5% lower quality for 50% lower price?

Healthcare is an area in which Americans are overly obsessed with getting the highest possible quality.  Many technological revolutions have produced new products that were initially at least of lower quality than the good that they replaced, but of much cheaper price.  For example, recorded music is still generally worse than live music, but it is much cheaper.  Mass-produced clothing is worse than custom tailored clothing, but much cheaper.  Many of our plastic consumer goods are a bit less durable, but much cheaper than what our parents used. 
Healthcare innovations are almost never this kind of advancement and that is one reason why technological change produces cost increases in healthcare whereas technological change often reduces costs in other industries. But there are many ways we could use existing technologies and institutions to reduce costs right now.  For example:
1. medical licensing is too strict and we need to expand the supply of doctors, particularly for primary care.
2. Expand the ability of nurse practitioners and physician's assistants to practice medicine independently.  They are much cheaper than doctors, but they charge the same amount because they can only work under the supervision of a doctor who gets the profits from their lower salaries. 
3. Increase telephone and online consultations.  There is telephone and online support for nearly every other industry, so why not in medicine?  It could replace a lot of office visits if doctors would answer questions more readily via telephone. People with low ability to pay for American doctors could even be allowed to use foreign doctors too. 
4.  Use more generic drugs.  We have already done a lot with this. 
5. Allow pharmacists to dispense more drugs without a prescription.  There could be an intermediary step between OTC and prescription in which pharmacists are required to do some basic education and patient screening before despensing medication.  Birth control pills are an excellent candidate for this and they are already available over the counter in most countries in the world. 

AMA: Good or Bad?

The American Medical Association is like a union for doctors.  The AMA is typically given the kind of respect that the public gives to doctors, but it is a lobbying organization that has always profited from selling its influence.  Its entire history, the AMA has behaved more like a greedy, for-profit corporation than like a public-interest group and it has promoted drugs and even tobacco in exchange for corporate cash. 

[T]he AMA eventually decided to sell advertising space for its medical journal JAMA to drug companies. Expanding on this business model, AMA President George Simmons decided to create the “AMA seal-of-approval” for favored drugs in 1899, resulting in a five-fold increase in advertising revenue by 1909. Simmons, it turned out, had no credible medical credentials and the AMA did no drug testing for the products given the seal-of-approval.
...Simmons’ focus on molding public opinion also became one of the greatest weapons of the AMA – his “Propaganda Department” would soon expand to communicate the AMA’s views through a column syndicated published in over 200 newspapers, a weekly radio program, and various books about how homeopathic practices and non-AMA approved drugs were “quackery.”
Through the 1930s to 1950s ...the tobacco industry leaned on the AMA to substantiate its dubious health claims. Beginning in 1933, JAMA published tobacco advertisements, stating that it had done so only “after careful consideration of the extent to which cigarettes were used by physicians in practice.” The tobacco industry became the AMA’s largest advertiser, and its implicit endorsement of tobacco products allowed companies like Camel to proclaim slogans such as, “More doctors smoke Camels than any other cigarette.”

...[Today the] AMA derives at least a fifth of its budget from drug companies through an arrangement known as “licensure.” The program consists of AMA selling drug companies its “Masterfile” of doctor profiles, spanning everything from detailed biographic information to an individual doctor’s prescription-writing history. The program is extremely controversial since drug companies in turn use the information to aggressively market their products to doctors. Controversial drugs Vioxx and Avandia, which have subsequently been found to pose significant risks to patients, have been marketed to doctors, in some cases, using information obtained from the AMA.
After an uproar in 2007, the AMA, through a policy of self-regulation, claimed to have stopped selling doctor prescription-writing information. But that pledge must be viewed with skepticism given the AMA’s track record.
During a Senate investigation of abuses of the licensure practice in 1990, the Boston Globe reported that AMA and PhRMA lobbyists came to Capitol Hill to promise Sen. Ted Kennedy (D-MA) that the program was not part of any effort to convince doctors to prescribe PhRMA drugs. This promise to self-regulate was never kept. In 2001 the New York Times reported that the AMA generated $20 million dollars a year from licensure sales to drug companies in a complex scheme to market drugs like Baycol to doctors. In 2006, that number climbed to $40 million, and in 2007 it was reported to be $45 million.
So while the AMA projects an image of representing doctors ...it is actually financially tethered to the drug industry. Unless there are major structural changes to the AMA and its sources of revenue, it is difficult to view the group as an honest broker in the reform dialogue.

And when the AMA isn't promoting drugs for pay, it has been acting like a union that tries to raise the incomes of doctors at the expense of the rest of society. It also has its good side, but that is usually all the public thinks about it.  

Health Care Spending Growth Slowing?

Washington Post:

The New England Journal of Medicine published a paper this week titled “When the Cost Curve Bent,” where researchers from the Center for Sustainable Health Costs suggest that the slowdown happened way before the recession. Their analysis shows — and you can see it in this chart — that excess health-care spending growth (any spending above and beyond potential gross domestic product) began to moderate in the early 2000s:
Most of the difference is that gray bar, the one that represents “non-personal health care.” That pretty much includes the cost of private health insurance, alongside the cost of administering government health-care programs and medical equipment — most of the stuff that isn’t a doctor seeing a patient, or a prescription.
“The most important factor in 2003 was the net cost of private insurance (roughly the difference between premium revenues and payments to health care providers), which rose sharply,” the researchers write. “In 2008 and 2009, that net cost dropped sharply, which, combined with reduced spending on structures and equipment, drove down overall excess spending.”

Cost Benefit/Effectiveness Analysis and Innovation

The Institute of Medicine produced a book entitled, Medical Innovation in the Changing Healthcare Marketplace.  The following selection shows how important cost effectiveness is. We have a limited budget and we should spend on things that get us the greatest value and that is what cost benefit analysis and cost benefit/effectiveness analysis tries to do. Even though most research is a failure that produces nothing useful, a few breakthroughs have had a tremendous impact and so research has had tremendous value.

Cost-benefit analysis translates the benefits (health and saving lives) into dollars:

p. 17: University of Chicago economists Kevin Murphy and Robert Topel sought to evaluate the social benefits of medical research by placing a value on aggregate improvements in longevity … The first task was to estimate what an average American would agree to pay for a reduction in mortality risk that would add a year to his/her life. Murphy and Topel used data on what workers are paid in occupations with differing risks of job-related death to estimate the value of an additional life-year to be about $150,000, a figure that varies with age.

Over the period 1970–1990 increases in the life span of an average American have been significant. For example, the increase in the life span of a typical 40-year-old person is more than three years. Using age-dependent values of an additional life-year and the increases in life expectancy over this period, Murphy and Topel attribute a value of roughly $57 trillion or about $2.8 trillion per year to the increased life expectancy, indicating the public values improvements in health very highly. To put these figures in perspective, improvements in life expectancy over the period 1970–1990 contributed about as much to overall welfare as did improvements in material wealth.

p. 18: Kevin Murphy pointed out that investment in medical research has brought significant returns. In 1995, according to NSF calculations there were about $35 billion in investments in medical research. The gain in health, as measured by the value of added longevity, is about 50-100 times what we spend on research, even taking into account the fact that health improvements are due to a variety of factors.

Looking forward, Murphy said that potential future gains will also be very large. For example, eliminating cancer is worth roughly $47 trillion. Further, the economic value of disease reduction is increasing significantly over time… as the wealth of the population increases. In addition, the value of progress against any one disease rises as we make progress against other diseases. For example, as we have made progress against heart disease and, hopefully, make progress against cancer, the value of curing/mitigating Alzheimer’s disease increases. The reverse is also true. Progress against Alzheimer’s disease makes further progress against cancer or heart diseases much more attractive because of a better life in those later years as well as more years to live.

MAJOR RETURNS ON INVESTMENT IN MEDICAL TECHNOLOGY FOR CARDIOVASCULAR DISEASE :  David Cutler, a Harvard University economist, explained that life expectancy has increased 9 years since 1950 with about half of this increase resulting from reduced mortality from cardiovascular disease. These successes in treating/preventing cardiovascular disease can be attributed to developments in the intensive treatment of heart attacks, new medications for chronic heart disease (hypertension, cholesterol, angina), and behavioral changes (less smoking, reduced fat intake, decline in heavy drinking). These developments, including the behavioral changes, are products of medical research.

To determine the return on medical care and basic research (Cutler, Forthcoming), Cutler attributed roughly one-third of the benefits to developments in intensive treatment, roughly one-third to new medications, and the remaining third to behavioral changes. For someone 45 years old the total increase in longevity is about 5 years since 1950, of which about 41/2 years is a result of reduced cardiovascular disease mortality, with 3 years from medical treatments and 11/2 years from behavioral changes. For someone 45 years old the average cost of medical treatment on cardiovascular disease is $30,000 in present value terms. The costs of providing behavioral advice are much less—David Cutler estimated about $1,000 to cover the costs of research and consultation with health care professionals. For the purpose of estimating benefits, Cutler assumed an extra year of life to be worth $100,000.

p. 19: For the return on medical care [for cardiovascular disease], there is a cost of $30,000 in exchange for three extra years. These three extra years are [only valued at]... $120,000 [total] because the benefits occur in the future and need to be discounted. Even so, the return for medical care is very large, on the order of 4 to 1. For the return on behavioral changes, there is a cost of $1,000 in exchange for just over an extra year. [The additional year is discounted more than for medical care because it is farther in the future on average and so the value is only] $30,000. Thus, the return on behavioral changes (30:1) is much higher than the return for medical care.

Cost-effectiveness analysis only measures the costs of treatment in dollars and sees which is cheaper for accomplishing the same goal of reducing mortality or morbidity.  This is less controversial because of the difficulties and subjectivities involved in estimating the dollar value of a life, but both methods generally lead to exactly the same policy conclusions.   

SIGNIFICANT POTENTIAL BENEFITS FROM MELANOMA PREVENTION PROGRAMS

As Cutler pointed out… life style changes have brought about significant reductions in cardiovascular deaths. Life style changes can also have an impact on the incidence of melanoma. Margaret Tucker of the National Cancer Institute said that although the incidence of melanoma is increasing, it is a disease that can be prevented by decreasing sun exposure. To achieve this, major cultural issues need to be addressed since having a tan is an important part of “looking healthy” in American culture. These cultural problems have been successfully addressed in Australia where considerable investment in a prevention program has resulted in melanoma incidence rates leveling off, possibly even decreasing. The Australian program taught the need for sunscreens and protective clothing and led governments to provide shade at nearly all outdoor pools and school playgrounds.

Tucker also said that secondary prevention/early detection is practicable. In Australia, it has been estimated that a family practitioner doing a 2-year screening for adults over 50 costs about $12,000 per male life-year saved, and $21,000 per female life year saved (Carter et al., 1999). In America, it has been estimated that a one-time screen by a dermatologist with treatment would cost $29,000 per life year saved (see below). These costs would decrease for targeted screening.

p. 20: …The issue of whether screening is cost-effective was addressed in a recent study by Freedberg et al (1999). This study examined whether no screening or a single one-time screen by a dermatologist could be cost effective for high-risk patients. The study found that it is cost-effective but highly dependent on the initial cost. If the screen costs $30 then the cost per life year saved is $29,170. However, if the screen costs $120 then the cost per life year saved is $110,000, a considerably higher figure whose acceptability is debatable.

Health In America

Stanford Social Innovation Review:

We spend far more on health care than any other nation—a breathtaking $2.6 trillion annually... The US Department of Health and Human Services estimates that health care expenditures will be 25 percent of US GDP by 2025, twice what many developed countries currently expend.
The burden of rising health care costs falls not just on individuals—half of all personal bankruptcies are at least partly due to medical expenses—but also on US companies. At General Motors, health care costs put the company at a $5 billion disadvantage against Toyota...
Despite such spending, US health indicators are among the worst of high-income countries. Since 1960, the United States dropped from 12th to 46th in infant mortality rankings (below Cuba and Slovenia), and from 16th to 36th in life expectancy (below Cyprus and Chile), according to the CIA’s World Factbook. In certain neighborhoods in Baltimore, Chicago, and Los Angeles—and other communities across the country—life expectancy for subsets of the population is lower than in Bangladesh.
...Primary care doctors are the key to improving value-based care: By focusing on preventive services, care coordination, and disease management, they can reduce unnecessary health care costs. In the 1960s, half of the doctors in the United States worked in primary care. Today, barely 30 percent do. And this trend is deepening: From 2000 to 2005, the percentage of US medical school graduates who chose to enter primary care dropped from 14 percent to 8 percent.

Overtreated Vaginas and Tonsils

Most pelvic exams are unnecessary, but they are frequently required by doctors before they will give a prescription for one of the most commonly prescribed medicines: birth control pills.  There are more birth control pill prescriptions each year than antibiotics.  

The US Preventative Services Task Force, an independent group of national experts that makes evidence-based health care recommendations, released new guidelines declaring definitively that women over 30 don't need a Pap smear more than once every three years unless they have a couple of risk factors, which I don't have. The American Congress of Obstetricians and Gynecologists has said that birth control pills can safely be prescribed without a full-on exam. Doctors, though, don't seem to be in any hurry to give up old habits. ...I emailed my doctor, citing the new guidelines, and asked if he could give me a new one-year prescription for birth control pills without a pelvic exam.

He wrote back, "Yes, one can argue about whether or not you need a pap, but ...I would still like you to come in. See you soon?"
The doctor had me over a barrel. As it turns out, my experience isn't unique. Doctors regularly hold women’s birth control prescriptions hostage like this, forcing them to come in for exams that research is increasingly showing are too frequent and often unnecessary and ineffective. A 2010 study published in the journal Obstetrics & Gynecology found that 33 percent of doctors always require a pelvic exam and Pap smear for a hormonal contraception prescription, and 44 percent regularly do so, even though there's no medical reason for linking the two.
Indeed, there's a growing body of evidence that the entire annual ob-gyn exam, with the mandatory and miserable pelvic exam where doctors poke around one's uterus and ovaries with their fingers, is largely obsolete. For instance, there's no evidence that doctors can diagnose ovarian cancer with a pelvic exam in women showing no symptoms. A clinical trial found that doctors were unable to identify any cancers in test subjects by pelvic exams alone, and the National Cancer Institute no longer recommends the tests for postmenopausal women. ...The scientific basis for much of the traditional well-woman ob-gyn annual check-up is so slim that "the routine pelvic examination may be an example of more service leading to worse outcomes," Dr. Carolyn Westhoff, an ob-gyn at Columbia University, wrote in the Journal of Women's Health last year.

Virginia Postrel suggests that the controversy between the Catholic Church and the US government could be mostly solved by eliminating the prescription for oral contraceptives.  Making them available over the counter would eliminate the controversy as it applies to oral contraceptives, and it would make them much cheaper.

Right now, the American women who have the most choice are those who live near the border with Mexico, where pharmacies sell oral contraceptives without a prescription, generally for about $5 for a one-month supply. A group of researchers [] conducted extensive interviews with more than 1,000 women who live in El Paso, Texas....One result from the El Paso study surprised researchers. “Women who got the pill in clinics were significantly more likely to stop using it during the study — even though they still didn’t want to get pregnant,” Grossman says. That’s a big deal. In fact, he says, “my hope was that we would show that continuation was no worse for the OTC group, but in fact we showed it was better.”

Oral contraceptives are already available over the counter in most countries of the world, so this can work fine.  Kevin Drum notes that this kind of easier oral contraceptive access produces a big reduction in pregnancy and abortion rates.  This is the difference between women in California who needed monthly prescriptions and women who got a year supply. 

There is a tonsillectomy fad underway in medicine which raises costs and increases risk of iatrogenic illness for most patients rather than healing them:

It turns out we’re in the middle of ...a tonsillectomy epidemic,... Tonsillectomies are the most common procedure, for children, requiring anesthesia. ...The number of tonsillectomies performed spiked by 74 percent between 1996 and 2006. In 2006 alone, more than a half-million children in the United States got their tonsils removed. The only problem is there’s no evidence they work for most children.
The procedure does show some benefits for those with really serious symptoms — very sore throats, fevers and other symptoms at least seven times in the past year — but no improvement for those whose indications are milder.
....“It’s a silent epidemic of unnecessary care,” says the Dartmouth Atlas’s David Goodman, .... “In most instances, it’s done for patients with much less recurrent symptoms than should be indicated. I think a lot of this is unbeknownst to providers.”
...Unnecessary health care is estimated to cost at least $158 billion every year.
...Most doctors are paid for the volume of services they provide, creating an incentive to provide more care even if it might not be indicated. That does not quite explain the surge in tonsillectomies: As a relatively simple procedure, it’s not one that will bring in significant revenue, in the way that more complex treatments, such as those for cancer and end-of-life issues, would. “There’s not a lot of money in tonsillectomies compared to end of life care,” says Goodman. “Providers are by and large well-meaning here.”
Goodman and others have focused a lot on the medical education system as one key culprit. Medical school often focuses on teaching how best to treat patients, with little time spent discussing when treatment doesn’t make sense.

The Health of Nations

Ezra Klein:

Medicine may be hard, but health insurance is simple. The rest of the world's industrialized nations have already figured it out, and done so without leaving 45 million of their countrymen uninsured and 16 million or so underinsured, and without letting costs spiral into the stratosphere and severely threaten their national economies.
Even better, these successes are not secret, and the mechanisms not unknown. Ask health researchers what should be done, and they will sigh and suggest something akin to what France or Germany does. Ask them what they think can be done, and their desperation to evade the opposition of the insurance industry and the pharmaceutical industry and conservatives and manufacturers and all the rest will leave them stammering out buzzwords and workarounds, regional purchasing alliances and health savings accounts. The subject's famed complexity is a function of the forces protecting the status quo, not the issue itself.
So let us, in these pages, shut out the political world for a moment, cease worrying about what Aetna, Pfizer, and Grover Norquist will say or do, and ask, simply: What should be done? To help answer that question, we will examine the best health- care systems in the world: those of Canada, France, Great Britain, Germany, and the U.S. Veterans Health Administration (VHA), whose inclusion I'll justify shortly.

Read the whole thing for a good overview of healthcare around the world.