High spending, poor outcomes: the health results of inequality in the US

A recent article in JAMA, “Health care spending in the United States and other high-income countries”, by Irene Papanicolas, Liana Woskie, and Ashish Jha, is the latest in the almost continuous series of articles on this topic that have been appearing for decades. The dramatic difference between how much we in the US spend (per this paper, the US spends 17.8% of GDP on “health care” compared to 9.6-124% for the other 10 highest-income countries—United Kingdom, Canada, Germany, Australia, Japan, Sweden, France, the Netherlands, Switzerland, and Denmark) and our health outcomes (e.g., lowest life expectancy and highest infant mortality) continues to be striking. This information appears regularly, in one form or another, from reliable sources such as the Commonwealth Fund, the Kaiser Family Foundation and its Kaiser Health News. It is the subject of many academic studies and books by experts, such as “An American Sickness: How Healthcare Became Big Business and How You Can Take It Back”, the 2017 book by Elisabeth Rosenthal, now editor of KHN. I have addressed this topic extensively both in my book, “Health, Medicine, and Justice: Designing a fair and equitable healthcare system” (Copernicus Healthcare, 2015) and in many of my blogs (e.g., US Health Rankings remain low and #Trumpcare will make them worse!, June 18, 2017).

So what is new in this current study? Why is it important? As best as I can tell, it is the spin being put on it by a variety of commentators, and in articles that point out those aspects that seem to be different from what has been published before, such as in "Why Is U.S. Health Care So Expensive? Some of the Reasons You’ve Heard Turn Out to Be Myths” by Margot Sanger-Katz in the New York Times March 13, 2018. The original title of that article, preserved in the hyperlink URL, was “United States healthcare resembles rest of world”, an amazingly hard claim to make given the data that the study itself presents. The Sanger-Katz piece manages to do this by both cherry-picking some data points, including that “…the United States sends people to the hospital less often, it has a smaller share of specialist physicians, and it gives people about the same number of hospitalizations and doctors’ visits... while its spending on social services outside of health care, like housing and education, looked fairly typical.” Maybe, but the important findings, even mentioned in the Times article, are not suggested by the headline, such as “The nation did rank near the top in its use of certain medical services, including expensive imaging tests and specific surgical procedures, like knee replacements and C-sections.”

The article in JAMA is accompanied by four editorial commentaries, taking different approaches; they are well and accurately analyzed by Don McCanne in the “Quote of the Day” piece he wrote on it. The most important is that by Howard Bauchner and Phil B. Fontanarosa, “Health Care Spending in the United States Compared With 10 Other High-Income Countries: What Uwe Reinhardt Might Have Said” (JAMA. 2018;319(10):990-992. doi:10.1001/jama.2018.1879, full text requires subscription). Reinhardt died a few months ago, but the authors do an excellent job of pointing out the important issues that he had already called attention to in previous articles, and would likely emphasize regarding this one.

Importantly, the article by Sanger-Katz goes on to say

There were two areas where the United States really was quite different: We pay substantially higher prices for medical services, including hospitalization, doctors’ visits and prescription drugs. And our complex payment system causes us to spend far more on administrative costs. The United States also has a higher rate of poverty and more obesity than any of the other countries, possible contributors to lower life expectancy that may not be explained by differences in health care delivery systems.

Let us look separately at these two, higher prices and high administrative costs, and high rates of poverty and obesity. Higher prices and higher administrative costs are, shock, a major reason that our medical care costs so much! The higher administrative costs, which the study estimates at 8% compared to 1-3% for other countries, are a huge driver; so are prescription drug expenses, $1443 per capita in the US vs a range of $466 to $939 in the other countries. What all this is about is profit.It is the elephant in the room in all these discussions. In the US, “healthcare” spending includes the enormous profits made by insurance companies, pharmaceutical companies, device makers, and providers (especially hospitals and health systems, as well as some very expensive specialists). This is money being taken out of the system, and is not about providing medical care, not to mention “health” care or certainly “health”. And while the study shows that US physicians (even primary care physicians, although this is very variable country to country) make more, this important graphic, recently updated, shows how much of this cost is related to the increase in the number of “administrative” personnel compared to doctors in the US over the last few decades. I first saw this graph in about 1995, and while the relative increase was huge

it is dwarfed by the phenomenal increase since then, as shown in the full graphic:

(Note that after the ACA went into effect, the uptick was even steeper.)

The other point identified by Sanger-Katz is that the US has a “higher rate of poverty and more obesity than any of the other countries”. These go hand in hand to some degree (the easy and cheap availability of calorie-dense low nutrition foods to poor people), but both are about blaming the victims. The higher rate of poverty is most important. The damning fact is that the US tolerates this and does not have, like other rich countries, social service programs in place to both decrease the rate of poverty and to mitigate its most malignant effects on health such as lack of food, housing, warmth and education. And, of course, health care, which is available either free or at prices people at different income levels can afford (much less for poor people) in those other nations. The US is very unequal economically; the growth in wealth has been so disproportionately to the top <0.1% that the three richest Americans now have as much wealth as the bottom half of our population. Our inequality-adjusted Human Development Index (HDI) is lower than most of the wealthiest nations of the world (#19).

Arguing that the fault in our cost and quality of healthcare is the result of higher poverty levels (and for the record, I don’t think that this is what either the study’s authors or Sanger-Katz is doing) is somewhat parallel to saying we have worse health because of our ethnic and racial diversity (which has been done). The important 2015 Case and Deaton study, which I have previously discussed (Rising white midlife mortality: what are the real causes and solutions?, November 14, 2015), showed increasing mortality for poor white non-Hispanic people. This was shocking, but it would be shocking even if it included Hispanics, or Blacks, or Native Americans. There is an old joke about the person who murders his parents and pleads for mercy because he is an orphan; this is pretty analogous to the issue of poverty and health.

Bauchner and Fontanarosa note that Uwe Reinhardt was very critical of insurance companies for having, on top of nearly 3% profit, 18% “operating costs” (only 79% was spent on actual health care) that included, among other things, “…marketing, determining eligibility, utilization controls (e.g., prior authorization of particular procedures), claims processing, and negotiating fees with each and every physician, hospital, and other health care workers and facilities. These operating costs are about twice as high as are the overhead costs of insurers in simpler health insurance systems in other countries.”

To say we have worse health status because we have more poor people is an indicting tautology; we should identify and address the causes of poor health which are mostly “upstream”, the social determinants, and very tied to poverty. Our healthcare dollars should be spent on delivering healthcare and not profits; our overall dollars should be spent on decreasing the impact of the tremendous economic and social inequities that exist in the US.

This is the way to both a more healthy and more just society.

Epi-Pen® and Predatory Pricing: You thought our health system was designed for people’s health?

Martin Shkreli, the former CEO of the drug company Turing, achieved his 15 minutes of fame (or infamy) last year through predatory pricing, raising the price of pyrimethamine, an old drug used to treat a parasitic infection in the brains of immune-compromised (usually HIV-infected) people from $13.50 to $750 a pill (Drug prices and corporate greed: there may be limits to our gullibility, September 27, 2015). Shkreli manage to further alienate people by his testimony before Congress, widely described using adjectives such as “smug” and “condescending”.  The most recent Pharma CEO to hit the news for price gouging, Heather Bresch of Mylan, seems to be trying to avoid Shkreli’s “doubling down” by making an apology, of sorts.

Bresch’s company, unquestionably with her active involvement, raised the price of Epi-Pen®, a self-injectable form of epinephrine that is sold to prevent people from dying from severe allergic (anaphylactic) reactions to a variety of substance, from peanuts to bee stings, from about $100 to $600 for a 2-pack. Two things: first, such pens are lifesavers. As a physician, when I tried to figure out what I needed to pack in an emergency first-aid kit for camping, it was #1. It was the only thing I could think of that actually could keep someone from dying in the woods. Second, epinephrine is an old, cheap drug. As ABC news reported, a doctor in Canada showed how a physician can prescribe a whole vial, plus small syringe and needle, for under $10, and a person can easily inject themselves, just under the skin. The “value” of the Epi-Pen is that it is self-injecting, but hard to even justify the $100. Or the somewhat higher cost of a generic (Mylan, indeed is a generic company.) Bresch, the daughter of a US Senator, was awarded an MBA by West Virginia University despite not finishing the coursework (whichled to the resignation of the president). She protested that she wasn’t being predatory like Shkreli, and offered to sell the drug at a 50% discount, only $300! That is still a lot. I have a friend whose daughter is allergic to peanuts; both her day care centers require her to have a 2-pack of Epi-Pen®, with prescription (thus can’t do the epinephrine bottle) – this could cut her outlay from $1200 to $600. Of course, she will spend it to potentially save her daughter’s life, the key point that Mylan and Ms. Bresch understood when they raised the price. At more or less the same time, Ms. Bresch raised her own salary from a paltry less-than-$2 million a year to $18 million. I guess the rise in the price of Epi-Pen® funded that. MAD Magazine® used to do satire but its recent coverage of Epi-Pen® is almost investigative reporting (see picture).

Could it get worse? Sure, why not? Bresch’s father, Senator (and former Governor) Joe Manchin of West Virginia may or may not have been helpful to Mylan (it is, after all, a West Virginia company), but many politicians have been tied to helping drug companies make lots of money. Bill Moyers covers the role of Billy Tauzin, a former Congressman from Louisiana who chaired the House Energy and Commerce Committee when Congress passed the Medicare drug plan (Medicare Part D) under President G. W. Bush. That legislation prohibited Medicare from using its clout to negotiate lower drug prices. Tauzin left Congress in 2005 and became chief lobbyist for the Pharmaceutical Research and Manufacturers of America (PhRMA), converting his well-paid (by campaign donations) service while in Congress to a MUCH better-paid job lobbying his former colleagues. He is credited with having a major impact on the ACA, passed in 2010, ensuring its Pharma-friendly characteristics. And, to be sure, Tauzin, who left PhRMA after 5 years, was scarcely alone in pushing pharmaceutical industry interests in Congress, or in receiving big donations, as the Moyers piece documents. Congress appears to buy the idea that Pharma needs high prices for doing research and development (despite the fact that they spend many times their R&D budgets on marketing, and much of the basic research is done with government funding at universities) and that other countries’ restrictions on the prices of their drugs require them to charge Americans more. Of course, the real reason that pharmaceutical companies charge so much in the US is that they can get it. Whose interests is Congress working in when it does this? Not the American peoples’…

I recently discussed the fact that some large insurers (Aetna, United, Humana)  are leaving the health insurance exchange marketplace in some parts of the country because they are losing money (or, perhaps, just not making enough) because too many sick people and not enough healthy people are signing up, turning the insurance model on its head.  Although the ACA contains an individual mandate, lots of people with less money and/or fewer health needs are not signing up and paying the penalties, which are much less costly (if they are even “caught”). Of course, the ACA did not include a “public option”, which would have been much less costly, specifically to offer these insurers a competition-free field. This is discussed in detail by Princeton health economist Uwe Reinhardt in a JAMA Forum on August 25, 2016 “Why Are Private Health Insurers Losing Money on Obamacare?”. The reason comes down to the same one that has always been true, and that I discussed a number of years ago (October 20, 2009, Red, Blue, and Purple: The Math of Health Care Spending) – a small minority of people account for most health care costs. I have attached a graph from Reinhardt’s piece that makes the same point. And, although he explains the reason insurers lose money, Reinhardt does not excuse it. "If health care costs in the United States were lower, most people would probably agree that ill, low-income citizens should receive the needed health care that is available to better-off individuals. The problem is that our health system is in danger of pricing kindness out of our souls."

So we have both the greed of pharmaceutical companies and the greed of insurers. As discussed in many recent articles in the popular press, the bottom line is that the health benefit to Americans is at best a side effect of complex plans engineered to make profit. This perverted approach, almost unique to the US, has marginalized, bankrupted, and caused illness and death in many. This system doesn’t work for people. A fairly well-off couple caught in the bind of insurance costs is profiled by AP in its “The Big Story: “Without a subsidy, couple faces higher insurance premiums”. The husband notes the failure of our system to ensure that people’s health is a greater priority than corporate profit:  "Ultimately, it's clear that health care is not something that can be efficiently provided by the private sector. The rest of the Western world has figured out that health care is a right and is intrinsically a government, public-sector activity.”

Don McCanne, in his Quote of the Day,  provided that link on August 22. And then, on August 23, a profound and direct commentary from the editors of the Des Moines Register, “Editorial: Government should not rely on private insurers”:

“Americans’ access to health insurance should not depend on the profit margins, business dealings, or mergers of for-profit companies. Not in Medicare. Not in Medicaid. And not in exchanges created by health reform law. Instead of funneling tax dollars to private companies, government is better equipped to administer insurance. It is not beholden to stockholders. It does not seek to turn a profit. And it will not abandon the responsibility of providing health coverage to Americans.”

Professor Reinhardt and those editors are right. Our souls are certainly in jeopardy. And so are our pocketbooks. And so is our health.

Integrated Health Systems and Cost: The Price is the thing!

When the Affordable Care Act (ACA) was being developed, much emphasis was put on the effectiveness of integrated health systems as a way to save money but still deliver quality health care. Many studies from various research centers had looked at cost to Medicare and found that places – usually smaller cities – with large integrated health systems spent less on Medicare without noticeable decrements to quality. These systems can have a single provider of both inpatient and outpatient care (such as the Mayo Clinic) or close collaborations, including shared electronic medical records (as in Grand Junction, CO). The presumption of policy makers creating ACA was that Medicare spending, which is much easier to track, would reflect overall spending. However, a recent article from the National Bureau of Economic Research by Zack Cooper, Stuart Craig, Martin Gaynor and John Van Reenen, The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured, demonstrates that this assumption was incorrect. Reviewing overall costs in the 306 Hospital Referral Regions (HRRs, developed by the Dartmouth Atlas of Health Care) in the US, they discovered wide discordance between Medicare costs and overall healthcare costs. Indeed, many of the places that were highly-touted for lower-Medicare-costs-but-still-high-quality, notably Grand Junction, CO (which was, for example, cited as a success story by Atul Gawande in his June, 2009 New Yorker article “The Cost Conundrum”) have far higher than average costs overall. (Dr. Gawande has just had a new piece in the New Yorkerdiscussing the implications of this new article.)

The New York Times coverage of this study, by Kevin Quealy and Margot Sanger-Katz, The Experts Were Wrong About the Best Places for Better and Cheaper Health Care(December 15, 2015), includes a terrific feature that allows interactive access to the data collected by Cooper and his colleagues. You can put in a town (really, HRR) and find out where it ranks in terms of both Medicare and private costs. Grand Junction, for example, while ranking 3^rd lowest of the 306 HRRs for per-capita Medicare spending, was the 42^nd most expensive for private insurance spending. Rochester, MN, home of the Mayo Clinic, is another city lauded for its low Medicare costs (14^thlowest), but its private spending is 10^th highest! McAllen, TX, cited by Gawande in 2009 for being #1 in Medicare spending (and now still #4) is only 140^th in private insurance spending. Tucson, AZ, on the other hand, while only in the lower middle (82^nd from the bottom) in Medicare spending, is 7^th lowest for overall costs. The Kansas City region, where I live, was atypically near the middle for both, 142^nd lowest for Medicare and 82^nd  lowest for private costs. New York City is high in both, but it is 2^nd for Medicare and 34^th (quite a bit lower) for private insurance. The map in the article depicts HRRs as low, middle or high for both Medicare and private insurance.

So, what’s up? Were the experts trying to fool us? No, but the flaw  was the assumption that Medicare spending reflected overall spending. The data in this article demonstrates that it does not. It also reveals something about integrated health systems, especially those that dominate their smaller cities, given that some of the “top performers” for Medicare, like Grand Junction and Rochester, MN, were so high for private insurance. The integrated nature of these plans allows them to save money on patients by a variety of methods – they can be seen in ambulatory settings rather than in hospitals or ERs, and they share electronic medical record systems, and thus the information recorded therein, saving money by not having to repeat tests, x-rays, etc. This lower utilization is good for these health systems because Medicare is a relatively low payer, and because they can’t negotiate these rates – Medicare pays what it pays (it is a single-payer system, with minor regional variations). However, the same characteristic – being the dominant player in town – allows such integrated health systems to negotiate much higher rates with private insurers. Thus the mismatch; overall cost is a multiple of price for each service times the number of services delivered. These systems decrease the number of services for people insured by Medicare, for whom they cannot control the price (whether this does or does not decrease quality is a separate question) but they raise the price for services to people with private insurance. That places like Tucson and Kansas City have relatively lower prices for private insurance reflects the absence of a single large dominant system in those cities.

‘“Price has been ignored in public policy,” said Dr. Robert Berenson, a fellow at the Urban Institute, who was unconnected with the research’, in the Times article. Other health policy experts, such as Princeton’s Uwe Reinhardt, have been warning about this for decades. In the effort to pass the ACA, and please both providers and insurers, this point was in fact ignored, and it is the source of most of the common legitimate criticism of the ACA – that in many places decent health insurance policies bought through the health exchanges are unaffordable. With higher prices in these regions, insurers pass on the cost to their customers.  This is illustrated in the NPR story “Obamacare Deadline Extended As Demand For Health Insurance Rises” on December 18, 2015, which documents both the success of ACA measured by the large increase in the number of people signing up for coverage and their frustration at the frequently-high cost of this coverage. Of course, this is completely unrelated to the criticisms leveled at ACA by the Republican candidates for President and their allies in Congress, whose “solution” – abolish ACA – is Marie Antoinette-like. While the French queen is reputed to have said, in response to being told that the peasants had no bread, “then let them eat cake!”, Republicans, hearing that many people cannot afford health insurance on the exchanges even with subsidies, or get Medicaid in states (that they control) which have not expanded it, respond “let them pay out of their own pocket!”

The issues and solutions are clearly laid out by the reliably insightful Dr. Don McCanne is his “Quote of the Day” on this topic. A solution cannot come from a jerry-rigged program that allows either insurers or health systems or both to maximize their profit. It needs to come from a system that starts with price controls, most effectively by a single-payer system such as Medicare. There are, as he notes, still risks – mainly that health systems may under-utilize services when they cannot make profit, leading to lower quality of care. But we can guard against this both on the regulatory end, by measuring quality outcomes and holding providers responsible, and through the market because the incentive to not provide services to Medicare patients because they can be more profitably provided to the privately -insured (the “opportunity cost”) goes away.

The infatuation of both policy makers and providers for integrated health systems is not entirely misplaced. The potential savings from shared data and not repeating tests, and more importantly for caring for people in the most clinically appropriate setting (inpatient, ER, outpatient surgery center, primary care, long-term care) is a real positive feature of these systems. But to the extent that these providers are allowed to use their market muscle to raise prices to insurers which are passed on to beneficiaries, it becomes a real negative.

The key feature of a good health system is that it is not focused on balancing the financial interests of big insurers and big providers, but that it puts the benefits to patients, to the people’s health, first.