Tuesday, January 08, 2013

Efficiency and rationing

What will happen if the government institutes universal coverage, while trying to contain costs? The system will become more efficient, but not in the way the government intends. Take for example ear nose and throat specialists. Right now, such pracitce involves ear tubes, tonsillectomies, thyroid surgery, neck dissections to remove tumors, sinus surgery and more specialized procedures involving the inner ear, trachea and larynx. Much of the ear tubes and tonsillectomies are performed on pediatric patients, and involve a disproportionate number of medicaid recipients. If you give everyone coverage and begin to limit reimbursement for particular services, say for example, ear tubes, otolaryngologists will respond by making their pracitces more efficient; not more efficient in terms of performing more procedures in a given amount of time, but more efficient in terms of concentrating their time in other procedures. If a physician can get the same reimbursement for doing two hours worth of sinus surgery that he does for three hours worth of ear tubes, that physician will eventually focus on the former procedures and do less and less of the latter. He will focus his marketing efforts and networking to the more lucrative procedure, leaving the less remunerative surgeries to less senior surgeons or less established practices. Micro-specialization will occur, with the result that the less remunerative procedures will experience longer wait times, and less choice of qualified physicians. This has already happened to some extent in neurology, where physicians discovered that their time was much better compensated doing nerve conduction studies in thier offices than in doing inpatinet consultations. As a result, many hospitals had no emergency department coverage for neuroly patients. Pulmonary specialists also gravitate to bronchoscopy or sleep specialties at the expense of intensive care unit coverage.

This phenomenon is also observable in the growth of boutique practices, where physicians decide that it is better to get reasonable compensation for reasonable services than to get paid a little more for a lot more effort.

If the government provides universal coverage with price controls, it will not discourage unnecessary or inefficient care, it will discourage access to time-intensive and poorly-reimbursed care. The incentives will be such that costs will be saved, not by discouraging patients from seeking care, but in discouraging doctors from providing it.

Cost effectiveness

Here's a quick question for those who advocate a government role in cost effectiveness research: Is it cost effective to treat aspiration pneumonia? The answer, of course, is yes. Or no. Well, yes and no.

If a forty year old trauma patient aspirates immediately after urgent surgery, then yes, it is relatively inexpensive and efficacious to treat with a short course of antibiotics. On the other hand, if the patient is a 74 year old stroke patient with recurrent aspiration, end stage renal disease, and prostate cancer, treating his most recent pulmonary event will prolong the course of dialysis, potentially involve future stays in the ICU on a ventilator, gastrosomy tube, etc., all for the expected benefit of the patient being kept alive so he can die of something more horrible. It is easier to see that treatment might not be cost effective if we consider the patient to have widely metastatic prostate cancer.

If we take this last patient and start removing, one by one, the co-morbidities that make treating aspiration pneumonia such an expensive proposition, at what point do arrive at the objective cut-off that treating him is cost-effective? It is the fact that identifying such a cut-off seems reasonable that is problematic, because it implies that whatever body decides cost-effectiveness will eventually be forced to decide on case-by-case bases. This is the achilles heel of all high minded healthcare system reformers, and all of those overly academic types that worship at the altar of "evidence based medicine." The practice of medicine is founded on the doctor-patient relationship, not the doctor-population relationship or the doctor-health board relationship, or the doctor-utopian social justice fantasist relationship.

It should be axiomatic that a doctor not give a patient medicine to treat the anxiety of a family member. The principle at work is that the provision or withholding of a therapeutic intervention should not be for the benefit of third parties. Similarly, we should not conclude that an intervention is not cost-effective for a particular patient, merely because some egghead has decided that it is not cost effective for a heterogeneous population.

Population studies and statistical models and various and sundry other such are useful for identifying general principles that a competent physician may incorporate into the treatment decision that he makes for his specific patient. They are not reasonable bases upon which to dictate those same decisions from a remote authority for whom that patient is just a data point.

Typical and atypical healthcare

The more socialized healtchare systems of western Europe ("European medicine") do some things very well. So does Cuban medicine, and Honduran medicine, Chinese medicine, etc. Kaiser does some things very well, as does the VA. But none of these systems do everything well, and all of thses systems, including the European ones benefit from America’s willingness to take the risks necessary to advance medical science for the benefit of all.

If you look at the medical system of the Europeans, and Cubans, etc. you will notice that they do a good job of providing a particular type of medical services. So does Kaiser and the V.A., and if you were an astute reformer, you would immediately perceive both a rational approach to reform, and immediately spot the problems with current healthcare reform legislation.

All reform begins with a simple task: classifying aspects of the thing to be reformed into groups according to their beneficial and non-beneficial attributes. Now we can do this with healthcare in any number of ways; trauma and non-trauma, catastrophic and non-catastrophic, preventive and acute, experimental and non-experimental, pre-existing and not, publicly financed and private pay, etc. Whether or not reform is successful depends crucially on which distinctions are selected as the bases of reform. When it comes to talking about cost savings, the classifications degenerate into rationing on the basis of condition (like the Oregon medicaid system) on the basis of who the patient is (e.g. Obama’s reference to patients who are better off taking pain pills), or on some homogenized metric of efficacy (comparative research panels.) Each of these approaches requires a trade-off at the expense of liberty and values of individuals, and this is the reason why “Obamacare” is unpopular, and actually antithetical to the purpose of healthcare.

A more reasonable approach is to realize that there is a natural discriminant in healthcare services: typical and atypical care. Typical care is that which you receive for uncomplicated pnuemonia, coronary artery disease, diabetes, etc. It includes preventive care and management of chronic diseases. Atypical care is everyting else: ICU stays for complicated pnuemonia, costs for defensive medicine, experimental care, elective surgery, the more exotic imaging techniques, care for extremely premature babies, etc.

Europe and China and Cuba (and Kaiser and the VA) do very well with typical care for a very straightforward reason: typical care is relatively inexpensive. If so inclined a national formulary could consist only of drugs that Target provides for $4 a month. Furthermore, the vast majority of people could get by with only typical care. It would suck for some people if we didn’t provide for end of life ICU care, or organ transplants or reconstructive surgery, but these would affect a comparatively small portion of the population. If you reformed healthcare to only provide for typical care, the cost effectiveness would sky-rocket, at the expense of course of those for whom typical care is not good enough.

Over time, things that start out as atypical become accepted and routine (and cheaper) and naturally become typical type of care. Laparoscopic surgery, statin drugs, PET scans, Herceptin, and so forth. Subsidizing atypical care eventually benefits everyone because it advances the state of the art. Admittedly, there is a huge amount of waste in the atypical category, including defensive medicine, futile care and needlessly expensive interventions where cheaper ones would suffice. We Americans put up with this for a number of reasons: 1.) because as mentioned, it advances the state of the art for everyone, 2.) because we have adopted a societal ethic that we will not discriminate on the basis of health, and 3.) that we will not intrude on the patient’s determination of what an acceptable quality of life or benefit of therapy is. Note that ineffective or inefficient therapies would not be accepted as “typical,” or if that is already the case, be replaced by better therapies that start out as atypical.

 An astute reformer would begin by assuring access to “typical care.” This is in fact the only thing that the European model has done, with very little downside, because those nutty Americans are traditionally disposed to uderwriting the benefits of care that others regard as atypical. If you were so inclined you could reform American healthcare to cover “typical” care and let people contract individually for “atypical care” and get the best of both worlds.

Of course what Congress has done is to do the opposite. An insurance mandate is an artifice by which atypical care is treated as typical. It imports the inefficiencies of providing extraordinary and costly care into a market designed for cost effective and predictable care. It imposes the inflationalry pressures of private third party payers on a portion of the system that should be actuarily sound, and necessitates the replacement of discarded efficiencies with explicit rationing. Worse, it shoehorns providers into a system where the mandated inefficiencies will be addressed by preferentially treating those who are less ill, (which not surprisingly is more cost effective than treating very ill people) thus discriminating against those who receive adequate care now, and would receive such care in Cuba, China etc.

You are correct when you note “if you increase Medicare payments with no thought about the effectiveness of what you are buying your country will go bankrupt even faster.” This is exactly what “Obamacare” does. It divorces payment for medical services from a rational allocation based on the expected risks, benefits and costs. It stifles innovation because it falsely treats newer and promising therapies as typical care before experience and ingenuity have enhanced their effectiveness, and efficiency. In short, no one, including Europe, could afford it if everyone’s healthcare system were like Europe’s. And our tradition of liberty and personal autonomy wouldn’t take well to it either.

Thursday, January 03, 2013

Predictability and economy

One concept that runs throughout Mr. Greve's post is that of predictability. Predictability is the reason why we have written laws, constitutions, contracts, stare decisis, etc. etc. Predictability is essential to the rational expectation that the future can be made better than the present. This same idea forms the basis of credit, and ultimately, of capitalism. It is much easier to have faith in the future if we have some reason, beyond hope, to expect that it will contain something worth striving for.

 Predictability is also central to an unalterable truth. The economy is healthy so long as enough people expect the future to be better than the present. It is an uncomfortable fact, to the point that it can scarcely be spoken, that the value of something is only an opinion. Tulip bulbs, and Facebook stock are ultimately only worth what people think they are worth, and this is largely dependent on what people think they will be worth in the future. Debt is the same way. We can go on borrowing forever if someone will lend us money forever. However, the price of tulips, and corporate stock, and debt and equity markets collapse upon a fairly uniform occurrence. It is not necessarily when debt-to-revenue ratios reach a certain level, or when short term bond yields bear some relation to those of long term instruments. Bubbles burst, systems collapse and economies tank when enough people realize that they are going to get screwed. The predictability that makes economic growth possible is that which makes risk of being screwed something measurable and manageable. Right now our political class is destroying predictability with abandon.

We are all going to get screwed.