Naked Capitalism on Healthcare Looting


Debate Over Health Care Yet Again Omits Elephants In the Room: Excessive Costs Due to Terrible Incentives and Pricing, Administrative Costs, Pharma Looting

I should write a long post but I feel like screaming and a short post can accomplish that.

A new Wall Street Journal story, Health Care’s Bipartisan Problem: The Sick Are Expensive and Someone Has to Pay, is narrowly very good and broadly terrible. Despite the fact that the US health care system is doing a worse and worse job of delivering results yet is chewing up ever more of national resources, the press and punditocracy almost without exception refuse to question the basic premise of how the system operates. Remember that the cost of the US health care system is roughly twice that in GDP terms of that of other advanced economies, yet delivers worse results. A reminder from 2014:

Despite having the most expensive health care system, the United States ranks last overall among 11 industrialized countries on measures of health system quality, efficiency, access to care, equity, and healthy lives, according to a new Commonwealth Fund report. The other countries included in the study were Australia, Canada, France, Germany, the Netherlands, New Zealand Norway, Sweden Switzerland, and the United Kingdom. While there is room for improvement in every country, the U.S. stands out for having the highest costs and lowest performance—the U.S. spent $8,508 per person on health care in 2011, compared with $3,406 in the United Kingdom, which ranked first overall.

That is roughly the same sort of performance Soviet manufacturing showed in the decade before the implosion of the USSR. From Yegor Gaidar’s book Collapse of an Empire:

In manufacturing per unit, the U.S.S.R. in 1980 used 1.8 times more steel than the United States, 2.3 times more cement, 7.6 times more [mineral] fertilizer, and 1.5 times more timber.

The causes include:

A pay-for-piecework system that rewards doctors for over-treatment. These incentives are reinforced by encouraging patients to expect too much of doctors and demand surgeries and medications rather than accept that they may have to live with limitations or a slow recovery. I hate to rely on anecdote, but how many doctors are like the now 75-year-old orthopedist I finally found after seeing God knows how many who either had no clue and/or were super eager to operate. For instance, when I called his office to come in because I was pretty sure I had broken my little toe, he refused to see me and told me to tape it to my next toe. And this month, I managed to bang the hell out of myself in a bad fall (proving at least that I have no bone density problems) when I already had an injury and set myself back and then some. I hobbled in to see him. He poked and prodded and made me move a bit, declared me to have not done any permanent damage, and told me I needed a couple of weeks to heal more and to rest. And for this he charged $100 (the functional equivalent of bupkis in Manhattan) when I hadn’t seen him in over 10 years. When I was in Oz, most doctors were of his school of practice: their reflex if a problem didn’t look scary was to tell the patient to wait ten days and call the office, and if things hadn’t gotten materially better, then they would investigate further.

Similarly, I’ve been appalled when I visit doctors and mention what I consider to be a minor complaint that they almost universally regard it as a request for meds and are creepily eager to provide them.

And ads like this only encourage this sort of thing. I only watch TV an itty bit when on the treadmill, yet I’ve seen this commercial on CNN in prime time repeatedly. Mind you, this is for a diabetes medication, yet it sure looks like they are selling a great club drug:

The TV version has all the dance sequences and none of the charts or scenes in the bathroom, so the “gee this is a super happy drug” message is even stronger.

Drug company rent extraction. The US funds a huge amount of basic R&D and demands way too little. Big Pharma has succeeded in creating an intellectual property regime that makes it more attractive to milk existing patents and cheat on drug marketing than discover new drugs. Over 85% of the so-called new drug applications for the last 15 years have been for extensions of patents on existing drugs based on minor reformulations. The industry also spends more on marketing than R&D, and you can be sure that the beancounters allocate as much overhead as possible to R&D. Yet they’ve managed to con much of the public and complicit legislators that they need fat profits to “innovate” when they instead go to CEO and executive bonuses

Even worse, drug company marketing abuses kill people on a large scale basis. Vioxx and Oxycontin are poster children.

Needless insurance company costs and burdening of doctors with unnecessary admin work. One of the big reasons for the shortage of primary care physicians is the every-rising hassle of dealing with insurance companies. My impression is most doctors spend a day a week fighting to get paid, on top of having to pay staff to deal with paperwork. That is driving more and more MDs into concierge practices and services focused on the rich, like cosmetic services and anti-aging, that are outside the medical/insurance regime.

Iatrngenic conditions are a big problem. This is not unique to American medicine, but I would love to see comparative statistics. For instance, between superbugs, MRSA, and pneumonia, anyone who is sick should avoid a hospital stay unless there is no other choice.

As we know all too well, Obama made his health care “reform” all about institutionalizing the medical industrial complex looting. The bill was written by health care industry lobbyists. Drug company and insurer stocks both rose when it was passed. Even though insurers are whinging on how they are having a hard time making enough money on Obamacare exchange plans (and this serves as their excuse for dropping them and/or raising premiums), the press seldom mentions that they made out handsomely on Medicaid expansion. And let us not forget that Obamacare also barred drug reimportation from Canada.

So having chosen to misuse a once-in-a-generation opportunity to have a go at the fundamental problems of a clearly broken health care system, Obama, as he did with the banks, sided with powerful incumbents at the expense of ordinary Americans. Some people may perceive that they have been helped, but I wonder how many have road tested their coverage via suffering a serious mishap. As readers know too well (and many have told us), if you are hit by a bus and get taken to an emergency room not in your network, the costs are all on your dime. Even if you schedule an operation in network, it is impossible to prevent the hospital from gaming the system and scheduling practitioners who are not in network as part of the team so as to run up a bigger tab (lawyers have told us you can contest the bill successfully if you’ve demanded that they schedule only in-network professionals and they agree, but why should people who are having to deal with the stress of recovery from a major procedure be put through fights like that?). As we’ve also discussed, many insurers are effectively excluding pre-existing conditions via narrow networks that do not include specialists that can treat them.

Yet the frustrating Wall Street Journal article does a fine job of discussing the problem of treating people with costly ailments in our current broken system without once acknowledging the structural issues that make American medicine so egregiously overpriced. While it does marshall some useful data, for instance, that 1% of patients account for 21% of health care costs, far worse than the usual 80/20 rule, it conflates that with the pre-existing conditions problem, when end-of-life care is a big ticket item included in those figures.

Nobel Prize winner Angus Deaton stated clearly what is wrong. The American health care system “seems optimally designed for rent seeking and very poorly designed to improve people’s health.” And nothing is going to get better until we tackle that problem head on.



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