How to Control the Cost of Medical Care

1. How to Control the Cost of Medical Care Neil A Kurtzman, MDGrover Murray ProfessorUniversity Distinguished ProfessorTexas Tech University HSC

4. Medical costs in the US are now $1.7 trillion – 2003 • Every year grows at 2-3 times GDP • The burden of supporting our current system is unsustainable

5. In 1960 healthcare was about 5% of GDP • Today its triple that • The reasons for the increase are many - Medicare 1965 - Separating service from payment - Technology

11. The last contract signed by the Big three US auto makers and the UAW will make health insurance costs even higher The contract will make US autos even less competitive against foreign cars It's also unsustainable

12. June ‘05

13. More than 200 years ago the philosophers of the Scottish enlightenment concluded that politics could not solve virtually all of the great problems of life • Nobody seems to have learned anything from them • Consider the politics of healthcare over the past year

15. Congress passed and the President signed a prescription drug plan • That wasn’t needed • That nobody understands • It’s 600 pages long • That costs no one knows how much

16. Why did we focus on drug costs when the problem clearly lies elsewhere? • Why have we failed to realize that we are faced with an economic problem – how to provide an important service to all at an affordable price while avoiding shortages • Who is to blame?

17. The drug companies • The hospitals • The insurance companies • The doctors • The patients • The press • The politicians • The medical schools • In short, everyone

18. Solutions abound • But none discuss the problem that requires fixing • How do we pay for healthcare?

21. The doctors contend that there will be at least $200 billion in administrative savings in a single-payer national insurance plan 8/13/03

22. Reps Conyers and McDermott have introduced the National Health Insurance Act • Promises to save $150 billion in paperwork and $50 billion by single payer bulk purchases of drugs • This from the government that has no idea of its administrative costs • And which if it were a private corporation would be in jail for accounting fraud

23. “In the latter third of the (20th) century, no positive program for universal, comprehensive health services was enacted. That left the financing and organization of health services to market forces and converted health-care services to a for-profit arm of the insurance industry.” Richmond and FeinScience, 26 Sept 2003

24. One wonders what alternative universe these Harvard professors inhabit, because if there’s any part of our economy sheltered from market forces it’s health care. Our current difficulty with high cost medical care results from the lack of market forces, not their presence.

25. Neither the buyer or the seller negotiates the price There is no price competition The biggest payer is the government which writes the rules and sets the prices This apparently is a Professor of Medical Economics idea of Market Forces

26. “The lack of a comprehensive health plan leaves almost 20% of the US population without health insurance. Many other individuals are inadequately insured, in a complex array of financing arrangements that result in heavy administrative costs. Because financiers have largely taken over the financing and management of health services, they have become politically potent forces in maintaining the current chaotic, but largely profitable, system. Physicians and patients alike are being held hostage to decision of for-profit insurers.”

27. The medical establishment clearly wants a single payer system of health insurance • Financers and for profit-insurers are the villains • Is this the solution to ruinous medical costs? • Should we create a $1.6 trillion dollar federal bureaucracy that will both ensure adequate medical care for all while simultaneously restraining costs? • A single payer system would effectively double the size of the federal government • Certainly not • Why? Because it’s impossible (just for starters)

28. Consider the rule book that would result The government took 600 pages just to define organic Costs would inevitably rise and services be in shorter supply The economic history of the 20th century has been the failure of central planning Affordable health insurance is not possible unless affordable health care exists

29. An insurance company invests some of the premiums it receives thus earning money allowing it to charge lower premiums than it would if it didn’t invest The government spends, it doesn’t invest That medical insurance companies don’t do much of the above is because they avoid competition with all their strength

30. Why is medical care so expensive Ask first why computers are so cheap Every year they get better and less expensive Why?

31. Dell HP Gateway IBM Sony Toshiba

32. Nvidia ATI AMD Intel

33. Competition

34. A rare example of price competition in medicine. What would this cost if paid for by insurance or Medicare?

35. No one hates competition more than businessmen

36. People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices. Adam SmithWealth of Nations 1776

37. Everybody is for competition except as it applies to them Unions want tariffs on cheaper foreign goods School boards and teachers unions oppose school vouchers Farmers want subsidies and tariffs Drug companies collude with government to avoid price competition

38. Universities also hate competition They lobby their state legislatures to help them avoid it Texas A&M doesn’t want TTU to have a vet school

39. In free society goods and services are rationed by price • In healthcare there is no price rationing or competition • Thus demand is limitless and costs are ruinous

40. A single payer system would eliminate what little competition there is It would further stimulate demand and increase cost and/or create shortages It is exactly the wrong approach to the problem of affordable medical care for all

41. Consider the movie The Barbarian Invasions Winner of the Academy Award for Best Foreign Language film of 2003 Depicts the most government controlled medical system in the Western world – that of Quebec It’s not about medicine, but its protagonist has a terminal illness

42. Part of it is set in a Montreal hospital Its physical plant is falling apart Its medical staff is monstrously indifferent It is inefficient and corrupt The only way to get decent care is to go to the US or bribe hospital administrators and union chiefs

43. The movie was made by French-Canadians If its depiction of local medical care is only 5% correct – don’t get sick in Quebec They have managed to add shortages to ever rising costs

44. The perfect is the enemy of the good Most poor people are poor temporarily A good but imperfect health care system is better than chaos Two generations of Americans have been conditioned to see healthcare as an unlimited entitlement – in this regard they resemble the East Germans

45. An American family that earns $50,000/yr and has pets spends about $1000/yr on Vet bills Spending a similar amount on human healthcare is seen by many as an onerous burden

46. How Could Medical Care be Reformed? • Untie it from employment • Employers would give what they currently spend on health insurance to their workers • The government would mandate the terms of a minimal health insurance policy which would be required from all

47. Everyone would be required to have the basic minimum policy Proof of insurance would be required as it now is for drivers licenses The poor would be given health insurance coupons similar to food stamps Insurance companies would compete for their customers by offering lower prices or greater coverage No rates for services would be set by insurance companies or the government

48. Every patient would pay the provider directly The insurance company would pay the patient whatever was billed less a deductible Each policy would have a limit, when it was exceeded the patient would bare the entire financial burden until catastrophic health insurance kicked in Unused benefits would accrue This would encourage patients to shop both for insurance and medical care

49. Price competition by providers and hospitals should be mandatory The part of the government that must be involved is not HHS, but rather the Dept of Justice – the Anti-Trust Division The government should encourage the growth of specialty hospitals - it just put a moratorium on new ones

50. They weren’t competing in any meaningful sense They were just taking well insured patients away from full service hospitals In a truly competitive system they would have to offer better prices to survive Any hospital administrator who threatened his medical staff with loss of privileges if they worked at a competing hospital would be vulnerable to the Dept of Justice