Here’s What’s Really Driving Healthcare Costs

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The market economy fails when applied to healthcare.

That healthcare expenditures in the US are high and rising rapidly is nothing new, but this study appearing in the Journal of the American Medical Association identifies the exact components of healthcare that are driving those soaring costs. As F. Perry Wilson, MD points out in this 150 Second Analysis, the data suggest traditional economic forces break down in the US healthcare market.

The US spends the most of any country in the world on healthcare in terms of percent of GDP, sitting around 18% as of the most recent data.

But to address the issue, we need to understand what is driving this increase, and a new study appearing in the Journal of the American Medical Association does the best job yet in decomposing the factors behind the rising costs.


Uwe Reinhardt, 80, Dies; a Listened-to Voice on Health Care Policy

Uwe Reinhardt, an economist whose keen, caustic and unconventional insights cast him as what colleagues called a national conscience in policy debates about health care, died on Monday in Princeton, N.J. He was 80.

The cause was sepsis, his wife, Tsung-Mei Cheng, said. He had taught in the economics department at the Woodrow Wilson School of Public and International Affairs at Princeton University since 1968.

Professor Reinhardt helped shape health care deliberations for decades as a prolific contributor to numerous publications, an adviser to White House and congressional policymakers, a member of federal and professional commissions and a consultant and board member, paid and unpaid, for private industry.

“His work was instrumental in advocating some of the reforms embodied in the Affordable Care Act, such as having Medicare pay for performance rather than entirely on a fee-for-service basis,” Professor Janet Currie, the chairwoman of the Princeton economics department, wrote in an email.

Another colleague, Stuart H. Altman, a professor at Brandeis University, wrote, “No one was close to him in terms of impact on how we should think about how a decent health care system should operate.”

In 2015, the Republic of China awarded Professor Reinhardt its Presidential Prize for having devised Taiwan’s single-payer National Health Insurance program. The system now provides virtually the entire population with common benefits and costs 6.6 percent of the nation’s gross domestic product (about one-third the share that the United States spends).

Just last month, he received the 2017 Bipartisan Health Policy Leadership Award from the Alliance for Health Policy, a nonpartisan research and educational group in Washington.

Professor Reinhardt argued that what drove up the singularly high cost of health care in the United States was not the country’s aging population or a surplus of physicians or even Americans’ self-indulgent visits to doctors and hospitals.

“I’m just an immigrant, so maybe I am missing something about the curious American health care system,” he would often say, recalling his childhood in Germany and flight to Canada and apologizing that English was only his second language.

Then he would succinctly answer the cost question by quoting the title of an article he wrote with several colleagues in 2003 for the journal Health Affairs: “It’s the Prices, Stupid.”

What propelled those prices most, he said, was a chaotic market that operates “behind a veil of secrecy.”

That market, he said, is one in which employers “become the sloppiest purchasers of health care anywhere in the world,” as he wrote in the Economix blog in The New York Times in 2013.

It is also defined by the high cost of prescription drugs, he said, and the astronomical amounts that hospitals spend in dealing with a maze of insurers and health maintenance organizations.

“Our hospitals spend twice as much on administration as any hospital anywhere in the world because of all of this complexity,” he told Managed Care magazine in 2013.

If the nation cut the cost of health care administration in half, he said, the savings would be enough to insure everyone.

Professor Reinhardt’s prescription for a more sensible system included imposing penalties on the uninsured so that people would not postpone buying policies until they got sick. That idea, the so-called individual mandate, requiring most people to purchase health insurance, became an integral component of the Affordable Care Act, otherwise known as Obamacare. Republicans in Congress are now seeking to repeal that provision as part of a tax overhaul.

Professor Reinhardt also advocated providing government subsidies so that low-income families could afford mandated insurance, another feature of Obamacare.

His ideal model was the German system in which insurers negotiate with health care providers to set common binding prices in a specific region.

“I believe it is still the best model there is, because it blends a private health care delivery system with universal coverage and social solidarity,” he told The Times in 2009. “It’s inexpensive and equitable. Coverage is portable. You’re never uninsured in Germany. No family goes broke over health care bills.”

Always opinionated, Professor Reinhardt was also unsparing in inflicting his mordant wit on any self-satisfied expert he considered hypocritical or illogical.

“He was a knife twister of the first class,” the health economist Austin Frakt wrote on the blog The Incidental Economist, of which he is an editor in chief. “Should you hold dearly an idea he targeted for systematic dismantling, you would squirm.”

Professor Reinhardt excoriated college students who blamed loneliness for their binge drinking, describing them as “among the most pampered and highly privileged human beings on the planet.” He suggested that before applying for college young people “be required to spend one to two years in a tough job in the real world.”

And when critics complained that doctors were overpaid, he countered that their collective take-home pay amounted to only 10 percent of national health spending. Slicing it by 20 percent, he wrote, “would reduce total national health spending by only 2 percent, in return for a wholly demoralized medical profession to which we so often look to save our lives.

“It strikes me as a poor strategy,” he added.

With near unanimity, colleagues and admirers praised Professor Reinhardt for transforming raw data into moral imperatives.

Senator Bernie Sanders, the Vermont independent who advocates a “Medicare for all” national health care system, wrote in an email, “Uwe Reinhardt was one of the leaders in the effort to make health care a right, not a privilege.”

And Professor Elliott S. Fisher of Dartmouth called Professor Reinhardt “in so many ways the conscience of the U.S. health care system.”

Uwe (pronounced OO-vuh) Ernst Reinhardt was born on Sept. 24, 1937, in the city of Osnabrück in northwest Germany. His father, Wilhelm, was a chemical engineer. His mother, the former Edeltraut Kehne, was a photographer and painter.

He was raised near the Belgian border and the Hürtgen forest, where American and German soldiers engaged in hand-to-hand combat for four months in 1944.

“I could not help but become witness daily to the horrors of war,” Professor Reinhardt wrote in 2003 in a Times Op-Ed article, praising a Marine chaplain for urging soldiers to pray for their enemies ad well as themselves. “Millions of Europeans of my generation, whom many Americans now disparage so contemptuously as pacifists, had a similar experience.”

His exposure to the war so dismayed him that in the mid-1950s, at 18, rather than be drafted into the army and have to salute a German officer in the wake of “the unimaginable atrocities committed by Nazi Germany” years earlier, his wife said, he left the country, setting off for Canada and leaving his parents and four siblings behind.

He landed in Montreal with $90 in his pocket and no Canadian connections. Having had some apprentice training in shipping in Germany, he found work at a shipping company and worked nights parking cars in a parking lot. He always ate oatmeal for breakfast because it was cheap, his wife said, and to make extra money he routinely volunteered to work overtime for co-workers who had families.

After three years, he had saved enough money to enroll, hundreds of miles away, at the University of Saskatchewan in Saskatoon, the cheapest university he knew of, Ms. Cheng said. (Selling his used Chevrolet and beloved guitar helped defray the costs.)

He graduated with a bachelor of commerce degree and went on to Yale, where he received his doctorate. His thesis was titled “An Economic Analysis of Physicians’ Practices.”

In addition to Ms. Cheng, a health policy research analyst at Princeton who is known as May, he is survived by their children, Dirk, Kara and Mark Reinhardt; his sisters, Heide Cermin and Imeltraut Arndt; his brother, Jurgen; and two grandchildren.

Professor Reinhardt joined the Princeton faculty in 1968 as an assistant professor. At his death, he was the James Madison professor of political economy and professor of economics and public affairs at the Woodrow Wilson School.

“He was so inspired a teacher,” said Henry J. Aaron, a senior fellow at the Brookings Institution, the research organization in Washington, “that he could make accounting the most popular course at Princeton.” Among his students was Bill Frist, a surgeon and a former Republican Senate majority leader from Tennessee.

In 2015, Professor Reinhardt humbly — and facetiously — announced that after reflecting on the global economic crisis that had occurred several years earlier, he was calling it quits.

“After the near-collapse of the world’s financial system has shown that we economists really do not know how the world works, I am much too embarrassed to teach economics anymore,” he wrote.

In an interview not long before that, though, he belied any pretense of self-doubt when he was asked whether he was perplexed by the seemingly insolvable challenges of health care economics.

“Have you ever seen a perplexed economist?” Professor Reinhardt replied. “We have an answer for everything.”


Uwe Reinhardt: Giant, mensch, knife twister

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The renowned Princeton University health economist Uwe Reinhardt died today. The email from his Dean at the Woodrow Wilson school said he passed peacefully and surrounded by family.

Reactions on Twitter resonate with my own. They reflect Uwe’s contributions to and presence in health care policy and education — “insightful, “a treasure,” focused on the “moral underpinnings of policy,” “one of the nicest and funniest people in the field of health econ,” “a godfather of health policy and economics,” “a unique and disarmingly powerful voice in health policy,” a “world-class mensch,” “a gifted teacher and inspiring leader,” one of the “most acerbic speakers in Health Care over the last 20+ years. Never afraid to speak truth to power,” “engaging and understandable,” “a giant.”

I once called him “the narrator of U.S. health care policy.” Any journalist who could get hold of him for a health care story was sure to get pure gold. His wit and precision were evident in his spoken and written word. His command of English was tremendous. His ability to explain to lay audiences, legendary. If you’re unfamiliar, go read anything he wrote for The New York Times Economix blog, where he posted regularly for years. He can teach. You will learn.

Born and raised in Germany, he did it all in a second language. Of this, he reminded audiences regularly. The title of one of his presentations was, “Still Confused, After 40 Years in America!” Don’t believe it. Uwe was always the least confused person in the room.

He opened many speeches with, “I’m just an immigrant so maybe I am missing something about the curious American health care system” (or similar). I heard it many times. It never got old, particularly because I knew what was coming next. Just after such an opening, he would reveal some peculiarity of the health system I had never noticed in the same way. And then he proceeded to show how it was illogical, in violation of basic concepts of economics, immoral, or hypocritical.

He was a knife twister of the first class. Should you hold dearly an idea he targeted for systematic dismantling, you would squirm. If only I could write half as well or think one-third as clearly.

He touched so many lives and careers, including my own.

My first engagement with Uwe was in 2009, over one of his Economix posts. In the comments to that post, I asked him for an economics argument in favor of a public option. He was kind enough to respond at length directly to my inquiry in a follow-up Economix post. I was thrilled, even as I took a beating. I documented the encounter on this blog.

Perhaps due to my repeated blog-based engagement with him — like a fly that just won’t go away — Uwe took some interest in what I was doing on TIE. He noticed my many posts on hospital cost shifting and suggested that an updated literature review should be published. I counter-offered that we do it together, and he accepted.

I knew exactly what this meant. I was to write the first draft and he would serve as senior author and tell me how much more work it needed. Here’s where Uwe surprised me and earned my deepest respect. His response to my first draft was that it was so good he did not think it right that his name appear on it. Instead, I should publish it solo, with his support. This is good mentorship. It was my first solo-authored paper and is my most cited publication.

I met Uwe in person only once, in Princeton in 2010. I was there to visit my parents and give a talk at the Woodrow Wilson School. Learning I’d be in town, he invited me to lunch. I thought it was just going to be the two of us, but he insisted I bring my parents too — his treat. (In advance of the lunch, with some help from YouTube, I practiced how to pronounce his name. It’s “oo-va” not “you-ee.”)

Though I never saw him again in person, for years I encountered him over email. Usually our threads began with me asking a question or him sharing one of his lengthy emails to some other scholar or policymaker. (Oh, what a shame it is he didn’t post those emails for all to see. They were gems.) But frequently he would email out of the blue to inquire about my family. He took an interest in hearing what my children were up to and used that as an opportunity to remind me how different parenting or childhood was in his day.

“Child rearing is so different nowadays,” he wrote me once. “When we were little, we left the house after lunch and came home for supper, roaming the country side in the meantime (and playing with live ammunition [left over from WW II]).” I have very few folders of saved emails, but this one and others of his I filed away, not to be deleted.

Frequently, in the email back-and-forth that ensued he would type out some amazing story of past hijinks. Here’s one:

Once, at a Duke University private sector conference, the entire brass of the AMA happened to be there. It was my turn at the podium and I could not resist the following stunt.

The late James Sammons, then head of the AMA, had given interview in which he said Congress had carved Medicare to death like a turkey. I showed a slide of that quote which happened to have his picture next to it. I then showed data according to which between 1980 and 1988 constant-dollar Medicare spending on physician services per beneficiary rose 83%. Apologizing for this low number on behalf of taxpayers (the growth of 83% real allegedly did not permit physicians to give the elderly adequate care), I asked the AMA people: “What increase would have been adequate in your view?” So I counted out numbers (on a slide) like an auctioneer – 100%, 120% , …– but never got any takers. After +160% I left a blank spot and said: “Evidently 160% would not do it, so you give me the number. Is it 300%?” Icy silence. I then had a slide quoting country-music singer Conway Twitty or whoever it was from his song: “I need more of you (moolah) – more, anything less would not do.”

I then I ended saying that Karen Davis and I, both then serving on the PPRC (now Medpac) would propose a budget for Medicare physician payment (the VPS), because the docs would not come to the table with a reasonable number.

For a while I literally was banned at the AMA; but later I ended up on the JAMA board.

With tales like this, I thought of him as the Richard Feynman of health policy — brilliant in his field but with an appetite for adventure and practical jokes. I encouraged him many times to write up stories like these in a book, interwoven with health policy analysis or history. Sadly, he never did. Though he took pride in his past escapades, perhaps he saw himself differently late in his career.

“When I was younger I was more brash,” Uwe wrote me. “Now I’ve mellowed.”

There are many giants in academia, and many in health care. But there are none I know like Uwe.

Health Economist Uwe Reinhardt Dies

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Frequent critic of the U.S. healthcare system.

Famed health economist Uwe Reinhardt, PhD, has died, according to media reports.

Reinhardt, 80, was a professor of political economy at Princeton, specializing in healthcare spending, hospital prices, and comparative health systems. He was a regular contributor to major medical and health policy journals, including JAMA and the New England Journal of Medicine as well as Health Affairs

Reinhardt was born in Germany but emigrated to Canada and received a Bachelor’s degree in commerce from the University of Saskatchewan; he was awarded a PhD in economics from Yale University in 1970 and began teaching at Princeton that same year. His doctoral dissertation, which discussed the economics of physician practices, included a list of acknowledgements featuring Reinhardt’s typical wry humor: “One of the inevitable byproducts of a dissertation is that the author’s friends are drawn into the topic far more deeply than they might wish. Among my friends who suffered this fate are … ”

He also was a frequent critic of the American healthcare system, once observing that “If you want to guarantee access to care, always wear Gucci loafers. No ER turns away someone wearing Gucci loafers.” Reinhardt told Modern Healthcare in 2016 that Sen. Bernie Sanders’ (I-Vt.) proposal for a Medicare-for-all single-payer system would be “dead on arrival in Congress” because “[p]olitically, you cannot legislate what rationally makes perfect sense.”

Reinhardt served on the Physician Payment Review Commission (a precursor to the Medicare Payment Advisory Commission) and was a member of what is now the National Academy of Medicine. He was also a member of the Kaiser Family Foundation Commission on Medicaid and the Uninsured and a past president of the Association of Health Services Research.

Reinhardt was married to Tsung-mei (May) Cheng, a health policy researcher and co-founder of the annual Princeton Conference on health policy; they had three children.