Thursday, February 28, 2013

Cost Not-So-Conundrum

Steven Brill's long form report on the "cost conundrum" in American healthcare has occupied my free time the past several days.  To say that this is the most important piece in decades explaininge how health care spending occupies 17% of our GDP would be a gross understatement.  Brill's meticulous documentation of the what ails us, both at the macro and micro levels, represents everything that journalism ought to aspire to.  Brill simply exposes the rot that lies at the heart of a system that incentivizes the marketization of a profit-driven American health care infrastructure. 

I need to break down an analysis of the piece over several posts, but for now I just want to draw attention to the radically different conclusion Brill outlines arrives at compared with Atul Gawande's celebrated New Yorker article from a few years ago.  Gawande, recall, spent a week visiting with doctors at a private for-profit hospital in McAllen, Texas who, collectively, accrued higher utilization rates and billing charges than similar sized cities in the area.  His conclusion was that our current fee for service model was flawed and easily corrupted by greedy, profit-driven individual physicians and group practices and that the solution was to transition to a system where doctors worked as employees for large, monopolistic heath care behemoths, incentivized to provide "quality care" at, presumably, much lower costs. 

The New Yorker piece was lauded across the spectrum.  President Obama even mentioned it in one of his many speeches leading up to the PPACA passage.  Nevertheless, from the beginning I found the article unconvincing.  My dissents can be read here and here

Brill has written a 28 page masterpiece of investigative journalism.  I encourage all to print it out online and spend an hour reading it ASAP.  His take is that the problem transcends individual doctors, fee for service models, and greedy local for-profit health care providers.  Brill determines that the problem is that health care systems have grown too large, too monopolisitic and are therefore able to dictate to insurance companies more favorable reimbursements.  By starting from an arbitrary price index, called the chargemaster, larger hospitals are able to maximize profit margins.  Further, he argues that the "non-profit" institutions are a bigger potential problem, cost-wise, than the smaller, for-profit institutions in towns like McAllen:
   In fact, when McKinsey, aided by a Bank of America survey, pulled together all hospital financial reports, it found that the 2,900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1,000 for-profit hospitals after the for-profits’ income-tax obligations are deducted. In health care, being nonprofit produces more profit.

More to come .....


Anonymous said...

I too thought this was a fantastic article...a long read but well worth it. I have frequently wondered the same thing...$40 for a bag of normal saline in the ED...what makes it so expensive? Why is an MRI over a grand when it pays for itself in 1-2 years? This is going to be a seminal article in med literature I think...comparable to "To Err is Human" better bring some change!!

Anonymous said...

Sounds like you are becoming a tin foil hat conspiracy theorist. You listen to Rachel Maddow don't you? Good writing as always.

Anonymous said...

I have skimmed the article and I think it is very important. When Obamacare was being debated, I was upset because I felt (and still do feel) that Mr. Obama and the main movers of "health care reform" failed to recognize the problem with health care today. The problem is not that more people needed insurance coverage, or that it needed expansion, but rather that health care cost is too much. (In fact, I think Mr. Obama was much more concerned about making a legacy for himself than rather tackling the problem). The current system of third party payers, large hospitals systems, Medicare "kick the cost down the road mentality" and strong pharm/device companies results in a condition where market forces do not work on reducing actual cost to patient, but rather work to benefit the large players in the field. I am a physician, and I do not think physicians nor patients will have any lasting benefit from Obamacare. I believe it will create an untenable situation because cost control is not left to natural mechanisms, but rather maneuvering by the large players in this game. Medicine will be industrialized, but will continue to result in large profits for the large playter. This will ultimately lead to large, blunt legislative measures to cut cost. This will lead to failures which are classic to central planning state led-efforts- demand and supply of medical care will give way to political demand and supply of the state. There is nothing in Obamacare that places value on the physician patient relationship, which is really the ultimate goal of medical care. I do not believe that Obamacare is "socialism", but rather that it will force a situation where large insurances will be larger, and which may bankrupt the federal government unless it steps in to take over -a rheum in private practive