I think we can all agree US healthcare needs some help - It is not working well. Just look at our costs versus the world then go look at our outcomes versus the world. Its alarming! We costs nearly twice as much as the next two highest spending countries combined. We are still ranked 27th in the World Health organization rankings of health around the world. So in short we are paying the most and getting a terrible result from all that spending.
I think both political parties see this although I'm not sure they are actually admitting it. So who is winning in the current system and who is fighting to keep it as it is? The big winners are medical providers and drug companies. Providers include hospitals, doctors, diagnostics, Labs, surgery centers, ambulance, urgent care clinics and more. Drug companies include drug manufacturers and PBM's. These two industry segments make the majority of money in the US healthcare system. This is not to say that there are not others that benefit as well but it is these two that can bring about real change in US healthcare. The others will follow.
Here is the challnege. The medical lobby (American Medical Association and the American Hospital Association) is the second most powerful in the country exceeded only by the Pharmaceutical lobby which is number 1. Between the two they contribute the most to politicians in the US. That makes them extremely powerful. Since we need politicians to clip both of these industry segements wings we face an impossible task.
The real problem with healthcare is the cost of care. Insurance companies and administrators only account for about 10% of the spend on healthcare. About 80 - 85% of all the spending in healthcare goes to providers and drugs. The premiums people pay for the their health insurance is totally driven off the cost of care. Here is what this means. If we cut the administrative portion of healthcare by 20% we only affect the overall cost by 2%. In turn if we cut the cost of care by 20% we affect the overall cost by 17%. Which by the way could result in premium decreases between 10-12%.
Interestingly the current healthcare reform (ACA) only address the administrative costs and access for individuals. So it is no wonder it is failing and has not curbed the cost of health insurance. Since 2009 I have been preaching that ACA was missing the mark and while applauded it for improving access and eliminating pre existing condition limitations, it has failed. If left alone the health exchanges are going to collapse. Many are already down to one or two carriers and by 2018 enrollment about 12 million folks will be left uninsured. This is before the Republicans do anything.
When we compare what we pay for medical procedures in the US versus the world it is unbelievable. Our doctors and hospitals make more revenue than many of the other countries GDP's. For example my niece is an Orthopedic doc in England working in their National Health Program. She makes about $33,000 US or $25,000 British Pounds. The average orthopedic surgeon in the US makes $443,000 annually. That is 13.5 times more in the US than in Britain. If our ortho outcomes were 13.5 times better than England then we could have something to debate but they are NOT!
Extrapolate this over the entire US healthcare system and you can see why our costs and thus premiums are so high.
Now we can do the same type of analysis on the drug spend. In short we pay more for identical drugs in the US than most countries around the world. Why you ask? Because we are the richest country and the drug companies vary pricing based on each economy's ability to pay. So we pay exorbitant sums for cancer drugs, immune system drugs and biosimilars. Drug companies argue that they need to charge these huge numbers because R&D is so expensive. The sad truth is drug companies spend more on marketing and advertising than they do on R&D. They also claim that if we cut costs this will stifle innovation. This too is untrue as we could just follow the rest of the world and ban all advertising and marketing of drugs. We are the only first world country that allows advertising for prescription drugs. We could also change the distribution system and cut significant costs. The little wicked secret most folks in the drug business won't tell you is the markup in prices. We think jewelry has high markups? Drugs are worse. The rebates alone could cut costs by 15% or more if eliminated.
Maybe you think I am making all this up? Well take a look at the recent scoring for the proposed single payer health program for California. It is estimated at $400 billion dollars a year. This is triple the entire state budget. Why because it is not cutting the cost of care significantly. Again the medical and pharma lobbies are so powerful they have once again escaped cutting their costs significantly.
It is time for America to revolt. We need to cut the cost of care. Sadly I wish this could be done some other way because I am not in favor of regulated pricing in an economy. We have tried so many things and none have worked. The best non regulatory approach would be full transparency but again the lobby's are against this and have been able to prevent it. So we are left with regulation.
If we go to a national healthcare system the cost of care will be cut drastically. So the medical and pharma lobby's that think they are winning the battle will lose the war. It would be wiser for them to work with the industry and regulators to cut costs voluntarily than face the scalpel of National Healthcare. There are many ways to do this. Here are two:
I think both political parties see this although I'm not sure they are actually admitting it. So who is winning in the current system and who is fighting to keep it as it is? The big winners are medical providers and drug companies. Providers include hospitals, doctors, diagnostics, Labs, surgery centers, ambulance, urgent care clinics and more. Drug companies include drug manufacturers and PBM's. These two industry segments make the majority of money in the US healthcare system. This is not to say that there are not others that benefit as well but it is these two that can bring about real change in US healthcare. The others will follow.
Here is the challnege. The medical lobby (American Medical Association and the American Hospital Association) is the second most powerful in the country exceeded only by the Pharmaceutical lobby which is number 1. Between the two they contribute the most to politicians in the US. That makes them extremely powerful. Since we need politicians to clip both of these industry segements wings we face an impossible task.
The real problem with healthcare is the cost of care. Insurance companies and administrators only account for about 10% of the spend on healthcare. About 80 - 85% of all the spending in healthcare goes to providers and drugs. The premiums people pay for the their health insurance is totally driven off the cost of care. Here is what this means. If we cut the administrative portion of healthcare by 20% we only affect the overall cost by 2%. In turn if we cut the cost of care by 20% we affect the overall cost by 17%. Which by the way could result in premium decreases between 10-12%.
Interestingly the current healthcare reform (ACA) only address the administrative costs and access for individuals. So it is no wonder it is failing and has not curbed the cost of health insurance. Since 2009 I have been preaching that ACA was missing the mark and while applauded it for improving access and eliminating pre existing condition limitations, it has failed. If left alone the health exchanges are going to collapse. Many are already down to one or two carriers and by 2018 enrollment about 12 million folks will be left uninsured. This is before the Republicans do anything.
When we compare what we pay for medical procedures in the US versus the world it is unbelievable. Our doctors and hospitals make more revenue than many of the other countries GDP's. For example my niece is an Orthopedic doc in England working in their National Health Program. She makes about $33,000 US or $25,000 British Pounds. The average orthopedic surgeon in the US makes $443,000 annually. That is 13.5 times more in the US than in Britain. If our ortho outcomes were 13.5 times better than England then we could have something to debate but they are NOT!
Extrapolate this over the entire US healthcare system and you can see why our costs and thus premiums are so high.
Now we can do the same type of analysis on the drug spend. In short we pay more for identical drugs in the US than most countries around the world. Why you ask? Because we are the richest country and the drug companies vary pricing based on each economy's ability to pay. So we pay exorbitant sums for cancer drugs, immune system drugs and biosimilars. Drug companies argue that they need to charge these huge numbers because R&D is so expensive. The sad truth is drug companies spend more on marketing and advertising than they do on R&D. They also claim that if we cut costs this will stifle innovation. This too is untrue as we could just follow the rest of the world and ban all advertising and marketing of drugs. We are the only first world country that allows advertising for prescription drugs. We could also change the distribution system and cut significant costs. The little wicked secret most folks in the drug business won't tell you is the markup in prices. We think jewelry has high markups? Drugs are worse. The rebates alone could cut costs by 15% or more if eliminated.
Maybe you think I am making all this up? Well take a look at the recent scoring for the proposed single payer health program for California. It is estimated at $400 billion dollars a year. This is triple the entire state budget. Why because it is not cutting the cost of care significantly. Again the medical and pharma lobbies are so powerful they have once again escaped cutting their costs significantly.
It is time for America to revolt. We need to cut the cost of care. Sadly I wish this could be done some other way because I am not in favor of regulated pricing in an economy. We have tried so many things and none have worked. The best non regulatory approach would be full transparency but again the lobby's are against this and have been able to prevent it. So we are left with regulation.
If we go to a national healthcare system the cost of care will be cut drastically. So the medical and pharma lobby's that think they are winning the battle will lose the war. It would be wiser for them to work with the industry and regulators to cut costs voluntarily than face the scalpel of National Healthcare. There are many ways to do this. Here are two:
- Eliminate all PPO's. Use Medicare as our National PPO. Adjust reimbursements by geography and demographics. Set starting benchmark at something above Medicare reimbursement but below the average commercial PPO. E.g. 125% of Medicare. Phase this in over time to allow practices and facilities to adjust and streamline care. Estimated savings would be over $150 billion a year.
- Create Real Transparency. This is not easy but could be done. Start with doctors and facilities. Publish all their actual fees and outcomes. Add social media rating and reviews for each. This will then allow consumers to shop and over time will cause prices to drop and then plateau. This can then be replicated with diagnostics and lab etc. Over time we would have a competitive open market like every other industry.
- Require Equal Nation Pricing and Eliminate all Drug Advertising. By eliminating drug advertising several good things happen. First the drug industry can now cut their prices by huge amounts and not affect their profits or R&D budgets. Second the physicians will have less work. Treating rather than explaining to patients why the drug they saw on TV is not good for them. Third we will decrease the number of hypochondriacs, whoa re driven by many of the drug Ads. By requiring Equal Nation pricing we stop drug companies from cost shifting from other countries to the US. Many of our highest priced drugs would come down in price which will make them more accessible and over time will lower our insurance premiums.
- Create an entity to make sure these steps are taken and adhered to. Sadly a bunch of government wonks cannot do this. We need a team of healthcare/insurance experts from the private sector who know the system and all the tricks of the trade. Its like hiring ex hackers to stop cyber attacks. This entity should have rotating seats and be funded by the providers and pharma companies.
- All states would have to comply with these new Federal regulations. All insurers will be required to adhere to rating guidelines so that these huge costs decreases will be passed on as premium decreases not go to insurance profits or overhead.
Let me quickly point out there are many other things wrong with our healthcare system and this is not a comprehensive fix but just the critical starting point. With this change we can stabilize our spending, decrease premiums, increase coverage and begin to look at other areas that must be refined.
The stupid pointless activity that the Republicans are doing today to Repeal and Replace ACA is a waste of time and tax payer money. As we all see they can't reach any consensus and nothing they are proposing will significantly impact the system and lower costs. The Democrats have no answers either and clearly have made healthcare more expensive through their regulatory actions including ACA.
No politician is going to want to legislate the steps outlined above because the 3 big lobbies will stop funding them and they will lose their power and wealth (and probably their seat in Congress). Only those that really want change and are willing to sacrifice to get it can enter this fight. That said Trump is sadly the only hope we have. Since he is not a politician, does not need money or lobbyist support and his ego is so big, he is the perfect man for the job. He can go down in history as the President who really fixed US healthcare. He will also gain many other accolades since decreasing health care costs will stimulate the economy, firms will hire more and Americans will prosper.
Come on America lets fix the largest industry in our country and show the world we are compassionate, smart and a real democracy not controlled by powerful lobbyists.