Affordable Health Care Reform

How can we make health insurance affordable?

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Abstract

This article explains the issues surrounding U.S. health care, and proposes the system framework to develop effective solutions.

(The views and opinions of this articleshould be considered as the views and opinions of this author alone, and not any entity that the author may be associated with unless expressly noted.)

Problem: How can we make health insurance affordable?

The U.S. healthcare system is the most expensive in the world. No other expenditure has risen as rapidly as healthcare over a sustained period of time. Average cost increases are 6-10%, more than double the standard inflation rate. The U.S. currently spends approximately 16% of its GDP on healthcare, and that figure is rapidly rising.

This high spending means that most new and advanced technologies are developed for the U.S. markets. Yet among developed countries, the U.S. often is ranked last on measures of quality, access, efficiency, equity, and outcomes. Additionally, despite this spending, the U.S. has one of the largest uninsured populations with over 40 million uninsured.

Solution: Reducing the long-term cost trend will ultimately make insurance affordable to all.

Clarification: The problem is NOT high costs. The problem is FAST rising costs.

High costs are not an issue, there are many items in life that are very expensive (such as rent, mortgage, or food) – but we have come to expect it, and can plan for it. What is frightening about healthcare is that

even if an individual can afford it now, he does not know if he can afford it ten years from now.

A very important distinction: Cost Factors vs. Cost Drivers.

A

Cost Factor is basic component of the cost of care that affects ultimate cost but not necessarily the change in cost.

A

Cost Driver is a force influencing cost factors to change the ultimate cost over time.

A list of common

Cost Factors are as follows:

Lawsuits –
Inefficiency –
Medicare/Medicaid vs. Commercial Cost –
U.S. Demographic –
Work habits –
Population Diet –
Cost of Technology –
Free-market –

Marketing –
Local Hospital Monopolies–

A short list of

Cost Drivers are as follows:

Medicare/Medicaid Cost Shifting –
Aging Demographic –
Changing Patterns –
Computers, TV Sedentary lifestyles
Fast food

Technology/Free-market –
Increasing Inefficiency due to rising Medical Complexity

Primary Cost Driver: Technology

Citing technology as a primary cost driver sounds counter-intuitive because typically costs DECREASE as technology improves. So many everyday items from automobiles, to microwaves and computers, that used to be extraordinarily expensive, are now common household goods.

The reason why technology drives costs up in healthcare is due to the nature of

insurance – the masses of healthy support the few sick. Let’s have an example.

Primary Cost Driver: Technology (example)

Let’s say we have 1,000 members with claims averaging $100 per person per year (PMPY). The total cost to insure these 1,000 people = $100,000. Let’s also assume that typically 5 people die each year from cancer.

Year One:

Population = 1,000 members

Claims PMPY = $100 per person

Total Claims = 1,000 x $100 = $100,000

Mortality = 5 people out of 1,000 per year

Let’s say now it is

Year Two , and that we are starting out with 1,000 members again, just as inYear One . In this following year, a new targeted cancer treatment is developed that costs $1,000,000 per successful application. So this year instead of 5 members dying, we only have 4 individuals dying, and 1 life is saved.

What is the average claims per person now?

Year Two:

Population = 1,000 members

Initial Claims PMPY = $100 per person

Total Initial Claims = 1,000 x $100 = $100,000

Mortality= 4 people out of 1,000 per year

Cancer Treatment = $1,000,000 x 1 person saved

Total Claims = Total Initial Claims + Cancer Treatment = $100,000 + $1,000,000 = $1,100,000

Final Claims PMPY = Total Claims / Population = $1,100,000 / 1,000 =

$1,100 per person

The average claims per person increased by 1100% (from $100 to $1,100) simply due to this single technological breakthrough! Though this is a grossly oversimplified example – it helps to illustrate the basic issues at hand. That is,

Insurance supports funding:

The most advanced quality careAll the time

Imagine the legal issues of an insurer rejecting an effective treatment due to higher costs…

Primary Cost Driver: Technology + Insurance

Technology (the $1M cancer solution) is clearly good; however, in an

INSURED “FREE”-MARKET the invisible-hand theory breaks down. “Scarce” (a.k.a. expensive) resources are allocated to everyone.

Examples:

The overall cost of high-end super-computer spending has gone up over time; but no ordinary citizen will need a high-end super-computer
The cost of high-end Ferrari’s have also gone up over time; but who can afford one?

In short, the $1M cancer solution harms overall society by making insurance unaffordable for the masses; BUT it is

life-saving for that single individual.

Primary Cost Driver: Technology + Insurance + ” Free”-Market

The insured “free”-market system of healthcare delivery has also resulted in some intended, and some clearly

unintendedconsequences:

The U.S. due to its market-driven system has the most advanced care available. Generally new medical technologies are first developed in the U.S. and then exported to other countries at a severe discount. (Examples: Drugs, CAT scans, etc.) The fast-rising costs are due to the “free-market” method of distributing scarce resources in an INSURED setting.
In an insured “free”-market, the most effective means of lowering operating costs is through better underwriting than the competition; NOT through better care delivery. Individuals who have never been sick (e.g. high-profit) rarely consider “quality” care; where-as families who have a history of disease (e.g. negative-profit) deeply appreciate genuine, compassionate care. If an insurer becomes “known” for better care, who would be the first to sign-up?
In a group insurance market, the only “free”-market forces are insurance companies negotiating directly with hospital systems. Hospital systems typically strive to achieve local monopolies, to attain significant pricing power. Insurance companies avoid trying to disband local monopolies because they want to maintain lower “network” rates for employer groups that have employees in the areas that are serviced by the hospital monopoly. The insurance carriers then effectively FAIL at providing a profit incentive for one hospital system to perform better than another hospital system, and instead indirectly encourage hospital systems to form monopolies due to their failure in providing appropriate incentives.

Primary Cost Driver: Technology + Insurance + “Free”-Market ==> Rising Complexity

A directoutcome of insuring new technology is a rapid increase in system complexity. Typically, natural market forces, in a normal free-market, will cause the system to reshape itself in a manner that coordinates care better. Providers typically would earn more profit through improving efficiencies in the system; however, this is not the case in the existing system.

In an

insuredenvironment where technology is rapidly improving, it is easier to increase profit by

specializing further

instead of

growing profit through efficiency gains (e.g.care-coordination).

Market forces will always cause providers to pursue the

easiestmethod of increasing profit. In the current system, the easiest method of growing profit isNOTimprovingefficiency, it isspecializingin more advanced technology.

Insurance companies are required to pay for whatever care is necessary to effectively treat a disease state. If a treatment can be “shown” to be effective, then insurers will reimburse the cost.

The difficultyis the following:

a) It is easy to show treatment effectivenesswhen a patient is immediately dying

b) It is not easy to show treatment effectiveness when the care is preventative (as in the case of care-coordination)

It isprecisely thisdifficulty, thatdrives profit-minded hospitals into large investments in specialty care instead of large investments in care-coordination and prevention.

Key to Solving (Controlling) Rising Healthcare Costs:

To solve this dilemma, we simply need to address any one of the aspects of driving this rise in healthcare costs. We can either address one or all of the following:

Cost Drivers:

Technology
Insurance
“Free”-Market
which lead to ==>
Rising Complexity

Let’s break the potential solution(s) into steps:

Step 1: Addressing Technology Stop the advance of technology. This would solve the problem and turn the healthcare system into a more typical insured setting such as P&C or Life Insurance; however, this idea is ridiculous. What is needed is to allow for new technologies to be developed without the imperative that they be covered under the insurance plan.

Step 2: Addressing Insurance Ban health insurance. This suggestion is also ludicrous, because desiring insurance coverage is the whole reason for this debate. A better idea is to create a base-line health insurance plan to service all the major existing medical needs, and to allow for the creation of a secondary health insurance market to cover additional services as they are developed.

Step 3: Addressing the “Free”-Market Distribution (in an insured setting). Nationalize healthcare. This suggestion is more plausible, but difficult to embrace due to the negative perception of socialism in America. Additionally, there is a very real concern about the reduction in efficiency when a monopoly controls all aspects of healthcare delivery.A better idea is to allow for private companies to continue to deliver health care while changing the reimbursement to a risk-adjusted system where companies with sicker patients will receive larger payments . Companies would be rewarded for efficiency in delivering quality healthcare, instead of being rewarded for better underwriting practices. Moreover, this system is already in place in the form of Medicare Advantage for the over 65 population in the U.S. (To clarify, the goal is not to eliminate the free-market, but rather to convert to an improved,
alternative free-market
system that addresses the inherent issue of insurance and simultaneously fosters competition in the manner that is desired. A government-run monopoly would simply freeze the system where it is today — with the lack of competition removing monetary incentives for improvement.)

Step 4: Addressing Rising Complexity (Treatment vs. Prevention)
Prioritize prevention over treatment. This suggestion is universally acceptable; but extraordinarily difficult to implement.The REASON why this is so difficult to implement is b/c there are TWO 2 ways to improve health:
PreventionTreatmentTreatment produces immediate outcomeswhere a competitive (free) short-term market-place can be useful in setting prices; however,

Prevention produces long-term future outcomes that only a long-term market-place can be useful in setting prices.

U.S. healthcare is a SHORT-TERM marketplace where individuals and groups can change insurers annually. This does not foster the necessary market incentives for long-term prevention regimens.

Nationalized Single-payor systems are not true free-markets; however, they are LONG-TERM innature where the single-payor can focus on preventative programs and the single-payor can reap the rewards of their LONG-TERM investment.

Theprimaryreason why single-payor systems have better cost-outcomes is due toits LONG-TERM system structure. However, this does not mean that single-payor systems are inherently better than market-based systems;but itdoes mean thatLONG-TERM systemsare inherently betterthan SHORT-TERM systems. For the free-market advocates who seem to be terrified of anything that has the veneer of socialism, and for liberal advocates who denigrate the profit-driven capitalistic system — there can truly be an alternative pleasing to all. The U.S.does not need togive up its market-based structure; but it must move towards a cost-sustainable system.

It simply means that the SHORT-TERM market structure needs to be converted into a LONG-TERM market structure.

Recommended Policy:

Now, let’s describe what one possible solution could look like in America (other solutions are also possible, as long as they address the UNDERLYING issues):

Expand Medicare Advantage to cover everyone with payments on a risk-adjusted basis. Raise taxes to cover this program and give tax credits to employers who offer creditable coverage to their employees. [Caveat: This could work, but we would still need to resolve the current issue of massive cross-subsidization of government programs vs. commercial insurance. Immediate transition without addressing this pay-disparity would produce a massive system shock that would not be advisable.] (Step 3)

Create a base-line health insurance plan under the expanded Medicare Advantage program. A secondary insurance market will naturally follow, typically in the form of enhanced benefits with supplemental premiums being charged. Medicare already has such a baseline health plan in place for senior citizens. [To clarify: The baseline insurance policy would not need to be run by the government or single entity — the baseline only needs to be agreed upon so that antiselection will not cause insurers to focus on U/W to reduce disease instead of prevention or better care to reduce disease.] (Step 2)

Create a regulatory body with the power to determine which new technologies are cost-efficient enough to be covered under the base-line health insurance plan. CMS partially bears this role currently; however, its role needs to be expanded to include the power to define what is cost-efficient, and the right to not cover technologies that are effective but not cost-efficient. Efficient new technologies that CMS overlooked would still have a chance to succeed in the secondary insurance market if they are truly effective. [Caveat: there is no perfect method or organization that can say when a technology is “worthwhile.” At the same time, some effort of defining “good” is needed in an insured marketplace that does not have the typical market-forces in play. The key is to begin somewhere and allow for an evolving feedback loop to constantly improve the recommendations.] (Step 1)

Create an effective rewards system for overall disease reduction instead of disease treatment. It is not clear to me at this time what such a system would look like. A single-payor system would have a vested interest in overall disease reduction; but it has the counter-vailing effect of monopolistic inertia. Convertingthe health insurance market into lifetime policies instead of annual policies would succeed as well, but would punish the unlucky individuals who chose the wrong carrier at their birth. Mandatory 10-year policies would provide for a good blend, encouraging prevention on a 10-year scale, while providing freedom to shop carriersseveral times in a lifetime. [Comments: Any recomendations would be appreciated.] (Step 4)

Conclusion:

Solving the problem of sky-rocketing healthcare costs begins with an understanding of the underlying drivers causing the increase. In the long-run, an insured “free”-market is not financially sustainable with regular, costly advances in technology. The U.S. already has the seeds for an effective overhaul of its healthcare system in the form of the existing Medicare Advantage program. The recommendation is to expand the existing program, while giving stronger regulatory authority to CMS, and moving from a short-term system to a long-term one. Any long-term resolution of this issue will have to bear some aspect of this recommended solution.

================================================================

Final Thoughts:

There is a massive debate going on regarding health care and reform. Nearly all parties have good intentions; however, most debaters focus on a single “holy-grail” to solve the system, either a

“government-run single-payor system”, to
“FREEDOM to make one’s own decisions”, to
“reducing massive waste”.

Most of these debaters also focus on a single culprit as the root cause of all the woes in our system, for example:

evil insurance companies
government intervention
fraud, litigation and complexity

It is overly simplistic to assumea system failure due to a singleissue. It is easy to find a scape-goat to blame; however, if the problem is a systemic one, then removing the scape-goat will not bring us any further along. Therefore, it is necessary

to understand the systemas a wholewhen making decisions about the system.

We mustunderstand the underlying purpose behind each component of the system, and fit them together withinthe larger framework. Rarely,has any major discussion focused on the details of the economic structure of the system, and how each component of the system is layered on top of one another — but the system must be taken as a whole if it is going to be improved. My goal in writing this article is to help you understand the framework of our current health care system.Ifwe understand how our systemfits together; thentogether, we can createthe bettersolution.

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  1. Anonymous

    Cost and spending are not the same — I’m in concert with 90% of your article. Some assumptions not so much – where is the U.S. last in performance, for instance. Is uninsurance a primary issue, or secondary? But the most contentious issue is an assumption that preventive care could be successful if imposed. It might be better than nothing, but it is a poor substitute for personal responsibility, and personal responsibility is an issue of self-volition.

    • Ezekiel Chang

      Untitled — How would you recommend to structure the system to encourage personal responsibility, when insurance currently shields this responsibility?

    • Ezekiel Chang

      Untitled — In terms of the U.S. being last in performance — that was based on a report from the Commonwealth Fund: http://www.commonwealthfund.org/News/News-Releases/2010/Jun/US-Ranks-Last-Among-Seven-Countries.aspxFrom the study summary, uninsurance seems to be a major component of what the report examined, but it was not the only factor. According to their study, the U.S. ranks last when it comes to providing safe care, and next to last on coordinated care.Preventive care can be successful if imposed up to a point. The matter is degrees — for example, if there was a national mandate that PE and recess be part of all school curricula, with specific benchmarks to be met (such as swimming one mile, or running five miles) — this would definitely help. Additionally, school cafeterias and vending machines play a massive role in deciding what children eat. It’s the issue of setting up default options — most people are not willing to take the time to bring their own lunch (of junk food /or of health food).Personal responsibility should always bear the primary role — but the problem with insurance is that it shields people from this role. For example, when people are offered $50k for the Biggest Loser, they work themselves to the extreme to get the $50k, but their share of health care costs well-exceeds this amount — given the high likelihood of 400lb+ individuals of having heart attacks.

  2. Ezekiel Chang

    IOM Recommendations On Essential Health Benefits — https://docs.google.com/viewer?a=v&pid=explorer&chrome=true&srcid=0B2XTxUw9vCIwYjM3OGViOGMtYzg3NC00MjI0LThhN2MtMmI5NmY1Njk1Y2M1&hl=enSecretarial Guidance Should Be as Explicit as PossibleIn examining coverage documents used by insurers today, the committee found that theyfrequently lacked specificity. The committee further observed that specificity increases thelikelihood that consumers will be offered a uniform set of benefits no matter where or fromwhom they purchase insurance. The committee recommends that the Secretary be as explicit aspossible to ensure that the ACA intent of a consistent package of benefits is achieved.CREATING A FOUNDATION FOR UPDATING THROUGHMONITORING AND RESEARCHThe committee expects that the EHB will change over time based on a variety of factors andstakeholder input. The Secretary should have a mechanism for learning how the priorities andtradeoffs made by the public are changing, what states are learning about the uptake of newinsurance products in the exchanges and reductions in the number of people who are uninsured,what research suggests are the approaches to care delivery and benefit design that improveoutcomes, and about innovations in insurance design that promote high value care. To makecertain that the Secretary can systematically learn from the implementation experience in theexchanges and the changing science base, a process for identifying data needs and developing acoordinated research agenda to support monitoring and updating the EHB should beginimmediately (Chapter 7). The committee offers a two-part recommendation regarding aframework for data collection and coordinated research efforts.Goals for Updating the EHBThe committee believes that over time the EHB package should become more explicitlybased on evidence of effectiveness and should promote better outcomes for both individuals andthe U.S. population relative to the cost of insurance coverage. The committee believes this willrequire more detailed specification of included and excluded services than will initiallycharacterize the Secretary’s guidance. The report provides some examples available today of thedesirable level of detail in future EHB definitions (Chapter 9).

    • Ezekiel Chang

      Untitled — Hopefully these IOM recommendations will lead to:”3. Create a regulatory body with the power to determine which new technologies are cost-efficient enough to be covered under the base-line health insurance plan. CMS partially bears this role currently; however, its role needs to be expanded to include the power to define what is cost-efficient, and the right to not cover technologies that are effective but not cost-efficient. Efficient new technologies that CMS overlooked would still have a chance to succeed in the secondary insurance market if they are truly effective. [Caveat: there is no perfect method or organization that can say when a technology is “worthwhile.” At the same time, some effort of defining “good” is needed in an insured marketplace that does not have the typical market-forces in play. The key is to begin somewhere and allow for an evolving feedback loop to constantly improve the recommendations.] (Step 1)”

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  5. Ezekiel Chang

    It’s a systems problem – by Atul Gawande — http://www.healthleadersmedia.com/page-5/LED-268708/Gawande-on-Cowboys-and-Pit-Crews…Man’s most ambitious endeavor is how to provide optimal capability without wasting resources. We have 13,600 diagnoses on how the human body can fail, we have 6,000 drugs and 4,000 possible medical and surgical procedures. While other industries have succeeded in driving down costs and improving quality, no single industry has to deliver on that many service lines, let alone do it every single time, he said.In fact, healthcare has become so complex, that no single physician can hope to do it alone. Part of the problem with healthcare costs and complexity is that we’ve built our system on the belief that the physician is the ultimate arbiter and that he or she should have autonomy.”Five percent of the population accounts for 50% of healthcare costs. That’s no surprise. They’re sick,” he said. “We’ve built our system on a structure that was built 50 years ago. This has forced us into a very difficult situation.”Gawande argues that the system should be built instead on the analogy of race team pit crews, which must function as a team, not as cowboys, who make all their own decisions. Part of this teamwork ethic can be applied in surgical checklists, a safety innovation borrowed from other industries based on the fact that no single person can keep track of all the processes that must be employed to provide optimum care.

  6. Ezekiel Chang

    Is “slightly better” worth it? — http://www.reuters.com/article/2011/04/28/roche-eye-drug-idUSN2827036920110428Avastin's effect was equivalent to Lucentis after a year when given monthly to treat age-related macular degeneration, according to researchers in the federally funded U.S. study run by the National Eye Institute. Rates of death, heart attack and stroke were similar, they said.But doctors may still hesitate to prescribe Avastin after the study showed higher rates of serious systemic side effects that required hospitalization, with 24.1 percent of patients in the Avastin group experiencing these side effects compared with 19 percent in the Lucentis group.”It looks like there are more serious side effects with Avastin, which is good for Roche and Novartis because it means that the Lucentis franchise won’t be threatened,” Vontobel analyst Andrew Weiss said.”If Lucentis is the safer drug, then it is the better drug, whether or not it is worth such a big price tag is another issue,” he said.

    • Ezekiel Chang

      Untitled — Our system is not set up to determine when something is worth the additional cost to cover. Basically we will cover ANYTHING that is even slightly better/safer, no matter the cost differential.That’s the impact of insurance on a highly-regulated “free”-market.

  7. Ezekiel Chang

    Genentech Fights the Use of Its Own Cheaper Drug — http://professional.wsj.com/article/SB10001424052748703367004576289432519661572.html?mod=WSJ_business_whatsNews&mg=reno-wsjThe company has been trying to discourage doctors from using Avastin for the eye disease. The drug is designed to prevent the growth of new blood vessels and is approved to treat several types of cancer. It has become the top-selling oncology drug in the world.Avastin is inexpensive for the eye because only a tiny quantity is needed for injection. If doctors could substitute Avastin for Lucentis, the savings for U.S. taxpayers would be significant because most people with macular degeneration are elderly and covered by Medicare.Lucentis cost Medicare $537 million in 2008, whereas Avastin for the eye cost about $20 million, according to a study by ophthalmologist Philip Rosenfeld of the University of Miami School of Medicine.The $20 million covered some 480,000 shots, while the $500 million covered only 337,000 injections.

  8. Ezekiel Chang

    Makena – An interesting example of how an insured “free”-market works — http://blogs.wsj.com/health/2011/03/10/price-of-drug-to-prevent-preterm-labor-skyrockets/Last month the FDA approved Makena, a drug to help prevent preterm labor in pregnant women at high risk for it. The March of Dimes praised the move, saying if all eligible women used the drug, it could prevent almost 10,000 premature births per year.But as the Associated Press reports, while the FDA approval is new, the drug — a synthetic form of the hormone progesterone — is not. It’s been available from compounding pharmacies for years, at a cost of about $10 or $20 per injection.Now that a single company has, with that approval, won market exclusivity for seven years, the compounding pharmacies have to stop making the drug. And the cost for the FDA-approved product will now be as much as $1,500 per dose, the AP says. Over a pregnancy, that could mean $30,000.Obstetricians and physicians at public and private insurers tell the AP they’re not pleased by that increase and that they worry about access by lower-income women.A subsidiary of KV Pharmaceuticals is marketing Makena. The company’s CEO tells the AP that the cost has to be viewed in light of the problems and costs of premature births. And earlier in the week, the subsidiary, Ther-Rx, said it would offer a patient assistance program for the uninsured and poor.http://brown.senate.gov/imo/media/doc/SB_MakenaLettertoCMS.pdfThankfully, the FDA put a stop to this. But it gives us something to think about:http://blogs.wsj.com/health/2011/03/30/fda-allows-cheaper-version-of-preterm-labor-drug-to-stay-on-the-market/#http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm249025.htmThis had a good resolution because KV pharma was RIDICULOUS and raised prices 150 times; but how about other biotech companies that are only mildly raise prices by 10 times?Do we as a society really want to fund drug development at these prices? Let’s say that KV actually had made a new drug instead…would it be worth it then? Or are we only upset because it was so cheap to obtain before?In a non-insured marketplace, very few people would pay $1500 to buy such a drug, and KV pharma would never have set a price point at $1500. It is BECAUSE we are an insured marketplace, that KV pharma dreamed up this scheme.Please do not fault KV pharma. In reality, if you were running their company, wouldn’t you do the same? You would need to make money for your shareholders. HOWEVER, it would be good if the insured market behaved more like a non-insured market; so these ridiculous economic decisions would never be made.

  9. Ezekiel Chang

    Man’s change began when he couldn’t fit in ride with son — http://www.cnn.com/2011/HEALTH/03/25/lose.weight.over.100.pounds/(CNN) — John Memmer said his light bulb moment occurred when he couldn’t fit on an amusement park ride with his son.The 39-year-old auto insurance underwriter from Bloomington, Illinois, was on a family outing at a theme park in Missouri and his son, Alex, desperately wanted him to share a seat next to him.”The attendant tried to push and squeeze me into the seat, but to no avail. I was too big to fit,” said Memmer. “So there I was with hundreds of people staring at me as all of this was going on, and then I heard my son start to cry as I had to climb off the ride,” he said.A stranger in line agreed to sit with his son, but at that moment, Memmer knew it was finally time to lose weight.”All the shoulda, coulda, wouldas catalyzed into an intense desire to finally do something about it,” he said.

  10. Ezekiel Chang

    Why Costs Are Rising — by Blue Shield of California — http://www.insurance.ca.gov/0250-insurers/HlthRateFilings/PF02083Resp2.cfmMedical TechnologyBy far, the biggest contributor to utilization increases is advancing medical technology. According to a synthesis of research on health care cost drivers published in 2008 by the Robert Wood Johnson Foundation, “medical technology is the driving force behind the growth in U.S. health care spending.”1 Developments in medical technology include the introduction of new drugs, medical devices, surgical procedures, and diagnostic tests, as well as changes to existing ones. The report notes that studies estimate that medical technology accounts for between 38 percent and 65 percent of annual increases in U.S. spending growth. Advancing technology drives higher spending because it results in utilization of previously unavailable services and substitution of lower-cost services for higher-cost ones.The effect of new medical technologies on utilization trend is especially acute in the United States because few screens are applied to new drugs and treatments based on their effectiveness. In our current environment, medical devices and pharmaceuticals get approved if they pass clinical trials demonstrating they are more effective than placebos. There is no requirement that they be proven more effective than existing therapies. In short, there is no systemic process to compare the effectiveness or value of a new treatment vs. existing treatment options.2As a result, expensive new technologies with uncertain benefits to patients are often put into widespread use…to read more:http://www.insurance.ca.gov/0250-insurers/HlthRateFilings/PF02083Resp2.cfm

  11. Ezekiel Chang

    LETTING GO by Atul Gawande — http://www.newyorker.com/reporting/2010/08/02/100802fa_fact_gawandeWhat should medicine do when it can’t save your life?Modern medicine is good at staving off death with aggressive interventions—and bad at knowing when to focus, instead, on improving the days that terminal patients have left.———————————————————————————————Sara Thomas Monopoli was pregnant with her first child when her doctors learned that she was going to die…Read more http://www.newyorker.com/reporting/2010/08/02/100802fa_fact_gawande#ixzz1G41G2lwA

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  13. Ezekiel Chang

    Embracing Incentives for Efficient Health Care — http://online.wsj.com/article/SB10001424052748704526504575634720264849264.html#articleTabs%3Darticlehttp://online.wsj.com/article/SB10001424052748704526504575634720264849264.html#articleTabs%3DcommentsWill Aclin wrote: First, the New Healthcare Law did nothing to reduce the incentive for doctors and hospitals to provide less care. Yes, there are some “pilot programs” called for in the area of ACOs, but the payment system will remain largely the same in the near term. Therefore, there will be no reduction in healthcare costs anytime soon. Second, until there is reform in the area of medical malpractice, no healthcare provider is going to put their career on the line in the name of “affordable healthcare”, and no one can blame them. What if your career and personal life could be ruined by simply cutting a seemingly harmless corner? Until reasonable rules and regulations are implemented in this area, don’t look for any doctors or hospitals to cut back on potentially unnecesary tests, etc. This issue will be a real drag on the potentiall effectivness of ACOs until this issue is resolved. (My solution: just require the Plaintiff side of any medical malpractice lawsuit to pay 100% of all legal costs, in addition to any costs associated with lost wages or revenue due to lost work time, for the Defendant if such lawsuit is lost. This requirement alone will solve the medical malpractice problem.) Finally, some reasonable level of true market forces must be instituted into the healthcare system in order to bring about real change. One need look no further than current medical services, such as Lasik eye surgery and cosmetic procedures, that are not covered by traditional insurance to see the impact that real market forces can have on pricing. Medical insurance should cover preventive and catestrophic care only. The idea should be to create incentives to keep people healthy (pay 100% for a certain amount preventive care per year), while “insurance” kicks in for those situations when advanced care is required (e.g. car wrecks, sports injuries, etc.). Routine medical care should be paid for out of pocket to healthcare providers based on the best rates/quality available in the market. I have no doubt that the American people, with the help of real market forces, could make this a system that works for everyone.

  14. Felsen Axt

    US healthcare system — One of the main problems with the US healthcare system is that it has become TOO regulated. Even when compared to the public systems found in other countries. Medicare/aid is one of the single largest factors in the inflation of healthcare costs. Medicare has pre-decided how much they will pay for each procedure, with little to no attention to the actual cost or demand. As a result providers are forced to raise the cost to cover their losses. Another major problem, which you mentioned, is the lawsuits. While not directly heavily draining on the system as a whole, it requires providers to acquire expensive malpractice insurance. It is often overlooked that although the US system is expensive it is also flat out hands down the best. The provider to patient ratio is lower than anywhere in the world. This is because, unlike much of the world, there is money to be made in the healthcare industry making it an attractive employment choice. In a federal system all such incentive is removed. Forced down prices will result in cut pay. Cut pay results in reduced training, (who want to do to school for 8 years to make 30 grand a year?)A free market system will always leave some out in the cold. Even with charity hospitals and such it will happen. However, when examined nationwide no other system will result in so many people receiving the quality care they did. A friend of mine who immigrated to the US once put it as such: “I have no problem paying an arm and a leg to get a new heart.” My final point is this: Health Care is NOT a right.Yes you read that right. No I am not some heartless fat cat. I give to charity. I have family with heath problems. I have hospital bills. I will be paying for a while.But the fact is that a right is something that no one can tell you you CANT do. No one can stop you from peacefully congregating; no one can tell you not to practice your religion.To declare it so is to declare that you have a right to a service, Thereby obligating another free person to provide said service even against their will. Such soft slavery should be a pariah in any free society.

  15. Ezekiel Chang

    Proving Innovation in Medicare – by David Leonhardt — http://www.nytimes.com/2010/10/20/business/economy/20leonhardt.html?_r=1&scp=1&sq=Proving%20Innovation%20in%20Medicare&st=cseThe treatment of prostate cancer offers a good example of the trouble with the current system. I devoted a column to prostate cancer last year, and the Health Affairs article — by Steven Pearson of Massachusetts General Hospital and Peter B. Bach of Memorial Sloan-Kettering Cancer Center — uses it as a case study, too. The brief version is that the options for treating prostate cancer include three forms of radiation. One of them, three-dimensional radiation, costs Medicare about $10,000. Another treatment, a targeted form of radiation known as I.M.R.T., came along a decade ago and initially cost about $42,000. Lately, Medicare has also started covering a third, proton radiation therapy, for which it pays $50,000. No solid research has shown I.M.R.T. to be more effective at keeping people alive, with minimum side effects, than three-dimensional radiation. The backing for proton therapy is weaker yet. As Dr. Pearson says, “There is even less evidence on whether proton therapy is as good as other alternatives than there was for I.M.R.T. when it was the new kid on the block.” But Medicare today doesn’t pay for good outcomes. It pays for any treatment that it deems reasonable and effective. …The plan from Dr. Bach and Dr. Pearson would try to change this. It is from far the most radical out there. The full costs of treatments would be covered for three years, which would still give companies an incentive to innovate. After three years, absent evidence that a treatment was better, Medicare would pay no more than it paid for equally effective treatments. Only $10,000 of the bill for proton therapy, for instance, would be covered. The blank checks would not go on forever. New treatments would bring a windfall only if they improved health. “To me, this is the way you make the market work,” says Karen Davis, president of the Commonwealth Fund, a health research group.

  16. Ezekiel Chang

    Federal Health Care Website — http://www.healthcare.gov/index.htmlThe new health care reform law focuses mostly on providing patient protections and guarantees.This was necessary because it is easier for health plans to compete on underwriting than to compete on quality.

  17. Ezekiel Chang

    Fixing a World That Fosters Fat – nytimes.com — http://www.nytimes.com/2010/08/22/business/22stream.html?ref=business…And American efforts can seem piecemeal compared with those in Britain, where the government has undertaken a multipronged national attack, requiring changes in schools, health services and the food industry.Britain now places restrictions on advertising fatty, sugary and salty foods during children’s shows, for example. And by 2011, cooking classes will be mandatory for all 11- to 14-year-old students in the nation. The hope is to teach a generation of children who grew up on prepared foods how to cook healthy meals, and perhaps to make eating at home — instead of at the local fried fish-and-chips shop — the default option.

    • Ezekiel Chang

      Untitled — “The primary reason why single-payor systems have better cost-outcomes is due to its LONG-TERM system structure. However, this does not mean that single-payor systems are inherently better than market-based systems; but it does mean that LONG-TERM systems are inherently better than SHORT-TERM systems.”

  18. Carlos Vázquez

    Collaborative book “Health promotion, disease prevention” — Congratulations for your KnolPlease, collect this Knol in the collection “Health promotion, disease prevention”http://knol.google.com/k/imedpub/health-promotion-disease-prevention/1bbsle13m97c0/419#The number of views to your Knol will dramatically increase!Best

  19. Ezekiel Chang

    In Medicine, the Power of No – by DAVID LEONHARDT — http://www.nytimes.com/2010/04/07/business/economy/07leonhardt.htmlHow can we learn to say no?The federal government is now starting to build the institutions that will try to reduce the soaring growth of health care costs. There will be a group to compare the effectiveness of different treatments, a so-called Medicare innovation center and a Medicare oversight board that can set payment rates.But all these groups will face the same basic problem. Deep down, Americans tend to believe that more care is better care. We recoil from efforts to restrict care.Managed care became reviled in the 1990s. The recent recommendation to reduce breast cancer screening set off a firestorm. On a personal level, anyone who has made a decision about his or her own care knows the nagging worry that comes from not choosing the most aggressive treatment.This try-anything-and-everything instinct is ingrained in our culture, and it has some big benefits. But it also has big downsides, including the side effects and risks that come with unnecessary treatment. Consider that a recent study found that 15,000 people were projected to die eventually from the radiation they received from CT scans given in just a single year — and that there was “significant overuse” of such scans.From an economic perspective, health reform will fail if we can’t sometimes push back against the try-anything instinct. The new agencies will be hounded by accusations of rationing, and Medicare’s long-term budget deficit will grow.So figuring out how we can say no may be the single toughest and most important task facing the people who will be in charge of carrying out reform. “Being able to say no,” Dr. Alan Garber of Stanford says, “is the heart of the issue.”It’s easy to come up with arguments for why we need to do so. Above all, we don’t have a choice. Giving hospitals and drug makers a blank check will bankrupt Medicare. Slowing the cost growth, on the other hand, will free up resources for other uses, like education. Lower costs will also lift workers’ take-home pay.But I suspect that these arguments won’t be persuasive. They have the faint ring of an insurer’s rationale for denying a claim. Compared with an anecdote about a cancer patient looking for hope, the economic arguments are soulless.

  20. Ezekiel Chang

    Gaming the System — http://www.boston.com/news/health/articles/2010/04/04/short_term_customers_boosting_health_costs/?page=fullThousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state’s largest private insurer provided the Globe.The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data show it had even more high-spending, short-term members. Over those two years, the figures suggest the price tag ran into the millions.Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health care law begins…

  21. Ezekiel Chang

    Health Law Does Little to Curb Overuse of Care – NYTimes.com — http://www.nytimes.com/2010/03/30/health/30use.html?src=me&ref=healthDr. Robert Colton, an internist in Boca Raton, Fla., has a problem, and he knows it. His patients come in wanting, sometimes demanding, tests and treatments that are unnecessary, just adding to the nation’s huge health care bill. He even has patients, he says, who come in and report that their chief complaint is, “I need an M.R.I.” And what does Dr. Colton do? “I do the damn test,” he said. Doctors often blame patients for demanding useless care, but many also concede that patients often have too little knowledge or power to say no to tests or treatments. The new law includes money for comparative effectiveness studies, and those can give guidance on which tests and treatments are better than others. But the law in no way forces patients or doctors to choose one test or treatment over another or to aim for the cheapest alternative. And it does nothing to change the reimbursement system, in which doctors often make more money if they order more tests, for instance. In radiology, for example, there are clear guidelines, based on medical evidence, for CT scans of the head and neck. Among other things, the guidelines say CT scans are not necessary after most car accidents. Many patients have no real risk of brain injury from an accident, and there are good methods of deciding who is at risk and who is not. The guidelines have not put a dent in overuse. The joke among radiologists, said Dr. Howard P. Forman, a radiologist and health services researcher at Yale, is that “the indication for getting a head CT after a car accident is if you have a head.”

    • Ezekiel Chang

      Untitled — What are your thoughts? There is no way any single bill can be perfect; however, the key is to steadily move in the right direction.It is not possible to move in the right direction, unless you have tried some wrong ones first. Personally, I am very hopeful that this will move America in the correct direction of transforming our health care system. And the Senate bill the House just passed was always more well-balanced than the original House reform bill.Philosophical thoughts for those with very valid concerns:Ask any successful CEO if they have never failed. They will tell you that failure reshapes them, and that they look for individuals who have tasted bitter defeat before – because it transforms an individual more sharply than success or inaction. So it is better to try and fail miserably, than never to try at all.

  22. Ezekiel Chang

    Lessons of a $618,616 Death By Amanda Bennett, with Charles Babcock — http://www.businessweek.com/magazine/content/10_11/b4170032321836.htmIt was sometime after midnight on Dec. 8, 2007, when Dr. Eric Goren told me my husband might not live till morning. The kidney cancer that had metastasized almost six years earlier was growing in his lungs. He was in intensive care at the Hospital of the University of Pennsylvania in Philadelphia and had begun to spit blood. Terence Bryan Foley, 67 years old, my husband of 20 years, father of our two teenagers, a Chinese historian who earned his PhD in his sixties, a man who played more than 15 musical instruments and spoke six languages, a San Francisco cable car conductor and sports photographer, an expert on dairy cattle and swine nutrition, film noir, and Dixieland jazz, was confused. He knew his name, but not the year. He wanted a Coke. Should Terence begin to hemorrhage, the doctor asked, what should he do? This was our third end-of-life warning in seven years. We had fought off the others, so perhaps we could dodge this one, too. Terence’s oncologist and I both believed that a new medicine he had just begun taking, Pfizer’s (PFE) Sutent, would buy him more life. Keep him alive if you can, I said. Terence died six days later, on Friday, Dec. 14. What I couldn’t know then was that the thinking behind my request—along with hundreds of decisions we made over the years—was a window on the impossible calculus at the core of today’s health-care dilemma. Terence and I were eager to beat his cancer. Backed by robust medical insurance provided by a succession of my corporate employers, we were able to wage a fierce battle. As we made our way through a series of expensive last chances, like the one I asked for that night, we didn’t have to think about money, allocation of medical resources, the struggles of roughly 46 million uninsured Americans, or the impact on corporate bottom lines. Terence’s treatment was expensive. The bills for his seven years of medical care totaled $618,616, almost two-thirds of which was for his final 24 months. Still, no one can say for sure if the treatments helped extend his life.Over the final four days before hospice—two in intensive care, two in a cancer ward—our insurance was billed $43,711 for doctors, medicines, monitors, X-rays, and scans. Two years later the only thing I can see that the money bought for certain was confirmation he was dying. Along with a colleague, Charles Babcock, I spent months poring over almost 5,000 pages of documents collected from six hospitals, four insurers, Medicare, three oncologists, and a surgeon. Those papers tell the story of a system filled with people doing their best. Stepping back and looking at that large stack through a different lens, a string of complex questions emerges.

  23. Ezekiel Chang

    Buffett said health care costs are a major drain on U.S. businesses that put them at a competitive disadvantage. — http://finance.yahoo.com/news/Buffett-says-economy-apf-2573554373.html?x=0&sec=topStories&pos=4&asset=&ccode=Buffett said health care costs are a major drain on U.S. businesses that put them at a competitive disadvantage. He said America’s health care system needs fundamental reform to attack costs because it’s not practical to continue devoting roughly 17 percent of the nation’s gross domestic product to health care.Buffett said much of the rest of the world is paying about 9 percent of their GDP on health care and have more doctors and nurses per person.”That kind of a cost, compared with the rest of the world, is like a tapeworm eating at our economic body,” Buffett said.He said he hopes Congress will develop a new health care reform proposal that will restrict costs more than any of the current plans would.”Unfortunately, we came up with a bill that does not deal with the cost system much,” Buffett said.

  24. Ezekiel Chang

    Why Do Some Hospitals Charge Twice As Much As Others? — http://blogs.wsj.com/health/2010/01/29/why-do-some-hospitals-charge-twice-as-much-as-others/By Jacob Goldstein Because they can.Some Massachusetts hospitals charge private insurers twice as much as other hospitals. It’s not because they deliver higher quality care or treat sicker patients. It’s not because they treat a different mix of uninsured, Medicare, Medicaid and private-insurance patients.It’s because they have market leverage and can negotiate higher prices in their contracts with insurance companies.That’s the finding of a report out today from the office of Massachusetts AG Martha Coakley. http://www.mass.gov/Cago/docs/healthcare/Investigation_HCCT&CD.pdf(The report was in the works long before the recent special election that made Coakley a national figure, by the way.)Health-care prices are notoriously opaque for patients; list prices are basically irrelevant, and hospitals negotiate deals with insurance companies. A little more than a year ago, the Boston Globe reported that the way one large group of doctors and hospitals was getting paid far more than other providers in the same area.Today’s report from the AG’s office found that hospitals gain leverage in negotiations with insurers because of …variables such as: size, geographic location, ‘brand name,’ and/or niche or specialty service lines offered. Providers use leverage strategically to obtain higher payment rates and more favorable contract provisions.The report also found that:Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.Among other things, the report recommends increasing transparency by publishing the total medical expenses for all providers.We called and emailed the Massachusetts Hospital Association to ask for their take, but they did not immediately respond. We’ll update this post when we hear back from them.

  25. Ezekiel Chang

    Courage – and Misaligned Incentives — http://online.wsj.com/article/SB10001424052748703652104574652401818092212.html?mod=loomia&loomia_si=t0:a16:g2:r3:c0.0673732:b30524686A Simple Health-Care Fix Fizzles OutThe Wall Street JournalBy KEITH J. WINSTEINIt sounds like such a simple concept: Study different medical treatments and figure out which delivers the best results at the cheapest cost, giving patients the most effective care.Even before Congress took up the now-stalled health-care overhaul, it appropriated $1.1 billion to fund these studies. Both the Senate and the House included it in their versions of the bill. President Barack Obama backed it.Yet, an examination of one of the best-known examples of a comparative-effectiveness analysis shows how complicated such a seemingly straightforward idea can get.The study, known as “Courage” and published in the New England Journal of Medicine in 2007, shook the world of cardiology. It found that the most common heart surgery—a $15,000 procedure that unclogs arteries using a small scaffold or stent—usually yields no additional benefit when used with a cocktail of generic drugs in patients suffering from chronic chest pain.The Courage trial was led by William Boden, a Buffalo, N.Y., cardiologist, and funded largely by the Department of Veterans Affairs. It tracked 2,287 patients for five years and found that trying drugs first, and adding stents only if chest pain persisted, didn’t affect the rate of deaths and heart attacks, although stents did produce quicker pain relief.Steven Nissen, then chairman of the American College of Cardiology, called the study a “blockbuster.” Shares of leading stent maker Boston Scientific Corp. fell on the day the news broke, as many doctors and investors expected stent usage to fall off.For a brief while, they were right. U.S. stent implants declined 13% in the month after the study’s release. But as the headlines about Courage faded, stentings soon began to rise again, and are now back at peak levels of about one million a year, according to hospital surveyor Millennium Research Group.”Most [cardiologists] haven’t voluntarily incorporated the Courage criteria into their practice,” says Dr. Boden. “What’s going to continue to drive practice is reimbursement.”

  26. Ezekiel Chang

    More on the medicare gap… — http://www.globalaging.org/elderrights/us/docstopmedicare.htmBy: Barbara MartinezThe Wall Street Journal, January 15, 2002Every year, ophthalmologist Richard Mackool performs cataract surgery on almost 2,000 elderly people insured by Medicare, many of whom could not otherwise afford to have their sight restored.The federal government this year is doing some surgery of its own — on the physician fees charged by Dr. Mackool and the estimated more than 90% of U.S. doctors who treat Medicare patients. As of Jan. 1, Medicare cut reimbursements of these doctors’ fees across the board by 5.4%. Doctors say the ones who will feel the pain are many of the more than 39 million seniors insured by Medicare.For privately insured or uninsured patients, Dr. Mackool charges anywhere from $2,000 to $4,000, depending on complexity, to perform the cataract procedure, which involves removing the cataract and inserting a lens implant. To perform the same procedure on a Medicare patient last year, Medicare allowed him to charge only $855.82 — reimbursed by Medicare at 80% and paid 20% by the patient. This year, with the reimbursement cuts and other adjustments to the formula, Dr. Mackool can charge Medicare patients just $768.52 — a 10% decline.With more than 80% of his patients on Medicare, the consequences for Dr. Mackool’s practice are severe. Recently, he had to cut two of his 31 employees. Now, he says he is considering whether to refuse to participate in Medicare at all. “We’ve already done the numbers,” Dr. Mackool says. “If I drop out of Medicare and I see a third of the patients I see now, our practice would actually come out better.”The cuts to physicians’ fees underscore the strain that an aging population, rising demand for health care and new medical technology is placing on the system, created in 1965 to insure people over age 65. Medicare reimbursements of all kinds totaled more than $224 billion in 2000, up 51% since 1993. The economic slowdown has played a role in bringing about the 5.4% cut, because the formula Congress approved several years ago for calculating the physicians’ fee is tied to changes in the gross domestic product.Of course, doctors have been threatening for years to drop out of Medicare because of insufficient payments, and a mass exodus isn’t likely now. The Medicare population represents a huge chunk of the health-care market that few doctors can afford to ignore. “Doctors don’t change very quickly, and in a sense, Medicare patients are very important to doctors’ practices,” says Paul Ginsburg, president of the Center for Studying Health System Change, a nonpartisan policy-research organization in Washington.

  27. Ezekiel Chang

    The march of Technology — http://www.medicalnewstoday.com/articles/159071.phpNew technology has allowed radiation oncologists to improve cancer cure rates while reducing side effects. However, on July 13, CMS announced proposed changes to the Medicare policies and payment rates for physician services, including radiation oncology, that would cut payments to radiation therapy services by nearly 20 percent. Community cancer centers, particularly those in rural and suburban areas, would be hardest hit. Running 2008 claims data from a sample of practices across the country showed overall impacts between 18 and 31 percent on the average practice, with some services receiving payment cuts by up to 44 percent. If approved, these cuts would take effect on January 1, 2010. If the cuts force radiation oncologists to consolidate or close their practices, 43 percent said their cancer patients would be forced to travel more than 50 miles round-trip, for radiation therapy treatments. In rural areas, 81 percent reported that patients would have to travel more than 50 miles. Overall, 97 percent of community practices said the quality of care for cancer patients receiving radiation therapy would suffer due to the cuts. “My center is not viable at greater than 20 percent cuts, and patients already drive an hour to us. They then would drive nearly two hours one-way to the next center. We are the primary service center for six rural counties and we are barely holding on as it is now in the recession. About four of 10 patients now have no insurance, and we treat them. With these Medicare cuts, we will be forced to close,” said a survey respondent from rural North Carolina.

  28. Ezekiel Chang

    Medicare’s Payment Gap — http://www.bloomberg.com/apps/news?pid=20601070&sid=aHoYSI84VdL0http://www.medpac.gov/chapters/Mar09_Ch02B.pdfNationwide, doctors made about 20 percent less for treating Medicare patients than they did caring for privately insured patients in 2007, a payment gap that has remained stable during the last decade, according to a March report by the Medicare Payment Advisory Commission, a panel that advises Congress on Medicare issues. Congress last week postponed for two months a 21.5 percent cut in Medicare reimbursements for doctors. Mayo’s Medicare losses in Arizona may be worse than typical for doctors across the U.S., Heim said. Physician costs vary depending on business expenses such as office rent and payroll. “It is very common that we hear that Medicare is below costs or barely covering costs,” Heim said. Mayo will continue to accept Medicare as payment for laboratory services and specialist care such as cardiology and neurology, Yardley said. Robert Berenson, a fellow at the Urban Institute’s Health Policy Center in Washington, D.C., said physicians’ claims of inadequate reimbursement are overstated. Rather, the program faces a lack of medical providers because not enough new doctors are becoming family doctors, internists and pediatricians who oversee patients’ primary care. “Some primary care doctors don’t have to see Medicare patients because there is an unlimited demand for their services,” Berenson said. When patients with private insurance can be treated at 50 percent to 100 percent higher fees, “then Medicare does indeed look like a poor payer,” he said. A few hundred of the clinic’s Medicare patients have decided to pay cash to continue seeing their primary care doctors, Yardley said. Mayo is helping other patients find new physicians who will accept Medicare. “We’ve had many patients call us and express their unhappiness,” he said. “It’s not been a pleasant experience.” Mayo’s decision may herald similar moves by other Phoenix- area doctors who cite inadequate Medicare fees as a reason to curtail treatment of the elderly, said John Rivers, chief executive of the Phoenix-based Arizona Hospital and Healthcare Association. “We’ve got doctors who are saying we are not going to deal with Medicare patients in the hospital” because they consider the fees too low, Rivers said. “Or they are saying we are not going to take new ones in our practice.” http://healthpolicyblog.mayoclinic.org/2010/01/05/medicare-and-mayo-clinic-in-arizona/Mayo Clinic remains committed to serving Medicare beneficiaries, but we struggle to afford it. We continue to explore a variety ways to modify our practice to be able to serve Medicare patients. We are currently one of the largest Medicare providers in the country. In many ways, Medicare patients are Mayo Clinic’s ideal patients – they match the strengths of Mayo’s practice. Medicare patients are typically dealing with multiple complex health problems, which many people face as they age.Nevertheless, decades of underfunding and paying for volume rather than value in Medicare have led us to this decision. Providers who do fewer unnecessary tests and services are paid the least, and they are the doctors and hospitals which will go out of business first if we don’t change the payment system.That is why Mayo Clinic strongly supports health insurance reform and health care delivery reform. Health care delivery reform in the patients’ best interests means changing the payment system to reward value — defined as better outcomes, better safety, better service and lower cost. Better value results in fewer tests and decreased overall costs.As leaders in Washington work on the final details of the health care reform plan, Mayo Clinic remains firmly committed to reform because the status quo is not sustainable.

  29. Ezekiel Chang

    The Mayo Clinic on Reform — http://online.wsj.com/article/SB126166603906204357.html?mod=WSJ_WSJ_US_HealthCareReform26_4The Mayo Clinic, often cited by the Obama administration as a model for high-quality, cost-effective health care, generally supports key provisions of the legislation approved by the Senate, an official said Thursday, but he called for more aggressive steps to change how care in the U.S. is paid for.Despite its reputation for treating patients with complex, big-ticket medical problems, the clinic is routinely included among the nation’s most efficient health-care providers. One reason: Its doctors are all on salary so their incomes aren’t based on the number of procedures they do. Another is the clinic’s sophisticated electronic medical-record system, which helps improve coordination of care for its patients and reduces orders for duplicate tests.That isn’t to say Mayo officials and Democrats hammering out the health-care bill see eye-to-eye on all issues. The clinic opposes a government-run health plan, known as the public option, that is favored by many Democrats. That provision was cut from the Senate bill, but it is included in the House legislation and is one of several potentially thorny conflicts to be resolved as House and Senate negotiators seek to come up with a final, common version of the legislation.The clinic also was against the proposal, raised and then scuttled in the Senate, to allow people aged 55 to 64 to buy into the federal Medicare plan for the elderly. “Medicare isn’t the model we ought to be pursuing [to expand coverage],” Mr. Korsmo said. “It’s been part of what’s gotten us into the trouble we’re in.”Mayo is also concerned about the potential for Medicare to impose across-the-board cuts in payments to health-care providers without differentiating for cost-effective doctors and hospitals. It worries that such Medicare cuts would punish the Mayo Clinic and other organizations known for delivering good care at reasonable prices.Clinic leaders, however, do favor a mandate requiring people to purchase health coverage to make sure young and healthy people participate in the insurance system. And they like the idea of health-insurance exchanges, also a prominent feature of both the Senate and House bills, where consumers can shop for health plans.”There is a role for government–it ought to create the exchanges and subsidize premiums where there is a financial need,” Mr. Korsmo said.Two other issues aren’t getting sufficient attention in the current legislation, Mayo officials believe. Changes in medical malpractice policy are needed to encourage more open discussion of medical errors, Mr. Korsmo said. And with estimates that 40% of medical costs are the result of personal behavior such as smoking and diet habits, more attention needs to be focused on that problem, he added.

  30. Anonymous

    MEDICAL PERSONNEL’S SALARY – A COST DRIVER — I am surprised that nothing was mentioned above about the wages as a cost-driver for the rapidly rising cost of healthcare. Did anyone compute the percentage of healthcare cost that goes to the wages of nurses and other medical personnel? This is because of chronic shortages. Most of nurses have double jobs to compensate for shortages. If the Obama Administration will only open again the nursing pathway for immigration (EB3) or even special work permits for Nurses, then these shortages will be filled-up and the newcomers will play role in supporting the economy through taxes, goods and services. Then wages will be neutralized.I agree about the work habits as a cost-driver. Paper works as part of nursing duties are consuming almost half of nursing shift. This is due to defensive practice. Nurses have to defend themselves first from legal issues before prioritizing patient care. We need to review our medical practice and patient care here by comparing it to other countries like UK, Australia or New Zealand.

    • Ezekiel Chang

      Untitled — Thank you for your insightful comment. I will need to think further on this.However, a large portion of nursing shortages are due to the explosion of health care-related services, (e.g. home health, consultation, case management, etc), as well as the motivation to manage costs better through having nurses handle more of the health care load instead of more-expensive doctors.The nursing shortage is therefore partially driven by the massive increase in demand for health care. This demand increase is what I have described above.Regarding the legal liabilities, it is definitely a cost factor, but is it a cost driver? Are nurses getting sued more often each year? Is paperwork taking on an even greater proportion of their time?Thanks!! And please add more insights!!

  31. Ezekiel Chang

    Testing, Testing – by Atul Gawande — http://www.newyorker.com/reporting/2009/12/14/091214fa_fact_gawande?currentPage=allTurn to page 621 of the Senate version, the section entitled “Transforming the Health Care Delivery System,” and start reading. Does the bill end medicine’s destructive piecemeal payment system? Does it replace paying for quantity with paying for quality? Does it institute nationwide structural changes that curb costs and raise quality? It does not. Instead, what it offers is . . . pilot programs.For many, the hope of reform was to re-form the health-care system. If nothing is done, the United States is on track to spend an unimaginable ten trillion dollars more on health care in the next decade than it currently spends, hobbling government, growth, and employment. Where we crave sweeping transformation, however, all the current bill offers is those pilot programs, a battery of small-scale experiments. The strategy seems hopelessly inadequate to solve a problem of this magnitude. And yet—here’s the interesting thing—history suggests otherwise.At the start of the twentieth century, another indispensable but unmanageably costly sector was strangling the country: agriculture. In 1900, more than forty per cent of a family’s income went to paying for food. At the same time, farming was hugely labor-intensive, tying up almost half the American workforce. We were, partly as a result, still a poor nation. Only by improving the productivity of farming could we raise our standard of living and emerge as an industrial power. We had to reduce food costs, so that families could spend money on other goods, and resources could flow to other economic sectors. And we had to make farming less labor-dependent, so that more of the population could enter non-farming occupations and support economic growth and development.America’s agricultural crisis gave rise to deep national frustration. The inefficiency of farms meant low crop yields, high prices, limited choice, and uneven quality. The agricultural system was fragmented and disorganized, and ignored evidence showing how things could be done better. Shallow plowing, no crop rotation, inadequate seedbeds, and other habits sustained by lore and tradition resulted in poor production and soil exhaustion. And lack of coördination led to local shortages of many crops and overproduction of others.You might think that the invisible hand of market competition would have solved these problems, that the prospect of higher income from improved practices would have encouraged change. But laissez-faire had not worked. Farmers relied so much on human muscle because it was cheap and didn’t require the long-term investment that animal power and machinery did. The fact that land, too, was cheap encouraged extensive, almost careless cultivation. When the soil became exhausted, farmers simply moved; most tracts of farmland were occupied for five years or less. Those who didn’t move tended to be tenant farmers, who paid rent to their landlords in either cash or crops, which also discouraged long-term investment. And there was a deep-seated fear of risk and the uncertainties of change; many farmers dismissed new ideas as “book farming.”Things were no better elsewhere in the world. For industrializing nations in the first half of the twentieth century, food was the fundamental problem. The desire for a once-and-for-all fix led Communist governments to take over and run vast “scientific” farms and collectives. We know what that led to: widespread famines and tens of millions of deaths. The United States did not seek a grand solution. Private farms remained, along with the considerable advantages of individual initiative. Still, government was enlisted to help millions of farmers change the way they worked. The approach succeeded almost shockingly well. The resulting abundance of goods in our grocery stores and the leaps in our standard of living became the greatest argument for America around the world. And, as the agricultural historian Roy V. Scott recounted, four decades ago, in his remarkable study “The Reluctant Farmer,” it all started with a pilot program.Read more: http://www.newyorker.com/reporting/2009/12/14/091214fa_fact_gawande?currentPage=all#ixzz0ZDIqPKN0

  32. Ezekiel Chang

    Finding the Nerve to Cut Health Costs – by David Leonhardt — http://www.nytimes.com/2009/12/09/health/policy/09leonhardt.html?_r=1&ref=businessIt is abundantly clear that our medical system wastes enormous amounts of money on health care that doesn’t make people healthier. Hospitals that practice more intensive medicine, to take one example, get no better results than more conservative hospitals, research shows. And while the insured receive better care and are healthier than the uninsured, the lavishly insured — those households with so-called Cadillac plans — are not better off than households with merely good insurance.Yet every time Congress comes up with an idea for cutting spending, the cry goes out: Patients will suffer! You’re cutting bone, not fat!The real problem with the Senate bill is that it doesn’t go far enough to cut costs and improve care…Last month, Senator Harry Reid, the Democratic leader, gutted an independent commission — a more powerful version of Medpac, meant to shield Medicare payment decisions from political interference — that many economists consider necessary. Mr. Reid’s bill would allow the commission to take action only if Medicare spending was rising even faster than total health spending. If total spending rose 8 percent one year and Medicare spending rose 7.9 percent — a miserable situation — the commission would have to sit on its hands.

  33. Ezekiel Chang

    The hope of managed care — http://online.wsj.com/article/SB125928023296565707.htmlIn most of the U.S. health-care system, doctors and hospitals generally earn money when people get sick, under a reimbursement system known as “fee for service.” But Blue Cross is trying to change the payment model to a system in which doctors and hospitals earn more by keeping patients healthy and out of doctors’ offices and hospitals.The agreement harkens back to a reimbursement system known as capitation that helped trigger a backlash against managed-care cost-containment strategies in the 1990s. In capitation models, doctors and hospitals received a monthly allotment for patients regardless of whether they got sick. Critics charged that the payments discouraged doctors from sending people for needed tests because the doctors bore the risks for the costs. Eventually, insurers retreated from many such arrangements.In some markets, capitation has thrived for decades. Kaiser Permanente, the big nonprofit HMO based in Oakland, Calif., collects fees to provide care for more than eight million people. It is both a health plan and a hospital owner, and its doctors are salaried. While Kaiser has critics, it is often cited as a model for how to provide quality care at lower costs. But replicating Kaiser, which traces its roots to 1945, has been difficult in most U.S. markets, where fee-for-service is entrenched.In the 1990s, some providers lost millions of dollars using capitation because it took months to determine if patients were going outside of the network or being prescribed expensive drugs. Said Ms. Zane: “We were flying blind.”Proponents say this time will be different, in part because improved information systems will enable hospitals and doctors to better track the amount of care they are providing and make quick adjustments if costs head out of control.

  34. Ezekiel Chang

    Senator Lieberman on Health Care Reform and the Public Option — http://online.wsj.com/article/SB10001424052748704007804574574652325364622.htmlMr. Lieberman notes that the public option serves no other purpose: “It doesn’t help one poor person get insurance who doesn’t have it now. It doesn’t compel one insurance company to provide insurance to somebody who has an illness. And . . . it doesn’t do anything to reduce the cost of insurance.”Mr. Lieberman says that while he is not “a conspiratorial person,” he believes the public option is intended as a way for the government to take over health care. “I’ve been working for health-care reform in different ways since I arrived here,” he says. “It was always about how do we make the system more efficient and less costly, and how do we expand coverage to people who can’t afford it, and how do we adopt some consumer protections from the insurance companies . . . So where did this public option come from?” It was barely a blip, he says, in last year’s presidential campaign.Mr. Lieberman dismisses Democratic arguments that it is necessary to keep insurers honest. “Sometimes the private sector does things that are wrong, and when they do, you regulate—sometimes you litigate,” he says. “But never in the history of America . . . have we tried to keep one industry honest by having government go into that business to compete with the industry.”

  35. Ezekiel Chang

    Politics of Health Care — http://www.nytimes.com/2009/11/20/health/20prevent.html?ref=healthThe federal Preventive Services Task Force, the group that created a political firestorm this week with its recommendation that women get less-frequent mammograms, was created to be insulated from politics.Dr. J. Michael McGinnis created the Preventive Services Task Force in 1984, when he was deputy assistant secretary for health.Yet, some observers say, its apolitical nature may have made it naïve about just how strongly Congress; some professionals, like radiologists; advocacy groups, like the American Cancer Society; and members of the public would react.As soon as the task force’s guidelines were released on Monday, recommending against routine mammograms for most women in their 40s and saying women should consider having the screening test every other year instead of annually, the maelstrom erupted.Republicans and some groups, like the American College of Radiology, said the guidelines were made in response to the Obama administration’s wish to save health care dollars.The health and human services secretary, Kathleen Sebelius, distancing herself from the group’s recommendations, told CNN on Wednesday, “This panel was appointed by the prior administration, by former President George Bush.”Dr. Diana Petitti, the vice chairwoman of the task force, said Thursday that she had been taken aback by the reaction. She did not realize, she said, the extent of the context. There has been an intense controversy over the screening of younger women, dating back more than a decade and involving Congressional hearings.“I was relatively unaware of it,” she said. “I have been made aware of it now.”Dr. Michael LeFevre, another task force member, said he, too, had been caught off guard by the way the guidelines were received. The task force’s message was distorted, he said, into a purely negative one, when the group meant to encourage women to make their own decisions.“It’s partly our fault,” Dr. LeFevre said, adding that the group would now be trying to figure out how they could have gotten their point across without stirring such a controversy.The task force was created in 1984, at a time when screening methods for cancer, cholesterol levels and diabetes were just emerging and rarely paid for by insurers. So Dr. J. Michael McGinnis, deputy assistant secretary for health, decided to set up the group to evaluate how well such methods worked.He decided right away that the group had to be insulated from politics. The idea, he said, was to identify medical experts who could objectively evaluate evidence and to protect the group from any political pressures so they could write honest assessments.And so the United States Preventive Services Task Force was born. It is financed by the Department of Health and Human Services but works at arms length from it, making its decisions without consulting the agency.

  36. Eric Leavitt

    My 2 cents — First things first, Ezekiel – this is a wonderful article; you have done a great job putting this together! As for my thoughts – Reform is necessary – without question. I don’t have all the answers as no one really does but I am of the opinion that the 2 things that absolutely must change in order to make the health care system more efficient are:1. Medicare/Medicaid’s huge margin of error and waste. (ie. insuring non-citizens, paying for medically unnecessary procedures) – More auditing of providers who’s claims have been flagged suspicious. – Verification of citizenship / no coverage of non-citizens- Extending claims payment requirements to cut down on the amount of unsubstantiated claims that are paid because of deadlines alone. 2. Private insurance’s rights to deny coverage, deny medically justified claims, raising premiums on the chronically ill etc. – Implementation of regulations on private insurers in regards to coverage, premiums, and claims.Again this alone will have no substantial effect on the whole system but they are necessary parts of health care reform.

    • Ezekiel Chang

      Untitled — Thanks Eric. That’s a very good idea. I’ll pursue that route.

    • Eric Leavitt

      Untitled — Contacting a congress member would be a very difficult task indeed. I would imagine there is no way to directly contact one however I would think the place to start would be getting in contact with state officials first. Like the state assemblyman etc. from there you may be able to work your way up to the chain to actually talking to a congressman/woman. I have tried in the past but I’m in california and our assemblyman are as corrupt as they get – they never return calls – letters – emails, anything really. They are just there to steal our money in my state haha.

    • Ezekiel Chang

      Untitled — Thanks Eric for your comments and for your observations!!There is definitely massive waste in Medicare/Medicaid. It is difficult for an organization as large as the government to establish good methods of quality/cost control. More audits would help; but it may prove difficult to achieve meaningful waste reduction just through increasing the number of audits. This is one of the reasons why I like the idea of multiple private insurance carriers competing with each other, instead of a single government insurance agency — theoretically, the better carriers would discover good waste reduction practices. Unfortunately, this idea has not proved effective yet, because there are easier ways for insurers to compete with each other in this current system.As for private insurance right to deny coverage, this is already limited to some degree by litigation. In any system, there are items (i.e. people) that fall through the cracks. My current guess of the cleanest way to shore up most of the cracks would be to require all health care coverage to have a minimum baseline, and for recissions to be banned altogether — to ensure a uniform playing field for insurance companies competing with each other.——————————————————————————I wish there were an effective method to communicate the best ideas in healthcare reform to decision-makers — but there are MILLIONS of discussions on healthcare, so the decision-makers in Congress do not have the time to sift through the flood of recommendations. If you have any ideas on how we might communicate our ideas to Congress members in a format they would actually take the time to listen and understand, please let me know. Thanks!!!

  37. Ezekiel Chang

    The WellPoint Revelation — http://online.wsj.com/article/SB10001424052748703567204574499034177212064.htmlIn all of the 14 states WellPoint scrutinized, ObamaCare would drive up premiums for the small businesses and individuals who are most of WellPoint’s customers. (Other big insurers, like Aetna, focus on the market among large businesses.) Young and healthy consumers will see the largest increases—their premiums would more than triple in some states—though average middle-class buyers will pay more too. Not even two hours after Wellpoint had presented its materials on the Hill, Democrats were already trashing it—which, considering that it runs to some 238 pages and took weeks to prepare, must have required remarkable powers of digestion and analysis. “This is yet another insurance-industry report that twists the facts to produce a skewed result,” averred Linda Douglass, the White House communications director on health care. Said a spokesman for the Senate Finance Committee, “This is akin to the tobacco companies commissioning another study claiming nicotine isn’t addictive and cigarettes don’t cause cancer.” So in its Saul Alinsky fashion, the White House again attacks the messenger so it can avoid rebutting the message.In fact, what distinguishes the Wellpoint study is its detailed rigor. Take Ohio, where a young, healthy 25-year-old living in Columbus can purchase insurance from WellPoint today for about $52 per month in the individual market. WellPoint’s actuaries calculate the bill will rise to $79 because Democrats are going to require it to issue policies to anyone who applies, even if they’ve waited until they’re sick to buy insurance. Then they’ll also require the company to charge everyone nearly the same rate, bringing the premium to $134. Add in an extra $17, since Democrats will require higher benefit levels, and a share of the new health industry taxes ($6), and monthly premiums have risen to $157, a 199% boost.Meanwhile, a 40-year-old husband and wife with two kids would see their premiums jump by 122%—to $737 from $332—while a small business with eight employees in Franklin County would see premiums climb by 86%. It’s true that the family or the individual might qualify for subsidies if their incomes are low enough, but the business wouldn’t qualify under the Senate Finance bill WellPoint examined. And even if there are subsidies, the new costs the bill creates don’t vaporize. They’re merely transferred to taxpayers nationwide—or financed with deficits, which will be financed eventually with higher taxes.

    • Ezekiel Chang

      Untitled — Please note that this policy analysis addresses the current reform bill as is.At this stage, the reform bill does not have any strong underlying method of reducing the key issue of rising claims costs: either by improving care coordination, or by improving competition among health care providers where local monopolies exist, or by improving care consistency (except possibly in the form of electronic health records), or by limiting the application of new technologies not deemed cost-effective in the base-health care plan, or by coming up with effective incentives to encourage healthier long-term behaviors.This does not mean trying to make premiums more uniform is a bad thing. Nor does it mean having a government-option is “bad” — but it does require us to understand how one change in the system can dramatically impact another part of the system.Thanks and please comment!!

  38. Dave Lowa

    Reply to no reply #2 — Mr. ChangI also appreciate the honest discussion! However, it would be a great deal easier if my responses were not limited by the inability to reply to your commentsDear Dave, Thank you very much for your thoughtful response! I really appreciate the honest discussion. The rate of innovation still needs to be discussed because non-U.S. companies can and do still sell their technologies in the U.S. marketplace, effectively recouping a large portion of their costs. (((((The relevance of this paragraph eludes me. I was under the impression that we were talking about the reduction of innovation that would be a problem in a system that was not for profit. Remember, the innovation that you are referring to has its origins in not for profit systems. Using this as an example why do you think that there would a reduction in innovation in a profitless system on this country. There must be other motives for innovation. Profit will always be present and near the head of the class, however, prestige runs a very close second especially within the university system.)))))This does not mean it is best for treatment innovation to occur at the rate it currently does; nor does it mean that the money is well-spent. For example, spending $10 million dollars may bring a new technology to market 6 months sooner than spending $2 million dollars. Also, due to the for-profit structure, there is silly spending on copy-cat drugs, direct advertising, duplicated procedures, etc. (((((Your financial example is not well founded. Nothing about a not for profit system dictates the rate of expenditure in terms of innovation. Your points about waste and redundancy are on target however. This waste and redundancy is fully checked in a not for profit system which utilizes outcome based medicine and operates under a global budget.)))))) Technology will still improve in all cases; but more money is thrown at it because of the current U.S. market structure. As for a system that replaces the desire for cash with a desire for care…. My personal desire is that we can have such a system; however, it’s not that easy to achieve. Altruistic communism… (((((Let me help here: There are interesting differences between socialism and communism. Communists assert that both capitalism and private ownership of the means of production must be done away with as soon as possible in order to make sure a classless society, the communist ideal, is formed. Socialists, however, see capitalism as a possible part of the ideal state and believe that socialism can exist in a capitalist society. In fact, one of the ideas of socialism is that everyone within the society will benefit from capitalism as much as possible as long as the capitalism is controlled somehow by a centralized planning system. I am a democratic socialist; therefore I see your outlook as typically capitalistic and therefore unsuited for social policy, but a needed part in a socialist system.)))))Dave Lowa

    • Ezekiel Chang

      Untitled — Thanks Dave.I’ll need to think through your comments more deeply.You are correct in stating that there are alternative motives for innovation, outside of funding. Yet, I can’t help thinking that money is still a key part of the equation. Your point is well-taken; and I will think on this further.The distinction between communism and socialism makes sense. Intelligent government intervention can be useful, though what is “intelligent” is often debateable. Socialism has become a by-word for communism in some rural circles; so for that reason, I think it may be useful to avoid this terminology when trying to build consensus among a large block of individuals.

  39. Dave Lowa

    In answer to the “noreply” message you sent — Mr. Chang, Frankly, the argument concerning innovation simply hasn’t any real place in the discussion. France, Germany, Italy and Cuba have all contributed to advances in medicine at a rate equal to the for profit system we suffer under. This is particularly true of France. As you know none of these counties operate for-profit systems. As far as the system that needs to replace the for-profit system we are currently enduring; we will be rescued by a system that replaces the desire for cash with the desire for care. One that does not pay its executives millions of dollars while millions of working poor go without the care they need or are so under insured they can’t afford the deductibles and shared costs of the insurance they have. Not being able to afford deductibles and co-insurances effectively places insured individuals in a position of being uninsured. If the system that is operative in any of the balance of the industrialized world was introduced in this country I would be pleased to work through its shortcomings.As to my comment concerning the issue being a moral one and not one of economics. This country was founded on the universal laws of equality. In a health care system based on market forces and the profit they are designed to produce, equality falls from the equation. For-profit, market based systems are designed to take as much money in and expend as little as possible. They are not designed around a global budget. They are not inclusive rather they are exclusive by their very nature. In systems which work within global budgets. The scope of coverage is entirely inclusive, it is universal, it promotes equality. The system shifts from coverage schemes that are designed to exclude to budget design that allow for the most efficient, efficacious inclusive system possible. The system at that point fills the moral imperative.The key to the issue is simply whether or not the taxpayers of the United States of America wish to consider health care a right and not a privilege. Put your metrics and systems analysis away. While morality is a systems of rules you won’t find is a satisfying topic for formalized systems analysis. Dave Lowa

    • Ezekiel Chang

      Untitled — Dear Dave,Thank you very much for your thoughtful response! I really appreciate the honest discussion.The rate of innovation still needs to be discussed because non-U.S. companies can and do still sell their technologies in the U.S. marketplace, effectively recouping a large portion of their costs. This does not mean it is best for treatment innovation to occur at the rate it currently does; nor does it mean that the money is well-spent. For example, spending $10 million dollars may bring a new technology to market 6 months sooner than spending $2 million dollars. Also, due to the for-profit structure, there is silly spending on copy-cat drugs, direct advertising, duplicated procedures, etc.Technology will still improve in all cases; but more money is thrown at it because of the current U.S. market structure.As for a system that replaces the desire for cash with a desire for care….My personal desire is that we can have such a system; however, it’s not that easy to achieve. Altruistic communism failed compared to profit-driven capitalistic markets in creating a system that advanced society as a whole (see North Korea vs. South Korea). You could blame the leaders of the communist systems; however, it shows how difficult it is to CREATE a system that priorities care over cash.I BELIEVE care should be placed higher than profit; but my personal beliefs are not enough to change the world. It is more effective to structure systems that can align care with profit, as these are the systems that endure.So the real question for me then is: How do we do this? How do we do this together?Thanks again for your thoughts!! Please continue to add to the discussion!~Ezekiel

  40. Dave Lowa

    Simplifying Affordable Health Care — Meaning no disrespect for Mr. Chang’s over engineered screed on the health care issue, there is, however, a point when one must call a halt to the potentially massive production of metrics and cut the cheese.After more than 40 years of disturbing association with the health care industry (I carried my first bed pan at age 17) I am completely qualified to comment on the nature of the beast.The only detail worth mentioning is the fact that the discussion is couched in the side of the industry that finances health care and not in the provision of health care specifically. That is not to say the physician’s are not greedy capitalist, they are, but so are all of us in the final analysis. Given the opportunity we all would exploit any system that is so free with its resources, and so complicit in the theft.Here’s the kernel of the issue. 1. Insurance companies answer to stockholders in the case of for-profit systems and stakeholders in the case of not-for-profit systems. Neither is subject to anti-trust regulation and neither care one ounce about anyone they insure beyond their ability to view each insured as a profit center. When profit is removed from the system, these corrupt corporations will not exist any longer.2. There is no outcome based medicine being practiced in the United States. Outcome medicine is the mash from which efficient and efficacious health care financing needs to be distilled.3. The health care reform debate will eventually lead to the purging of the legislative halls of congress. Gone will be the elected scam artists. Those who lack the moral fortitude to deny the 80 million dollar bombing of the moon by a country whose citizens are having a hard time feeding and housing themselves. Those who bleat on about the need to preserve family values while they do nothing to create a system void of the ill gained profits to which they themselves have become addicted.4. Health care reform is not an issue of economies. It is a moral issue. It is best understood by answering one basic question. Do the compassionate citizens of the United States of America now feel compelled to state that every legal citizen of this country has the RIGHT to the best not for profit health care that this country can provide universally, and if not, who is going to be left out and why?

    • Ezekiel Chang

      Untitled — Thanks Dave for your perspective.What alternative would you propose, and why? Please remember most new medical advances in the past decade have been due to massive amounts of R&D. Would the system you propose increase or reduce incentives to create new technologies? Is this good/bad? Why/why not?Thanks!!

  41. Dave Lowa

    Roosevelt’s second bill of rights — I wanted to add this to my comment below, but had to go out on the net to find it. Here then is how I want to live in this country. I hope it will spur one other to want the same thing:Franklin D. Roosevelt“The Economic Bill of Rights”Excerpt from 11 January 1944 message to Congress on the State of the Union——————————————————————————–It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known. We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.As our nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.Among these are:The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;The right to earn enough to provide adequate food and clothing and recreation;The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;The right of every family to a decent home;The right to adequate medical care and the opportunity to achieve and enjoy good health;The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;The right to a good education.All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.America’s own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for our citizens.——————————————————————————–source: The Public Papers & Addresses of Franklin D. Roosevelt (Samuel Rosenman, ed.), Vol XIII (NY: Harper, 1950), 40-42 12 How. 152: “Necessitous men,” says the Lord Chancellor, in Vernon v Bethell, 2 Eden 113 (1762), “are not, truly speaking, free men; but, to answer a present emergency, will submit to any terms that the crafty may impose on them.”

  42. Ezekiel Chang

    Cancer Drugs Emerging as Top Driver of Specialty Drug Spending — http://finance.yahoo.com/news/Cancer-Drugs-Emerging-as-Top-prnews-1348135937.html?x=0&.v=1FRANKLIN LAKES, N.J., Oct. 8 /PRNewswire-FirstCall/ — Cancer treatments are on track to become the biggest driver of specialty pharmacy spending as its contribution to overall drug spending hit five percent for the first time in the first half of 2009, according to Medco Health Solutions, Inc. (NYSE: MHS – News). Oncology specialty drug spending increased 15.1 percent last year, trailing only medications for autoimmune conditions and multiple sclerosis as a specialty drug growth driver. Driven by medications that can cost tens of thousands of dollars per course of therapy and a deep pipeline of new targeted products with fewer side effects than traditional chemotherapy, worldwide sales of these medications are expected to reach $80 billion by 2012.

  43. Bryant Parson

    Great Article — I work in HC and I have to say, this is a really good article. Well thought out. Only problem I noted was that insurance companies can and do deny claims for expensive treatments. They don’t do it outright as that would be illegal, however they do insist upon trying all other treatments first (regardless of medical advice to the contrary and at times at great risk to the patient) or because the treatment has not been “sufficiently proven effective for this exact diagnosis”. Lots of wormholes I guess. Cheers!

    • Ezekiel Chang

      Untitled — Yes, insurance companies have a strong financial incentive to deny claims as much as they can legally. At the same time, payment for new techologies dramatically increase costs (sometimes only with a small incremental benefit over the prior method, sometimes with large incremental benefits). It is very difficult to create a system that will find the correct balance in every case since so many new technologies are being developed constantly — but this is what we need to move toward somehow.Thanks for the great comment!

  44. Ezekiel Chang

    Premium Cost Drivers – according to WellPoint, Inc. — http://www.wellpoint.com/pdf/Premium%20Cost%20Drivers.pdfDespite the common belief that costs increase due to excess insurer profits, the aging of America and the high cost of medical malpractice, these factors have little if any impact on health care premiums. The key drivers of health care premium increases are advances in medical technology and subsequent increases in utilization, excess price inflation for medical services, cost-shifting, the high cost of regulatory compliance and patient lifestyles (e.g., physical inactivity and increases in obesity). Though still a factor, prescription drugs contribute less significantly to rising health care costs due to the increased use of generic medications.

  45. Ezekiel Chang

    Administrative Expenses of Health Plans – Douglas B. Sherlock, CFA — http://www.bcbsaforms.org/newdownloads/1__Sherlock_Report_FINAL.pdfRecent reports claim that health plan administrative expenses in the individual and small employer markets can exceed 30%. However, these estimates are based on data from Hay-Huggins that is more than 20 years old (1988) — a time when most claims were paper-based and many electronic processes were in their infancy — and based on estimated, rather than actual, administrative costs for companies that no longer provide health insurance.• Private health plan administrative expenses are grossly overstated in previous reports. Based on combined data from 36 health plans participating in our performance benchmarking studies in 2008 (2007 data) and other data, administrative expenses for all commercial products represented 9.18% of premiums. Administrative costs are 11.12% of premiums for the small group market and 16.35% of the individual market, amounts that are nearly one-half and in some cases nearly one-third of other estimates.• Private plans perform those administrative functions that Medicare performs at lower costs. In comparing only those administrative functions that Medicare performs, private administrative costs are actually lower — $12.51 per member per month, compared to a $13.19 per member per month in traditional Medicare. Many of Medicare’s administrative functions are, in fact, performed by private administrative contractors.

  46. Narayana Rao

    References — Some references could be inside the knol also. Hope you are not the first person to point out the problem of rising health care costs and causes. What were the factors pointed out by others and what more you are adding to it when clearly mentioned will help readers to react better. What I mean is that they can propose these alternatives to their representatives. They may write to insurance companies to issue different types of policies.

    • Narayana Rao

      Untitled — I included the knol right now under health insurancehttp://knol.google.com/k/narayana-rao-kvss/-/2utb2lsm2k7a/1664#

    • Narayana Rao

      Untitled — Thank you for the reply. Your knol is attracting number of comments. I have to create a category and include it in a sub-directory. I am creating a knol directory of interesting knols.

    • Ezekiel Chang

      Untitled — Thank you very much for the recommendation. It’s not easy for me to add references because there are thousands of articles on rising health care costs and causes by a huge number of authors. I would not even know where to begin in order to construct a history of who proposed which ideas. All the ideas in this knol are my own, except for a couple of the facts I pulled in the first few paragraphs from the OECD health data reports. However, I doubt any of the ideas I have mentioned are new or unique to me. The primary difficulty in this health care debate has been the sheer VOLUME of opinions and views. The “debate” typically degrades from a discussion into a shouting match.================================How can readers help? 1) Personally: Understand and accept the valid points from ALL sides of the debate 2) Publicly: Contact the most vociferous and active proponents of each side of the debate, and help one another understand the depth and breath of our system as a whole 3) Media: Contact their local media to frame the debate as a constructive discussion, instead of playing on the tendency to marginalize one side vs. another to make it into a “who’s right/who’s wrong” debate. 4) Civic: Support their elected representatives — what elected representives fear most is to not get re-elected. This fear hinders their ability to collaborate with opposing interest-groups to come up with a mutually beneficial solution. 5) Email: this article to others who are interested in gaining a broader perspective on this debate (or comment to me so I can improve this article). Thanks!!! ================================Again, thanks for your recommendation!!!

  47. Anonymous

    yes there are many factors that increase healthcare but…. — There is only one factor that has an expenetial outcome and that’s insurance lack of payment.Keep insurances from negotiating with patient… How is a 40yr old male suppose to know if he or she (cuz were are modern) needs cancer coverage? Make them negotiate with the health providers solely… The cost of a sonogram machine is greatly diminished if it’s patient load is high.Make the Non-covered episode a thing of the past or at least make it non-transferable to the patient. Keep deductibles, out of pockets copay’s and the like but don’t take away care.Allow Dr’s to agree to cost cutting measures like what the HMO model was suppose to do but base it on outcome not work performed… let them agree to work in the patient’s continuum of care by sharing patient data, let them take patient’s at odd hours and free up the ER for real emergencies, Let hospitals run on sight emergent care services to ease patient loads in the real ER. Require Dr’s to educate their patient’s directly or indirectly about the patients conditions.Reward the patient for taking preventative measures, taking less expensive care routes or improving their health but do it across the industry. Require regular physicals at all ages (mental and physical) to assure health status?Much of the waste in our country is due to a lack of knowledge of both the patient and the health provider about how to navigate health services. Take the need for navigation away allow physicians to keep people healthy and let patients be comfortable once again with the coverage they are getting because many retest are because patient’s feel the doctor has alternative financial motives not because of education.Over usage and under usage have both been profit driven make the new profit driver patient quality health.

  48. Anonymous

    Freedom is more valuable above all — Health is not a right. Insurance is not a right. Medical care is not a right. Freedom is a right, and it must be preserved at all costs. No politician would submit to their cockamamie “health care reform”, not even the big O. All have the best care at our cost. WE pay for their care. They have set themselves up as royalty and move our lives around on their gameboard at their will.I would ONLY agree with government meddling with health when these self appointed royalty, our politicians, submit to the exact same health care system they are bent on shoving down our throats. None will. None would deny their family the best care possible. At OUR cost. Our taxes are outrageous as it is. We do not own one penny we earn until nearly June if not later than that.The government has screwed up health care and that is why we are in the mess we are in. Plus frivolous law suits. Medical school enrollment is dictated by “quotas”, medical school costs are exorbitant. Doctors are paying their loans off for many years. Malpractice insurance is exorbitant, far beyond many people’s guess. In 2000 – it cost $32,000 per year. Doctors cannot work for nothing. Add loan payments, malpractice payments, equipment costs, payroll for receptionists, nurses, technology to comply with government mandates, HIPPA, etc., etc., and the picture gets really muddy. At the turn of the century, a doctor did not have to go through the government hoops and medical school hoops. Regulations have caused this. Government mandates that those unable to pay will ride the backs of those working and paying taxes are causing this. FREEDOM. Give freedom back to the masses. Freedom has the way to fix this, not the government. Give our country back the right to manufacture, grow food, process food, rather than pay for everything to be shipped from other countries. Give our countrymen the right to go to medical school rather than mandating “quotas”. Out of 40 openings per year, only FOUR can be white males. DO SOME RESEARCH! I am telling the truth. This government is fishing for control of your every aspect of life. They would rather not treat the illness of old age, or treat illnesses that have no cure – no matter the age. The very wealthy believe that overpopulation is the world’s greatest enemy. Put it together. Genocide by rationing healthcare? Sure!

    • Anonymous

      Untitled — Freedom of choice: Choice in health care will cease to exist. On pg. 16, ” Except as provided in this paragraph, the insurer offering coverage DOES NOT ENROLL ANY INDIVIDUAL in coverage if the first effective date of coverage is on or after the first day legislation becomes law”If this is such a great proposal, then why has Kennedy and his cohorts EXEMPTED congress, senate and the Prez plus their families from this fiasco? In other words, they will still be allowed to persue treatment.The government will assign CZARS (In America???? What is with all these czars?) These czars will decide what procedures one may persue (I mean the masses, not the senate, congress, or prez and THEIR families.)The Government will have a hand in your Bank Account for funds transfers! Think about that one! The Government will give us END OF LIFE counseling. They do not want us persuing treatment of the aches nor pains of growing old. Heck. Lots of us hurt all over from working hard to provide, and so we might retire one day! Besides, I would be willing to bet that Kennedy is getting TONS of Very expensive medical care for his terminal illness AND AT HIS AGE, too!The Government can decide when or what life saving procedure WE might get at our time of life “because it might cost too much at our time of life” and the money may be better spent on the millions of lawbreakers instead.These czars will determine how much ANY doctor can make. Hmmm. In Canada and England, people wait MONTHS just for an MRI. Those months could cause a treatable condition to turn into one that is no longer treatable, IF the patien survives the wait.So….what part of freedom do you not understand? You can put numbers in a chart all day long. People are not numbers nor cattle. Well, they weren’t before now…Useful idiots. Look it up. Useful Idiots. Yuri Bezmenov.Look it up.

    • Ezekiel Chang

      Untitled — Can you clarify in detail what you mean by freedom, and describe the process by which it will improve the current system? I agree that the law of unintended consequences is in effect for the vast majority of government “mandates”, but it is more helpful to explicitly describe what is occurring for specific policies and how to correct for each instead of simply using a broad term such as freedom. For example, not everything the government provides has been bad…taxes pay for highways, police, fire departments, the judicial system, etc., etc. Pure freedom could also be misinterpreted as anarchy; so it would be helpful for you to clarify your position in detail.Thanks!

  49. Ezekiel Chang

    thought this comment from another article/writer was interesting… — http://finance.yahoo.com/expert/article/yourlife/178987silly_bse – Wednesday, July 29, 2009, 8:09PM ET Report AbuseOverall: 2/5 From user bpk: “Everyone already has access to health care. The problem is, many don’t think they should have to pay for it. They somehow manage to afford alcohol, cigaretts, cell phones and cable tv, but health insurance?” I hate to break it to you, but this is patently untrue, and your comment is extremely demeaning. I am a type 1 diabetic. I cannot buy health insurance NO MATTER WHAT. Period. Insurance companies are allowed to exclude me simply because I’m diabetic. And they do. I tried every single one, every plan, even ones that would not cover my insulin (catastrophic only), and no one would underwrite. Explain to me how exactly that sound right to you? Yes, I have coverage now, but in order to get it, I had to incorporate first, then issues an employer’s plan – and that’s a rather silly distortion. I don’t mind paying higher premiums than folks who don’t have a chronic condition. In fact, I already do pay the “risk premium” that is the maximum allowed by law. But the denial of access is a major problem.

    • Ezekiel Chang

      Untitled — Insurers will not underwrite something that they know they will lose money on. This does not mean insurers are evil…after all – would you sell your house to someone for $300k if you bought it for $900k?Again, because the government restricts the rating bands, some individuals are denied the option to even PURCHASE insurance, though they could if the rating restrictions were lifted.Most insurers would jump at the opportunity to offer a policy to an uninsured individual even if a SMALL profit could be made. Competition would ensure that the profit stayed SMALL. But the U.S. has underwriting and denial of coverage instead.It would be better to allow for the variation in pricing; and then figure out clean methods to reduce the rate differential instead of dictating a reduction. Otherwise we will have the supply/demand mismatches that we see today.

  50. Jeff Olson

    Basic Premise is Absurd On Its Face — Technology does not lead to higher expenses. You could use this same logic to demonstrate the tractors, computers, or shovels for that matter, lead to unsustainable price increases. When I read this kind of shallow, illogical analysis, I despair of seeing real solutions for the U.S. medical mess.

    • Ezekiel Chang

      Untitled — Um… did you even read the full article? I’m guessing you skipped straight to the second half and did not read through the example I gave in the first section.

  51. Ezekiel Chang

    Why we must ration healthcare: — All Economic Systems are a Form of Rationinghttp://www.nytimes.com/2009/07/19/magazine/19healthcare-t.html?em=&pagewanted=all

  52. Anonymous

    Recommended Policy has flawed assumptions — I agree that healthcare costs are an issue but I believe your article has a couple of underlying assumptions that challenge your recommendations. Let me share what I see as an assumption that complicates your recommendation with the hope to improve the discussion and outcome – not to invalidate anything you have stated. Recommended Policy: Expand Medicare Advantage to cover everyone with payments on a risk-adjusted basis. Raise taxes to cover this program and give tax credits to employers who offer creditable coverage to their employees. (Step 3) Assumption: That Medicare Advantage pays enough to Healthcare Providers to cover the costs of the procedures. A recent Mackenzie study shows that this is not necessarily true. The current employer supplemented Healthcare Insurance Programs are the only INSURANCE program that pays for the Healthcare Providers’ costs and they also pay for the LOSSES from Unemployed and Medicaid covered people in addition to the Medicare covered people. So, those of us that work at a company with company benefits that include Healthcare Insurance actually pay for the Uninsured, Medicaid and Medicare covered people in this country in addition to ourselves and our families. So, expanding Medicare Advantage to cover more people will push more of the actual Healthcare costs to fewer and fewer people until the entire system is in bankruptcy if this path was taken. Recommended Policy: Create a base-line health insurance plan under the expanded Medicare Advantage program. A secondary insurance market will naturally follow, typically in the form of enhanced benefits with supplemental premiums being charged. Medicare already has such a baseline health plan in place for senior citizens. (Step 2) Assumption – The US government is better at running insurance companies then the private sector. This is not a slippery slope, it is a cliff. The US government is already running the underlying financial system so taking on healthcare insurance may seem like a natural extension but Medicare is run by auditors and finance people with no regard of healthcare outcomes. In fact, their role appears to be focused on setting national prices for what is covered in an attempt to force healthcare, via covered cost, to the lowest common denominator. If a supplemental insurance program is a desired outcome or a future need, let’s keep that private and keep the discussion focused on improving cost & price transparency to the consumer on insurance and healthcare specific costs. Recommended Policy: Create a regulatory body with the power to determine which new technologies are cost-efficient enough to be covered under the base-line health insurance plan. CMS partially bears this role currently; however, its role needs to be expanded to include the power to define what is cost-efficient, and the right to not cover technologies that are effective but not cost-efficient. Efficient new technologies that CMS overlooked would still have a chance to succeed in the secondary insurance market if they are truly effective. (Step 1) Assumption – More regulation solves a root cause. The CMS determines today what Medicare and Medicaid pay for already. Giving them the power to tell insurance companies they don’t have to pay for something will fundamentally shift our free market drivers to more government dependent and hence bureaucratic and inefficient. People will pay for what they think will help them, regardless of the cost. Again, improving transparency of real costs prior to treatment, as suggested above, will do more than any regulation can achieve. Today, if you go in for “elective” surgery with the expectation that your insurance company will cover the cost, you may be surprised at how much you have to actually pay. That is because the healthcare provider and the insurance company do not have to tell you what your cost will be. They won’t even try because that will potentially get them into a bind. Worse, if the insurance company decides, after the surgery, that they don’t want to cover it you will be charged a different cost then the insurance company would be charged because the Healthcare Provider now classifies you as “uninsured” so you now pay “retail” vs. the negotiated rate your Insurance company gets. So, your costs on all the treatment will skyrocket beyond anything you could have imagined. This can even happen after you receive your first bill and even after you think you have paid for everything you are responsible for. If you read your Healthcare Insurance policy, you may find that your insurance company can “renege” from their commitment to pay for a procedure as far out as a year after the procedure (I have heard of some longer than that but 1 year looks standard). Recommended Policy: Create an effective rewards system for overall disease reduction instead of disease treatment. It is not clear to me at this time what such a system would look like. A single-payor system would have a vested interest in overall…

    • Ezekiel Chang

      Untitled — Thank you for the in-depth read and response! I have incorporated your comments into this article, but I will need to think about how to incorporate it in a manner that allows for an easy flow of reading. It may not be possible when getting to the recommended policy section because the devil is always in the details.I appreciate your read on this article. My main goal is to get all the major decision-makers on the same page when it comes to the root causes of our system error. The worst case would be for the U.S. to do something that we “think” would fix the issue but does not address it at all.

  53. Ezekiel Chang

    I would suggest you need the following: — 1. real data not hypothetical data.2. comparative effectiveness analysis to determine that the optimal procedures are performed for each indication and value is received for the dollars expended.3. this data analysis will require clinical data in addition to claims data.

  54. Ezekiel Chang

    Nice Articles by Atul Gawande — http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawandehttp://www.newyorker.com/online/blogs/newsdesk/2009/06/atul-gawande-the-cost-conundrum-redux.htmlJust one comment — these articles clearly show the issue of RISING medical inefficiency; but they still do not address the point that medical trend would still be higher than general inflation, even if waste were eliminated. The long-term trend would be lower, but still unsustainable. Basically, it tells of how we could delay the underlying technology-trend issue at hand by another 50 years.

  55. Arvind Cavale

    Costs of insurance — Fundamental concept of for-profit insurance companies is the primary driver of annual increases of medical insurance, irrespective of actual increases in payment for medical services. I am not sure if there is a way to curtail this phenomenon without eliminating such a process. Even the so-called no-for-profit insurers are driven by the same motives – here to pad their coffers and heap bonuses on Medical Directors and higher Executives. Any objective analysis of costs will show that premiums have risen about 3-4 times as fast as cost of payment for medical services. In fact most insurance payments for procedures and office visits have remained unchanged for about 5-6 years. Simpler measures to reduce costs would be to simplify transactions between health care providers and insurers; and health plan members and their plans. Transparency (no fine print) would also help.

    • Ezekiel Chang

      Untitled — Thank you for you comment. You’re correct in saying that insurance payments have remained unchanged for most procedures and office visits; however, I want to point out that these are not driving the health care claims to increase. It is the cost for NEW items that were not covered previously but are covered now, these are the root of the rising costs.Simplifying transactions and transparency would definitely help in reducing costs — but these are only gains in efficiency. Let’s say that such measures save 50% of wasted medical spending. It unfortunately would not address the underlying TREND in costs. For example, when health insurance moved from the indemnity system to managed care, there were very large savings on the order of 30%(?) but after this savings, claims trend increased at its usual pace.I am hoping that in addition to one-time efficiency gains, that we can address the underlying drivers causing cost increases.——————————————————-You also indicated that “any objective analysis of costs will show that premiums have risen about 3-4 times as fast as cost payment for medical services”. Would you be able to post a link to one of these analyses?I think it likely that the analyses you read had a missing component. I am certain that the analysis keeps the mix of medical services CONSTANT, and does not account for the inclusion of higher-cost, new services.Please let me know if my explanation makes sense. Again, thank you very much for your thoughts.

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