Reforming Healthcare: Okay, What Then?

There’s an article over at the New Yorker that’s been getting quite a bit of attention. The article proposes a small, poor, Texas border town, McAllen, as an example of the problems with the U. S. healthcare system overall:

One night, I went to dinner with six McAllen doctors. All were what you would call bread-and-butter physicians: busy, full-time, private-practice doctors who work from seven in the morning to seven at night and sometimes later, their waiting rooms teeming and their desks stacked with medical charts to review.

Some were dubious when I told them that McAllen was the country’s most expensive place for health care. I gave them the spending data from Medicare. In 1992, in the McAllen market, the average cost per Medicare enrollee was $4,891, almost exactly the national average. But since then, year after year, McAllen’s health costs have grown faster than any other market in the country, ultimately soaring by more than ten thousand dollars per person.

“Maybe the service is better here,” the cardiologist suggested. People can be seen faster and get their tests more readily, he said.

Others were skeptical. “I don’t think that explains the costs he’s talking about,” the general surgeon said.

“It’s malpractice,” a family physician who had practiced here for thirty-three years said.

“McAllen is legal hell,” the cardiologist agreed. Doctors order unnecessary tests just to protect themselves, he said. Everyone thought the lawyers here were worse than elsewhere.

That explanation puzzled me. Several years ago, Texas passed a tough malpractice law that capped pain-and-suffering awards at two hundred and fifty thousand dollars. Didn’t lawsuits go down?

“Practically to zero,” the cardiologist admitted.

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.” Doctors, he said, were racking up charges with extra tests, services, and procedures.

That’s also the explanation implied by a proposal for substantial savings on healthcare expenses proposed by UnitedHealthGroup, a health management company:

WASHINGTON — A major health insurer says the government can save more than $500 billion in Medicare spending by sending patients to less expensive, more efficient doctors, reducing hospital visits by the elderly and cutting unnecessary care.

Those are among 15 suggestions made Wednesday by UnitedHealth Group, a Minnesota-based health management company that is the biggest participant in the government’s Medicare insurance program for the elderly. United said the proposals added up to $540 billion in savings over 10 years.

Sounds appealing, doesn’t it? Just reduce the overutilization and you realize substantial savings. I don’t want to rain on UHG’s parade but $54 billion per year, the savings they propose to realize, on expenses of $2.4 trillion is 2.25%, a little under a third of the 6.9% increase in healthcare expenses in the United States every year. Even more unfortunately they haven’t thought the approach through.

Okay. By some magical method, presumably physicians prescribing less, patients demanding less, health insurers (including the federal government) refusing to pay for excessive utilization, which it would be interesting to see how they identified, or some combination you reduce the over-utilization. Then what? Either healthcare providers, both professionals and hospitals, take a pay cut—they receive less than they would have otherwise received or they will raise the prices on the procedures they do perform to make up the difference. Human nature suggests the latter will be the preferred course of action.

I can think of any number of things that are less expensive now in constant dollars than they were 30 years ago. Long distance telephone calls are less expensive. Computers are less expensive. Lest you think “Aha! None of these are labor intensive”, dental expenses have gone down, too, even as the dental health of Americans increased by practically every measure. In every case I can think of cost reductions have resulted because supply increased.

The problem with our healthcare system is not merely that we can’t afford to pay an additional 7% a year for healthcare it’s that we can’t afford what we’re paying now. That’s what I think the proper interpretation of the rising number of people without insurance is. A rising proportion of the national income being devoted to healthcare means less spent on retail, technology, manufacturing, and so on which could be devastating particularly if, as I suspect, we’ll see slower growth for the foreseeable future than we have over the last 15 years.

It may be that the sorts of reforms that are being proposed for healthcare reform might have worked had they been put into force twenty or thirty years ago. But now it’s going to take a much more dramatic change in the way that healthcare is provided to accomplish the changes that need to be effected.