Health care cost -- Myth versus reality

By Ethan Parke
Vtdigger (Montpelier, Vt.), Aug. 9, 2012

Single payer critics warn that Vermont should not go forward with Green Mountain Care because there are too many unknowns. But one thing is certain — if we do nothing, health care expenditures in Vermont (from all sources) are expected to reach $10 billion a year by the year 2020. That’s a back-breaking $16,000 per person, which could very well doom our economy.

A single-payer system would empower Vermont, as a commonwealth of citizens, to take charge of its own health care spending. One accountable entity, subject to public oversight and control, would administer the flow of dollars from all sources to health care providers, eliminating the excessive profits and administrative waste that plague our current system.

Yet the single payer naysayers claim that doctors will leave the state, and infer that costs can be controlled only at the expense of health care quality. This has not been the case in other countries, which have a single-payer system with plenty of doctors, but which spend less than we do, and have higher indicators of health.

So where exactly is the fat in our current system? What can be cut without sacrificing quality? These are important questions that the Green Mountain Care Board would do well to examine in detail. The board must correctly identify the root causes of health care inflation in order to make the right decisions as we move toward a single payer.

Along the way, the board should be careful to avoid misconceptions. A prize-winning Michigan journalist, Julie Mack, recently wrote an article debunking the myths that opponents of health care reform recite as reasons why we must live with the world’s highest health care costs. See her article here.

The five false assumptions are (1) we have the best care in the world; (2) we don’t ration care as other countries do; (3) we have bad habits and are therefore less healthy than people elsewhere; (4) our medical malpractice lawsuits are out of control; and (5) the U.S. government is a free spender on health care.

Mack showed that all five of these assertions are contradicted by statistical evidence. She based her conclusions on a 2011 report by the Organization for Economic Cooperation, and from other reliable sources, such as the nonpartisan Congressional Budget Office. Mack then went on to list the real reasons for high health care costs, roughly in order of magnitude. If she is correct, these are the things the Green Mountain Care Board should focus on fixing:

First, U.S. health care providers charge much more than providers in other developed countries. For instance, in 2007 an appendectomy in the U.S. was billed at an average of $7,962. In Canada the charge was $5,004, and in Germany $2,943. An MRI in the U.S. averaged $1,009, while the same test was $304 in Canada, and only $187 in Britain. The same disparity was true for pharmaceuticals. In the U.S. we simply pay much more per product or per service, than people in other developed countries.

Second, in the U.S. we use more medical interventions, usually at a high price tag, and we use less low cost primary care. Yet overall health outcomes in the U.S. are not better than in other countries. For instance, in the U.S., a heart patient is 45 percent more likely to undergo angioplasty or bypass surgery than patients in Norway, which ranks second in the use of these procedures. However, the U.S. mortality rate for heart disease is 41 percent higher than Norway’s.

Third, the fee-for-service reimbursement mechanism used in the U.S. creates a powerful incentive to overdiagnose, overprescribe, and overtreat. Fee-for-service encourages providers to pad bills with unnecessary procedures, to game the system, and even worse, to commit insurance fraud.

Fourth, on a per capita basis we spend about five times more on doctors in the U.S. than in other developed countries. For instance, in 2008, U.S. orthopedic surgeons averaged $442,450 per year in pre-tax earnings, while in Britain, which ranked second in earnings for this specialty, the orthopedic surgeons earned $324,138. In other countries, the average earnings were less than $210,000. These higher incomes resulted from higher fees, not from higher numbers of services or higher medical school tuition bills. Compounding the problem, Americans tend to use more specialists and less primary care than patients in other countries.

Fifth, the U.S. has fewer government regulations aimed at controlling costs. Outside of Medicare and Medicaid and a handful of other government programs, providers essentially charge whatever they can get away with. Government programs get charged the least, private insurance plans get charged more, and perversely, the uninsured get charged the highest rates of all. There is little, if any, government regulation on these practices. Pharmaceutical companies and medical device manufacturers are especially adept at overcharging. They routinely make 20 percent profit margins.

Finally, the fragmented reimbursement system in the U.S. results in wasteful, inefficient spending. As providers chase numerous payers, administrative confusion and red tape abound. Moreover, in the midst of this maze, the amount of insurance reimbursement for a particular service begins to affect how often it is ordered. According to the former head of Medicare and Medicaid, Dr. Donald Berwick, the U.S. could save $150 billion to $250 billion a year by eliminating this kind of waste. “Much is done that doesn’t help patients at all, and physicians know it,” said Berwick.

The Green Mountain Care Board is surely aware that these real inflationary factors must be addressed as they work on implementing the federal health benefits exchange and the state single-payer system. The board should waste little time discussing cost driver myths such as Vermonters’ bad health habits and medical malpractice reform. These issues are better left to others to debate. Instead, the board should focus on developing the mechanisms for negotiating reimbursement rates and making timely, but cost conscious payments to providers.

We can have a high quality health care system that is universally accessible and controls costs — but a single-payer system is the prerequisite. The opponents of single payer would have the state do nothing, or would turn back the clock to a time when insurance companies could cherry pick the healthiest customers, leaving the sick and injured to fend for themselves. Now is the time to move forward with a single, publicly accountable payment system, that will end health care unfairness and alleviate the biggest shackle on the state’s economic growth — uncontrolled health care spending.

Ethan Parke is a resident of Montpelier, Vt.