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Medicare and the new voodoo economics
The new voodoo economics is the claim that because we can (will?) make cuts in Medicare spending, we can afford to spend lots of money elsewhere. I explain this in my latest column. Excerpt:
Drawing upon the ideas of the Harvard economist David Cutler, the Obama administration talks of empowering an independent board of experts to judge the comparative effectiveness of health care expenditures; the goal is to limit or withdraw Medicare support for ineffective ones. This idea is long overdue, and the critics who contend that it amounts to “rationing” or “the government telling you which medical treatments you can have” are missing the point. The motivating idea is the old conservative chestnut that not every private-sector expenditure deserves a government subsidy.
Nonetheless, this principle is radical in its implications and has met with resistance. In particular, Congress has not been willing to give up its power over what is perhaps the government’s single most important program, nor should we expect such a surrender of power in the future. There is already a Medicare Advisory Payment Commission, but it isn’t allowed to actually cut costs.
Obama, to his credit, has very recently proposed to change this. But will the fiscal story have a happy ending? Probably not:
If we are willing to take comparative-effectiveness studies seriously, we could make significant cuts in Medicare costs right now. We could cut some reimbursement rates, limit coverage for some of the more speculative treatments, like some forms of knee and back surgery, and place more limits on end-of-life-care.
Those cuts alone will not solve the fiscal problem, but if we aren’t willing to take even limited steps to conserve resources, we shouldn’t be spending any more money elsewhere.
Of course, we have not made such Medicare spending cuts yet, and there are few signs that we will. A Kaiser Family Foundation poll found that 67 percent of Americans believe that they do not receive enough treatment and that only 16 percent believe that they have received unnecessary care. If the Obama administration covers more people with government-supplied or government-subsidized insurance, the political support will broaden for generous benefits, their continuation and, indeed, expansion of current expenditures.
Read the whole thing.
Posted by Tyler Cowen on June 14, 2009 at 07:43 AM in Medicine | Permalink
Comments
"end-of-life-care," is heretofore guaranteed to be.
Posted by: Andrew at Jun 14, 2009 8:38:16 AM
I just typed in "underinsured us population" into google. Estimates are at 35% of the population who is uninsured or underinsured. So these people probably are not receiving enough care.
Then the Kaiser poll begs the question: Are we significantly rationing health care under a private payer system? This poll appears to demonstrate we are.
Posted by: mickslam at Jun 14, 2009 9:21:16 AM
Mick,
The question is whether the 65% who are insured or overinsured are receiving too much "care." The uninsured or underinsured are partly the young who need no care whatsoever. Doctors don't do prevention. They barely do cures. That being said, I don't want the politicians making the decision. If the government wants to limit its outlays for its own selfish reasons, fine, but it won't work that way, they will make a virtue out of necessity and screw it up for everyone. In this fight between doctors, insurers and the government, the patients are a rabbit being fought over by dogs and the voters are being asked to bet on one of the dogs.
Posted by: Andrew at Jun 14, 2009 9:27:30 AM
1) Why don't we start with controlling education spending. Communities spend wildly different amounts on education with increased expenditures rarely having any relationship to expenditures. College costs have escalated at extreme rates yet their output, educated employed students, haven't shown an increase in quality. If anything a college degree seems to less of a signal of quality then it once did.
Should we have a national panel that dictates what and how college professors teach so that we have consistent national standards that don't waste money? Shouldn't the government refuse to give aid to colleges that spend money on wasteful student centers, updated dorms, etc. Isn't it time that the federal government stepped in and controlled costs by taking control of the budgeting choices that colleges make i.e. force college to show that their education expenditures directly improve education outcomes. And must we stop professors from teaching things that the federal government has not approved as being consistent with their best practices guidelines?
Posted by: DanC at Jun 14, 2009 9:47:13 AM
I am largely in agreement with you here. We can make significant cuts in costs if we do it the right way. We ned to cut down on the places that are dong twice as many procedures with no better or worse outcomes. My fear is that this will be approached by just cutting reimbursements across the board. This will hurt places, like the Mayo Clinic, cited in the Dartmouth study without necessarily doing much to the over-utilizers.
The end of life issues will provoke the evangelicals/Catholics. This will be a political hot potato. Total joint surgery and back surgery will probably require taking on the AARP. These will not be easy. We already know that any attempts to control costs will provoke the dreaded rationing word.
I would disagree with you on the electronic records. While we do not know for sure when we would se savings, I can tell you as a practicing physician, that I routinely order redundant tests because I cannot get access to prior studies. Much of my work is time sensitive and it is easier to get something repeated than spend hours trying to get something sent to me. It is often most difficult to get information on studies performed recently and nearby. As those places are economic competitors, they are not motivated to share. It would also help immensely with the number of people we have who speak poor English or have other mental/emotional issues making communication difficult.
Steve
Posted by: steve at Jun 14, 2009 9:52:30 AM
I wonder if 67 percent of Americans also believe they do not receive enough money, and only 16 percent believe they have been paid too much?
Posted by: Leigh Caldwell at Jun 14, 2009 9:58:51 AM
Why don't we start by looking at the industries that are known for cutting costs and improving their product at the same time. They have a common feature. They employ people in the roll of engineer. What they do not do is get large political committees together to find cost savings.
How many medical, (or educational) engineers are there? What percent of the budgets are spend on R&D? Quality and Process control etc.
Yes we spend money on drug and device R&D, but I am talking about of the medical practice, hospital process etc.
There was a series of articles on the impact of using very basic checklists in medical practice, and the cost and medical outcome improvements that they achieved. Yet there was despair by the people advocating them, that they met with such high resistance to change.
Posted by: Rob Sperry at Jun 14, 2009 9:58:57 AM
So you don't think there is an efficiency loss due to adverse selection in the market for health insurance? You seem to be debating the point that the only reason to try for universality is because we'll have the money to do so. Is that what you really believe?
Posted by: mrblond at Jun 14, 2009 11:02:32 AM
I don't think you're allowed to say "read the whole thing" about your own articles. "read the whole thing" is generally used to say you think the article is good.
Posted by: jsalvati at Jun 14, 2009 11:26:59 AM
I very much doubt that Obama or anyone has the political will to actually make significant decreases in medical spending. I think a bureaucrat could relatively easily both cut expenditures and improve outcomes in general, but such a change would definitely not be pareto efficient. People would be left worse off and they would know it. The biggest gains would probably be had by focusing less attention on the specific health problems of people who are generally unhealthy either through age or for other reasons. Healthcare spending can purchase time and quality of time and in the case of an 80 year old with low bone density, high blood pressure, and lung cancer treating the lung cancer will buy relatively little time or quality of time per dollar. A more practical allocation would do more for the comparatively infrequent and less serious problems of the relatively young and do less for the problems of the old.
Posted by: Michael Foody at Jun 14, 2009 11:48:49 AM
This is going to get worse before it gets worser.
Posted by: Steve C. at Jun 14, 2009 12:10:25 PM
Well I heard about this thing the other day called "Capitalism." Apparently it consitently drives down prices for goods and services. How 'bout we try that?
Posted by: apostate at Jun 14, 2009 1:27:48 PM
From Andrew:
"end-of-life-care," is heretofore guaranteed to be.
Sentence of the month.
Posted by: Yancey Ward at Jun 14, 2009 1:32:27 PM
No mention of liability insurance costs of Doctors and the fear of being sued in the indictment of treatment procedures? Nothing on the limitation of tort claims as a way to reduce costs?
No, I am not a doctor or in the health care industry.
Posted by: twwren at Jun 14, 2009 1:56:04 PM
Consider the financial situation in which we find ourselves. The finance industry does not lack for availability of data or information, nor did it lack for high powered intellectual horsepower, still some firms like AIG and others blew things badly. How, then, do we think we can apply yet defined metrics around incomplete data and be able to measure the comparative effectiveness of a clinical product when we so badly missed comparative effectiveness of financial products?
I wonder where the notion came from that if you take smart people out of the private sector and place them in the public sector, they become infinitely smarter. I'm just an RN, so perhaps you can help me, why the optimism?
Posted by: Tom Coss at Jun 14, 2009 5:51:04 PM
There actually are real efforts making progress. Paul Levy's blog give insight into the efforts at BIDMC (http://runningahospital.blogspot.com/). There are other equally large efforts underway. You find three major categories:
1. Doing something better. E.g., this procedure is effective at treating some disease, but can be done less expensively with a different approach.
2. Managing risk differently. This consists of adjusting the likelihood of a disease that is needed to trigger a test or procedure. These are judgement calls, and they tend to be very unpopular with the public and politicians. When it is someone else's money, it's easy to argue that a 1% chance of disease justifies doing the test rather than treating the 90% likely disease and doing other tests only when that treatment does not eliminate the symptoms.
3. Learning more about the disease and efficacy of treatments. Once upon a time, not too long ago, stomach ulcers were treated with stress reduction, diet, and surgery. They were thought to be caused by stress and diet. Now we know that they are caused by a bacterial infection and can be treated with the proper antibiotics.
Ulcers was fairly easy. The emerging understanding of coronary artery disease treatments is likely to be much more political and difficult. It seems that the obvious use of bypass grafts, stents, etc. does not have nearly the curative effect that you would expect. Diet, drugs, and behavior modification might be just as effective and immensely less expensive. This will be a political nightmare. I can imagine the uproar from the public when it is told to use diet, drugs, and behavior changes instead of the magic of surgery.
But I do not see any possibility of any plan emerging that makes a large difference. Labor is the bulk of healthcare costs. So any plan that reduces costs by 25% also reduces healthcare employment by 25%. I see no chance that any politician will accept such a plan. Healthcare is over 10% of the total economy. That 25% reduction would mean an increase in unemployment of 2.5% nationwide. I've never seen any political plan go forward with the intention of raising the unemployment rate 2.5%. It's unimaginable in the current recessionary environment.
The best we can hope for is a plan that does not prevent gradual improvements from being made. Gradual reduction of healthcare employment by 25% over the next decade might be achievable. Over that period of time people can adjust their careers and adapt to the change.
Posted by: rjh at Jun 14, 2009 6:06:48 PM
rjh- Not necessarily. Much of the increase in utilization simply results in larger salaries for those who over utilize. I am a physician and I see this a lot. One of my local Orthopedists follows shoulder pain with an MRI every six months(this is just one example). Guess who owns the MRI? Anyway, this doc makes a lot of money. If we cut down on not needed procedures, he will still make a very good but not outrageous living. I suppose it is possible that his personal chef or his high priced girl fiend may need to go. His wife will probably be sad at the loss of one of those.
Steve
Posted by: steve at Jun 14, 2009 7:57:19 PM
steve- Overuse like that is a factor. I lump it under the doing something better category, and abuses can be eliminated. But the change needed to hit 25% is much more than just dropping a few doctors' income. The total healthcare spending estimate is 2.4 trillion (http://www.nchc.org/facts/cost.shtml). There are about 250,000 physicians (http://www.bls.gov/oes/current/oes291069.htm). To get a 25% savings from reducing doctor's income, you would need to drop the average doctor's income by $2,400,000. This is not feasible, given the mean income of $165,000 (same source).
There is utilization reduction happening right now. I have not got hard statistics, but current hospital usage is below last year. This is translating into layoffs for doctors, nurses, technicians, orderlies, administrators, etc. I just don't see the politicians ever supporting the kind of drastic steps needed. They have huge problems with any policy of reducing employment by any noticeable amount. Reducing it by the amounts needed to hit their savings targets is not believable.
Small improvements like dealing with excess MRI usage are manageable without major economic disruption. The kinds of changes needed to save 25% will cause major economic disruption.
Posted by: rjh at Jun 14, 2009 8:27:39 PM
The contrary position is what the f&#k does it matter. Does anyone serious think we won't end up in the same position sooner or later? 'This will make it worse'? No, it's as worse as it gets. The sooner the current system meets its end, the better for everyone. Attempting to drag it out only delays the inevitable. If it takes a complete collapse to move forward, we are far better off bringing it about than pretending in some fantasy. Bring it on.
Posted by: Lord at Jun 15, 2009 1:03:54 AM
Lard: You need to study more history, if there is one thing we know, it is things can always get worse.
Posted by: sourcreamus at Jun 15, 2009 10:39:53 PM
