[y66]

THE COST CONUNDRUM
by Atul Gawande

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It is spring in McAllen, Texas. The morning sun is warm. The streets are lined with palm trees and pickup trucks. McAllen is in Hidalgo County, which has the lowest household income in the country, but it’s a border town, and a thriving foreign-trade zone has kept the unemployment rate below ten per cent. McAllen calls itself the Square Dance Capital of the World. “Lonesome Dove” was set around here.

McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

The explosive trend in American medical costs seems to have occurred here in an especially intense form. Our country’s health care is by far the most expensive in the world. In Washington, the aim of health-care reform is not just to extend medical coverage to everybody but also to bring costs under control. Spending on doctors, hospitals, drugs, and the like now consumes more than one of every six dollars we earn. The financial burden has damaged the global competitiveness of American businesses and bankrupted millions of families, even those with insurance. It’s also devouring our government. “The greatest threat to America’s fiscal health is not Social Security,” President Barack Obama said in a March speech at the White House. “It’s not the investments that we’ve made to rescue our economy during this crisis. By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care. It’s not even close.”

The question we’re now frantically grappling with is how this came to be, and what can be done about it. McAllen, Texas, the most expensive town in the most expensive country for health care in the world, seemed a good place to look for some answers.

Excerpted from June 1, 2009 New Yorker magazine. Not sure when this link expires.

The comparison of costs and benefits between the Mayo Clinic model and the McAllen model are eye-opening.

[PassedOut]

Thanks for the link! This is truly a must-read article.

I mentioned in another post what great quality service you get at the Mayo Clinic, and it's good to see that discussed in comparison with other places.

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Agencies that want to compete on quality struggle to remain in business, the rep said. Doctors have asked her for a medical-director salary of four or five thousand dollars a month in return for sending her business. One asked a colleague of hers for private-school tuition for his child; another wanted sex.

“I explained the rules and regulations and the anti-kickback law, and told them no,” she said of her dealings with such doctors. “Does it hurt my business?” She paused. “I’m O.K. working only with ethical physicians,” she finally said.

About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

The real puzzle of American health care, I realized on the airplane home, is not why McAllen is different from El Paso. It’s why El Paso isn’t like McAllen. Every incentive in the system is an invitation to go the way McAllen has gone. Yet, across the country, large numbers of communities have managed to control their health costs rather than ratchet them up.

I talked to Denis Cortese, the C.E.O. of the Mayo Clinic, which is among the highest-quality, lowest-cost health-care systems in the country. A couple of years ago, I spent several days there as a visiting surgeon. Among the things that stand out from that visit was how much time the doctors spent with patients. There was no churn—no shuttling patients in and out of rooms while the doctor bounces from one to the other. I accompanied a colleague while he saw patients. Most of the patients, like those in my clinic, required about twenty minutes. But one patient had colon cancer and a number of other complex issues, including heart disease. The physician spent an hour with her, sorting things out. He phoned a cardiologist with a question.

“I’ll be there,” the cardiologist said.

Fifteen minutes later, he was. They mulled over everything together. The cardiologist adjusted a medication, and said that no further testing was needed. He cleared the patient for surgery, and the operating room gave her a slot the next day.

The whole interaction was astonishing to me. Just having the cardiologist pop down to see the patient with the surgeon would be unimaginable at my hospital. The time required wouldn’t pay. The time required just to organize the system wouldn’t pay.

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.

(And I see now just how important it is to steer clear of hospitals run by doctors who perform as right-wing talk show hosts on the side.)

It seems to me that the government could do a lot to help fix this without getting too heavy handed.

First, everyone should be able to get information like this about the different medical practices available, including costs, outcomes, and whether the physicians are salaried or not. Second, payments from medicare and from whatever the new government insurance plan turns out to be should be limited to the costs of treatment in places like the Mayo Clinic, not like those in McAllen, Texas.

People would still be able to choose places like those in McAllen, perhaps on philosophical grounds. The rest of us could choose quality and reasonable costs.

[mike777]

Great article.



"As America struggles to extend health-care coverage while curbing health-care costs, we face a decision that is more important than whether we have a public-insurance option, more important than whether we will have a single-payer system in the long run or a mixture of public and private insurance, as we do now. The decision is whether we are going to reward the leaders who are trying to build a new generation of Mayos and Grand Junctions. If we don’t, McAllen won’t be an outlier. It will be our future"


Let's keep in mind how private free capital markets are going to work. You expect in an industry to have some companies provide a great product/service at a high cost and other companies to provide the same great product/service at an increasingly lower cost. In other words we expect the private free capital markets to make just such rewards to leaders as suggested here.

Over time the the more efficient provider will drive out the high cost provider.

The danger is if the government distorts this. The danger is if the government will not reward such leaders.

It is hard to tell if medicare/government is more the cause of the distortion in this example market or not. If so that signals bad things to come with more government intervention. For example if the patient was paying these costs directly would this drive down the costs cited in this article compared to what the government is paying for through medicare?


Bottom line if the government in the health care industry can prove to be smarter in allocating capital then the private markets that will be a powerful argument for change. OTOH if it just distorts the free flow of people, innovation and capital that will be bad.

[mike777]

"First, everyone should be able to get information like this about the different medical practices available, including costs, outcomes, and whether the physicians are salaried or not. "


Transparency is an extremely important point, well said.

My concern is if we as patients pay less directly and the government more, we as patients will care less about transparency.

[mike777]

"Second, payments from medicare and from whatever the new government insurance plan turns out to be should be limited to the costs of treatment in places like the Mayo Clinic, not like those in McAllen, Texas."


If the success of the Mayo Clinic is based on a system, a system that can be easily replicated, no problem.

My concern is that the Mayo Clinic's success is based on the excellent staff/people employed at the Mayo Clinic. The supply of such people being limited while the demand across the world for such people is unlimited. How is the government going to allocate these people? The free capitalistic market tends to do this with price/rewards.

[hrothgar]

mike777, on May 29 2009, 06:21 PM, said:

Let's keep in mind how private free capital markets are going to work. You expect in an industry to have some companies provide a great product/service at a high cost and other companies to provide the same great product/service at an increasingly lower cost. In other words we expect the private free capital markets to make just such rewards to leaders as suggested here.

Over time the the more efficient provider will drive out the high cost provider.

The danger is if the government distorts this. The danger is if the government will not reward such leaders.

It might be useful to be more precise when we're discussing cost controls in a free market type system.

There is a very fundamental difference in cost control strategies between private insurance systems and single payer systems.

The most significant way that insurance companies are able to impact their cost structures is by denying care to individuals. I'm not saying that this is all bad. (It simply isn't possible to provide everyone with infinite amounts of medical care). However, the insurance carriers have turned this into an art form; especially when they're denying services based on age, preexisting conditions, what have you.

In contrast: Single payer systems operate under the restriction that they need to design a system that will provide coverage to (pretty much) everyone. You don't have the luxury to"cream" all the nice profitable 20 year olds while dumping all the expensive patients into Medicaid and the emergency rooms. Long term cost minimization strategies often end up focusing on preventive care.

[PassedOut]

hrothgar, on May 29 2009, 11:09 AM, said:

There is a very fundamental difference in cost control strategies between private insurance systems and single payer systems.

The most significant way that insurance companies are able to impact their cost structures is by denying care to individuals.  I'm not saying that this is all bad.  (It simply isn't possible to provide everyone with infinite amounts of medical care).  However, the insurance carriers have turned this into an art form; especially when they're denying services based on age, preexisting conditions, what have you. 

In contrast:  Single payer systems operate under the restriction that they need to design a system that will provide coverage to (pretty much) everyone.  You don't have the luxury to"cream" all the nice profitable 20 year olds while dumping all the expensive patients into Medicaid and the emergency rooms.  Long term cost minimization strategies often end up focusing on preventive care.

Yes, the business model that creates profit by cherry-picking low-risk people must be stopped to rein in costs. But you can't force insurance companies to select for adverse risk either.

In my opinion, two things need to happen to fix the insurance problem.

The first is that medical insurance companies should be required to offer a standard set of plans, from low-end to high-end, as a condition of doing business. These plans would be the same for all companies, similar to the way medicare supplement plans work today. That way comparisons among those plans would be apples-to-apples and oranges-to-oranges. Maybe companies could also market their own special whiz-bang policies for extra services.

The second thing would be that the companies would be required to offer those plans to all comers, thus spreading the risk equitably.

With those two simple rules in place, the market would reward those companies that provided the best, most efficient service.

[luke warm]

PassedOut, on May 29 2009, 12:23 PM, said:

The first is that medical insurance companies should be required to offer a standard set of plans, from low-end to high-end, as a condition of doing business.

so companies who want to do business must do so with no consideration of profitability, or would the gov't figure what profit margin a company deserves?

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The second thing would be that the companies would be required to offer those plans to all comers, thus spreading the risk equitably.

you'd still have pec rules, unless you want those abandoned (and the hipaa laws rewritten)

[mike777]

One point of view is that basic taxpayer paid Health Care should be provided to all regardless of costs or where the money comes from. This is a powerful argument.

We provide basic taxpayer education to all. Granted this is a failure in many cases but that does not prevent the USA to keep on trying. There just never seems to be enough money.

My guess is this will be the case in Health Care. We will strive to provide basic Health Care to all and fail but we will keep on trying. There will never seem to be enough money.

One huge debate in education is should there be more competition, private competition, paid for with taxpayer funding.

I would not be surprised to see just such a debate in a few years after Universal Health Care is provided. Should we allow more private competition.

[mike777]

Again excellent story, just got my issue in the mail now!

"For example, Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country—$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen."


Speaking of free movement of capital, people and ideas if the Mayo Clinic can sell widgets in Rochester for 6,688$ why does it not sell widgets in McAllen for say 13, 000$?

It would seem everyone wins, the McAllen medicare customer get Mayo Clinic widgets, Medicare saves money and the greedy capitalist leaders make lots more money.

This seems to be the missing part of the story.


EDIT:

"Mayo Clinic is a non-profit organization and internationally renowned medical practice headquartered in Rochester, Minnesota. Its headquarters consist of the Mayo Medical School, the Mayo Graduate School, the Mayo College of Graduate Medical Education, and several other health science schools. Its research facilities are in Rochester, Minnesota, in addition to hospitals and clinics in Jacksonville, Florida, Scottsdale, Arizona, and Phoenix, Arizona. Mayo Clinic partners with a number of smaller clinics and hospitals in Minnesota, Iowa, and Wisconsin, an organization known as the "Mayo Health System."

Mayo Clinic pays medical doctors a fixed salary that is unaffected by patient volume. This practice is thought to decrease the monetary motivation to see patients in large numbers and increase the incentive to spend more time with individuals. Salaries are determined instead by the marketplace salaries for physicians in comparable large group practices."

http://en.wikipedia....iki/Mayo_Clinic


It appears that part of the story is that the Mayo Clinic is non-profit. I also note the story left out what the medicare costs are for Mayo Clinic in it's other cities. Btw the Senate is considering taxing hospitals such as the Mayo Clinic to pay for health care along with taxing private insurance benefits.


Assuming the Clinic can sell Mayo quality widgets in other cities for under 7,000$ still not sure why a for profit clinic does not come into McAllen with a Mayo type system model and undercut the current market pricing and make a nice profit.

For that matter something must be preventing the Mayo Clinic itself from expanding into most other cities with their existing business model.

I think that would be a nice follow up story.

[mike777]

"The second thing would be that the companies would be required to offer those plans to all comers, thus spreading the risk equitably."

I am not quite sure what you are advocating here. Could you explain in more detail please? Who is required to offer just what to whom and who pays for it? If they refuse what happens to them?

btw the senate is considering taxing all private health care plans. It seems at some point you are advocating for the government to pick up the health care costs of people without coverage?

[PassedOut]

mike777, on May 29 2009, 03:21 PM, said:

For that matter something must be preventing the Mayo Clinic itself from expanding into most other cities with their existing business model.

They have expanded into Florida and Arizona. But why should they want to exapnd everywhere?

[mike777]

PassedOut, on May 29 2009, 05:38 PM, said:

mike777, on May 29 2009, 03:21 PM, said:

For that matter something must be preventing the Mayo Clinic itself from expanding into most other cities with their existing business model.

They have expanded into Florida and Arizona. But why should they want to exapnd everywhere?

Why do they expand at all? Why do they exist all? I guess that would be one reason. OTOH if their model simply will not work at some point, ok but that would make a follow up story.

[PassedOut]

luke warm, on May 29 2009, 03:04 PM, said:

so companies who want to do business must do so with no consideration of profitability, or would the gov't figure what profit margin a company deserves?

Not at all. Many companies offer Medigap plans today (Medigap (Supplemental Insurance) Policies) and all those plans, lettered A-L, are standardized. Companies can offer some or all of them, but those they do offer must follow the rules.

Surely the fact that plans are standardized does not rule out making a profit. (Note that gasoline formulations are standard within regions, and the companies selling gasoline still make a profit.)

[PassedOut]

mike777, on May 29 2009, 05:31 PM, said:

"The second thing would be that the companies would be required to offer those plans to all comers, thus spreading the risk equitably."

I am not quite sure what you are advocating here. Could you explain in more detail please?  Who is required to offer just what to whom and who pays for it? If they refuse what happens to them?

If they offer a plan to people of a certain age range for a certain price, anyone within that age range could buy it. The company could not choose to insure just those that they expect would not make claims. This fact, of course, would be a consideration the company uses to set the rates.

What would happen to them if they broke the law? Well, I would be definitely be opposed to the death penalty for the first such offense.

[mike777]

PassedOut, on May 29 2009, 06:09 PM, said:

mike777, on May 29 2009, 05:31 PM, said:

"The second thing would be that the companies would be required to offer those plans to all comers, thus spreading the risk equitably."

I am not quite sure what you are advocating here. Could you explain in more detail please?  Who is required to offer just what to whom and who pays for it? If they refuse what happens to them?

If they offer a plan to people of a certain age range for a certain price, anyone within that age range could buy it. The company could not choose to insure just those that they expect would not make claims. This fact, of course, would be a consideration the company uses to set the rates.

What would happen to them if they broke the law? Well, I would be definitely be opposed to the death penalty for the first such offense.

ok If I understand you are not suggesting that all employers must provide health insurance only that those that do must offer to cover all employees and that insurance companies must offer some standard plans to all regardless how sick they are. In other words the less sick will subsidize the more sick within a certain age bracket.

Of course any remaining insurance companies still in business will be able to discriminate on the basis of price. If someone is say 50-60 simply raise the rates so high that only a few very rich can afford to pay the rates. Of course per your plan anyone willing to pay the rates must be accepted.


Assuming the government will cover those employees or unemployed that do not have health insurance I would not be surprised if many drop coverage and eventually the government will crowd out all or almost all private health care companies.

[PassedOut]

mike777, on May 29 2009, 09:31 PM, said:

In other words the less sick will subsidize the more sick within a certain age bracket.

With insurance, people who don't get sick always subsidize those who do. Those who don't have car accidents always subsidize those who do. Few 25-year-olds actually get very sick, so the rates for that group will always be lower than, say, 55-year-olds, even when the sick are included.

How would you suggest that care for the sick be paid for?

As things stand, health care providers have to pass on the costs of care for the uninsured by padding the bills of other patients.

The costs are already there. Where do you think that the money to pay those costs should come from?

[helene_t]

I dunno if Lynn's plan is the best solution. Maybe it is. But I have seen a similar scheme, when I worked for the Dutch government and had the option of buying the employer's insurance package, fail badly: if an insurance plan is offered for the same price to everybody, then only the high-risk patients will buy it because for the low-risk patients it will be cheaper to take the risk themselves. So basically you either have to
- force everyone to buy the scheme, or
- allow insurance companies to offer the scheme only to a group of homogeneous risk.

The first one is what they do currently in the Netherlands, and it makes no sense. You get zero market freedom but all the overhead related to insurance anyway. Might as well socialize the whole thing if you don't want the market to be free anyway.

I would expect the free market to solve the problem by itself, i.e. insurance companies that covered inefficient care would have to charge such high rates that few people would op for them and instead go for insurance plans that only cover low-cost care. For some reason it doesn't work that way, at least not in the U.S.. I think it would be useful to know why it doesn't work. Then it would be easier to say if there is a problem and if so how it could be addressed.

I like the way it works in Denmark, where the government provides basic health care, and commercial insurance companies are then free to offer supplementary stuff like fancy dentistry, shorter waiting lists and most cosmetic surgery. Dunno if it would work in the U.S., and whether U.S. patients would like it.

[Winstonm]

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Assuming the government will cover those employees or unemployed that do not have health insurance I would not be surprised if many drop coverage and eventually the government will crowd out all or almost all private health care companies.

At which point we reach the Canadian model, which I understand works quite nicely.

Personally, I think it is both ludicrous and ridiculous to discuss heath-care within a structure based on capitalism - capitalism is antipathy to health-care. The idea of capitalism is to allocate resources to the most profitable areas - hence, when we find capitalism mixed with health-care we find what we should expect, and that is resources allocated to preventative medicine and the young and healthy.

If you are one who is most in need of help - the sick and the elderly - good luck, because the Invisible Hand of capitalism is going to shoot you the finger.

[PassedOut]

helene_t, on May 30 2009, 10:50 AM, said:

I like the way it works in Denmark, where the government provides basic health care, and commercial insurance companies are then free to offer supplementary stuff like fancy dentistry, shorter waiting lists and most cosmetic surgery. Dunno if it would work in the U.S., and whether U.S. patients would like it.

Because the US is so late facing up to the need to solve our healthcare problems, we do have the advantage of seeing what has worked well in other countries and what has failed. I don't have any special axe to grind so far as specific solutions for the US, but I do want the problem solved one way or another. Picking a solution that has worked elsewhere would clearly be better than picking one that has already failed.

But we cannot go on as we do now. Our healthcare "system" costs too much, does not provide enough good outcomes, and places the costs unfairly.

One way or another, folks will have to pay for the basic healthcare benefits they stand to receive, and the costs of that care will have to be brought back into line. Our current healthcare rationing arrangement will have to be updated and regularized.