Segment 7 – Healthcare Power, Politics & Philosophy

Segment 7 – Healthcare Power, Politics & Philosophy


This segment reviews preconditions for having a focused discussion of healthcare reform necessitated by powerful vested interests, and it discusses how to overcome political polarization.

In the first six Segments, we have reviewed the relentless growth of healthcare spending. And how rising costs are literally built into the system as it is now. This review should give us some ideas on how to fix the system.

But before we talk about how to fix the healthcare system, we must first tackle some landmines that lurk beneath the surface. The landmines are power, politics and philosophy. They are the subject of the next 2 Segments.

In this Segment, we will discuss both preconditions necessary for a calm, focused discussion of healthcare reform as well as what I call “loaded” political words. Then in the following Segment we will look at traditional American values and principles that can be brought to bear on resolving the core philosophical dilemma that has kept us from fixing US healthcare all these years.

Let’s start with preconditions. The idea here is that healthcare now comprises 1/6 of the entire US economy. So, there are powerful interests, lots of money, and fierce political convictions that could derail any discussion before it even gets started.

So, I suggest setting preconditions to be agreed on beforehand. Only then can we calmly get into the meat of the discussion. Here are the preconditions.


First, for purposes of discussion, let’s agree to keep dollar spending at the 2017 level – no winners, no losers, everything the same.

Second, let’s keep power the same. Keep the AMA, the hospital association, the VA, Health & Human Services, etc. No power struggles.

Third, strive to keep partisan politics out of the discussion. Make it a joint problem-solving project. Give credit where it’s due: to politicians or policy writers who contribute constructively. The motto is: “U.S. spells us.” Healthcare employs 1/6 of us and touches all of us.

Fourth, here’s where I will insert a viewpoint from my 40 years experience as a doctor: Human beings all get the same illnesses, all suffer, all are interconnected mind/body/spirits. I – like all doctors — have taken care of rich and poor, all races and nationalities, religious and non-religious, social outcasts and VIPs, saints and sinners. In a hospital bed or in the doctor’s office, we’re all the same. We should remember, “We’re all in this together”

Lastly, since healthcare is “too big to fail,” whatever is done should be done deliberately, slowly, with monitoring along the way and mid-course corrections when needed. If we accept these preconditions, we can have a Win-Win Discussion.

This kind of discussion should look at Facts, Goals, Values and lastly Methods, the actual Fix.

We have already discussed the Facts. The key facts are:

– the US health system has grown to 3.2 trillion dollars, representing 1/6 of the entire economy

– Cost growth is built into the system, has always outpaced inflation, and has resisted attempts to restrain the growth

– Healthcare spending is draining vitality from the economy, government and individual household budgets


Here are the key Goals:

– We must stop excess healthcare growth beyond the natural increase expected from population increase, aging, and innovation.

– To do so will require fundamental reform of the system, not just tinkering with public finance and private insurance

– Since healthcare is “too big to fail”, a key goal is Avoid short-term disruption, again proceed slowly.


The last things to discuss before we get to specific Methods – what I am calling the Fix of healthcare – are Politics and Values.

We all know that our country is polarized to an unhealthy extent. This has contributed to political paralysis – not getting anything done. I’m not a political scientist and cannot tackle the whole subject of healthcare politics.

But I do want to look at what I call “loaded words” that creep into our debates on healthcare. These words lock us into a closed, rigid mindset and can shut down discussion.

Let’s look at a few “loaded words” and suggest more neutral words to help keep the discussion open-minded.


First is “socialized medicine.” This terminology stirs up the negative connotations of the so-called “Prussian menace” after World War I and “Red scare” after World War II. A more neutral term would be “publicly financed medicine.” The truth of the matter is that currently almost 50% of healthcare is already publicly financed through Medicare, Medicaid and other government programs. The issues behind the loaded words, which do need thoughtful discussion, are accountability; and also advantages and disadvantages of uniformity and nationwide scale, instead of the current fragmented system.

The next loaded terms are “free market” and “competition.” The connotations are freedom from government interference, freedom from politics, consumer freedom, and efficiency. The grain of truth behind the terms is that the law of supply and demand does drive down prices to a balance point in pure markets. The reality, however, is that healthcare is not a pure market, as we saw in Segment 5. Also, markets sometimes leave aside consumers who are poor or powerless, which includes many of the sick. A more neutral term is commercial market.

Next is “rationing.” The connotation is forcibly withholding something from an individual. A more neutral term is “limit-setting” or “prioritizing.” We will talk more about this in the next Segment, and about the need for patients’ to consent to limits on their health service or health insurance. The reality is that we already have de facto rationing by zip code, income level, government budgeting, and hospital technology policies. Prioritizing is not bad – it’s necessary.


Another loaded word is “choice.” The connotation is that the government will interfere in choice of doctor or into the doctor-patient relationship itself. This was one of the scare tactics used by the insurance association in 1993 to bring down the President Clinton’s health reform plan. But the reality is that insurance network plans restrict patient choice of doctor more than government rules do. In addition, doctor inclusion in Medicaid – and other insurance plans, for that matter — is often a matter of the pay scales set by Medicaid or insurance companies, not the choices made by patients.

And the last loaded term I’ll mention is “big government.” The connotation goes back to President Reagan saying, “Government is not the solution to the problem; government is the problem.” We always hear about the Army’s 100-dollar toilet seats (in 1986 dollars) and the disastrous roll-out of the Obamacare website.


And the truth is that government is big and can be just as flawed as any big institution. However, national government, unlike private companies, is legally transparent and accountable. Also, Government can fulfill some functions more effectively and efficiently than some private sector piecemeal approaches. Here are examples: FAA, FDA, FCC. Currently the military enjoys a high regard. Some examples of public-private partnerships are the moon shot, internet and healthcare research. Medicare has an enviable customer satisfaction rating of 77%.

The reality is that we are now a nation (and world) of big institutions – for-profit, non-profit, government, academic. All have institutional governance and administrative challenges, which are studied by the disciplines of public administration and business administration. Public administration and business administration tell us how best to run big institutions so as to fulfill their mission and to remain accountable and transparent. More neutral terms instead of “big government” are: public sector programs or taxpayer-funded program.

So we have some better neutral terminology to use for discussing healthcare to avoid inflammatory polemical words.

In the next Segment we will look at American values at stake in health care. We will also look at what philosophers say is a fair way to run US healthcare.

I’ll see you then.



Why the ‘free market’ for drugs doesn’t work and what we can do about it

The United States faces a major problem with prescription drug prices. Even as the prices of most goods and services have barely budged in recent years, the cost of drugs has surged.

During the presidential campaign, both Hillary Clinton and Donald Trump cited the high cost of prescription drugs as an issue that needed to be addressed. Most recently, the president-elect took direct aim at the pharmaceutical industry, saying it’s “getting away with murder” and arguing “new bidding procedures” are necessary to lower drug prices.

Trump didn’t get into specifics about what that would mean, but the most often suggested way to lower drug prices has been to expand the ability of major government buyers, such as Medicare, to negotiate prices.

While such negotiations could result in lower prices, we believe, based on our experience as economists and public policy experts, an alternative using public utility pricing would work better and ensure the discovery and distribution of important new medications.

‘Medically necessary’

The recent drug price data are indeed frightening.

In 2015 spending on prescription drugs rose by 8.5 percent to US$309.5 billion, compared with a rise of just 1.1 percent for consumer goods and services. Spending for specialty drugs increased by an even heftier 15 percent, on average. Individual examples that made big headlines, such as Turing Pharmaceuticals raising the price of Daraprim (a lifesaving drug for people with weakened immune systems) from $13.50 to $750 a tablet, are even more extreme.

In a competitive market, prices of a product are forced down to their costs plus a fair profit. Drug companies, on the other hand, can get away with raising prices without losing customers because the demand for certain medications is insensitive to their cost. If a drug will save your life, you’ll probably pay whatever the cost, if you can.

The problem may soon get worse. Last May, Washington state’s Medicaid program was ordered to provide the hepatitis C drugs Sovaldi and Harvoni after a court ruled they were “medically necessary.” The Washington State Health Care Authority had previously provided Harvoni – which costs $94,500 for an eight-week course of treatment – and Sovaldi – $84,000 for 12 weeks – to only the sickest patients.

Since then, other participants in Medicaid and private insurance plans have filed similar suits. Some states, including Florida, Massachusetts and New York, have already altered their Medicaid programs to pay for such life-preserving expensive drugs.

If “medically necessary” rulings become more common, producers of these drugs will have no need to worry that higher prices will reduce sales. They will be able to charge whatever they want and increase revenue and profit without hurting unit sales because insurance providers will need to make such drugs available to their policy holders.

A proposed solution

So what can be done to fix the problem?

Allowing more government agencies to negotiate prices is one option. While this has lowered the prices paid by the Veterans Administration, it may not be the best way to go in a market like the one for many innovative new specialty drugs in which consumers have no good substitutes to choose from.

Economists have shown that negotiated outcomes are not always the most efficient ones. As an example, if the government were to push drug producers too hard in negotiations, the public could get a great deal on prices in the short term but that could end up discouraging the development and testing of new drugs, which would hurt everyone in the long run.

A better approach is to start with a public utilities method, which is frequently used when there is a natural monopoly in production, such as for water or power. In these cases, state and local governments typically allow a company to have a monopoly over the market but also establish regulatory commissions to determine “fair” prices. Such prices take into account current costs, the need for investment in production facilities and the need to earn a rate of return on capital invested.

A wrinkle with drug developers is that they can incur substantial costs in their quest for new medications, including dead-end ideas and extensive testing. A 2014 report put the cost to develop a new drug at $2.6 billion, while others put it at around half that.

Under our proposal, an independent federal panel consisting of scientists, medical professionals, public health experts and economists – perhaps working as part of the FDA approval process and called on when the price of a drug is above a specific threshold – would determine the maximum price a government buyer such as Medicare or Medicaid could pay for a new drug. It could also do the same for existing treatments – for example, it could have turned down Turing’s huge Daraprim price hike.

A key element of this idea is that the panel would develop methods to identify and set maximum prices for existing and prospective drugs that cure a serious illness, improve the quality of life, limit contagion or otherwise provide large benefits to society. These procedures would need to make sure that producers of these important new drugs are sufficiently rewarded for those costly efforts.

A defensible drug-pricing system

Tough negotiations can help lower how much the government has to pay for its purchases, yet they’re not always the optimal way to achieve intended long-term results. With drugs, we definitely need to lower prices but we also need to ensure drug companies can “win” as well to avoid compromising their ability to develop lifesaving medicines.

While economists generally oppose government intervention in a “free market,” the current situation cries out for change. It is time to establish a defensible system for pricing drugs, one that both protects the public from price-gouging and encourages the development of new drugs.