Fixing U.S. Healthcare – Annual Review & Summary

Fixing U.S. Healthcare blog’s two-year anniversary is a good time to take stock of what has changed in our approach to fixing U.S. healthcare.  And a good time to review highlights of the last year.

Elevator Pitch for Fixing U.S. Healthcare

Let’s start with an “elevator pitch” summary:

The U.S. healthcare system has outgrown itself, now comprising almost 20% of the gross domestic product and still rising. It delivers ever more treatments that have diminishing “marginal benefit.” It does so at a cost far beyond the treatments’ true value to either individuals or to society, in all too many cases. And at prices double those in other developed countries. Now these costs are biting into the average family’s wallets. In 1994, the Oregon Health Plan took control of healthcare and managed its costs for 8 years by combining cost-benefit analysis with well-cultivated public engagement.  This would be a good starting place for fixing U.S. healthcare. But 25 years later, this approach alone would not be sufficient.  Powerful interests have now rigged the healthcare system for profits, not health. I conclude that only a grassroots movement to harness the full political, social, legal, economic and ethical weight of the federal government can encircle these entrenched interests and rein them in. There are several models for U.S. healthcare reform that could fall squarely within American tradition and pragmatism.

Changes in this Blog’s Approach

Let’s look at how this blog’s messages have evolved this year.

• Original message: Relentless increases in U.S. healthcare spending puts a drag on economic growth and household spending.

Updated message:  Relentless increases in U.S. spending on healthcare do indeed reduce individual households’ disposable income, especially as households pay ever more of the share of healthcare costs. Healthcare costs also do eat into corporate profits, and blunt international competitiveness. However, healthcare spending is not necessarily a drag on the economy. Rather, it is now a major component of our national economy, accounting for 18.3% of total gross domestic product. This is because the U.S. has evolved into a post-industrial services-oriented economy. There is nothing inherently problematic about healthcare services in this kind of economy. The problem, however, is that excessive healthcare spending is diverting human and financial resources away from other priorities, such as education, research, infrastructure, housing. Furthermore, the marginal benefit of more healthcare spending is dwindling, while the unrealized value of deferred investment in these other priorities is growing – mounting opportunity costs.

• Original message: Relentless increases in U.S. healthcare spending will seriously weaken the nation over time.

Updated message:  Economist Larry Summers dismisses the idea of an impending fiscal calamity. He explains that the “real” interest rate (nominal minus inflation) has been at historic low levels for the last two decades, resulting in no increase on the actual proportionate amount paid to service the debt.  Nevertheless, he cautions federal budgeters not to deepen the debt any further, but rather pay as we go for any new programs. Thus, the reasons to fix U.S. healthcare are not to avoid national disaster, but rather to improve worker productivity, rebalance fiscal priorities, and promote societal cohesion and business climate.

• Original message: Excessive healthcare spending is principally driven by low-marginal-benefit services and inefficient, overly complex administration.

Updated message:  Excessive healthcare spending is indeed driven by administrative complexity (estimated at $265.6 billion annually) and to a lesser degree by low-marginal-benefit treatments (estimated at $75.7 billion to $101.2 billion) (2012-2019 data). Other elements of non-costworthy, wasted spending are:

• Failures of Care Delivery: $102.4 billion to $165.7 billion
• Failures of Care Coordination: $27.2 billion to $78.2 billion
• Fraud and abuse: $58.5 billion to $83.9 billion

But the other big driver of over-spending is pricing failure in imperfect markets, amounting to $230.7 billion to $240.5 billion.

• Original message: Excessive healthcare spending was caused by health professionals who, in good faith, overvalued healthcare services and lost their perspective on their value relative to other societal priorities.

Updated message:  Given the prominence of market and pricing failures, this blog concludes that healthcare business interests, and their professional and political allies, have knowingly and willfully coopted healthcare for the purpose of profits. These interests have superseded the health of the public, often undermine patient-centered care, and, at times, result in actual harm.

• Original message: Healthcare can be fixed by a common-sense, practical approach informed by cost-benefit analysis.

Updated message:  Since the system is rigged by powerful, well-financed interests, it can be fixed only by the full faith and clout of the federal government responding to an informed grassroots movement. The most likely format for healthcare reform would be gradual but deliberate transition to a single-payer system. This would then be followed by systematic remedies to the 6 categories of unjustified “wasteful” spending, including technology assessment using cost-benefit analysis.