Host Marty Moss-Coane, and a few callers to WHYY's "Radio Times," talk with Princeton economist Uwe Reinhardt about proposed health care legislation.
Marty Moss-Coane: We're talking about a reality check on what Americans really want and need when it comes to health care... We welcome Uwe Reinhardt. He's a professor of economics and public affairs at Princeton University.
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MMC: We all know what the problem is in this country when it comes to health care. We're on an unsustainable path in terms of costs but we don't seem to have the guts to fix it. Do you agree with that assessment?
Uwe Reinhardt: Yes, as far as costs are concerned, that's right. We all do agree that there is a problem with cost and that it is unsustainable. As far as the uninsured are concerned, I don't think we all agree. There really are quite a few people who don't think it's that big a deal. For others it's a huge deal. So there's a division of views. The problem with it is -- I always quote (facetiously!) Alfred E. Newman's equation which is that every dollar of health care spending is someone's income, including Fraud, Waste, and Abuse. And the fact that it is income to people means that you can expect any cost containment effort, whether from the private insurance industry or the government, to be fought fiercely by the people who book health spending as income. In our democracy that means it's an uphill battle. I always say, "It's an insurgency that will take at least 10 years to put down!" But I think we have to do it because it is unsustainable. Herb Stein's law said, "If a trend can't possibly continue, it probably won't."
MMC: But that's a very, very gloomy prediction. I appreciate your saying it, but what you're saying is that so many players in the system are wedded to the expense of the system. As we know, it is wasteful in many ways. There are a lot of redundancies. We pay a lot of money at the end of somebody's life. But the system is really designed to keep the status quo.
UR: It is! Part of it isn't just venality. Part of it is really sincere. Take pharmaceutical companies and device manufacturers: they argue that if you reduce health spending, that is "our revenues," then "we cannot deliver to you these wonderful products that we have been delivering." And you have to admit they have! Then the hospitals say, "Look at us! We have a one percent profit margin. Many hospitals are closing." Often hospitals are the major source of employment in a community, so they have a sincere belief that it's tragic to close them. So they make that case. The physicians say, "I'll have to close the practice and retire early because of all the hassle and the little reimbursement I get -- and the high malpractice premiums." So everyone really puts forth a very credible case. That's what makes it so difficult. And then you have people who say even raising the question whether some heroic procedure it worth its cost conjures up pictures of Adolf Hitler. As we saw when the Washington Times had a headline, an editorial, saying, "Efficiency can be deadly," and they put next to it a picture of Adolf Hitler. We have all of the banging into this debate. It's gone totally off the rocker!
MMC: It has. I'm thinking also of when there was talk about some of those end-of-life conversations that then got translated into things called "death panels." So you said it requires an insurgency. Does it also require a president with a bully pulpit to try to address some of these systemic problems within our system?
UR: Well, as I have put it, it requires a General Petraeus who understands insurgents to deal with it! The rule among military people is that an insurgency takes ten to twelve years to put down. But this is a sort of democratic insurgency. These people don't carry self-propelled rockets. They have little bags of campaign contributions. And here's a little secret that the American people may not know. It costs always more than twice to elect a president than the most recent president. That is, every four years the cost of electing a president -- and I'll bet it's true of members of Congress too -- doubles! These poor politicians have to raise those monies. Therefore they cannot afford to offend the source of this money -- which is these powerful interest groups who book health care spending as health care income. It's really a vicious circle. The fault is in the way we finance campaigns. But the Supreme Court just came out and said "throw in more money!" by saying corporations can exercise free speech by making campaign contributions. Can you imagine how hard it will be to have cost containment when the people who are the source of campaign financing are the people whose income you want to cut?
MMC: Well, let me be naive here! There are calls in the bills and from the president for making sure people are not hurt by preexisting conditions, a call to cover more people who are uninsured today. In spite of the system that we have, if Congress is able to incorporate some of that and pass some of that, would that improve our system?
UR: It would improve the plight of lower income families who now often face the choice, do I now go to the doctor when I'm worried or do I just tough it out, or if they go they end up under fiscal stress, even bankruptcy. That would actually be fairly easy to do. And I do believe that if Democrats had, together with Republicans, figured out, "Let's at least deal with the worst of it," you could get that done. I know a lot of Republican policy analysts and politicians who would go along with this. If you look at Senator Coburn's bill, for example, you will find in it at least a long way towards a resolution of that issue. Now that costs a trillion dollars over a decade. That's the Democratic price tag. The Republican probably would be lower. Nevertheless, even a trillion dollars over a decade is only 3% of the $34 trillion we are now projected to spend on health care in the next ten years. So that trillion dollars that everyone calls a huge price tag actually isn't a huge price tag. It's only 3% of total health spending. This habit of expressing everything in ten years has completely confused the American people. They relate that one trillion to our $14 trillion GDP today and think it's a big amount of money. It would be, of course. But you've got to related that $1 trillion for subsidies for the poor to the $155 trillion GDP will produce in the next ten years.
MMC: So we can afford it from your perspective?
UR: Oh yes, we can certainly afford this. The issue is how do you then finance it. It would mean some people, including myself, would pay more taxes, and it might mean that we really have to hunt for wasteful spending and not spend on waste anymore and use those monies to fund the subsidies. Again, I believe in cooler moments Republicans and Democrats could really get together on that.
MMC: But we don't live in a cool moment time!
UR: Not at the moment. I think now it's almost impossible to do certainly bipartisan legislation. That's dead. But even getting a partisan bill through ... is dicey enough.
MMC: You have said that we really don't have a system of insurance in this country -- health care insurance -- but a system of un-insurance. The idea being that if you lose your job -- and sadly millions of people have -- you're also going to lose your insurance, assuming that you get it from your employer.
UR: That's correct. The employment-based system is much loved by the American people and it has served people fairly well. But the problem is, it is ephemeral. When you lose your job, you lost that coverage. You can buy it with your own money for another 18 months, or now with federal support. Nevertheless, even after 18 months it runs out. So this is really not a solution. What you really want is portable insurance that sticks with you no matter where you work. Which means eventually Americans should decouple insurance from the job and have individually-purchased portable insurance. That actually happens to be a Republican idea which I have always endorsed because I don't like the employment-based system for that reason. Democrats always want to shore up the employment-based system and I always scratch my head and ask why!
MMC: You think a system where everyone makes a decision themselves, based on the kind of health insurance that they want, people have -- not to underestimate the public but... -- do people have the knowledge they need to make that kind of smart health insurance decision?
UR: Well, I personally believe that the kind of people who walked into the sub-prime mortgage crisis as they did, and mortgages are a lot simpler than health insurance, are probably not capable of organizing health insurance in a market that isn't substantially regulated through exchanges. But you find the idea of exchanges even in Republican Senator Coburn's bill. He openly talks about exchanges and even referenced the Dutch and the Swiss system, that have exchanges, as models. If you had standard policies that were good and that people could trust and understand, like homeowners' policies are regulated that way -- you don't have to read twenty pages of fine print. If you had those policies at least available on an exchange, I think individuals could handle this market. But you have to structure that market for people.
MMC: And an exchange where plans would compete with each other?
UR: Yes. When you look at General Electric, for example, they have an in-house exchange. It's called the personnel department. And in it the employee benefit department. The employee benefit manager, a good friend of all of us, manages this exchange for all GE employees. It works exceedingly well. All we're talking about for people who are not working for large companies like GE, the state should organize an exchange where they could have the same benefits a GE worker has. That's all these exchanges really are.
MMC: ...One of the issues that Republicans have called for and that the president says the Democrats should at least take a look at is this issue of tort reform, looking at malpractice. Is that a place where the US can save money? Is that a fruitful part of our system to look at?
UR: Yes. It saves money, but not a lot. The Congressional Budget Office looked at that issue and they came up with an estimate of some $60 billion over ten years -- or half a percentage point of health spending. So it won't be the solution but it couldn't hurt to look at it. But there's another reason why you might want to look at it. One is this issue of defensive medicine -- meaning that doctors very often claim, at least, to do things not for clinical reasons but for legal defense. Preemptive legal defense. So they'll do an extra test saying they don't need the extra test, "but if I'm even in court, they'll ask whether I did the test." Some physicians in a recent survey claimed that 26% of what they do is defensive medicine. I find that high. Others have said it's 10%. Some of that might be saved. And this could be a larger saving than the CBO had estimated. But the third one is really the psychological cost imposed on physicians of constantly having this little devil on their shoulder. Every patient is a potential litigant. That is not conducive to good medicine, I think. When a doctor sees every patient as a potential enemy. I think it makes medical practice unpleasant. For that reason we should change it. Now, do we have to study it again? I think, frankly, the president is being disingenuous here. He should have taken this issue more seriously early on because we have already studied this issue to death. There are great scholars -- Mark Hall at Wake Forest, I believe, and Randy Bovbjerg of the Urban Institute and many others -- who are lawyers and health economists or physicians who have studied this and come up with alternative dispute resolutions. We wouldn't really have to study this a lot. We could actually move forward with remedial action. What the Republicans propose is to put a cap on non-economic damages -- for pain and suffering. I think that's a meat-axe approach. Depending on the degree of suffering, injured patients should get more compensation for pain and suffering. That is what these alternative models that have been proposed that actually would not have a one-size-fits-all solution, a cap. They would use alternative dispute resolution. That has all been basically studied to death.
MMC: ... One of the findings was -- and this isn't obviously for everybody and there are cases where people are grievously harmed and sometimes even die as a result of medical care -- that the fact that a doctor can admit a mistake apparently reduces the chance of some kind of malpractice suit.
UR: Yes. This is what they have, of course, at the airlines. When pilots admit they made a mistake, usually there may be some remedial action, some more simulated training, etc., but it isn't held against them. But if they conceal a mistake they get fired. The same is the case here: if physicians could admit a mistake, and things do happen of course, without feeling the boom would be lowered on them, they would report them more easily and probably put systems in place to avoid these mistakes. For example, giving patients the wrong dosages of drugs. The proper remedy there is to have computerized systems where some hand-held device checks that that's the right dose. A lot of these are systemic problems, not even that a physician is negligent or malicious.
MMC: The idea of a checklist or washing your hands -- some kind of basics of health care.
UR: Yes. Atul Gawande's checklist, for example. Which, when you go on an airplane, you see pilots go through that! And they do it sincerely although they have done it for the thousandth time. The thousand and first time, they go sincerely through that list to avoid mishaps.
MMC: ....We have a caller.
Wendell: I'm a big fan of Professor Reinhardt's writings, by the way. Very amusing and very enlightening! ...It seems to me that a single-payer insurer scheme and financing of medical services makes a lot of sense for business as a whole. I wonder if Professor Reinhardt thinks that there's any chance a Republican -- an enlightened Republican, maybe after the mid-term elections -- might try to enlist support from business for something like that.
MMC: For a single payer system?
Wendell: Yes, for business -- whose interest I think that scheme is in.
MMC: That's an interesting question. Professor Reinhardt, I'm also thinking of those car companies in Detroit that are struggling. Part of their struggle is that they have to provide expensive health care and benefits to their employees.
UR: I think the Republicans would reject that idea because they have an alternative idea, which is to say organizing exchanges and allowing people to buy individually-purchased policies that are portable between jobs. Which, Republicans will tell you, would achieve the same thing, and that's getting business out of the need to finance health insurance. They would never go for a single-payer system simply because they do not trust government. So that idea, I would never even contemplate Republicans doing it simply because they have already proposed an alternative to it.
Carl: Good morning! ... I actually worked in the industry but I'm not going to talk about that. My comment really has to do with an issue which your guest brought up which I agree with 100%, and that is the fact that a hospital and the health care system are operating at 1 - 2% profit margins and that flies in the face of the fact that a lot of the vendors who provide products to our hospitals operate at 20 - 30% profit margins. Look at J&J, a darling of Wall Street, touts the fact that they operate at a 27 - 28% gross profit margin. And yet they're selling those goods to our hospitals which are losing money, day in and day out.
MMC: Carl, that's a very interesting point. Let me get Professor Reinhardt to respond.
UR: Well, if hospitals were paid DRG [Diagnosis Related Group] by every patient -- that is, they get a flat fee per case -- and then would have to shop around for good prices from vendors, in some way this problem, in my view, should solve itself. Because a hospital purchaser or a purchasing alliance, of which there are several, could shop around among different vendors of medical products or drugs and then get good prices. So you wouldn't really have to have government get in and regulate this. That sort of thing the market should be able to handle because these are products, not services to people who have cancer. They're products; they're commoditized. And you should be able to get the profit margin further down. The producers of that technology will, of course, tell you that if you do that they won't have money for research and development. And you've heard those stories! But I think this will come one way or the other whether the producers like it or not. Once we move from fee-for-service to bundled payments, and hospitals or groups of doctors get one payment for the whole treatment of a medical episode, they will shop around and bargain sharply for lower prices for these inputs. That's already coming. If you look at the medicare drug price situation, there has been a whole series of shifts to generics which really has been a devil on the neck of the pharmaceutial industry. So the market has really handled this problem.
MMC: Are you predicting -- are you saying, Professor Reinhardt -- that we will move eventually or maybe piecemeal from a fee-for-service system to bundled payments?
UR: I think so, yes. This will take some time to do. I estimate five, maybe ten, years, where we start case by case. First you bundle the easiest, like a normal delivery. You can have a bundled payment for that. A coronary bypass is increasingly so standard, you could have a bundled payment for these cardiac cases. And we'll go sort of case by case and roll it up. There is now research underway to do this by private insurers. The government is putting money down to research it. The Robert Wood Johnson Foundation has done it. I think this will come. Then the traditions in relatively high margin in the device and pharmaceutical industries will come under pressure.
Wes: I appreciate the goal of the insurance exchanges but one problem that I see is that health concern is very complicated so it seems, for example, that if it's regulated that a certain kind of health insurance has to cover procedures that are experimental to some level could go into making the decision as to whether a procedure has to be covered. It seems like a really complex decision. For two different insurance companies to be on the same footing in that kind of exchange, there'd have to be some sort of regulation about what their actual decisions were and what to cover. It seems like that's actually the most complicated part of insurance. If you remove that from the decision-making power of the insurance companies, it seems like the hardest part of having a single-payer system is actually making the decisions about what to cover. It seems like you might end up having to do that anyway just within an exchange.
UR: This is a very astute observation. This is, in fact, a world-wide problem: what do you cover and what don't you cover. In some countries, say England, they have the National Institute for Clinical Excellence where they actually estimate how much it costs per quality-of-life year saved with this procedure. And at a certain point they say it isn't "worth doing: we will not cover it." In the US you cannot even raise this question. You saw the hysterical reaction with "death panels" and so on. So we're not there yet. At some point we'll have to come to this decision. Private insurers in some way already quietly are making those decisions. But there you can say, "Look, if I'm the A-B-C insurance company, and I decide not to cover it, if you don't like it go to someone else who does cover it." So they're in some way off the hook. The problems Americans fear is that if the government does it and prescribes it, then it will be dictated and there's no appeal. So that issue will take at least another half-decade for us to discuss openly. Hopefully with allusion to Adolf Hitler! Just as an ethical proposition, this is a hard one the caller raises here. But it has to, at some point, be made. For example, with these new specialty drugs it will one day happen that in order to buy another year of life for a patient it may cost half a million dollars. The question then is, if that's taxpayers' money do we want to buy life for unknown fellow Americans at half-a-million-dollar-per-life-year? At some point, this problem will stare us in the face, whether we like it or not. We may decide that yes, we do. Or we might say, you know, maybe not. And then Medicaid and Medicare will not cover it.
MMC: And this gets us into -- and this is something you've written about -- this question about American culture, what we value, what we believe in. We seem to be a country that values independence, people making decisions for themselves. But if we're talking about healthcare, the question is whether we're all on our own to figure this out for ourselves or do we all share in a system where what happens to you affects me.
UR: Well, Marty, that is the problem. There are two problems in connection with that. Not everyone is actually able to think through some of these complicated issues. Again, we're a people who had trouble with mortgages! These are complex issues that involve clinical issues -- biological and ethical decisions -- so that's just one thing. Can every patient even digest the technical information? But then the other part of it is that some people are rich and some are not. If you're on your own financially, you may very well decide that, gee, I'd really like to have this drug but I can't afford it. Then the question comes back to the problem whether the government should force your neighbor to buy that for you through taxes and government programs like Medicare or Medicaid or subsidies. You just can't run away. I testified before Congress and one congressman threw in my face that I had said human life is not in fact priceless -- the price of human life is not infinite. Otherwise we would have, for example, equipped our troops better when we went into Iraq! He was very, very upset about it and asked, "How dare you tell me what my life is worth?" And I said, "I'm not telling you what your life is worth. I'm raising the question to what extent do your neighbors have to chip in by force of government to buy you an extra life-year?" That is a legitimate question to debate. Somehow to call that "fascism" is wrong. After all, we do leave a lot of people uninsured in the country now.
MMC: I realize each country has its own system. But have European countries resolved some of these ethical and philosophical issues that we still seem to be grappling with in this country?
UR: Yes, they have. They make these coverage decisions, particularly England, in a very explicit way with NICE, that then recommends to the government whether or not to cover a procedure. Germany has a similar institution which is now, with a new government, under review. Nevertheless, they make those decisions as well. Australia does it and Canada does it. Of course, we look down on these countries because they make those decisions. But at some point, given the huge deficits we face... and don't ever forget, over half of all American health spending is already tax-financed now, over half! ... so at some point we do need to ask, "Is that actually the best way to spend money if you want health?" There is a lot of research that says education is far more important in determining the health status of a population than health care. You might get more mileage in terms of better health by education people better, particularly in how to manage their health -- not to become obese, not to take cholesterol too lightly. That may yield you more good health than putting it into heroic medical care. We need to have, at some point, a rational, civilized discussion that doesn't descend into what we saw last year.
Kyra: Several months ago the American Cancer institute, I believe, came out with a study that stated that it was actually against standard of care to be doing as many mammograms as we're doing, that they should be started later and not done as often. And, from people I work with and so on, it had nothing to do with Obama and nothing to do with the health care debate, but there was all this outcry about rationing. I think this ties into what you were just saying. But I'm just wondering, politically, how do you get around this and how do you get around the issue of saying, "Well, we're not going to practice defensive medicine anymore." How do you establish the standard of care, I guess is what I'm saying.
UR: This particular study was done an independent council of essentially clinicians. Though apparently not oncologists. Although they took studies from oncologists under advisement and came out with a report that said basically doing mammograms on women under forty is not cost-effective because you will detect very few cancers and the cost-per-screening ... they didn't even use costs, they just said the psychological cost to a woman who has a false positive and then has a biopsy and so on, they just said within the clinical realm it doesn't make sense. But they also said something very, very carefully. First of all, they didn't bring dollars in at all. Two, they didn't say it shouldn't be done. They said a woman should discuss that with her doctor whether or not the clinical risk of doing the test, particularly with a false positive, is worth the agony. It was really sort of a heads-up. It is perfectly legitimate for a clinician to discuss with the patient not to do that procedure. The idea then would be, in case of a court case, you can say, "Look, this isn't standard medical practice." But there was nothing in that report, if you read it fairly, that said doctors shouldn't do it. They simply said, "This shouldn't automatically be done." While over fifty it should be automatically done.
MMC: Is it possible to have a rational conversation in this country about our health care system?
UR: I really... have despaired. I've been here for some time [Dr. Reinhardt is German-born]. I don't think it has ever been as bad as it was last year in particular. The question now is, suppose the government changes hands. Suppose the Republicans had the White House and Congress. Will then the Democrats do the same and extract vengeance and simply filibuster everything that comes down the pike? So we descend into deep bitterness? So I think what it might take is to have a president like Eisenhower or, in some ways, Reagan, where you just wouldn't dare do it.