The Common Good
June 2011

Sky High and Rising

by Elizabeth Palmberg | June 2011

With lower-cost heath care, would I be dead?

Five years ago, in my mid-30s, I was diagnosed with what turned out to be chemotherapy-resistant lymphoma. I was lucky: My job offered decent insurance, my doctor-father helped me understand what to ask for, and I lived reasonably close to Johns Hopkins' top-ranked medical facilities. By the grace of God, the prayers of friends and co-workers, and weeks of high-tech inpatient care, I am alive and well.

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Back at work, I started reading about how the U.S., compared to other wealthy, industrialized nations, pays a wildly disproportionate (and growing) amount for health care -- in 2009, 17.6 percent of the entire national economy, basically half again the amount paid by France. The other countries of Western Europe, Japan, Korea, and Australia pay even less, often with percentages in the single digits, even though a much bigger chunk of those countries' populations is elderly. All these countries have higher life expectancies than the U.S; in general, their residents are more likely to get a same-day visit with their doctors when they get sick, to stay in the hospital longer after a heart attack, and to suffer from fewer medical errors.

So I have two questions: What can the U.S. do so that its health-care system would provide better results, at a less extreme cost? And, under such a system, would I be alive today?

Last year, the U.S. passed health-care reform that is a clear moral and public-health victory. It's already expanded health-care coverage for millions, including children with pre-existing conditions, and it helped close the "doughnut hole" in Medicare prescription drug coverage. Eventually (unless Republican efforts to stymie or defund its implementation succeed) it will reduce the number of uninsured people by 32 million. The law also mandates insurance exchanges where "people can really see what's covered, what isn't -- that's a big step forward," Robin Osborn, director of the Commonwealth Fund's International Program in Health Policy and Innovation, told me.

But the law won't do much about health-care costs. Economists at the Centers for Medicare and Medicaid Services estimate that the Affordable Care Act, together with more minor legislation, will slightly increase overall health-care spending in the U.S., by .3 percent of Gross Domestic Product (GDP) by 2019. Reform will also decrease the federal budget deficit slightly, by $210 billion by 2021, in large part by reining in Medicare spending.

Such slight changes won't put a dent in our out-of-control health-care cost problem, or the burden it puts on private employers, individuals, and charities (who collectively pay about half of U.S. medical costs, mostly  through insurance premiums and copays), and on the budgets of government (which pays the rest). If our per-person health-care costs were the same as Germany's or Japan's, we'd be looking at a federal budget deficit approaching zero for the next decade, and potentially at long-term surpluses.

This April, President Obama finally spoke about health-care costs as a problem for the federal budget -- although no one is yet talking about the disparity with other nations or the burden on private insurance buyers. (House Republicans, who propose simply shifting more of the skyrocketing medical costs onto senior citizens, are still in denial about all of the above.)

This means that the problem with the "entitlements" that you keep hearing smeared in deficit debates is not Social Security (which has run a surplus for decades and is solvent until 2037, when it will need small fixes). The long-term deficit concerns are Medicare and Medicaid, and the reason they have a problem is not that the elderly and poor people they serve have some excessive sense of "entitlement," as seen in a greedy, uppity desire to not die of treatable diseases. Rather, it’s the cost of that treatment.

We have a problem -- a big problem that will require a multipronged solution. And it's getting rapidly worse. Total health-care spending, which took up just over 5 percent of GDP in 1960, ate more than 10 percent of GDP in 1985, before skyrocketing to 17.6 percent in 2009. As the senior economist for the Centers for Medicare and Medicaid dryly noted, if the trend "were to continue unchecked, the health sector would encompass most, if not all, of the U.S. economy" within 75 years. (Medicine's share of the economy is growing in other countries, too, but from a much lower, more sustainable baseline.)

I asked Gerard Anderson, who teaches health policy at Johns Hopkins University, why U.S. costs are so disproportionately high. "The first [reason] is prices," he said. "We just pay approximately twice as much for each good and service." The other reason is chronic disease, "primarily but not exclusively due to obesity." (The average person in the U.S. smokes and drinks less than a Western European, but consumes more calories.)

The obesity reason is easy to grasp: A recent estimate suggested that U.S. medical spending was about 40 percent higher for an obese person than for someone of normal weight. The U.S. adult obesity rate was about 34 percent, versus 24 percent for Canada. However, that extra one-tenth of population that is obese can't come close to explaining why, around the same time, U.S. health-care spending was about one and a half times Canada's, taken as a share of national economy.

So let's talk about the central, hidden force here: Twice-as-high prices. Why so high? As the daughter of a doctor, I can attest that medical professionals are not, in secret, gleefully scheming how to destroy U.S. business competitiveness and federal budgets.

But doctors are part of a market. According to Anderson, "most other countries have a single [health-care] purchaser, which is a very tough negotiator, whereas in the U.S. we have so many different purchasers that nobody has a lot of power. If Medicare tries to keep prices down too much, doctors and hospitals will say, 'I'm not going to play with Medicare.'" A similar thing happens with drug prices, Anderson says.

In other words -- read this sentence twice, as it goes against widespread rhetoric -- it is our market system that leads to higher prices. There is no large buyer to counterbalance the negotiating power of doctors, whose supply is limited by licensing requirements, or of drug and equipment sellers, who get government-imposed, temporary monopolies under the patent system. (U.S. generic drug prices are lower than in most other wealthy countries, but this makes little difference as generics are such a small piece of spending.)

For a doctor's-eye perspective on this, I asked my dad. Although he sometimes consults for pharmaceutical companies trying to introduce new drugs, he offered a strong critique of how "copycat" medicines and medical devices "greatly increase the cost of care" in the U.S.: "Once a drug in a class is out, other companies spend almost as much money to produce a competitor, often with little or no additional benefit." At the same time, he says, U.S. costs are also higher because we are paying for the original, useful drug: "The rest of the world rides on our initial investments." But U.S. prices also pay for a small army of pharmaceutical reps courting individual doctors -- and for prescription-drug consumer advertising, which virtually no other wealthy nation permits. (When I was in chemotherapy, I was appalled to see Neulasta, the $7,000-per-shot medicine sustaining my immune system, advertised on TV; I can attest that doctors, not television, are best suited to help patients make individualized, informed choices.)

While the U.S. is a stark statistical outlier on prices and chronic conditions, there are other pieces of the puzzle. Our patchwork system of competing insurance spends big on administrative costs -- according to Anderson, "about 7 percent of health-care spending in the U.S. [compared to] about 2 or 3 percent in other countries."

Also, the dominant "fee for service" system gives doctors incentives, not to get good health outcomes (or to avoid medical mistakes), but to do procedures -- for example, excessive tests ordered by doctors who own expensive scanning equipment. The U.S. has about four times more MRIs per person than Canada. The Dartmouth Health Atlas Project has documented that some parts of the country use up to twice the volume of medical services as others -- and that such regional differences don't produce better health, but do correlate with the local supply of doctors. Excessive tests may also result from "defensive medicine" based on doctors' fear of lawsuits, although Anderson says this is hard to measure; states, such as Texas, that have limited malpractice payouts have not seen much change in medical practice.

The U.S. de-emphasis on primary care doctors -- we have a shortage of them, as we pay them roughly half what many specialists make -- definitely costs us, in money and health. Having more care come from specialists, uncoordinated with each other, is less efficient and leads to worse outcomes in comparison to many other industrialized countries, where "people are really closely connected to a primary care practice, and that's where they go first," Osborn told me.

Making things worse is the lack of electronic medical records, which leads to duplicate tests and makes it hard for doctors to do things like "generate a list of all their diabetic patients and find out if they're all under control and if they've had eye exams and foot exams in the last year," says Osborn. Lack of medical coverage is also a health problem, she says: In the U.S., "one of two chronically ill people say that, in the past two years, they didn't fill a prescription, they didn't see the doctor when they had a problem, or they didn't get the recommended treatment because of cost. That barely happens to anyone in the Netherlands or the U.K."

Osborn sees some "very exciting directions" in U.S. health-care reform, particularly the reform bill's support for "accountable care organizations," a new model in which full-service medical provider groups would get paid for health outcomes, not volume of procedures. This model of holding providers accountable for both quality and cost "will be very much at the cutting edge." Also in the reform bill, says Osborn, "there's a lot to support managing patients with multiple chronic illnesses at home, saving on hospital admission, keeping the patients healthier.” In addition, she says, the 2009 stimulus bill initiated promising "comparative effectiveness research to tell us what works well and what doesn't."

In terms of how much we’re spending, though, her optimism is limited: "We're not going to get to the OECD average," she says flatly, referring to the Organisation for Economic Co-operation and Development, whose 34 member nations include industrialized countries in Europe and elsewhere. The U.S.' health costs are far and away the highest in the group.

So, I come back to my two questions. Would I be dead in another country? The stereotype is that other countries ration high-tech specialty care, and to some extent this is true: Most other countries have longer wait times to see a specialist, and there is a lower rate of, for example, heart transplants. I couldn't find statistics on the specific kind of cancer I had, but it’s certainly possible someone who had it in the U.K. might not have gotten an autologous stem cell transplant plus radiation, as I did -- although some people there do, as some medical studies about the procedure come from London. And medical care within the U.S. is rationed by insurance status and geographic location, so if I were an unemployed woman in Mississippi, I might not have gotten that treatment either. Plus, many people have good results from the older, cheaper treatment of radiation alone -- and some percentage will die regardless of what treatment they get.

In other words, there’s no way to answer the question. What is clear is that the emphasis on primary care in other countries does save the lives of many, compared to the U.S.

What of the other question: What should the U.S. do to control costs? Economist Dean Baker suggests, in all seriousness, allowing Americans to retire to Germany and buy into European health-care systems using their share of Medicare, splitting the savings between the government and retiree. Baker also thinks we should take pharmaceutical development out of the patent system entirely, as it "gives the drug companies enormous incentive to mislead doctors and patients about the effectiveness and safety of their drugs because they stand to profit so much."

Obviously, more emphasis on primary care, better coordinated care, electronic medical records, and accountable care organizations should play a role, as should reduced salaries for doctors. Although in my opinion my dad's salary has been well-used, including generous donations to charity and putting me through college, my family could have had a perfectly decent life on a bit less money.

I asked Gerard Anderson what the ideal solution would be. He suggests a single-payer and single-delivery system: "Everybody has the same health care and access." But, he says, "there is no appetite for cost containment in the United States. In 1978 when [health-care spending] was 8 percent [of GDP], I said it couldn't go beyond 10 percent, and I believed it. I’m sitting here at 17 percent, and I can tell you right now, I don't know. Yes, Congress wants to control entitlement programs, but anything you propose -- and it's not that there aren’t lots of proposals out there -- has a strong constituency against that option."

It’s not clear that U.S. business -- that is, the shrinking part of it that is not selling health care -- is able to address adequately how out-of-control health-care costs are hurting competitiveness. The U.S. Chamber of Commerce did not respond to a request for comment for this article.

The one thing we have going for us is that we know lower health-care costs can be done, because they are being done. By every large, wealthy country in the world. Every one but us.

Elizabeth Palmberg is an associate editor of Sojourners.

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