Posted on April 28, 2009

Paperwork, profits clog health care's efficiencies


San Diego Union Tribune
April 26, 2009

It’s been nearly three decades since White House Chief of Staff John Ehrlichman floated the idea of creating a health care system based on health maintenance organizations.

President Richard Nixon at first balked at the idea. “You know, I’m not too keen on any of these damn medical programs,” he said on June 17, 1971, as recorded by his secret White House taping system.

Ehrlichman, who would later serve jail time for his role in the Watergate affair, patiently explained that privately run HMOs could be profitable, since “all of the incentives are for less medical care. Because the less care they give, the more money they make.”

“Not bad,” Nixon replied. The next day, he proposed “a new national health strategy” based on HMOs, saying that “the purpose of this program is simply this: I want Americans to have the finest health care in the world.”

In the years since, it’s an open question whether the United States has created the world’s finest health care system, but it’s definitely the costliest. In 2006, the United States spent $6,714 per person on health care.

In comparison, Japan — which, like most other industrialized countries, offers a largely socialized health care system — spent $2,474; the United Kingdom, $2,760; Sweden, $3,202; Germany, $3,371; and France, $3,449. We devote more than 15 percent of our gross domestic product to health care, while most other industrialized countries spend less than 10 percent.

What has that bought us? There are few areas where we do noticeably better than other countries — our hospital waiting times, for instance, are shorter than in other countries, and we provide greater access to advanced technologies.

But over the past decade, the United States has consistently ranked last on patient access, safety, efficiency and equity when compared with countries such as Germany, Australia, Canada, New Zealand and the United Kingdom in a biannual survey of the Commonwealth Fund, a New York-based health advocacy group.

By a number of other measures, such as infant mortality and life span, we lag behind most industrialized nations. And we still are a nation where nearly one out of four residents is uninsured. In fact, the number of uninsured is rising each day as more employees get laid off. Every 1 percent increase in the jobless rate translates into more than 1 million people losing health coverage nationwide, according to the Kaiser Family Foundation.

Why are our health care costs so high? Why aren’t we getting broader coverage, considering the amount of money we’re putting into the system?

There are a number of reasons, ranging from our fondness for CT scans and MRIs to the high profits of the drug industry. But some critics recently have focused on two other major factors: profits — as Nixon alluded to — and paperwork.

In testimony on Capitol Hill last week, David Himmelstein, national spokesman for Physicians for a National Health Program, argued that one reason for the high cost of health care in the United States is that American hospitals and clinics spend much more money on administrative services than other countries do, partly because U.S. doctors have to devote such a large portion of their time responding to questions and challenges from insurers.

Himmelstein, an associate professor at Harvard and doctor at Cambridge Hospital, said 31 cents out of every dollar that Americans spend on health care goes for administrative expenses. That compares with less than 17 cents in neighboring Canada, which uses a single-payer system.

“If we cut our bureaucratic costs to Canadian levels, we’d save nearly $400 billion annually — more than enough to cover the uninsured and to eliminate co-payments and deductibles for all Americans,” Himmelstein told the House Subcommittee on Health, Employment, Labor and Pensions.

Jim G. Kahn, health economist at the Institute for Health Policy Studies at the University of California San Francisco, found a similar pattern during a study of California hospitals, clinics and doctors’ groups. He found the doctors’ groups were spending an average of 14 cents per dollar related to legal, accounting and processing costs involved with health insurance.

“You have to have teams of lawyers and accountants to negotiate contracts and to figure out who pays for what,” Kahn said. “You have to have whole teams in place to figure out what errors there are (in the paperwork) and how to fix them.”

Kahn said that in a single-payer system like Canada’s, the data are centralized, resulting in less time, money and effort being spent on administrative tasks. “And then you could apply that savings to provide better health coverage,” he said.

Critics of a single-payer concept worry that a government-run system would end up being too costly and too bureaucratic, without providing the benefits of innovation and cost-cutting that competition is supposed to bring. But if that were true, why does our system cost more than those abroad?

The entities that seem to benefit most from the current system are the major pharmaceuticals, which are among the nation’s most profitable companies, and the life insurers, which have also done well.

Donald Cohen, executive director of San Diego’s Center for Policy Initiatives, a liberal think tank, said the top seven for-profit health insurers made a combined $12.6 billion in 2007, an increase of more than 170 percent from 2003. Part of those profits go toward paying high salaries for the top executives. The seven chief executives received an average compensation of $14.3 million in 2007, with pay packages ranging from $3.7 million to $25.8 million.

Cohen suggested that one way of lowering costs would be to create more competition, by having a government health plan competing with the private insurers. Government-run programs, he said, typically run with low administrative expenses, often with overhead running at 1 percent to 3 percent of their expenses. In contrast, the privately run insurance firms have overhead costs as high as 20 percent, partly because of their high salaries.

As Cohen noted, conservative think tanks like the Reason Foundation, Heritage Foundation and others have argued that allowing the private sector to compete with the public sector can benefit the taxpayer. Why shouldn’t the reverse be true?

“Public-private competition in health insurance will squeeze overhead and profits from the middlemen in the system so we can put more money into actual health care,” Cohen said.

Dean Calbreath: (619) 293-1891;