Originall the confraternity Scuola Grande di San Marco, this is now the city hospital (Ospedale Civile)

Health Care Reform

for the United States, by Philip Greenspun, September 2009

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The U.S. is currently spending 18 percent of its GDP on health care. As the economy shrinks, health care costs inflate, and health care insurance is expanded as proposed by Barack Obama and Congress, the percentage of GDP spent on health care will soon exceed 22 percent. As our population ages, the percentage of GDP consumed could easily grow to 25 percent.

Health Care is not Health

We now spend so much on health care that it is very likely reducing our health compared to having a minimal system. In order to pay for our health care system, Americans are forced to work 25 percent longer hours than they otherwise would. Except for young people building their skills and reputation, working long hours is bad for a person's mental and physical health. The person who works 60 hours per week instead of 48 has less time to exercise, less time to relax with family, and less time to sleep.

If the money that we paid for health care turned us all into Michael Phelps it would certainly be worth it, but working those extra hours every week, year in and year out, has instead turned us into obese desk slaves.

Given the cost of our current health care system, the U.S. would probably have a longer life expectancy than our present 78 years if we had no hospitals, no doctors, and no drugs beyond the cheapest and most basic, such as penicillin, aspirin, etc. We have clean public water supplies, good sewage treatment, vaccines against epidemic diseases, and antibiotics. Without the possibility of a helicopter medevac flight, Americans might rethink the wisdom of putting texting 17-year-olds behind the wheels of 7000 lb. SUVs, thus reducing the need for trauma services. Without the possibility of diabetes treatment, statins, coronary bypass surgery, or stomach stapling, eating in moderation would become more fashionable. Nobody is seriously advocating eliminating our health care system, but it is worth occasionally asking the question "Is our system so broken and expensive that we'd actually be healthier with nothing?"

Who Voted to Spend All of Our Money on Health Care?

Our mature economic competitors, such as Japan and France, spend between 8 and 11 percent of GDP on health care. China spends about 5 percent. As noted above, we're going to spend 22 percent. Did someone vote for that when we weren't looking?

Without any public debate, Americans have decided that we will spend money on health care rather than invest it in any of the following:

Without any public debate, Americans have decided that we will spend money on health care rather than spend it on any of the following: If we cut our health care costs to Japan's percentage of GDP, for example, we would be able to finance the entire U.S. military plus our adventures in Iraq and Afghanistan, and still have enough left over to double our economy's R&D investment.

Luxury Health Care or a Paid-for Life?

Suppose that you could give up two years of life expectancy in exchange for the following: paid-for housing, paid-for cars, paid-for college, paid-for vacations, paid-for children. Instead of living 78 years, you'd expect to live 76, but you'd never have to work full-time and could probably pack a lot of enjoyment into those 76 years because you wouldn't be a slave to day-to-day expenses.

Let's compare the U.S. to Mexico. Mexicans share our continent, our love for soda and corn syrup, and our tendency towards chubbiness (source). We spend approximately $8500 per year per American on health care and live to the age of 78. A Mexican can expect to live to age 76. How much do Mexicans spend on health care? Their per-person GDP is only about $13,000 per year, and they supposedly spend about 6 percent of GDP on health care (source) so $800 per person is a good estimate.

An American will spend $600,000 in order to add two years to the end of his life. Those two years may very well be spent in an intensive care unit or a nursing home and certainly are not likely to be spent on the tennis court or visiting the Venice Biennale.

For that $600,000, an American could have the following:

On the Mexican plan there would be no helicopter medevacs, no death-after-weeks-in-the-ICU, and many fewer MRIs. A Goldman Sachs employee might well decide to spend $600,000 of his TARP-funded bonus in order to live two years longer, but why should every American be forced into spending this $600,000 on health care? Admiral John McCain, Sr. was famous for saying "Not another penny on doctors! I'm spending it all on riotous living," in response to his wife's suggestions that he address some of his health and dental deficits.

Additional Problems with Our Current System

Aside from the ruinous cost, we have the following problems with our current health care system:

The Real Question: Why Aren't Things Much Worse?

Among all of the products and services that we buy, health care has some unusual characteristics. The government pays for more than half of it directly. Most of what we pay, typically through our employer, is tax-deductible. The amount of services to be delivered, i.e., the tests and procedures to be conducted, is determined by the people who are getting paid to deliver them. There is no limit to what a service provider can collect from the government or a private insurance company for treating single patient. The real question about this system is not "How come it costs so much and works so badly?" but "How come it costs so little and works at all?" Why did we ever expect this system, as currently set up, not to bankrupt us?

My theory is that the perverse incentives in the system are ameliorated to some extent by dedicated individuals at all levels, from insurance company executives down to hospital orderlies. If health care professionals responded to incentives like Fortune 500 or Wall Street executives do, health care would consume 80 percent of GDP and most of us would be dead due to complications from our daily X-rays, blood transfusions, medication cocktails, dialysis (you can never be sure that your natural kidneys are functioning perfectly, so why take a chance?), etc.

What Could We Get for Our Money?

Big Save.  Hawaii As the health care industry has never been competitive, nor had any incentive to control costs, we have no idea how much American health care could or should cost. Hospitals are much more like defense contractors than participants in a free market. They talk about their costs and how they need to be paid "cost plus". Given sufficiently poor incentives, it is possible for Americans to be spectacularly inefficient. The U.S. government decided to buy some helicopters that were already being built in Europe and flying happily all over the world. The helicopters could have been purchased for $30-50 million each and delivered in three years. By the time Lockheed-Martin and the U.S. military finished working together to design some enhancements and move production to the U.S., the delivery time had stretched out to 10 years and the cost escalated to $400 million each (Wikipedia). Health care in the U.S. is primarily paid for by the U.S. government and more or less in the same way as we buy military hardware.

The reengineering that has transformed other American industries hasn't been tried in health care because there has been no incentive to try and very little competition. Health insurers cannot do business across state lines. Doctors licensed in one state cannot practice in another. Fully trained doctors from countries with superior medical systems to ours cannot legally practice here. A hospital that charges less money cannot attract more patients, since the patient is almost always entitled to go to the hospital closest to his or her house (the same guy who would drive up to New Hampshire to save 6.25 percent sales tax on a set of tires wouldn't drive up there to save his insurance company $5,000 on an operation).

When a business process is rethought and reengineered, the savings can be astonishing. We can mourn the death of the American Main Street, but Walmart is able to deliver goods at prices that would previously have been considered unsustainably low. If we'd had the structural barriers to innovation in retailing that we have in health care, we never would have known that groceries could be 22 percent cheaper (source) in what was already thought to be a competitive market.

Consider the four-passenger automobile, a product that everyone agreed needed to cost about $20,000. Japanese companies improved the quality, but did not question the premise that a 170 lb. human needs to be wrapped in 3000 lbs. of machine in order to move down the road. A few engineers in India questioned all the previous assumptions in car design and came up with the Tata Nano, a perfectly functional four-passenger car that costs just over $2,000.

Reform Suggestion One: Provide Universal Coverage

Venice Beach, California. The U.S. government already spends more than half of the health care dollars spent in the U.S. As this is a larger percentage of GDP than Japan spends on health care for all of its citizens, we have the proven ability to pay for universal health care, assuming that care is delivered in an internationally competitive manner.

Does this mean that we need a government-run national health service, as they have in the United Kingdom? No. Via the public schools, we've already demonstrated that a large-scale enterprise staffed with American civil servants ends up being a national embarrassment and a huge drain on the treasury. Private HMOs and clinics should be able to compete to take care of patients, paid for on a per-patient (not a per-procedure) basis by the federal government.

Should we cover visitors? Sure. An American traveling in a lot of other countries can count on free treatment, at least of emergencies. We can set up reciprocal arrangements with other countries for non-emergency care. If an American can get a flu shot in France for free, a French tourist should be able to get a flu shot here.

The question of illegal immigrants has caused a lot of controversy in Massachusetts, a state with universal health insurance and hardly any illegal immigrants. Illegal immigrants pay sales tax, gas tax, property tax (through their landlords), and, if they're using someone else's Social Security number, payroll and income taxes. Why shouldn't they get what American citizens are getting? Keep in mind that we're controlling costs by keeping the services provided fairly basic.

Rules and regulations:

One likely side effect of this reform is the return to centrality of the primary care physician. Joe Medicare Patient often does not have any doctor who understands much less coordinates his care. If Joe has seen six specialists, he may be on drugs that are working at cross purposes. If Joe is in the ICU at a typical hospital, the multiple doctors treating him may never talk to each other. Each one knows what tests and procedures he or she has ordered, but, except by looking at the patient's chart, has no idea what the other doctors are investigating. One primary care doctor who reviewed this proposal said "The first item I address with new patients in my office is to try to get them off as many drugs as possible; when a 70-year-old is on 11 meds you better believe there are many unintended interactions."

Limit the Cost by Limiting the Cost

Right now we have intellectual arms race of the government trying to limit costs by cutting payments to providers for various procedures. Medicare cuts the amount that it will pay for a doctor to talk to a patient. The doctor decides to make sure that at least half of the patients seen will need something cut off with a scalpel, which can be billed to Medicare as a "surgical procedure". In While America Aged, wags noted that after General Motors added podiatry to its workers' and retirees' health care coverage, workers had their feet operated on one toe at a time.

We currently spend about $8500 per year per American on health care. Japan spends about $2,700 and her citizens live much longer than Americans. After a public debate, we would decide affirmatively how much of our tax dollars we wanted to spend on health care. Suppose that we decided that it should be an average of $2,000 per person on the public clinics. Let's further suppose that all 300 million residents of the U.S. signed up. The annual cost would be $600 billion. How does that compare to current government spending? Medicare and Medicaid alone cost over $800 billion and cover only a fraction of the U.S. population.

Would it be possible to provide basic health care for only $2,000 per person here in the U.S.? Health insurance right now for a middle-aged American costs closer to $3,000 per year for a basic plan, but our clinics are going to exclude a lot of expensive tests and procedures that these plans cover. We're also going to eliminate most administrative costs by folding the insurance company into the clinic. Now they won't each have to hire staff to fight with each other.

We can make the Patient the Customer

One reason why the health care industry provides such appalling service is that the patient is seldom the customer. You might pay $16,000 per year to insure your family of four and think of yourself as entitled to some deference from a vendor (i.e., doctor or hospital). But the vendor will be getting paid by the insurance company and has no reason to care what you think. The vendor can keep you waiting for three hours, make a lot of mistakes and not apologize for them, etc. You probably won't switch HMOs or insurance companies due to the hassle and the fear of being denied due to a preexisting condition.

Were the health care system to be reformed along the lines proposed in this article, the patient would almost always be the customer. The public-only patient would have the freedom to switch clinic/HMO annually. The wealthier patient who was buying some services on the open market would by definition be the customer.

Reform Suggestion Two: Increase the Supply of Doctors without Increasing the Number

If we are going to have more patients, we are going to need more doctors. At 2.4 doctors per 1000 residents, the U.S. has fewer physicians per capita than other developed countries. The OECD average was 3.1 per 1000 residents; France has 3.3. We don't have enough doctors for our current system, especially doctors who do primary care.

We can increase the supply of doctors to some extent without increasing the number of doctors. How? A doctor today has to spend time choosing an IT system, figuring out which insurance networks to join, filling out insurance paperwork, arguing with insurance companies, interviewing assistants whose job it will be to fill out insurance paperwork, argue with insurance companies, etc. The Byzantine complexity of the American medical system significantly reduces the amount of time that our doctors have to practice medicine. If we make it easy and simple for a doctor to treat patients while earning a reasonable salary, the existing group of doctors will have more hours in which to see patients.

Streamlining insurance and litigation also increases the supply of doctors. If fewer people sign up to private insurance, once a universal public care system is available, the insurance companies won't need to employ so many MDs to review claims. If medical malpractice cases are taken out of the tort system, we will have fewer doctors tied up serving as expert witnesses (at least one on both sides of each case).

Consider a doctor who moves from New York to Massachusetts because of a spouse's sudden job transfer. This fully trained doctor might have to spend some months out of the labor force because he or she has not completed the paperwork for being licensed in Massachusetts (whose Board of Registration says on its Web site that it "usually requires a minimum of 4 months" to get a license). Each of 50 states has a physician licensing board, which itself employs physicians. You might think that these boards protect patients, but in practice physicians who've committed serious errors in one state are typically able to get licensed in one of the 49 other states. A federal licensing system for physicians will (1) make it easier for doctors to work wherever they happen to move, (2) enable doctors who are spending time on state licensing boards to go back to seeing patients, and (3) make it tougher for an incompetent doctor to shop around for a new state in which to get licensed.

Reform Suggestion Three: Increase the Supply of Doctors by Increasing the Number

According to the Wall Street Journal, April 4, 2008, "The U.S. went more than 30 years without a new med school". (source) With a population growing at 1 percent per year, the 131 current medical schools have become ridiculously insufficient and finally there are a few startups. The dean interviewed by the Wall Street Journal estimated the cost of starting up a new school at approximately $100 million, including dormitories, classrooms, and laboratories. In other words, for the cost of bailing out GM and Chrysler, we could have financed 1000 new medical schools. Since the U.S. government is the largest purchaser of services from physicians, it makes sense for the federal government to provide financing for perhaps 100 new medical schools. The government should provide a standard curriculum, including online textbooks, and a standard staffing plan, the use of which would guarantee accreditation.

New medical schools won't alleviate our immediate shortage, however. For that we need to make it easier for foreign physicians to immigrate to the U.S. and practice. If we said that we would admit a doctor from any country whose life expectancy was at least within 2 years of the U.S. that would encompass MDs from roughly 70 countries (source). Currently a foreign doctor must surmount a tortuous bureaucracy and a visa lottery to get into the U.S. (the 9/11 terrorists were all in the U.S. legally, but the U.S. Citizenship and Immigration Services does a great job of keeping Australian doctors out). Once here, he or she must repeat much of the training that was already completed back in the old country, e.g., Australia, Sweden, France, or Switzerland. Let's replace this a virtually automatic 5-year work visa, a one-year transition training program, and a challenging exam at the end (for specialists, perhaps simply require them to become Board-certified, something that U.S. physicians are not required to do).

Fairness

Fully implemented, this proposal would leave the U.S. with a U.K.-style public/private two-tier health care system. The rich would have access to more doctors, more procedures, more tests, more drugs, and fancier facilities. Isn't it every human's right to equal quality medical care? Shouldn't the standard of care be the same for a hobo as for an AIG executive?

The current system aspires to fairness but falls far short. Barack Obama travels with a personal physician and nurse (story). Back at the White House, he and other top officials have four doctors "steps from [the Oval Office]". Suppose that a surgeon in France has developed a life-saving procedure. A rich American can get in a private jet and visit that surgeon, paying for the operation out of pocket; the average American might have to wait 5 or 10 years until a surgeon in his or her region had been trained to perform the operation.

Some unfairness is a necessary component of any system involving humans. If 1000 people buy 1000 Honda Accords tomorrow, each will have a very similar driving experience. If 1000 people visit 1000 doctors tomorrow, each will have a very different experience. Some doctors will be smarter or more skilled than others. Some doctors will be better rested and hence able to do a better job than others. It is literally impossible to construct a system in which everyone gets equally good care. Thus we might as well construct a system in which everyone gets good care without bankrupting the nation.

Reform Suggestion Four: A Basic Standard of Care

Currently the standard of care is "we'll do anything that might conceivably prolong a patient's life regardless of the cost, regardless of what else society might have done with that money, and regardless of risks and suffering to the patient." When we're done, we'll send Medicare, Medicaid, or Blue Cross a fat bill, even if the patient goes home in a box, just as expected. If a clever doctor came up with a $1 million operation that would provide a one-year life extension for anyone about to die, our present insurers would essentially be obligated to buy that operation for every sick or old American. A 105-year-old would have his life extended indefinitely at a cost of $1 million per year to working-age Americans.

As part of the reform, the government needs to define a basic standard of care to which vendors must adhere as a minimum. In some ways this standard of care might be higher than the present average, e.g., in requiring hospitals to use checklists and better handwashing to avoid errors and infections. In others, the standard of care could be arguably inferior. We'd need to gather experts in all fields of medicine and economics to figure out which therapies were the most cost-effective in terms of improving peoples' lives. The standard of care would be continuously reevaluated as new procedures, devices, and drugs became available. It is probably safe to assume that a taxpayer-funded patient with terminal cancer won't have a series of exhausting and expensive operations that might prolong life by a few months, that a 95-year-old won't have a monthlong $250,000 stay in an intensive-care unit, and that someone who falls off a bike and has a headache won't get an MRI immediately the way that people currently do in cities where the physicians own the MRI.

Competition among clinics/HMOs should result in a higher standard of care being offered by some in order to attract consumers. As noted above, because the health care industry has never been competitive, we have no idea what cost-savings might be possible. If McDonald's were run as incompetently as a typical hospital, a Big Mac would cost $25. An increased supply of medical doctors might also result in a higher standard of care being deliverable than is presently possible for a reasonable cost.

Remember that nothing stops someone from spending his or her savings on additional tests or procedures, or on private insurance that might cover such expenses.

Reform Suggestion Five: Shut down the Veterans Administration Hospital System

Sunset.  Chaco Canyon, New Mexico Now that every resident of the United States is entitled to health care, we can shut down the Veterans Administration health system that costs taxpayers $50 billion annually. The vast majority of patrons of the VA health care system are veterans whose medical needs are no different than any civilian's. For those veterans who have specific combat-related injuries, the military can pay for supplemental care in private facilities. For soldiers who have combat trauma that requires critical care, we already have excellent military-run hospitals that specialize in such care. We can take any VA hospital units with combat trauma experience and transfer them to the active Department of Defense hospital system.

Reform Suggestion Six: Scrap Government-mandated Health Care IT

Burning car.  New Jersey 1995. Information technology could make medicine safer, more efficient, and cheaper. Suppose, for example, that the government ran a central medical records system for all of the people signed up to the basic healthcare plan. Rather than investing in an IT system, a clinic or individual physician who wished to participate in the government-sponsored system could use this central system. Consider an individual doctor. She sets up shop in a small town, buys a PC for $300, signs up to broadband for $29/month, and is done with her IT selection and investment. When a patient comes in to see her, she looks up the patient's history, plans a treatment and types in what she did. The patient's record is updated and the physician gets paid for her time. That's how computer systems could save the country money, but it is not how the federal government is proposing to use computers.

The current federal system mandates that physicians use an electronic health record, but provides no guidance or assistance. Consider an individual physician setting up an office. She needs to choose among 30 different software packages, sold and supported by 100 different vendors. This is the kind of IT choice that, at a hospital, would be made by a committee of eight experts doing research and getting demos over a period of 9 months. Our physician, who has no training in software or IT management, is expected to make an informed choice in between seeing patients. When she does make her choice, she'll pay $30-100,000 for the system and between $10,000 and $100,000 per year for maintenance, updates, and system administration.

What about the larger implications for societal efficiency? There are at least 100 comprehensive yet different patient health record systems out there, each with a different way of storing the same information. The government is mandating that these data be exchangeable, but has thus far provided no standards for the exchange. With 100 different systems out there, there are roughly 5000 possible pairs of heterogeneous data models. We would need all of the programmers in India to write 5000 data converters to usher in the era of electronic health records.

If privacy concerns make it untenable for the government to run an efficient electronic medical record system for the health care providers being paid with tax dollars, let's at least have the government fund a few open-source electronic medical record projects. The goal should be a simple one: an individual physician or small group should not have to endure any IT expense beyond purchasing a PC and cable modem.

Given the hopeless state of the health care IT industry right now, with hospitals spending $70 million or more on systems that doctors find inferior to paper, perhaps the best thing the government could do is stop pushing the industry to buy more software. At least until the average health care application works as well as a free Google application, society is better off not buying any more of this inferior product.

Reform Suggestion Seven: Eliminate Tax Deductions for Health Care Expenses

Do we want Americans to spend more and more money on health care? If not, why do health care expenses get favorable tax treatment? We made mortgage interest deductible and ended up with the world's most ridiculous mortgages, as well as the world's most inflated real estate prices. We've made health care expenses deductible and that probably contributes to the fact that we have the world's most inflated health care prices.

The typical American, after this reform plan is implemented, won't have significant health care expenses. He or she will get a voucher, hand it over to a clinic or HMO, and put aside a few extra dollars for aspirin. An executive who enjoys a lavish company-funded concierge medical service should not be able to stick a Walmart worker with part of the cost.

Reform Suggestion Eight: Simplify Medical Malpractice Dispute Resolution

Brooks Falls, Katmai National Park Estimates of the cost of malpractice insurance, lawsuits, and defensive medicine range from 2 percent to 10 percent of our current total health care expense. If we accept the 10 percent figure, that means it is inching up toward $300 billion per year, perhaps enough to pay half the cost of a reasonable health care system for every American.

Consider the ludicrous nature of our current system. Imagine that you're a jury on a case involving a baby with Cerebral Palsy. John Edwards, the personal injury lawyer turned senator, is channeling the thoughts and voice of the fetus. You, who has never had any training in biology, chemistry, neurophysiology, medicine, or epidemiology, are listening to evidence about what happened during a mother's labor and delivery. You're listening to experts hired by each side trying to educate you about the causes of cerebral palsy. The Wikipedia page says "Despite years of debate, the cause of the majority of cases of [Cerebral Palsy] is uncertain." Scientists who've worked on this for decades cannot agree on what causes the condition, but you're supposed to figure it out in a week or two. As part of your service as a juror, you are precluded from doing any research on your own. You, however, are going to decide whether or not the horribly sick child gets $10 million or nothing. Good luck.

Patent appeals aren't heard by a general purpose judge and no jury is involved. These highly technical cases are heard by a special court. We could do the same for medical malpractice, thus making the process less of a lottery. Cases heard before a judge with specialized training in the process of medicine would be less likely to depend on whether the jury sympathized with the kindly physician or the horribly injured patient. The malpractice court judge would have the ability to hire independent experts to conduct analysis for the court, rather than simply relying on expert witnesses hired by the plaintiffs and defendants.

Our current malpractice dispute resolution system doesn't serve anyone well, except perhaps some lawyers. Most victims of medical malpractice are unable to find a lawyer to represent them because the cost of litigation in conventional court is so high. Unless you've been reduced to a vegetable or killed by a doctor, it is unlikely that you'll ever get an apology from the health care provider who screwed up, much less a refund or compensation. We need to make it easier for victims of less-than-epic mistakes to get compensation, if only to encourage clinics and HMOs to do a better job. We also need to make the costs of losing a malpractice dispute more predictable for the clinics and HMOs, capping punitive damages and pain and suffering awards.

How Do We Ensure Quality?

Some of the proposals advanced by the Obama Administration and Congress have included various government committees and initiatives that aim to improve the quality of health care services. If this reforms proposed in this article were implemented, what would be the quality control mechanism?

We now have a more or less standardized product that consumers are buying, i.e., one year of health care to at least the basic standard. When comparable products are available at similar prices from competing suppliers, the marketplace should ensure that the highest quality methods and suppliers bubble to the top. We don't need a government committee to figure out if a Honda Accord is better than a Toyota Camry. They're both pretty good, first of all, because inferior designs have been driven out of the market. Despite the horse-trading culture of car dealers, the prices are fairly transparent. Because the products are available nationally, a variety of magazines and Web sites are able to help consumers figure out which product is best for them.

If the government, as the main buyer of health care services, wishes to help consumers compare, it could define a metric of health, encompassing such factors as blood pressure, pulse, body mass index, cholesterol levels (before tweaking by statins), age, chronic conditions, medications taken daily, alcohol and tobacco consumption, any positive tests for cancer, etc. Each clinic/HMO would measure its customers upon entry into their progam and at every checkup. If the data were published it would be possible to compare different clinics at improving their customers' health (a patient who died would score a 0!).

How come it has been so hard to ensure quality in the current American health care system? The patient is not the customer and competition is very weak, so suppliers make very limited attempts to communicate with patients. Prices are not published, so nobody can figure out if something is a good value. If no prices were available, you might think that a Honda Accord was kind of crummy compared to a BMW 7-series sedan. Upon finding out that the BMW costs four times as much and consumes twice as much gas, your opinion of Honda's engineers would probably improve. If the automobile industry were like America's health system they would say "It is every American's right to have the best car that can be constructed with 2010 technology, regardless of cost." But the average consumer would rather have the Honda Accord and $60,000 in walking-around money than the BMW.

How Does the Health Care Industry Prosper?

The original Bob's Big Boy.  A historical landmark.  Toluca Lake, California. With all of these proposed changes in place, how could the health care industry prosper? Thanks to universal coverage, the industry will have more paying customers, but the government basic rate won't be as high as what the industry currently gets from Medicare and Medicaid. How can insurance companies survive now that every American will have buit-in catastrophic health insurance?

The answer is product and service innovation. Big changes in technology or markets do sometimes trip up companies that fail to innovate. The record companies are a familiar example, out there trying to sell the same product that they did 120 years ago, i.e., a physical embodiment of a sound recording (in 1890 it was an Edison cylinder, then an analog disk through the mid-1980s, then a digital Compact Disc). Sales are down and the industry complains about Internet file sharing. The average consumer, though, wouldn't clutter his or her house with CDs even if they were free. The consumer's home entertainment budget is spent on (1) subscriptions to cable TV, Web sites, and satellite radio; (2) video games, and (3) movies on disk at ever-improving quality (contrast to the sound recording industry, which went from the CD to low bit rate digital recordings on iTunes (a computer application that they weren't even able to build for themselves!)). A movie that cost $150 million to produce may sell on Blu-ray for $9-15 or is delivered on demand for $4 over FiOS. Why would we expect any consumer to pay $18 for a sound recording?

There is no law that says the health care industry needs to display the same lack of innovation that the recording industry does. And universal coverage doesn't mean that there is nothing left to sell. Even today insurance companies are very successful at selling supplemental insurance to seniors eligible for Medicare.

Aside from supplemental insurance, the insurance companies could promise to steer consumers to the most qualified doctors. Right now a doctor being part of an insurance company's network probably means that he or she is willing to accept the company's derisory financial terms. The insurance company, however, by looking at rates of complications and other outcome measures, probably has a pretty good idea of who the best providers are in a region and could make good money by selling that information to consumers, either directly or in the form of a "only the best doctors" supplemental policy.

Health care providers could sell more convenience and luxury to consumers. There is hardly a family in America whose transportation needs would not be met by an $8,000 Chevy Malibu auctioned off by a rental car agency, yet the car makers have no difficulty in selling $25,000 new cars or even $50,000 pavement-melting SUVs. You don't have to be a genius to cook a basic dinner from raw ingredients, but supermarkets have no trouble charging 2-3X more for already-cooked food.

Let's start with convenience. A doctor or nurse could equip a van or motor home with all of the basic primary care or pediatric equipment and supplies and drive around to patients' houses. You can get a dog groomer or veterinarian to come to your house, why not a doctor? With modern computer software and wireless networks it should be possible for a big HMO to route a doctor from house to house so that time lost in transportation is minimal. By visiting the patient at home, the doctor may be able to get a better sense of what might be wrong with the person.

Time of day is another opportunity for the health care industry to make money. You can go to the supermarket at 7 pm. How come you can't go for a doctor's appointment at 7 pm? A lot of patients would pay extra to avoid having to take time off work or school.

Many patients would pay a substantial sum in order to avoid being bounced from building to building and from day to day. If a doctor thinks that you need an opinion from a specialist, why can't that specialist walk down the hall, come into the exam room, and look at you then and there? This saves the specialist from having to write a letter back to your primary care doctor, since your primary care doc is still in the room.

Communication is something that patients have already demonstrated a willingness to pay extra for. Patients on concierge medicine plans can call their doctor, or at least a doctor, 24/7 and expect the person who picks up the phone to know their medical history.

What About All of those Rich Doctors?

Would health care reform as proposed here keep doctors from getting rich? Actually, despite the larger number of doctors permitted to practice in the U.S., some existing doctors should be able to earn considerably more.

Right now the best doctors cannot effectively market themselves to patients and therefore cannot command higher prices than average or below average doctors. A doctor's customers are clerks at insurance companies and bureaucrats at Medicare. All these folks care about is how much she charges; they don't care whether or not she is more effective at curing disease. Consequently, doctors who barely meet the minimum standards for their specialty might get paid almost as much as superb physicians in the same specialty.

A fantastically gifted primary care physician today would be lucky to earn half as much as a heart surgeon who kills 60 percent of his patients. Our system rewards doctors who cut, slice, and blast with lasers. It doesn't reward doctors who restore us to health. Our health and well-being has no value to an insurance company or Medicare and therefore a physician cannot charge anything for making us healthy. A savvy consumer, on the other hand, might be delighted to pay a significant sum to a primary care physician who effectively coordinated the efforts of specialists, as needed, and kept the consumer healthy.

The doctors who have become rich by opening a chain of clinics and taking on business risk should continue to prosper as long as they can deliver services competitively. The doctors who have become rich by investing in hospitals or MRI facilities and then referring their patients to those facilities will surely see their incomes fall.

Freed from the bureaucratic hassles of dealing with insurance companies, doctors of average ability and ambition who see a lot of private patients would immediately realize a huge improvement in profitability if only because they could replace most of their billing staff with a simple credit card machine.

Summary

Lower Klamath National Wildlife Refuge Anything that is sufficiently expensive is bad for our health. Nothing that American society buys is more expensive than health care. By crowding out time and money that could be devoted to things other than working at our mostly sedentary jobs, the American health care industry reduces the overall health of Americans.

To dig us out of the hole that we started digging for ourselves in World War II, when the current American system of health insurance began to take root, here is a comprehensive plan:

Comparison to Obama Administration and Congressional Proposals

Ostrich head. It is difficult to compare this proposal to what's being proposed by the Obama Administration at www.healthreform.gov because the government's Web site doesn't say what should be done, i.e., there is no actual Obama Administration proposal other that "reform". It talks about problems and costs associated with the present system and how they are intolerable. Providers are overbilling Medicare, for example, and "reform" is going to stop these clever people from being clever in the future.

America's Affordable Health Choices Act of 2009, H.R. 3200, a bill currently before Congress, is more specific. Looking at Section 100(c) of this bill, we find that nothing is going to happen until the year 2013 ("Y1" = 2013). In other words, Congress is rushing to enact more than 1000 pages of legislation, without anyone having time to work out the costs or implications, because reforming health care is critical to reestablishing continued economic growth in the U.S. On the other hand, the problem is not so bad that it can't wait until January 1, 2013. This gives the politicians who vote for or sign the bill more than three years to take credit for having "reformed" health care before anyone starts to suffer from the consequences of these changes. This makes health care reform a bit like increasing pensions for public employees. A politician gets a boost in popularity that lasts long enough to ensure reelection; the taxpayers get stuck with paying the bill for the next 30-50 years (see While America Aged for how generous pension benefits granted by Robert Wagner as part of mayoral reelection efforts of 1958 led to New York City's near bankruptcy in 1975).

As best as I can tell, every group that makes a lot of profit from the current system has hired enough lobbyists and supplied enough cash to politicians that their way of doing business won't be significantly changed. Insurance companies will continue to operate as oligopolies with byzantine rules that enable them to give doctors and customers the infinite run-around. Existing doctors won't face competition from a large crop of graduates from new medical schools or from foreign doctors in significant numbers. Hospitals will get paid by the procedure. Personal injury lawyers will be able to sue in the same courts and present cases in front of the same juries. We thus have the spectacle of Congress saying that they're going to "reform" the health care system, except that there can't be any significant change for doctors, hospitals, lawyers, or insurance companies. What is left?

Unless one has a morbid interest in where one's tax dollars go to die, it is tough to come up with a reason to pay attention at all to the current debate in Washington. The "reform" currently being discussed is simply the government printing money to give to insurance companies to put more people into the world's least efficient system of health care administration.

Comments from Medical Doctors

Before making this document public, I circulated it to some of friends who are doctors. Here were their reactions:

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Text and pictures are copyright 2009 Philip Greenspun


philg@mit.edu

Reader's Comments

2 more: - Add a requirement for doctors to publish their prices for procedures and charge the same price to everybody independent of insurance status. I have a high deductible plan and whenever I ask a doctor about cost I rarely get a straight answer. I am starting to suspect that they are making up their prices based on what they they think a patient can pay. - Publish all available quality numbers. Doctors will complain that they are misleading and confusing but this will be much better than having nothing as we do now. Insurance companies probably have these numbers and all of them should be published IMO.

-- max m, September 9, 2009
COST OF BILLING

If I had been writing that article, I would have emphasized more the high cost of the current billing system.

When I was working in medical computing (the early 1980's), a number people threw around was that every item on a patients bill cost $7 just for the billing. So those $7.50 bandaids people got billed for when they went to the Emergency Room were in fact correctly priced.

I'm sure the number is different now. I would guess higher, for reasons you discuss.

This is related to what your physician reviewers said about how much physician time is spent on billing, but physicians are a small part of the cost of third-party billing.

PATIENTS AS CONSUMERS

One point that nobody seems to make when talking about the idea of patients as consumers is that nobody who actually provides medical services actually has any idea how much they cost the patient. So even if you wanted to have tests done only if they had a reasonable chance of finding something that could be treated at a reasonable cost, you would find it very difficult to find even the cost to you of the proposed test, let alone of theoretical treatments.

-- Laura Conrad, September 9, 2009

well done.

i assume you've also seen this Atlantic article by now... many similarities.

I hear many people say that Obama is working against a lot of inertia within the American public on the part of people who are satisfied with their health coverage and think they'll be screwed by their automatic inclusion into an enormous government-run clusterfsck of a system to replace it. These people seem to favour an incremental series of changes to our current system, like covering additional people or reworking the rules so insurance companies can't do scummy things like drop people under false pretence when they get expensive, and making the government prove itself on those before going further.

To address these concerns, I think it's really important to emphasise the amount the average US worker is missing in salary just by passing the cost of their insurance on to their employer. A lot of people pay lip service to the concept and say they take it into account when considering the health care question, but I'm really not sure they're appreciating the gravity of the concept.

Yeah, the government might take some additional cash to get this thing rolling--they aren't known for getting things done on time and under budget, for that matter, and cost overruns come out of the taxpayers pockets. But once this thing is passed, you'll instantly be getting hundreds or even thousands of dollars more from your employer every month, immediately. They'll be giving you most or all of what they're spending on your health insurance without having to pay an additional cent to compensate you. Even if you're taxed on it, that's going to be more than enough to sign yourself up for one of the competitively-priced supplemental plans that insurance companies will certainly begin to offer. Or you can just use the government baseline and spend the rest on airplanes, or vacations, or coke and hookers.

You'll have to put in a little more time each time renewal comes around than you put in considering your auto insurance and shopping around, and you're golden.

nitpicks

Compact Disk should be Compact Disc

$150 million to produce sells on Blu-ray may sell for $9 should be $150 million to produce Blu-ray may sell for $9 on Blu-ray ... also, most movies sell for much more than $9 on Blu-Ray, don't they? I'm sure you could find some low-quality overstocked titles at that price but continuing the analogy to the music industry I could find a copy of Mariah Carey's "Glitter" much cheaper than $18. I just wouldn't really want to

-- Dave Pease, September 9, 2009

Dave: Thanks for the comments. I just checked over at Amazon. On the very first page they are selling a Blu-ray disk of "2001: A Space Odyssey" for $9.99. I believe that it was an expensive productive for its time, 1968, costing $10.5 million at the time.

-- Philip Greenspun, September 9, 2009
The real reason healthcare is expensive is due to the AMA licensing cartel. This restricts the supply of doctors and drives up the price of health insurance.

All you need is a computer and a compiler to write software. So, the supply of software engineers is determined by the free market.

You need a license from the government to work as a doctor. The supply of licenses is not set by the free market, but by Congress. The supply of doctors is restricted, driving up prices.

If I thought "Doctors are overpaid! I'll go work as a doctor!", I have to go to a State-licensed medical school, pay a couple hundred thousand dollars, and take 10+ years. If I get a license, that's just taking one away from someone else.

It's silly to say "The USA free market health care system failed." The USA does not have a free market health care system, due to the AMA licensing cartel.

-- FSK FSK, September 9, 2009

I'm highly skeptical of market solutions to health care, because efficient markets require the participation of well informed rational agents. Beyond basic recommendations (break addictions, exercise, maintain a healthy weight), the general public cannot be sufficiently informed to participate well in a health care market. People who are sick or injured (especially the mentally compromised) do not make optimal choices.

As an example: I should get a colonoscopy in the next couple months; I've no idea what the cost/benefit comparison is between traditional and "virtual" (MRI) colonoscopies, so I'm going to do what my doctor tells me to. Individuals don't have the knowledge or means to appropriately reward or penalize doctors. The incentives for insurance companies are perverse - the faster a sick customer gets dropped or dies, the better for the company. Information about the performance of insurance companies is difficult or impossible to obtain, and they often hold an effective monopoly. At the very least, government needs to be heavily involved as a regulator.

-- Stephen Schaefer, September 10, 2009

There's an interesting article on an alternative payment model in this month's New England Journal of Medicine entitled "Building a Bridge from Fragmentation to Accountability ó The Prometheus Payment Model".

As described by the authors "The model encourages two behaviors that fee for service discourages: collaboration of physicians, hospitals, and other providers involved in a patientís care; and active efforts to reduce avoidable complications of care (and the costs associated with them). It accomplishes these goals by paying for all the care a patient needs over the course of a defined clinical episode or a set period of management of a chronic condition, rather than paying for discrete visits, discharges, or procedures."

Here is the link .

-- Ken Daniszewski, September 13, 2009

Having dealt with the health care system with serious illnesses in myself and both my aging parents I believe that you are underestimating the difficulty of evaluating quality of care.

It is true, as you state, that the incentives currently are skewed in favor of high tech procedures and expensive medications, but once you remove these incentives, you are still left with the problem of defining and delivering quality care.

Most serious medical problems have a technical dimension, a psychological dimension, and a cultural dimension and its difficult to evaluate care on all these levels.

As I think you are very smart, I would like to know your thoughts on how to enhance and maintain high quality medical care.

-- Brian Gulino, September 15, 2009

Brian: "Standard of care" is not "quality of care". The standard of care says whether or not a patient who complains of mild and occasional headaches gets an MRI. Quality of care is something that patients would determine for themselves in a competitive market, perhaps with the assistance of neighbors, magazines, and online communities. Remember that long before insurance companies or Big Government there were some doctors who had good reputations and were sought-after.

The government can help make the market more efficient by collecting and publishing data from all of the clinics/HMOs, but the primary quality control mechanism in my proposal is the market. If people aren't happy with a provider, they will switch for the next year. If a provider kills all of its patients, they won't get their voucher checks for the next year.

-- Philip Greenspun, September 15, 2009

India has Universal Free Health Insurance aka Aarogyasri and it is near perfect system in place. http://tr.im/lKB3

-- Police Officer, September 20, 2009
The current state of the art for government health care (Medicare) electronic submisssion is a 1970s Bulletin Board System, or BBS. A dialup line (no internet) with text, command line, menus.

-- Dana Rink, September 30, 2009
Our healthcare costs are inflated because we have a fourth party payer system. Price signals do not reach the decision makers.

That is, patients and doctors decide on care, with minimal regard to cost but with careful attention to paperwork. The health "insurance" companies have little real incentive to control costs because they pass costs on to their customer, the employer. The employer may switch to another insurance company next year, but some other employer will switch back.

This started with the wage and salary controls set up in WWII. Employers competed with benefits instead of paychecks. Health care is the last vestige of that.

The only way to control costs is for those who pay the bills to make the decisions. There are two ways to do that.

One way is for the government to decide care and pay the bills. That will be like the HMOs of the '80s, only there will be no escape. There will be a tendency to increase the administrative budget while cutting the service budget. Quality of care may well depend upon how well connected you are. The rich will get their care outside the system, as always.

The other way is for patients to pay their own bills.

I suggest healthcare spending accounts tied to banks, not employers. The balance rolls over every year. The debit card won't work at the grocery store or the Las Vegas strip. People spend the money on maintenance plus catastrophic and long term care insurance. Poor people could be subsidised based on their income tax returns *when care is delivered.*

People will make mistakes, and may get inferior care, but at least they will be their own mistakes.

-- Bob Wakefield, November 25, 2009

I read this article a few months ago and read it again today as health care reform nears passage. I thought it was brilliant then and still think so. Rather than ask about some minor details, my question to Phil is why don't you run for Congress? I'm quite serious. You have money from your own hard work, intelligence, and the ability to communicate your ideas well. You live in the Northeast, I think, and I believe you would be an ideal candidate from that region.

Todd

-- Todd Ramming, March 20, 2010

I would have to confess that you lost me when you said, as your first step, "We need to have government take over health care completely." My eyes glazed over, and I didn't read anything else.

As you stated, government already pays for half of our current system. My is the "solution" is to finish the Government take-over, when it's likely that the take-over is a big portion of what's causing so many problems right now? Why not try reversing course, and having government spend less rather than more?

That, and we need to be free to choose our own health insurance. Senior Citizens, in particular, are practically forced onto Medicare, by requiring doctors to either only treat senior citizens on Medicare, or to treat no Medicare patients at all. This removes incentives for Senior Citizens to search out alternative health plans.

Similarly, by putting tax incentives in place to have employers provide insurance, rather than to have individuals pay for it themselves, this takes out yet another step where individuals could look to for cutting costs.

We need a free market. Over the past decades, however, we have done a lot to undermine that free market. Why would having government take over everything fix things?

-- Alpheus Madsen, April 14, 2010

Todd: Thanks for the vote of confidence. Why wouldn't I run for Congress? The most important skill for a politician is being able to get votes, which is typically done by promising to spend tax dollars on behalf of an interest group, e.g., public employees. Having a good idea for making the country a better place is not very helpful in getting elected. The successful politicians seem to outsource the generation of ideas when necessary for rare occasions such as debates. I'm not sure that politicians even pretend that the ideas they espouse during debates are their own. They might credit "my team of economic advisors", for example, when talking about what they would do regarding restrictions on imports.

Government is now so vast and powerful, spending nearly half of all dollars earned by Americans, that the most sensible course of action is to vote for the politician who promises to spend money on stuff that will benefit the particular voter. For example, if you can't afford health insurance (partly because the government has taxed away nearly half of your income via sales tax, payroll tax, property tax, excise tax, and income tax), vote for a politician who promises to buy you health insurance. It was your money to begin with.

It has become kind of like choosing a spouse. You're going to marry someone who is going to spend roughly half of your income. Do you want to marry a person who is going to spend it on things that have no value to you?

[Yes, I know that in theory there are politicians who promise to cut the percentage that government confiscates from citizens, but in practice none have succeeded in shrinking government (even if some have succeeded in implementing temporary tax cuts).]

-- Philip Greenspun, April 18, 2010

No, you should have a government run healthcare system like we have in Britain. It's much better. It works here. I really don't see why it shouldn't work in America. A Private companies, people tend to cut corners. They're not trying to provide a public service, they're trying to make money. Cost doesn't really matter, (since this is to do with someone's life/death or at least quality of life) but it'll be cheaper if there is a system where there is more focus on prevention, and people don't have to pay every time they see a doctor, meaning that they will be able to go even when it hasn't got to serious. like... going to a doctor when you find a lump somewhere, rather than when- if it is cancer- it starts seriously affecting you (preventative care is cheaper). Anyway, if people lived more healthily, it would be less expensive. Maybe that should be encouraged more.

-- Charlotte M, May 22, 2010
I generally agree with your points. However, your comment with regard to working hours does not in-fact hold up to scrutiny. The number of hours someone works a week is, on a national level, not the deciding factor of health. Over work, lack of sleep, stress and so forth all contribute to ill-health, but if you actually perform some statistics(which I have - feel free to do the same!), you'll find that there is very little relationship between the number of hours people in a nation work, and their health. The effect is completely swamped by other things, like local violence, and quality of health care(which tend to go with high work loads, but among comparable countries there is no effect). Otherwise a nice article, but the first 4 paragraphs are simply not very true(on average). There are lots of other societal problems which account for this.
Image: work.png

-- simon hastings, June 14, 2010
Anyone (doctors, potential patients, lab techs etc) for starting a medical co-op service that avoids insurance and government subsidies, bureaucracy as much as legally possible?

-- Torben Brosten, April 8, 2012
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