Atul Gawande, MD, is one of the best medical writers of our time. I subscribed to the New Yorker just so I could read him.  I reached eagerly for my Dec. 14, 2009 New Yorker when I heard he had an article there. I was deeply disappointed. What worries me is that his article will be used to support a political campaign to gloss over the failure of proposed legislation to significantly moderate health expenditure growth.

Gawande acknowledges that the cost of health care “…will essentially devour all our future wage increases and economic growth.  The cost problem, people have come to realize, threatens not just our prosperity but our solvency.”  “So what does the reform package do about it? …Does it institute nationwide structural changes that curb costs and raise quality? It does not. Instead what it offers is …pilot programs.”

Gawande goes on the recount the history of how the Agricultural Extension service did research, developed pilots to test the results, persuaded farmers to try the pilots, and sparked the agricultural revolution that so benefited the US economy in the first half of the 20th century.  And he goes on to suggest that the many pilot programs for health care improvement proposed in the Senate bill could lead to a similar result and transform American health care.

His analysis is deeply flawed.

The Farmers Were Willing Partners; The Medical Industrial Complex Is Not

First, the agriculture analogy is inapt.  In the case of early 20th century agriculture in the United States, the Agricultural  Extension Service was working  with the winds of market incentives at its back, helping it to move forward. That is, the Extension Service was helping farmers to do exactly what farmers wanted to do—if only they had the necessary information about what works—that is, innovate to improve quality, productivity and profits.  The Department of Agriculture’s goals and the farmers’ incentives were aligned.

That is not the case in medicine today. Physicians complain that doing the right thing costs them money. The incentives in today’s dominant payment model are oriented to doing more, spending more, using more complex methods when simpler methods would do just as well for the patient.  I recall the chancellor of a famous academic medical center complaining:  “We introduced innovations that saved thousands of dollars in patient care and the result was that we lost the dollars in revenue.”

Virginia Mason Clinic in Seattle offered a well-publicized example.  Stopping the wasteful practice of doing an MRI on every lower back patient cost them a lot of revenue and drove the diagnosis and treatment of back pain from very profitable to being a loser. I doubt they’ll ever want to do that again.

Second, Gawande  got it wrong about pilots.  In agriculture, the farmers wanted better crops and generally welcomed or tolerated pilots to show the better ways.  The Medical Industrial Complex does not want such pilots and often strangles them in the crib. For example, nothing lasting and significant came of the pilot to reward people for getting their heart bypass surgery at regional centers of excellence. I don’t remember the details of how it died, but I believe it was tried and went nowhere.  No doubt every hospital thought it was a center of excellence and wanted to be so rewarded.

Another more recent example is durable medical equipment.  David Leonhardt had an excellent article in the New York Times on June 25, 2008 called “High Medicare Costs Courtesy of Congress.”  Someone had sold the good idea that prices of durable medical equipment should be determined by competition, and there was a provision in law for pilots to test competition. The industry lobbied hard to stop it and promulgated scare stories. “Grandma won’t get her oxygen.”  Leonhardt recounts how Democratic and Republican leaders got together and postponed the pilot— and, I suspect, postponed it forever.  There were proposals to test health plan competition, fought off by the industry of course.  So this is not a fertile political environment for pilots.  In fact, one of the most important lessons that has come out of the current “reform” process is the enormous power of the medical industrial complex and their large financial contributions and armies of lobbyists to block any significant cost containment.

Moreover, we do have some excellent and outstanding prototypes of better care at less cost.  Gawande and the President name them:  the Mayo Clinic, Kaiser Permanente, Intermountain Healthcare, Geisinger, Scott and White, etc.   So if they are so great, why haven’t they proliferated and taken over America? —a question I have been hearing and answering for at least 30 years. 

I wrote a paper called “Curing Fragmentation with Integrated Delivery Systems” for a June 2008 Harvard Law School conference, soon to appear in a book by Oxford Press.   Briefly, in the first half of the 20th Century, the medical profession went all out to strangle these group practices with many reprehensible anti-competitive tactics.  The Supreme Court found that organized medicine had violated the Sherman act when trying to destroy the Group Health Association. When Russell V. Lee founded the Palo Alto Clinic, the Santa Clara County Medical Society expelled him, and  his  expulsion had  significant negative consequences for his malpractice insurance and hospital privileges.  Organized medicine got laws passed to outlaw “the corporate practice of medicine”.  

Then came World War II with the well known story of how exemption of health benefits from Wage and Price controls and income taxes put health insurance into employers’ hands.  And, for various reasons, most employers don’t offer choices of health insurers, blocking competitive market entry by the health plans affiliated with medical groups. Or, if they do offer choices, employers like the state of Massachusetts  pay 80-100% of the premium for  the plan of the employee’s choice, thus depriving efficient plans the opportunity to market their superior cost-effectiveness.  On the other hand, a few employers like the University of California, Stanford — and, I believe, Harvard–  as well as  the states of Wisconson and  California offer choices and a fixed dollar contribution so that efficient systems can reach the market and sell their superior cost-effectiveness.  In these employment groups, large majorities usually choose efficient integrated delivery systems.  That experience ought to be replicated across America.

As I listened to the President and read Gawande’s citation of the iconic delivery systems, I thought “I wish they would ask themselves what it is  about this health insurance market that prevents the Hondas and Toyotas of medical care from winning out.”  There is an answer. If America  wants 1,000 pilot projects to blossom and grow into significant improvements in health care delivery, it must reform its system based on the principles of competition and wide, responsible, informed, individual consumer choice of health plans. Experience shows that people will join if they get to keep the savings.

No Time To Wait

The third major flaw in Gawande’s analysis is that we do not have time to wait for the decades it took for the agricultural revolution to happen.  In 2009, health care is draining the federal budget some $1.15 trillion, which accounts for most of the federal deficit of $1.4 trillion. (This includes the revenue loss from the exclusion of employer contributions from taxable incomes.)  Worse yet, that amount is keyed to the growth in National Health Expenditures,  growing some 2.7% per year faster than non-health care GDP.  The track we are on is feeding soaring deficits. So President Obama and Budget Director Peter Orzag have been right in saying that we must reform health care to get expenditures under control. 

The tragedy is that the two laws working their way through Congress do practically nothing to slow health expenditures, except for the excise tax on high cost plans (a good and important idea) and pilots. The excise tax would be a lot more effective if it were accompanied by a system to assure people choices so that they could respond to the incentive in the tax.

Health care expenditures are now doing great damage to our society’s future, crowding out education, infrastructure, criminal justice and research, all of which are important for health in the long run.  This  will make it much harder to pay for projects intended to mitigate greenhouse gasses and climate change, as well as to pay for the military forces needed to deny Al Qaeda safe havens from which to plan attacks. 

This is a nation founded on a tax revolt, and Americans’ tolerance for taxes is low.  The case for more taxes is not helped by the obvious and generally acknowledged wastefulness in the health care system (which government now pays most of) or by the obvious failure of public schools to do their job.  And of course, health care’s contribution to the national debt is burdening future generations and risking our fiscal future.

The American people are being deceived.  We are being told that health expenditure must be curbed, therefore “reform is necessary.”  But the bills in Congress, as Gawande acknowledges, do little or nothing to curb the expenditures.  When the American people come to understand that “reform” was not followed by improvement, they are likely to be disappointed.  Our anguish is only intensified by the fact that the Republicans are no better at fiscal responsibility, probably worse as they demagogue reasonable attempts to limit expenditures.

Congress is sending the world an unmistakable signal that it is unable or unwilling to control health expenditures and the fiscal deficit.  That is not going to make it easier to sell Treasury bonds on international markets. I fear this will lead to higher interest rates.

The Way Forward

What should be done?  I explained it in my “Consumer Choice Health Plan” articles in the 1978 New England Journal of Medicine. The idea is also in a recent report by the Committee for Economic Development (CED).  The general idea is for government to pay everyone’s way into the purchase of an efficient or low-cost health plan, meeting standards  in their state or region but no more; if people want something that costs more, they must pay the difference with their own net after-tax dollars. Additionally, the creation of exchanges  that broker multiple choices of health plans would drive the delivery system to produce better value through consumer choice and competition. 

Of course, this cannot be done in one stroke. Incremental steps are needed. One of the best legislative expressions of this was the Managed Competition Act (MCA) of 1992 and 1993 sponsored by Conservative Democratic congressmen Cooper, Andrews and Stenholm.  Briefly, create exchanges (then called Health Plan Purchasing Cooperatives, the same idea) in every state, require all employment groups up to 100 employees to buy through the exchange (to continue to qualify for the tax exclusion), cap the tax exclusion at the price of the low-priced plan in the exchange, and use the savings to subsidize health insurance for low-income people.  The Congressional Budget Office  estimated that the number of uninsured below the poverty line would decline from 15 million to 4 million, and National Health Expenditures would be reduced below the baseline projection. 

The Committee for Economic Development report starts out like the MCA and describes a smooth transition rolling out exchanges to successively larger employment groups until all employees have the benefits of choice and competition to serve them. The bi-partisan Wyden-Bennett “Healthy Americans Act” is built on the same principles. In the late 1990s, the bi-partisan Commission on the Future of Medicare proposed a similar idea to convert Medicare to defined contributions or “premium support” payments and offer multiple choices of competing alternative plans.  Victor Fuchs and Ezekiel Emanuel proposed a similar concept.   In all these cases, cost conscious individuals would limit expenditure growth by choosing plans offering the most value for money.

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