The new health care debate

National discourse on health care reform changed today. From this day forward, anyone who wants to propose or attack any health care policy proposal will need to tell where he stands on a report by the Institute of Medicine, part of the National Academy of Sciences.

The report made an astonishing assertion: that 30 cents of every health care dollar spent in America may be wasted. That’s more than $750 billion a year, three quarters of a trillion dollars. More than the entire defense budget. If health care costs could be cut by that much, it wouldn’t be necessary to give people vouchers that don’t actually pay for the care they need (the Ryan plan) or require that people have private sector medical insurance or pay a penalty tax if they don’t (the Obama plan). Even if only a fraction of this amount could be cut, it would help either party implement either plan, and create a cushion to allow us to pay for new miracle drugs and machines going forward.

Before I go on, it’s fair to wonder whether the blue-ribbon bipartisan panel obtained this number from someone’s lower gastrointestinal tract. The report says it added up estimates of money wasted due to unneeded medical services, needless administrative costs, overcharging, and fraud, among other things. Fraud was one of the smaller items but still ran into tens of billions a year. How do you cost out overcharging and administrative costs? Compare costs from hospital to hospital and state to state, and assume that everyone should be able to get by on the lower costs reported. Needless medical services is more subjective, but they did offer some examples of what they considered needless, like repeating a colonoscopy within 10 years of an initial one, and doing a brain scan on someone who passed out but didn’t have a seizure.

My sense is that it’s hard to change the system in this area, because doctors have a stout tradition of doing whatever they think best and don’t you dare second-guess them. But peer review in hospitals and HMOs has neutralized that to some degree. An easier way to change the system is to compare the different state systems, figure out which ones are killing the fewest patients, and impose those systems nationwide. This is actually beginning to happen in the hospital industry, because it’s easier to control costs than to keep going back to employers and insurers and public officials demanding more and more money when health care costs have been rising even faster than West Texas Intermediate light sweet crude.

Someone figured out that compensating doctors and hospitals for services rendered creates a financial incentive to prescribe more drugs, order more tests, perform more operations, and Hawaii has been leading the way in trying an alternative system that ties some compensation to results: how many patients actually get better, and how many have their blood sugar and blood pressure and cholesterol under control. This has enormous potential because it’s cheaper to pressure a patient to eat right and exercise than to prescribe several different drugs to counteract the hamburger grease coursing through his veins. HMSA, Hawaii Pacific Health and Queen’s are among those working in this direction.

I have been looking online for contrarian views of the new report, but so far only find a guy at the National Center for Policy Analysis, a think tank that gets a lot of money from the insurance industry and is cool to global warming. The report might not tip the current political debate on Obamacare versus vouchers but when officials try to solve the actual problem it could be very important.

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