Dear Friends and Colleagues:
Attached an interesting editorial from yesterdays New York Times focusing on the issue of government subsidies for health insurance companies offering Medicare Advantage plans.
What is the problem?
About a fifth of elderly Americans now belong to private Medicare Advantage plans, which — thanks to government subsidies — often charge less or offer more than traditional Medicare. The government pays private plans 12 percent more, on average, than the same services would cost in the traditional Medicare fee-for-service program. The private plans use some of this money to make themselves more attractive to beneficiaries — by reducing premiums or adding benefits not covered by basic Medicare — and siphon off the rest to add to profits and help cover the plans’ high administrative costs ( and boost their CEO salaries)
What are the results?
The biggest subsidies — averaging 19 percent above cost — go to private fee-for-service plans, which are the fastest-growing part of the Medicare Advantage program. Those companies receive $54 Billion over five years resulting in an average premium increase of $2 to pay for those subsidies.
"If private health plans are supposedly so great at delivering high-quality care while holding down costs, why does the government have to keep subsidizing them so lavishly to participate in the Medicare program?"
What Should Be Done?
* Eliminate the subsidies
* Offer traditional Medicare plans with lower premiums and less adminstrtaive overhead
* Force private companies to compete with traditional Medicare plans
The proponents of market based health care services often forget that more then 50% of each dollar spent spent for health care services is provided by the government NOT INCLUDED the tax subsidies for employer-based health insurance.
Instead of calling for market based health care (which even conservatives do not support) , we should hold our government accountable on how it spends our health care dollars and eliminate corporate welfare programs (i.e subsidies).
Yours
Bernd
====================================================================================
April 21, 2007
Editorial
The Medicare Privatization Scam
If private health plans are supposedly so great at delivering high-quality care while holding down costs, why does the government have to keep subsidizing them so lavishly to participate in the Medicare program?
About a fifth of elderly Americans now belong to private Medicare Advantage plans, which — thanks to government subsidies — often charge less or offer more than traditional Medicare. As Congress struggles to find savings that could offset the costs of other important health programs, it should take a long and hard look at those subsidies.
The authoritative Medicare Payment Advisory Commission estimates that the government pays private plans 12 percent more, on average, than the same services would cost in the traditional Medicare fee-for-service program. The private plans use some of this money to make themselves more attractive to beneficiaries — by reducing premiums or adding benefits not covered by basic Medicare — and siphon off the rest to add to profits and help cover the plans’ high administrative costs.
Although the insurance industry insists that the subsidies are much lower and are warranted by the benefits provided, Thomas Scully, who headed the Medicare program for the Bush administration until 2003, told reporters recently that the subsidies were too large and ought to be reduced by Congress.
The largest private enrollment is in health maintenance organizations, which typically deliver care a bit more cheaply than standard Medicare and should not need their 10 percent subsidies, on average, to compete. The biggest subsidies — averaging 19 percent above cost — go to private fee-for-service plans, which are the fastest-growing part of the Medicare Advantage program. Unlike the H.M.O.’s, which at least manage a patient’s care and bargain hard with doctors and hospitals, these plans ride on the coattails of standard Medicare, typically providing access to the same doctors and paying them at the same rates. Thanks to the big subsidies they get, such plans are often a good deal for beneficiaries, charging less for the same benefits or adding benefits without raising prices.
The main losers are the beneficiaries in the standard Medicare program, whose monthly premiums are roughly $2 higher to help pay for the subsidies, and the taxpayers who pick up part of the tab. The subsidies also erode the long-term solvency of Medicare, which needs to rein in costs, not increase them with handouts to insurance companies.
When the Democrats first won control of Congress, it seemed possible that they might eliminate the subsidies — saving some $54 billion over five years — to finance a $50 billion expansion of a health insurance program for low-income children. But the insurance industry has mounted a furious lobbying campaign to head off any cuts.
Congress ought to eliminate the subsidies completely unless it is willing to subsidize the same benefits — at enormous cost — for the far greater number of people enrolled in standard Medicare. It is time to level the playing field and force private plans to really compete with traditional Medicare.
Sunday, April 22, 2007
Saturday, April 21, 2007
Different Opinions On Medicare
Dear Friends and Colleagues:
Attached you find two articles highlighting two different opinions regarding the function, role and success of the Medicare program.
The first article by Paul Krugman is entitled "The Plot Against Medicare. In it he author correctly states that:
"The 2003 Medicare legislation created Part D, the drug benefit for seniors — but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies. As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.....Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion — about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits."
He concludes stating that
" Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process."
In the second article from the Wall Street Journal "The Competence Man" the author touts the leadership of the Dr. McClellan, the former CMS head, who was implementing the Medicare Part D program.
"His success, in particular with the drug benefit, rests in two broad ideas. The first was to design a program that immediately attracted a critical mass of private players to provide price and choice competition.
Dr. McClellan's other strategy -- and the flip side of the coin -- was to get seniors enrolled quickly. His team designed an Internet program that allowed seniors to punch in their information and examine the best plans. His agency reached out to local organizations -- church groups, community centers -- and enlisted their aid in explaining details."
According to the author private companies have flocked to offer a drug benefit, giving most seniors a choice of 50 innovative plans. The competitive jockeying has slashed prices from an expected $37-a-month premium to an average $22. The cost of Medicare Part D for taxpayers was 30% below expectations its first year -- unheard of in government. And Medicare Advantage, which allows seniors to choose between private insurers, has grown to encompass nearly one in five beneficiaries.
Even though I respect Dr.McClellan's efforts I consider Medicare Part D as the biggest mistake of the Bush administration.
Medicare is an example of a single-payer system serving the senior segment of our population. Its its not a "decrepit program" and outsourcing its services to private companies provides drug companies with mega-profits on the expense of US tax payers.
Who is going to pay the estimated $ 8 Trillion price tag for the Medicare Part D program? Our children and grand children!
By then Bush and Co. won't be around, our government will have to use its entire federal budget for the payment of a gigantic debt load created by inflated entitlement programs and we may have to ask ourselves: what did we do to stop it?
Yours
Bernd
=======================================================================================
New York Times, April 20, 2007 Op-Ed Columnist
The Plot Against Medicare
By PAUL KRUGMAN
The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.
Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. And it’s not just politicians with an eye on campaign contributions. There’s no nice way to say it: the N.A.A.C.P. and the League of United Latin American Citizens have become patsies for the insurance industry.
To appreciate what’s going on, you need to know what has been happening to Medicare in the last few years.
The 2003 Medicare legislation created Part D, the drug benefit for seniors — but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.
As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.
In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse yet, they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. Reasonable estimates suggest that if Congress had eliminated the middlemen, it could have created a much better drug plan — one without the notorious “doughnut hole,” the gap in coverage once your annual expenses exceed $2,400 per year — at no higher cost.
Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion — about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits.
With the Democratic victory last fall, you might have expected these things to change. But the political news over the last few days has been grim.
First, the Senate failed to end debate on a bill — in effect, killing it — that would have allowed Medicare to negotiate over drug prices. The bill was too weak to have allowed Medicare to get large discounts. Still, it would at least have established the principle of using government bargaining power to get a better deal. But in spite of overwhelming public support for price negotiation, 42 senators, all Republicans, voted no on allowing the bill to go forward.
If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 — which would require having Medicare offer seniors the option of getting their drug coverage directly, without involving the insurance companies — seems politically far out of reach.
At the same time, attempts to rein in those Medicare Advantage payments seem to be running aground. Everyone knew that reducing payments would be politically tough. What comes as a bitter surprise is the fact that minority advocacy groups are now part of the problem, with both the N.A.A.C.P. and the League of United Latin American Citizens sending letters to Congressional leaders opposing plans to scale back the subsidy.
What seems to have happened is that both groups have been taken in by insurance industry disinformation, which falsely claims that minorities benefit disproportionately from this subsidy. It’s a claim that has been thoroughly debunked in a study by the Center on Budget and Policy Priorities — but apparently the truth isn’t getting through.
Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process.
=======================================================================================
Competence Man, April 20th, 2007 Wall Street Journal
Republicans won a big victory this week, shooting down a Democratic plan for more government-run health care. The GOP victors, and free-marketeers, might send their thank-you notes to Dr. Mark McClellan.
Dr. McClellan is the 43-year-old internist who, until recently, held the thankless job of running Medicare. He was handed the further thankless task of designing and implementing Congress's tepid 2003 Medicare reform. And he's the big brain who then wrung every last ounce out of that authority to create a striking new model for Medicare competition that is today not only performing beyond expectations, but is changing the political health-care debate.
High praise, yes, but borne out by this week's GOP defeat of a bill to allow the government to fix Medicare drug prices. That was a top Democratic promise this last election, as the party sought to play off public anger over health-care costs. Liberals saw it as an important step toward their all-government, health-care nirvana. Nancy Pelosi and Harry Reid also felt this was an issue on which they could once again roll Republicans, by flashing the impoverished-senior-citizens card.
Instead, Dr. McClellan's new model came online and wowed the older class. Private companies have flocked to offer a drug benefit, giving most seniors a choice of 50 innovative plans. The competitive jockeying has slashed prices from an expected $37-a-month premium to an average $22. The cost of Medicare Part D for taxpayers was 30% below expectations its first year -- unheard of in government. And Medicare Advantage, which allows seniors to choose between private insurers, has grown to encompass nearly one in five beneficiaries.
This success has rebutted Democratic criticisms of the drug benefit and shown up those who tar the Bush administration as incompetent. The program's success emboldened Republicans to vote for free-market health care this week. Democrats have seen flagging public support for their program of more government and fewer drugs. While Mr. Reid held his caucus together this week, some are worried about bashing a drug benefit that has an 80% senior approval rating. "Congress only wishes it had an 80% approval rating," chuckles former Democratic Sen. John Breaux, an author of the 2003 reform. "A lot of folks campaigned last year on 'We're going to fix this program,' only to be told by seniors, 'Wait a minute, it ain't broke.'"
None of this was inevitable, but goes back to the competent Dr. McClellan. President Bush came to town pushing Medicare reform, and had a shot at an historic overhaul. The GOP could offer the carrot of a new drug benefit, in return for opening the entire decrepit program to private competition. Instead, Bush and Co. became more interested in claiming credit for an $8 trillion entitlement, and settled for meager reform.
Dr. McClellan nonetheless took this pared-down opportunity and used it to show private competition can work. His success, in particular with the drug benefit, rests in two broad ideas. The first was to design a program that immediately attracted a critical mass of private players to provide price and choice competition. At the time, nobody thought that possible. Mr. Breaux remembers Congress worrying that so few private players would participate that whole areas of the country would lack private drug plans.
Dr. McClellan's solution was a program that gave companies maximum freedom to design plans, bundle drugs and turn a profit. He was a salesman, talking up the opportunities and even traveling to New York to reassure Wall Street. It worked, and by the first days of business most seniors were being courted by anywhere from 11 to 23 plan sponsors. Those numbers have only grown, creating so much competition that sponsors are eliminating deductibles, lowering premiums, offering more drugs. It's also led to smart cost-cutting and efficiencies; an estimated 60% of Medicare prescriptions are now for generics.
Dr. McClellan's other strategy -- and the flip side of the coin -- was to get seniors enrolled quickly. His team designed an Internet program that allowed seniors to punch in their information and examine the best plans. His agency reached out to local organizations -- church groups, community centers -- and enlisted their aid in explaining details. A call center at one point handled 400,000 plan questions a day. Today, some 90% of Medicare recipients are enrolled in the benefit, numbers that have further attracted private players, further spurred competition, further lowered prices. "This is how you come in under budget, increase satisfaction," says the man himself, Dr. McClellan. He adds, humbly, "Nobody should think this is perfect yet, but it's clearly accomplishing some good things."
Good things or no, the reforms are still at risk. There was a time when Democrats believed in Medicare reform, but now most prefer it as a political stick to beat President Bush. There are also liberals -- Henry Waxman, Pete Stark -- who understand this is a crucial moment in the national debate over government-versus-private health care, and will do what they can to sabotage the reforms.
Expect, therefore, more votes over Medicare's right to price-fix. If a broad bill can't pass, liberal politicians will instead target individual, high-cost drugs, arguing that since Medicare foots most of the bill for these products, it should have the right to "negotiate." The real goal will be to get any foot in the price-setting door, making it harder for private companies to craft flexible drug packages, and laying the groundwork for more price-setting down the road.
Expect, too, a push to starve the competitive programs of cash. Critics know how effective this is, having siphoned dollars out of the old Medicare Advantage program in the 1990s, causing private plans to drop out, and giving the program a bad name. Dr. McClellan's reforms, and a Republican Congress, have re-energized the program, but the key to future success is in the budget. Republicans would do well to spend more time touting the competition successes of the reform, rather than the drug giveaway.
In a perfect world, the Bush administration would never have swallowed that entitlement in the first place. In our imperfect world, it at least had the wisdom to hand the reform challenge to a guy who was able to demonstrate the merits of health-care competition, and optimistically, pave the way for broader reform down the road.
Write to kim@wsj.com1.
Attached you find two articles highlighting two different opinions regarding the function, role and success of the Medicare program.
The first article by Paul Krugman is entitled "The Plot Against Medicare. In it he author correctly states that:
"The 2003 Medicare legislation created Part D, the drug benefit for seniors — but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies. As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.....Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion — about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits."
He concludes stating that
" Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process."
In the second article from the Wall Street Journal "The Competence Man" the author touts the leadership of the Dr. McClellan, the former CMS head, who was implementing the Medicare Part D program.
"His success, in particular with the drug benefit, rests in two broad ideas. The first was to design a program that immediately attracted a critical mass of private players to provide price and choice competition.
Dr. McClellan's other strategy -- and the flip side of the coin -- was to get seniors enrolled quickly. His team designed an Internet program that allowed seniors to punch in their information and examine the best plans. His agency reached out to local organizations -- church groups, community centers -- and enlisted their aid in explaining details."
According to the author private companies have flocked to offer a drug benefit, giving most seniors a choice of 50 innovative plans. The competitive jockeying has slashed prices from an expected $37-a-month premium to an average $22. The cost of Medicare Part D for taxpayers was 30% below expectations its first year -- unheard of in government. And Medicare Advantage, which allows seniors to choose between private insurers, has grown to encompass nearly one in five beneficiaries.
Even though I respect Dr.McClellan's efforts I consider Medicare Part D as the biggest mistake of the Bush administration.
Medicare is an example of a single-payer system serving the senior segment of our population. Its its not a "decrepit program" and outsourcing its services to private companies provides drug companies with mega-profits on the expense of US tax payers.
Who is going to pay the estimated $ 8 Trillion price tag for the Medicare Part D program? Our children and grand children!
By then Bush and Co. won't be around, our government will have to use its entire federal budget for the payment of a gigantic debt load created by inflated entitlement programs and we may have to ask ourselves: what did we do to stop it?
Yours
Bernd
=======================================================================================
New York Times, April 20, 2007 Op-Ed Columnist
The Plot Against Medicare
By PAUL KRUGMAN
The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.
Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. And it’s not just politicians with an eye on campaign contributions. There’s no nice way to say it: the N.A.A.C.P. and the League of United Latin American Citizens have become patsies for the insurance industry.
To appreciate what’s going on, you need to know what has been happening to Medicare in the last few years.
The 2003 Medicare legislation created Part D, the drug benefit for seniors — but unlike the rest of Medicare, Part D isn’t provided directly by the government. Instead, you can get it only through a private drug plan, provided by an insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.
As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.
In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse yet, they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. Reasonable estimates suggest that if Congress had eliminated the middlemen, it could have created a much better drug plan — one without the notorious “doughnut hole,” the gap in coverage once your annual expenses exceed $2,400 per year — at no higher cost.
Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than $50 billion — about what it would cost to provide all children in America with health insurance. Some of that $50 billion will be passed on to seniors in extra benefits, but a lot of it will go to overhead, marketing expenses and profits.
With the Democratic victory last fall, you might have expected these things to change. But the political news over the last few days has been grim.
First, the Senate failed to end debate on a bill — in effect, killing it — that would have allowed Medicare to negotiate over drug prices. The bill was too weak to have allowed Medicare to get large discounts. Still, it would at least have established the principle of using government bargaining power to get a better deal. But in spite of overwhelming public support for price negotiation, 42 senators, all Republicans, voted no on allowing the bill to go forward.
If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 — which would require having Medicare offer seniors the option of getting their drug coverage directly, without involving the insurance companies — seems politically far out of reach.
At the same time, attempts to rein in those Medicare Advantage payments seem to be running aground. Everyone knew that reducing payments would be politically tough. What comes as a bitter surprise is the fact that minority advocacy groups are now part of the problem, with both the N.A.A.C.P. and the League of United Latin American Citizens sending letters to Congressional leaders opposing plans to scale back the subsidy.
What seems to have happened is that both groups have been taken in by insurance industry disinformation, which falsely claims that minorities benefit disproportionately from this subsidy. It’s a claim that has been thoroughly debunked in a study by the Center on Budget and Policy Priorities — but apparently the truth isn’t getting through.
Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process.
=======================================================================================
Competence Man, April 20th, 2007 Wall Street Journal
Republicans won a big victory this week, shooting down a Democratic plan for more government-run health care. The GOP victors, and free-marketeers, might send their thank-you notes to Dr. Mark McClellan.
Dr. McClellan is the 43-year-old internist who, until recently, held the thankless job of running Medicare. He was handed the further thankless task of designing and implementing Congress's tepid 2003 Medicare reform. And he's the big brain who then wrung every last ounce out of that authority to create a striking new model for Medicare competition that is today not only performing beyond expectations, but is changing the political health-care debate.
High praise, yes, but borne out by this week's GOP defeat of a bill to allow the government to fix Medicare drug prices. That was a top Democratic promise this last election, as the party sought to play off public anger over health-care costs. Liberals saw it as an important step toward their all-government, health-care nirvana. Nancy Pelosi and Harry Reid also felt this was an issue on which they could once again roll Republicans, by flashing the impoverished-senior-citizens card.
Instead, Dr. McClellan's new model came online and wowed the older class. Private companies have flocked to offer a drug benefit, giving most seniors a choice of 50 innovative plans. The competitive jockeying has slashed prices from an expected $37-a-month premium to an average $22. The cost of Medicare Part D for taxpayers was 30% below expectations its first year -- unheard of in government. And Medicare Advantage, which allows seniors to choose between private insurers, has grown to encompass nearly one in five beneficiaries.
This success has rebutted Democratic criticisms of the drug benefit and shown up those who tar the Bush administration as incompetent. The program's success emboldened Republicans to vote for free-market health care this week. Democrats have seen flagging public support for their program of more government and fewer drugs. While Mr. Reid held his caucus together this week, some are worried about bashing a drug benefit that has an 80% senior approval rating. "Congress only wishes it had an 80% approval rating," chuckles former Democratic Sen. John Breaux, an author of the 2003 reform. "A lot of folks campaigned last year on 'We're going to fix this program,' only to be told by seniors, 'Wait a minute, it ain't broke.'"
None of this was inevitable, but goes back to the competent Dr. McClellan. President Bush came to town pushing Medicare reform, and had a shot at an historic overhaul. The GOP could offer the carrot of a new drug benefit, in return for opening the entire decrepit program to private competition. Instead, Bush and Co. became more interested in claiming credit for an $8 trillion entitlement, and settled for meager reform.
Dr. McClellan nonetheless took this pared-down opportunity and used it to show private competition can work. His success, in particular with the drug benefit, rests in two broad ideas. The first was to design a program that immediately attracted a critical mass of private players to provide price and choice competition. At the time, nobody thought that possible. Mr. Breaux remembers Congress worrying that so few private players would participate that whole areas of the country would lack private drug plans.
Dr. McClellan's solution was a program that gave companies maximum freedom to design plans, bundle drugs and turn a profit. He was a salesman, talking up the opportunities and even traveling to New York to reassure Wall Street. It worked, and by the first days of business most seniors were being courted by anywhere from 11 to 23 plan sponsors. Those numbers have only grown, creating so much competition that sponsors are eliminating deductibles, lowering premiums, offering more drugs. It's also led to smart cost-cutting and efficiencies; an estimated 60% of Medicare prescriptions are now for generics.
Dr. McClellan's other strategy -- and the flip side of the coin -- was to get seniors enrolled quickly. His team designed an Internet program that allowed seniors to punch in their information and examine the best plans. His agency reached out to local organizations -- church groups, community centers -- and enlisted their aid in explaining details. A call center at one point handled 400,000 plan questions a day. Today, some 90% of Medicare recipients are enrolled in the benefit, numbers that have further attracted private players, further spurred competition, further lowered prices. "This is how you come in under budget, increase satisfaction," says the man himself, Dr. McClellan. He adds, humbly, "Nobody should think this is perfect yet, but it's clearly accomplishing some good things."
Good things or no, the reforms are still at risk. There was a time when Democrats believed in Medicare reform, but now most prefer it as a political stick to beat President Bush. There are also liberals -- Henry Waxman, Pete Stark -- who understand this is a crucial moment in the national debate over government-versus-private health care, and will do what they can to sabotage the reforms.
Expect, therefore, more votes over Medicare's right to price-fix. If a broad bill can't pass, liberal politicians will instead target individual, high-cost drugs, arguing that since Medicare foots most of the bill for these products, it should have the right to "negotiate." The real goal will be to get any foot in the price-setting door, making it harder for private companies to craft flexible drug packages, and laying the groundwork for more price-setting down the road.
Expect, too, a push to starve the competitive programs of cash. Critics know how effective this is, having siphoned dollars out of the old Medicare Advantage program in the 1990s, causing private plans to drop out, and giving the program a bad name. Dr. McClellan's reforms, and a Republican Congress, have re-energized the program, but the key to future success is in the budget. Republicans would do well to spend more time touting the competition successes of the reform, rather than the drug giveaway.
In a perfect world, the Bush administration would never have swallowed that entitlement in the first place. In our imperfect world, it at least had the wisdom to hand the reform challenge to a guy who was able to demonstrate the merits of health-care competition, and optimistically, pave the way for broader reform down the road.
Write to kim@wsj.com1.
Sunday, April 15, 2007
Florida Health Information Network
Dear Friends and Colleagues:
Just returned from Israel where I gave a presentation at an international conference in Jerusalem (Israel Medicine Association-World Fellowship Conference) about the implementation of electronic health records in medical practice. The paper was well received and doctors present were especially interested in the SFHII (South Florida health Information Initiative) project. As a result I was invited to give the same presentation in Germany in November.
Reviewing the stack of Miami Herald editions I found an interesting article (April 13, 2007) highlighting the issue of a statewide health information network.
Of course, financing and privacy issues remain major obstacles that need to be addressed
Organized medicine should head the struggle for the widespread adoption of electronic health records and the connectivity of such systems for the benefit of our patients, to improve the efficacy and safety of medical care.
Yours
Bernd
;-)
Posted on Fri, Apr. 13, 2007
Lawmakers consider statewide medical database
BY MONICA HATCHER
The healthcare industry is usually among the first to adopt cutting-edge technology to improve the practice of medicine. But when it comes to keeping and sharing patient information, it's often accused of being stuck in the age when leeches were considered state of the art.
More than 80 percent of doctors still rely on handwritten records and manila folders to organize and track patient histories, according to National Center for Health Statistics.
Florida lawmakers are now considering several bills that would create a healthcare information network, where physicians could access a statewide Internet database of medical records. Despite concerns over expense and privacy, advocates -- including the Florida Medical Association -- say electronic records promise greater patient safety, more efficiency and reduced healthcare costs for consumers.
''Banking is moving forward, business is moving forward, government is moving into the information age, but the medical care is staying stagnant,'' said Rep. Denise Grimsley, R Lake Placid, who is co-sponsoring HB 1121, which will likely come up for a final vote in the full house next week.
Similar Senate measures are pending scheduling. Grimsley's bill builds on a two-year initiative to create regional online medical record databases around the state, including one in Miami-Dade County.
PILOT PROGRAM
The South Florida Health Information Initiative launched a pilot system in October linking Mercy Hospital with nine clinics affiliated with the Health Choice Network. Through a Web-based portal, physicians can access and update an individual's health information at ''the point of care,'' or when they are face to face with a patient.
Several hospitals in South Florida already use electronic record systems internally, but other doctors and hospitals can't get to them.
Carladenise Edwards, executive director for SFHII, said her program is designed to eventually become the main regional gateway that allows local systems to talk to each other.
''Our ultimate goal is to improve the quality of healthcare by maximizing the use of technology,'' Edwards said.
COST THEORIES
Advocates believe the lack of access to information is one reason for duplicate and unnecessary treatments that drive up costs. Mailing or faxing paper records wastes time and opens the door to errors because of illegible handwriting.
In addition, an electronic system would take the guesswork out of treating patients who end up incoherent in an emergency room.
The Helen Bentley Health Center in Coconut Grove is one participant in the pilot program. Medical director Anthony Stanley said he's glad he no longer needs to call nurses and technicians in his office for help deciphering patient records penned by other doctors.
''This is going to expedite better patient care, minimize patient care,'' Stanley said.
Not all in the medical field are on board, however.
Edwards said recruiting participants to the pilot program is an ongoing struggle. Many are reluctant to adopt the technology largely because of the cost of buying software and hardware, she said. Others have cited concerns for patient privacy.
``It's a very political process. Some of them are anxious to be involved. Others are sitting back and waiting for it to be mandated.''
In the last two years, the Agency for Health Care Administration has given $3.5 million in grants to regional health organizations for network development and training. Grimsley's bill would provide for about $25 million to build the state network over the next three years.
PAST LEGISLATION
Financial restraints led to the rejection of similar measures last year. Debate over whether it was the government's role and not the private sector's to build the statewide system also stymied legislation.
The bills have moved farther and swifter this session, but in a tight economic environment, getting funding could again prove a significant hurdle.
''Electronic records -- electronic anything, is very expensive,'' said Linda Renn, a lobbyist with the Florida Health Information Management Association. ``I wouldn't say it's pie in the sky, but [bill supporters] are going to have to explain why this is important.''
Just returned from Israel where I gave a presentation at an international conference in Jerusalem (Israel Medicine Association-World Fellowship Conference) about the implementation of electronic health records in medical practice. The paper was well received and doctors present were especially interested in the SFHII (South Florida health Information Initiative) project. As a result I was invited to give the same presentation in Germany in November.
Reviewing the stack of Miami Herald editions I found an interesting article (April 13, 2007) highlighting the issue of a statewide health information network.
Of course, financing and privacy issues remain major obstacles that need to be addressed
Organized medicine should head the struggle for the widespread adoption of electronic health records and the connectivity of such systems for the benefit of our patients, to improve the efficacy and safety of medical care.
Yours
Bernd
;-)
Posted on Fri, Apr. 13, 2007
Lawmakers consider statewide medical database
BY MONICA HATCHER
The healthcare industry is usually among the first to adopt cutting-edge technology to improve the practice of medicine. But when it comes to keeping and sharing patient information, it's often accused of being stuck in the age when leeches were considered state of the art.
More than 80 percent of doctors still rely on handwritten records and manila folders to organize and track patient histories, according to National Center for Health Statistics.
Florida lawmakers are now considering several bills that would create a healthcare information network, where physicians could access a statewide Internet database of medical records. Despite concerns over expense and privacy, advocates -- including the Florida Medical Association -- say electronic records promise greater patient safety, more efficiency and reduced healthcare costs for consumers.
''Banking is moving forward, business is moving forward, government is moving into the information age, but the medical care is staying stagnant,'' said Rep. Denise Grimsley, R Lake Placid, who is co-sponsoring HB 1121, which will likely come up for a final vote in the full house next week.
Similar Senate measures are pending scheduling. Grimsley's bill builds on a two-year initiative to create regional online medical record databases around the state, including one in Miami-Dade County.
PILOT PROGRAM
The South Florida Health Information Initiative launched a pilot system in October linking Mercy Hospital with nine clinics affiliated with the Health Choice Network. Through a Web-based portal, physicians can access and update an individual's health information at ''the point of care,'' or when they are face to face with a patient.
Several hospitals in South Florida already use electronic record systems internally, but other doctors and hospitals can't get to them.
Carladenise Edwards, executive director for SFHII, said her program is designed to eventually become the main regional gateway that allows local systems to talk to each other.
''Our ultimate goal is to improve the quality of healthcare by maximizing the use of technology,'' Edwards said.
COST THEORIES
Advocates believe the lack of access to information is one reason for duplicate and unnecessary treatments that drive up costs. Mailing or faxing paper records wastes time and opens the door to errors because of illegible handwriting.
In addition, an electronic system would take the guesswork out of treating patients who end up incoherent in an emergency room.
The Helen Bentley Health Center in Coconut Grove is one participant in the pilot program. Medical director Anthony Stanley said he's glad he no longer needs to call nurses and technicians in his office for help deciphering patient records penned by other doctors.
''This is going to expedite better patient care, minimize patient care,'' Stanley said.
Not all in the medical field are on board, however.
Edwards said recruiting participants to the pilot program is an ongoing struggle. Many are reluctant to adopt the technology largely because of the cost of buying software and hardware, she said. Others have cited concerns for patient privacy.
``It's a very political process. Some of them are anxious to be involved. Others are sitting back and waiting for it to be mandated.''
In the last two years, the Agency for Health Care Administration has given $3.5 million in grants to regional health organizations for network development and training. Grimsley's bill would provide for about $25 million to build the state network over the next three years.
PAST LEGISLATION
Financial restraints led to the rejection of similar measures last year. Debate over whether it was the government's role and not the private sector's to build the statewide system also stymied legislation.
The bills have moved farther and swifter this session, but in a tight economic environment, getting funding could again prove a significant hurdle.
''Electronic records -- electronic anything, is very expensive,'' said Linda Renn, a lobbyist with the Florida Health Information Management Association. ``I wouldn't say it's pie in the sky, but [bill supporters] are going to have to explain why this is important.''
Sunday, April 08, 2007
Health Care Reform Now
Dear Friends and Colleagues:
I hope that you have spent a relaxing Eastern and Passover Holiday.
Attached you find an interesting article from the Wall Street Journal entitled “Perverse Incentives in Health Care.”
The author claims that in health care delivery mediocrity is the rule and excellence, where it exists, is distributed randomly. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts.
Due to the fixed price-system (i.e. third-party payors) high-quality, low-cost care is not financially rewarding. Hospitals and doctors can make more money providing inefficient, mediocre care(i.,e, volume based care)
The author correctly states that in health care, contracts and prices are imposed by large impersonal bureaucracies. The individual physician has virtually no opportunity to offer a different bundle of services for a different price. As a result, very little entrepreneurship is possible.
Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.
Where third-party payment is the norm, markets tend to be bureaucratic and stifling. But in those health-care sectors where third-party payment is rare or nonexistent, the market is vibrant, entrepreneurial and competitive.
I agree with the authors observation that many believe (including our AMA) that health savings accounts (HSAs) will radically reform the health-care system. Yet this is also a reform that focuses on demand, not supply. Even with an HSA plan in hand as you approach the doctor's office, you should know that your insurer has already spelled out what services will be paid for, which ones will not and how much will be paid. HSAs, therefore, will not free doctors to take advantage of telephone, email, computerized records or any other truly innovative service. Like school vouchers, HSAs create new freedom on the buyer side without loosening the shackles on those who produce. The reform is commendable. But real innovation must come from the supply side of the market.
Why are our patients flogging to in-store clinics, traveling to Thailand for surgery or are buying prescriptions from Canada? Because they seek the best price for the care they need. Our health care system is not market based, but controlled by bureaucrats and legislators
Meanwhile, organized medicine is still battling every year to avoid further Medicare cuts instead focusing on comprehensive health care reform.
Our health care system is on life-support and we are still afraid to pull the plug. If we don’t do it someone will do it for us.
Lets jump-start the market-oriented process, promote entrepreneurship, instead of stifling it.
Change has to happen NOW!!!
============================================================================
Perverse Incentives in Health Care
By JOHN C. GOODMAN
Wall Street Journal April 5, 2007; Page A13
Our public-school system and our health-care system may seem as different as night and day. Yet both systems share something in common: Mediocrity is the rule and excellence, where it exists, is distributed randomly.
In both cases the reason is the same. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts.
Research by John Wennberg and his colleagues at Dartmouth Medical School suggest that if everyone in America went to the Mayo Clinic, our annual health-care bill would be 25% lower (more than $500 billion!), and the average quality of care would improve. If everyone got care at Intermountain Healthcare in Salt Lake City, our health-care costs would be lowered by one-third.
Of course, not everyone can get treatment at Mayo or Intermountain. But why are these examples of efficient, high-quality care not being replicated all across the country? The answer is that high-quality, low-cost care is not financially rewarding. Indeed, the opposite is true. Hospitals and doctors can make more money providing inefficient, mediocre care.
In a normal market, entrepreneurs in search of profit would solve this problem by repackaging and repricing their services in order to make customer-pleasing adjustments. Yet in health care, contracts and prices are imposed by large impersonal bureaucracies. The individual physician has virtually no opportunity to offer a different bundle of services for a different price. As a result, very little entrepreneurship is possible.
Sometime in the early 20th century, lawyers, accountants and most other professionals discovered that the telephone was a useful instrument for communicating with clients. Yet even today, consultations with doctors by telephone are quite rare. Sometime in the late 20th century most other professionals discovered email. Yet only 21% of patients exchange email with their physicians; of these, slightly more than 2% do so on a frequent basis.
One would be hard-pressed to find a lawyer in the U.S. today who does not keep client records electronically. Ditto for accountants, architects, engineers and virtually every other profession. Yet although the computer is ubiquitous and studies show that electronic medical record systems have the capacity to improve quality and greatly reduce medical errors, no more than one in five physicians or one in four hospitals have such systems.
Why has the practice of medicine (as opposed to the science of medicine) changed so little in the modern era? The reason is because of the way we pay for medical care, particularly the way we pay doctors. At last count, there were about 7,500 specific tasks Medicare pays for. Telephone consultations are not among them. Nor are email consultations or electronic record keeping. What is true of Medicare is also true of Blue Cross and most employer plans.
Things are made worse by the fact that patients do not usually pay for health care with money; they typically pay with their time instead. As in Canada and most other developed countries, health care in the U.S. is mainly rationed by waiting, not by price.
When the doctor's time is rationed by waiting, the primary care physician's practice is usually fully booked, unless the practice is new or located in a rural area. As a result, there is very little incentive to compete for patients the way other professionals compete for clients. Because time -- not money -- is the currency we use to pay for care, the physician does not benefit very much from patient-pleasing improvements and is not harmed very much by an increase in patient irritations. Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.
Where third-party payment is the norm, markets tend to be bureaucratic and stifling. But in those health-care sectors where third-party payment is rare or nonexistent, the market is vibrant, entrepreneurial and competitive.
Take cosmetic and Lasik surgery, for example. In both markets, patients pay with their own money. They also have no trouble finding what is virtually impossible to find for other types of surgery -- a package price covering all aspects of the procedure. People can compare prices, and in some cases quality. Providers are competing on price and quality and competition pays off. Over the past decade and a half, the number of cosmetic procedures grew sixfold along with numerous technological innovations of the type that are blamed for rising costs everywhere else in health care. Yet despite tremendous growth and technological change, the real price of cosmetic surgery declined. Over the past decade the real price of Lasik surgery fell by 30%.
The market for prescription drugs is another area where a great many people are paying out of pocket. In response, Rx.com was the first online outlet that began competing based on price and quality (they make fewer mistakes than local pharmacies). Wal-Mart's new policy of offering a month's supply of generic drugs is yet another example. Can anybody imagine Wal-Mart offering the same deal to Blue Cross?
Perhaps the most spectacular instance of a health-care product developing outside the third-party payment system is the walk-in clinic. These can be found in shopping malls and drug stores in the upper Midwest and they are spreading like wildfire around the country. They post prices. There is very little waiting. They maintain records electronically. The quality of service is comparable to traditional primary care at half the cost.
I know what you're probably thinking. Markets may work for certain specialized services; but can they work for run-of-the-mill hospital surgery? Medical tourism is proving that the answer is yes. If you're willing to leave the country you too can have access to efficient, high-quality health care. In India, Thailand and elsewhere around the world, facilities are offering U.S. citizens virtually every kind of procedure for package prices, covering all the costs of treatment, and sometimes airfare and lodging as well. These prices are often one-fifth to one-third the cost in the U.S. and care is often delivered in high-quality facilities that have electronic medical records and meet American accreditation standards.
One part of our health-care system (the part where third parties are absent) is teeming and bristling with entrepreneurship and innovation. In the other part (where third parties pay the bills), entrepreneurship has been all but extinguished. How can we make the latter more like the former?
Public and private efforts to reform the health-care system have been actively underway for the past two decades. The results have been disappointing, to say the least, and they all have one thing in common: They focus on the demand side of the medical marketplace.
Managed care, practice guidelines, pay-for-performance -- each of these short-lived fads involves buyers of care telling the providers how to practice medicine. Does no one notice how strange this is? In normal markets, buyers do not instruct sellers on how to efficiently produce their products. Even the HMO movement is a demand-side reform in this context. The HMO doctor is just as trapped as the fee-for-service physician and just as unable to rebundle and reprice his services in innovative ways.
Some believe that health savings accounts (HSAs) will radically reform the health-care system. Yet this is also a reform that focuses on demand, not supply. Even with an HSA plan in hand as you approach the doctor's office, you should know that your insurer has already spelled out what services will be paid for, which ones will not and how much will be paid. HSAs, therefore, will not free doctors to take advantage of telephone, email, computerized records or any other truly innovative service. Like school vouchers, HSAs create new freedom on the buyer side without loosening the shackles on those who produce. The reform is commendable. But real innovation must come from the supply side of the market.
One would think that health insurers and employers would find it in their self interest to break the mold. To the extent that entrepreneurs raise quality and lower price, the insurance product itself should become more attractive to potential customers. The trouble is that the entire third-party payment system is completely dominated by government (principally through Medicare and Medicaid). Private insurers tend to pay the way the government pays and providers who break Medicare rules in order to better serve the patient risk being barred from the entire Medicare program.
A possible way out of this morass is to start with government. Under the current system, Medicare and Medicaid stifle entrepreneurial activity and financially punish efforts to lower costs or improve quality. Why can't these agencies reward improvements instead? Suppose an entrepreneur offered to replicate the Mayo Clinic in other parts of the country -- potentially saving Medicare 25% of costs and improving quality of care along the way. Medicare should be willing to pay, say, 12.5% more than its standard rates in order to achieve twice that amount in lower total costs. That would leave the entrepreneur with a 12.5% profit -- an amount that one would hope would encourage other entrepreneurs to enter the market with even better ideas.
Once government agencies jump-start the entrepreneurial process in this way, private insurers are likely to follow suit. In this way, government could promote entrepreneurship, instead of stifling it.
Mr. Goodman is president of the National Center for Policy Analysis.
I hope that you have spent a relaxing Eastern and Passover Holiday.
Attached you find an interesting article from the Wall Street Journal entitled “Perverse Incentives in Health Care.”
The author claims that in health care delivery mediocrity is the rule and excellence, where it exists, is distributed randomly. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts.
Due to the fixed price-system (i.e. third-party payors) high-quality, low-cost care is not financially rewarding. Hospitals and doctors can make more money providing inefficient, mediocre care(i.,e, volume based care)
The author correctly states that in health care, contracts and prices are imposed by large impersonal bureaucracies. The individual physician has virtually no opportunity to offer a different bundle of services for a different price. As a result, very little entrepreneurship is possible.
Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.
Where third-party payment is the norm, markets tend to be bureaucratic and stifling. But in those health-care sectors where third-party payment is rare or nonexistent, the market is vibrant, entrepreneurial and competitive.
I agree with the authors observation that many believe (including our AMA) that health savings accounts (HSAs) will radically reform the health-care system. Yet this is also a reform that focuses on demand, not supply. Even with an HSA plan in hand as you approach the doctor's office, you should know that your insurer has already spelled out what services will be paid for, which ones will not and how much will be paid. HSAs, therefore, will not free doctors to take advantage of telephone, email, computerized records or any other truly innovative service. Like school vouchers, HSAs create new freedom on the buyer side without loosening the shackles on those who produce. The reform is commendable. But real innovation must come from the supply side of the market.
Why are our patients flogging to in-store clinics, traveling to Thailand for surgery or are buying prescriptions from Canada? Because they seek the best price for the care they need. Our health care system is not market based, but controlled by bureaucrats and legislators
Meanwhile, organized medicine is still battling every year to avoid further Medicare cuts instead focusing on comprehensive health care reform.
Our health care system is on life-support and we are still afraid to pull the plug. If we don’t do it someone will do it for us.
Lets jump-start the market-oriented process, promote entrepreneurship, instead of stifling it.
Change has to happen NOW!!!
============================================================================
Perverse Incentives in Health Care
By JOHN C. GOODMAN
Wall Street Journal April 5, 2007; Page A13
Our public-school system and our health-care system may seem as different as night and day. Yet both systems share something in common: Mediocrity is the rule and excellence, where it exists, is distributed randomly.
In both cases the reason is the same. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts.
Research by John Wennberg and his colleagues at Dartmouth Medical School suggest that if everyone in America went to the Mayo Clinic, our annual health-care bill would be 25% lower (more than $500 billion!), and the average quality of care would improve. If everyone got care at Intermountain Healthcare in Salt Lake City, our health-care costs would be lowered by one-third.
Of course, not everyone can get treatment at Mayo or Intermountain. But why are these examples of efficient, high-quality care not being replicated all across the country? The answer is that high-quality, low-cost care is not financially rewarding. Indeed, the opposite is true. Hospitals and doctors can make more money providing inefficient, mediocre care.
In a normal market, entrepreneurs in search of profit would solve this problem by repackaging and repricing their services in order to make customer-pleasing adjustments. Yet in health care, contracts and prices are imposed by large impersonal bureaucracies. The individual physician has virtually no opportunity to offer a different bundle of services for a different price. As a result, very little entrepreneurship is possible.
Sometime in the early 20th century, lawyers, accountants and most other professionals discovered that the telephone was a useful instrument for communicating with clients. Yet even today, consultations with doctors by telephone are quite rare. Sometime in the late 20th century most other professionals discovered email. Yet only 21% of patients exchange email with their physicians; of these, slightly more than 2% do so on a frequent basis.
One would be hard-pressed to find a lawyer in the U.S. today who does not keep client records electronically. Ditto for accountants, architects, engineers and virtually every other profession. Yet although the computer is ubiquitous and studies show that electronic medical record systems have the capacity to improve quality and greatly reduce medical errors, no more than one in five physicians or one in four hospitals have such systems.
Why has the practice of medicine (as opposed to the science of medicine) changed so little in the modern era? The reason is because of the way we pay for medical care, particularly the way we pay doctors. At last count, there were about 7,500 specific tasks Medicare pays for. Telephone consultations are not among them. Nor are email consultations or electronic record keeping. What is true of Medicare is also true of Blue Cross and most employer plans.
Things are made worse by the fact that patients do not usually pay for health care with money; they typically pay with their time instead. As in Canada and most other developed countries, health care in the U.S. is mainly rationed by waiting, not by price.
When the doctor's time is rationed by waiting, the primary care physician's practice is usually fully booked, unless the practice is new or located in a rural area. As a result, there is very little incentive to compete for patients the way other professionals compete for clients. Because time -- not money -- is the currency we use to pay for care, the physician does not benefit very much from patient-pleasing improvements and is not harmed very much by an increase in patient irritations. Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.
Where third-party payment is the norm, markets tend to be bureaucratic and stifling. But in those health-care sectors where third-party payment is rare or nonexistent, the market is vibrant, entrepreneurial and competitive.
Take cosmetic and Lasik surgery, for example. In both markets, patients pay with their own money. They also have no trouble finding what is virtually impossible to find for other types of surgery -- a package price covering all aspects of the procedure. People can compare prices, and in some cases quality. Providers are competing on price and quality and competition pays off. Over the past decade and a half, the number of cosmetic procedures grew sixfold along with numerous technological innovations of the type that are blamed for rising costs everywhere else in health care. Yet despite tremendous growth and technological change, the real price of cosmetic surgery declined. Over the past decade the real price of Lasik surgery fell by 30%.
The market for prescription drugs is another area where a great many people are paying out of pocket. In response, Rx.com was the first online outlet that began competing based on price and quality (they make fewer mistakes than local pharmacies). Wal-Mart's new policy of offering a month's supply of generic drugs is yet another example. Can anybody imagine Wal-Mart offering the same deal to Blue Cross?
Perhaps the most spectacular instance of a health-care product developing outside the third-party payment system is the walk-in clinic. These can be found in shopping malls and drug stores in the upper Midwest and they are spreading like wildfire around the country. They post prices. There is very little waiting. They maintain records electronically. The quality of service is comparable to traditional primary care at half the cost.
I know what you're probably thinking. Markets may work for certain specialized services; but can they work for run-of-the-mill hospital surgery? Medical tourism is proving that the answer is yes. If you're willing to leave the country you too can have access to efficient, high-quality health care. In India, Thailand and elsewhere around the world, facilities are offering U.S. citizens virtually every kind of procedure for package prices, covering all the costs of treatment, and sometimes airfare and lodging as well. These prices are often one-fifth to one-third the cost in the U.S. and care is often delivered in high-quality facilities that have electronic medical records and meet American accreditation standards.
One part of our health-care system (the part where third parties are absent) is teeming and bristling with entrepreneurship and innovation. In the other part (where third parties pay the bills), entrepreneurship has been all but extinguished. How can we make the latter more like the former?
Public and private efforts to reform the health-care system have been actively underway for the past two decades. The results have been disappointing, to say the least, and they all have one thing in common: They focus on the demand side of the medical marketplace.
Managed care, practice guidelines, pay-for-performance -- each of these short-lived fads involves buyers of care telling the providers how to practice medicine. Does no one notice how strange this is? In normal markets, buyers do not instruct sellers on how to efficiently produce their products. Even the HMO movement is a demand-side reform in this context. The HMO doctor is just as trapped as the fee-for-service physician and just as unable to rebundle and reprice his services in innovative ways.
Some believe that health savings accounts (HSAs) will radically reform the health-care system. Yet this is also a reform that focuses on demand, not supply. Even with an HSA plan in hand as you approach the doctor's office, you should know that your insurer has already spelled out what services will be paid for, which ones will not and how much will be paid. HSAs, therefore, will not free doctors to take advantage of telephone, email, computerized records or any other truly innovative service. Like school vouchers, HSAs create new freedom on the buyer side without loosening the shackles on those who produce. The reform is commendable. But real innovation must come from the supply side of the market.
One would think that health insurers and employers would find it in their self interest to break the mold. To the extent that entrepreneurs raise quality and lower price, the insurance product itself should become more attractive to potential customers. The trouble is that the entire third-party payment system is completely dominated by government (principally through Medicare and Medicaid). Private insurers tend to pay the way the government pays and providers who break Medicare rules in order to better serve the patient risk being barred from the entire Medicare program.
A possible way out of this morass is to start with government. Under the current system, Medicare and Medicaid stifle entrepreneurial activity and financially punish efforts to lower costs or improve quality. Why can't these agencies reward improvements instead? Suppose an entrepreneur offered to replicate the Mayo Clinic in other parts of the country -- potentially saving Medicare 25% of costs and improving quality of care along the way. Medicare should be willing to pay, say, 12.5% more than its standard rates in order to achieve twice that amount in lower total costs. That would leave the entrepreneur with a 12.5% profit -- an amount that one would hope would encourage other entrepreneurs to enter the market with even better ideas.
Once government agencies jump-start the entrepreneurial process in this way, private insurers are likely to follow suit. In this way, government could promote entrepreneurship, instead of stifling it.
Mr. Goodman is president of the National Center for Policy Analysis.
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