.
Supply and demand economics does work But, it just has to be applied the correct way. If the salary paid to a lawmaker is dependent on improving health in the country then the economic theory would work fine. It does not work fine when complicated treatments are marketed to a population with low health literacy (and that includes the President and Congress past and present).
The reason Medicare-for-all seems so appealing is because it is a system. Perhaps it’s not as good as the systems in other countries, but it’s the system we know. It’s time to stop complaining about cost and complexity. DO SOMETHING and KEEP IT SIMPLE.
What an opportunity! A design for American Health Care that is badly needed, a blank slate, an open door, a blank check. So what blogger could resist the obvious invitation. First is the logo — I hope you like it. No more Medicare, Medicaid, Indian Health Service, Veterans Administration, Blue Cross or United Health.
Who gets AHC? Well, every US citizen.
How much does it cost? The annual out of pocket cost is limited to just $1000.
Is there any paper work? NO. No paperwork, no bills, no EOB, and no insurance claims.
What do you need for healthcare? Just your AHC card.
What is the price list?
- Office visits: $25
- ER visits $50
- Thirty day prescription $10
- Surgery $100
- Hospitalization $200
- Medical equipment $75
- Medical devices $75
- Ambulance $100
What is the national healthcare budget? It’s set by congress. Initially budget neutral at three trillion dollars (or whatever budget neutral at this time).
Where does the money come from? Taxes. Instead of insurance premiums it’s included in your taxes.
Do insurance companies go out of business? No. They process claims from healthcare providers, pharmacies, hospitals etc. The person getting healthcare does not need to be involved with all the paperwork.
What government agency runs the program? Medicare, under the AHC name. Providers bill the claims processor and AHC pays the processor.
Is great American health research affected? No. This is a health care system. Research is not health care and is outside the system.
Can people obtain health services, like for cosmetic surgery? Sure. Any services you want to purchase yourself outside AHC is fine. But, you still pay the same taxes. AHC does not pay for private care.
Are the States excluded? No. The States are responsible for managing AHC in their States. The Federal Government sets the standards for the country. The States make it happen.
Why would national costs be lower? Because America as a country negotiates prices and because cost would be capped by the congressional budget for care. The cost would be the same the first year. Waste is a major problem — with better management of a system waste can be addressed. Since about one half of US healthcare cost is consumed by waste there is lots of room for improvement.
What about poor people? The deductible would be lower than $1000 — but because the deductible is low to begin with not many would need this help.
Now would be a good time for the applause. Your humble blogger thanks you.
The U.S. healthcare system is going to change or at least be updated in the coming years. So, when congress tinkers with the system what might be good changes and what might be bad changes? That is the $3 trillion dollar question! It would be fair to say most people and most congressmen do not understand U.S. healthcare — the prevailing notion is overwhelming complexity and way too much cost. However, this blog is going to make the case the key to understanding and the key to making changes is to keep your eyes on the results.
What results? It’s not complicated, it has to do with measurements. Consumer Reports and J.D.Power know we want to buy value. And, value in this case is the reasonable cost for wellness, longevity and successful treatment of disease. That’s it, three things. Whatever changes or tinkering are contemplated we just need to know those three things will be getting better and simultaneously costing less. Politicians have a really bad habit of saying the changes they propose will do the job. Nobody can predict what will work — there are always unintended consequences — so, any proposal must include a dedication to measuring the outcomes we want — if the change does not work it needs to be discarded as soon as possible. And, discarding what does not work can’t wait for the next election and should not wait until tomorrow. Simply, we want results, and we want the data as proof. On a hopeful note, if something works, keep doing it.
The above diagram describes U.S. healthcare. It is more simple than the systems in other countries. The system is linear — people, illness and unlimited money on the left side pass to the results on the right side. This is a flow diagram of the system. The complexity can be hidden by thinking in terms of the five boxes. Later, some of the complexity will be discussed. First, consider the boxes:
- Money to pay for the system. The money people earn is paid to the health care system. Money is money — it does not matter if the money comes by way of taxes, insurance or cash. Funds that do not come from insurance come from the other sources. This is the cost of U.S. healthcare which is about $3 trillion. Don’t pay the money, you don’t get healthcare.
- The healthcare providers. Traditionally we only think of doctors, hospitals and drugs. We often overlook the other things in the box. Things we don’t like, things healthcare providers would like to see in another box. These other things are hugely expensive and fully under the control of the healthcare providers. Unnecessary treatment is perhaps one of the worst — treatment or tests that are not needed. For example, an EKG done as part of a yearly exam on a healthy person. Profit is in this category. Clearly, no profit, no healthcare system. But, profit beyond what is needed is just waste for the system — it is money that leaves the system and does not come back. Inefficiency comes in many forms. Failing to prevent diseases early, only to spend more money later is supremely inefficient. Corruption is a problem in every human endeavor. Errors turn huge amounts of money into waste. The money spent on medical liability suits is just the tip of the iceberg. Money spent to prevent errors is minuscule compared to the money spent on drug marketing.
- Who gets healthcare? Everybody. The aggregate need for healthcare is fairly stable for the system. But, for an individual the need is hugely variable — an auto accident is not predictable. And, when disease strikes most of us can not afford the cost without insurance. Statistics show 50% of Americans do not have access to $4oo for an emergency. The very people who don’t have emergency funds are the very people who do not want to purchase health insurance. Sadly, those people end up in bankruptcy while the system grudgingly provides the care. Now that more people have insurance those without may find less compassion from the providers. Many feel there are freeloaders in the system — people who do not contribute. Does a birth defect, mental illness or low IQ make people freeloaders — that’s an ethical question which is beyond the scope of this discussion.
- Waste. In monetary terms this about $1.5 trillion dollars per year with a huge death toll in the US. A hospital acquired infection is very expensive and kills many of those affected. The high profile infections from spinal injections are just the tip of the iceberg, again. Re-hospitalization for an unresolved health problem is another example. Paying $800 for a $10 epinephrine injector is another example.
- The results. We want those good results. Not just for cancer patients, not just for heart attack victims, not just for you, but for me too. We don’t want promises, we want results. In this age of smart phones and millions of apps there is no excuse for failing to have the data to prove the system is working in our hands every day. We want the results today, not after several years of scrubbing the data in some moldy university. We all must keep our eyes on the results and hold our elected officials accountable.
Complexity. Medicine is a science and by its nature is very complex. Open heart surgery is a good example — there are few people who understand the issues involved. But, the system, from the patient’s view does not need to be complex. In one country the cost of hospitalization is $400/day — the people there know exactly how much the illness will cost. In another country, the prices of office visits are posted in the waiting room — it does not matter what insurance company you might have. In another country all the providers use the same medical record system — not a big deal to move or see a consultant. We seem to tolerate the complexity of our system and think it should be as difficult to understand as heart surgery.
The US pays about twice what other countries do for similar or better care. There is enough money in our system now. Our problem seems to be in the area of wasted money and effort. It seems unlikely that just reducing payments to providers will reduce errors and wasted money — this supply-side economics does not get to the real problem. More than likely, lower payment to providers will only result in lower income for them and perhaps more errors and unnecessary services. But, if it works, do it.
Back to the initial warning. Keep you eyes on the results of the system and the cost. Whether any economic hypothesis proves correct is irrelevant. What matters is the system must move in the right direction, always.
There is a lot to recommend the quality improvement method called “Plan – Do – Study -Act” or PDSA. The idea is to plan a change to a system of care, do the plan, make measurements to study the results then act to change the system to get better results. This is an ongoing process. Congress seems to be mired in a system of management which is one hundred years out of date — if anything, that’s what needs to change first.
Insurance companies now have found a way to deny insurance because of pre-existing conditions, as a group. This is nearly insane. Any first year lawyer would realize the following:
- It is not legal to kill a person so it is not legal to kill a group of people.
- It is not legal to run a red light so it is not legal to run a group of red lights
- It is not legal to deny insurance because of pre-existing conditions so it is not legal to deny insurance to a group with pre-existing conditions.
It took a few years since the ACA was enacted for insurance companies to realize the subsidized insurance exchanges have poor people, disabled people, and people who can’t work because of illness — they have, surprise, surprise, PRE-EXISTING CONDITIONS.
Now, after years of huge windfall profits, several large insurance companies have decided not to sell insurance to the group of people who purchase on the insurance exchanges. Why do we need a Supreme Court decision when any cop knows it’s a crime. Where do large companies like health insurance companies and Volkswagen get the idea they are entitled to do business as they please?
The insurance companies who have decided not to participate in the health insurance exchanges are listed below with the financials as reported on Yahoo. They are not hurting, revenue last quarter is better than the same quarter last year.
|2015 Revenue (Billions)||$176.10||$61.65||$54.53|
|52 wk price change||$14.38||-$3.14||-$5.33|
|Quarterly revenue (yoy)||28.2%||5.4%||2.0%|
A surprising twist to this story was reported by David Belk: big insurance companies avoid risk by having the companies they serve “self-insure”. Meaning, the companies (like a cable company or a hospital or an RV company) take the risk, put up the money, and let the “insurance company” just do the paperwork. For the eight largest health insurance companies only about 30% of their business actually has financial risk — the rest is “self-insured”, otherwise called Administrative Service Contracts (ASC).
So now the picture is clear — insurance companies avoid risk. They want someone else to take the risk and they are very skilled at shifting the risk to others. The question is whether the U.S. really needs these paper shufflers skimming profits?
The simple answer is no. Congress needs to level the playing field for insurance companies — if they sell insurance they must sell insurance on the exchanges. Unless insurance companies can take the risk of health insurance exchanges they need to be replaced with a single payer system. Colorado will decide this question on a ballot in 2016 — they have the right question, hopefully the people will choose the single payer system.
Profits for insurance companies and drug companies are skyrocketing. Data from CMS (2013 and 2014) are tabulated below. The big finding is the cost of healthcare is going up much faster than inflation. And, the lack of regulation is allowing insurance companies and drug companies to gouge consumers in the US.
Between 2013 and 2014 prescription drugs increased by 9.8% and net insurance cost (i.e. profit) increased by 12.1%. If life expectancy was going up at the same rate it would be a good deal — but, that’s not happening.
Despite the complexity there are rather simple solutions.
- Limit insurance company profits (these are not healthcare providers — these are paper shufflers!).
- Inform prescribers which drugs are cost effective. That means expanding FDA oversight or starting a new agency less influenced by industry lobbying.
- Limit drug company profits to 7% like most other developed countries.
The table below lists the expenditures for various categories of health care. The figures are in millions of dollars. The total expenditures for US healthcare in 2014 were over 3 trillion dollars.
Spreadsheet: US Healthcare Costs 2014
The two most important questions cancer patients have when thinking about cancer drugs are 1) how much life do I gain? (survival) and 2) will I feel OK while I survive? (quality of life). The problem for drug makers is it is expensive and time consuming to answer those questions (to use endpoints of survival and quality of life).
Drug surrogates are measurements that show some effect of a cancer drug but are not absolutely related to those 2 primary questions. An example of a surrogate endpoint is “event-free survival”. This is a measure of time, like the time from when chemotherapy is given before something bad happens. Clearly important, but not the same as survival or quality of life.
The Federal Drug Administration (FDA) has a list of surrogate endpoints it will accept in order to approve cancer drugs. Drug companies have progressively moved research to those surrogate endpoints. The graph below is based on the data of Martel.
Many times this shortcut is helpful for patients but it is always helpful for drug makers. It has decreased the costs associated with marketing a drug. But, the cost of drugs has gone up at a faster rate than the prolongation of life the drugs impart. And, that survival may not be a benefit in quality of life. Now, virtually all new anticancer drugs exceed the $50,000 per quality life year many social researchers say is the amount our economy can afford. It means insurance can’t include those drugs otherwise premiums would be so high the average citizen could not afford the insurance. Here is a very disturbing graph from an article by Howard.
The vertical axis is that cost being paid for one year of life provided by a cancer drug. The horizontal axis is the year in which that drug was approved. Meaning it’s not a very good deal — the cost of one year of life gained by chemotherapy is rising and you likely can’t afford such drugs. The economics are really depressing and the situation is absolutely not sustainable. Rather than hoping a treatment will be invented we will be hoping the cost of that treatment is within reach.
There are signs the cancer drugs are overpriced, inflated by speculation and simple price gouging. To the extent such unethical practices exist they need to be rooted out and stopped. Given the past history of big pharma there is likely a lot that needs to be fixed.
Big Pharma blows the lid off the price for “specialty drugs”. Those drugs now cost more than an average American’s income. By 2020 the average specialty drug will cost $80,000 per year, just pray you don’t need two of them!
The data plotted above come from AARP. The raw data is concerning and three questions beg to be answered: WHY is this happening, IS THIS A PROBLEM and if it is a problem WHAT IS THE SOLUTION.
WHY? — because big pharma wants to make a lot of money. Somewhere, long ago and far away, some researcher wanted to help people with difficult medical problems. But, that altruistic thought was crushed as the drug was marketed.
PROBLEM? — absolutely, the US healthcare system can not afford the drugs and neither can average individuals. If a drug costs a trillion dollars it’s not a drug, it’s a joke. So where is big pharma going wrong? Here are some possible choices:
- Too much is spent on research
- Too much is spent on advertising
- Too much profit is paid to shareholders
Where is US healthcare going wrong?
- Too little regulation exists to require cost effectiveness research before marketing drugs
- Too little drug price control is being exerted by the government.
- Too little mirroring of price controls in other countries that shift profit taking to the US.
SOLUTIONS? — if the trend is allowed to continue “Bronze” health insurance will not cover specialty drugs but “Platinum” insurance will. Sadly, only the top 1% will be able to afford the “Platinum” plan. The US will have more of a two tier healthcare system with a huge gap between the 99% and the 1%.
- Impose cost controls on drugs — extremely high priced drugs should trigger rules to lower profits so such drugs will either cost less or not be produced.
- Demand cost benefit analysis on all drugs before marketing — if the benefit is not worth the cost then don’t add them to the formulary for Medicare or Medicaid.
- Wrap drug costs inside health plans. That way other factors get consideration, like preventive care, hip surgery, simple childhood vaccinations, and pregnancy. The big pharma bill should not be coming “off-the-top”.
The International Classification of Diseases version 10 is called ICD-10. Here is an example: S06.5X9A You can look this up on the CMS web site (ICD-10 Lookup) to find “Traumatic subdural hemorrhage with loss of consciousness of unspecified duration, initial encounter (that’s bleeding around the brain due to a blow to the head which the provider evaluated for the first time).
So, why is this important to you as a health care consumer? Because the bills sent to insurance companies use these codes — if the code is wrong then insurance will reject the claim. By looking up the code you will actually know the technical diagnosis made by your provider — something to add to your DIY medical record especially if it is a critical diagnosis in your situation.
The diagnosis codes are intended to force providers to be very specific about the conditions they treat. The people who connect diagnosis to outcome find the codes very valuable — which in turn helps consumers know how providers perform.
The codes are not always seen by the consumer — they are transmitted on insurance claim forms. In fact, insurance companies will refuse to tell you what diagnosis was used to bill services. But, the codes often find their way into the medical record — as they should.
The ICD-10 code tells the diagnosis. A companion code called Current Procedural Terminology (CPT code) tells what service was provided (like an office visit, or perhaps a brain surgery). ICD codes are in the public domain but the CPT codes are produced by the American Medical Association and are copyrighted.
From a purely economic standpoint the CPT codes serve primarily to fractionate the health care market to maximize profit for providers. It is helpful to know what service is provided but the CPT codes are blighted by meaningless detail. And, they are hard for the consumer to decode because of the proprietary nature of the codes. Many feel the CPT codes are part of the cause of high health care cost in the US. They should be scrapped and replaced with some international standard.
Piecework maximizes human productivity. Make more things, get more money. Garment workers and physicians both have been paid under this system — it’s great if the payment per piece is high but miserable if the price is low. Because piecework itself is no guarantee of quality inspectors were invented to reject low quality products. Thus, the little piece of paper in your new shirt pocket “Inspector 23”.
What if you went to a doctor’s office and had to be inspected before the doctor was paid? You had to have that little piece of paper “Inspector 23” to submit an insurance claim. That’s never going to happen but you get the idea. The doctor is paid by the number of services but the service should meet a quality standard.
This example is just the tip of the iceberg. Medicine is discovering process control without much input from the well established engineering field of process control. It’s sad, and perhaps a little arrogant on the part of medical administrators and law makers, to ignore the extensive work on process control. People do not like to be considered as little boxes in a system diagram — understandable — but a failure to think in this way is wasting trillions of dollars. The time for change has arrived.
The black box of medical care is what happens with the doctor-patient interaction. 1) A patient enters the office, operating room or x-ray office then health care happens then 2) the patient leaves. As it stands now the physician is paid by the number of services performed so the possible process control at points 1 and 2 are wide open. Nothing is measured, nothing is controlled, and quality is not guaranteed.
Now, consider modern process control with 5 control points, a measurement point and feedback to control the input to the black box of health care. What is in the black box? Perhaps just one health care provider. Or perhaps many health care providers. Instead of a black box it might be a grey box with lots of individual elements.
At the highest level of abstraction the feedback loop is intended to minimize cost but at the lowest level the feedback loop is intended to maximize quality. To make sure throughput is maintained the providers need to be paid by the number of services performed but the flow of patients is choked off if quality is not adequate.
This is rocket science. But, as Einstein says, a system “should only be as complex as needed”. Health care is very complicated and at the present the garment industry is not the model the world should be using. Simplistic ideas of supply and demand are not adequate to make a rocket fly nor to control cost in a health care system.