« Freakonomics Radio

456. How to Fix the Hot Mess of U.S. Healthcare

2021-04-01 | 🔗

Medicine has evolved from a calling into an industry, adept at dispensing procedures and pills (and gigantic bills), but less good at actual health. Most reformers call for big, bold action. What happens if, instead, you think small? 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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bring on advertisers. You will want to skip once you ve completed quick survey. You can enter for a chance to win one hundred dollar Amazon gift Card, an conditions apply again. That's pod surveyed dot com flesh for economics, thanks for your help, so I think the general perception is that the american healthcare system is just messed up. Is the american healthcare? system as messed up as most people seem to think it is Absolutely the! U S. Health system is as messed up as people think it is probably more so that Zack Cooper. He is a health care economists at Yale. I think the challenge, which makes it hard to dress is that there are pockets of amazing care, an amazing innovation surrounded by a sea of dysfunction
if there are two fundamental drivers of our broken costly healthcare system, I would say it's pricing failures and inappropriate that is Marty Macsharry. He is a surgeon at Johns Hopkins and the author of the price. We pay, what broke american health care and how to fix it. We did a national survey asking physicians across the country, one per cent of medical care. In your opinion is unnecessary. The average Sir was twenty one percent, if one in five services delivered in any industry is entirely unnecessary. You'd say that where the waste is an that's where we need to focus as we no did before, and the show even doctors respond to incentives and the incentives in our health care system encourage procedures. More than prevention, but it's not just unnecessary. Procedures that mercury is talking about over the past two decades, the number of prescription.
Issued in the U S is nearly doubled. The disease really double. Now we have a crisis of appropriateness, as our health care system is becoming prolific at dispensing pills in peace, features. It was also becoming a massive industry. Today. It includes more than eight, ten million workers and it's still growing faster than nearly any other sector. The jobs have followed the money over the past two decades. The price of hospital services has outlined inflation, by an average of nearly three and a half percent each year before covert hit hospital systems, were making record profits, so were insurance companies with the average american family for paying about forty thousand dollars a year for coverage Many insurance firms have done even better recently, as the pandemic led patients to put off non essential care. So if you consider the primary stakeholders of our healthcare says
health care providers, insurance companies and patients, the big players are, doing extremely well. The stakeholders are making a ton of money, except for one stakeholder, which is the patient, the? U S has the biggest gdp in the and we also spend the biggest share of our GDP on health care about seventeen percent or three, in a half trillion dollars a year among other o YE cd countries. The average expenditure is eight point, eight percent. After the? U S, the next highest is Switzerland, twelve percent. Now you could look at America's massive health care expenditure and think how great, is it that we choose to spend so much of our money taken care of ourselves and our loved ones. For all that money we must be absurdly healthy, but we're not? U S: rates of infant mortality and maternal mortality or shockingly high. We also
high rates of obesity, diabetes and cardiovascular diseases. Life expectancy in the? U S, was beat out Russia, India, all of Africa and parts of Eastern Europe, but we're lag. Western Europe, Canada, Australia, Japan, South Korea, as well as Greece and Iceland. So what exactly are we getting for all those pills and procedures, or maybe the Better question is: why do we need so many in the first place? Here's one clue the? U S does not spend much money on prevention. The centres for Disease Control and prevention is right there in the the CDC spends just one point: two billion dollars a year for all chronic disease prevention activities that is less than four dollars per person. So today, on for economics, Radium, what would you do if you want to get better health outcomes,
without spending the trillions we currently spend. For fifty years we ve been told by hospitals. We can't give you a price when I say the phrase health, care is a right. You say what I say that is a conversation that we have not had in America, and most healthcare reform calls for big, bold action. What happens if, instead, you think small? There isn't stuff that saves fifty percent, it's a series of one percent steps. Is this? vision to America's healthcare mess of one per then solution. It's coming up right after this, this is break economics, radio, the podcast, but explores the hidden side of everything. Here's your host, Stephen!
Abner when the surgeon Marty Macsharry was starting out, he was a trainee Dc General Hospital. This was at the guy remember, run city hospital in Washington DC, one elevator. at Deasey, General was particularly busy and at one point the elevator was broken and the doors were back in the open position or some employee walked in there fell and died, and I don't mean to make light of it. But for weeks afterwards, no one had put a sign or a note or a cone, or are you now tape do not cross or anything and it says if we were not learning from our mistakes and it's late or somebody else, Phelan and didn't die, but hurt themselves, and I thought gosh, whose the charge of this entire ship, whose thinking about every aspect of
safety and reliability of the hospital. Are we so fragment that everyone's just doing their job collecting their pay check and not thinking about the entire ship. The elevator incident stuck with mercury as a metaphor for the entire: U S, healthcare system! I think we have a lot of good people working in a bad system and if you look at the individual's, though often want to do it right, but there are part of a small fragment of health care with its own business interests, and our system is still fragmented, at the incentives are not often aligned in Macao. These earliest encounters with the medical profession. It was not yet an industry growing up in Danville Pennsylvania. I saw my father a physician who treated looking NEA and lymphoma patients How does a the grocery store and at church and people would come up and say that we carry can't? Thank you enough for taking
care of me or my mom? How can you not be attracted to that and then You gotta medical school and you learn more about this public trust and even more amazing? Then you see on the surface. You learn about Banting, the doktor who invented insulin, selling the pie. for one dollar, so everybody could get it changing forever. The life of people with diabetes. You see doctors, sock, who invented the polio vaccine and nineteen fifty four he was told by his friends. You should get patent. On this thing, this could be the biggest money maker in the history of the world. You know what doktor socks said he said now this is the property of humanity. Will sock lifted fine life? Ok, he didn't have fifteen cars and three homes, but he did very well- that was the incredible heritage of the medical profession huh.
Fiddles also had less allegiance to the bottom line. When american hospitals were built, they were built with a charter dead. It getting them to take care of the sick and injured quote regardless of one's race or creed or a bit we need to pay in some instances. Many hospitals were built by churches. They operated in the red fruit decades, supported by philanthropy. Where is Today, today, you see some of the most aggressive, predatory billing practices in the United States. We ve created a term called financial toxicity, which is essentially a complication of care, financial toxicity, meaning that a patient's out of pocket medical costs create a significant financial burden. How common is this? An estimated twenty percent of Americans are currently being pursued by a collection agents
see for medical debt. In a study of Virginia Hospitals, Marty Macsharry found that in one year those hospitals filed twenty thousand lawsuits against patients. For unpaid bills, the majority of the hospitals sued were nonprofits now just to be clear about sixty percent of community hospitals in the U S qualify as non profit, but that word probably does not mean what you think. It means until nineteen sixty nine a nonprofit hospital was required to provide care even to patients who couldn't afford it. That so called charitable care standard was replaced with what is called. The community benefit standard, which is, shall we say, a bit looser and which allows. nonprofit hospitals to operate pretty much lake, the for profit business while enjoying tax exempt status. In fact, nonprofit hospitals often make more money than for profits. We Here it is that money go executives.
Are you for one Forbes analysis of the eighty two largest nonprofit hospitals in the? U S founded es majority than paid their top earning executive between one and five million dollars a year with thirteen the eighty two nonprofit hospitals paying their top executive between five and twenty one point: six million dollars a year. and where does all that money come from? There's one key fact to appreciate that distinguishes hospitals from other businesses. Most businesses tell you right up front what you'll pay for a given service as will hear later, that rarely happens in hospitals which can leave their patients or customers really on the hook. four bills way beyond their means. More
Lemme, carries, study found that Virginia hospitals often resorted to garnishing the wages of the patients who couldn't pay their bills. The average amount garnished was more than twenty seven hundred dollars. The most common employers of these patients were Walmart Wells, Fargo, Amazon and lows. So how did this happen? How do we get from a system where hospitals used to take care of people for free to one and where they are docking paychecks of people with jobs who still can't afford to pay. Following a world war, two we had wage controls in the United States very an horn researches and teaches healthcare economics at Vanderbilt. He also founded the centre for healthcare market innovation. Thus lead me to a fixation on the topic of price and price transparency over the years. Ok, let's go back
to those wage controls. After the war in a tight labour market to attract labour employer started adding fringe benefits to their compensation package. health benefits became one of those fringe benefits by the way. This is not how most countries set up their health coverage during the twentyth century. In Canada, for instance, employers do offer some healthcare coverage, but it is supplemental to what the government is already providing the. U S became an outlier by tying healthcare coverage to employment. At first companies extended these benefits only to the top tier workers who had their wages cap, but it wasn't long before unions demanded insurance for all employees before World WAR Ii. Only ten percent of US employees had health benefits by one thousand nine hundred and fifty five. That number was nearly seventy percent. What me
is palatable for employers was a revision of the federal tax code. If your employer pays, you in the form of health benefits is tax exempt, they pay you in cash. You have to pay tax so that tax exempt treatment, employer, sponsored health benefits, really perverts the definition of insurance. The marginal incentive of how to compensate in the aggregate level of insurance that everybody has an so it's more than just the employee, you're being the vehicle by which we pool risk and purchase insurance. It is this government subsidy in the form of taxes on treatment that is really pernicious. Let me just ask if, when I say the phrase Health care is a right. You say what I say: It is a conversation that we have not had an America at some point,
We're gonna have to have an honest conversation about our limited resources and our limited capacity to provide unbounded medical care to every single person. I believe in a civilised society that some basic level of health care services is appropriate, but right now. We have not bounded that conversation in a book called an American witness, the physician journalist, Elizabeth Rosen thought describes the industrialization of U S health care. It is fascinating. Storing many twist between the rise of employer based insurance and the passage of Medicare Medicaid in the nineteen sixties, healthcare was increasingly paid for by a third party, someone other than the patient. This lack of transparency led hospitals to start charging more but
those increases didn't last forever. Insurers and employers, with the encouragement of the federal government, tried to bring down those rising hospital. us until around the mid nineteen eighties hospitals were fairly free to set the prices they charged Medicare, but Medicare eventually established its own priceless hip replacement would be reimbursed. Ex dollars a coronary artery bypass surgery at why dollars this lead hospitals to adjust in at least two ways. The first was to push higher costs when feasible onto uninsured patients or patients with slim coverage, hospitals, also started, hiring and be AIDS and consultants to treat their business more like a business. this brings us to where we are today. With thirty, eight percent of Americans covered
by Medicare or Medicaid, and over fifty percent who get insurance through their employer. The current trend is for a lot of these employers to drive down insurance costs by doing the job themselves, lotta businesses today are saying: why do we have insurance? That again, is Marty. Macsharry apple has for a hundred billion dollars in cash reserves. That was true when we interviewed Mackay Apple now has nearly two hundred billion dollars in cash. Why do they need a company to protect them from high price bill, so what we are seeing now is a trend towards self ensuring and what you are saying is that employers, like Ici being, are already fixing health care on a small scale. Each e b is a Texas supermarket, Jane. I believe that, where the largest private employer in the state of texas- that's Martin, Otto, the company's c o o and yes, each ii be self insurers, its employees,
so by being self insured, we basically put together through what's come. the third party administrator and that work I've, oppositions and hospitals to whom our partners can go for service partners? Is what Ici be calls its employees relative, Sir Whites, was plans? Offer hours covers a higher percentage of cost and most of them do and the type of Healthcare services that are provided its very complete so It's all of your health care needs. Then dental Maids I carronades The first money has mental health requirements. Those are covered. It may strike he was unfortunate, or at least inefficient, that accompanying that's. Groceries has to simultaneously mastered the art of healthcare coverage, but according to Marty Macsharry for a company like eighty, be it's worth it. They take care of them. employees in their own clinics and they have their own pharmacy planned as they have their own pharmacies, so they
successfully managed the care of their own individuals. More companies are starting to self ensure, especially larger firms, and there are strong incentives to eliminate the insurance middle financial incentives for one, but also the desire to keep employees happy and productive. Eighty be with its user friendly healthcare cover is perennially ranked as one of the best places to work in the: U S, in any case, healthcare, insurance matter. How given person gets. It is the entry point for just about everyone in the Wes Healthcare system. Since insurance is the model we have settled on to pay for healthcare we were, in a world of insurance, Mary Van Horn, again, We ve devolved to world prepaid medical care, much of which we dont value and prices given the lack of economic tension of having the individual in play have really come off the rails,
what has been horn mean by the individual not being in play, will consider how health care procedures and prices typically work I go to see my primary care doc and I have a coffin. He says you know, I think you should go downstairs and have a chest x ray and I go down have have a chest x. Ray takes me three minutes all well and good, and build three ninety seven dollars, net of contractual allowance comes out your hundred ninety seven dollars and I have a hundred ninety seven dollar bill in my hand. Then I have to pay when across the street it's fifty four dollars cash transactions. That's a problem when there are no prices and people are charged. after the fact, through an intermediary like an employer their insurance, that we see mendous amount of price gouging? That's Marty macsharry- and most hospitals, try to do the right thing, but there are instances when
Americans are routinely gouged without even knowing it imagine eating hamburger at a restaurant with no prices, and then afterwards they give you a bill in the bills for five thousand dollars after you, ve digested the hamburger. You'd say that as a system that praise on people who come in Hungary, health care, we're supposed to be an institution, to serve the sick and injured, we're supposed to be there for peace both at a time when their most vulnerable and what concerns burn me about the price, gouging and pray A tory billing in medicine today is that it is eroding the great public trust in the medical profession having healthcare insurance doesn't necessarily protect you from exorbitant billing. the Yale economies that Cooper studies? What is called surprise billing? So this is the idea of the floor. In short person. Does all the right stuff in an emergency goes to mean network hospital, but unfortunate Caesar
mission who isn't in his or her network and the bill later for hundreds or thousands of dollars, these sorts of things financially break people, and a lot of us look on that sea of dysfunction say with were inefficient. We don't offer better air and there's not altogether low probability that touching the system in the right way will bankrupt. You, like that's just absurd and, seemingly We should aim to do better coming up after the break that Cooper, and others have some ideas for how to do better, although not We want is a fan. There are a lot of people in the? U S, health care industry that are particularly excited about this? That's coming up right after this. Fr Economics, radio, sponsored by zip recruiter. If you are a business owner, you know that hearing the right person for role can feel like finding a needle in a haystack but zip recruited.
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since that word, number thirty. Thirty one reason it so hard to reduce health care costs. Is it pay This is, are often hidden. Many prices are negotiated in secret between insurers and providers. It can therefore be a guessing game as to what the patient will be liable for. There was, researcher, who called a hundred and one hospitals that do hearts the jury in the United States and asked what the price of a standard cabbage. Coronary artery bypass surgery. That again is the Johns Hopkins surgeon, and researcher Marty. Mc carry the author of the price we pay. Only fifty three could give him an answer about half of those hospitals they gave. Man. Answer the price of the cabbage operation ranged from forty four thousand to have four million dollars with almost everything in between for fifty years.
we ve been told by hospitals. We can't give you a price now. No one solution, seen that we surgeons give your price when your shot in the chest, but sixty percent, health care is shop, a ball its predictable and We can do a lot better. Mc carries. Sixty percent figure of shopping procedures is higher than some other estimates. In any case, the opaque Basing he is talking about here may be changing sooner than you think in June twenty nineteen President Trump issued an exit, he'd, have order on price transparency in health care. What we did with as executive order. It's essentially provided data necessary for third parties in Silicon Valley or other places, to make it more manageable for consumers to get price information before they actually undertake services presumably not emergency services, that's Tomas, Philips and who, at the time,
we interviewed him was acting chair of Trumps Council of economic advisers. This executive order had two directives. One is to require hospitals, to disclose standard charges for all services and to provide and go shaded charges or cash prices and to Sumer finally format for about three hundred court on court. Shopful services and second one Second, one is for insurers and they have to essentially provide or disclosed some kind of estimates are cost sharing for all covered services essentially allowing the consumers to shop around more across providers. So here's what the president said announcing it. Hospitals will be required to publish prices, reflect what people pay for services you will get great pricing, crisis will come down by numbers that you wouldn't believe the cost of health care will go way. Weighed down so he's a politician. He can make those kind of broad
claims. You are an economist. What's the evidence for that kind of claim? In other words, do you feel there's empirical history in evidence? that prices will come down or, as is more of a theoretical argument. Clearly, this will increase the prize sensitivity of the customers if patients are better price information and that's probably why both hospitals and insurers, against the paper. I know that started as literature is my predecessor, astern ghouls, be who, in their early to die, Roseanne show that life insurance prices went way down. Once there was posting on the internet of their prices in in healthcare price. Transparency led to about twenty seven percent reduction in lab test spending and thirteen percent reduction in well, of course not. Everybody would use pricing information but proxy. choppers would Marty Mackay.
again that is the employer plans, health plans and those fraction of people who are paying out of pocket who, Does proxy sharpers for the rest of us when I go to the is restored. To be honest with you Stephen, I dont look at prices guy's been good to me. I need to get in and out of their fast, but my I'm does she's looking at the poor. of a lemon at one store versus another and shopping based on price. Down to the penny, hurt her friends, may represent ten to twenty percent of shoppers at thus restores in my neighborhood, but they keep prices and check for all of us. The health care economist, Zack Cooper is not as optimistic about the curative powers of price transparency. I initially had thought the price transparency was a huge deal. That's where an economist initially goes to aid. Just isn't.
Like the reason we spend. A lot is not because our prices are transparent. I think operations should be transparent, but doing it isn't going to reduce health care spending. He came to this inclusion as result of his own research. So we look at how individuals consume lower limb, MRI scans that are planned. It turns out that even when the prices are available, nobody uses the price trends. Currency to or even when they face tonnes it out of pocket costs, and how does that make sense, especially to you thinking it through in common, so if it turns out the reason they dont use it and the reason they drive past six. Lower price providers between their home, where they get care, is cause they listen to their doctors. So when we look what explained the price of people's MRI scans. It was all explained by the referring sedition, a couple things to say about this: one patients aren't used to finding
of care prices, so it may take a while to learn about this option and to get acclimated also, as with any economic activity, there are behavioral elements to consider. Two habits, for instance, are hard to break also. We trust certain people, our own doctors, presumably more than we trust others. And finally, the path of least resistance is an appealing path. All that said trumps executive on price. Transparency certainly got the attention of the healthcare industry. There are a lot of people in the: U S: health care, industry provider, payer organizations that are particularly excited about this. That again is Larry. then Horn, the healthcare economist from Vanderbilt. He played at least a small role in the price transparency initiative. His passion for the topic was mentioned to present Trump by a mutual acquaintance
the economist art laffer that resulted in the president reaching out in having me come up and spend a little time chatting with him about it. I basically made a point that we have now. Eighteen percent of the: U S economy were Americans, are making purchase decisions every day without any idea what the prices and thus fundamentally kind of an American as Van Horn said most of the health care industry was opposed to the executive order on price transparency. I asked him for what reasons exactly well, let's go through number one. These are confidential. Business contracts be contracts that exists in many sectors of the. U S, economy, may be meaning business to business, that is, hospitals are directly negotiating these prices with insurers, not with patient and you're setting a dangerous precedent by taking a gag orders off of confidential data, be contracts. My reply to that one is yes, but no. These aren't be contract
because, when my pay or negotiate with my provider and they legally and join me to pay money according to the contract that I have no visibility into an entire a different world and its meaning, different world when the payer is the government, as in the case of Medicare. Correct short, so that's one thing. The second point: they gave argued is there will be seclusion and prices will go up. Well, if you ask We believe that why are you fighting so hard to keep? This is a really that you're such a great agent for the public interest. I dont believe but the market dynamics would support such conduct. I believe that markets are much broader. Even in oligopoly markets where you say there be coordinated pricing. The reality is that'll be highly visible to everybody, including the after you and in the OJ. So I don't think that argue holds water either, not long after trumps,
find the executive order on price transparency. A lawsuit was filed against it by the American Hospital Association. the National Association of Children's hospitals and several other hospital groups. They argued that the price transparency directive violated, among other things there. First amendment rights, the defendant in this lawsuit was not president trump This man, I'm Alex Aser- and I was the twenty fourth Secretary of Health and Human services serving from January, two thousand eighteen through January of two thousand twenty one, great em, What are you doing now? I am a sleeping Asia Her was named as the defendant because his department, each Hs, is responsible for executing, The executive order on price transparency, as well as other executive orders, the Trump issued on health care reform, calling for lower drug prices and better access to tell a health service. beyond these executive orders. The Trump administration pushed a variety of healthcare reform
legislation. Those are very durable legislatively authorized. rule so not by justice signing of the pen by the president, but these are actually very by partisan things here is how Aser characterizes the Trump doctrine on healthcare we were able to. Actually, I think, restructure healthcare and build at all or completely round the patient at the center Selina. For too long now, the patient has really been acted upon. The patient is then just subjected to procedures, because we pay for procedures and the patient hasn't been empowered, actually be part of a system that leads to higher quality and lower cost. We had so many distortions really dating back to the nineteen sixties, and we tried to fix those distortions, for instance, rather than continue to focus on paying for procedures, we started Pang for outcomes, so this is what call the total cost of care initiative where we will pay providers
a total amount of money for a year, and they can work with you to improve your health to keep you out of the hospital. Keep you out of a nursing home. And that could mean they might buy you air, conditioning at home or send in meals at home or do home visits the social determinants of health. We talk about to keep you healthy and out of those institutions. if they reduce cost they'll, get a hundred per cent of that savings, and if you cost more money, then, though, eat a hundred per cent of that cost, and so These kinds of initiatives are, I think, going too he viewed a decade from now is having fundamental We changed how healthcare is delivered in the United States in a way that puts the patient at the centre, not our institutions and not our insurance companies. were now realising that we have been doing too much as physicians. That again is the Johns in surgeon, Marty, Macsharry and men.
at times it was with good intentions. Sometimes it was driven by the perverse financial incentive but we are now seeing a movement of doctors asking hey: can we treat got problems with healthy foods Can we start treating joint problems with yoga or treat diabetes with cooking classes? Maybe the first line treatment for hypertension should be. Adaptation or changing your social environment and Maybe loneliness is one of the greatest public health epidemics that stresses the body, physiology? These are the root issues that we need to be tough. About, and the new movement to address, root, causes and love style reasons for bad health is even while today, but the U S, health care or set up, as of now still makes it much easier to get paid for treating illness than preventing it. You So after wonder when an industry makes up seventeen or
eighteen percent of GDP, trillions of dollars and millions of jobs. How likely are we to get the kind of reform that Marty Macsharry and Alex Aser and others have been talking about today. One Encouraging sign is that the lawsuit filed by hospital groups against the price transparency order was rejected by an appeals court. As of January, first, hospitals were required to publish their prices, a stipulation requiring insurance companies to publish their rates goes into effect next January. Drug discount prices are also included in that twenty twenty two rule, but how much will hospital price transparency really matter? One potential problem, the fine for not posting prices, is three hundred dollars a day or around a hundred ten thousand dollars a year? Is that a big enough incentive for or a multi billion dollar hospital chain, it brings to mind the study
We described in our first for economic spoke about a bunch of day care centres in Haifa, Israel. Some parents were routinely lay in picking up their kid, so the management decided to invoke a fine three dollars per incident per child. The fine would be added to the families monthly bill, which has just under four hundred dollars. So what happened after the fine was enacted. The number of late pick. Ups doubled. Why? Because a fine is also just a price, and if the prices low enough, it's worth paying. Larry Levitt Health Policy executive with the Kaiser Family Foundation wonders if hospital. Fine may teach us all the same lesson while the Trump Administrations new price transparency requirement is quite sweeping. He treated the enforcement of it. This week, a maximum fine of three hundred hours per day, the technical term for that is chump change,
I wonder, how many hospitals will just pay the fine? Recent Wall Street Journal Investigation found another way for hospitals to get around the price. transparency regulation without even paying the fine hundreds of hospitals have embedded code in their websites that prevented Google and other search engines from displaying pages. With the price lists The journal reporters rope. The price information is technically on the hospitals website. As one information science, professor told the journal, but good luck finding it it's one thing not to optimize your site for search ability. He added it's another to tag it, so it can't be searched it's too early to say how the Biden administration will further trumps healthcare reform initiatives or perhaps come at different angles. What is clear is at. The Democrats also believe there is a massive amount of blood in our medical system with too much money paid out too
many arms of the healthcare hydra. How much blue here's? What the healthcare economists, David, Cutler veteran of the Obama administration told us not long ago. We have a three and a half trillion dollar medical system, and our best guess is that a trillion dollars a year is unnecessary. One feature of healthcare reform, as with most reforms, is that the reformers lake to take big swings, the big swing would be something like Medicare for all or get rid of private insurance. In some combination, like that war released a medium swing. It media swing, is patch up here. they see a and focus on costs, but what about? Instead a series of little swings? That is what Zack Cooper the Healthcare economist Yale. That's! What he's been thinking about Yes, the broad idea was it was getting close to ten
and could think a little more about doing things that made the world better and I give a lecture. I showed a really big insurance cover but the need to do randomize trials and this cup, it was spending? billion a year on lower limb, MRI scans, and it turns out if you could get patients to just go to the place closer to their house? They would have saved a billion which Lamb was about one percent of spending and again The stage and senior executive came up into hey. This is great, but we don't want research that tells us how to save one we want to do. The research tells us, how does a fifteen percent? What did Cooper tell em there isn't stuff. This is fifteen percent is a serious. Half percent, or one percent steps Cooper realised that pretty much everyone who thinks about cutting healthcare costs has the same idea as this insurance executive.
Yes, you can save fifteen or twenty or twenty five percent- the change isn't worth making. But what, if Cooper, thought what? If he could come up with a whole bunch of one percent changes? Instead, he was so excited by this notion that he reached out to some other healthcare economists. He told them. He was looking for legitimate, viable evidence based policy ideas that could trim at least a little bit from the health care Hydra and thus was born the one percent steps for healthcare reform project. It's a compilation of three to five page briefs from folks who, I think, are the smartest health economists in the country, where each brief is saying, look based on the research that they ve done. What are discreet, tangible steps that we could take that each would reduce health spending by in a half a percent and then cumulative we adding those ten to fifteen proposals up, can reduce healthcare spending in the. U S by
hundreds of billions of dollars without the type of huge interventions that we often see in the presidential debates. So what are some of these one percent proposals? Coopers own idea is about spittle they dont have many or even any other hospitals near by give a town where my father lives, which is Bennington from on there's a single hospital there that doesn't face any competition and it turns out that about twenty percent hospitals in the. U S, look a lot like that Cooper and some other economists analyzed hospitals around the country and they found two key facts. The first is the when hospitals or monopolies they have higher prices and prices that are really quite a bit higher temper to fit percent and secondly, if quality that's worse, the hospitals are the largest area of healthcare spending. In the U S and these twenty percent of fifteen to twenty percent premium,
on them. How do we set prices in regions where there is competition in most markets? An economist would expect that competitors would rush in when there's profit to be made, but it is lot harder and more expensive to open a second hospital than this openness gas station repeats the place, especially the small city or rural area. I just did I think there is a real way to introduce meaningful competition. So, what's Coopers solution, it sort of mixed the economist hairs in the back. I next stand up come on. It's ok, you can say it, but I don't like price regulation reflexively, but I think that's where we are price regulation, That's almost never the answer an economist gives well, as so, I think it's I think it's worth, the position where we need to introduce price regulation in these markets, because these markets- frankly, are natural monopolies. The way you can think about
the health care system and possible operating a monopoly markets is at worst, there giant sucking machine that sucking me out of very, very hard working folk sewer, doing their best to pay very, very high insurance premiums and seeing that transfer to the healthcare system, which is primarily staffed by some of the wealthiest people in the country and so on. I'm not getting a Christmas card from most monopolies. It is, but I don't think we have a choice. Ok, so that's one proposal from the one percent project another based on research by Jason, abolition and John Gruber, is about how people choose a health insurance plan. We can't reasonably hope that folks can choose between a hundred different plans and ACT
So if we constrain the choices, people have they make better choices again. This notion, constraining choices, is not what economists usually preach. Their rule of thumb is that more choice is better but ABBA look and Gruber found that many of the extra insurance options were low quality and If we maybe have a default option that looks at you and says based on who you are and what you spent over the last couple years, we're in a default you into the best plan for you that that actually willing increased competition and create strong. Incentives for insurers stood to lower prices. The insurance industry is cast. as the villain and the prophet maker in a lot of this and its obvious to me at least that there's some good cause for that. Are they as intentionally and transparent?
as many people assume them to be, so it only there's any body with a monopoly of virtual monopoly of advice in the system. There are two things to think about. We think that insurance companies, the first, is higher healthcare costs really are by us. So yeah, I get your bill from your insurance company in It seems really really high were that cause the underlying causes of health care in the? U S his high another, some profit margin mixed they are, but most of it is the hospital in the dock. Devices. The second thing is because of the affordable care act. We put in what are called medical ass ratios, which say that a certain percentage thereabouts eighty per cent of will ensure takes. It has to go out the door to cover healthcare costs, thirty cents, profit caps and sit or firm. Look. You can only make twenty percent of profits the way to make more profit and absolute dollars is to grow the pie and so
It's a perfect storm of circumstances to generate a system that raises costs are lower now one of your one percent colleagues, John Gruber, was involved in the creation of that scheme. Do you think that was an oversight? If you look at the history of the past in Edinburgh does around affordable character. It was the economists who were pre against the medical loss ratio elements. There was a big push, I think, from the political folks to say: look. We can't require everybody to have insurance not somehow constrain profits, and so I think that's like the ugly space where policy meets politics in the. U S here, There's another one percent solution that Coopers colleagues have been working on, so it turns out the about. Fifteen percent of the Medicare budget is spent on postage care, which is
this provided. Basically after you ve, been in a hospital post. Acute care can happen in a variety of places in the patient's home, with home health visitor in a skilled nursing facility or in what is called a long term care hospital. and long term care hospitals are interesting. There, really distinct from skilled nursing facilities. There sort of an ministry of Construct, which grew out. The way the Medicare Fee for Sir, this programme was built in the early eighties. They started a small group of hospitals We had the Saudis, but they were paid work, a more than any other post acute provider and What you saw happen is something we see across healthcare system, which is that a group of folks, often private equity firms, realise that this particular group of providers, in this case long term care hostels, paid way more than anybody else for the same thing, and then they
investing in them and they start popping up across the country. Well and meeting were customers yeah exactly end. The become really hard to get rid of the economists, Amy Palestine, We're on a of and Neil Marconi did an analysis of these long term care hospitals and they drugs it. Always they are they offering better care costs while we pay them about thirty thousand more Bert case than we do, anybody else am dancer turns out to be no things are really good. Example of sheer waste. There's nothing in that sector that provides good, sir. run seeking in it raises spending by about four billion a year. So it sounds like much of what you describing up and down the line is what you economists call rent seeking re extracting profits without adding value, but there are considered sees attached rate those rent seekers are people and
firms and shareholders and so on. Let's imagine that all of you're one percent solution. Proposals were ultimately adopted, at least to some degree who are the constituencies. that lose out the most and how much too they lose when we think about waste in the? U S: healthcare system, we need to think that that waste is somebody income, and it makes it really really hard to tap out and what that's Let me do my own work. I think a lot about the political economy of the: U S, healthcare system. It turns up members of Congress literally get more money, when health spending goes up in their district, and when they do things that steer benefits to healthcare providers, the form of higher payments, They get. A huge amount of Additional money, encamping contributions and so we favour system their wars. Politicians for taking steps that re spending with such a key.
Located system. You can see why so much previous healthcare reform has attacked very large targets. The problem, as that Cooper points out, is that those large targets have large constituencies attached with all sorts of entrenched interests and a lot resources to fight. That's. Why he's betting on the one percent solution and it's a bet that is starting to pay off at least a little bit? In December of twenty twenty present trumps, and into law as part of the curve to release funds may as a package that had to provisions related, surprise, billing, surprise. Hospital billing, you may recall, is another of Coopers research areas. His paper on the topic was published in the, did your journal of political economy. One part of the law was able to hold harmless provision which basin
He says: look if your patient season at a network provided it can avoid. You can't be billed directly by them Provider you're only going to face the usual cost, sharing that you get under normal circumstances and second, it established process through which says since ensures could settle disputes. Yes, there was a payment to speak, so this was The textbook example for us of what could be done. It was a cool things. They paper that way like the journal political economy? How she got married ending up in Congress awesome. Congratulations thanks and I think it actually will make a difference. take time to see how much difference that legislation makes and to see how many other one percent solutions get adopted, but next,
time on the show we look into one segment: Healthcare Industry- that accounts for way more than one percent of spending at sixty seven percent of acres overall budget and its almost one percent of entire federal budget, and you know what the legal definition of fraud, but I think you're gonna see some of those firms get pretty close to the limit. The very strange economics of kidney care in the dialysis industry? That's next week until then take care of yourself, and if you can someone else too, we cannot just radio is produced by sticker and rendered radio. We can be reached at radio at freak anomalies that come. This episode was produced by Jack Le Pen's our staff also includes Alison Craig low Mark Mccluskey Gregg Ribbon Married Duke an immaterial. We had help week from Jasmine, cleaner. Our theme song is Mr Fortune hitchhikers. All the other music was composed by
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Transcript generated on 2021-04-02.