The 2020 Healthcare Debate

There is going to be a lot of debate over the next 2 years about healthcare and moving to a single-payer system.  Democrats are talking about “Socialized Medicine”… Republicans are talking about “Free Market Healthcare”–as an example, here is a good article that articulates a good one-sided argument without many deep recommendations.  …But what are the facts?

I’m building the following notes to start capturing data to help me formulate my opinion on the subject. I’ll use a “5 Whys” strategy to think through the issues.

5 Whys is an iterative interrogative technique used to explore the cause-and-effect relationships underlying a particular problem. The primary goal of the technique is to determine the root cause of a problem by repeating the question “Why?”. Each answer forms the basis of the next question. The “5” in the name derives from an anecdotal observation on the number of iterations needed to resolve the problem.

Let’s review the facts:

• The United States has the poorest population health outcomes. For example, we had the lowest life expectancy (78.8 years compared with a mean of 81.7 years).
• If you compare the U.S. to the top 11 other countries in the world we are out of balance:

You can validate these figures here:

• How do healthcare prices and use in the U.S. compare to other countries? –  Health System Tracker
• Health Care Spending in the United States and Other High-Income Countries – JAMA The Journal of the American Medical Association  

We know a “free market” healthcare system won’t work for a simple economic reason: Healthcare demand will always outstrip supply and this imbalance will always create a wide (and ever-widening) economic gulf.   However, we don’t have a “free market” system today—we have a mix… We have a Medicare, Medicaid, VA, Fed / DoD, and Indian Health Services System… we have the so-called “free market” system primarily sponsored by employers and then we have the 10s of millions of un (or under) insured citizens…

So, what are our goals:

• Provide great healthcare
• Cover everyone
• Deal with preexisting conditions

Wait! What about being the leading innovator in healthcare? What about driving more of the conversation away from “sick care” and really toward “health care” – that’s going to require entrepreneurism and a free market to innovate and capitalism to support… The reality is that this isn’t an easy fix… it’s quite complicated and anyone involved in the argument needs to know the details.

So what are the “5 Whys” of the healthcare debate?

The first two “Whys” are easy…

• We know that the United States spend 17.8% of GDP ($9,403 per person) on healthcare when Canada, Germany, Australia, the U.K, Japan, Sweden, France, the Netherlands, Switzerland, and Denmark spend 11.5% and all have better overall outcomes (i.e. life expectancy as an example). Why?
• We know from the JAMA study mentioned above the high U.S. spend is because Physicians earn more in the U.S., Administrative costs are higher in the U.S., and general prices for pharmaceuticals, procedures, and tests (example: MRI) are higher in the U.S..  Why?

Here is where it gets complicated… We need to dig into each of these:

Physicians in the United States earn twice as much per person for health care as other wealthy countries. Why?

• The supply of doctors is tightly controlled in the United States.  Why?
  • The number of medical school slots and medical residencies (a program required by U.S. law but not by other countries) is set and limited by the Accreditation Council for Graduate Medical Education.  Why?
    • The number of slots supported by Medicare (who pays for most residency slots) has been frozen for two decades after Congress lowered it in 1997 at the request of the American Medical Association and other doctors’ organizations.

What could policymakers do?

• Fund more residency slots.
• Allow Medicare to limit the slots for certain areas of specialization to control supply and demand.
• End the requirement mandating that foreign doctors complete a U.S. residency program and allow them to complete an equivalent residency program in another country or allow foreign-trained doctors to practice under the supervision of a U.S.-trained doctor.
• Allow nurse practitioners to perform more procedures that they are qualified to complete.

Administrative costs are higher in the United States (we spend more on our health system’s administrative costs than anyone else in the world). Why?

• The reliance on multiple payers (Medicare, Medicaid, and many private insurers, all who each have their own set of procedures and forms for billing and collecting payment) drives up the costs. The American health system offers a lot of choice among health plans. This all causes physicians to spend on average 3 hours per week addressing billing-related matters, medical support workers spent an additional 19 hours per week on billing-related matters, and administrators spent a total of 36 hours per week on billing and collection matters. Why?
  • We are only at the beginning of creating interoperability and data standards for healthcare.  There is a great deal that has been done and a lot on the table.  It’s a very complicated issue but well understood.  More here, here, here, here and here.

What could policymakers do?

• Legislate strict electronic data standards (provider example) for interoperability and transparency.
• Legislate standard electronic billing and collection policies.

General prices for pharmaceuticals, procedures & tests (example: MRI) are higher in the United States? Why?

• Other countries negotiate with the providers and set rates that are much lower. In Canada and Britain, prices are set by the government and in Germany and Japan providers and insurers come to an agreement or the government steps in.  However, in the United States health-care providers have considerable power to set prices, and so they set them high. Why?
  • In the U.S., health care delivery and payment are fragmented, with numerous, separate negotiations between drug manufacturers and payers and complex arrangements for various federal and state health programs (more). And, in general, the U.S. allows wider latitude for monopoly pricing of brand-name drugs than other countries are willing to accept. Why?
    • Two of the most profitable (and powerful) industries in the United States are the pharmaceuticals and medical device industries.  (It is, however, true that Medicare and Medicaid negotiate prices on behalf of their members and purchase care at a substantial markdown from the commercial average prices.).  These powerful industries have pushed back on government policymakers why try to legislate setting overall spending levels for payments to providers & drug makers because it would impair their revenue and profit growth.
• Other countries may also have policies that result in new drugs and medical technologies being adopted more gradually. (more)
• Other countries have more friendly legal environments to challenge the validity of patents. Why is the US different?
  • This article shows how numerous patent filings (“patent thickets”) are used to drive up the costs of Humira by AbbVie Inc. in the US as an example.

What could policymakers do?

• Begin to reverse the deregulation of the 1980s and 90’s when the governments freed hospitals and other health care providers from regulations on prices and restrictions on mergers, advertising, and other practices.  The deregulation fix (more) has led to more administration because we have kept intact the system of private health insurance – and for-profit medicine – that is likely the root of the dual problem of rising health care costs and growing complexity.
• Create legislation to counteract patent thicket practices (note: Sen. Susan Collins of Maine has called for ways to counter such practices but there has been no policy put forward).

“How many businesses do you know that want to cut their revenue in half? That’s why the healthcare system won’t change the healthcare system.” Rick Scott – Senator from Florida

• Let the federal government negotiate lower drug prices for Medicare beneficiaries. This would shift the U.S. policy toward a more centralized pricing system like that used in other high-income countries. Currently, the Veterans Health Administration and the Department of Defense are the only federal entities allowed to effectively negotiate directly with drug manufacturers; they pay prices that are roughly half of those paid at retail pharmacies. (more, more)  RISK: Too much legislation may make our pharmaceutical sector less attractive to investments resulting in less innovative and effective drugs in the future.

This is a work in progress so I will add more as I research and learn.