Category Archives: Health care

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December 16, 2011 · 12:33 PM

Dr. Berwick’s recent interview sheds light on the problems with Medicare

The New York Times recently ran a story based on an interview with Dr. Donald M. Berwick who stepped down last week as Administrator for the Centers on Medicare and Medicaid Services.  He had received a recess appointment to that position after his nomination ran into trouble over statements concerning rationing health care.

Perhaps without realizing it, Dr. Berwick makes several statements that highlight the difference in philosophy between the Administration and Republicans over health care.  The first statement is Dr. Berwick’s conclusion that 20 to 30 percent of health spending is “waste” in that it yields no specific benefit to patients.  This is a stunning admission from the head of agency charged with supervising these programs in a Democratic administration.  Dr. Berwick lists five reasons for this waste: 1) overtreatment of patients; 2) failure to coordinate care; 3) administrative complexity of the health care system; 4) burdensome rules; and 5) fraud.  Of these at least two are directly tied to government action and the other three are strongly influenced by it.  All of them are long-standing issues.  That they continue to cause so much waste despite (or perhaps because of) over 40 years of experience might lead one to question the role of government in health care.

The second statement is Dr. Berwick’s response to why Americans are still deeply divided over the new health care law: “It’s a complex, complicated law.  To explain it takes a while.  To understand it takes an investment that I’m not sure the man or woman in the street wants to make or ought to make.”  Given the waste already in the system, Americans might naturally distrust a complex law that they do not understand, especially when complexity is already creating waste.  Yet Dr. Berwick thinks they should support the reforms because of their ultimate destination: “We are a nation headed for justice, for fairness and justice in access to care….We are a nation headed for much more healing and much safer care.  There is a moon shot here.  But somehow we have not put together that story in a way that’s compelling.”

Third are Dr. Berwick’s observations on government in general: “Government is more complex than I had realized….Government decisions result from the interactions of many internal stakeholders — different agencies and parts of government that, in many cases, have their own world views.”  He also contrasts his experience in the private sector: “I was used to moving very, very fast.  We could decide on Monday to start a program and have it in existence on Wednesday” with that in government: “I wish they could go faster…[but]…I don’t think you want government to be impulsive.”

One seldom sees such clear examples of the disconnect between the defenders of recent health care reforms and their opponents.  Note the implicit assumption that the law deserves support merely because of its goal, regardless of whether it is likely to succeed in that goal.  Yet this is precisely where the disagreement lies.  There is broad agreement about the goal of increasing access and quality of care.  There is strong disagreement about whether the Administration’s policies will move us toward or away from that goal.  Democrats tend to think that guaranteeing everyone health care and then delivering it through a centralized program in which the young and healthy subsidize the old and sick is the only solution.  Republicans believe that, just as in other markets such as telecommunications and transportation,  increasing competition and innovation will make health care more affordable by driving down prices.  The two approaches have dramatically different implications for the role of government and support for last year’s reforms.  Americans who oppose the law see the waste that Dr. Berwick’s points to as evidence for their view.

The two approaches have important implications for the affordability of health care.  The news article points out that: “For political reasons, the administration did not want [Dr. Berwick] to defend past statements in which he had extolled the virtues of the British health care system and had suggested a need to cap total health spending and limit the supply of costly high-technology medical care in the United States.”  One was a 2009 statement that: “The decision is not whether or not we will ration care — the decision is whether we will ration with our eyes open.”  Dr. Berwick feels that Republicans are unfair to depict him as an advocate of rationing health care and he defends the statement: “My point is that someone, like your health insurance company, is going to limit what you can get.  That’s the way it’s set up.  The government, unlike many private health insurance plans, is working in the daylight.  That’s a strength.”

Yet almost everything Dr. Berwick has said up to this point belies this last statement.  His 2009 statement was correct, which is precisely why the Administration did not want him to try and defend it.  Rationing is inevitable in a world of scarcity.  The Administration prefers government rationing through careful studies about the costs and benefits of alternative treatments and improvements in the incentives that government policy gives to patients and providers.  Yet its own official has just listed a number of reasons why this approach is unlikely to succeed: 1) it wastes a large amount of the money passing through its programs; 2) decisionmakers are too self-interested to act consistently in the public’s interest; 3) it moves too slow; 4) it is too complex.  Given all of this, how probable is it that better government policy can deliver the improvements needed to make health care more affordable?  Not very.  Even under health care reform, government programs will suffer a debilitating handicap: their decisions will be political.  And because they are political a wide variety of interests other than those of the patient or the general public will often move to the forefront.  Every penny of the 20-30 percent of waste that Dr. Berwick pointed out is income to one provider or another.  They will fight hard to keep it and past experience gives every indication that they will succeed regardless of what the last Congress intended.

There is another way.  Markets also ration care in a much different way; through prices.  Provided you pay the price, you can have as much as you want.  Prices for a product usually start out high, but this attracts other suppliers who, through competition gradually bring prices down.  New entrants continually introduce new products and technology into the market.  Assuming they have enough purchasing power (a key concern that vouchers and other supplemental payments are designed to address) patients decide for themselves how much care to buy.  There is evidence that patients are increasingly able to make intelligent decisions about their care; forming support groups, exchanging health information, and even organizing their own medical trials.  Sensible government programs could help this process.

One could have hoped that Dr. Berwick’s experience with government would have made him more sympathetic to an alternative path.


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Patients Are Consumers

There seems to be a national consensus that continued increases in health care costs threaten not only the viability of the federal government’s two major health care programs, Medicare and Medicaid, but also the fiscal solvency of the United States itself.  The government, having committed to pay for roughly one-quarter of all health care spending regardless of cost, will soon find itself overwhelmed if these costs continue to rise at their present rates.  Meanwhile, in the other 75 percent of the market, more and more workers will find health care increasingly unaffordable.

Unfortunately, there is no consensus on the solution.  While it is generally understood that the two parties have different approaches, few people seem to understand the difference in assumptions and goals that motivate these approaches.  The assumptions behind one approach can be seen by a recent editorial by Paul Krugman in the New York Times.  In it, Mr. Krugman criticizes the Republican’s approach to health care reform.  But rather than focus on the details of their plan, he goes to something more basic: the assumption that patients should be treated as consumers.  In his words: “the relationship between patient and doctor used to be considered something special, almost sacred.  Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car….There is something terribly wrong with the whole notion of patients as ‘consumers’ and health care as simply a financial decision.”

Another example of this dismissal of the average patient’s abilities comes from an editorial by Allan Sloan in the Washington Post who criticizes the idea that elderly Americans can be expected to choose from a range of health care options besides the standard Medicare program.  His reasoning:  “[M]embers of Congress are a lot better equipped to chose a health plan than Medicare recipients are.  Congress members are surrounded by helpful staff and have ready access to experts.  Most important, Congress members as a group are much more affluent than Medicare beneficiaries and don’t feel compelled to pick the lowest-premium, lowest-coverage policy because they can’t afford anything better.”  Perhaps, but Mr. Sloan does not mention that even the youngest, least experienced government employees manage to make this choice, largely unassisted.

A central tenet of this view is that health is not like other markets or services.  Patients lack the ability to make intelligent decisions and the consequences of a wrong decision are too great.  Republicans disagree and it is important to understand why.  In general the differences come down to two questions.

The first is who should make decisions.  Mr. Krugman recognizes the need to do something about health care costs: “we have to find a way to start saying no.”  Since the consumer is incapable of making these decisions, Mr. Krugman prefers the government.  Having declared the patient/doctor relationship “special, almost sacred” he would immediately insert a government agency into the middle of it to say no.  He has no choice.  If government is going to control the money it spends on health care, it must make the decisions.

Mr. Krugman does allow for some limits on the government’s power.  He is careful to point out that: “we’re not talking about limits on what health care you’re allowed to buy with your own (or your insurance company’s) money.  We’re talking only about what will be paid for with taxpayers’ money.”  This is disingenuous.  Apparently private patients can intelligent decisions, just not those covered by Medicare and Medicaid.  But what exactly makes these patients special (or inferior)?  Mr. Krugman does not say.  In fact, for Mr. Krugman’s approach to work, the government must make all the decisions.  If private markets are allowed, the rich will always be able to afford better care, doctors will increasingly drop government programs that do not pay enough, and younger workers will not have to subsidize older ones.  This is why Krugman ultimately favors a single payer system.  It is why Canada initially forbid all private transactions until the practice was declared unconstitutional.  It is why unions and large employers oppose giving workers vouchers to purchase health care.  It is why the Obama administration is defending an executive order saying that any person who opts out of Medicare also has to give up Social Security.  Individual choice in any part of the health care system undermines government’s ability to manage the rest of the market.

Conservatives, while acknowledging the complexity of health care markets, think that individuals can make better decisions about their care than can a government agency.  And there is a lot of evidence to support them.  The Internet has had an enormous effect on patients’ ability to get information on their conditions and to connect with other people who have the same diagnosis.  Patients know their own circumstance, tolerance for risk, and life goals far better than any government agency or doctor could.  Since these factors differ from individual to individual, there is no reason why the same policy should apply to everyone.  And patients are fully capable of evaluating medical advice.  Technology Review recently named Paul Wick its Humanitarian of the Year for helping to start PatientsLikeMe, a site where patients with the same diagnosis can interact with, support, and learn from each other.

The second question centers around the proper expectation for health markets.  Because they believe that health care, though different from other services, still responds to basic market forces, conservatives think that one should expect both better service and lower prices over time: in other words steady improvements in productivity.  Achieving such a dramatic change requires two fundamental changes to our current system.  First, we need to subject health care to the market pressure exercised by millions of consumers making their own decisions.  This will only happen if patients act like they are spending their own money.  Second, we need to deregulate health care markets so that they can respond to this pressure.  One way would be to establish a national license for health care professionals reflecting the fact that the proper practice of medicine does not differ between any two states.  Another would be to allow lower-skilled professionals to use technology to do more procedures that currently can only be done by more expensive experts.  Mr. Krugman seems to believe that this is not possible:  that the best one can hope for is to control the cost increases associated with better technology and normal inflation.  These different outlooks have tremendous implications for the affordability of health care.

The difference between the two systems can be seen quite clearly in a interview that Robert Fogel, another Nobel Laureate, gave in 2007.  When asked about the dramatic rise in living standards over the past 50 years, he described his wife’s treatment for pneumonia in London:

“She was treated at one of the city’s top hospitals, Guy’s and St. Thomas’ Hospital, which is directly across from Parliament. Everything there was in wards, whereas in the United States rooms are typically private or semi-private.  Americans today are used to having a phone beside their bed and 40 channels of television to watch while they are recuperating from an illness. That is unusual, even in other rich countries. Also, the way the diagnosis of her ailment was conducted was different from the typical procedure used in the United States. The doctors and nurses were very good but they never X-rayed her. They just listened to her lungs and came to the conclusion that she had pneumonia.  If she had been in the United States, the doctors typically would have X-rayed her as a precautionary measure. So we make all sorts of investments that the British are not willing to make.  They spend $1,193 per person per year on health care, while we spend $3,724.”

This is how Mr. Krugman would control costs.  Republicans believe that it would probably be a good idea for U.S. hospitals to offer a no frills option to patients (consumers) who want one.  But whereas in a competitive, consumer-driven market individuals would make the choice, Krugman would have government make it for you.  Republicans believe that over time, this system will find a way to offer American-level health care at British-level prices through innovation.  Mr. Krugman seems to think this is impossible.  Yet it is not an accident that two of the sectors where productivity growth is lowest (and where vouchers are fiercely resisted by the existing providers), education and health care, are also sectors where the government control is greatest.

Assuming that Republicans are right: that a competitive market could produce lower prices and better quality, imagine the social gains in terms of higher incomes for workers and greater coverage for individuals.  This result, which will never be produced by top-down planning, would be worth the uncertainty and risk of market forces.

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