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Disparities in Regional Health Care Costs

In 2009, during the “Obamacare” debate that was dominating the news, Atul Gawande wrote an article in the New Yorker that was widely praised and cited, including by president Obama himself. The article is a thought-provoking discussion of why some communities in the US have much higher health care costs than other regions. I took two main conclusions from the article.

The first is the success of the Mayo model – organizing care as a team approach. The idea here is to pool optimal expertise in the care of each patient. Greater expertise leads to “more thinking and less testing,” as Gawande puts it. I agree with this. It takes expertise to be comfortable not doing a test. Often testing is ordered because a physician does not feel secure in their diagnostic assessment.

The second main conclusion was the McAllen model, a town in Texas that has double the average Medicare costs per capita in the country. Gawande concluded that these increased costs are likely due to the culture of medical practice in the region, leading to greater unnecessary care and procedures. He wrote:

The Medicare payment data provided the most detail. Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso, and were two-thirds more likely to see ten or more specialists in a six-month period. In 2005 and 2006, patients in McAllen received twenty per cent more abdominal ultrasounds, thirty per cent more bone-density studies, sixty per cent more stress tests with echocardiography, two hundred per cent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty per cent more urine-flow studies to diagnose prostate troubles. They received one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes. They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

Is that, however, a necessary conclusion from that data? The data support the conclusion that McAllen (the highest cost region) uses many more medical procedures than El Paso (the lowest cost region), but does that necessarily equate to “overuse” of medicine? Evidence does not support the conclusion that the population in McAllen is sicker than El Paso, but it is also possible that El Paso simply underdelivers care.

This is a very important question as we grapple with the rising costs of health care. There are many possible sources for this rising cost, including: increased availability of expensive technology, the aging population, defensive medicine and tort costs, public health problems such as obesity, overuse of medical procedures, poor access to care leading to delayed treatment or inefficient treatment, and the use of ineffective or worthless treatments (i.e. just about everything considered CAM). To make a significant difference and stem the rising tide of health care costs we probably have to address all of these issues.

However, it is estimated that about half or more of the rise in health care costs are due to advances in medical technology, and that this technology offers reasonable value. The core problem of health care costs may simply be that we have the technology to deliver more care than we can afford to.  Combined with an aging population and a culture of individualism that often demands the most aggressive care for every person, that explains a large piece of the rising cost. It is not clear what the potential for savings is from increased efficiency and avoiding unnecessary care (although obviously we need to work towards greater efficiency).

Let’s get back to the question begged by Gawande – is the increased use of procedures in McAllen due to overuse? A recently published review of the literature does not support this conclusion. Keyhani et al performed a systematic review of the literature and came up with only five relevant articles comparing the overuse (not just use) of medical procedures in different regions. Here are the results:

Five papers examined the relationship between geographic variations and overuse of healthcare services. One study in 2008 compared the appropriateness of coronary angiography (CA) for acute myocardial infarction in high-cost areas versus low cost areas in the Medicare population and found largely similar rates of inappropriateness (12.2% vs. 16.2%). A study in 2000 using national data concluded that overuse of CA explained little of the geographic variations in the use of this procedure in the Medicare program. An older study of Medicare patients found similar rates of inappropriate use of CA (15% to 17% vs. 18%), endoscopy (15% vs. 18% 19%), and carotid endarterectomy (29% vs. 30%) in low-use and high-use regions. A small area reanalysis of data from this study of 3 procedures found no evidence of a relationship between inappropriate use of procedures and volume in 23 adjacent counties of California. Another 2008 study found that inappropriate chemotherapy for stage I cancer was less common in low-cost areas compared with high-cost areas (3.1% vs. 6.3%).

They make two conclusions from these results. One is that there is insufficient data to really answer this question definitively – only five studies. We therefore need to conduct further research into this important question. But, what evidence we do have does not support the conclusion that regional differences in utilization of medical procedures are due to overuse. Differences in overuse were slight and simply did not explain the disparity in health care use and costs in the regions compared. Their review suggests that Gawande’s assumption may not be warranted. It suggests, at the least, that the story is more complicated.

Conclusion

Like any complex issue the answer is probably “all of the above.” In other words – the problem of rising health care costs has many causes all of which need to be addressed if we are going to have a significant impact. We need to be realistic about the potential of addressing each contribution, however. It is tempting to blame the culture of medicine and overuse of procedures, because that is entirely fixable. I also completely agree with Gawande that optimizing health care to take maximal advantage of  expertise and specialists is a good way to go. Specialty care is generally more cost effective.

We probably, however, will have to face the uncomfortable truth that a major contribution to rising health care costs is that we simply have the technology to deliver more care, and people want this care. This leads to the further conclusion that one primary mechanism to constrain health care costs is to ration care – something no one wants to do, and for which there is little political incentive to address. For example, one obvious way to ration expensive health care is to limit futile end-of-life care. We currently lack an efficient mechanism to enforce rational decisions about the utility of very expensive care for individuals who are very likely at the end of their life due to a catastrophic illness or event. Most of the time the physicians and families get together and do make reasonable decisions, but sometimes this does not happen, and millions of dollars of futile health care can result. Any possibility of addressing this issue, however, was killed during the “Obamacare” debate by the dismissing of this issue as “death panels.” This very important issue then became politically untouchable.

Another potential way to address the driving of health care costs by advancing technology is to adjust our research priorities. It is now reasonable to ask whether or not we should fund research that has the potential to make small incremental improvements in outcomes with expensive treatments or procedures. Perhaps we should give priority to research that has the potential of replacing an expensive treatment with a cheaper alternative, or prevent the need for the expensive intervention. Cost effectiveness is already a factor taken into consideration, but it can be given higher priority. Adjusting research, however, will take decades to have a significant impact.

One conclusion, I think, is clear. Whatever the ultimate solutions turn out to be, our best chance of getting there is to follow the science and evidence. This not only applies to medical practice, but the meta questions about the strategic organization and deliver of health care itself.

Posted in: Politics and Regulation, Public Health

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45 thoughts on “Disparities in Regional Health Care Costs

  1. superdave says:

    The entire debate angers me. The effectiveness of a medical system should be based on how effectively it saves lives, not how cost effective it is.

  2. windriven says:

    “The core problem of health care costs may simply be that we have the technology to deliver more care than we can afford”

    Or it might be that we sometimes employ this technology inappropriately. Technology that is not deployed is technology that earns no one any money. I don’t really mean to suggest the calculus to be quite as crass as that makes it sound. But when a third party is paying for something the cost-benefit analysis is different than when the recipient pays for service rendered. To wheel out an overused metaphor, if we all go to a restaurant knowing that a distant benefactor is picking up all but $10 of each meal, none of us pays much attention to the right side of the menu.

    The Dartmouth Atlas Project has a lot to say about this issue and would certainly be worth discussion in these pages.

  3. superdave – That would be true if there were no practical limits to the amount of health care we can afford. But that is no longer the case. We are in the process of transitioning to a world in which we simply cannot afford to deliver all the health care that is appropriate that we have the ability to deliver. Advances in technology may reverse this, but not anytime soon.

    You also have to look at it from a the point of view of our overall economy and quality of life. If the portion of our resources and GDP that is dedicated to health care continues to grow, what will that do to the rest of the economy, and what effect will that have on our quality of life. In fact, if we cripple our economy with ballooning health care costs we may paradoxically worsen health outcomes.

  4. DugganSC says:

    @superdave

    In an ideal world with infinite resources, yes, that would be the criteria. However, we don’t have access to unlimited resources, so we need to find the best way to use those that we have. And unfortunately, as with many such issues, good intentions can pave the way to Hell. Just look at the annual physical. The idea of it is that it reduces health costs by catching illnesses early and helping people to just stay healthy. However, as seen on this site, it’s become an increased cost that very seldom catches early cases and frequently leads to false early diagnoses that consumer more resources.

    Frankly, I think tribalism is going to be an issue any way you slice it. At our core, most of us want to believe that the group we associate with is better, more worthy. Thus, when it comes down to either spending $500,000 to fund better childhood nutrition in school lunches for a district or providing post-care for a survivor of pancreatic cancer, who do we consider the greater good. Does it matter if the kids are black and the cancer survivor is white? Or vice versa? These are not easy questions to answer.

    I’d like to think that our next big frontier would be the reduction of costs of medicine and procedures by choosing less expensive versions. Example, compare the cost of a CAT scan versus an MRI. Both essentially do the same job, but one has a higher overall cost. Complicating things, there’s little incentive to change as the patient seldom sees more than the copay, the hospitals receive a percentage of the overall cost of a procedure, and insurance companies absorb the rest. Or, alternately, consider the cost of the various pharmaceutical THC treatments versus the cost of simply buying the marijuana. Is it worth paying a hundred times over to have a brand name slapped on it? Of course, then you run into the problem of people who legitimately need the replaced procedure. My fiance can only take certain medicines for her asthma. Recently, her insurance provider decided that they were only going to sponsor another set of medications as they’re considered more cost-effective and she’s having to jump through hoops to get them to fund the only medicine that does work for her. Too, the profits enjoyed by pharmaceutical companies are part of the reason they other to do research that will find cheaper alternatives.

    It’s not an easy set of questions. We need to ask ourselves every day to find out where the answers are now.

  5. windriven says:

    @superdave

    Your statement fails the reductio ad absurdum test. You are essentially saying that in the face of medical challenges, cost is no object.

    Several countries spend substantially less on healthcare than the United States yet deliver better outcomes.

    The US spends nearly 20% of GDP on health care now. We could probably save more lives if we spent 30% of GDP. We could also save more lives if we mandated that everyone was going to be an organ donor, like it or don’t.

    The medical system is not the sole arbiter of longevity or quality of life. If you roll around with a BMI of 35, smoke a couple of packs a day and wash off the day’s tribulations with a pint of Black Jack every night, how is it right to expect the checkbook to be thrown wide open and the full spectrum of all that medical technology can offer be marshaled on your behalf when your liver or your lungs say “no mas”?

  6. DugganSC says:

    I also find it interesting compare this article, which indicates specialists as being the preferable person to go to versus the prior one on choosing one’s doctor which indicates that a general practitioner is the preferred choice. Reminds you that we do have multiple authors with different points of view on the site.

  7. Duggan – different context. General practitioners are necessary to manage the overall care of patients, and you don’t want to bypass them and go straight to specialists But if you look at a specific problems and outcomes, specialists have better outcomes. So both are correct.

  8. passionlessDrone says:

    @ Stephen Novella – Very nice post.

    We probably, however, will have to face the uncomfortable truth that a major contribution to rising health care costs is that we simply have the technology to deliver more care, and people want this care

    This is where the Republican dogma that ‘the free market’ can address health care costs fails in an encounter with reality. The market can provide high quality care, or low cost care, but not both, especially in an age where we have an increased ability to prolong life and/or ameliorate chronic conditions in ways that were not possible just a decade ago.

    - pD

  9. cappomutato says:

    As the McAllen data is just from Medicare spending, is it not possible that this is not an indicator of care given, but rather Medicare fraud committed? Perhaps not even criminal fraud, but more of a fraud “lite”. No matter the system, someone, or some group of people will find a way to game it. Medicare pays more for specialists, even when specialist care isn’t given. A cursory exam can be massaged into being billed as a procedure. Some agencies regularly have nurses rewrite notes so that billing can squeeze in an extra charge, or obtain a higher rate. Companies will pay for extra certifications for staff so that they can bill strategically, getting the most buck for the bang, as it were. Perhaps McAllen just has the most creative billing departments and most strategic staffing management.

    This, of course, isn’t meant to contradict anything stated in Dr. Novella’s post, which makes absolutely valid points.

  10. Janet Camp says:

    Lots to think about, but it won’t fit in a “death panels” sound bite will it? Someone needs to find a way to have a fact-based national discussion about all this.

    I’m having a breast needle biopsy next week and it probably isn’t necessary. It’s just to be “totally on the safe side” I’m told by a gum-chewing radiologist who is older than I–so should know better. I guess I could say no and save some money but the entire staff are quite insistent that I do it. I read all of Orac’s posts on this but still have no idea how “necessary” this procedure is. The doctors want me to have it and it’s covered. Would I pay for it myself? I’d probably ask more questions first. But surely we don’t want to go (any further) down a path where only the rich or fortuitously employed get health care?

  11. windriven says:

    @passionlessDrone

    “This is where the Republican dogma that ‘the free market’ can address health care costs fails in an encounter with reality.”

    In which parallel universe does health care operate in a ‘free market’?

    I’m not here to defend the Republicans; they are at least as clueless about meaningful health care reform as are the Democrats. But there is very, very little in the health care delivery system that operates on free market principles.

    Physicians operate more in the style of craft guilds with tightly limited entry into the profession (I’m speaking only in economic terms here so hold your fire). This is balanced by private and federal payers who attempt to control pricing through what amounts to buyers’ unions. To paraphrase an old Polish workers’ joke: the physicians pretend to charge a fair price and the insurers pretend to pay them. Caught in the crossfire is anyone who isn’t a ‘union’ member.

    But I don’t mean to focus on physicians – they are simply highly visible. The entire health care industry is heavily regulated and that regulatory burden comes at a cost. Part of that cost is the true cost of compliance and part is the high bar against entry (which reduces competition).

  12. Steve says:

    It is my opinion that in the US we have deep set cultural attitudes about healthcare that is to our detrimental to controlling healthcare costs. We seem to think that medicine can keep us alive indefinitely. In general the public believes that healthcare should be free and unlimited to all. This is a laudable goal. That said, there a large disconnect between limits what healthcare can provide and what is reasonable to maintain quality of life. Culturally we seem unwilling to accept limits. Often we want aggressive life-prolonging therapy in the very old, and an overt fascination with newest “best” medicine or diagnostic test. If you take an economic view of medicine in the US, a disproportionate amount of money is spent on big ticket items (MRI), goods, and Pharmaceuticals. Is this money well spent? Or is it a response to what is profitable? In our culture we often want the newest MRI, Blood Test, and Drug. New is often viewed as better. That is not always so. Doctor and other providers are often the gate keepers for these things. Doctors/providers have few incentives to restrict access. Insurance private/government has too many incentives to restrict healthcare. We need culturally to understand that healthcare without limit is impossible to sustain. We as a society will have to make hard choices or exhaust all resources trying to maintain an unsustainable rate of increasing cost. Science can lead us to reasonable solutions and distribution of health care dollars. Other cultures/models understand this. None are perfect but many are better. There are several wealthy countries that spend far less than us have the same quality of life, and life expectancy. There are other aspects like genetics, immigration and resources that play a role. There is a greater acceptance in those countries that unlimited is impossible and they make due with reasonable resources. For example Canada does not allow CABG in people over 89. Appropriate and helpful use of resources need to be fluid and based on science. Especially with steadily advancing life expectancy. Right now these decisions are left to families, doctors, and significant others. That is our culture. Until we are willing to accept that unlimited is not useful or desirable we will continue to head for the healthcare wall at full speed.

  13. passionlessDrone says:

    Hi windriven –

    In which parallel universe does health care operate in a ‘free market’?

    This universe is proposed by any Republican arguing with you about how to fix health care problems. It isn’t about where we are now, it is about where we should go.

    Thirty years ago, if you had a heart attack and survived, your doctor sent you home and told you to take an aspirin. Today, they’ll send you home with a prescription for pills that cost $10/day, that you should take forever, every day that you want to reduce your risk of having another heart attack. There is no free market solution to this problem.

    One of the solutions proposed during the Obamacare debate was opening up insurance across state lines, as if this extra competition would somehow lower costs. It isn’t pesky state regulations that are making health care costly, it is all the fancy whiz bang gadgets and procedures we have that can keep us alive for longer, even if we are fat or have cancer or whatever.

    There is also a lot of platitudes about giving ‘consumers the ability to choose’, and letting the market lower costs to attract consumer dollars; oftentimes this comes wrapped up in a proposal to drop employee (especially state provided) insurance, and instead, give consumers vouchers to purchase insurance. It is drivel, of course, because you don’t determine who will treat your heart attack the same way you buy a car, and if you don’t know what is wrong with you, you have no way to determine who is going to provide you with the best service. Unfortunately, so many of them are so overglazed with Ann Rand slogans and so furious about the potential freeloader problem that such realities do not seem to intrude on their thought processes.

    But there is very, very little in the health care delivery system that operates on free market principles.

    The argument from Republicans is that this is the problem. I’d disagree.

    - pD

  14. Amy (T) says:

    I wonder, is there life expectancy data of Medicare recipients in McAllen, TX? Whenever I see reports of how some area has X costs, or “overuses” X treatment/intervention, etc., I always wonder, well, what is the end result? Because I’ve seen many claims about some region/country having a high rate of X intervention, but they also have the best results of what that intervention is used for. So, does having a much higher cost equal a longer life? A better quality of life? Just saying one area has higher costs only tells half the story. Because resources are limited, we do need to compare costs, but the whole story should be told, with the outcomes associated with costs.

    “Like any complex issue the answer is probably ‘all of the above.”

    Thank you for this. I’m so tired of articles focusing on one problem. Healthcare is so comprehensive, there needs to be lots of issues addressed, one thing is not going to be a cure-all (seems almost like the CAM world, this one thing will fix all our problems).

  15. BobbyG says:

    “In which parallel universe does health care operate in a ‘free market’?”

    There’s no such thing as a “free market.” You either have regulated markets, or you have Tooth & Claw. We can argue about the extent and purpose of regulation, but this fatuous Randian-esqe nonsense about “free markets” is beyond tiresome.

  16. pmoran says:

    One thing is certain: whichever way America goes, you will adjust, and your doctors and medical bodies will after some decades be themselves defending the new status quo against major changes, despite any earlier doomsaying.

    That has happened within the UK, Australia, and Canada following the introduction of their initially bitterly opposed national health schemes. They are by no means perfect systems, but what is? They are helped function by the persistence of parallel private health systems and insurance.

    They provide good access to health care for the poorest, but not entirely equal care. The latter is an unrealizable objective.

    They facilitate some ( largely covert) rationing of health care to contain costs, but that is inevitable within any taxpayer funded system. Get used to the idea.

  17. windriven says:

    @pD

    You and I seem to have very similar analyses of the problem: (almost) everyone wants to go to heaven but nobody wants to die! Pour on the healthcare, damn the expense, live to be a zillion!

    I would like to also echo and expand one of pmoran’s comments above: rationing is inevitable. It exists now based on the insurance or personal wealth you have and it will exist no matter what future system is ultimately adopted.

    It seems to me that a good case could be made for a universal basic healthcare package that could then be augmented (or not) with private insurance. Universal wouldn’t let you die of appendicitis but you might need private insurance to assure that your triple CABG gets scheduled next Tuesday. This really isn’t all that different from the way Medicare works today or the way that OHIP (Ontario Provincial Health Plan) works – or at least worked some years ago.

  18. windriven says:

    @BobbyG

    “You either have regulated markets, or you have Tooth & Claw. [B]ut this fatuous Randian-esqe nonsense about “free markets” is beyond tiresome.”

    Free markets do not equal laissez-faire markets. Free markets operate under the rule of law as even the most libertarian economist will tell you. In fact the rule of law is central to the libertarian philosophy. The operative comparison is market economy versus planned economy.

  19. weing says:

    Here’s my 2 cents, FWIW. Above all, we need excellent comparative effectiveness studies to guide us. Without them, I do not see how the goal of physician “sensitivity to cost-effectiveness”, as enunciated in the NEJM last week by the ACGME for the next accreditation system makes any sense. I get the distinct feeling, that the insurers and government, implicitly not explicitly, want us to be the ones to ration care. We will be the bad guys. We will face the trial lawyers. They will enjoy their profits and votes for not rationing.

  20. Marco Rosaire Rossi says:

    My background is political science, not medicine (though I do currently work at a Planned Parenthood in Chicago)–so it excitements when I read this blog (which I do everyday), and see something that I can contribute to in a meaningful way.

    There is much I agree with Dr. Novella on in his post in terms of healthcare policy, but I think that there are certain factors which contribute to the driving up of healthcare costs that he leaves out. People who know about healthcare policy and economics will recognized them. These factors include the growth of for-profit hospitals, the extending of patents for pharmaceuticals which allows them to keep prices high, and the growth of medical-billing bureaucracies due to the private insurance market. All these have major effects on the cost of healthcare–in many cases far more so than the costs of technological advancements, unnecessary testing, or the many problems with our medical tort laws. Though, it is important to acknowledge that those have an influence too, just a lot less so.

    The rest of the industrialized world has on the whole better outcomes in the United States (that is if we find the evaluations of healthcare systems around the world by the World Health Organization compelling–and I can think of no reason not to) and pay less for them because these factors do not exist or exist in a less intense way than in the United States. The most dramatic example is France. The French are generally considered to have the best healthcare system in the world, and they pay roughly half of what we pay in the United States. And, this is by a large margin. To put the matter in perspective, when the WHO ranked the world’s healthcare system in 2000 (it hasn’t since then, the official reason is that the task is too daunting and time consuming, unofficially some countries were upset by the results) United States was ranked 37. It was the lowest of any industrialized nation, and lower than even some industrializing nation.

    This is the great paradox of healthcare costs in the United States. United States does have some of the best medical schools, and is quite innovative when it comes to technologies and pharmaceuticals (mostly thanks to grants from the NIH) but often times these advantageous are out of reach for Americans because of costs. In addition the healthcare that people do receive is often compromised in other ways. The high cost of medical schools drives newly graduated doctors into specialty fields where they can charge more. The downside to this is that it creates a shortage of family and primary care physicians; the doctors that do go into primary care are often overworked and overburdened, and struggle with declining medicaid and medicare reimbursement rates. It is hard to provide quality care when you have an overly stressed out patient, it is almost impossible to provide quality care when you have an overly stressed out doctor. (At Planned Parenthood, we often have both).

    Despite this, healthcare is one of the fastest growing industries in the United States. Nurses fresh out of school can fine jobs as easily as compute programers. However, with this rapid growth, unconstrained costs, and poor outcomes, we are headed for an economic and healthcare disaster.

    If we are going to deal with healthcare costs in the United States we have to deal with it on a fundamental level. And, that includes addressing some of the factors I listed above. I know some people take this as a chance to debate the merits of “free markets”–but if we are not going to be ideological about this then we have to admit that “free markets” don’t exist in the United States–nor have they ever. As any good economic historian will admit, markets have always been regulated in some way. All the major advocates of “free markets”–Hayek, Von Mises, Friedman, Rand, Becker–didn’t develop their ideas from history or through comparative economics and politics. Rather, they did so in the very unscientific way of abstract game theories, political ideologies, and personal philosophies. The problem is that right now that our healthcare markets are tightly regulated, but they are regulated away from the needs of patients, and in many case even doctors, and in favor some very powerful, very special interests.

    Some states are addressing these issues in a serious way. Vermont is the most important example with its move to a single-payer system in 2014. However, I will be the first to admit it has tons of problems considering that naturopaths and home birth midwives are licensed in the state, and will be eligible to endanger patients and spread their nonsense with tax-payer money. Nevertheless, all the healthcare economists are predicting that the state will save tons of money, and they have plenty of examples in other countries and throughout history to demonstrate that that is a safe prediction. It won’t address all the problems, but it will address some.

    I love science, but when it comes to the intersection between science and public policy, we should really work to see a healthy marriage between the natural sciences and the social sciences in order to get a good picture of what is really going on. I think everyone who reads this blog will agree that we need information that is able to clear up misunderstandings and push through the propaganda for any side. Hopefully, that will happen if we take–dare I say it–”holistic” and “integrative” approach to understanding social problems like healthcare reform.

  21. ziggy says:

    >>because a physician does not feel secure in their diagnostic assessment.

    Sorry, but that one always hurts.

    …in HIS diagnostic assessment.

    OR

    because physicians do not… in THEIR assessments.

    >>a major contribution to rising health care costs is that we simply have the technology to deliver more care, and people want this care
    This is where the Republican dogma that ‘the free market’ can address health care costs fails in an encounter with reality.

    Not at all. If you truly had to pay for health care yourself as with any other good in the marketplace, there is no need to worry about costs and gov’t budgets at all. No gov’t budget is impacted by how much we spend privately on coffee or cable tv. You want more health care? Go for it, and pay for it yourself. Buy a la carte or buy insurance, up to you. Too expensive? Buy less.

    And actually people would buy a lot less.

    The problem is the US system is a beastly amalgam of the worst aspects of free and regulated markets. Either sh.. or get off the pot.

    Of course if health care were truly a privately paid good like any other in the marketplace, many more people would be left out than already are (or were) and the system as a whole would be less efficient and worse for the country as a whole than a rationally regulated system as we can guess by what other countries have now. But those are separate questions.

  22. BillyJoe says:

    In Australia, general practice is a sort of speciality without the high cost. It is also not possible to access a actual specialist except through a general practitioner who decides whether or not specialty care is needed. This is the ideal of course, but the system mostly works. And everyone gets looked after regardless of ability to pay. And private health care is only marginally better than public health care.

    It has been estimated that, compared with the USA, better health care is achieved in Australia at less than half the cost. Australia spends 9% of GDP on health compared with 20% in the USA.

  23. windriven says:

    @BillyJoe

    I wonder if you would be willing to explain a bit more about the Australian model? Single payer? Multiple payer? Fee for service? Outcomes based compensation? Prevalence of screening services? Private hospitals? Public? Ratio of generalists to population?

    The gatekeeper system you mention above is used in the Kaiser System here in the US – sometimes, I’m told, with PAs doing triage. I haven’t looked at this model carefully (financial performance versus other hospital ‘chains’) in quite a number of years but it certainly makes sense.

    I don’t see why the finances of healthcare delivery in this country shouldn’t be approached with the same scientific rigor as would, say, a new antibiotic. Looking carefully at the schemes used by other countries and evaluating the positives and negatives is exactly the right place to start.

  24. thatguybil81 says:

    Direct measures of the effectiveness of medical care show that five-year relative survival rates for individuals diagnosed with various types of cancer are higher in the United States than in Canada, as are infant survival rates of low-birthweight babies. These successes are consistent with the greater U.S. availability of high level technology, higher rates of screening for cancers, and higher treatment rates of the chronically ill.

    In Europe the age-adjusted 5-year survival rates for all cancers combined is 47.3% for men and 55.8% for women, which is significantly lower than the estimates of 66.3% for men and 62.9% for women from the US Surveillance, Epidemiology, and End Results (SEER) program ( P < .001).

  25. DugganSC says:

    @Marco Rosaire Rossi:

    A lot of food for thought there. I note, though, that for-profit and not-for-profit hospitals generally aren’t all that different because, at the end of the day, almost everybody working there is working to make money. The not-for-profit hospitals just have to work harder to find ways to spend the embarrassing surplus of money that’s their percentage of exorbitant fees, one of the reasons most not-for-profit hospitals are constantly adding new wings and expensive technology.

    Which I want to segue into the topic of how much doctors charge, but I honestly don’t know how well it stacks up. I mean, you hear about all of the money doctors rake in, but that’s after years of medical school debt and, as I understand from my sister and her husband, both doctors, malpractice insurance severely cuts into the high wages. Is it like lawyers, athletes, actors, and other such entertainers where only a few really make the big bucks and the rest are still working on paying off student loans while working for around minimum wage?

  26. Marco Rosaire Rossi says:

    The difference between for-profit and not-for-profit hospitals is accountability, not in terms of pay for staff and administration. For-profit hospitals are accountable to investors, and have an institutional drive to produce larger and larger margins. This means that these hospital position themselves in strategic markets (in terms of access to wealth, not need), and focus care on high end services while cutting back in other areas. The end result in a driving up of medical costs, a movement of expertise and knowledge to specialized fields, and shortages in or sub-par quality of emergency care.

    Non-profit hospitals don’t have investors to be accountable to, and therefore don’t have these institutional forces compelling this type of behavior and adjusting markets. Non-profit hospitals of course have to pay staff, but they don’t have to pay staff and provide returns for investors. In that situation something is going to give–and that usually is care for the patient. Investing in the “new wings and technology” of non-profit hospitals usually means increasing the quality of care; in that system patients at least have the potential to get more for their money.

    Granted, for profit hospitals still make up a relatively small portion of the hospital market (my understanding is roughly 20%), but they still have an important influence on the overall cost of healthcare, and trends to expand them will make costs rise and quality go down.

    But, please, don’t take my word for it. Here are two editorials from leading medical journals on the matter. I encourage people to read them and make on their own minds. http://www.cmaj.ca/content/170/12/1814.full and http://www.nejm.org/doi/full/10.1056/NEJM199908053410611?keytype2=tf_ipsecsha&ijkey=eb607342c04dc1375af6d51723667fcae5df896c&amp; (With apologies, the NEJM article is behind a pay wall).

  27. windriven says:

    @Marco Rosaire Rossi

    I was going to let your gross mischaracterization of Austrian School economic theory pass without comment; this is a site about science. But your last post is beyond the pale.

    You said, among other personal musings laid out as if nuggets of incontrovertible truth: “[T]rends to expand [for-profit hospitals] will make costs rise and quality go down. ” I’m not interested in links to editorials – how about links to hard data?

    Do you understand how hospitals are paid? Have you ever heard of DRGs? Do you know what JCAHO is about?

    There have been non-profit hospitals for centuries. Do for profit hospitals and ambulatory surgical centers exist now because everything was perfect then? And why stop with hospitals? Let’s forbid medical device makers from being for-profit corporations. Costs will go down, right? And quality up? And man will there be innovation!

  28. Marco Rosaire Rossi says:

    I understand people’s desire to keep comments focused to the topic on the blog. For that reason, I fear that if you (windriven) and I go at it we will go wildly off topic and frustrate a lot of readers. For that reason, if you want to make this a personal one-to-one discussion on healthcare economics, then please feel free to contact me through my email: marcorosaire@gmail.com. I will do my best to keep up with our discussion, and others can feel free to continue with Dr. Novella’s post without the fear that they are led into a heated discussion on economic theory.

    By the way, I think that the social sciences and policy, have a lot to do with the natural science. And, really enjoy the posts that deal with CAM and the law even though they aren’t about “science” in the narrow sense of the word. Just my opinion though…

  29. windriven says:

    @Marco Rosaire Rossi

    “I fear that if you (windriven) and I go at it we will go wildly off topic and frustrate a lot of readers. ”

    The topic of this day’s blog is health care economics; this is not off-topic. I have simply asked you to back up your assertions with factual data. You have taken a position very close to identifying profit and, in the greater sense, market economics as ‘the one true cause’ of what ails health care economics in this country.

    Regular readers of these pages will feel their antennae bristle whenever someone claims to identify the one true cause (or cure) of any complex situation. It is an extraordinary claim and it requires extraordinary proof. “‘Cause I think so” doesn’t rise to that level.

    Lest you think my ire is occasioned by your sophomoric depiction of Austrian economics, let me assure you that I have equal – perhaps greater – disdain for those idiots who suggest that the one true cure for the US health care system is “to get government out of the way.” Yeah, you betcha.

    Health care reform is, to my mind, the single most critical issue facing our country today. We are amassing huge unfunded liabilities that we will shuffle off to our children and grandchildren – and the boomers have only just begun to retire. What is this burden going to look like in 20 years? Then we fail to provide basic routine healthcare for tens of millions of people and even if the Affordable Care Act (PelosiCare) passes SCOTUS review, it still ain’t gonna solve that problem; there aren’t enough primary care physicians now, where are the ones who are going to care for these 30 million? Shall we send them back to the ERs where they get their care now? What has that made better? And when we do begin to reel in our healthcare expenditures, how do we maintain the sharp, cutting edge of medical innovation? That costs money and it takes a regulatory environment that allows it to flourish.

    SBM is a terrific forum for bringing science, logic and critical thinking to bear on this problem. The principals and correspondents (a few trolls excepted) at SBM have daunting intelligence and broad experience in the health care industry both here and abroad. This is one of the forums where new ideas and approaches can emerge.

    So don’t run to the security of a private email exchange. Lay out your argument here. Let your peers hack at them – and feel free to hack back. But be prepared to support your argument with solid data.

  30. Marco Rosaire Rossi says:

    Well, I was out of town for a few days, and it seems quite evident no one else is interested in this thread but us. Since I left, no one else posted. I would like to say three things, and then leave it up to you to contact me directly if you want to continue you this. One, you wrote “Regular readers of these pages will feel their antennae bristle whenever someone claims to identify the one true cause (or cure) of any complex situation.” I think that is very true, but I never claimed one true cause. I listed several, and agreed with Dr. Novella on his causes, but argued that I think they play a lot less important role. For-profit hospitals I see as one cause–not the one true cause. Two, the editorials that I posted, though being editorials, do cite several studies to prove their case. If you had read them you would have seen that I was not posting mere opinion. Yes, and an editorial is an opinion. However, it can be an informed opinion. If you want to discuss research–then how about we examine the studies cited in these editorials and then go from there? If they are seriously flaws then that will give us some idea of where the reality lies. And three, yes, this is about healthcare economics, but you also brought up defending the merits of the Austrian school–which is fairly abstract and a much wider discussion. I don’t think it is fair to readers (and personally, I don’t want to check this thread constantly if it is just you and me) who may not be concerned with such a discussion to have it here. I am doing this not to avoid the issues or criticism, but just to be respectful of the venue.

  31. weing says:

    Just because no one else is posting, doesn’t mean they aren’t interested in what you have to say. I’m interested. I was waiting to see what you had to say. Personally, I have a lot of difficulty trying to figure out the difference between for profit and non-profit hospitals. With CEOs of both raking in 7 figure salaries, it appears to be a distinction without a difference. Therefore, go at it. We all may learn something.

  32. windriven says:

    Marco Rossi said:

    “These factors include the growth of for-profit hospitals, the extending of patents for pharmaceuticals which allows them to keep prices high, and the growth of medical-billing bureaucracies due to the private insurance market. All these have major effects on the cost of healthcare–in many cases far more so than the costs of technological advancements, unnecessary testing, or the many problems with our medical tort laws.”

    I said:

    “[Mr. Rossi] ha[s] taken a position very close to identifying profit and, in the greater sense, market economics as ‘the one true cause’ of what ails health care economics in this country. ”

    I stand by what I said.

    Second, I will sometimes pay to get to research behind a paywall but not an editorial, even one in NEJM. I did however read the editorial from the Canadian Medical Association written by an American physician who is a founder of an organization that advocates for a national health plan. She has an axe to grind – and grinding axes is one of the reasons that editorials exist – but are clearly demarcated.

    “but you also brought up defending the merits of the Austrian school” Actually, I did not. I simply pointed out that your characterization of the Austrian School as a laissez-faire free-for-all was a crude caricature.

    Let’s try to be precise in concept and word.

    * * *

    The argument in favor of for-profit hospitals is that they are motivated to bring efficiency to an often inefficient enterprise. A good case in point is the emergence of freestanding outpatient surgery centers. In the beginning these were generally for profit ventures that sought to bleed off the easy cases from the hospitals, perform the services more efficiently and cheaply, and pocket the difference. The other side of that coin, of course, is that they are simply grabbing the low hanging fruit and any incremental increase in efficiency is more illusory than real.

    The fact is that hospital care as a percentage of total healthcare expenditures has slightly decreased from 1960 (32.65%) and 2010 (31.39%)*. So the argument that the rise of private hospitals driving costs up doesn’t pass the initial sniff test. There are certainly scads of confounders in this simple test and I’m not arguing that private hospitals have lowered costs, only that the argument that they have raised costs demands some pretty stout proof.

    *US HHS / Centers for Medicare and Medicaid Services
    https://www.cms.gov/NationalHealthExpendData/downloads/tables.pdf Table 2.

  33. Marco Rosaire Rossi says:

    I stand corrected. Other people are interested, and here is my response.

    weing, a lot of people find the difference between for-profit and non-profit corporations confusing. Mostly, because they assume that if an institution is for-profit that it functions like a private business with a single-owner. They look at a local business down the street and just assume for-profit corporations function in the same way with the CEO replacing the single-owner. However, this is not the case. For-profit corporations (in this case hospitals) have investors which buy shares in the corporation and expect returns on their investments. The whole point–institutionally speaking–of a for-profit hospital is to ensure a robust profit margin for the investors; healthcare is the means in which that profit is sought.

    Now, I’m not here to question all for-profit institutions. Rather I just want to examine them in the context of healthcare, and specifically their effect on costs versus quality of care. The issue with for-profit versus non-profit hospitals is this: where does the surplus value (the profit) that the hospital makes from patients goes. In both cases you will find CEO’s with six figures–because that is the going market rate for that labor. However, in a non-profit hospital the surplus value is invested back into the hospital, in for-profit hospitals it is divided among the investors. What this means is that non-profit hospitals have an economic advantage over for-profit hospitals because they don’t have a cost that for-profit have to consider, namely returns for investors (they are also able to get tax deductible donations and grants, but lets just leave that aside). This means that for-profit hospitals have to be increasingly competitive in order to survive. There are of course three ways in which robust returns for investors can be ensured in an increasingly competitive market: one, cut costs; two, drive up prices; and three, market positioning. These three things need to be analyzed as a whole, and has interactive elements.

    First, lets start with market positioning. In order to for-profit hospitals to get a leg-in in the market they have to start in locations in which need is great so they don’t have to worry about competition from non-profit institutions. Next, once established they can cut costs and drive up prices in order to guarantee returns. They are able to get away with these measures because of their market positioning. The lack of alternatives–or if all their alternatives are other for-profit hospitals that do the same thing–means that people are compelled to take those services at costs. As these institutions grow they are able to increase their market positioning, and thus the cycle continues as costs increase and quality goes down.

    That is the economic theory. Now lets look at the evidence. According to a meta-analysis from P.J. Devereaux et, al. non-profit hospitals had considerably lower prices than for profit institutions. Specifically, “the pooled estimate demonstrated that private for-profit hospitals were associated with higher payments for care (relative payments for care 1.19, 95% confidence interval 1.07–1.33, p = 0.001).” (Abstract found here: http://www.cmaj.ca/content/170/12/1817.abstract?ijkey=7e65a0142cf5c021348056e042993529dd672a35&keytype2=tf_ipsecsha) Other research has shown that for-profit hospitals provide less quality care. An article from Yi Zhang et, al. showed that dialysis care in a for-profit institution had a much higher mortality rate than in in a non-profit institution. (Abstract found here: http://onlinelibrary.wiley.com/doi/10.1111/j.1475-6773.2010.01219.x/abstract News Article on the issue found here: http://www.propublica.org/article/new-study-shows-higher-mortality-risk-at-in-for-profit-dialysis-chains) The findings seem to be across healthcare institutions. Evidence also shows that non-profit nursing homes also produce better care at lower prices (Abstract found here: http://www.bmj.com/content/339/bmj.b2732.abstract).

    Now, it is quite possible that a non-profit healthcare facility could misuse funds, and invest poorly back into their services. A non-profit CEO could just increase his or her salary in the budget and leave the rest of the organization to whither. However, because the board of the non-profit is focused on looking out for the best interests of the organization, and not working towards maintaining returns, this ends on being a lot less likely. For-profit institutions are much more likely to invest in administrative bureaucracies than patient care. This assertion is supported by a NEJM article published in 1994 which concluded that “Administrative costs as a percentage of total hospital costs increased in the United States between 1990 and 1994 and were particularly high at for-profit hospitals. Overall costs of care were also higher at for-profit hospitals.” (Article found here: http://www.pnhp.org/sites/default/files/docs/Costs-of-Care-and-Administration-at-For-Profit-and-Other-Hospitals-in-the-US.pdf).

    It is surely possible that a person, if they dig hard and long enough, could find some research that shows for-profit hospitals don’t charge more or have more expenses, and have better care than non-profit hospitals. That is why we must consider all research in its wider context. In the natural sciences this means prior plausibility. In the social sciences this means looking at things historically and comparing systems. As my previous post discussed, when compared to the rest of the world the US healthcare is extremely problematic. It is–again according to the WHO–the poorest performer (regarding the population as a whole) of any industrialized nation. The thing which make the US unique is in its persistence to find market-based solutions to need-based problems like healthcare. Other nations, though having healthcare markets, do not do this to the degree that the US does. A breakdown of some of the major problems in the US healthcare system compared to other developed nations can be found at the Seeking Alpha website (Found here: http://seekingalpha.com/article/146992-comparing-u-s-healthcare-spending-with-other-oecd-countries) Seeking alpha is one of the leading investment website–even recommended by Fox New’s Elizabeth MacDonald, no liberal or enemy of private enterprise.

    Now, people may accuse me or some of this research of bias and say I have an axe to grind. All I can say is that may very well be the case, however accusations require evidence. If there is systematic bias in this research then it needs to be demonstrated. Also, in political debates we all have axes to grind. The value laden nature of politics does not lend it to the same notions of objectivity in the natural sciences. The best that we can do is just take in values and understand them within the wider context of the evidence being presented.

    In full disclosure I’m someone who works in a non-profit healthcare facility whose main clientele are poor women (an abortion clinic in Chicago). I see first hand how our non-profit status allows us to keep costs low. I know very well if we raised prices, or if the government seriously cut medicaid services, how our clientele would suffer. And, I know enough about economics to know that increasing our prices would effect price throughout the area. That is my axes to grind and personal bias. It is of course not science, so I recommend people judge it for what it is. But, I don’t mind being accused of a having a bias for the needs of poor women seeking reproductive health services.

    Finally, windriven has reminded all of us to be “precise in concept and word.” I agree, and if I had unfairly characterized his intentions and purposes for bringing up the Austrian school I apologize. However, I must note that never said “the Austrian School (was) a laissez-faire free-for-all.” I know I never said this, or anything like it, because I don’t believe that. I don’t think market-based solutions will solve our healthcare problems, but that is not because I see them as “free-for-all.” Quite the opposite. I don’t really think “free” markets exist, or have ever existed in history. And, if you can point to me an example of a “free” market with no government interference I would love to see it. As far as I can tell, government intervention has always existed in creating and maintaining markets in some way. The real question is how the government is intervening, not if? But, like I said before that is a discussion that is off the topic of this post.

    Anyway, for those who were interested that is my position.

  34. JMB says:

    The discussion of healthcare reform here reminds me of the discussions of cancer cures elsewhere on this blog site. The issues involved in the healthcare debate are as complicated in the issues involved in curing cancer. It is far more complicated than identifying one cure all. In fact, be suspect of any person who claims to have the fix. I think Dr Novella is right about, “Like any complex issue the answer is probably “all of the above.”

    I appreciate Dr Novella’s call for a more rigorous approach to the topic. It is easy to design a cheaper healthcare system. It is harder to maintain quality of care while reducing costs. More scientific evidence is needed to achieve the goal that we can reduce costs while maintaining quality.

    However, what science can give us is estimates of the effectiveness of interventions. Science is not the sole methodology needed for solution. There must be honest political discourse of what are the public values. Science cannot give us the personal or economic value of those interventions.

    A good example of the limits of science became evident in the 2009 USPSTF recommendations on breast cancer screening. Science (some of it is debatable because of limitations in the scientific assessment of computer models) can give us estimates that 1904 women of age 40 will have to be invited to mammography screening for 10 years to prevent one breast cancer death. The same methodology may tell us that 1339 women age 50 will have to invited to screening mammography for 10 years to prevent one breast cancer death. Science can tell us that it is more cost effective to begin screening at age 50 instead of age 40. No science can tell us whether the money saved by starting screening at age 50 instead of 40 is worth the lives of women lost that we could have saved ( 1/1904 times 22 million women age 40 to 50 in the United states, divided by 10 years equals 1155 excess breast cancer deaths every year in the United States). This is a good example of superdaves’ lament, “The effectiveness of a medical system should be based on how effectively it saves lives, not how cost effective it is.” The fact that the USPSTF even stated that it was choosing the most cost effective strategy instead of the most effective strategy was stated in it’s supporting documents (but hardly mentioned in the popular press).

    It is also easier to design a more cost effective system of healthcare when government panels are entrusted to design the metrics by which cost effectiveness is measured. The USPSTF defined it’s own metric for cost effectiveness (which happened to utilize a utility function from applied mathematics originally designed to pick stock portfolios– which made it sound scientific). It is clear that was the direction Obamacare was incorporating. Although there was an amendment to the bill to address the unpopular mammogram recommendations, the USPSTF underwent a name change and is free to make the same cost effectiveness decisions on other issues.

    Cost effectiveness is by no means a new subject in medicine. The old metric was $50,000 per year of life saved. The old metric was even discussed in the supporting documents in the 2009 USPSTF mammogram recommendations (the screening strategy of annual mammography from age 40 to 79 did pass that metric). Of course, by discarding the old metric, and adopting the obscure Efficient Frontier Analysis, it is much easier to cut 500 billion dollars from medicare expenditures.

    Healthcare rationing does already occur in the United States. The metric of $50000 dollars per year of life saved has been used with some notable exceptions. The metric that a dangerous procedure such as bone marrow transplant should not be offered unless there is at least a 10% reduction in mortality has also been a metric for rationing. There are patients every day choosing advance directives for end of life care. Transplants do have waiting lists. Women choose to not undergo mammogram screening.

    The real difference is that Obamacare introduces in rationing of healthcare in the United States is that government panels will issue guidelines utilizing certain criteria (such as the age of the patient, rather than decisions being made by individual assessment and informed consent. Dr Berwick (the pediatrician who has been in charge of medicare) has the conviction that it is better for him to set guidelines for end of life care sitting in Washington DC, rather than allow the doctor facing the patient providing education to reach a decision. Doctors and patients in the United States will have to learn to accept rigid guidelines instead of arguing with insurance companies or medicare representatives about whether a procedure should be covered (although most doctors won’t miss having to fill out those idiotic forms that are usually not read by someone with actual medical expertise).

    In regards to comparing health systems between different countries, the metrics chosen for comparison make the scientific process less scientific. The widely touted life expectancy means that the United States doesn’t look as good because of the effect of cigarette smoking and obesity. I believe there was a study commissioned to examine the difference in life expectancy, and that was the main conclusion. In fact, because of the relative decrease in smoking in the United States, and the dying off of the current ageing population of smokers, we should begin to see our life expectancy increasing at a more rapid rate than those countries ahead of us… something someone will undoubtedly claim was due to their reform of the healthcare system. Other metrics are also questionable. How happy people are with their healthcare experience may have many factors not directly related to the quality of care. Certainly the amount of paperwork required for registering a patient can contribute dissatisfaction. One of the most laughable errors in comparison of different countries was a study comparing costs of procedures between different countries. The conclusion was of course that procedures cost more in the United States than other countries ($1080 for an MRI in America versus $280 in France). If I made $1080 for every MRI I provided, I would have retired long ago. The average reimbursement for an MRI in the US is closer to $500 (call a facility and they will quote you their full price, a price paid for by only a few patients,,, but of course the doctor will have to guarantee medicare that they are paying a much lower price than the standard price). Such studies have little understanding of the byzantine rules we have to deal with in setting a standard price, or the difference between standard price and average reimbursement.

    An irony in the debate about haelthcare is the lack of recognition that we already have one of the biggest socialized medical systems in the world. Between medicare, medicaid, and the VA system, we have a larger socialized medicine program than most of those countries we are compared to. If you want to look at government run healthcare, you don’t have to look at Canada, just go to the the nearest VA hospital.

    Critical scientific methods should have been applied to journal articles claiming increasing efficiency from computerization of medical records. Those studies were often funded by industry, and the methodology of data collection is often poor. How often do the other doctors following this blog experience an increase in efficiency using computerized medical records?

    If the congressional budget office projection that $500 billion dollars will be saved from medicare by Obamacare is to be realized, then rationing will have to be much more strict than it has been. The cost of new interventions that have sound scientific evidence of efficacy, and the dramatic increase in the medicare eligible population will require far more than eliminating unnecessary procedures and improving efficiency through electronic medical records to achieve $500 billion in savings. In fact, those measures won’t even be enough to prevent the rise in medicare spending. Throw in tort reform and fraud reduction, and you still won’t reach the goal (although those are two measures that can cut costs and improve quality of care).

    The public ultimately decides on the direction of healthcare in the United States. But the public should be provided with much more reliable evidence than they have been provided to make their decision. Critical scientific discourse would provide the public much more reliable information than the lay press or politicians have provided them. I would enjoy the skeptics of SBM dissecting more healthcare policy articles in the nonscientific press, much as Dr Novella has done in this article.

    Personally, I think that for all of the medicare taxes I have already paid, I should deserve more than an antidepressant, pain killer, homeopathic cure, a Reiki master to facilitate harmonizing my vibrations with the universe, and a “kiss your ass goodbye because you just turned 80″ (and there has been no large scale randomized clinical trial showing a reduction in mortality in the age group over 80).

  35. windriven says:

    @Marco Rossi

    “However, in a non-profit hospital the surplus value is invested back into the hospital, in for-profit hospitals it is divided among the investors. ”

    Hmmm, so if that is true then one would have to believe that non-profit hospitals are better equipped and / or better staffed than the for-profit hospitals in that community. Do you have any actual evidence to support that?

    “In order to for-profit hospitals to get a leg-in in the market they have to start in locations in which need is great so they don’t have to worry about competition from non-profit institutions.”

    To fact check this I went to the HCA website and selected a state – Louisiana. I thought it would be a good choice because it is geographically large and has widely varying population densities within that geography. What I found was that HCA operates 8 hospitals in the state, all of them in major metropolitan areas that are well served by not-for-profit hospitals. Among the hospitals HCA operates in the state is Tulane University Medical Center, a major teaching hospital in New Orleans. Interestingly enough, Tulane offers advanced degree programs in hospital administration.

    “Next, once established they can cut costs and drive up prices in order to guarantee returns. They are able to get away with these measures because of their market positioning.”

    But I have just demonstrated that, at least in Louisiana, your positioning theory is bunk. So how is it that they are able to “drive up prices” especially as essentially all third party payers both public and private now pay based on some variant of DRGs?

  36. passionlessDrone says:

    windriven -

    But I have just demonstrated that, at least in Louisiana, your positioning theory is bunk.

    Your ‘fact check’ is wildly underpowered to achieve what you stated.

    Were the for profit hospitals constructed before, or after the presence of non profit hospitals? Wouldn’t this be a meaningful metric to understand considering Marco Rossi’s statement?

    What is your definition of ‘well served by not-for-profit hospitals’? [Presumably you have some actual evidence' to support the areas were well served by not for profit hospitals, right?] How do you know that the existing not-for-profit hospitals had sufficient capacity to serve the populations in those areas?

    For someone who complained so vociferously about quality of data and the problems of editorials, you don’t seem to have applied the same standards to your reply. Marco Rossi has written some very polite and well thought out commentary, in reply you pick tiny snipets out of comprehensive posts, demand additional evidence, and then whip out a cocktail napkin ‘fact check’.

    I don’t know what axe you have to grind, but it’s pretty obvious you’ve got one.

    - pD

  37. Marco Rosaire Rossi says:

    passionlessDrone, I thought the same thing when I read windriven’s post. I’m glad someone else said it. There is a certain point when we have to accept a paradigm shift and say the burden of proof no longer rests on those who criticize market solutions in healthcare reform, and insist that the burden lies with those who claim that market solutions will be successful. With that in mind, I put the ball in windriven’s court. I ask if you can find evidence to support your position instead of always demanding that I have more and more evidence for mine. I tried my best to provide links to published papers, news articles, and reports, and outline a general theory as to why this is the case. I would like to see what you have before I spend value time digging through books and articles for more facts, and crafting explanations.

    Economics can be hard, and I don’t claim to be an economist. Rather, I have always said that my interests are in the very related field of political science and policy. Do doubt someone could find some small flaws in my wording or some of the articles I cited–but I standby the general thrust of the concepts. That is especially the case with the assertion that for-profit hospitals have poorer performance and higher costs than non-profit hospitals–and this is contributing considerably to the driving up of healthcare costs (of course, along with the other factors listed by some of the thoughtful posts here.)

    For people who are interested in this subject I recommend that you checkout the book “The Corrosion of Medicine” by Dr. John Geyman. He provides tons of evidence that this assertion is true. (Note: the forward in the book is by Dr. Marcia Angell former editor of the NEJM, author of the excellent book “The Truth About Drug Companies”, and critic of CAM.) A few facts from Geyman’s include this:

    For-profit hospital costs run 3 to 13 percent higher, with higher overhead, fewer nurses, and death rates 6 to 7 percent higher. (p. 18-23)

    For-profit Dialysis Centers (which I mentioned before) have death rates 30 percent higher, with 26 percent less use of transplants. (p. 27-28 )

    In for-profit Mental Health Centers, After an investigations in for-profit Mental Health Centers it was revealed that 91 percent of their claims were fraudulent–contributing to a huge waste of tax-payer funds, and driving up costs by having to pay for fraudulent and real care. (p. 30)

    All this and more, I think, leads a reasonable person to the conclusion that if we are going to address this problem in a fundamental way then we need to look outside the for-profit box when it comes to healthcare, consider root causes, and seriously investigate how other countries have dealt with these problems.

  38. JMB says:

    I have worked in profit and non-profit hospitals, military and VA hospitals, academic medical centers and rural critical access hospitals, and I can tell you that there was good and bad care in all of them, and cost effective and cost ineffective care in all of them. No system is without problems. All systems in nearly all countries is facing a significant increase in health care costs. If reform is driven by politics rather than by evidence, then we will just jump out of the frying pan into the fire. If attention isn’t focused on the details, the outcome of reform won’t be good whether we choose socialized medicine or privatized medicine. Just as a science based approach has provided significant gains in the treatment of cancer through very detailed specific approaches (not a single breakthrough), our real hope to advance healthcare by maintaining quality but increasing affordability is through a skeptical approach backed by reliable evidence. IMHO, when you argue about single payer versus private insurance, government dictated guidelines versus professional society guidelines, American healthcare system versus European healthcare systems, then it is like arguing whether surgery, chemotherapy, radiation therapy, or immunotherapy is the best cure for cancer. It isn’t that simple.

    The American system of mixed private enterprise and socialized medicine can be reformed if the politicians have the guts to rewrite the rules and regulations. The European or Canadian or Australian styles of socialized healthcare can be made to work but would require an adjustment of expectations of the American public. Neither approach will reduce the forces that will increase healthcare expenditures due to the ageing of the population and the advances in medical technology.

  39. windriven says:

    @passionlessDrone

    “Were the for profit hospitals constructed before, or after the presence of non profit hospitals? Wouldn’t this be a meaningful metric to understand considering Marco Rossi’s statement? ”

    HCA was founded in 1968. Louisiana may not be at the forefront of all things modern but, yes, each of the cities mentioned had hospitals before HCA came to town.

    “How do you know that the existing not-for-profit hospitals had sufficient capacity to serve the populations in those areas? ”

    Well now let’s see pD, if the existing not-fot-profit hospitals did not have sufficient capacity to serve their communities then by definition they weren’t doing a very good job were they??? But to the point, New Orleans had (up to the time of Katrina – I don’t know about after) a bunch of hospitals: Big Charity, Mercy, Bonnabelle, Lakeside, East Jefferson, West Jefferson, Doctor’s, Touro, Pendleton Methodist, Children’s, Ochsner and the VA. Alexandria has Huey P. Long, St. Francis Cabrini and Rapides. Baton Rouge has Baton Rouge General, Our Lady of the Lake, Earl K. Long, Woman’s and an Ochsner campus. Lafayette has Lafayette General, Our Lady of Lourdes, Women and Children’s, and University MC.

    “Marco Rossi has written some very polite and well thought out commentary”
    Polite, yes. If you find it well thought out, well, I just don’t know what to say to you.

  40. windriven says:

    @JMB

    “Just as a science based approach has provided significant gains in the treatment of cancer through very detailed specific approaches (not a single breakthrough), our real hope to advance healthcare by maintaining quality but increasing affordability is through a skeptical approach backed by reliable evidence. IMHO, when you argue about single payer versus private insurance, government dictated guidelines versus professional society guidelines, American healthcare system versus European healthcare systems, then it is like arguing whether surgery, chemotherapy, radiation therapy, or immunotherapy is the best cure for cancer. It isn’t that simple. ”

    You framed this much, much better than I did.

  41. JMB says:

    Just an interesting article in the British press about rationing:

    http://blogs.telegraph.co.uk/news/cristinaodone/100146838/why-should-fat-people-take-precedence-over-the-elderly-in-the-nhs/

    Of course, the Obamacare law takes several pages to spell out the state of Louisiana for special provisions to sweeten the vote for the Louisiana Congress person, calls the largest tax increase (since the start of federal income tax) on low income wage earners a mandate until it gets reviewed by the Supreme court, and creates the bureaucracy for healthcare rationing under the guise of scientific panels and value based reimbursement. Wouldn’t it be so much better if they would just admit that $500 billion will be saved in medicare by rationing, instead of trying to hide the fact that there are very few provisions directed at reducing the cost of health care delivery (reducing the cost of healthcare insurance can be achieved by rationing instead of making the healthcare industry more efficient). I believe Oregon state had a very rational and honest approach to rationing. They established rankings of healthcare procedures based on effectiveness from clinical trial evidence. Then the Oregon politicians would vote on funding the state medicaid program with knowledge of where on the list they were starting the rationing. Then the public had a chance to vote the politicians out of office if they thought the taxes were too high, or too many life saving procedures were not being funded. Under Obamacare, the panels will be appointed, not subject to congressional review, and the press isn’t smart enough to see through the smoke and mirrors.

    You may wish to skip the following reference that add credence to my laments. They are redundant with previous posts I have made.

    USPSTF:

    “As another way to examine the effect of screening interval, we calculated for each screening strategy and model the proportion of the annual benefit (in terms of mortality reduction) that could be achieved by biennial screening (Table 2). Biennial screening maintains an average of 81% (range across strategies and models, 67% to 99%) of the benefits achieved by annual screening.”

    “Finally, we did not discount benefits or include costs in our analysis, although the average number of mammograms per woman (and false-positive results) provides some proxy of resource consumption.”

    http://www.uspreventiveservicestaskforce.org/uspstf09/breastcancer/brcanart.htm

  42. windriven says:

    @JMB

    Health care is a scarce resource and therefore rationing under one guise or another is inevitable. Any meaningful reform will have to include a public discussion of what form that rationing will take. Unfortunately, the hysterical antics of Team Red (Death Panels!!!) and Team Blue (Pushing Grandma Off a Cliff) suggest that a mature discussion is unlikely any time in the foreseeable future.

    If SCOTUS finds that The Affordable Care Act cannot find shelter in the Commerce Clause, Congress will have the opportunity to go back and reconsider some sort of universal, single payer system. Congress may not be able to force the body politic to purchase a product or service but it certainly can levy taxes. That may be the most expedient way to expand the risk pool to reduce average cost. But that would never be passed in the 113th Congress which is likely to see Team Red controlling the House and conceivably gaining control of the Senate leaving Mr. Obama the lamest of lame ducks.

    Too bad because a universal single payer providing base care and allowing individuals to purchase private insurance to extend that care would bring everyone into the risk pool and establish predictable rationing. Of course the single payer model is fraught with perils of its own. Politicians generally find it expedient to promise a hamburger today to be paid for on … Tuesday … maybe. A look at Social Security, Medicare, the state of public retirement programs provides ample object lessons.

    Truly a dilemma. And none of the above even begins to address the cost side of the equation.

  43. Scott says:

    You know what really annoys me about the discussions about the Supreme Court hearings? Very few people are actually talking about the Constitution. Supporters talk about how beneficial the law is, opponents talk about how it’s a big intrusion into individual choice, but neither of them really grounds their case in constitutionality.

    Personally, I like its objectives (though wish it had paid a lot more attention to cost control), but am pretty skeptical that the commerce clause really stretches quite that far.

    A single-payer system would be much more sensible then the conglomeration of historical accident we have now, but I just don’t see a way to get there. When we can’t even manage to raise the Medicare eligibility age with life expectancy, well, the cliff’s getting awfully close and Congress is squabbling about how much harder to push the gas while the president’s napping in the back seat.

  44. passionlessDrone says:

    windriven -

    Again, unfortunately, your ‘analysis’ is the most rudimentary tool available to us, a listing of some hospitals in the New Orleans, waving your hands, and then claiming you don’t know how to respond to me. This is, supposedly, a forum where, if available, we utilize more rigorous methods than this to reach a conclusion.

    That being said,

    Evidence of quality of access, quality of care, and cost efficiency in the psychiatric area:

    A comparison of the performance of for-profit and nonprofit U.S. psychiatric inpatient care providers since 1980 [PMID: 12556598]

    On the basis of data collected since 1980, nonprofit psychiatric inpatient care providers in the United States had superior performance on access, quality, cost-efficiency, and amount of charity care, compared with for-profit providers. Caution is warranted in pursuing public policies that permit or encourage the replacement of nonprofit psychiatric inpatient care providers with for-profit providers of these services.

    Cost of care across hospital types:

    Costs of care and administration at for-profit and other hospitals in the United States

    We calculated administrative costs for 6227 nonfederal hospitals and the total costs of inpatient care for 5201 acute care hospitals in the United States for fiscal year 1994 on the basis of data the hospitals submitted to Medicare. We analyzed similar data for fiscal year 1990. Using multivariate analysis, we assessed the effect of hospital ownership (private not-for-profit, for-profit, and public) on administrative costs, controlling for hospital type, census region, hospital size, and the proportion of revenues derived from outpatient services. We adjusted inpatient costs for local wage levels, hospitals’ reporting periods, and case mix.

    In a multivariate analysis, for-profit ownership was associated with a 7.9 percent absolute (34 percent relative) increase in the proportion of hospital spending devoted to administration as compared with public hospitals and a 5.7 percent absolute (23 percent relative) increase as compared with private not-for-profit hospitals. Among acute care hospitals, for-profit institutions had higher adjusted costs per discharge ($8,115) than did private not-for-profit ($7,490) or public ($6,507) hospitals. Much of the difference was due to higher administrative costs ($2,289, $1,809, and $1,432 per discharge, respectively).

    Mortality rates:

    Hospital characteristics and mortality rates [PMID: 2594031]

    Adjusted mortality rates were significantly higher for for-profit hospitals (121 per 1000) and public hospitals (120 per 1000) than for private not-for-profit hospitals (114 per 1000; P less than 0.0001 for both comparisons).

    Or

    A systematic review and meta-analysis of studies comparing mortality rates of private for-profit and private not-for-profit hospitals [PMID: 12435258]

    Fifteen observational studies, involving more than 26 000 hospitals and 38 million patients, fulfilled the eligibility criteria. In the studies of adult populations, with adjustment for potential confounders, private for-profit hospitals were associated with an increased risk of death (relative risk [RR] 1.020, 95% confidence interval [CI] 1.003-1.038; p = 0.02). The one perinatal study with adjustment for potential confounders also showed an increased risk of death in private for-profit hospitals (RR 1.095, 95% CI 1.050-1.141; p < 0.0001).

    So on one hand, we have meta analysis of thousands of hospitals showing increased mortality rates, and on the other, your listing of pre-Katrina hospitals in New Orleans.

    If you find it well thought out, well, I just don’t know what to say to you.

    That’s a function of you not having any data to support your claims other than your ability to count. Here is the thing, I don’t care about this argument per se, but your flailings were so odious, so indicative of a sniper mentality with nothing of value to add, I figured I’d yank on the chain a little bit to see if you had anything substantive to say. It turns out you don’t.

    @Scott – exactly

    - pD

  45. windriven says:

    @Drone

    Stick to the issue at hand. I took issue with the assertion – and I quote:

    “In order to for-profit hospitals to get a leg-in in the market they have to start in locations in which need is great so they don’t have to worry about competition from non-profit institutions. Next, once established they can cut costs and drive up prices in order to guarantee returns. They are able to get away with these measures because of their market positioning.”

    Well slick, they do not have to start in locations where “they don’t have to worry about competition from non-profit institutions.” The list of Louisiana hospitals I provided showed all of the HCA hospitals in major metropolitan areas with non-profit hospitals. In fact most of the hospitals on that list are major medical centers.

    Now I don’t intent to go very much further to address the holes in one commenter’s half-baked assertion. He made the claim, the onus is on him.

    Further, I’ve never taken a position one way or the other on the relative performance of for-profit versus non-profit hospitals. But it may interest you to know that hospitals – both varieties of hospitals – are generally paid based on DRGs – Diagnosis Related Groups – or similarly structured schemes that pay by the procedure, not fee-for service. What that means in general outline (and there are modifiers and exceptions) is that if a patient goes in for a cholecystectomy and that procedure pays $9700, that is what the hospital gets. If the patient spends 2 days or 20 days as an inpatient, the hospital gets $9700. If recovery is a breeze or if the patient acquires a nosocomial infection that keeps her in ICU for a week, the hospital gets $9700. The DRG payment does vary by region but generally not by institution within a region.

    Now it may well be that non-profits deliver better care for that $9700. I don’t know and I haven’t taken a position on that. But if you’re going to tell me that the relative risk of 1.020 that you quoted above is a smoking gun, you’re simply silly.

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