Why Reforming Our Health Care System Will Require a Tax Hike

Some of President Obama’s critics have expressed disappointment with his plans for healthcare reform. Why is the president raising taxes to sink more money into an already bloated healthcare system? Why isn’t he doing more to cut wasteful healthcare spending?


Earlier this week, New Yorker writer and surgeon Dr. Atul Gawande testified before the House Committee on Energy and Commerce Subcommittee on Health. 

As usual, he was eloquent, and, as it happens, much of what he said speaks directly to the critics’ objections. But first, consider what the skeptics have to say about the budget. Not long ago The HealthCareBlog’s Matthew Holt declared “There is NO reason to put more money into the health care system.

Holt argues that the president should be able find the dollars needed to fund reform by making aggressive cuts to Medicare and Medicaid spending. Instead, the president proposes raising taxes on couples earning more than $250,000 (less than 2 percent of the nation) in order to raise half of the administration’s $645 billion “down payment” on health care reform. The other half comes from what Holt describes as “modest cuts around the edges of the [healthcare system] system.” This is “limited reform” Holt grumbles. “This is not the “big bang we need to do the job."

Writing on the Health Affairs blog, Bob Laszewski agrees: “In his first budget message, President Obama hasn’t made anywhere near the hard decisions that need to be made . . .. Laszewski believes that the president just isn’t “facing up to the health cost reductions necessary to fix our economic system—whether through direct cuts to what providers and beneficiaries would have received otherwise or incentives with real teeth to force behavior changes toward smarter spending.”

Laszewski acknowledges that in his budget message, the president does say that Medicare’s “current physician payment system needs to be reformed . . . Medicare and the country need to move toward a system in which doctors face better incentives for high-quality care rather than simply more care.”

But the president doesn’t go into details. The budget explains where the administration would find a “down payment” for reform—roughly half to two-thirds of the funds that will be needed—and the president asks Congress for suggestions on where to find the rest of the money. “The Obama administration has basically abrogated health care reform,” Laszewski charges, “leaving the heavy lifting to Congress.”

Why Health Care Reform Requires More Money

Begin with Holt’s first objection: why are we pouring more money into an overpriced and inefficient system? The answer is simple: covering everyone will cost more. Over time, we can make the system more efficient, but the upfront cost of providing care for all will be steep.

In the past, well-meaning reformers have suggested that if we just rolled out “health care for all,” our national health care bill would shrink. automatically, After all, they reason, if everyone is insured, everyone will receive more timely care, and fewer people will wind up needing expensive hospital care.

But the research points in the other direction: “Studies consistently show that when a large portion of the previously uninsured population becomes insured, total health care spending rises by 10 to 13 percent.,” observes Paul Ginsburg in “High and Rising Health Care Costs: Demystifying Health Care Spending.”  a report published last fall by the Robert Wood Jounson Foundation.

This is because, once they have coverage, the uninsured will live longer. Today, they die sooner than the rest of us, saving society the money that might have been spent treating them for Alzheimer’s or other diseases of old age.”

Indeed, Ginsburg acknowledges the ugly truth: “over the past decade, the decline in the percentage of Americans who have insurance has slowed the rate of health spending growth.” If everyone had been insured, the cost of healthcare would have climbed even faster.

Moreover, keep in mind that many of the uninsured—as well as the underinsured—are poor. We know that the poor are sicker the rest of us, which means that once they have comprehensive coverage they will become expensive patients. Healthcare should help them live longer, but it won’t end the anxiety, depression, and self-medication that so often accompanies poverty. Health insurance will not provide a nutritious diet, a place to exercise, or better air quality. In other words, modern medicine cannot “cure” poverty.

If 51-year-old alcoholic who has been drinking for thirty-five years begins seeing a doctor, and receives hospital care, he might live to 60 or 65, but chances are he won’t stop drinking altogether—not unless his life changes. And during those extra nine years, he is likely to require more care than the average 50-something.

Granted, many of the uninsured are children; good preventive care could spare them from falling victim to some of the diseases associated with poverty, but not all. And in too many cases, poor pre-natal care combined with a chaotic sometimes violent home has set them up for a lifetime of mental and physical problems.

Why Raise Taxes? Why Not Just Redistribute Healthcare Dollars?

We know that profit-driven healthcare spawns unnecessary treatments; research suggests that one out of three of our healthcare dollars is squandered on ineffective, often unproven, sometimes unwanted products, tests and treatments. Why can’t we find the money to cover the uninsured by excising that waste?

The answer is that the excess cannot be found in any one place. There is no single culprit. The problems that drive senseless spending are structural, and they involve not just what we cover but how we deliver healthcare and how we pay for it.

It is crucial to recognize that our fragmented fee-for-service system encourages both over treatment and destructive competition. At its worst, it creates a Hobbesian marketplace which pits healthcare providers against each other as hospitals compete with other hospitals by investing in equipment that they don’t need; doctors vie with hospitals by opening yet another cardiac surgery center; doctors compete with each other by installing diagnostic imaging equipment in their offices, making it more convenient for patients to have an MRI. In order to pay for the unit, they use it. Insurers troll for young, healthy patients by competing on price. No one wants to advertise that their doctors provide better, more effective management of chronic diseases: this might attract chronically ill customers. Meanwhile, drugmakers battling for market share invest their research dollars in products that they hope to develop quickly and sell easily—even if they are not the products we most need. And if any company has made even a tiny bit of progress in understanding Alzheimer’s, it certainly will not share that knowledge with its rivals.

In such an environment, “competitors do not create value, they divide it. And sometimes they destroy it,” writes Michael Porter, a Harvard Business School Professor well known for his writings on market competition.

Twenty-first century medicine calls out for collaboration. Today, most patients are seeing at least three doctors— often more. But in a system where the 80 percent of care is provided by physicians working in small practices, co-operation becomes difficult. Doctors play phone tag with each other. Medical records never seem to make it from one specialist to the next unless the patient hand-delivers them. Many small practices cannot afford electronic medical records.

Resarchers at Dartmouth have shown that the most effective and efficient care often can be found in large multi-specialty practices like the Cleveland Clinic where physicians work together in a collegial environment using electronic medical records that help them practice evidence-based medicine. But we cannot simply round up the nation’s doctors and ship them to large medical centers where they can learn how to practice medicine the way they do in Minnesota.

Nor can we force good hospitals to close down entire wings—even though the Dartmouth research has shown us that in towns where there are more beds, patients are more likely to find themselves in one of them, whether or not they really need to be there, racking up big bills. The same research reveals that a surfeit of specialists in one region also leads to unnecessary tests and procedures, but we cannot force one-quarter of the physicians in Massachusetts to move to Montana, Maine or Idaho.

This brings me to Dr. Atul Gawande’s testimony: “Structural problems like ours cannot be fixed with a flip of a switch,” Gawande told the House committee earlier this week.

Dr.Gawande began his testimony by underling the enormity of the challenge in front of us: we are trying to overhaul a $1.6 trillion dollar absolutely Byzantine health care system that has grown to a point that clinicians are exhausted and overwhelmed, on a daily basis, by its complexity and irrationality.

“As a clinician, public health researcher, and medical-watcher, this is what I see: our health system is failing—on cost, coverage, safety, and value—because the complexity of health care itself has exceeded our abilities as individual clinicians.

The Nature of the Problem

“Let me explain,” Gawande continued. “The new edition of the International Classification of Diseases identifies more than 68,000 diagnoses—68,000 different ways in which the human body can fail. And over the last half century, science has given us beneficial remedies, if not outright cures, for nearly all of them. But these remedies are rarely simple. Each involves different steps in care, vexing uncertainties, often expensive technologies, complicated systems, and coordination. We have relied on training and ever greater specialization of individuals, but no industry in the world has to deliver on so many different service lines. We have some 6,000 different drugs and more than 4,000 different kinds of procedures, and providing them currently entails 35 million hospital admissions, 120 million ER visits, 400 million imaging procedures, almost 1 billion office visits, and 3.5 billion prescriptions each year. What science has given us is extreme complexity. And our system cannot handle it.”

(Here I cannot help but think of Matthew Holt’s suggestion that what we need is “big bang reform to do the job.” When you consider the size and sheer complexity of the industry we are trying to fix, I’m afraid that Matthew’s somewhat impatient approach would, indeed, create a “big bang”—an implosion.)

Rather than regulating our health care system, the way other developed countries have, we have left the monster to grow on its own, putting profits ahead of patients until it now devours 17 percent of our economy. The result: what Dr. Jerry Avorn, author of Powerful Medicines calls “the general disarray in the marketplace of ideas and products that marks American Medicine as a whole.

Gawande examines the failures of our laissez-faire approach:

Failures of coverage: Whether uninsured or inadequately insured, fifty-seven million Americans reported difficulty paying medical bills in 2007, up 14 million from 2003. . ..

Failures of decision-making: Over and over again, studies find that medical decision-making is not nearly as consistent or reliable as people deserve. To take just a few examples: Forty percent of patients with coronary artery disease receive incomplete or inappropriate care; sixty percent of patients with pneumonia do; and so do ninety percent of patients with alcohol dependence.

Failures of execution: Even when good diagnosis and treatment decisions are made, our execution is inconsistent. The failures can be of the simplest kind imaginable—each year, almost 2 million patients pick up infections in hospitals, and 99,000 of them die, most because someone failed to just wash their hands. And they can reach realms of care that are extraordinarily complex: each year, we estimate that at least one million Americans suffer disabling complications from surgery, and more than 100,000 die—and at least half of these cases are known to be avoidable..

(To find the evidence for all of Gawande’s statements, go to the heavily footnoted pdf of his testimony.)

In part 2, of this post, I will comment on the rest of his testimony, explain why the President could not include the structural reforms that are needed in his budget—and why Congress cannot legislate the hundreds of changes required. Nor can it set financial targets. We have tried that before, and failed miserably.

Reforming health care is a process that should focus on making sure that we are getting value for our health care dollars, by measuring what works and what doesn’t while creating an organized, accountable health care system. This means revising the way we pay for care, and the way we deliver that care to the patient, building in incentives for providers to collaborate while practicing consistent evidence-based medicine. As the Congressional Budget Office observed in a report I wrote about here , some reforms will cost money at the outset; some will provide only small savings; some will not “pay back,” as President Obama said at the health care summit last week, “for 10, 15 or 20 years.”

But, together, these structural reforms will lift the quality of care while reining in the monster, leaving us with a sustainable, safe and effective delivery system that really deserves to be called a “system.”

Some ask: why worry about health care reform in the middle of a devastating recession? Because as White House budget director Peter Orszag has warned, if we don’t, over the long run, an out-of-control medical system will take the economy down with it.

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