I wrote this in the Calcutta Telegraph of 14 July 2009. Atul Gawande is famous now; he is one of the best analysts of the sick state of American healthcare industry. I was struck by his approach in one of his early papers. I think his idea of doctors' cooperatives is a good one, for India as much as for the US.
MANAGING HEALTHCARE
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In 2003, medical expenditure per head in the United States of America was $5,711 — roughly twice that in most west European countries. Americans spent almost a sixth of their income on medical treatment. In other rich countries like France, Germany and Switzerland, the proportion was 10-12 per cent; in most other industrial countries it was seven to eight per cent. And after all that spending, Americans are not healthier; health indicators for many countries, including Scandinavia and Japan, are much better. Why does the US do worse than its peers?
This question was answered by Alan Garber and Jonathan Skinner in a recent National Bureau of Economic Research paper. They showed that amongst comparable countries, the US had the highest proportion of old people who did not take treatment they should because they found it too expensive. Its physicians were also least likely to use electronic records, which pool information about patients and make it available to all physicians who treat them. And administrative costs in the US were amongst the highest.
But these were not the chief causes of Americans’ health backwardness. They did not have a particularly high number of physicians or hospital beds per head; nor did they consume more prescription drugs. But they consumed more intensive and expensive treatments; the number of magnetic resonance imaging machines per head of population, for example, was five times as high in the US as in most other rich countries. Garber and Skinner thought that the greatest scope lay in improving allocative efficiency — on spending less on some treatments and more on others. On which ones, they were less specific.
Garber and Skinner’s approach was to analyse as broad a collection of national statistics as possible. Atul Gawande, an American surgeon, adopted a more micro approach. In the US, Miami spends the most per person on healthcare. That is understandable; that is where old people settle down when they get rich. They have all the ailments of the aged, and they have the most money and the most expensive health insurance, so it is no wonder that they have the most spent on their health. The next most expensive health-care market after Miami is a little county in Texas named McAllen. It is not particularly rich; the per capita income there is $12,000. But Medicare, the American government health insurer, paid $15,000 per insured person in a year in McAllen. Gawande went down to McAllen and asked people down there why so much was spent on medical treatment.
The most common answer was that people in McAllen were poor and sick. That was not entirely untrue. The proportion of drunkards in McAllen was 60 per cent above the national average, and 38 per cent of McAllenians were fat. Still, they had less cardiovascular disease, less asthma, less cancer, less injury and infant mortality than the national average. More sickness was not the answer; more was being spent to tackle a unit of sickness.
Gawande then asked if the answer lay in better healthcare. Medicare gives grades to hospitals according to their quality. The grades were no better for McAllen than for a neighbouring county. He was told that patients sued doctors and hospitals more in McAllen; to protect themselves, doctors ordered expensive tests. But that too was not true. Texas had passed a law that capped awards in lawsuits at a quarter of a million dollars; after that, litigation had died down.
So Gawande too came down to the explanation that Garner and Skinner had given for the US — overtreatment. He called Jonathan Skinner and asked him to analyse the data for McAllen. Skinner got the same answer as he had for the country — that patients in McAllen were subject to more tests, more hospitalization, more surgery and more home care. And the overtreatment did not mean better treatment. America’s best hospital is Mayo Clinic; it is at the forefront of treatment technology. It is the primary hospital of Rochester, Minnesota; and Medicare spending per member in Rochester is in the lowest 15 per cent in the US. Gawande recalled another study by Elliott Fisher of a million old people who had colon or rectal cancer, a hip fracture or a heart attack. Patients in some regions received 60 per cent more medical care; but they did not survive longer, function better or show more satisfaction. A major difference between low-cost and high-cost areas was that high-cost areas got less of low-cost preventive services such as vaccines, and faced longer waits for doctors and to be admitted to emergency rooms.
Why, then, did doctors in McAllen order more tests and refer patients to more specialists? The answer was suggested by the administrator of a hospital; he told Gawande to find out what proportion of the doctors’ income came from their own practice; in McAllen, it would be low. A high proportion would come from kickbacks for referrals.
Why, then, does it not happen in Mayo Clinic? Two things distinguish it from comparable institutions in McAllen. Its doctors and specialists get a salary, and nothing else. They do not price their personal services, and therefore have no scope for maximizing their income. And they routinely see patients together, discuss them, and work out the best treatment for each; they are full-time professionals used to working together.
That is not the only way. Gawande mentions Grand Junction, Colorado, where doctors are paid on piecework by insurance companies. But they met together and decided on a common fee structure that they would charge everyone; and they agreed to meet periodically in peer-review committees to review patients’ records. And they joined a local community electronic-record system that brought their patient notes together. They thus maximized the information to which they had access in treating any patient.
Reflecting on his experiences, Gawande considered alternative models of healthcare. An economist would argue for a free market; the patient should be allowed to buy healthcare services, with a neutral State subsidy if necessary. That would not work because there is enormous product differentiation in healthcare and the patient cannot have information on it; often, he would need quick treatment and would not have time to weigh information and make a choice. Socialists would ask for nationalization. Those who disagree would point to the dismal state of Indian government hospitals.
Gawande points out, rightly, that good medical treatment requires management; it requires the bringing together and coordination of specialists and facilities. So there must be someone in charge; and he must have medical knowledge. The answer lies in doctors’ cooperatives. Doctors are needed to provide the expertise that must go into the patient’s decision. They must work together to provide the expertise needed to make an informed decision. And they must be driven, not by individual profit maximization, but by their cooperative’s performance and reputation.
This is only a tentative answer; Gawande himself does not think it is a complete answer. He calls for managerial experimentation, beginning from the chiefly negative lessons that have hitherto been learnt. Should we wait for the Americans to experiment, so that we can learn from them a few decades from now? Why do we not do some experimenting of our own?
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I wrote this in the Calcutta Telegraph of 25 August 2009. Though I am a liberal, I recognise that West European countries run their nationalized healthcare industries extremely well; I have personal experience: in Germany, I was in hospital within 15 minutes of having a heart attack, and I am alive and fit two decades after a bypass I had there. America, the home of private enterprise, has, on the other hand, an inefficient healthcare industry. I have been long interested in this paradox.
ADVERSE SELECTION
Americans devote twice as much of their income to medical treatment as Europeans, and are still considerably less healthy. This fact has attracted much notice and, recently, analysis. The American healthcare system uses more private enterprise than the European systems, many of which are fully State-owned. So devotees of capitalism, of whom there are many in the United States of America, belittle the difference and try to find innocuous reasons for it. Barack Obama was the first politician to contemplate doing something about it, and asked his vice-presidential candidate, Joseph Biden, to draw up a plan. Now that they (I will call them Barjos for brevity) are both in power, we may see some of it implemented. What does it involve?
In the US, as in India, someone who feels sick goes to a doctor, the doctor asks him to go and get tests done, he gives his blood or urine, and takes the test results to the doctor. This happens every time he gets sick. Barjos propose that the results of whenever tests are done be fed into a website. Then when a patient seeks out a doctor, the doctor will seek out his test records on the web, and if they are not too old, the tests will not be repeated; so much testing will be prevented.
As people get old, they acquire diseases that are a nuisance but do not kill quickly — diseases like heart trouble, obesity and cancer. The longer they live, the more do they need treatment for such chronic diseases. Some of the diseases reduce people’s ability to look after themselves; they then need care. In the US, where labour is expensive, such care costs a lot. Barjos want to reduce the cost of chronic disease treatment by persuading people to live physically more active lives and to avoid harmful habits like smoking and gluttony, so that they will suffer less of chronic diseases for fewer years.
Most Americans’ medical costs are paid out of private or public insurance. Still, many are not covered; for them, Barjos want to start a government insurance company or devise an insurance policy. But this company or policy will not pay doctors for the number of patients seen or laboratories for the number of tests done; it will pay them on outcomes — that is, how sick or healthy the doctors and labs leave their patients.
American patients can collect millions by suing their doctors for wrong or inappropriate treatment. So doctors take out expensive malpractice insurance. Barjos think that insurance companies are overcharging doctors, and will sue the insurance companies under anti-trust law for profiteering. They will also sue insurance companies that give health insurance policies if there is not enough competition amongst them, and force them to reduce their profit margins. They will start a government insurance exchange which will advise people on what insurance to buy, and perhaps bargain for them with insurance companies. Insurance companies often exclude from policies diseases that the insured have contracted before they were insured; Barjos will force them to stop this practice.
The US is home to the world’s biggest pharmaceutical firms. They spend huge amounts on research and development, patent the drugs they thus develop, and use the monopoly that patents confer to make big profits. Apparently, they make bigger profits out of Americans than others; they charge Americans 67 per cent more for the same drugs than they charge Europeans. A simple solution would be to reduce or abolish patent protection, and to import the drugs from India. Barjos will not do such radical things; they will import the drugs from “other developed countries”; that is, Europe and Japan, if they are cheaper there.
The big drug companies file expensive patent infringement cases against generic drug companies like ours, and often bribe the companies not to enter the US market. Barjos will “prohibit” the companies from doing such things; just how, I do not know.
The drug companies used their influence with Congressmen to get legislation passed that prohibits the government’s Medicare organization to bargain with the companies over drug prices. The department of veteran affairs runs a similar healthcare programme for ex-soldiers. It faces no such prohibition, and freely bargains and brings down drug prices. Barjos want the constricting legislation repealed, so that Medicare too can bargain.
The most interesting and least clear of the Barjos proposals is one for a national health insurance exchange. It is not clear whether this exchange will be an insurance company, or will help everyone to get insurance; probably both. It will introduce a benefit package similar to what employees of the federal government get; presumably, the government has negotiated with private insurance companies to provide this common benefit package to government employees, and will similarly negotiate for the rest of the population. So the Barjos plan is to give to all uninsured Americans the choice of getting an insurance package similar to that of government employees. But they will not get it free; they will have to pay for it. Those who pay taxes will get tax rebates on the premiums. Premiums will be “fair”, co-payments (the proportion of his medical costs a patient has to pay himself because the insurance company will not pay it) will be “minimum”, paperwork will be “simple”, and the plans will be “easy” to enrol in. This is all admirable, and vague.
Barjos face a problem — that they cannot touch the current business of the private insurance companies. They want to extend coverage to those whom insurance companies have avoided because they cannot afford the premiums or because they have ailments and conditions that the insurance companies do not want to insure against. Barjos cannot simply use the government to cover these uncovered people and conditions because insurance companies would then weed out even more people and make even more money out of healthy people. This is a classic case of what economists call adverse selection.
So Barjos are split between helping the uninsured people and conditions directly, and forcing insurance companies to insure the uninsured. There is no ideal balance between the two, and whatever balance is decided, it will be difficult to achieve it. Barjos should stop trying to repair a dysfunctional market. Instead, they should start at another point. They should aim at a basic, fully government-funded, entirely free national health service. It would consist, first, of a doctor within reach of every American whom they could see without paying; these doctors should be full-time employees of the government, and groups of them would be backed by free laboratories. Second, the drugs prescribed by the doctors would also be free provided they fall within a government list of generic drugs. Third, the government doctors should give every American a check-up once a year, and if it shows that they are fit and are living healthily, they should get a reward. Finally, for those who need hospital and nursing care and cannot afford it, the government should negotiate with private hospitals to have a certain proportion of beds at its disposal. What the government should ensure is not the probability of treatments given by insurance, but certainty of specific treatments guaranteed by itself.
