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Medicare for everyone, part II
Here is an excellent NYT column on health care, by Alex Berenson. The bottom line is this: U.S. medical care costs are so high for (at least) two key reasons: a) personnel costs are much higher than in Europe, and b) U.S. doctors usually are paid fee for service, rather than fixed salaries. That leads to much more spending, for obvious reasons.
Keep this in mind next time someone tells you that America can cover everyone through a single payer system at lower expense. Berenson continues:
Medicare, especially, does not like to second-guess doctors’ clinical decisions, said Dr. Stephen Zuckerman, a health economist at the Urban Institute. “There’s not a lot of utilization review or prior authorization in Medicare,” he said. “If you’re doing the work, you can expect to get paid.”
As a result, doctors have steadily increased the number of procedures they perform on Medicare beneficiaries — and thus have increased their income from Medicare, Dr. Zuckerman said. But the extra procedures have not helped patients’ health much, he said. “I don’t think there’s any real strong evidence of improvements in health status.”
This same incentive is weaker when doctors are paid fixed salaries. One key question for single payer advocates is the following:
Through what mechanism will you replace doctors' fee for service with fixed salaries?
In closing, let me quote the always-worth-reading Matt Yglesias:
...when it comes to defending the interests of powerful, entrenched local groups, Democrats are usually about as bad as Republicans.
Posted by Tyler Cowen on August 1, 2007 at 07:09 AM in Medicine | Permalink
Comments
I've always been amazed at the difference in salary between Doctors who perform internal medicine and any doctor who performs procedures.
why does a dermatologist receive 4 times the income of a family doctor? is it just because the AMA says so?
Posted by: thehova at Aug 1, 2007 7:33:56 AM
The converse, of course, of replacing their fee-for-service with fixed salaries is that you'll now have doctors who have a strong incentive not to serve customers at all.
The DMV doesn't get paid by how many customers they serve in a day. The bigger challenge would be A) fixed salary, combined with B) responsiveness to customer perceptions of service.
Preaching to the choir, here, but..."yeah, capitalism!"
Posted by: shawn at Aug 1, 2007 8:23:49 AM
Hun!?
Answer, have a public system based on fee for service where the government pays the fees and sets the fees (I guess one could also set an upper limit of patients one can bill the gov't for that is slightly above the number the best doctor can be expected to do a decent job for).
Why does fee for service mean you can't have public health care insurance? Canada has a public fee for service system (no Canadian doctors are not starving to death).
The Canadian system is cheaper than the US system but the approach does put an upward pressure on costs. Yet I fail to see why that is viewed as getting nothing for your money even if we accept the premise that you do not get health benefits comparable to the extra costs of the fee for service approach.
You are buying something, namely a more effective health care system in terms of how many patients are treated and how quickly patients are treated. In a system where doctors are paid a fixed salary, having many patients becomes the doctors biggest problem not her biggest source of income (obvious incentive structures at work here).
If you tell me that when the government spends an extra 100 dollars on me for health care this will not improve my overall health but means that I only have to wait 2 months for my knee operation instead of 6 months I am all for it (geez I sure hope they calculated the overall economic costs involved in more burden of disease when convincing themselves of the luxury analysis).
Public systems have some bad things and some good things, and we try to address one of the bad things by having fee for service. We think it is worth it because the bad things in a private system are both irrational and unreasonable (i.e. morally speaking). Fee for service in a public system keeps some of the good things and some of bad things from its application in the private system. And then we do some other things to address the bad cost raising stuff, e.g. invest in preventative care, and so on.
Why is it that the US thinks it can do anything better than the rest of the world, but on health care they think it would be impossible for them to implement universal health care.
Posted by: aaron_m at Aug 1, 2007 8:50:09 AM
A couple of observations.
1) this article rambles all over the place - do they have editors?
2) most of the people who comment on the healthcare system have never been deeply involved in it, they are the economic version of Monday morning quarterbacks, shallow knowledge, great passion
Posted by: save_the_rustbelt at Aug 1, 2007 9:07:40 AM
Eliminating fee for service would probably also eliminate the need for at least one claim staffer per office.
Posted by: fustercluck at Aug 1, 2007 9:56:15 AM
"Eliminating fee for service would probably also eliminate the need for at least one claim staffer per office."
Ya, and if we could just get doctors doing mountains of paper work, like they do in straight fee public systems, we will have this unnecessary admin staff problem whipped.
Posted by: aaron_m at Aug 1, 2007 10:02:31 AM
Oops
a "straight fee" system is supposed to mean a "fixed salary" system, but I don't know how...
Posted by: aaron_m at Aug 1, 2007 10:05:01 AM
fuster:
I've done the math, and the reduction in billing costs would be nowhere
near the reduction of fees, assuming we would adopt something at or near
the Medicare fee schedule initially.
Note: sorry for the multiple posts, on certain blogs my computer goes wild,
and I cannot find the cause --- grrrr
Posted by: save_the_rustbelt at Aug 1, 2007 10:05:18 AM
David Gratzer, a Canadian doctor, did a great job recently advocating against universal health care.
His book "The Cure -- How Capitalism can save American health care" is well worth the read.
Posted by: Jip at Aug 1, 2007 10:23:18 AM
Aaron, nice logical skills. Let me spell this out for you since your kneejerk reaction seems to have prevented blood flow from reaching the left portion of your brain.
The inference is that eliminating the fee for service model cuts down on the paperwork, something usually handled by multiple dedicated staffers. I haven't proposed that doctors be tasked with filling out paperwork, only that less paperwork = less staffers. In any case, I used the term "probably" as it seems a reasonable assumption. Please explain why you assume that a salary system requires as much paperwork.
Save_the_rustbelt: please show us your math.
Posted by: fustercluck at Aug 1, 2007 10:31:24 AM
The problem is the customer pays for the services through a third party, where significant amounts of control reside.
Posted by: cb at Aug 1, 2007 10:47:44 AM
"Please explain why you assume that a salary system requires as much paperwork."
In a fee for service system doctors are entrepreneurs that have an interest in seeing as many patients as effectively as possible. The doctor(s) decides how to organize medical and administrative work in her office. This results in practices tending towards being big enough so that the partners can access profits through the efficiency gains of a separation of labor between medical and administrative jobs. The doctors hire admin staff because they can make more money by paying someone $20/hr to do admin while they make $80/hr being doctors.
In fixed salary public systems the people organizing the system do not have a direct interest in these efficiency gains. This combined with distant and poor management/planning usually results in doctors doing much more paper work that in fee for services systems (i.e. 'why hire more staff, the doctors are already seeing the patients and can do the paper work as well').
Oh and yuck fou too.
Posted by: aaron_m at Aug 1, 2007 10:56:01 AM
Eliminate state licensing and maybe doctors will be replaced with technicians in systems designed by engineers.
Posted by: Floccina at Aug 1, 2007 10:58:36 AM
"In fixed salary public systems the people organizing the system do not have a direct interest in these efficiency gains."
That's just silly. A company paying doctors most certainly has an incentive to hire clerical workers to do paperwork instead of having the doctors do it. The less time its doctors spend on tasks lower paid workers can do, the fewer doctors the company has to hire to get the same amount of work only a doctor can do.
Posted by: Pinkston at Aug 1, 2007 11:14:07 AM
I have another take on why medical costs are percieved to be so high. Have you ever looked at a hospital bill that is not paid by insurance or a government program? Prices are inflated 600-1000%. (true story - my dad was charged 150,00 per hour for oxygen - which last time I checked was a freakin element that constituted 21% of the atmosphere). Its like going to a restaurant and being told that the hamburger you just ate was $1,000. Oh but if you have insurance it is only $7.99.
But nobody ever actually pays these prices. They get negotiated down (for uninsured people with money) or are a tax write off (for the poor & uninsured). The only people who pay these fake prices are defendants in tort lawsuits (and their insurers) - they have to pay full fare to the plaintiff, and then the plaintiff negotiates them down with the hospital and pockets the difference.
These prices are not the prices negotiated by HMO's or set my medicare/medicaid either (and which constitute 90% of the work actually done). They are, as far as I can tell, "made up priices" with no real ceiling or incentive to make them correspond to market in any way.
The issue is Have is this: if the rate that the hospital/doctor is willing to accept for a service or procedure (the medicare/insurance rate) is a market rate, why do the phony inflated rates exist? Are they purely to scare patients into having insurance? Are they inflated so the hospital can take an even bigger tax write off on their bad debt from the uninsured? If the general public knew that your doctor performs a surgery for $500 in payment from an insurer, instead of $10,000 "rack rate" price, would the public be so concerned about insurance? Would the price of health care really be that much higher than other countries?
Why can't there be an open system of pricing so that the public can be informed about the real market rate for health care services?
Posted by: Rebunga at Aug 1, 2007 11:59:01 AM
If anyone thinks that doctor costs are the reason for high health care expenses they haven't been paying attention.
A single course of treatment with one of the new cancer drugs can cost $100,000. To administer this requires the services a nurse to install a drip line. In some cases the treatment is simply a pill so administering it costs nothing. Sometimes doctors get a fee for the treatment even though they don't do the physical work, but this is a minor factor compared to the drug cost.
Always blame the workers, never the capitalists. Doctors may be highly paid, but they are still workers. An increasing number work for groups or on salary so the fee-for-service complaint doesn't even reflect reality.
In every area where technology has been involved since the beginnings of the industrial revolution the long-term outcome has been that costs per unit produced have gone down.
Why shouldn't this be true for health care as well? We already have seen many examples. Take the cost of the polio vaccine vs the cost to society of supporting a person permanently damaged by the disease. Take the cost of a bypass operation which restores a person to full functioning vs having a shortened (mostly unproductive) lifespan spent in bed or hardly able to get around. The list goes on.
The claim is that as people get older their health costs rise. This is true, but the age at which health costs become significant is also going up. This means that people can work or be productive longer which counteracts the aging effect.
Medical expenses have gone up over the past 50 years as the practice went from Marcus Welby to an industrialized enterprise. This means that there was a lot of up front spend on hight tech equipment and new facilities. This is tapering off. We now have an excess of MRI machines in parts of the country.
The second factor which has led to a rapid rise in costs is the transition from an essentially non-profit to a for-profit service delivery model. Previously doctors made a decent wage, insurance companies were non-profit as were hospitals. Now we have doctors making a decent wage, with a few superstars, a for-profit insurance and hospital system. This has raised costs by about 30%, but this percentage won't keep increasing. In fact the push back that is already occurring will probably cause this number to fall.
The third factor has been the use of monopoly power to artificially raise the costs of new drugs and medical devices. This is also a short-term effect. Even the most popular and expensive drug has its patent protection run out in about 20 years. Over the past decade the new drugs that have been released have focused on ever more specific problems. We have not had treatment with the impact of the Salk vaccine for decades. Watch the stock market, the glow is fading on the drug firms.
So medical costs will not continue to rise at the rate that they have done in the past 30 years, in fact they may even fall. Economists (or people pretending to be economists in the popular press) should be the last people to use straight line projections. According to the projections I seem to remember from the 1980's Japan should now have an economy which dwarfs that of the US. Oops...
There is no crisis in Social Security and there is no crisis in Medicare either. The scare tactics are all part of the never-ending attempt to privatize these highly efficient government-administered services. Now that claims that they don't work have been discredited, those who want to destroy the programs are shifting to predictions about the future. These are harder to refute with present data.
Why is every item on this site spun? If you have a legitimate case to make then don't cherry pick data to support it.
Posted by: robertdfeinman at Aug 1, 2007 12:16:48 PM
I've always been amazed at the difference in salary between Doctors who perform internal medicine and any doctor who performs procedures.
why does a dermatologist receive 4 times the income of a family doctor? is it just because the AMA says so?
This book says that the reason is largely historical. Specialist's procedure rates were set back when specialists required more time to do the procedures. As the specialists procedures became more routine and could be done faster there wasn't much competitive pressure to bring down the rates.
Medicare currently has to convince doctors to take medicare patients. This will be less of an issue under medicare for all. If america goes to universal care there will be downward pressure on doctors salaries, just like in all the other universal care systems.
Posted by: joeo at Aug 1, 2007 12:20:55 PM
I've always been amazed at the difference in salary between Doctors who perform internal medicine and any doctor who performs procedures.
why does a dermatologist receive 4 times the income of a family doctor? is it just because the AMA says so?
This book says that the reason is largely historical. Specialist's procedure rates were set back when specialists required more time to do the procedures. As the specialists procedures became more routine and could be done faster there wasn't much competitive pressure to bring down the rates.
Medicare currently has to convince doctors to take medicare patients. This will be less of an issue under medicare for all. If america goes to universal care there will be downward pressure on doctors salaries, just like in all the other universal care systems.
Posted by: joeo at Aug 1, 2007 12:21:30 PM
What's your solution, TC? Letting the market take health care where it will--with ever-more-luxurious options for the wealthy and healthy, and devil-take-the-hindmost?
Here's a glimpse of the future from the WSJ:
http://blogs.wsj.com/health/2007/07/30/a-la-carte-health-insurance-stirs-controversy/
Posted by: Frank at Aug 1, 2007 12:24:42 PM
Robert D. Feinman,
You make the assertion that medical care cost inflation will flatten or decline because the techonology will become cheaper. Yes, today's medical technology will be cheaper in the future, but your assertion rests on the belief that new technology will not be developed, or that the technology that is developed will not have a similar relative price profile to what is seen today with new vs old technology. A much stronger argument can be made that medical care cost inflation is as high as it is, not because the newest technology of today is more costly than in the past, but because we insist on employing this technology on everyone's behalf.
However, I do agree with your point that the costs endured have benefits that are almost never taken into account when we fret over how much is being spent.
Oh, and no patented drug enjoys 20 years of patent coverage in the market. The upper limit these days is about 10 years. The application for a patent takes place very early in the discovery phase and that 20 years is running from that point, which is often 10 years before you even make it to the market.
Posted by: Yancey Ward at Aug 1, 2007 1:34:42 PM
Yancy the patent protection runs for 20 years, the fact that the drug is not on the market for all of this period is irrelevant.
If a competitor knows that such a drug is in trials they will be inhibited from developing a competitive compound. Thus the patent inhibits innovation even before the drug is sold.
The same thing happens with patents in many fields. There is now a whole subspecialty of "patent trolls" who buy up patents which aren't being used and then sue companies for infringing them. There is a new counter movement aimed at discrediting many patents to help correct the over issuing of patents. Tell me how someone could patent clicking on a button on a web site to complete a purchase? Whatever happened to the requirement that it be "non-obvious"?
As to the cost of future medical technology, that is, of course, unknowable. But my projection is more likely than not. Follow on discoveries are never as costly as the original ones. Many drugs, for example, are small modifications of existing compounds. Knowing a starting point makes the chances of success much greater. (I'm not talking about me-too drugs).
So I maintain that the growth rate of health expenses will moderate. I don't see why this is such an unreasonable expectation. It has worked elsewhere.
Posted by: robertdfeinman at Aug 1, 2007 2:15:19 PM
Pinkston, you suck!
I don't mind being called silly if it is true but in the academic world that is a pretty harsh word to use.
OBVIOUSLY I was talking about fixed pay in a public system (see all my post prior). If you are not going to bother reading the posts and instead simply assume that your opponent is taking the most idiotic position you can think of LEAVE.
Posted by: aaron_m at Aug 1, 2007 3:01:37 PM
"If a competitor knows that such a drug is in trials they will be inhibited from developing a competitive compound. Thus the patent inhibits innovation even before the drug is sold."
I'm afraid this is totally wrong. Almost all of the so called 'me-too' drugs are developed in parallel with pretty much full knowledge that other companies are working on similar things. If a competitor knows that such a drug is in trials they are not inhibited from developing a competitive compound.
Posted by: Sebastian Holsclaw at Aug 1, 2007 3:10:23 PM
Sebastian if you read my entire remark you would see that I explicitly excluded me-too drugs.
I don't know if me-too drugs are developed "in parallel" or because competitors all see the same niche or because they see a market that is successful and want to share in the action. Everybody know they will get rich if the can develop a drug that will grow hair on a cue ball.
The only reason that Viagra is covered by medical plans is that we have a lot of limp dicks in congress. Lifestyle drugs run up the cost of medicine in the aggregate, but as long as the country is rich enough to afford this kind of pampering it will continue. How many Atkins diet kits do they sell in Darfur?
Posted by: robertdfeinman at Aug 1, 2007 3:20:36 PM
Mr. Feinman,
"There is no crisis in Social Security and there is no crisis in Medicare either. The scare tactics are all part of the never-ending attempt to privatize these highly efficient government-administered services."
Would you mind showing me exactly HOW this report is flawed and how fixing those flaws results in a situation you wouldn't classify as a "crisis":
http://www.ssa.gov/pressoffice/pr/trustee07-pr.htm
Or, maybe you could take a look at disability backlogs and tell how this is classified as "highly-efficient"?
I hope you were kidding, because that is one of the most ridiculous conspiracy theories I have ever heard.
Posted by: Jake at Aug 1, 2007 3:26:21 PM
