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How much waste is inherent in American health care business as usual?

Oct 26, 2017 | Blog | 0 comments

This is a thoughtful opinion piece from the conservative angle and deserves review by all Americans interested in working toward a better, simpler, and cheaper health care system. My comments are in parentheses throughout the article.

Employer-sponsored health plans are government entitlements; doctors are part of the problem.

National Review Editor’s note: Pascal-Emmanuel Gobry, a conservative writer and fellow at the Ethics and Public Policy Center, is writing a series of columns on uncomfortable truths about health care in America. Some will make conservatives more uncomfortable, others will make progressives more uncomfortable, but most should make everyone uncomfortable.

Gather ’round, children, if you want to hear a scary story. Last time around, I pointed out that while everyone “knows” that there is a lot of waste in American health-care spending, we engage in widespread self-deception about the true magnitude of the problem. That half, approximately, of all U.S. health spending is wasted, is simultaneously scientifically uncontroversial, ignored by health-policy experts, and totally absent from public debate. But that’s not the worst part. In fact, it could be good news in a way: The magnitude of the problem suggests that there’s a lot of room for improvement; more important, if we can only educate more people about the fact, then positive change might be on the horizon. Fat chance. (The amount of waste in American healthcare is scary, though I don’t think Mr. Gobry’s assertion that half of US healthcare spending is waste is scientifically uncontroversial. I would place the figure more at one-third of the approximately $3 trillion per year is wasted. Waste comes in two forms-quality waste and inefficient financing. About $700 billion per year is lost due to poor quality care in the US-meaning clinically inappropriate care, patient injury, and not consistently providing care up to known clinical standards. Another $400 billion per year is lost due to the for-profit, private health insurance business model with its inherent ridiculously high overhead. The magnitude of the waste problem does suggest that we have room for improvement. We can do better as a nation. Every other first world nation does do better with health system management. Mr. Gobry’s also correct that getting rid of waste is a difficult political task. In fact the political heavy lifting is the real problem.)

Because it’s not just that we waste so much money, it’s that the most wasteful spending is also the most popular. Some of this is already broadly understood, at least among those with an interest in health-care policy. America’s two major health-care entitlements are gobbling up ever-bigger amounts of cash for less and less value. The two major health-care entitlements I am referring to, of course, are Medicare and employer-sponsored health insurance, which is subsidized by the biggest loophole in the tax code. You thought I was going to say Medicaid? True, Medicaid is terrible, but for different reasons. Yes, the latter is very much an entitlement. Some conservatives resist that sort of language in the interest of a philosophical defense of private-property rights, the idea being that to call a tax break government spending presupposes that our money belongs to the government. I applaud and share the philosophical attachment to private-property rights, but we shouldn’t let it obscure the fact that macro-economically, tax expenditures have many of the same effects as government spending, since they represent spending directed by the government rather than private individuals. (Medicare, Medicaid, and the tax credit for employer sponsored health benefits are roughly equal in terms of actual dollars given by government to the beneficiaries. Of these three, the employer health benefit tax credit is oldest and the most politically entrenched. Mr. Gobry is correct in stating that this tax credit is essentially government spending and should be considered as such in any health policy discussion. This means that any discussion of the so-called free market in health care is bogus. No such free market ever existed. We have a health care system built on taxpayer money, plain and simple.)

While Medicare’s dysfunction is mostly only on the radar for right-leaning health-policy wonks, there is broad unanimity that the tax break for employer-sponsored health insurance, passed during World War II to get around wage controls and having since ballooned into a monster, is one of our major sources of waste. It is a huge giveaway to insurers and virtually ensures that third-party payments — the “original sin” of the American health-care system, that which prevents consumer dynamics from operating — remain the center of the system. It is also the most popular part of the American health-care system. There’s a reason why Barack Obama, no dummy, made a refrain of “if you like your plan, you can keep your plan.” And there’s a reason why breaking that promise made Obamacare so unpopular, and there’s a reason why the GOP suddenly became the party of keeping your plan — that is, the party of entitlements. One of the few good parts of Obamacare was the so-called “Cadillac Tax,” an attempt, albeit a ham-fisted one, to get this monster a little bit under control by taxing the most expensive plans. It’s also no coincidence that it’s the part whose implementation keeps getting delayed and the part that Republicans are united in wanting to repeal. This, at least, is fairly well understood among health-policy experts, even as the political impossibility of doing something about it looms so large. (Yes, the employer tax credit for health benefits had its origin at WW II. And yes, it is a huge giveaway to highly profitable health insurance companies. This is corporate welfare at its worst, something neither major political party in the US has ever really attacked because elected politicians know that the medical industrial complex is their principle source of political donations. So I agree with Gobry’s analysis about Obamacare, the Cadillac tax, and the difficulty of doing the right thing in health care politics. However, Mr. Gobry makes the principle error of American health care policy when he asserts that the employer tax credit is the “original sin” of the American healthcare system because it prevents consumer dynamics from operating. Let us be clear: there is no way that consumer dynamics will ever ‘operate’ in the healthcare system. Patients are not the buyers that can ‘beware’. They are not shoppers. The vast majority of ‘purchasing’ or ‘buying’ or ‘spending’ in the healthcare system occurs when patients are unable to even begin to make ‘consumer’ choices. Providers of healthcare are not (or should not be) self-interested sellers, trying to maximize their profit at the expense of the buyer. We expect our doctors and nurses to put the patient’s needs ahead of their personal interests. That is the foundation of medical ethics. And, unlike the dynamics of a free market where transactions only have impact on the buyer and seller, each healthcare transaction has implications for all other members of society. It matters to all of us whether each TB patient is properly identified and treated. It matters to all of us whether each trauma patient is properly found and brought into care in a systematic way, because the best trauma care is regionally cooperative, the best trauma doctors and nurses see the most cases and remain ready for the moment when each of us might need the care. Unlike market dynamics, demand for medical goods and services is not inversely related to their price. When people need an appendectomy, their demand for the surgery is unaffected by price. When they do not need an appendectomy, they won’t ‘buy’ one even if it is offered at no charge. Taxation has always been the best way to finance healthcare precisely because it is not a consumer good that market forces efficiently deliver. The pretense of market forces in health care is the original sin of American health policy.)

But wait, there’s more! There’s something that’s just as bad, if not worse, and even more popular — and that isn’t even on most health-policy experts’ radar: doctors. Doctors are the biggest villains in American health care. They are also, of course, its most popular actors. As with public-school teachers, we should be able to recognize that a profession as a whole can be pathological even as many individual members are perfectly good actors, and even if many of them are heroes. And just like public-school teachers, the medical profession as a whole puts its own interests ahead of those of the citizens it claims to be dedicated to serve. One of the most celebrated pieces of health-care journalism in recent years has been Atul Gawande’s New Yorker exposé on the Herculean efforts by a handful of scientists to get intensive-care physicians to implement basic hygiene measures so as to stop hospital-borne diseases, which kill about 100,000 people per year according to the CDC. The “checklist” was of no cost to the doctors, and its scientific rationale was unquestionable. Doctors still resisted it with all their might because they found it mildly inconvenient; perhaps they found it even less acceptable that anybody might tell them how to do their jobs. Somehow, “sociopathic” seems a mild descriptor. (Mr. Gobry is correct, again, in criticizing the medical profession. Poor quality care in the US includes preventable patient injury, such as is illustrated here with the lack of basic hygiene measures. Preventable patient injury is the fifth leading cause of death in the US and wastes enormous resources. If the safety record of American hospitals were to be superimposed on the airline industry, a fully loaded 747 would go down every other week. If that were to happen, a huge public outcry would occur, demanding government action. We need a similar response to the safety problems in American hospitals. Public health departments already have the needed skill sets to identify cases of preventable patient injury and provide remedies, as Gobry implies with his reference to the CDC, a governmental public health agency. Doctors resistance will be overcome.)

It goes on, of course. The evidence that artificial intelligence is better at diagnosis than most general practitioners is pretty robust at this point, and the profession resists it tooth and nail. In a few years, we’ll be able to know how many unnecessary deaths this led to, but the number will have lots of zeroes. It’s hard to think of a measure or policy in the interests of patients that doctors haven’t ferociously resisted as a group. Much like public-school teachers, the medical profession has used its positive image to create a legal structure that fills its pockets and prevents accountability. Medical-licensure rules make the health-care system a gravy train run for their benefit. Countless procedures that doctors have a legal monopoly on could just as well be performed by less skilled experts. This is hugely wasteful, but it only scratches the surface. The legal regime’s reification of medicine prevents new and successful forms of medicine from appearing. Milton Friedman liked to point out that the Mayo Clinic, by all accounts one of the world’s top hospitals, whose success is credited to its group practice and tertiary-care model, would have been illegal under the medical-licensure rules that were passed later on. In other words, the biggest problem with medical licensure isn’t that we’re paying too much for the services we’re currently getting (although its effects include that too); it’s that it is preventing new and much better services from being born. (Clinical science best practice is actually brought to bear at the bedside only half the time in the US healthcare system. Gobry is again correct. Organized medicine, the name for medical professional associations like the AMA, are generally more interested in physician income than in patient care, sad to say. But physician lobbies pale in comparison to the corporate lobbies for the for-profit medical industrial complex-health insurers, Big Pharma, hospitals, nursing homes, dialysis centers, medical device manufacturers, etc etc.)

It’s hard to say if general practitioners, as a professional category, should even exist. We treat the breakdown of medical practitioners into “doctors” and “nurses” as a self-evident law of the Universe or the product of some sort of scientific imperative. In reality, it is a mandatory reification of the way the medical profession worked a century ago, and there is no reason to believe that it is the way health care should be run. In Africa, which suffers from a dire doctor shortage, there are examples of professionally run clinics that deliver a first-world standard of care to hundreds of patients without a single doctor. It’s highly probable that in a deregulated system you would have a broad spectrum of medical professions going from less skilled to more highly skilled, perhaps even without the concept of “doctor” except in the same vague sense that an “engineer” can be both a low-skilled technician and a cutting-edge researcher and everything in between. Imagine that at some point circa 1964, engineers had successfully lobbied so that only those with a Ph.D. could program computers This is a good analogy: When computers were first invented, (largely male) skilled engineers worked on arcane computer code while (largely female) lower-paid and lower-skilled assistants turned the code into punch cards and the punch cards back into code. As the technology evolved, that division of labor became obsolete, and even as the word “engineer” remained, it covered a completely different reality. Imagine that at some point circa 1964, engineers had successfully lobbied so that only those with a Ph.D. could program computers (and that their association would control the accreditation of computer-science schools and how many people graduate each year). You can be sure that in that parallel universe, in 2017 a computer is something that looks like something from our 1980s and costs $20,000. We would have none of the economic and cultural transformations that the software revolution wrought — and even worse, we wouldn’t even know what we were missing. But to circle back to this column’s original point, we have Stockholm’s Syndrome. Except for the more reckless libertarians, nobody dares to touch the doctors, because economic literacy is so low and because our emotional investment in the idea of their expertise and professional dedication is so high. It’s not just that we’re wasting half the money. It’s that the most wasteful half is the most popular. (Mostly I agree with Mr. Gobry. There needs to be a real shake up of American medicine. Get the waste out by eliminating the health insurance business model (something he did not mention) and changing health care delivery so that what is best for the patient will always be foremost. You can not have both a highly profitable health care system and a high quality health care system. Those two goals are incompatible. American health care is highly profitable, it is, for that reason, mediocre in quality.)

— Pascal-Emmanuel Gobry is a fellow at the Ethics and Public Policy Center.