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An insurance industry CEO explains why American health care costs so much

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On Friday, I sat down with Kaiser Permanente CEO George Halvorson to talk about health-care reform. The conversation was long and ranging and will take a while to transcribe. But before we really got into the weeds, Halvorson handed me an astonishing packet of charts. The material was put together by the International Federation of Health Plans, which is pretty much what it sounds like: an association of insurance plans in different countries. But it showed something I've never seen before, at least not at this level of detail: prices.

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The packet's 36 pages are mostly graphs showing the average prices paid in different countries for different procedures, diagnostics and drugs. There is a thudding consistency to the pages: a series of crude bars, with the block representing the prices paid by American health-insurance plans looming over the others like a New York skyscraper that got lost in downtown Des Moines.

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There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care. As Halvorson explained, and academics and consultancies have repeatedly confirmed, if you leave everything else the same -- the volume of procedures, the days we spend in the hospital, the number of surgeries we need -- but plug in the prices Canadians pay, our health-care spending falls by about 50 percent.

In other countries, governments set the rates that will be paid for different treatments and drugs, even when private insurers are doing the actual purchasing. In our country, the government doesn't set those rates for private insurers, which is why the prices paid by Medicare, as you'll see on some of these graphs, are much lower than those paid by private insurers. You'll also notice that the bit showing American prices is separated into blue and yellow: That shows the spread between the average price (the top of the blue) and the 90th percentile (the top of the yellow). Other countries don't have nearly that much variation, again because their pricing is standard.

The health-care reform debate has done a good job avoiding the subject of prices. The argument over the Medicare-attached public plan was, in a way that most people didn't understand, an argument about prices, but it quickly became an argument about a public option without a pricing dimension, and never really looked back. The administration has been very interested in the finding that some states are better at providing cost-effective care than other states, but not in the finding that some countries are better at purchasing care than other countries. "A health-care debate in this country that isn't aware of the price differential is not an informed debate," says Halvorson. By that measure, we have not had a very informed debate. But download this pack of charts (pdf), and you'll be a bit more informed.

By Ezra Klein  |  November 2, 2009; 10:42 AM ET
Categories:  Health Economics , Health Reform  
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Comments

Once again- we have a cost problem in this country that the democrats are trying to treat as an insurance problem because the democrats think that the insurance companies are easier to scapegoat. But this bill does absolutely nothing to deal with the cost problem which is why I can't support it at all.

Posted by: spotatl | November 2, 2009 10:47 AM | Report abuse

Still waiting on today's installment of "Joe Lieberman doesn't reeeeealllly mean what he says, he'll come around . . ."

Posted by: scarlota | November 2, 2009 10:49 AM | Report abuse

Which insurance companies are paying in the 90% percentile? Or are those payments coming from people who are paying out-of-pocket?

The low prices in other countries don't really seem sustainable unless you standardize a routine office visit with a doctor as being 15 minutes long (already the case in many primary care practices).

Posted by: constans | November 2, 2009 10:50 AM | Report abuse

But Ezra won't draw the appropriate moral from these facts, or at least won't advocate for it forcefully - if government isn't involved in controlling prices by regulating the insurance market or doing the job itself, we'll continue to get looted in comparison to the citizens of other countries. Remind me, over the last year, was Ezra at the barricades telling us these facts and insisting on these measures as a way of dealing with them? Or was he telling us that we couldn't even think about single payer or a robust public option because "that's the way things are" and that his magical hobby-horse, the exchanges, would improve affordability (even though he now admits based on recent data that they haven't and won't)? I wonder why Ezra sees fit to tell us in November, at the end of the process, that we haven't had an informed debate and to kinda-sorta share with us facts showing us that we're being looted. Because he can earn points for candor without any danger that saying these things, this late and this tepidly, will actually influence the result.

Posted by: redscott | November 2, 2009 10:53 AM | Report abuse

Months ago, when I first started thinking on specific structures to implement delivery reform, one of the facts I had in mind from the beginning is that prices for services are very high in the U.S.

Our prices are high for specific reasons, so I worked on structures to introduce a type of pricing competition. That's actually possible, even with insurance.

I quickly moved past my initial ideas of pricing according to the findings of comparative effectiveness research. Instead I have a system that leaves the decision making in the hands of patients and their doctors.

Under favorites at my blog is the result, which has been seen my hundreds of geeks/wonks.

But one thing I think is really interesting is in September it occurred to me how to move towards pay-for-outcome-over-time *incrementally*.

With that last part, there is now an actual working solution to our price problems.

Posted by: HalHorvath | November 2, 2009 10:56 AM | Report abuse

To make this argument really come home, I think Ezra or Halvorson need to bring the cost of living in these countries into the charts. Americans falsely believe that it is more expensive to live here, therefore our prices of all things will be higher. But I'm not sure that's true. It's a tricky thing to do in the EU, with price controls and other factors weighing in. Also, doctors in other countries seem to be willing to earn less than doctors in the U.S.

Posted by: LindaB1 | November 2, 2009 10:58 AM | Report abuse

Once demcorats start talking about things that really have potential to lower costs then I'll start listening. Allowing drug reimportation would be big. (I'd strongly prefer that over price controls) Allowing nurse practitioners to handle more primary care. Giving people incentive to spend less on their own healthcare. While single payer certainly has its own problems I'd be far more likely to support that over this lousy bill. Once you understand that there is a cost problem then it makes you look at the whole debate in an entirely different way.

Posted by: spotatl | November 2, 2009 11:03 AM | Report abuse

I agree that we have not had an informed decision. Too many policy legislators and policy wonks have been chasing around talking about insurance the real story should have been how to *reform* the health financing model in this country to deal with actual costs of delivering care.

By defining the problem as "the uninsured" those folks guaranteed that all of the real action would focus on getting more of what hasn't worked. All of the ink wasted on exchanges, the public option, and the insurance antitrust exemption has basically distracted everyone from dealing with the real problem.

Payments to providers, whether by insurance companies or individuals, always start from the providers' demands. Those demands include debt servicing for VIP wings, bonuses to attract big name surgeons, in-office testing equipment, etc. -- factors that raise provider costs and contribute little or nothing to actual quality of care. Insurance companies may negotiate down from there but prices are supply driven and as long as we insist on keeping the dysfunctional model, costs will always be more elevated here than in countries that put care above other considerations in formulating health policy.

Constans: Among other things, the lower prices reflect the fact that providers elsewhere do not have to include 25% overhead charges for insurance billing. Nor are they allowed to unilaterally increase the supply of expensive technologies and bill for the oversupply.


Posted by: Athena_news | November 2, 2009 11:11 AM | Report abuse

Ezra,

In your conversation with Mr. Halvorson and the proferred charts, did he explain the interaction between these prices and his own healthcare system. While you call him an 'insurance industry CEO' that's really a misnomer, as Kaiser Permanente runs a huge network of hospitals, pharmacies, specialist centers, family care centers, and medical research facilities. I would think he was in the perfect spot to say, "my company's own healthcare costs X, because of Y and Z," not just saying US pricing is so much higher than other countries.

I would appreciate if you could tease any kind of information like this out of your interview.

Posted by: Jaycal | November 2, 2009 11:11 AM | Report abuse

Let me excerpt a small part of Maggie Mahar commenting over at the Health Care Blog on Matt's let's-all-agree piece:

"Trying to be explicit about elmiinating waste wihin the legislation would be dangerous for two reasons. First, we don't want politicians making decisions about where to cut medical spending. (They're not physicians; they're not medical reserachers.)

"Secondly, if the legislation began to talk about cutting fees, there would be a Huge protest, not just from the lobbyists, but from the American public.

"Americans do not want their doctors' fees cut. They believe those who say that if we cut specialists' fees, cardiologists will retire and they won't be able to get a bypass when they want one (whether or not they need one) The public doesn't want to hear that we're doing too many MRIs.

"But here's the good news: We can begin to eliminate waste even though the details aren't in the reform legislation. And It's Happening.

"From Friday's Wall Street Journal: "U.S. federal health regulators on Friday announced new rules that will result in trimmed payments for doctors who use expensive medical-imaging machines to screen patients for diseases such as cancer and heart problems.

"The rules will cut by up to 38% the amount doctors will get when they use disease-screening equipment for procedures such as MRIs and CT scans. The rule applies to the roughly one million doctors who are paid under the Medicare Physician Fee Schedule, a program run by the Center for Medicare and Medicaid Services, or CMS."

"Earlier WSJ articles explained that private insurers plan to follow these cuts. (Private insurers already follow Medicare's fee schedule, just adding a %.)"

Now, sure...*if* Medicare would progressively reform payment according to effectiveness, it could help...

...but, it would be even more powerful to set up some incentives so that a physician sees profit in value offered (instead of quantity). After all, some claim the response to Medicare rates for some things was for doctors to simply increase their use, so as to make up the price cut in volume.

So, regulating prices will not really work.

Instead, everyone will have to come over to a system similar to the one I lay out, sooner or later.

http://findingourdream.blogspot.com/2009/06/new-way-to-hold-down-health-care-costs.html

Posted by: HalHorvath | November 2, 2009 11:13 AM | Report abuse

We really need Government intervention in 'forcefully' setting prices for medical products and services. Insurance - it does not matter private or public.

Public Utilities Commission (PUC) in different states are like that and of course Medicare to a large extent too. But still Fed does poor job of securing good prices.

It is sad and pathetic that after a year of debate, we are coming to the root problem and nothing in current Health Care Bill would do to address that. Worse, Administration is already locked into a pact with Pharma companies and implicitly with doctors while kicking the dead horse of Insurances.

Everyday statistics like this and Ezra you are convincing everyone of us the futility of this reform and what waste all these efforts have been; unless you tell us or explain dumb people like me how this circus is going to address this core problem.

Posted by: umesh409 | November 2, 2009 11:16 AM | Report abuse

Good post, but I quibble with your metaphor: Des Moines does not have that short of a skyline, especially when compared with D.C. See
http://en.wikipedia.org/wiki/List_of_tallest_buildings_in_Des_Moines,_Iowa
and
http://en.wikipedia.org/wiki/List_of_tallest_buildings_in_Washington,_D.C.

Posted by: tomveiltomveil | November 2, 2009 11:35 AM | Report abuse

No, no, no, no, no.

Ezra,

You're just plain wrong here.

Yes, prices has a role in our higher health care costs. But the large role, in contradiction to your statement above, is widely agreed to be increased/overutilization of care. There's been considerable research on this-- your citations are the outliers-- the Wennberg/Dartmouth work, for lack of a better term, is much more in line with health economists' understanding of out health care costs.

Our costs go up 6-10% each year. We are not seeing an increase in prices of 6-10%. Physician income is not going up 6-10%, even though physician compensation, as tracked by CMS, is going up 6-10%. Why? Because we've got more doctors, doing more things-- i.e. units of care, not price of care.

Your charts above are heavily distorted by some weird things involving true prices vs. hospital charges. Take the charges out of it, adjust for $PPP, and your numbers will look much better. US is still higher, but its clearly not the problem.

This is, as you know, heavily core to the overall understanding about what successful health reform involves. You're letting your ideological biases-- a government controlled pricing system-- get in the way of the data. I really ask that you do your homework here, because you're blatantly wrong. Go up to Dartmouth, spend some time with Cutler, or someone because you're going down the wrong tree. The solution isn't about making the 30% of health care utilization known as "waste" to be cheaper waste. Its to stop that unjustified utilization.

Posted by: wisewon | November 2, 2009 11:38 AM | Report abuse

"The argument over the Medicare-attached public plan was, in a way that most people didn't understand, an argument about prices, but it quickly became an argument about a public option without a pricing dimension, and never really looked back."

But a lot of us DID understand it, and we were systematically marginalized by the Obama administration. Now they go forward with an unworkable plan that will make things worse than before, and try to explain that to voters.

Posted by: bmull | November 2, 2009 11:43 AM | Report abuse

Spend some time looking at OECD data.

Look at capital resources per capita. Compare CT/MRI scanners per capita of US versus Canada and UK. Compare cardiac cath/CABG/stent rates in US versus any other country in the world. Compare ortho procedures per capita of US versus other OECD countries. These things alone are tens of billions a year.

Ezra-- do the homework. Please.

Posted by: wisewon | November 2, 2009 11:44 AM | Report abuse

is this an issue that can/will be addressed by MedPac? what's the status on MedPac anyhow?

Posted by: lupercal | November 2, 2009 11:49 AM | Report abuse

Seems to me Halvorson is leaving important information out of the picture: Namely, that when a hospital or doctor signs an agreement with an insurance company, they are contractually bound to charge substantially more for the same services to the uninsured.

I can't imagine why he'd leave that out. Can you?

Posted by: uberblonde1 | November 2, 2009 11:58 AM | Report abuse

This just kind of gets to the core issue here. You can either ally with providers/drug & device manufacturers to get universality in your health reform, or you can ally with insurers to get cost control. You can't do both, and the attempt to shove universality into a "cost control" frame has taken our current reform away from both goals.

Posted by: NS12345 | November 2, 2009 11:59 AM | Report abuse

Exactly 'lupercal'; that was my question too. My understanding is:

- it is not a good news and I am not sure whether House bill is ready for MedPac (or iMAC);

- the ability of Congress to withstand those recommendation, it is in doubt after how the back door entry of $250 Billion Medicare fee reimbursement bill was moved;

- and finally I do not know compared to PUC, whether such iMAC will be that strong or not.

I wish Ezra spells out details here, we have been waiting here for long on this one.

Commentator 'wisewon' is pointing the need to control over usage in USA. That may be the case but a simple answer is control both - over usage and prices. What 'wisewon' is implying that over usage is the real culprit rather than high prices; that does not sound convincing. I can be wrong here, but it does not seem so. More details please.

Posted by: umesh409 | November 2, 2009 12:01 PM | Report abuse

Yet another brilliant comment here - by commentator NS12345. That puts it neatly.

Posted by: umesh409 | November 2, 2009 12:04 PM | Report abuse

ns12345- why can't you do both? It seems to me that making coverage universal is FAR FAR easier if you get the cost of covering every person down.

Posted by: spotatl | November 2, 2009 12:13 PM | Report abuse

"we have a cost problem in this country that the democrats are trying to treat as an insurance problem because the democrats think that the insurance companies are easier to scapegoat. "

The cost problem exists because the system requires every component has to have a price on it -- and not just a price, but a price that can be offered at a BS "discount" rate to insurers while being quoted at full-whack to the unlucky so-and-sos who aren't insured.

If restaurants billed you for the ingredients, the work of the cooks and waitstaff, the time it takes to wash your plates and the rental of your table, it would look not too dissimilar.

Posted by: pseudonymousinnc | November 2, 2009 12:27 PM | Report abuse

Folks, we're all talking about future reforms.

What's on the table at the moment is a decent start (for a specific reason...)

Currently proposed reform even without the public option will be far better than nothing, due to IMAC (or even due to political willingness to use the current MEDPAC recommendations for the moment while the media spotlight is on costs)...

Some, just to get up to speed, might find Maggie's comment useful here:

http://www.thehealthcareblog.com/the_health_care_blog/2009/10/time-to-put-aside-the-intellectual-disputes-for-now.html

look for Maggie in the comments at:
12:29:08 PM

So what I've pointed out above is more a next step.

It's a next step that *any* insurer can take (public or private).

Posted by: HalHorvath | November 2, 2009 12:40 PM | Report abuse

"if you leave everything else the same -- the volume of procedures, the days we spend in the hospital, the number of surgeries we need -- but plug in the prices Canadians pay, our health-care spending falls by about 50 percent."

Isn't that somewhat deceptive, though? A pro-market advocate would just say "You wouldn't have the same volume of procedures, etc if you slashed prices by that much." While I don't entirely agree with that, let's not pretend that the supply of health care is totally inelastic.

Posted by: guardsmanbass | November 2, 2009 1:02 PM | Report abuse

>SIGH<

These cost disparities are NEWS to you?!?!?!?

And you are viewed as a health care policy WONK?

Give me a freaking break.

Posted by: sumipatel1985 | November 2, 2009 1:15 PM | Report abuse

But the pricing problem brings us back to the educational expenses problem. We not only pay more for health care we also pay more for higher education. One reason fees are so high for doctors is because it costs so much to become a doctor. with many undergraduate (let alone medical) schools passing the $40k p/a tuition mark and the $50k tuition + room/board it is outrageously expensive to get a medical degree.

yes, as is pointed out in those graphs the prices we pay for procedures suffer from an absurd markup. but part of that markup is due to our education costs (which are vastly lower in europe). what frustrates me the most about this "reform" is that not only does it not deal at all with the cost problem it also doesn't deal with the ancillary problems that feed it.

Posted by: PindarPushkin | November 2, 2009 1:36 PM | Report abuse

I agree that there is a cost control problem, but I will say it to anyone who listens: We can't do anything about it as long as private insurance is the only vehicle through which costs are funneled because we don't trust private insurers to make the appropriate trade offs in managing costs, and we will always side with the providers when the fight is between providers and insurers splitting outrageous profits. In short, we need universal care and tamping down on harmful insurance practices to expose how much of the problem lies with provider reimbursement.

If you thought everything could be solved right now, you were wrong, but it would be almost impossible to address both insurer and provider abuses in one year -- it's hard enough to address either side alone, and divide and conquer is the only way to do it. Next year (or the year after), it will be the providers' turn to feel the heat. It's the only way forward.

We have to start somewhere, and we can't keep making the perfect the enemy of the better.

Posted by: rb63 | November 2, 2009 1:37 PM | Report abuse

One influence on our costs is the "provider writeoff". My son and daughter are both college students. My daughter is still on my insurance; my son is 25 and is too old to be on it, so he has lousy student insurance. They both had eye exams, the same month, at the same place. The total for each was $180. For my daughter, the doctor gave a provider writeoff of $100, the insurance company paid $45 and I owed $35. For my son, there was no provider writeoff since his insurance doesn't cover eye care. I called the provider and asked why, if they could profitably do an exam on my daughter by collecting $80, why did they have to collect more than twice as much, for the same service, for my son. The answer was basically "that's the way it is". They offered a payment plan of $30 a month for six months, but wouildn't budge on pricing the exam. And usually they can't tell you how much anything will cost you until you've had the service and they've run it by the insurance company. Until the same service costs even remotely the same price no matter who gets the service, and we can see prices before accepting services, it will be hard to make sense of this.

Posted by: plainsong1 | November 2, 2009 1:51 PM | Report abuse

rb63- wouldn't allowing nurse practitioners to provide more services do a lot to control costs even if no other changes are made? Wouldns't allowing people to reimport drugs sold for less overseas do a whole lot to control costs even if no other changes are made? There are lots of steps that can be taken right away that would sure seem to make a huge imapact on our costs. This seems to be low hanging fruit but people want to attack the insurance companies when even the CBO realizes that the public option would end up charging more.

Posted by: spotatl | November 2, 2009 1:54 PM | Report abuse

Health care is an industry with many highly skilled/paid people.

In the US, highly skilled people make ridiculously large salaries.

Therefor, USians will have a large health care sector.

Posted by: yoyoy | November 2, 2009 1:54 PM | Report abuse

There are a lot of things that could reduce costs. Of the two things you mention, ANP training is a good long term strategy for both access to care and costs. Re-importation of drugs is not, and introduces important safety issues. Just think of it this way: we aren't reimporting drugs, we are importing the political will of another nation to take a tough stance with a politically powerful industry in a way that our elected officials won't.

The biggest issue is to fix physician reimbursement so that, at the very least, it isn't totally at odds with the objective of cost control. There are different ways to do this, but over time, the whole sector needs to be de-escalated, and that just can't happen overnight.

Posted by: rb63 | November 2, 2009 2:00 PM | Report abuse

Lame.

When you have filed bankruptcy due to high medical costs and have lived long enough to manage two chronic illnesses only then will you be an expert in health insurance policy.

Posted by: woutgorge | November 2, 2009 2:16 PM | Report abuse

The other big problem with medical costs is the total lack of transparency. All of the transparency efforts have focused on what insurers will pay -- and not on what providers will charge. That has to change as well, because it would likely be much harder for providers to hide behind insures (which is basically what they are doing) in order to justify their outrageous fees.

Posted by: rb63 | November 2, 2009 2:23 PM | Report abuse

"In the US, highly skilled people make ridiculously large salaries."

Oh, that's funny.

Posted by: pseudonymousinnc | November 2, 2009 2:27 PM | Report abuse

the insurance "discount" that's been brought up is another good point (and a problem that many have been talking about but few politicians have bothered to deal with). with meaningless list prices and the employer based model we are left with a situation where there is little to no incentive for reducing costs. since the majority of premium costs are paid by employers who are less prone to changing plans than individual consumers providers are easily able to raise prices since the insurers just pass on those increases. with virtually no incentive to decrease prices (increases dont hurt insurers bottom line since they just pass the cost on) we have created a system that is guaranteed to increase costs. this is the exact reason why the "fringe" has questioned the utility of locking in the current system and the efficacy of mandates.

Posted by: PindarPushkin | November 2, 2009 2:34 PM | Report abuse

actually- to me drug reimportation is more about making other countries stop freeloading off of the US paying full market value for drugs. If a drug company wants to sell to Canada for a certain price then they have to be willing to sell to us for that same price because we allow drug reimportation. I think the US gets it pretty much right on drugs- allow a company to charge whatever the hell they want for a few years, the drug wouldn't exist without them inventing it. And then after a certain period of time allow anyone else that wants to to make a generic copy. Now I just want the other countries that benefit from the drugs we invent to pay their fair share. If we allow drug reimportation then the costs would be shared.

Posted by: spotatl | November 2, 2009 2:41 PM | Report abuse

Well of course this is the issue of the cost problem!!! This is not 'news', this always was the problem.

People like Ezra and President Obama wish to suggest that the problem is Insurance Companies because they are politically vulnerable. But the cost problem is not insurance companies, it is the salaries of doctors and nurses and others that provide health care. Too bad Democrats are too weak to make a frontal attack on doctors and nurses pay.

Posted by: lancediverson | November 2, 2009 2:50 PM | Report abuse

"it is the salaries of doctors and nurses and others that provide health care."


Wrong again. Total doctor reimbursement = 20% of total healthcare costs. Actual doctor take-home pay (pretax) = 10% of total healthcare costs. That means you could cut doctor take home pay by 50% and total healthcare costs would only go down by 5%.

Posted by: platon201 | November 2, 2009 2:56 PM | Report abuse

It's not doctor pay, per se, that is the problem, but physicians not only earn professional fees, they set in motion nearly every request for services that are also reimbursable, including drugs and imaging tests. And increasingly, physicians profit from the performance of these services and hence, have a big incentive to order more of them. There are other issues with physician reimbursement as well, and a few fixes to this one, none of which will be popular with physicians.

Posted by: rb63 | November 2, 2009 3:09 PM | Report abuse

Hopefully, Ezra will provide the reasons for the costs being so much higher as he transcribes the interview. If we knew the actual "why's," we could focus on fixing those issues, if fixable. If we are going to just let government set the price, and medical providers aren't making money, then they will go into other careers, as seems to happen in those countries with socialized medicine.

Posted by: NCDevil | November 2, 2009 3:22 PM | Report abuse

"There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care."

The above sentence says absolutely nothing about why prices are high, or why prices in health care behavior differently than any other market (hint: because there is no actual market).

It's a neat trick he pulls off in trying to assume price controls as the default model. Price controls are a policy choice - a restriction of freedom - that must be justified on grounds beyond just a pre-assumption of their existence (they have price controls and we don't, thus our prices are higher!). Moreover, other countries that use price controls have an advantage that we would not if we attempted to do the same: the existence of a U.S. market that subsidizes their policies. Canada can dictate drug prices because drug makers can recoup that money by raising prices in the lucrative U.S. market. Take that away and health care across the world suffers a tremendous blow.

Other industries here in America see price reductions over time, and do not have price controls. An astute observer would ask why that is, rather than simply pointing out the obvious fact that price controls reduce prices. Of course, the answer wouldn't suit big government pushers like Klein, who also makes no mention whatsoever of costs that are not strictly financial (prices and costs are not synonymous). Klein looks at none of the other costs (insufficient capacity, rationing, intolerable wait times) placed on systems by price controls. These are costs that Americans are simply not likely to accept.

If Klein were serious about having an informed debate, he would ask about all the government distortions placed on health care that prevent normal market forces from working to hold down prices.

Posted by: bgarst | November 2, 2009 3:28 PM | Report abuse

Actually, NCDevil, one of the reasons why physicians can get away with charging higher fees is because we don't have enough of them. Most European countries have a higher ratio of physicians per population, and certainly, primary care physicians, than the U.S. does. The ratio of physician salaries to the average of the population overall in these countries is not nearly as high as it is in the U.S., but it is still well above that average, and it is much higher in the U.S. now than it ever was historically. Taking the average from 8/1 to 6/1, (for instance) however, would not by itself save a lot of money. It's physician practice that is cost intensive, not professional fees per se.

Posted by: rb63 | November 2, 2009 3:28 PM | Report abuse

Is there some way we can give insurers the option to buy-in to Medicare, leveraging that level of bargaining power on providers, in turn for accepting some form of regulation on what they can charge consumers and broadening the risk pool?

Posted by: adamiani | November 2, 2009 3:44 PM | Report abuse

Why exactly does anyone listen to Halvorson? His little packet of charts is amusing for many of the reasons listed above.

Here's a nice little funny from a recent visit to Kaiser:

Kaiser's non-member price for generic ortho tri-novum: $80 for a 30 day supply.

For comparison's sake, same thing at Target is 29.00.

Yeah, Kaiser is cost effective. My tail.

Posted by: JohnInCA | November 2, 2009 3:49 PM | Report abuse

spotatl --

It makes sense as far as policy goes, but the politics of the two goals are very different. Cost control is all about empowering institutions (whether the government or private payers) to make decisions about restricting payments. If you really want to bring down costs then payers have to be able to say "no," to a LOT more claims than they currently are.

But that flies in the face of universality goals, which are all about helping people access the current system. It's very hard to argue that insurance companies need more bargaining power when 47 million people are uninsured and perhaps another 50 million are "underinsured" in ways that make their coverage nearly meaningless. As economic actors, doctors and drug/device co's tend to love universality arguments b/c the upshot is a whole lot of people able to buy their services/products without having to worry about how much that will cost (note: no offense to docs, who also often have strong moral reasons to want universal coverage).

Now maybe if the Republicans were playing a constructive role in this process and taking up the side of one of these two entrenched interest clusters, you could have a negotiating process that incorporated expanded coverage in exchange for more cost control. But as it is the fight is between union-supported (e.g. highly universalist) liberal Dems and scared-to-be-called-Socialist Blue Dogs. Neither of those groups is going to invest much political capital in helping insurance companies deny more claims.

Posted by: NS12345 | November 2, 2009 3:59 PM | Report abuse

NS12345, As I said above, and what has dawned on me only over a great deal of time, they won't invest insurers with more power because no one trusts insurers to use that power wisely. There are a number of ways to address this issue, but address it we must, unless we get really good at reimbursing physicians on a bundled or partial risk basis.

Posted by: rb63 | November 2, 2009 4:53 PM | Report abuse

I'm finding it funny that there are some market true-believers among the commenters who are trying to find a way to rationalize away the role of government in holding down healthcare costs. Yes, Virginia, the most economical healthcare systems are those that are run like public utilities, either publicly owned or heavily regulated. They also offer for the most part high quality care and furthermore seem to keep their populations healthier than the US population (among other factors, of course).

Posted by: michaelterra | November 2, 2009 4:56 PM | Report abuse

"Cost control is all about empowering institutions (whether the government or private payers) to make decisions about restricting payments."

Pssibly. Or, cost control could be all about empowering consumers to make those decisions, by learning the cost of their doctors' recommendations and comparing costs and performance among doctors. If Americans change insurers an average of every four years, they probably change doctors that often as well, so the comparisons are there to be made. All consumers need is more information, plus some minimal regulations to prevent insurers from requiring that uninsureds pay more and to incent providers to post price lists for routine procedures. The cost-lowering will happen automatically as cost-conscious consumers look for the best deals.

Posted by: MOswingvoter | November 2, 2009 4:58 PM | Report abuse

Ezra,
I'm going to have to second the sentiment of commenters above, who ask, "Where has your research been?" You seem to have bought a lot of the claptrap about competition and exchanges without fully examining the international data. Now, it seems that it is too late, politically, for your blog to have much of an effect on the course of current bills, you actually hit on one of the key issues in health reform that would indicate that we need standardized payments...either single-payer or all-payer regulation. Where have you been?

http://healthcare4us.wordpress.com

Posted by: michaelterra | November 2, 2009 5:00 PM | Report abuse

"Canada can dictate drug prices because drug makers can recoup that money by raising prices in the lucrative U.S. market. Take that away and health care across the world suffers a tremendous blow."

Yeah, right. Given that Canada and the majority of the developed world is going to kow-tow to Big Pharma's desired pricing model some time after never, Big Pharma's just going to have to deal with it.

I'm sure that people in other countries who are getting affordable meds are wailing about their "restriction of freedom" all the way to the pharmacy. Glibertarians are so silly.

Posted by: pseudonymousinnc | November 2, 2009 6:27 PM | Report abuse

Klein is just so young and so inexperienced. He needs a lot more seasoning. For example, my doctor charges $100 for a "walk in", but he gets less that $50 from the negotiated fee with my health insurer.

My doctor also leaves free time in his schedule for people who need to see him right away. That free time, though, is not "free" as in no cost. He still has all his fixed expenses.

As far as MRI's and the like, If someone needs a PET scan, an MRI, and a CAT scan, to confirm or reject a cancer diagnosis, he can get that in a week. Try doing that in Canada. Again, there is a cost for high availability.

I would just ask Klein what it would be worth to him to get immediate test if he were to get a preliminary diagnosis of cancer or whether he would be fine with waiting a few months.

The problem with the Klein's of this country is they seem to believe we can cut the costs in half and get the same level of service. No, we can't.

As a mere child, Klein does not really think in terms of getting a dread diagnosis. Give him about 35 years and if we have not trashed our health care system, he will see the wisdom and benefits of doing what we do.

Rick

Posted by: RickCaird | November 2, 2009 6:51 PM | Report abuse

wow, impressive graphs. thank you.

Posted by: schaffermommy | November 2, 2009 6:51 PM | Report abuse

Consider the source. Double check the numbers.

Not that it isn't believable. Just that that whole "trust but verify" thing applies here.

Posted by: mailsjps | November 2, 2009 7:17 PM | Report abuse

"As a mere child, Klein does not really think in terms of getting a dread diagnosis. "

As a mere dunce, RickCaird does not really think in terms of getting a dread diagnosis.

Posted by: pseudonymousinnc | November 2, 2009 9:24 PM | Report abuse

RickCaird, if you need an MRI or scan in Canada for an urgent issue such as cancer you can get it in less than a week. In more rural locations it might be a longer wait just as it might be in the more rural areas here.
We do have a shorter wait for elective tests in most areas here since we have more scanning machines

Posted by: joyis | November 3, 2009 1:01 AM | Report abuse

RickCaird seems to know little of other healthcare systems where, with the threat of a deadly diagnosis, you get tests about as quickly as you do here. He seems to bought into the distortions promulgated by among others Fox News that it is not safe to be sick abroad.

Posted by: michaelterra | November 3, 2009 1:05 AM | Report abuse

Um, one commenter above hints at this, but it seems like Ezra's argument rests on a faulty premise: He assumes that if costs were capped, as they are in Canada, our total health care spend would drop dramatically even if we performed the same number of procedures. Technically true, but that's a fundamentally dishonest argument. If we're going to have an honest argument about the effect of price caps, Ezra at least needs to acknowledge/address a basic Econ 101 principle: But isn't this precisely the point? Price caps generally reduce supply, increase wait times, and result in rationing along non-price factors. In other words, as with so much else he writes, Klein simply doesn't even pretend to address the economics of the situation: With Canadian price controls, basic economic theory suggests that nothing else would be the same; we wouldn't get the same volume of procedures, the same number of days in the hospital, or the same number of surgeries. We'd get the undersupply that plagues the Canadian system.

Now, Americans may on net prefer that world. But it's just dishonest to imply that we can have Canadian-style price caps and maintain the frequency and availability of medical procedures that Americans are used to.

Posted by: richao | November 3, 2009 9:23 AM | Report abuse

Excuse the poor editing above. Here's a corrected post:

Um, one commenter above hints at this, but it seems like Ezra's argument rests on a faulty premise: He assumes that if costs were capped, as they are in Canada, our total health care spend would drop dramatically even if we performed the same number of procedures. Technically true, but that's a potentially misleading argument. If we're going to have an honest argument about the effect of price caps, Ezra at least needs to acknowledge/address a basic Econ 101 principle: Price caps generally reduce supply, increase wait times, and result in rationing along non-price factors. In other words, as with so much else he writes, Klein simply doesn't even pretend to address the economics of the situation: With Canadian price controls, basic economic theory suggests that nothing else would be the same; we wouldn't get the same volume of procedures, the same number of days in the hospital, or the same number of surgeries. We'd get the undersupply that plagues the Canadian system.

Now, Americans may on net prefer that world. But it's just dishonest to imply that we can have Canadian-style price caps and maintain the frequency and availability of medical procedures that Americans are used to.

Posted by: richao | November 3, 2009 9:26 AM | Report abuse

Now, Americans may on net prefer that world. But it's just dishonest to imply that we can have Canadian-style price caps and maintain the frequency and availability of medical procedures that Americans are used to.

Posted by: richao

////////////////////////////////////

In reference to this point -- the question that matters isn't frequency of procedures; it's a question of quality of care.

Even with the lower costs of procedures, these other industrialized systems aren't lagging badly in terms of outcomes (in some cases the outcomes are superior to the U.S.).

The wait times for non-emergency procedures may be longer in some cases, but this doesn't appear to be the case for emergency procedures. Additionally there is a front-end investment in preventative care that we don't have in our current system.

Another side of this too -- the higher cost is probably due at least in part to the high costs of administering a patch-work system. Administrative inefficiencies are dollars that aren't providing health care. It would be interesting to see an actual cost breakdown on the part of providers to see what their own internal cost drivers are.

As a matter of anecdote, a friend of mine practicing at a university hospital tells me that he spends about 20 percent of his clinical activity dealing with paper work connected to private insurers each week. There is no standardization. In the case of Medicare there is, so for him at least, while Medicare may pay less for services, the system allows him to dedicate more time to actual medical care. I would wager that his case is not an aberration.

Posted by: JPRS | November 3, 2009 10:17 AM | Report abuse

If this information is news to Ezra Klein, his credibility as an "expert" just took a major dive. The data screams "single payer system needed" to me.

Posted by: NEskeptic | November 3, 2009 10:35 AM | Report abuse

JPRS: "In reference to this point -- the question that matters isn't frequency of procedures; it's a question of quality of care."

Perhaps. But I was responding to the argument Ezra made.

Judging outcome of care is a dicey proposition. Having lived half my life in Japan, I'm resistant to relying on life expectancy: Living like the Japanese is a great way to extend your lifespan, but if you fall ill with cancer or some other acute disease (or if you have a disabled child or some other chronic illness), I'm pretty sure that on most metrics, the US is the better place to be.

Moreover, you speak of administrative costs, and I'm sure these are important. But something that advocates of reform almost never talk about is the quality of the delivery of care. What I mean is this: Most Americans would be appalled by the conditions in most Japanese hospitals and clinics outside Tokyo (and probably the vast majority in Tokyo). The lack of privacy, the general structural decay of the buildings, the lack of attention from doctors and other clinicians, and so on. (Yes, doctor's visits generally cost under $25, but the visit invariably involves a three-hour wait for a two minute consultation; my doctor friends routinely saw 150-200 patients in a four-to-five-hour morning.) It may be the case that none of these directly impacts outcomes, but they certainly make a difference in the experience of consuming healthcare. Hearing folks talking about the cost differential and explaining that we get nothing (in terms of better outcomes) in return for higher costs would be analogous to affordable housing advocates arguing that Americans should all be happy living in 1,000 sq. ft apartments because one can get a decent 8 hours of sleep in that setting as easily as in a McMansion.

Posted by: richao | November 3, 2009 10:48 AM | Report abuse

We've all heard about wasted treatments that don't improve health outcomes. And that these amount to as much as 30% of the sum of all procedures (including tests, etc.).

As I wrote on my post about the Great American Health Care Bubble (which is about why our system costs so much from a new angle):

"A somewhat trickier aspect of cost is the fact that many routine health care procedures cost more in the U.S. than in other countries. We know that other countries also tend to have wasted procedures also. If a doctor becomes more effective, so that he's on target with his diagnoses and treatments and finishes treating a patient successfully sooner, then such a doctor should be paid more per procedure than one who is less effective on average. That is, a certain procedure that is effective 95% of the time is in terms of fundamental value worth more than a procedure that is effective medicine only 55% of the time.

"Thus talking about wasted procedures is similar to talking about effectiveness and thus connected to the question of pay rates.

"More highly skilled workers earn more because they produce more (more good results in the same hours of work). Therefore, if U.S. doctors are going to earn more per hour, it is then required of them that they become highly effective, in order to balance their high rate of pay with the amount of time they spend per patient. If a group of doctors quickly treat a patient in an effective manner, then their high rate of pay per hour is justified. Therefore to talk of pay rates, while already talking about wasted treatments, would be to discuss the same issue from a different angle, and is ultimately redundant."

---
But the post contains an even more interesting point:

http://findingourdream.blogspot.com/2009/10/great-american-health-care-bubble-or.html

Posted by: HalHorvath | November 3, 2009 11:48 AM | Report abuse

Another thing about cost comparisons is that in only very few countries, none on this list, are doctors in any way not among the financial elite.

Then there is the argument that the cost of living in other countries is less than the US. If you consider Europe, that is most certainly not true. Things cost a lot more there than here beginning with gasoline and ending with clothes and food. While in some other countries (thinking mostly about Latin America here), it is possible to live much more cheaply than in the US, to live at the same level as in the US costs as much or more. So there really isn't a good excuse for doctors to need what they say they do, especially after they have their educational loans paid off.

Posted by: dkmjr | November 3, 2009 1:01 PM | Report abuse

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