Efficiency Experts

by dday

The science is in, to borrow a phrase, on the US healthcare system. It costs more and treats less than comparable systems worldwide, and as a result America is less competitive and far less healthy.

"Our health-care system is fraught with waste," says Gary Kaplan, chairman of Seattle's cutting-edge Virginia Mason Medical Center. As much as half of the $2.3 trillion spent today does nothing to improve health, he says.

Not only is American health care inefficient and wasteful, says Kaiser Permanente chief executive George Halvorson, much of it is dangerous.

Those harsh assessments illustrate the enormousness of the challenge that awaits President-elect Barack Obama, who campaigned on the promise to trim the average American family's health-care bill by $2,500 a year. Delivering on that pledge will not be easy, particularly at a time when the economic picture continues to worsen.

That's a paradoxical final statement. Delivering on the pledge should be as simple as removing the inefficiencies in the system, which can be viewed in working models in every other industrialized nation in the world. But that's not how the political ball bounces here in the greatest country since the dawn of man. While it pains me to say that Newt Gingrich is making a bit of sense on this question, he's ignoring the realities of where all the useless spending flows. In fact, everyone is by just calling the problem "inefficiency".

A high-performance 21st-century health system, they say, must revolve around the central goal of paying for results. That will entail managing chronic illnesses better, adopting electronic medical records, coordinating care, researching what treatments work best, realigning financial incentives to reward success, encouraging prevention strategies and, most daunting but perhaps most important, saying no to expensive, unproven therapies.

"There is more than enough money in the system," said former House speaker Newt Gingrich, who runs the District-based Center for Health Transformation. "We just are not spending it well." [...]

With those sorts of variations, the Dartmouth team concluded that as much as 30 percent of medical spending -- or $700 billion -- does nothing to improve care.

Even if only a third of that could be invested in critical programs, "imagine the possibilities," said Peter Orszag, head of the Congressional Budget Office, who was nominated last week to be director of the Office of Management and Budget in the Obama administration. "Given the scale of it, I am puzzled as to why we are not doing more to improve the efficiency of the health system."

Of course, when Gingrich talks about "not spending money well," he's talking about keeping treatment away from those who need it. But what that inefficiency means in practice is reflected in this horror story, which shows you where that staggering amount of money goes that doesn't improve care - into drug and insurance company coffers:

The study cost $130,000,000 and included 42,000 patients. It compared the effectiveness of four types of blood pressure drugs: a calcium channel blocker, an alpha blocker, an ACE inhibitor, and a simple diuretic. The diuretic performed best. It was the sort of finding worthy of celebration. Health costs are too high, and rising too quick. Our flabby society gets bad readings when it straps on the blood pressure cuff, and soon enough we'll all be on these drugs. And here were study results saying that the diuretic, a generic drug which sells for pennies, outperformed its pricey, patented competitors. So what happened? Not a whole lot [...]

Diuretics sales jumped, but only by a few percentage points. "[They] should have more than doubled," says Curt Furberg, who chaired the study. And in a world where doctors prescribe medications based on a simple reading of the latest evidence, maybe they would have doubled. But we don't live in that world. We live in a world where pharmaceutical companies have big budgets and sophisticated public relations teams. Pfizer, for instance, put up $40 million to ensure that their Cardura, their alpha blocker, was included in the study. That proved a mistake. Patients on Cardura were more than twice as likely to require hospitalization for heart failure [...]

The basic reality was this: The pharmaceutical companies had a skilled team and a lot of money promoting their drugs. No one was promoting the generic diuretics. Folks looking to things like comparative effectiveness review to save the health care system should take the story seriously. Evidence is only effective if physicians use it. And right now, they have no real reason to use it. Even in a system this expensive, there's no internal incentives to aggressively cut costs. Maybe it's time there were. If doctors were paid by capitation -- if they got a fixed amount of money per patient, and they kept whatever they didn't use, as happens in England -- it's hard to imagine they wouldn't have been more interested in these study results.

I believe Peter Orszag, a very sharp economist, and the Obama team are listening to these complaints about "efficiency." They've set up discussion forums on the issue and allowed high-level policymakers like Tom Daschle to respond personally. So, let's be clear - the best cure-all for the American health care system would be to remove the rapacious greed at the heart of all this waste. Drug companies and insurers spend less on care and more on administrative and PR costs because that's where the profit maximizers are. They have no incentive to deliver better care, and are in fact harmed by doing so. Until profit can either be driven through providing care (which is kind of a Rube Goldberg formulation, but possible), or profit is completely removed from the system, there will not be meaningful progress on health care. Us DFHs are always told that single payer just isn't politically viable, so what's left is to talk about "efficiency" and "waste" and dance around the meaning of the words, which is "middlemen making profit off of treating human beings' medical problems."