Sunday, July 12, 2009

Medicare's Mythical Cost Savings

Meghan McArtle makes some interesting observations in the Atlantic Monthly:
Monopolies, government or private, are risk averse, slow to innovate, and generally run things for the benefit of themselves rather than their customers. Hamstringing them with regulations can limit measurable outcomes, like excess profit-taking, but not unmeasurable ones, like the people who might have been cured by a drug the system didn't invent. And the political system introduces its own problems. As Robert Heinlein pointed out years ago, systems that have only positive feedback loops tend to fail catastrophically.

My critics will want me to explain why, then, Europe can do it cheaper. The answer is threefold. First, most European nations have better governance than we do--the American political system is a Public Choice disaster. Second, they pay people less money in a way that's hard to replicate here (and even if it wasn't, would be a one time savings that wouldn't check the rate of growth). Third, we're still driving quite a bit of product innovation. Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results. If we stopped doing this, their system would stop looking so good.
The back and forth in the comments section are equally enlightening.



Keith said...


We fundamentally disagree. What has struck me the most in my carreer is the lack of ability to innovate on the delivery of health care in a way that could be more cost effective and less expensive, largely due to the clear incentives of the free market fee for service system that rewards doing more and spending more regardless of outcome. It is the fundamental difference to some degree between primay care and the vast majority of the health care apparatus is that we attempt to provide services and counseling that may save the health care system money, but this does not sit well with the rest of health care delivery system that thrives with selling more of its procedures, devices, pills, and diagnostic tests. This has stymied all attempts at the restructuring of health care that, in a free market for most products would be rewarded with greater sales volume of its' less expensive product, its' improved quality, or both. Most measures of quality have not been useful to consumers, and a lower cost strategy in health care has not seemingly been a way to build your medical empire. You fail to recognise there are other innovations that could evolve in the right setting to weed out wasteful use of health care resources and redirect them to new research in cost effective medical therapies.

If other countries piggy back on our intervention, how come one of the more common statements I hear from drug reps is "our new product has been availible in Europe for years? Possibly the differences in health care delivery and financing allows and encourages the delivery of cost saving treatments in Europe (since European countries require not only proof of efficacy of their new products, but often a measure of cost/benefit analysis that we presently do not require here). The result is a focus on innovations that create greater benefit at a reduced price instead of the wonderful gadgetry that our medical industries create, knowing full well that the cost of the end product is not a factor in the economic viability of that product. If not for goverment paid health care, how many would be able to afford those costly pacemakers you put in patients and would we then get a less expensive but equaly effectivce device that would be economically viable and not make patients decide between their money or their life? These companies are capable of violating the basic principals of economics by creating products for which a market would not exist due to the extreme cost. It would be as if GM crated the most incredibly fuel efficient car in the world, but it cost 100,000 per copy! No one will be able to afford or buy it, so GM doesn't waste its' resources making one! But since our desire for new meical toys is insatiable, we can foster these innovations. Why else do most medical device companies seem to have their base in the US?

What should happen is that we should adopt more of a freeloading status as well, rather than have the rest of the world adopt our dysfunctional system. That way, we will get innovations that are couched in the realities of cost, since they will not be able to sell their new device or medication at a price that creates our current health care cost issues by selling it to American consumers at inflated profit margins while giving a great deal to the rest of the world. And we won't get 100,000 per year drugs like Avastin, that give a recipients 4-6 months of additional life before succumbing to their disease anyways. Innovation does not need to be more expensive; it can actually, in theory, improve health and lower costs! How about some of those type innovations for a change!

DrWes said...


First, our current health care fee-for-service model and Medicare in general are ANYTHING but free market systems. There are others just a vehement as you that suggest the reason the current model has evolved is because of the governments' cost control efforts. I do not have an issue with primary care physicians, internists included, doing what they do best: coordinating care, counseling their patients and advocating for them. But are we to suggest that every expensive innovation is not worth the additional costs? How much does a catheter ablation of SVT that costs $60,000 and cures a patient, compares to a life of generic atenolol likely costing less over a person’s lifetime, but ties them to pills? Is there inherent value to that? What will we lose by restricting innovation to our system? Will NIH and NHLBI be the only sources for creativity, when little has ever come from their discoveries as a marketable product. Further, we must not discount the effects of defensive medicine either. Much of our excess is due to CYA tactics, "just to be sure," too. God forbid we face up to the challenge of tort reform.

You are absolutely right that cost savings from primary care's efforts are largely uncounted in the system we have now. But so are so many things you and I do, like answering e-mails, phone calls, following up on our patients after surgery, traveling between facilities, etc. The complicated environment in which we both work sounds great to the policy wonks, but is much harder to implement in person. What will be effect to our best and brightest when they hang up their hats due to burnout as cost reductions continue?

Finally, much of your argument stems from lack of transparency in the system I think. You and I agree on that point. The collusion between hospitals, insurers and employers as they negotiate their prices and tax breaks with doctors and patients on the sidelines should stop. Same for device cost mark-ups. Imagine what a price transparency could do.

But government taking over and lowering costs by pumping a trillion dollars more in regulation, agencies, computers, effectiveness research and oversight? No way. While there are minor improvements that can be had with these things, I’ve just spent too much time in the military to believe cost containment in any government agency is possible; they are there to protect their bureaucracy, not our patients.

Keith said...


I agree with you that, just like many treatments and procedures that are institued before we have a full understanding of the costs and benefits, the goverment has decided that computers are good and quality measures are good and are embarking on major policy changes that have little proof as to their benefit. Not what I would like, but our politicians have been sold on this idea and seem to be running with it. It undoubtedly is hard for those of us on the front line to make the case that there is little to be gained from these quality measures as they now exist and may actually distract us from doing the things that really matter.

But that is where comparitive effectiveness research will have its impact. One could argue that before foisting these quality measures and criteria down our throats, that a comparitive study should be done looking at whether such a policy will have any significant impact on health. The same can be said for the value of PSA screening in the diagnosis of prostate cancer, the benefits of screening women with mammograms in their 40's, the value of epidural injections for back pain, etc, etc.

Currently none of these studies are performed because who is going to do them? Most of the current studies that are performed looking at efficacy of treatment, whether with a device like a pacemaker or a new medication, are funded and designed by, guess who, the maker of the device or medication. Is this biased source the ones we want designing these studies? I would think not!

A few year ago,the goverment funded a study looking at the various types of anti-hypertensives and found the cheaper drugs had the best efficacy. This is a prime example of comparitive effectiveness research where a significant saving could be acheived by getting docs to not prescribe the newest, expensive anti-hypertensive that has no therapeutic advantage over the old stuff. Why would we not want such studies to tell us what are the better and more cost effective therapies? Would we still be putting women on estrogen replacement if it were not for the Womens Health Initiative studies looking at various forms of estrogen replacement and their effects? Or were you waiting for Wyeth, the makers of Premarin, to perform the study and shoot themselves in the foot?

Goverment has a role in stepping in where the free market has failed. This is the reason that the Medicare program was created since private insurance compaines had no desire to insure this high risk population. In the ensuing years and the rise of health care costs, they have decided that many of us over the age of 50 are alsouninsurable by their standards and the rest are priced out of the market. There comes a point where we have to cease this cherry picking (especially since their are few cherries left to pick) and either tell insurers they must offer insurance to everyone regardless of pre-existing condition and make more clear what is covered or not covered under their policies or be forced to compete with a goverment plan that will accept those patients. Seems like a reasonable way to make them honest.