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Sen Coburn: End Abuse Before Tackling the Rest

September 15th, 2009 by Adam Axvig

coburn2 In a editorial placed in today’s edition of Real Clear Politics, Oklahoma’s Junior Senator, Sen. Tom Coburn, called on the federal government to address the rampant fraud in Medicare and Medicaid before seeking to reform the entire health system. A licensed medical doctor for over 20 years, Senator Coburn knows the ins and outs of the health care industry well. This, his latest salvo against health care reform, drives right into the center of debate. If the government cannot prevent rampant waste within Medicare and Medicaid, how can Americans trust that a complete federal takeover of health care will not end up with similar results?

In his argument, Coburn sites a report by the Governmental Accountability Office claiming that a full 10 percent of Medicaid payments made in 2007 were improper. Medicare fraud estimates range as high as $80 billion, according Kim Brandt, one of Medicare’s anti-fraud specialists.

Coburn also serves on the Senate’s Permanent Subcommittee on Investigations, the same whistleblower committee that found individuals fraudulently using the ID numbers of dead doctors to file false claims, bilking taxpayers of over $90 million. Audits by the committee also found that in four of the nation’s largest states, California, Texas, New York, and Illinois, as much as 40% of home health care expenditures went toward fraudulent claims.

The editorial’s co-author, Harvard’s Dr. Malcolm Sparrow, author of “License to Steal” believes fraud could account for up to 35% of Medicare and Medicaid’s total claims, amounting to hundreds of billions of dollars.

According to the editorial, Medicaid internal inspectors agree that waste fraud and abuse run amok in the system. This sentiment is echoed by Medicare anti-fraud specialist, Kim Brandt saying, “The truth is, no one is sure. All they know is that the more they look the more they find.”

Back in May, Sen. Coburn introduced bi-partisan legislation that seeks to use privare sector entities to identify and prosecute fraudulent claims. Coburn says, “Members of Congress should look to the credit card industry as a model of fraud containment. It processes over $2 trillion in payments every year from 700 million credit cards being used at millions of vendors to buy countless products. Fraud in that industry is one-tenth of one percent while fraud in Medicare and Medicaid as at least 100 times higher.”

Posted in Health Care | No Comments »

Health care: Life and death and substance

August 28th, 2009 by Craig Westover

rumaisa_rahman_wideweb__430x286

It’s unfortunate that some opponents of federal government-directed health care jumped on the ‘Death Panel’ metaphor instead of the substance of the proposed legislation. Whether the federal legislation intends it or not, a government-directed plan necessarily requires bureaucrats to make life and death decisions that are more far-reaching and more complex than the hyperbolic ‘pulling the plug on grandma.’

No matter how wealthy we are as a nation, the government will never be able to provide health care for all AND provide all of the health care everyone would want. Trade-offs are inevitable; if universal access is a given, then the amount and quality of delivered medical treatment must necessarily be negotiable.

To understand the complexity and God-like power the feds are proposing to invest in some poor civil servants, let’s allow grandma to peacefully nap and consider the other end of the life spectrum, infant mortality. Imagine yourself charged with managing the cost of care for newborn infants under the government program. Here’s the situation you would face.

The U.S. has an infant mortality rate of approximately 7 deaths per 1,000 live births, compared with 5 deaths in other developed countries; in Norway, infant mortality is a mere 4.1. Race, geography, income and education all factor into those numbers, but irrespective of its genesis, low birth weight is a primary factor in infant mortality.

Low birth weight occurs in about 7 percent to 8 percent of all live births, but 40 percent to 70 percent of all infant deaths can be attributed to low birth weight (depending on how one defines “low”). When compared to normal weight infants (more than 5.5 lbs), infants with “moderate” (less than 5.5 lbs), “very low” (less than 3.3 lbs) and “extremely low” (less than 2.2 lbs) birth weights have 40, 200 and 600 times greater risk than normal weight infants, respectively.

According to the journal “Pediatrics,” 8 percent of 4.6 million infant hospital stays (2001 data) included a preterm/low-birth-weight diagnosis, accounting for 47 percent of the costs for all hospitalizations ($5.8 billion) and 27 percent of all pediatric stays. The average cost of the hospital stay (12.9 days) was $15,100 compared with $600 (1.9 days) for uncomplicated births. For infants less than 2.2 lbs, the average cost of hospitalization was $65,600.

Advances in medical technology have significantly improved the survival chances of infants with extremely low birth weights (without complications), but at a high cost. Complications, however, are common in infants with low birth weights, often requiring intensive, expensive care; still, the mortality rates remain relatively high.

What do you do? Here’s more data.

A study by the Rand Corporation found that 69 percent of infants who die during their initial hospital stay did so within one day of birth. Those infants were the least expensive to treat, an average of $6,310. For infants who died during the remainder of their initial hospitalization, average treatment was $58,800. Infants at “extremely low” birth weights, in aggregate, create the most costs; technology keeps them alive past the first day, but despite the extra effort and added cost, infants born weighing less than 2.2 lbs have the lowest initial hospitalization survival rate.

More data to consider: The aggregate annual incremental costs among low-birth-weight children ages birth to 15 have been estimated at $5.4 billion per year, not including long-term care, special services and special education often correlated with low-birth-weight children. All that said, remember, those are aggregate statistics; many low-birth-weight children grow into healthy, happy adults with no unusual health problems – you just don’t know who they will be.

So, were you tasked with managing the public newborn-care option, what would you do? Should the public health plan allow spending billions of tax dollars on technology and treatment attempting to save low-birth-weight infants when that practice has a high probability of complications yielding a relatively low survival rate with a high probability of ongoing medical and other expenses associated with survival?

Access, quality and cost — you cannot reduce costs if your promise is equal effort for every low-birth-weight child using whatever technology and treatment is available. In Switzerland, a country often cited for a lower infant mortality rate than the United States, infants weighing less than 2.2 lbs. at birth who die are designated stillborn, whether measures are taken to help them survive or not. Problem solved?

Infant mortality highlights the underlying question of the health care reform debate: How can individuals deal with unpredictable, unaffordable expenses? Neither the regulated, privately managed care approach we have today nor the government-run managed care proposals being debated in Congress provide an acceptable answer. A free market system where patients control the money, health care providers set prices for services, and private insurers are free to develop policies that convert unpredictable and unaffordable events into affordable and predictable premiums, could well be the best way to optimize (not perfect) health care resources.

Unfortunately, in the progressive rush to birth a government-run solution, the free-market solution is designated “stillborn.”

This commentary originally appeared in the St. Paul Pioneer Press, Friday August 28.

Photo Caption: Neonatalogist Jonathan Muraskas places his hand next to Rumaisa Rahman, known to be the smallest baby in the world to survive birth (8.6 ounces). Rumaisa was born at Loyola University Medical Centre in Chicago. Photo: Reuters

Posted in Blog Posts, Commentaries, Craig Westover, Health Care, Limited Government | No Comments »

Health Care Critics: An “Angry Mob” or “Expressing Their Concerns”?

August 4th, 2009 by Margaret Martin

The health care debate is generating some press as members of congress hit their home towns with Town Halls. As some of the discussions have become heated, commentators are complaining that critics are promoting irrational fears and not engaging in serious debate.

Hyperbole aside, there are serious issues being raised by many ordinary citizens about the wide scope and massive changes that Congress and the President are considering making to how Americans receive their health care and how it is paid for.
Here are some stories to consider:

A blogger with chronic pain considers how her choices for treatment will be curtailed

From last year, a woman whose Doctor recommended chemotherapy to treat her cancer, gets a letter from the State of Oregon saying it won’t pay for it, that she should consider assisted suicide instead.

Posted in Blog Posts, Health Care | No Comments »

Single-Payer Model Actually Inhibits Improved Health Care

June 25th, 2009 by Craig Westover

There is one point about a single-payer health-care system on which Dr. Oliver Fein and I agree — there’s not enough of a definition for the public to make an assessment about what a single-payer health-care system really is. In a recent MinnPost piece ["Medicare 2.0: Doctors group urges health care for all," by Casey Selix], Fein, president of Physicians for a National Health Care Program, provides a set of six principles that “really define what single-payer is.” Indeed they do. But when one examines logically the six principles Fein lays out, one realizes that as well-intentioned as is his desire for universal health care, the single-payer model can’t get us there, it actually inhibits improved health care — and, ironically, to establish a manufactured “right” to health care a single-payer system destroys the unalienable right of individuals to make their own health-care decisions.

Let’s look at Fein’s principles in detail, contrasting them with a free-market health-care system, keeping in mind that the health care system we have today is NOT a free-market system but a heavily regulated managed-care system — single-payer-lite.

Fein’s principles Nos. 1, 2 and 3 define the classic trade-off among access, quality, cost. His first principle of a single-payer system is “automatic enrollment, which would lead to universal coverage.” His second principle is that “benefits ought to be really comprehensive … going from prevention, doctor, hospital, pharmaceuticals, to dental, metal health — all medically necessary services.” Principle three is that “these things should be publically financed.”

Every system — whether a manufacturing system, a sales system, the education system or the health care system — has the same three (and only three) outputs and addresses the same three questions: “How many of what kind at what cost? In health care, those three questions are expressed, “What quality of care (kind) can we provide at what cost to how many people?” Trade-offs are necessary to achieve the optimum (not perfect) system.

In a free-market health-care system, the optimum solution is determined by the pricing mechanism and individual choice. Each of the three variables is truly variable — that is given a market where physicians determine service and price and the individual is responsible for his care costs, a person might choose to have his annual check-up done by a local clinic rather than the Mayo Clinic. Given his family history, his doctor might decide he needs a specific procedure at a different interval than “the average patient.” It is these kinds of individual decisions made by millions of individuals that create an optimum health care system.

‘Variables’ aren’t variable
In Fein’s single-payer model, the “variables” are not variable at all. One of the three variables is fixed (universal coverage); consequently, the other two must be consciously managed from outside the system. Everyone cannot receive comprehensive health care (however “comprehensive” is defined) except at very high cost (or with very high taxes). If costs are fixed (as they must be at some level) then all that remains to be managed is the definition of “comprehensive.” That is why the Obama health plan calls for creation of a third-party board to determine the cost-effectiveness of specific medical treatment for specific classes of people and decide if the treatment will be covered. “Comprehensive” medical care means “quality” medical care is what government says it is, not necessarily what the patient wants.

Whereas in a free-market system millions of medical decisions are made with immediate cost and quality information available to doctors and patients, in a single-payer system, health-care decisions are governed by a relative few individuals necessarily making aggregate assumptions about individual patient situations because they cannot possibly have instant access to data required to make a decision about any individual patient.

That would be “you.”

Trade-offs among access, quality and cost in a health-care system are inevitable even if Fein does not acknowledge them. In a single-payer system with universal coverage, at some point, someone other than you and your doctor will be making decisions that materially dictate and limit treatment options available to you and your family.

Fein’s principle No. 4 is that single-payer eliminates “administrative waste” that results from having multiple payers. His principle No. 5 is that single-payer maximizes choice compared to “our present private insurance system.” Before we can discuss those two principles it is necessary to debunk the misconception Fein implies — that our “present private insurance system” is equivalent to “free-market health care” and that the present managed-care system is the same as a “private health insurance system.”

In free market, patients control the money
In a free-market health-care system, patients control the money that is spent on their health care. That money might be theirs, it might come from an insurance settlement, it might be a health-care voucher by a government program, but in each case, the patient decides how his money will be spent. In turn, in a free-market system, doctors determine what services they will provide and at what price. Doctors compete for individual patients on price and quality of care. Finally, in a free-market health-care system, insurance companies offer policies that meet the differing resources and tolerance for risk of individual consumers. They also have control of products and price. Insurance companies compete for customers based on price and comprehensiveness of coverage.

True health insurance (as opposed to prepaid medical care) has little to do with access to actual medical treatment. Health insurance, like any other insurance product, is concerned with asset protection. The purpose of health insurance is turning unpredictable and unaffordable expense into predictable, affordable expense. Insurance companies offer a variety of policies at different premium levels and deductibles that consumers will buy depending on their needs, resources and tolerance for risk.

In today’s prepaid managed-care system, insurance companies control (via government regulation) which services will be covered and how much physicians will be paid for those services. Even Fein acknowledges that in today’s regulated environment consumer choices are limited. Because a single entity controls both demand and supply of health care, there is no competitive pricing mechanism and consequently no accurate regulator on prices. Cost can’t be controlled if there is no mechanism for determining price and demand at a price.

Three outputs, three questions
Recall that any system has the same three outputs and addresses the same three questions — “How many of what kind at what cost? In a private health-insurance system, those three questions are expressed as “How many policies can be written, covering which situations at what cost?” In the current system, by law, “covering what situation” is mandated. Minnesota has more than 60 insurance mandates requiring specific coverage, for example. When one variable is fixed, the other two must be consciously managed from outside the system. Hence, on top of necessary administrative costs, we get unnecessary administrative costs imposed by regulation.

Because a third party, government, has fixed the extent of coverage, private companies are limited as to the policies they can provide and the price at which they can provide them. To keep costs down, they must either limit service provided or reduce payments to service providers. That does not change with the advent of a single-payer system. A single-payer system is not essentially different from the managed-care system we have today. The only difference is eliminating the regulated private health-care insurers and replacing them with a regimented bureaucracy.

That brings us back to Fein’s single-payer health care principles Nos. 4 and 5: eliminating administrative waste and maximizing choice.

I’ll forgo arguing with Fein’s statistics on administration costs other than to say determining administrative cost depends a lot on what is included as “administration” and what isn’t, and Fein’s numbers are based on some fairly biased assumptions — as would be my assumptions to the contrary. However, the fundamental irony, as the Cato Institute’s Michael Tanner points out, is that folks like Fein praise one of the greatest failings of socialized medicine, lack of administration, as if it were a virtue.

Administration is key
Economist Tyler Cowen notes administrative costs like monitoring, marketing and overhead costs of private insurance companies are what enable those companies to offer coverage for expensive medical treatments. Competing insurance companies spend money evaluating claims and setting pricing structures so that there is an accurate measure of what coverage actually costs relative to need. Without that review mechanism, it is impossible to limit health-care costs without reducing service. Without the consulting function of insurance agents, individuals will either buy more coverage than they need and pay more for it than they should, or find themselves underinsured and taking on more financial risk than warranted.

Tanner adds, “If European health-care systems appear to have lower administrative costs, it is because, rather than scrutinizing claims, they limit the overall amount they will spend on medical services. Of course, that just means they shift costs to patients who either must pay for medical services themselves, or deal with the costs of waiting.” Going back to the access, quality, cost triumvirate, if claims are not reviewed then cost must be shifted or care limited, or “administrative saving” or the consequences of lax oversight must be passed to taxpayers.

In his principle No. 5, as he did with the definition of “comprehensive,” Fein obscures the concept of “choice” in health care. “The program in the country with the most choice is Medicare,” he writes. “You have the choice of physician, a choice of hospital; so, again, single payer would lead to increased choice.”

Indeed, as Fein envisions single-payer, it would lead to increased choice compared to today’s system. But remember, the system we have today is not a free market system, which by definition requires that patients control their health care dollars and choose their own physicians and by extension hospitals and other treatment facilities. The system we have today, thanks to government regulation, is a managed care system where different costs for “in-network” and “out-of-network” care are unavoidable because doctors are competing for pools of patients provided by health plans based on how little reimbursement they will take; doctors are not competing for patients based on value to the patient.

However, what Fein calls “choice” turns out to be anything but, as his principle No. 6 illustrates.

In his sixth principle, Fein again tries to reassure with the idea that a single-payer system really delivers health care through a “nonprofit, privately controlled system.” Doctors, he says, “would not be employed by the government; hospitals would not be owned by the government. What you would have is public financing and collection of money by the single payer, but the private delivery system would continue.”

Sort of like General Motors, I guess.

Choice, but not much of a choice
What Fein doesn’t make clear is that while patients in a single-payer system might choose from among private doctors and private hospitals, there will be little difference among doctors and hospitals in the procedures and treatments they are allowed to perform. There is a big difference between choosing among McDonald’s, Burger King and Subway (a free market) and “choosing” any (but only) McDonald’s. Again, in a single-payer system at some level, medical choices for the individual must be made by a third party based on aggregate rather than individual considerations — you just can’t get “a flame-broil Whopper Jr. for a buck” at Subway.

A second point Fein ignores in his choice argument is that with a single-payer system there is little to no motivation to innovate. Using Fein’s Medicare analogy, the single-payer determines both service descriptions and reimbursement rates. Innovations, by the definition of “innovation,” are not in the system. Medical innovations by their nature are, in initial stages, very expensive, and until perfected, produce unpredictable results. Where is the motivation to innovate if a) one must buck the system at one’s own expense to put the procedure on the service schedule, and b) one will be able to price the innovation to compensate for developing it.

Removing the profit motive stifles innovation; that reduces choice, it does not increase it.

Concluding, Fein provides us with the single-payer analogy of Medicare for all. “So what we talk about is Medicare 2.0,” he writes, “an expanded program of Medicare for all and an improved program that deals with many of these other programs. That would be the way a single-payer program would operate in the United States.”

OK, let’s assume Medicare provides “comprehensive” medical care at affordable cost (a debatable point). Why is that so? It is because the private health-care market picks up the tab for subsidized, below-market Medicare patient care; non-Medicare patients pay much more for the same services. When you extend Medicare to everyone, who is left to pick up the slack?

The dirty little secret today is that increasing numbers of physicians are simply not taking new Medicare patients. They continue to provide care as their patients age into Medicare, but the reimbursement rates for Medicare are so low that private physicians simply cannot afford to take on new Medicare patients. We’re not talking the ever-available criticism of “greed.” We are talking government reimbursements that are so low that they do not cover the cost of treatment and overhead, let alone any expectation of profit.

This situation points out another consequence of a single-payer system that Fein ignores: A Medicare-for-all scenario necessarily requires a nonvoluntary requirement on physicians to provide care irrespective of their own interests. The individual sovereignty of health-care providers, an unalienable right, must be sacrificed for the manufactured “right to health care.” As must the patient’s unalienable right to make his own health-care decisions.

Trade-offs would be imposed from on high
In his MinnPost interview, Fein has given us a clear picture of a single-payer system. What he has not offered is the trade-offs such a system must necessarily impose from on high by boards and bureaucrats, unlike in a free-market health care system where trade-offs are determined by individuals and their doctors. A single-payer system is a classic example of the dichotomy between freedom and perfection: A free society can never be perfect; a perfect society can never be free. The ultimate trade-off offered by a single-payment health care system is between the unfulfillable promise of perfection and the frustration of imperfection engendered by individual freedom.

In a true free-market system, not the heavily regulated managed-care health-care system we have today, individuals and their doctors decide how trade-offs will be made based on their individual situations. In a single-payer system, third-party government boards must necessarily make cost-based decisions about individual medical care based only on aggregate data. A free-market health-care system encourages innovation because innovators reap the rewards of their effort; a single-payer system discourages innovation because the system doesn’t know how to value innovation. A free-market health-care system establishes an optimum (not perfect) relationship among access, quality and cost; a single-payer system providing universal coverage distorts market signals by the necessity to system control costs, and consequently misallocates costs and redefines “quality.”

Ultimately the question that the public must answer vis-à-vis single payer health care is “Who do you want making decisions about health care for you and your family — you and your doctor, or somebody else?

Craig Westover, a senior policy fellow with the Minnesota Free Market Institute, is a contributing columnist to the Pioneer Press Opinion Page and a contributor to MinnPost.

This piece originally appeared at MinnPost.Com — COMMUNITY VOICES | THU, JUN 25 2009 7:00 AM

Posted in Blog Posts, Commentaries, Craig Westover, Health Care | 4 Comments »

And you thought the spending in the stimulus package was bad….

February 12th, 2009 by Pat Anderson

There is so much in the Stimulus Package that we are only now learning about and likely to learn about after it passes. And don’t feel that you are the only one uninformed. According to a recent Rasmussen poll, 58% of the American people believe that most members of congress don’t know what’s in it either.

And there’s more than just 800 billion dollars of spending to grow government. There is a wealth of new programs, expanding government and eroding our freedoms in this new piece of legislation. It creates new avenues of dependency and strips away our rights to privacy by growing the welfare state and bringing us socialized medicine through the back door. To read more about how the Stimulus bill reverses the 1996 welfare reform read “Stimulus Bill Abolishes Welfare Reform and Adds New Welfare Spending” by Robert E. Rector and Katherine Bradley at the Heritage Foundation. The healthcare portion of the bill alone should be a shocker for conservatives of all stripes and it’s worth taking a serious look at.

A new partial subsidy for COBRA coverage is part of the bill. (COBRA is the federal law under which unemployed workers are allowed to buy into their previous employer’s health plan.) Since they are paying both their own and what the employer’s contribution was formerly, many workers do not opt for COBRA due to the expense. If COBRA were a worker’s only option for insurance this might make some kind of sense but it isn’t. Most workers can qualify for other plans that better suit their needs and have costs that are aligned to their expenses. By subsidizing what may be an unemployed person’s LEAST COST EFFECTIVE health insurance choice, the federal government is now underwriting group health insurance plans, with varying levels of coverage and cost at the expense of taxpaying employers and workers. This further burdens them and increases the likelihood of more layoffs and more employers going out of business. Yes, it’s entirely possible that you could have your employer benefits cut or lose them entirely so that somebody else can “afford” their Cadillac healthcare plan.

The House bill expands Medicare to the unemployed. Medicare has been expanded many times in recent years and together with the expansion of S-CHIP, which was originally intended to cover children in poverty, we are fast coming to the point where everyone qualifies for federally funded healthcare under one mandate or another. Once enough people fall under these mandates we will see employers finding ways to jettison health insurance coverage. If the Feds will pay for it, why should they?

And let’s not forget that what the government spends money on, it controls. Both versions of the stimulus bill have measures that establish programs to fund “comparative effectiveness research”. There is even a “Federal Coordinating Council for Comparative Effectiveness Research” whose purpose is to mandate what treatment will or won’t be given. The House Committee Report states “those [items] that are found to be less effective and in some cases, more expensive, will no longer be prescribed.” A clearer statement that the Federal government will be deciding what treatment you will receive could not have been made. Good luck to you if what works for most people doesn’t work for you.

It shouldn’t surprise anyone that the new administration thinks that it knows what’s best for us in healthcare. President Obama’s appointee for Health and Human Services Secretary (before he was bounced for non-payment of his own personal income taxes) former Senator Tom Daschle wrote a book published last year entitled “Critical: What We Can Do About the Health-Care Crisis.” In it, Daschle unleashes such gems as doctors need to “learn to operate less like solo practitioners.” He wants us to forgo expensive treatments and not to expect medical progress to continue to advance because it’s driving up costs. Forget about quality of life enhancing treatments if you are a senior citizen. Daschle thinks that you should learn to embrace old age like the Europeans do. In the United Kingdom, a government board approves or rejects treatments using a formula which includes the age of the patient. Treatments for younger patients are approved more often than treatments for diseases that primarily affect the elderly. That’s pretty much the same thing as saying “suck it up seniors, you’re on your way out anyway!” What’s cost effective for you and what’s cost effective for the government could wind up two very different things and with the government controlling the entire system, you’d be out of luck.

The Health Information technology portions of the bills are also chilling for anyone who cares about their privacy and the right to control who has access to their health data. In order to conduct research on what treatments are effective, widespread use of patient information will be necessary. And no longer would you simply be an anonymous data-point. The government will track you, your treatment and your doctor in order to mandate the compliance that will be required with treatment standards. Currently, for hospitals to use your private information, you must give your consent, but what if the Federal government mandates your consent to use your personal information in order for you to be treated?

Once the Federal government controls the entire healthcare system, from payment to treatment, we’ll have no choice.

Posted in Health Care, Pat Anderson | No Comments »

Top Ten Myths about Government Provided Healthcare

January 5th, 2009 by John La Plante

Federal, state and local governments already spend roughly half of all health care dollars in this country, and they have a large say over how the other half is spent. As a result of the last election, it’s likely that government will have an even more significant influence—if not control—over how all health care dollars are spent.

So what can we expect? Nothing good, as far as I can see.

Sally Pipes has seen some of the future in her native Canada (she’s a naturalized U.S. citizen now) and she talks about Canada, and more, in her recent book “The Top Ten Myths of American Health Care.”

Pipes, president of the San Francisco-based Pacific Research Institute, was a member of GOP California Gov. Arnold Schwarzenegger’s transition team, and she advised Rudy Giulianai’s presidential campaign on health care policies. She has served as president of the Canadian Association for Business Economics, and her commentaries have appeared in New York Times, Washington Post, USA Today and other leading newspapers.

At 150 pages before notes, Pipes’ book is short; it’s also written in an easy-to-read style. These are what she calls the Top 10 myths about government-provided health care.

1. Government health care is more efficient than the private sector.

2. We’re spending too much on health care.

3. Forty-Six million Americans can’t get health care.

4. High drug prices drive up health care costs.

5. Importing drugs would reduce health care costs.

6. Universal coverage can be achieved by forcing everyone to buy insurance.

7. Government prevention programs reduce health care costs.

8. We need more government to insure poor Americans.

9. Health information technology is a silver bullet for reducing costs.

10. Government-run health care systems in other countries are better and cheaper than America’s.

Let’s start with efficiency. Does government spend less on health care, since it doesn’t have to run a profit? Pipes notes, that according to the Medicare Trustees Report, administrative costs for Medicare are 1.5 percent of expenditures, versus 25 percent for some private insurance plans.

Does that make “Medicare for all” a good idea?

No, according to Pipes. First of all, other estimates question the validity or applicability of those estimates. The Council for Affordable Health Insurance, an Alexandria, Va.-based trade group, pegs Medicare’s administrative expenses at 5.2 percent and those of the private sector at 8.9 percent. And if the self-interested nature of that group bothers you, consider PricewaterhouseCooppers, which pegs private-sector expenses at 6 percent. Further, some economists would factor in economic losses stemming from money being diverted from the private sector to government coffers.

There are other costs to government programs that a simple look at their budgets dollars won’t reveal. Medicare and Medicaid are notorious for their low reimbursement rates, meaning that Medicare and especially Medicaid patients can find it difficult to find doctors who will take new patients. Another hidden cost, by some estimates, is that people with insurance pay another 10 percent just to help make up the difference for lowball rates from government programs.

There is still yet another hidden cost to government health programs, and that’s the enormous sum of unfunded liabilities (projected expenses less project revenue) hanging over Medicare and Medicaid. You’ve heard that Social Security has problems? Those problems are nothing compared with those related to Medicare. As a result, the Medicare payroll tax may have to reach 6.4 percent, a dramatic climb from its current rate of less than 2 percent. The effects will reverberate throughout the economy.

So whether government health care is measured by current dollars, future payments or delayed care, it is much more expensive than advertised.

With that myth discussed, Pipes spends the rest of the book addressing specific proposals for government action. Such actions would allegedly reduce costs, introduce efficiencies and give everyone insurance—except, according to Pipes, they wouldn’t. What they would do instead is have unintended consequences, she argues, including making us more sick and costing more (in dollars and much more) than we could ever know.

Take the myth that we’re spending “too much” on health care. Too much? Says who? We all have one life, and if we are spending more on health care than we used to, that’s because we can.

Trying to save money on drugs by squeezing drug companies or denying patients certain expensive drugs can incur greater expenses later on through causing fewer new drugs to be discovered or requiring patients instead to seek surgery.

Health technology, meanwhile, is worthwhile, but it should develop organically, not be imposed from a central location, Pipes says. Top-down approaches will likely lead to costly errors.

Preventive health programs may be the fad of the day. They are, however, a good example of how something that is individually rational may not be socially rational—and why focusing on the short term can produce inaccurate conclusions.

If we all stop smoking, start exercising, and lose weight—all things that government offices and some private companies are now prodding us to do—we will enjoy a greater quality of life. But we certainly won’t save money on health care, contrary to the premise of these “good for you” programs.

Why? People will live longer. That’s in itself a good thing. But people living longer also means they’ll rack up more medical expenses. And since the public purse covers most medical expenses for everyone older than 65, increasing longevity increases the risk exposure of Medicare.

Pipes says that “true reform of the health care system requires less government interference—not more.” Her closing recommendations propose to make more use of retail competition (retail health clinics, cross-state sales of insurance) as well as some standbys such as tort reform.

Whether anyone in Washington, or St. Paul will listen, is another story.
(A different version of this appeared in the November 28 edition of the Saint Paul Legal Ledger)

Posted in Health Care, John La Plante | No Comments »

Rhode Island May Show Us the Way on Medicaid Reform

December 11th, 2008 by John La Plante

Some of the biggest ideas for improving Medicaid may be coming from the smallest state. Rhode Island has had a proposal sitting before the federal Department of Health and Human Services for a while now, and word is that an agreement may be coming soon .

Gov. Don Carcieri wants the state to have free reign over Medicaid, but since it is partly funded by money from HHS, he needs a federal blessing. His idea is to experiment with ways to improve care and get the budget under control. In exchange, the state would agree to freeze its take from the federal treasury for several years.

It sounds like a fair trade, though it could make more sense if instead of a freeze, the feds simply agree to give the state increases based on some formula such as the average per-person amount for states with a similar demographic profile.

While the governor’s willingness to freeze the federal match makes the idea more attractive to the feds, it scares a lot of people in the Ocean State. Oh, and did I mention that the governor is a Republican who faces an overwhelmingly Democratic legislature? It’s quite easy to see how this idea, which could do a lot of good for the state (if it works out) and the nation (as a laboratory) could get scuttled before it even gets started.

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Put Down that Otoscope!

December 11th, 2008 by John La Plante

Psst! You wanna buy an otoscope?

What’s that? It’s a glorified flashlight, used to tell whether a young child (or anyone else) has ear infection. You can buy for $25 or over $100, depending on who is selling.

Rod Moser, a physicians assistant who blogs for the site WebMD, recalls the time he gave a public talk, saying that parents of small children should own such a device.

For his trouble, a local physician reprimanded him, saying that “was ILLEGAL for parents to possess an otoscope .”

Illegal? Not quite. But the attitude of the physician says something about the attitudes that prevail too often in health care today: It’s all up to the experts. Patients should be passive. Bureucrats and panels appointed by politicians should make the hard decisions–and above all, regulate, regulate, regulate.

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If Families USA Issues Yet Another Call for Governmentized Medicine, is it Still News?

December 11th, 2008 by John La Plante

Do newspapers pay attention to studies released by think tanks and advocacy groups? Certainly, at least if the message is one of panic, gloom and doom–which in today’s environment, leads to calls for government action.

Families USA has a new report on childhood insurance coverage, and newspapers are eating it up. Start with Iowa , with 5% of children supposedly without insurance. (Five percent? Five percent? That’s negligible, along the lines of a margin of error.)

The situation is more dramatic in Arkansas, which weighs in at over 9%, though this can be expected in a state that is in the top 5 in terms of poverty and 48 in terms of household income. Then again, I thought government programs were supposed to eliminate poverty and people going without insurance.

New Jersey, meanwhile, seems intent on making sure that more children don’t have insurance. The state that, thanks to guaranteed issue, community rating and other measures, is already among the most expensive insurance markets in the nation, is set to add another mandatory benefit (hearing aids) to policies sold there.

So in these three articles–and throw in some stories about cuts in state budgets, such as in Tennessee –and you have a vicious cycle.

1. A group plays up a need and calls for government subsidies.

2. Lawmakers increase the price of private-sector alternatives.

3. Public programs expand in good times.

4. The inevitable downtimes prompt employers to drop coverage and focus political minds on budget cuts.

5. Both events are touted as signs that really, what we need is a more dependable system of government control.

6. In turn these events lead to more laws and programs that undermine private alternatives.

7. Since the private sector in health care is further weakened, you’ll see more calls for public action. Repeat step 1.

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Wading Into a Health Care Swamp

September 15th, 2008 by David Strom

^{This article was originally published on Townhall.com. Comments welcome there.}

It’s as predictable as the sun setting in the West: it’s an election year and reforming how we deliver health care is on the political agenda.

Advocates on the left are pushing an agenda of “universal health care,” by which they mean taking steps toward socialized medicine.

Advocates on the right are unfortunately divided. Principled conservative intellectuals promote free markets and disdain government intervention in the marketplace, yet when it comes to health care there are few politicians who are willing to advocate reducing the massive government role that exists today. McCain’s plan outlines some important reforms, but would not likely reduce the amount of health care spending controlled by government.

Government essentially controls health care for older Americans and is making significant headway into controlling children’s health care through S-CHIP. Finally government subsidizes employer-provided health care—keeping control out of the hands of individuals. Overall, government directly or indirectly controls about 50% (some estimates reach as high as 70%+ including subsidies) of health care spending. Consumers directly control relatively little of the total health care expenditures.

It is the structure of that government role and the subsidies of employer health insurance that has helped drive up costs to unsustainable levels—about 17% of our economy is spent on health care, or about twice as much as other industrialized countries. What we are doing today doesn’t work, and conservatives should be very afraid of new attempts to socialize medicine.

What we are seeing today is a slow-motion government takeover of health care, and it’s not pretty. Our current health care “system” works well for pretty much nobody. Costs are spiraling out of control—because of a system dominated by third-party payers–and Americans are getting more scared every day that a health crisis could bankrupt them.

Wading into this policy swamp is the Mayo Clinic with a proposal that has something for everybody to hate. Mayo is proposing a system that relies primarily on private funding and individual ownership of health insurance, but also one that blends a top-down structure that is intended to create the right incentives within the system.

Their proposal is pure Mayo Clinic. For anyone familiar with Mayo and how it has become one of the premier medical institutions in the world their proposal has a familiar theme: it’s the system, stupid.

Mayo’s strategy for excellence has never been to simply recruit the best or to be the most cutting-edge, but to build an integrated system that taken as a whole will consistently provide the best outcomes for patients. Mayo believes that the principles behind its own success are transferrable to the health care system as a whole.

It’s that philosophy that animates Mayo’s health care policy proposal. It begins with the recognition that America has no health care system, but rather an unworkable collage of government, semi-private, private, and individual providers and payers that don’t even talk to each other well today. Mayo’s plan is to impose some order over the chaos. And in the process try to hold down costs and improve quality.

It proposes, in other words, to make the health care system as a whole work a lot more like the Mayo Clinic does. Integrated care will become the norm, not the exception.

A few big questions arise immediately: 1) is creating a health care “system” desirable? After all, we don’t have a food delivery “system,” or housing delivery “system,” so why a health care delivery “system?” 2) Wouldn’t such a system undermine the freedom of individuals and providers compared to what exists today? And 3) if it does make sense to follow Mayo’s path, how can we get from here to there?

Mayo makes a pretty good start at answering the third question—they got a wide range of stakeholders on board in designing the system, including labor groups, businesses, patient advocates, and providers. Answering the first and second questions is a lot more difficult, especially if you are an ardent advocate of the free market as I am.

From the perspective of the free market, the best solution to reforming our health care system is a scaling back of the third-party payment system which drives up costs and reduces individual control. Unfortunately, our politicians seem unwilling or unable to push for this reform on a grand scale.

Mayo’s solution takes a small step in that direction by pushing for a system where individuals own their health insurance even when it is subsidized by the government or employer, because health care plans would be portable. Consumers would be much more active in making their health care choices.

But can any system work on the grand scale encompassing the entire country? Can the all-important relationship between patient and doctor be preserved and improved under any kind of national plan, even private-sector driven?

Top-down planning rarely works well, as is even proven within the private sector, and it’s hard to see how this plan avoids the inevitable pitfalls.

The one thing we can be sure of is that with the political heft that Mayo Clinic wields, its proposal is sure to get a hearing in Washington no matter who wins the next election.

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