What David Sedaris Can Teach About Health Care

David Sedaris had a comic piece in the New Yorker about socialized medicine that is, as you’d expect, pretty funny. While it’s not exactly a policy wonk piece chock-full of statistics, I do think it’s worth thinking about. One of the important flaws that policy wonks focus on in the American health care system is the incentive structure—the claim is that fee-for-service incentivizes the system to push for more care rather than better care. I think that’s important, but the role of culture is not unimportant here.

Here’s Sedaris describing a visit to the doctor:

There’s a pharmacy right around the corner, and two blocks further is the office of my physician, Dr. Médioni. Twice I’ve called on a Saturday morning, and, after answering the phone himself, he has told me to come on over. These visits, too, cost around fifty dollars. The last time I went, I had a red thunderbolt bisecting my left eyeball.

The doctor looked at it for a moment, and then took a seat behind his desk. “I wouldn’t worry about it if I were you,” he said. “A thing like that, it should be gone in a day or two.”

“Well, where did it come from?” I asked. “How did I get it?”

“How do we get most things?” he answered.

“We buy them?”

The time before that, I was lying in bed and found a lump on my right side, just below my rib cage. It was like a devilled egg tucked beneath my skin. Cancer, I thought. A phone call and twenty minutes later, I was stretched out on the examining table with my shirt raised.

“Oh, that’s nothing,” the doctor said. “A little fatty tumor. Dogs get them all the time.”

I thought of other things dogs have that I don’t want: Dewclaws, for example. Hookworms. “Can I have it removed?”

“I guess you could, but why would you want to?

It’s easy to see how this encounter with the doctor could’ve gone differently—he could’ve ordered a test on that eyeball, or done something to remove that fatty tumor. Instead there’s an “enh, whatever” attitude that prevails and seems to serve Sedaris quite well, insofar as nothing has happened to his eye and as far as we know he is not cancerous.

And there’s little with the structure of the system to discourage a more activist stance—the visits are conducted along fee-for-service lines, and yet the results are strikingly different than the prevailing results in many regions of the United States. Some of the cultural difference is because of the patient (Sedaris writes, “For my fifty dollars, I want to leave the doctor’s office in tears, but instead I walk out feeling like a hypochondriac, which is one of the few things I’m actually not” and elaborates that he wants to hear fancy technical terms and whatnot. A more pushy patient might demand that “fatty tumor” get removed forthwith), but much of it is the doctor also.

So it’s probably a mistake to assume that changing the incentives will do the entire job. But what changed incentives might do—if announced loudly and persistently enough—is help signal that a change in culture is necessary.

Don't Know What We Don't Know: Cancer Studies Edition

A pretty remarkable story came out yesterday:

During a decade as head of global cancer research at Amgen, C. Glenn Begley identified 53 "landmark" publications -- papers in top journals, from reputable labs -- for his team to reproduce. Begley sought to double-check the findings before trying to build on them for drug development.

Result: 47 of the 53 could not be replicated. He described his findings in a commentary piece published on Wednesday in the journal Nature.

The result was corroborated by another study from Bayer. It’s again another example of not knowing what we don’t know—and, with the article speculating that the scientific bias towards accepting the hypothesis (especially if interesting) rather than rejecting it, one might imagine similar things are true of results in other fields.

The typical hope here is for comparative effectiveness research, but one can take an extreme skeptical view and wonder why the same biases that skew the original work wouldn’t skew the comparative work also.

It’s also unfortunate that the results of which studies were unable to be reproduced wasn’t released. After all, as the article notes, many different pharmaceutical companies are making investment decisions based on this research—and it suggests some of the potential benefits of making sure as much knowledge is free as possible.

The Devil Mandate

Did you realize the Supreme Court was in session earlier this week? Might’ve been some arguments about health care? Of course there was, and of course the Supremes are considering striking down the whole law. This leads Matt O’Brien to argue that insurers saw the news and are cheered:

One reasonable conclusion is that Wall Street's betting that Obamacare will either be struck down in its entirety or upheld in its entirety. Both would be very, very good news for healthcare companies. The death of the individual mandate, alone, would be bad news for Big Insurance.

It’s correct that losing the mandate alone would be bad news for insurers—but I’m not sure the entire law being struck down is all that wonderful for insurance companies specifically and the health care industry more broadly. Obamacare has many elements that envision a much different health care industry than the one around today, but it’s not that hostile to the system. It really could go so much worse, and with continuing inflation in health care and pressure on public budgets, the risk of it becoming so much worse increases. That scenario has a lot of uncertainty. The devil you know can be so much more friendly than many of the devils you don’t.

Cheating and High-Stakes Testing

The AJC has a super article about cheating on standardized tests. It probably should cause some hard questions to be asked:

The analysis shows that in 2010 alone, the grade-wide reading scores of 24,618 children nationwide — enough to populate a midsized school district — swung so improbably that the odds of it happening by chance were less than one in 10,000.

And:

Big-to-medium-sized cities and rural districts harbored the highest concentrations of suspect tests. No Child Left Behind may help explain why. The law forced districts to contend with the scores of poor and minority students in an unprecedented way, judging schools by the performance of such “subgroups” as well as by overall achievement.

Hence, high-poverty schools faced some of the most relentless pressure of the kind critics say increases cheating.

Improbable scores were twice as likely to appear in charter schools as regular schools. Charters, which receive public money, can face intense pressure as supposed laboratories of innovation that, in theory, live or die by their academic performance.

This will almost certainly need more study to see how widespread cheating on these sorts of high-stakes standardized tests. There have been some recent gains on standardized tests—how much of that is attributable to cheating? The impact of charter schools on test scores is ambiguous—but how much of that ambiguity might be removed if we knew that a disproportionate number of them were cheating, as the AJC article suggests? These questions need further study.

Pittsburgh Brawl

A WSJ and Jeffrey Young piece in Huffington Post reveals one of the big tensions in health care post-ACA. The articles examine a situation in Pittsburgh in the middle of a market share fight (I’ve written about that exact subject here). It seems that the University of Pittsburgh Medical Center is prepared to reject patients who are insured by Highmark, an insurer, due to Highmark’s acquisition of a struggling health group. They feel that it will boost Highmark’s attractiveness and thereby lessen market share and bargaining power.

As Young points out, agglomeration among health care entities is probably a necessary byproduct of an integrated system. Most of the health care systems health policy people seem to admire—your Kaisers, your Geisingers, your Intermountains—are integrated insurer/health care providers housing many different groups. On the other hand, big hospital groups will definitely also raise prices. It’s something that needs disentangling.

At any rate, such aggressive tactics are not something I’ve heard of the innovative providers engaging in as frequently. In fact, Geisinger usually uses the patients insured by third-parties to subsidize their innovative activity. I’m not suggesting the two situations are exactly the same, but I do think it’s worth thinking about.

The Robots Are Probably Coming For The Surgeons, Too

I appreciate this Atlantic article questioning whether robots are currently more effective than surgeons—technological reporting is too often dominated by slightly-naïve acceptance that this stuff all works—but I found this note to be a bit naïve to end with:

"Robotics is a tool, albeit the most technologically advanced and expensive one, but a tool nonetheless," says Dr. Bernard Park, the chief of thoracic surgery at Hackensack University Medical Center. "No technology will ever replace the critical importance of a skilled, thoughtful surgeon."

“Ever” is an awfully long time, isn’t it? I’m fairly confident we’ll see robots infringing on surgeons’ domains more and more because we’ve seen it for most other professions; for example, see software replacing grunt-level lawyers for coding depositions. Indeed, it’s not as if health care people are totally innocent of robots—they’re starting to introduce them to the hospital (though, again, for low-level stuff).

Let’s consider the stuff robots might do better than human surgeons:
1) Robot “hands” don’t tremble.
2) Robots do not get tired.
3) Robots do not forget tools inside the people they’re operating on.

And so on—I’m sure you can think of additional things which a robot might be really good at that people might not be so good at. Again, you don’t have to be at the-singularity-is-coming level of techno-optimism to believe that this is the case.

Totally Not-Policy Related

But this ad really is incredible (as in unbelievable):

(via Andrew Sullivan)

This reminds of this ad:

How did anyone think this is a good idea, again? Forget women--I don't see how this works on men.

We Don't Know What We Don't Know: Hip Replacement Edition

A striking result from The Lancet has led researchers in Britain to urge banning metal-on-metal hip replacements in that country:

Data on more than 400,000 hip replacements found metal-on-metal implants needed revising more often than other types and that failure rates were higher in women.

It comes two weeks after the Medicines and Healthcare products Regulatory Agency (MHRA) issued new guidance on the implants, saying almost 50,000 patients in the UK will need annual blood or MRI checks.

That’s bad, of course, but the danger is mitigated in the U.K. by the fact that only about a tenth of hip replacements in that country are metal-on-metal—and it’s been decreasing, also. The process would seem to have worked—you’ve got data from a large registry; the data is worrying; you act upon it.

Contrast, of course, to the U.S. The study cites the rate of U.S. metal-on-metal hip replacements at 35%...in 2009. It appears the study has no more recent source of data, and I wasn’t able to find anything more recent in my own searches. That’s because we have no such registry and therefore aren’t able to track the failure rates of hip replacements in the field. As ever, we don’t know what we don’t know.

Why Sports Superstars Are Liked and Others Might Not Be

Kenneth Rogoff asks why we like highly-paid superstars in entertainment and sports but don’t like superstars in other fields, especially finance and business:

What amazes me is the public's blasé acceptance of the salaries of sports stars, compared with its low regard for superstars of business and finance. Half of all NBA players' annual salaries exceed $2m, more than five times the threshold for the top one per cent of household incomes in the United States. Because long-time superstars such as Kobe Bryant earn upwards of $25m a year, the average annual NBA salary is more than $5m. Indeed, Lin's salary, at $800,000, is the NBA's "minimum wage" for a second-season player. Presumably, Lin will soon be earning much more, and fans will applaud.

Yet many of these same fans would almost surely argue that CEOs of Fortune 500 companies, whose median compensation is around $10m, are ridiculously overpaid. If a star basketball player reacts a split-second faster than his competitors, no one has a problem with his earning more for every game than five factory workers do in a year. But if, say, a financial trader or a corporate executive is paid a fortune for being a shade faster than competitors, the public suspects that he or she is undeserving or, worse, a thief.

Sadly he doesn’t cite any evidence for this; it’s probably self-evident at this point that financiers are less well-liked than entertainment and sports figures as a class, but he cites no data that business executives are widely disliked.

But I’d make a very simple argument as to why people like entertainment and sports figures and don’t like financiers terribly much: the value that sports and entertainment superstars deliver is much more clear than that of financiers, who as Rogoff notes are possibly zero-sum (at best, some might argue). And, as for business executives, it’s not clear what their value is at any given time—after all, American business executives are much more highly paid than their European and Asian counterparts; are American business executives that much better than their international peers? There’s no data on this, but it can be argued. Meanwhile, despite the influence of stuff like Moneyball, it’s nevertheless abundantly clear that players like LeBron James, Dwyane Wade, Kevin Durant, Dwight Howard and Derrick Rose are among the best 10 players in the world—I would near guarantee that all of the preceding players would appear on all of the lists of a poll of the most informed basketball people. Now, if you tried to repeat the exercise of the most informed business people, would there be a consensus of the 10 best business executives in the world? Would someone like Carlos Slim appear on the list, despite the source of his wealth (essentially because of the cartelization of the Mexican economy)? Some nontrivial percentage of business wealth in the world has been derived because the owners of wealth have obtained it in unsavory if not illegal methods. Those business superstars who are perceived to have gotten their wealth fairly are widely admired and celebrated--see Jobs, Steve.

Rogoff tries to sidestep this problem by noting that sports teams often obtain their money by inefficient means—for example, lobbying for public money for arenas—but this is a different question than whether sports players derive their money from unfair means. In other words, his argument doesn’t hang together, from beginning to end.

The Trend is Bad Too

Matt O’Brien in The Atlantic raises concerns about hysteresis—the idea that being unemployed for long periods of time can make you permanently unemployable—by linking to the graph following his paragraph. The concern is that making a large section of the workforce permanently unemployable lowers the capacity for the entire economy for a very long time—that’s part of the reason why countries do so badly after a financial crisis. However, I’d suggest his graph actually hides part of the problem.

This graph focuses attention on the post-crisis quagmire we find ourselves in. However, the big leap in duration of unemployment hides a worrying trend. Let’s take out that part of the data and focus on the trend pre-crisis:

As you can see, going from peak to peak, unemployed workers in the middle of the aughts could expect to stay that way nearly two months longer than unemployed workers in the fifties—which implies that there were serious problems that probably need addressing besides whatever therapy is needed to get us back to trend GDP and employment growth.

The System

Bill Gardner at Something Not Unlike Research notes that Canada actually has a lot less information technology than we do and much less adoption of EMRs. This is curious, since we’ve been all told about the importance of EMRs to bending the cost curve in the right direction while improving care. Gardner hits upon the reason why this hasn’t manifested itself in explaining why Canada doesn’t have extremely high adoption rates: “A lot of US health care information technology investments are devoted to managing the pathologies of billing multiple insurers for care. Billing is simple [in Canada].”

Of course this just goes to a point I’ve made before that the usefulness of a particular technology depends on the system it’s embedded in. In a system that values fee-for-service overuse, we’ll see EMRs bent to solving billing codes and trying to microtarget advertising to patients to get them to purchase care they might not otherwise have. A system that doesn’t will try and use it to reduce tests, duplicative drugs, etc.

Sports Statistics and Numerical Arrogance

If you’ll forgive the foray into sports, there was a piece in the Atlantic Wire that I thought was interesting and worth pondering even if you’re not at all interested in sports and just interested in the policy. It’s entitled “Why people still don’t believe the best ideas in sports,” and as you might guess from the title, it’s devoted to berating those poor souls who haven’t gotten the value of advanced analytics in decoding sports.

Can we stipulate that evidence is good and a well-informed statistical analysis can take the biases out of our observations? They can. But this particular piece goes too far in the statistical direction, I think:

Another project designed a "similarity network" to group NBA players by their characteristics, defining 13 different categories of players, as opposed to the traditional 2 guard, 2 forward, 1 center framework. (You can see a version of the presentation here.) Yet, seconds after it ended we heard two guys loudly disagreeing with the presenter's classification of Minnesota's Kevin Love, based on ... what exactly? Muthu Alagappan has charts and data points and a Biomechanical Engineering degree from Stanford University. You have NBA TV on your cable package. Who would you believe?

People love evidence ... when it tells them what they want to hear. Once they hear something that doesn't intuitively make sense to them, they fight back. ….

This stuff is the new Moneyball, a book that had its cover image plastered around the convention center as one of the pillars of the sports analytics movement. Yet some audience members audibly scoffed when Alagappan posited (via a big spreadsheet with lots of decimal points) that Devin Ebanks might be just as valuable to the Lakers as Carmelo Anthony is to the Knicks. As if the idea that a cheap journeyman might be able to provide skills similar to that of a overpaid superstar had not been the premise of a bestselling book and Oscar-nominated movie that gave sports analytics its cultural relevance. Maybe Alagappan's numbers are wrong, but you better bring your own numbers.

I’m not so sure this is always true. Look—what are numbers? They’re basically another language; like all language, it’s nothing but a tool. Feel free to substitute “words” for “numbers” in the previous sentence—does it still make sense to you? Of course it doesn’t.

It’s very possible to defeat a statistical argument with the use of words alone if, for example, the assumptions underlying the statistical analysis are not at all well-founded. For instance, words alone can defeat David Berri’s statistical analysis (see: here) with little to no numbers needed. (I’m still not sure why David Berri is cited so often in the media, but if you ever see his name or his statistical analysis being cited in the piece, it’s a good time to stop reading the article and perhaps writing a kindly e-mail advising the journalist as to the error of his ways. Sometimes we don’t know better.)

I worry about the wrong people brandishing numbers because they can discredit all the people using numbers responsibly; if I want to present a statistically-based argument as to why you probably should rethink your prostate exam and/or mammogram guidelines, it doesn’t help to have a large number of arrogant people who have come before you arguing that that the numbers prove everything, your common sense matters little, and thereby defeats discussion. I don’t think Bennett—the author of this piece—is that kind of guy, but the tone of the piece often tends in that direction. Let’s try and do discussion a little better, maybe?

Texas Tech Treasury Raiders

This happened a little while ago, but I found it curious:

Governor Rick Perry announced on Friday that he's giving $21 million over the next decade from the Texas Enterprise Fund to Apple, and (presumably in exchange) Apple will build a $302 million campus near Austin that will create 3,600.

Perry is giving it so that Austin can become a high-tech hub. At first thought the idea doesn’t sound particularly crazy (though Apple can obviously afford the campus—Apple misplaces greater amounts of cash under its cushions), but once you really think about it, the idea sounds weird.

It turns out that the jobs created in Austin will be “customer support, sales and accounting” ones. Jobs created are always nice, I suppose, but these jobs are not the makings of a high-tech hub—at least not along the lines of a Silicon Valley. As has been explained several times by now, the key thing that makes Silicon Valley Silicon Valley is the network of skilled workers and entrepreneurs, universities, and specialized finance. None of the spokes of the network are exactly getting established here (in the high tech sense)—it just looks like a nice corporate giveaway. That’s Texas for you, I guess…

America Probably Isn't Looting The World's Doctors

Matt McAllester of the New York Times Magazine has an article there headlined, “America Is Stealing The World’s Doctors.” Unfortunately the actual text of the article is only a little more nuanced than the headline, which is a shame, because I think the subject is far less simple than is let on initially.

McAllester’s argument runs something like this: the U.S. is the world’s biggest importer of medical talent; he cites statistics that show that, currently, one in four doctors practicing in America is trained overseas. (He notes that there’s a shortage of primary care doctors but leaves that statistic alone.) This is a remarkable set of statistics, considering the difficulty that foreign doctors have in coming to the U.S.: as I’ve mentioned before, regardless of your previous qualifications, you will have to complete residency before getting your license to practice medicine in the U.S. Doctors who come from poor or developing countries abroad are generally depriving those countries of their services, where the need for care is more acute. In fact, since those countries subsidized the training of these doctors, it’s a double debit: they lose the services and the time and money spent on their training. (One administrator quoted in the article says it’s a “show of dishonesty and betrayal” for a doctor to emigrate.) The article doesn’t propose any solutions to this problem, but given its citations of medical journal articles calling the brain drain “looting”, it’s pretty easy to imagine what sorts of things the author has in mind.

As I said I think the article is insufficiently nuanced and gains quite a bit of its rhetorical force from the framing: it starts with the patients affected by the decision, and makes a compelling argument that they need the care the most. But the decision of a doctor to leave is a much bigger story. For one, the doctor is not a robot—she has desires of her own. She may have become interested in research while studying in school and want to do something about, we’ll say, malaria. Is it not possible that she could make the greatest impact in blunting malaria—perhaps the greatest scourge to Africa’s health—in a richer, more developed country where she could leverage much greater resources there? Once in a richer, more developed country, she might well send money home to her family, which might well use the money to upgrade its life or to start a business that employs additional people. And our original researcher might well be able to use connections gained in the more developed country to steer business or other resources to her home country. And after some time during her career she might decide she wants to return home, where, having acquired additional skills, resources, and connections she is a more effective doctor and leader than she would’ve been had she stayed in her home country the entire time. This is another story that could’ve been told about this alleged looting, one that doesn’t ignore that the thing being stolen is a person with agency.

That said, the specific situation of doctors leaving poor countries for richer ones is best changed by two things: first, making poor countries richer and second, changing the U.S. health care system so that there’s less demand for doctors, whether trained abroad or domestically. The author himself notes: “Doctors from Ghana once fled to the United States almost as a matter of course. But its retention rates of doctors and nurses in recent years have greatly improved as salaries rose enough to weigh the scales in favor of staying.” The author doesn’t note that Ghana has had a strong economy, one of the strongest economies on the continent—it had double-digit GDP growth in 2011. No solutions needed for the health care market as such.

Solving the demand for doctors in the U.S. means solving the problems of overconsumption in the health market, or at least figuring out how to leverage the existing labor force better—perhaps by making individual doctors more productive (e.g. telemedicine) or perhaps by expanding scope of practice regulations.

So I think by framing the situation as “America looting the world’s doctors,” you’re likely to be looking in the wrong places for your progress.

The Free Market Utopia, in deceptive arguments

Today on Megan McArdle’s blog there’s an argument from Avik Roy as to why the U.S. isn’t really a free market health care system. It uses the familiar arguments but takes it too far, in an entirely deceptive direction:

In reality, per-capita state-sponsored health expenditures in the United States are the third-highest in the world, only below Norway and Luxembourg. And this is before our new health law kicks in.
…
In 2009, according to these statistics, which come mostly from the OECD, U.S. government entities spent $3,795 per person on health care, compared to $3,100 per person in France. Note that these stats are for government expenditures; they exclude private-sector health spending.

Of course, he carefully omits the private health care expenditures, which are surely number one in the world. Since it probably sacrifices too much rhetorical power to describe the U.S. as simultaneously the world’s biggest free market health care system and its third-biggest government-run health care system, it’s probably most fair to describe the U.S.’s health care system as a bloated chimera. (Roy also points out the tax expenditure that subsidizes private insurance, but of course all economic transactions are at a certain level government-subsidized. The tax expenditure subsidizing private insurance isn’t a bad idea because it’s a cobblestone in the road to socialism, it’s because it encourages over-consumption of health care.)

Roy feels that health care would be better off in a free market state (“…health-care spending is most efficient when that spending is executed by individual patients, rather than third parties”), so you’d imagine he’d be cheered by the growth of HSA accounts. Of course the theory of price discipline on the individual producing efficiency sounds wonderful, but the practice is considerably different—individuals subjected to price discipline tend to cut out preventative care, and of course it enshrines fee-for-service as a central feature of the health care economy.

The College Troubles

This report got a fair bit of attention on Twitter, for obvious reasons:

In data compiled for a coming report, the Economic Policy Institute, a center-left think tank in Washington, found that the average inflation-adjusted hourly wage for male college graduates aged 23 to 29 dropped 11% over the past decade to $21.68 in 2011. For female college graduates of the same age, the average wage is down 7.6% to $18.80.

There are a few salient points here. One: how much of the skills-based critique of why there’s so many labor troubles can be true when young college graduates—the group that should be most competitive in the marketplace—are suffering so with their paychecks?

Two: it’s also striking that the gender pay gap remains so large. Again, we have a case where these should be the most skilled of the entire workforce, and yet the pay gap persists. That’s highly unfortunate.

Least Surprising Study Results

Today in non-shocking results:

Medicare’s seven-year public reporting initiative for hospitals, Hospital Compare, had no impact on reducing death rates for two key health conditions and just a modest effect on a third. That’s the conclusion of a just-released study that raises questions about the initiative’s ability to improve the quality of care provided by the nation’s hospitals.

I’m kind of surprised this would be found surprising. Hospital Compare is a dreadful website, as I’ve explained before. It’s hard to navigate, gives you no indication of what information is relevant and important, and makes it difficult to, you know, compare hospitals. On the scale of government-run statistics websites, FRED is a 10 and Hospital Compare is maybe a 1.5. If the idea was that patients would select high-quality hospitals and thereby bring down the error rate, it’s typically a good idea to make it easy to compare and thus select hospitals.

If information is hard to use, you shouldn’t be surprised to see it unused. Since patients find it difficult to select on the basis of quality, and insurers are only taking tentative steps on selecting on that basis, hospitals have little incentive to improve.

Permanent Mark on Your Record

An important post by Sarah Kliff about electronic medical records demonstrates that sometimes reforms don’t work quite the way we anticipate—contrary to story, it turns out doctors with electronic medical records that share digital imagery or tests order more tests rather than fewer ones. You’d think that the ability to share tests would decrease the number of duplicate tests; sadly, this isn’t the case. The study’s authors’ speculation:

What about digital record-keeping that gets doctors to order additional care? The authors here think it has to do with the immediacy of results. “In borderline situations, substituting a few keystrokes for the sometimes time-consuming task of tracking down results from an imaging facility may tip the balance in favor of ordering a test,” authors Danny McCormick, David Bor, Stephanie Woolhandler and David Himelstein conclude. “This ‘convenience’ effect of computerized access might cancel out the potential decreases in ordering due to reductions in duplicate or unnecessary testing.”

It just goes to show you that the importance of any one tool is probably a bit overstated—it’s all about the context of care. (This isn’t the first story we’ve had about EMRs being used in a way we wouldn’t necessarily like—take also the story about hospitals using EMRs to microtarget advertising for various procedures and/or tests recently.) In both cases, we can see that a potentially promising tool is just that—a tool, which is used in a context which can make it helpful or unhelpful. If you don’t make the incentives and culture right, any given tool will tend to get used according to the priorities of the system—which, generally speaking, is in favor of intensive use. It’s in this spirit that Austin Frakt’s rumination that an “Amazon checkout” feature showing how much a test would cost should be taken—that is, that it’d be helpful in the context of a system that cares about cost and efficiency.

Furthermore, we should keep in mind that eliminating unnecessary imagery has important second-order consequences beyond just the saving of time, money and manpower. An interesting article worth reading in the journal Environmental Health Perspectives notes that unnecessary imagery implies the exposure of radiation to patients, which means that we’re increasing the cancer risk for the patients in question. (One study cited in the article estimated 29,000 cancers as a result of scans in 2007; that drew some fire, naturally, but gives you an idea of the potential implications. Also note the reality that some proportion of scans are poorly executed and end up delivering more than the intended dosage of radiation.). For scanning, then, more might mean less.

Oregon Wins, For Once

The Oregon/Washington rivalry extends even to the world of public policy, apparently. Where we have Washington’s somewhat punitive approach towards dealing with Medicaid costs (to say nothing of the cost shifting involved…), Oregon seems to be trying something completely different:

Oregon Gov. John Kitzhaber signed a bill Friday implementing his plan to redesign health care in his state, which the former emergency room doctor said would reduce costs so significantly it could help fix the federal budget.

The new law will allow novel ways of paying for and delivering health care, such as assigning the costliest Medicaid patients caseworkers to manage all aspects of their care, from medical to mental, with the goal of eliminating redundant tests and procedures and reducing expensive hospital stays.

The idea here—extended in Atul Gawande’s New Yorker article “The Hot Spotters”—is that you assign workers to help certain patients to help navigate the obstacles of the health system. It’s something that should absolutely work in theory, which is why it’s nice to put it into practice.

There’s a portion where proponents say the program could—if applied nationwide—save about $1.5 trillion over 10 years, which is quite a bit of money. If it ever materialized I wonder whether we’d be better off just plowing the money right back into Medicaid and raising reimbursement rates (so as to increase access), but that’s a thought for another time. It’s good to see a try. Well done Oregon.

Tail Risks

From The Economist, an argument that things are getting better from at least one perspective—the number of desperately poor has been halved since 1990; the effect is predominantly due to China’s huge growth. This welcome fact made me think of the argument circulating recently that the human propensity to violence and war had dramatically decreased in recent times and (apparently) can be expected to decrease further time goes on.

I do wonder, in both cases, whether we’re just moving around the risks to a certain extent. In the violence and war category, it’s clear that while war and great power war has decreased, that any potential outbreak of war might have catastrophic consequences—i.e. nuclear weapons exploding, to say nothing of chemical or biological warfare. While there may be some element of mutually assured destruction involved in preventing war, it does mean that whenever the statistically improbable event of war happens it could be awful.

The lessening of poverty is similarly welcome but the ecological consequences of many more people commanding more resources are awfully worrisome—besides global warming you also have to think about risks like rapidly depleting freshwater or oil (both of which can be finessed to a certain degree but involve permanent unpleasant costs). It’s also very possible that the interaction of such pressures might combine into something worse and unforeseen. So I’m worried we’re neglecting the tail risks.

The Irony

Catherine Rampell has a very good article in the New York Times about the way states have disinvested in higher education, particularly at disadvantaged schools teaching majors and professions of high importance—particularly nurses. Some anecdata:

At one community college in North Carolina — a state with a severe nursing shortage — nursing program applicants so outnumber available slots that there is a waiting list just to get on the waiting list.

That’s a troubling data point since, as we know, there’s a nursing shortage and a primary care physician shortage too (to the tune of about 20,000 physicians at some point in the near future).

It’s ironic, also: one of the important pressures on state budgets is health care costs, particularly Medicaid. In essence, in a very direct way, our health care cost problem now will strangle our care later.

All the Cash

Optimism about the economy has deservedly bubbled up and seems set to percolate even higher once the latest economic statistics are processed and disseminated. Of course there’s more than a bit of a self-fulfilling prophecy about the economy—optimism generates economic activity generates more optimism and so on (or what Keynes memorably called “animal spirits.”)

I do think the possibility of animal spirits asserting themselves with corporations is underexplored. There have been a ton of media stories arguing that there are around $2 trillion in cash reserves sitting around collecting dust in corporate coffers (or earning low interest rates in Treasuries, which these days must be like getting dust for interest). I just saw a study recently arguing that actually there are $508 billion in spare corporate reserves; whatever the figure, there are large sums waiting to be used once they feel sufficiently confident to do so.

At any rate, we can be reasonably sure there’s a large amount not doing much. Here’s corporate profits after tax since 2007:

Rising higher, naturally. They’re not returning to investors via dividends:

So where’s it gone? Certainly not into fixed private investment:

If that returns well, we could be in very good shape.

eBay for Health Care? NBD.

From John Goodman, a piece celebrating the advent of a website called MediBid, which apparently acts as—to use the elevator pitch shorthand—a sort of eBay for medical services. Patients put out a request for a service, along with the medical records, questionnaires, etc.—and they have to pay in cash. It’s Goodman’s belief that the implications are “staggering” but I find it hard to agree with him.

Here’s what Goodman describes as key:

…the willingness to travel. If you ask a hospital in your neighborhood to give you a package price on a standard surgical procedure, you will probably be turned down. After the government suppression of normal market forces for the better part of a century, hospitals are rarely interested in competing on price for patients they are likely to get as customers anyway.

A traveling patient is a different matter. This is a customer the hospital is not going to get if it doesn’t compete. That’s why a growing number of U.S. hospitals are willing to give transparent, package prices to out-of-towners; and these prices often are close to the marginal cost of the care they deliver. Interestingly, a lot of the out-of-towners getting the cut-rate prices are foreigners.

Goodman cites a lot of successful examples of low-price care being delivering via the MediBid system. Of course there’s the very relevant issue of how much selection bias there is in this particular system: the population of people who know about MediBid, who are willing to trust in such a newfangled system, who have the spare cash and inclination to travel for whatever piece of care it is, is an exceedingly idiosyncratic one—and one that’s hard to draw many conclusions from, let alone the possibility of “staggering” ones.

This particular system is biased towards episodes of care rather than a longterm relationship; it raises questions of follow-up afterwards, for example. Given what we know of demography, health trends, and what the health care system is currently good (and bad) at, we would expect any particular solution to the health care system to be biased towards solving long-term care rather than episodes of care.

Any “staggering” implications of this particular system are predicated on people having large reserves of cash to use in for their health care. Of course this is a rather optimistic reading of our economic system, which hasn’t been producing wage growth or savings at anything resembling a satisfactory rate (without the apparently-staggering implications of health care becoming a cash system):

I wouldn't necessarily say MediBid is a bad thing, only that it's more likely to remain a niche service than anything else.

Consolidation

Austin Frakt, in an interesting and somewhat lengthy post, talks about a medical arms race for hospitals—in the past they used to compete on technology and amenities rather than price; naturally, the price went up. The HMO era helped slow that trend, with insurers beginning to show more market power. Frakt worries: “ As hospitals continue to consolidate and integrate with other providers (e.g., as encouraged by the ACO movement), I wonder if the medical arms race will return.”

It’s not hard to see the arms race escalating; if you’ve been reading recently, you may have noted stories about insurers getting into care and hospitals starting mergers and building. So I’d guess both sides are trying to avoid bringing a knife to a gunfight—though it remains to be seen who has the bigger guns.

Your Insurer Is Caring (Buzzword?)

The news from KHN that insurers are starting to open retail stores made me scratch my head a bit. Here’s the rationale:

Health insurers increasingly want to make shopping for a new health plan as easy and convenient as dropping into a local retailer to buy a TV. In recent years, a number of them have opened stores where consumers can stop by to talk with a customer service representative about buying a plan or resolve questions about their current coverage. Some stores also sponsor health fairs or community seminars on nutrition and exercise. A few have primary-care doctors on-site.

Maybe “retail stores” is a bit of a misnomer and it should more properly be called the “Apple Store” for health care insurance. Interacting with customer service agents—that’s the “Genius Bar”; the health fairs and other stuff is like the various events the Apple Store does to teach you how to get the most out of your gadget, and so on and so forth. There’s a line from a satisfied customer that’s awfully revealing: "It's a great feeling to know the insurance company is standing behind you.”

How many times in the history of human civilization has this sentence been uttered? Not terribly often, about your health insurer, which is why dickering with your insurer is rated up there with the DMV in terms of bad customer experiences. But the effort to project a kinder, gentler face to interact with is an interesting one. There was an interesting article in the Washington Post recently by Brad Plumer postulating “The End of Retail?” which I thought of first when I read the KHN article, with my first incredulous thought being, “But why would I want to go to a store to get my health insurance when I could just get it on the Internet?”

The aim, however, isn’t the “getting” but the caring. A New York Times article suggests this—it’s about insurers trying to target the 1% of patients who account for 25% of the costs among privately insured. Because of regulations from ACA—the fact that insurers must insure everyone and can’t impose a lifetime limit—it appears insurers may have to figure out how to care for them in such a way to reduce health care use for them. The article details the kind of steps insurers are taking—sending social workers to help clear some of the obstacles associated with care; trying to figure out bundled payments so they can make one doctor responsible for a patient’s overall health, and so on and so forth. It’s essentially health insurers trying to move from financing, mostly, to caregiving. The complaint I’ve heard about this idea is that insurers won’t do particularly well since their primary expertise isn’t in that field, but they’re giving it another crack, it seems.

To Hype and Disappoint

I do hate it when authors exaggerate to promote their books. For example here’s an interview about a book about the underground economy and its size and implications. The author says:

Wired: And it’s growing?
Neuwirth: Absolutely. In most developing countries, it’s the only part of the economy that is growing. It has been growing every year for the past two decades while the legal economy has kind of stagnated.

Wired: Why?
Neuwirth: Because it’s based purely on unfettered entrepreneurialism. Law-abiding companies in the developing world often have to work through all sorts of red tape and corruption. The [underground] enterprises avoid all that. It’s also an economy based on providing things that the mass of people can afford—not on high prices and large profit margins. It grows simply because people have to keep consuming—they have to keep eating, they have to keep clothing themselves. And that’s unaffected by global downturns and upturns.

It certainly sounds good—but then you get to thinking. It turns out a great deal of growth in Africa, to take one example, is attributable to commodities growth recently. Then there’s the growth of cell phone use:

In virtually every single African nation, the leading mobile phone company is now the leading taxpayer to the government, the leading local donor to local causes, and one of the leading employers.

At first thought this wouldn’t be mutually exclusive with the picture Neuwirth is giving us, and it turns out it’s not—it turns out Neuwirth is counting the employment of informal workers for these large telecommunications companies. But that introduces a great deal of conceptual ambiguity to what was once a simply stated, bold premise. That’s unfortunate; you’d prefer a bit more nuance up front.

Price Discipline and Health Care

There was an op-ed by Joseph Rago in the WSJ proclaiming health care’s coming price revolution. Like most WSJ editorial pieces it includes the mandatory odd shot at the liberals that can be safely ignored, as there is the seed of a decent observation in here:

The big insurers now publish transparent, meaningful all-in prices for hundreds of services by hospital and doctors, and they are building Web platforms that allow consumers to shop for providers. Tiered-benefit structures that use cost-sharing to steer patients to more efficient providers finally give patients the means and incentive to make reasoned medical decisions outside of an information vacuum.

Rago gives away the game, later, when he mentions that defined-contribution benefits (that is, like the idea of competitive bidding applied for private plans) will align “costs and incentives.” He believes the misaligned incentives in health care occur at the demand side rather than the supply side—and thinks that the action of consumers shopping for providers will do the relevant work.

It’s an idea that’s much beloved of a certain set, that the problem with health care consumers is that they are insufficiently exposed to the costs of their actions and that so exposing them will cause them to seek out more efficient, better providers. This sounds good in theory, but of course the practice is very different—the question is, how good are consumers at seeking out genuinely healthful doctors or providers?

Elsewhere in the WSJ we saw an interesting study summarized:

According to the analysis, there were about 500,000 fewer screening colonoscopies among commercially-insured people aged 50 to 64 than you’d expect during the most recent recession…
…
The analysis also found that when it comes to colonoscopy, cost sharing appears to be a deterrent. No matter the economic climate, people with higher out-of-pocket costs — $300 or more for the procedure — were less likely to be screened than those with lower costs, defined as $50 or less. That gap “widened during the recession,” says Dorn.

I wouldn’t characterize this as the smoking gun, but it is suggestive that patients will forgo necessary preventative care (as colonoscopies are) when exposed to the discipline of the market. The discipline of the market works fine for short-term problems that can be fixed by short-term solutions; long-term problems have not been as well served, generally speaking. I would guess health care isn’t different.

Romney's Health Care Plan, Redux

Remember back when we were discussing Mitt Romney’s health care plan. At the time I was unsure whether the Reason article marked a departure from an aspect of his plan—that is, to raise the eligibility age on Medicare from 65 to 67.

Well, in his big speech at Ford Field, Romney reiterated that part of his original plan.

Leaving aside the political aspects of this story, I’ve always wondered how it’s considered supportive of business (as Romney claims he is) to propose a policy that sloughs off $4.5 billion (estimated) in health care costs to business. It’s also a classic manifestation of solving the health care problem halfway—to solve health care, you can’t just attack costs or quality, you have to figure out the intersection to really get it right. Raising the eligibility age just attacks costs, and only for the government’s balance sheets (only the entity best-positioned to absorb a spare $7.6 billion or so).

So, what's happening here again?

Via Joe Weisenthal, if Europe is in such bad shape, why….

The argument goes like this: Everyone and their cousin believes that the Greek bailout is a joke that doesn't stand a snowball's chance in hell of really working. A lot of people thing Greece will leave the Euro this year. And then that opens Pandora's Box for more trouble in Portugal, and everywhere else. And yet! Peripheral yields are calm, and the Euro is robust.

There's a disconnect between what everyone is saying about Europe and what's happening in markets, which is calm.

Or, for that matter,

Investor perceptions of euro-zone borrowers is improving. The cost of insuring Italy’s sovereign debt against default for five years using credit-default swaps has fallen 84 basis points this year to 400 basis points yesterday, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Similar costs for Spain have slid 115 basis from a record-high touched in November to 378 basis points. The contracts pay the buyer face value in exchange for the underlying securities should an issuer fail to adhere to its debt agreements.

Have the numbing details of the talks/bailouts/haircuts cycle just bored investors into not caring or being frightened about Europe? (If it’s boring, can it really be that bad?)

IVF and Consumer Finance Protection Bureau

There’s an interesting article in the WSJ about “fertility finance”—that is, lending out large sums of money on an unsecured basis in order to cover fertility treatments for the infertile. Since the treatment runs quite a bit of money, this represents an opportunity to loan quite a bit of money.

I see three distinct potential problems. First: what happens in the case of failure? IVF treatments are notoriously difficult, often requiring several tries before success. The article mentions that some of these firms offering finance offer refunds and assume the risk; naturally one supposes that means higher interest rates for everyone else.

On the demand side:

"We thought [taking out a loan] was the best option because we trust our doctor," says Karen Coker, a 27-year-old police-station clerk in New Carrolton, Md.

The trouble, on the supply-side, is intertwined and is mostly involved with bad incentives. Apparently many of these finance firms are not regulated as banks and apparently doctors often invest in them. The potential for conflicts of interest looks similar to pharmaceuticals—how often will doctors be shaded towards offering care when they have an equity stake in its happening? And might patients be very interested in the knowledge that their doctors have a business interest in steering them towards a certain means of finance?

It’s unclear why the problems faced by these firms seeking to make these loans are so specialized as to require specific firms to service them—that is, why can’t banks take them on? I suppose there’s some sort of regulatory evasion here, and I would guess it’s a problem the Consumer Finance Protection Bureau might be well-poised to take a look into.

More on hospital growth

Jeffrey Young has a very good article in the Huffington Post about hospitals merging in order to secure market share and act anticompetitively and thereby raise prices. (On the other hand, as Dan Diamond relays, some hospitals think the mergers are necessary to survive. Both can be true simultaneously of course—some markets might see two otherwise healthy hospitals merge for anticompetitive purposes, others might not). There’s a good quote in Diamond’s piece:

In a thorough examination of the FTC-ProMedica dustup, Modern Healthcare's Joe Carlson notes that hospital executives "caught discussing higher prices and bargaining clout before a merger are likely destined for legal trouble later on." For example, FTC cited a pre-merger email from St. Luke’s president that openly discussed ProMedica’s pricing power and "would come to haunt" the organizations, Carlson writes.

This is some of what I was getting at with my post earlier about hospitals building up to secure more market share—it might be bad if we’re looking at a drive to control a market and raise prices.

On the other hand, mergers might be a different beast—the claim is that in order to do accountable care organizations, you need to have a big system able to keep one patient throughout the system. This might be so, but I suspect it differs from organization to organization. Sadly it’s hard to legislate to ensure good faith.

Understaffed and Overstaffed

Apparently:

Lack of staffing resources was cited as the most significant barrier to implementing IT, according to the 2012 HIMSS Leadership Survey, which was released Tuesday morning at HIMSS12.

Nearly two-thirds of the 302 IT executive level respondents expect to add staff in the next year to successfully implement their IT initiatives.

So. IT people are apparently too hard to find at the moment. Nurses—also a shortage, apparently. We’ve been over primary care doctors and their deficit.

It would seem that several portions of the health care labor force are understaffed, and yet health care employment has been the strongest employment sector in the post-recession doldrums we may only just be sailing through. The secret, of course, is probably in specialists and administrative staff, but it gives you a hint as to how the health care sector is misaligned—too much paper work and too little basic doctoring.

Competitive bidding and private insurers' innovation

Austin Frakt makes a very solid point in general about health care here—that we should want our cost curve bending/shifting to come from efficiency improvements and extends this critique to the proposal of competitive bidding discussed earlier. Frakt wonders whether it would bend the curve.

The authors’ claim here is that private insurers would have an incentive to work with caregivers in order to beat their bid on any given senior. That’s the claim as to whether competitive bidding would bend the curve, and it’s hard to assess whether it’s correct.

Insurers are already clearly thinking along these lines, with UnitedHealth announcing an effort to do a cloud-based data platform (with outside developers creating “apps,” no less.) One of the interesting apparent proposals:

Among the initial apps will be one developed with the help of the Cleveland Clinic that helps health providers structure payments for "bundles" of care, meaning for all services tied to a particular procedure or condition, Optum said.

I’m sure that’s purely coincidental. I’m also sure it’s purely coincidental that UnitedHealth happens to be interested in moving to a bundled payment system and getting 70% of its commercial members in it by 2015. It's probably just a short jump until we're discussing insurers purchasing hospitals again, to get that full degree of integration.

At any rate, I’m sure that’s what the AEI people are thinking about, although time will tell whether it’s successful.

Why the hospital building boom?

Via Aaron Renn’s twitter (aka @Urbanophile), I see that the Chicago Tribune is reporting on Chicago’s hospital building boom:

Driven by the need to replace aging facilities, integrate new technology and equipment and, of course, fend off fierce competition, hospital systems spent more than $6.6 billion between April 2009 and April 2011 to build new facilities and update old ones, according to Illinois Hospital Association data scheduled to be released Monday.

This prompted me to do some research, and it turns out there are quite a few regions similarly extending itself in building additions or outright new hospitals—the Pittsburgh Tribune-Review reports that:

From 2008 through Nov. 1 [2011], U.S. hospitals borrowed $144 billion through public bond issues for construction, refinancing, equipment and other expenses, the Tribune-Review found as part of a yearlong investigation into the rising cost of health care.

The questions that occur are: why? and, is this a good thing?

The “why” part appears to be attributable to “gaining market share.” Let’s run through the reasons mentioned in the Chicago Tribune article. Technologically, updating things seems to be a reasonable idea which is hard to assess from this angle. The “age” idea mentioned in the Chicago Tribune can be looked at skeptically, from the facts stated in their own article—the 2007 median age of an Illinois hospital was 10.55 years versus the national median of 9.77. One doubts the road to hospital obsolescence is measured by .8 years (or that somehow that substantial a percentage of the nation’s hospitals should be updated).

There’s an emphasis throughout both articles on providing amenities—the hospitals in Chicago will apparently feature “luxury finishes” i.e. flat-screen TVs and “other hotel-like amenities.” Apparently, also, a hospital in Western Pennsylvania brought in a consultant from the Ritz-Carlton, which should put in context the sort of thing you’re looking at. They probably aren’t alone in this—a recent New York Times article talked about New York area’s hospitals’ efforts to add luxe features to entice rich people (who would then cross-subsidize the hoi polloi’s care)—but it is it worth it? I don’t want to convey the idea that it’s all frivolity—this WSJ article about the challenges of cooking food for the sick or recovering is worth a read—but it’s hard to avoid agreeing with the conclusion of the Tribune article (“Does every patient really need a 40-inch TV in their room?). If it’s not to improve care, what is it? Attracting patients away from other hospitals, presumably, in a way that probably won’t help the bottom line in the long run. (Though this article speculates that gaming patient satisfaction surveys that the government will be using in the future is another possibility; ultimately it’s the same thing, though.)

One of the striking facts in the Pittsburgh Tribune-Review article is that hospital capacity has dropped by 250,000 beds since 1990…but occupancy is holding steady at around 70%. This despite substantial population growth and significant demographic changes. Do hospitals expect additional demand? No argument in either article is made for that, and given the preceding factoid, it’s hard to bank on one either. So it would seem to be a market share play, and with such a large percentage of Chicago-area hospitals spending money at the same time, it looks likely that they’re moving to a lose-lose equilibrium for everyone, at least in that market. (If everyone builds, everyone raises prices and passes on the price increase at the very least.)

A worse case scenario is that the debt loads incurred by capital expansion ends up causing big problems for some of these hospital systems. The worst case scenario, from the perspective of those expanding hospitals, is changes in the health care system. Given all the noise about the subject, it’s not hard to envision cuts in the Medicare system, whether as a result from a penny-pinching Congress or from the hope of doing care better and cheaper. The latter must seem particularly fearful, because a large portion of the health care efforts look specifically aimed at reducing hospital utilization. Reducing infections and hospital readmissions? Obvious. An emphasis on primary care? Again, more care outside the hospital. Do you believe in retail clinics and urgent care clinics? Again, often outside the hospital. A move away from fee-for-service and towards some other payment system? Less health care consumption—which one presumes means a decline for hospital use.

Given the extent of debt, construction, and the size of the hospital footprints in local economies, these hospital leaders are making big bets on something approximating business as usual in health care. One hopes they aren’t successful, though the price of failure looks high also.

Competitively Bidding Problematically

An interesting report from a trio of writers from AEI on competitive bidding is worth thinking about. Competitive bidding is one of those pet ideas of wonks for Medicare—essentially, it works by giving seniors a voucher, and having each insurer bid for the right to cover each senior. The value of the voucher is set to the second-lowest bid—so the senior can go with anything from the cheapest option (and pocket the difference) or anything above it. Many variations of the plan give seniors the option to stick with traditional, fee-for-service Medicare.

One of the striking facets of the report is their arguments for savings—they estimate $339 billion over 10 years, which really isn’t all that much for a program touted as a cost-saving measure. (They have a long list of reasons as to why their estimates are conservative, but all health policy people are convinced their plans save more than the conservative estimates, as anyone who remembers the CBO saga from the health care reform fight.)

The other striking facet that I hadn’t really thought about enough was this:

Under competitive bidding, some beneficiaries will pay higher monthly premiums if their current health plan bids high, but they can avoid that higher payment by changing plans

This is mostly just a thought at this moment, but do we really want people switching health plans vigorously? Ideally it wouldn’t make much of a difference, but currently health care is fragmented and encouraging people to switch between plans frequently might increase fragmentation—if differences in networks are high, or if certain insurers have closer amounts of integration with certain health care providers…and it’s possible to imagine problems with non-interoperable EMRs, and so on and so forth. Maybe I’m just worrying over nothing, but it might be something worth thinking about.

More on the cost problem

Via Jeffrey Sachs, here we have an article in the Wall Street Journal by AEI’s J.D. Kleine arguing that health care inflation isn’t such a big problem:

New data show that health spending over the past several years has been normalizing toward the rate of general inflation, rather than growing higher and higher, as had been the case almost continuously since the 1970s. This moderation in the growth rate of spending predates the national recession. And it puts the lie to the claim that we need government to put the brakes on an "out-of-control" health-care system.

He goes on to explain it’s because of the technology (generics, among other things) and the management (more patient choice, and “other disciplining forces, like the nonprofit National Committee for Quality Assurance, which measures and reports to employers and other buyers of health care on how well insurers' provider networks manage chronic disease and practice preventive medicine.”)

Can we see this in the data? The WSJ provides a chart that shows the health care inflation rate (which had indeed fallen over the aughts), but crucially does not compare it to the general inflation rate. Fortunately for us we have the St. Louis Fed’s FRED service, with which I made this graph (blue is health care; red is CPI, i.e. general inflation):

I would describe it as “unclear” at best that the health care inflation rate has converged with the CPI.

Consequently, many of his specific claims seem to run into some trouble—for lack of data, or for lack of logic. Take quality. It’s hard to agree on what the quality metrics ought to be, but if you look at the data on hospital errors, it’s pretty clear that there’s quite a big problem in terms of mistakes made. Are patients choosing more? Certainly the HSA and/or high-deductible model has been extended more, but people debate whether that’s actually a good thing to this day.

So while optimism is appreciated, who knows whether it’s correct yet. Sachs, in the original article, stated that he is not prepared to mechanically extrapolate the inflation data out to 2085. This seems more than fair. Nevertheless, looking at the data above, we can see that, aside from recessions and their occasionally-sluggish recoveries, the inflation rate in health care has rarely dipped below 4 percent. So it would seem likely that we need to figure something out.

The cost problem

Matt Yglesias has a post arguing that health care is expensive because the prices are so high. (He cites a chart that notes that differences in quantities account for 18% and differences in cost account for 33% from high-cost to low-cost regions in the U.S.) This is, as he notes, somewhat tautological, but he thinks this implies that if the U.S. were really serious about cost containment it would adopt price controls. (This is, indeed, a big fear of doctors—I remember going to a talk with primarily doctors in attendance. The speaker said, “If we don’t figure out the cost problem, we’ll have cost controls.” The audience reacted with facial expressions usually seen on those suffering from gastrointestinal distress.)

I think the simplicity of thought here misses the overarching problems of the health care system. The cost problem isn’t just that prices are too high now, it’s that they’re high and rising. Currently our budget problem is just about sustainable in the long term; if health care costs rise at about previous trend, then there will inevitably be major problems. And it’s a bit too simple to say the solution is price controls. Chart:

Focus on the gray bars that show the inflation rate from 2000-2008. Enthusiastic price controllers U.K. have an even higher health care inflation rate than does the U.S.; Canada’s Socialized Medicine™ has a health care inflation rate equal to ours. Price control apparently isn’t enough to douse the fire. (Meanwhile, it’s not clear demographics play a huge role either—noted old people societies Italy and Japan were chugging along with a very manageable sub-2% inflation rate.)

The other problem, besides the inflation rate, is the low quality the American health care system too often delivers. This is often related to the overconsumption of care, or at least the substitution of more expensive yet less effective care for less expensive, more effective care. Viewed from this perspective the 18% of care related to the variation of consumption of care isn’t a number that is dwarfed by the third of costs related to higher prices, it is a huge opportunity. As Yglesias notes, the biggest chunk of the difference in health care spending is in “differences in health status.” Well, anytime you do an unnecessary procedure, resulting in a complication, resulting in even more care, you have an awfully expensive problem relating to both “differences in health status” and “overconsumption of care.” Hence health care is expensive because the prices are high , because we use too much of it, and because the product isn’t too great. (And 18% of all the variation is a huge amount—it seems silly to write off that entire part because there’s a bigger line item in the budget. Reducing that number substantially would reduce the budget hit substantially. Doing it right would deliver better health too.)

What about the doctors?

One of the possible consequences of expanding nurses’ scope of practice and allowing them to do more, medically, is reduced wages for doctors. That’s the reason for the opposition from doctors and doctors’ lobbies. The Econ 101 reasoning is pretty simple here: if you have increased supply and the same demand, supply-side takes a hit.

Via Aaron Carroll, a descriptive study about what happens when you ease scope of practice rules. (It doesn’t account for the messy confounding variables). It turns out, it’s hard to tell much: differences in wage gains, wages, etc. aren’t statistically significant.

There’s some speculation as to possible answers. One previous study cited within the study proposed the idea that physicians would substitute labor—from the nurses who could practice on their own to workers who couldn’t. (It didn’t look at employment levels or wages of nurses, unfortunately). Perhaps payers weren’t particularly aggressive in trying to substitute paying for nurses as opposed to doctors (one would imagine many patients would not be particularly excited to go to a nurse alone for many ailments and insurers might pick up on that lack of enthusiasm). Perhaps there’s something on the innovation side—if nurses were very innovative, perhaps they induced demand rather than competing for a fixed share of demand; on the other hand, perhaps nurses weren’t particularly innovative and didn’t compete enough? There are lots of questions that occur.

At any rate, the doctors’ lobbies are probably right to worry. To reprise an old chart from the NYT’s Economix blog:

As you can guess, pay for American general practitioners is well ahead of their peers worldwide, and it’s not hard to guess that that feeds into the American cost problem. American doctors would probably argue that it’s only fair—considering the debt and time burden associated with going to med school and then residency, they’re only making up for lost opportunity with their big pay. That may be so, but that doesn’t exactly dissuade you from the idea that several elements here need a rethink.

The Primary Care Shortage, And Why We're Probably All DOOOOOMMMEDD

So Sarah Kliff had a pretty excellent article in the Washington Post about the dire state of our health care labor force, which we can sum up very quickly as: we need roughly 30,000 new primary care physicians, soon, or else all of the new insured will have no one to take care of them. (I’ll add that the state of primary care is already pretty bad—she opens with an anecdote of a physician talking to a young girl. That kind of care can be hard to come by these days—primary care physicians often cram appointments really close together in order to maximize their appointments per day, which for obvious reasons might not lead to the best care.)

She goes into great detail about the mismatched incentives of the problem and the tentative steps the administration is taking to solve it, but it seems pretty clear that it’ll ultimately be inadequate.

Leave it, then, to Matt Yglesias to describe some more radical solutions:

—Build a new medical school and have it only train primary care physicians. Getting into medical school is hard—much harder than it was 40 years ago; if we let more people in we'll have more doctors.

—Change immigration laws to allow for unlimited entry of foreign-born primary care physicians. If we're worried about "brain drain," we can work out a scheme to automatically deduct 2 percent of the doctors' income and send it back to their home country.

—Reduce the Medicare reimbursement rates for specialists, so as to decrease the financial incentive for students to avoid becoming primary care physicians.

He also suggests allowing nurses to do more work. (I’ve written about that before. It’s a good idea!)

Unfortunately, as with most radical solutions beloved of policy wonks (reducing ethanol subsidies! Congestion charges! etc.), it’s hard to see the necessary changes implied by the first two ideas Yglesias proposes coming to fruition.

Medical schools:

Building a new medical school exclusively for primary care physicians is probably a fine direct solution. In order to have a huge effect, however, it’d have to live in the sort of future world so beloved of pundits also shared by such projects as Khan Academy et. al. Four new medical schools accepted their first classes of students in 2010 and the New York Times expects a total of two dozen to come into existence soon. As far as I can tell from their websites, the schools took about five or six years to actually begin admitting students, which means roughly a decade would pass between the intention to create a medical school and the actual graduation of medical students. After graduation, of course, there’s residency, which means anything we do now in terms of training doctors will start having an effect twelve or so years from now. As Kliff’s article makes clear, the trends in med school graduates choosing to become primary care physicians are highly volatile—there was a marked uptick in the nineties and about a 20% increase between 2009 and 2011.

If you want an increase over a shorter time frame, you probably have to start thinking about things involving medical licensure, online teaching, etc. Khan Academy territory, essentially.

Immigration

Admitting tons of foreign doctors is really only a first step. There was a good policy brief cited by Felix Salmon recently that showed the depth of the problem of that first step—for H-1B visas, you had a 17% denial rate in FY2011 and a 26% request for evidence rate in 2011, meaning that any attempt to hire a foreign physician will be delayed extensively if not denied. As I’ve mentioned, this is really only the beginning of the problem. You also have to get a license to practice. That involves an English proficiency test, as well as a medical test. It also involves…a residency. Whether you are a 55-year-old doctor who’s at the top of her field or a nervous guy right out of college, you will have to do a residency if you are interested in employment in the United States. Some are still interested—which leads to entertaining stories, to be sure (my mom apparently did her residency with an older gentleman from Romania), but probably isn’t the most rational way to do policy. At any rate, licenses present a large additional obstacle besides the visa process to importing large numbers of physicians from abroad, however convenient a solution that might appear at first blush.

(Changing Medicare reimbursements would be a fine idea. It might also be a good idea to address the problems with rural payments—under the current scheme there’s really no additional economic incentive to live out in rural areas.)

At any rate, the number of repetitions of the word “residency” really hides an additional large problem: there’s a residency crunch that might get much worse. Medicare supports funding for residency programs; however, its funding has been more-or-less capped since 1997. The President’s budget proposal does away with that policy—it would cut roughly $10 billion from that support. Perhaps hospitals’ taste for low-cost labor it can flog over many hours won’t be soured by the cut support; perhaps, however, they won’t take as many residents. If so, then there won’t be a solution for the primary care physician problem. In that case, it’ll probably be time to think about empowering nurses.