Healthcare: A popular model for failure?

by Ken Feltman

I do not want the Congress or the country to commit fiscal suicide on the installment plan.
– Senator Everett McKinley Dirksen

Fourth of a series

A few shrewd observers of the Obama White House have reached a conclusion: We will and will not have healthcare reform. In other words, a reform bill will pass and the president will sign it with great fanfare. What will that bill look like? Either it will be watered down, passed just to allow President Obama and Democrats to check off a campaign promise but reforming little that really needs reforming – or the bill will be “rahmed” through the Congress, with virtually no Republican support and full of unintended consequences that will bedevil patients and medical practitioners for decades to come.

Some detractors call Obama’s tactics cynical because he is not addressing the supposed real causes of the current crisis. The president keeps saying that the United States must control runaway health spending. A new report from Obama’s Council of Economic Advisers bolsters Obama’s argument and details why controlling health costs is critical: Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person. If this trend continues, the CEA projects that healthcare spending, which was five percent of the gross domestic product in 1960 and is estimated at about 16 to 19 percent today, would grow to 34 percent of GDP by 2040.

What do we really spend and consume?

Imagine the United States devoting one third of the total U.S. economy to healthcare. A saving grace of the current U.S. healthcare spending is the fact that we export billions of dollars worth of medical technology and equipment. The export figures show up in different columns of the federal budget so most people have no idea that the net national spending on healthcare is far less than the headlined expense figures being tossed around in the current debate. Our federal bookkeeping makes analysis impossible. Anyone attempting to come up with a net-after-exports figure is attacked from all sides.

Even so, exports are not a viable offset to domestic spending because the ability of our export partners to continue to absorb escalating levels of medical imports is limited. No wonder Obama says that we must get healthcare spending under control. But will the plan that Obama seems to support do that?

We know what drives healthcare spending. Americans consume more costly medical services than people anywhere else. Americans pay more for those services. On a population-adjusted basis, the number of CAT scans in 2005 was 72 percent higher in the United States than in Germany. U.S. reimbursement rates were four times higher. Knee replacements were 90 percent more frequent than in other wealthy countries. In 2005, Americans got 750,000 knee and hip replacements, up 70 percent in five years, according to a respected authority.

All this spending on healthcare must mean that Americans are healthier, right? Longevity figures do not support that conclusion. Even adjusting for the fact that homogeneous populations should have greater longevity than countries with large immigrant populations, something seems amiss.

The individual patient comes first

What we are confronting is a system that reflects national values and the consequences of those values. Like almost everything else in the U.S., healthcare policy starts by putting the individual – the patient – at the focal point. Other countries have a group-centered focus. Our truths and myths concerning the benefits of rugged individualism have led to this conundrum: We place such a high value on each individual that we cannot as a group limit treatments or spending. Does stressing individualism threaten to bankrupt the whole country?

The system is centered on treatment for the individual patient, not on national norms or outcomes research.

Patients and their families demand the best treatment and care and seem to believe that the quality of care is measured by the number of tests and procedures.

Medical professionals are entrepreneurial. They are dedicated to treating their patients but they are also individuals with all the rights that individuals can claim in U.S. society. For decades they have gone to great lengths to avoid centralized medical recordkeeping because they see it as a step toward dictating treatments.

Medical practitioners demand the freedom to prescribe the treatments and drugs that they conclude are best in a particular case, despite evidence that the treatments or pharmaceutical products may have little or no value in a particular case.

Most hospitals and doctors are paid on a fee-for-service basis and are reimbursed by government programs or private insurance. This payment system encourages doctors and hospitals to provide more services to earn more money.

Practitioners and patients favor new medical technologies, which are expensive.
Unfortunately, what pleases providers and individual patients costs the country a great deal of money.

Government has limited ability to drive down costs

The Obama administration made a great show of the agreement reached with hospitals to accept cuts in the reimbursement levels that Medicare and Medicaid now provide. This is one area where the cynicism charge may apply. Sure, the hospitals are willing to take less for Medicare and Medicaid patients; the hospitals are making up much of that foregone revenue through a government pledge to increase other reimbursement levels.

Will the shell game fool the public? It seems to be fooling some people now. If this shifting of costs from the working-age population to seniors and the poor becomes law, how long will it be before senior citizens and advocacy groups for the poor figure out that they have been conned? In effect, working Americans and the young will benefit at the expense of their parents and grandparents and the poor. And remember: The self-indulgent baby boomers are just beginning to become senior citizens. This is a recipe for confrontation down the road.

The Obama administration believes it has no choice. But the proposed solution will cause an outcry of resentment and will fail to cure the root problems.

Washington has had little room to maneuver to control spending. Naturally, Medicare and Medicaid are being squeezed as the government tries to control costs. Senior citizens and the poor may see their quality of care diminished. But in terms of controlling costs, it is a losing battle. The government programs for the elderly and poor are expected to increase from six percent of GDP today to 15 percent in 2040 as baby boomers receive more medical care, regardless of reimbursement cutbacks and rationing of treatments and care.

Spending on healthcare is already determining national spending priorities. Money that could go to other national problems is soaked up by healthcare. The situation will only worsen.
Healthcare for the uninsured is a winning issue

Obama has a winning issue when he stresses the need to provide coverage for the uninsured, but we should not confuse having coverage with having more or better care. Covering the uninsured sounds good. It makes for good speeches. It makes for good photo-ops, as we saw when the president summoned the heads of major healthcare groups representing doctors, hospitals, drug companies and medical device firms to the White House. All pledged to do their share to cut costs. Really? Tell me, do you believe the American Medical Association can control America’s 800,000 doctors, most of whom do not even belong to the AMA?

Obama is practicing prudent politics by letting Congress focus on high visibility, emotional issues that have limited cost consequences. For example, the plans advancing in Congress would provide insurance to most of the 46 million uninsured Americans. This is popular and seems the moral thing to do. But studies seem to show that covering the uninsured will not improve their care very much, while the cost of uninsured care is not as significant an issue as portrayed in the media. Uninsured care is estimated to be no more than about six percent of total healthcare spending today. Medicare, Medicaid and other government programs pay for about 40 percent of the total, with hospitals and healthcare providers “paying” for most of the rest that cannot be collected from the uninsured. These hospitals and providers shift the cost of the uninsured by increasing their charges to insurance companies and paying patients.

Of course, some claim that the extra coverage will bring a huge increase in demands for care. The facts seem to indicate that the increase would not be a significant part of overall healthcare spending, just a shift in how the country accounts for the spending. How much healthier today’s uninsured would be with government-mandated coverage is unclear because the uninsured do receive care today – $116 billion worth in 2008, according to Families USA, an advocacy group. Beside that, remember that Obama is planning to downgrade the care than the poor receive, so extending care to the uninsured poor will not be as costly tomorrow as it would be today.

A silver bullet that will not hit the target?

No doubt the bill that Congress sends to the White House will include some provisions intended to cut costs (“bundled payments” to hospitals, “evidence-based guidelines,” electronic recordkeeping). Past scattershot measures have rarely affected healthcare spending. What is needed is a fundamental restructuring of the entire healthcare sector, including the impact of exports and creation of a better accounting system so we know what we are spending. That is tough to do, as the current debate shows. Still, Obama is determined to sign a healthcare bill in the Rose Garden, with smiling Congressional leaders in the background.

The best guess by those who are closest to the White House is that the president may end up doing what others before him have done. It is easier to pretend to be curbing healthcare spending while expanding coverage and fiddling with the the accounting. Presidents have done that for decades. That is why most industries tied to healthcare see this developing “reform” as a good deal. That is why so many have lined up behind the Obama effort.

Those who make their money in the healthcare industry believe that Obama’s silver bullet will not hit the target.

About Radnor Reports

Ken Feltman is past-president of the International Association of Political Consultants and the American League of Lobbyists. He is retired chairman of Radnor Inc., an international political consulting and government relations firm in Washington, D.C. Feltman founded the U.S. and European Conflict Indexes in 1988. The indexes have predicted the winner of every U.S. presidential election beginning in 1988, plus the outcome of several European elections. In May of 2010, the Conflict Index was used by university students in Egypt. The Index predicted the fall of the Mubarak government within the next year.
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3 Responses to Healthcare: A popular model for failure?

  1. France Notaro says:

    Im happy I found this blog, and in case you are ever interested in a little bit of guest writing for me if possible feel free to let me know!

    • Edwin says:

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  2. H. C. says:

    Amazing blog, very similar to a site that I have. Good to know someone so close to Washington and what you think.

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