Paul Levy’s Reply to Ezekiel Emanuel, Plus Thoughts on Health Care Costs

Since we touted Ezekiel Emanuel’s pro-bundling piece, which took the “we don’t need no stinking pilot programs” view (which, incidentally, I endorse), you might find this critique from Paul Levy to be of interest. I appreciated his list of the sources of high costs in the U.S.:

What are the determinants of high health care costs in America?

One part of the problem is demographic, a large increase in the number of elderly, who end up needing hospitalization or treatment for chronic illnesses; the arrival of the baby-boomer cohort at the age of hospitalization; and the pending arrival of a sedentary next generation who will suffer obesity and the sequelae of that malnourishment.

A second part of the problem is the lack of effective primary care. Many people have not had access to primary care. Those who do have discovered that primary care doctors are often forced into a triage role: They spend the proverbial “18 minutes” with each patient, an inadequate amount of time, leading to excessive referrals to higher paid specialists.

A third part of the problem is application of “the rule of rescue” in American medicine, the tendency to spend larges amounts of money in high level tertiary and quaternary treatment, well beyond any rationale estimate of the value of a human life.

A fourth problem is that the unit costs of what we provide are high. Starting with doctors, who need to recover the high cost of medical education in their salaries, to medical equipment and supplies and drugs, to the physical facilities in which care is offered. Some of these high costs are simply the result of being a high-income country; some are structural in that they reflect regulatory requirements; and some are market-power driven.

A fifth problem is defensive medicine, the tendency by doctors to order unnecessary tests or conduct unnecessary procedures because they fear being sued for malpractice if things go awry. (Note: This, not the judgments awarded in courts, is the real cost of our malpractice system.)

A sixth problem is the degree of harm caused by doctors and hospitals. The number of hospital-acquired infections, for example, is excessive, leading to further morbidity in the hospital setting, along with the associate costs of treating patients for secondary diseases that could have been avoided.

A seventh problem is likely the inefficiency of a multi-payer system, compared to the simpler administrative system that could exist with a single payer. I say “likely” because there are other inefficiencies often associated with single payer systems, not the least of which is the rationing that results and the emergence of a parallel, private system of insurance and care for those who can afford it.

Finally, an eighth problem is the incentive given in a fee-for-service payment system to over-treat patients, in that a doctor’s income is based to some extent on the number of steps taken, not the results of treatment.

Levy’s characterization of the fourth problem is of particular interest in light of our discussion of Chen and Chevalier; female physicians tend not to recoup the high cost of medical education. Moreover, it is not obvious that medical education needs to be as expensive as it, particularly as new instructional technologies emerge and as we learn more about the kind of training that is necessary for effective medical practice. 

The fifth problem relates to the call for medical malpractice reform, the capping of non-economic damages, etc. Some years ago, David Dobbs, writing in Slate, advanced the Swedish approach:

A no-fault system would compensate those who have been harmed without assigning blame—a process easier for patients and less traumatic for doctors. In our present system, to win restitution, a harmed patient must prove not just that a doctor or hospital erred, but that the error was caused by neglect or incompetence so severe it amounts to a breach of the doctor’s or hospital’s legal duty of care. In short, the patient must prove not only an avoidable error but gross negligence or incompetence. In a no-fault system, the patient need prove only the avoidable error. The question of whether the doctor was negligent or incompetent—the accusatory crux of our present system, and the part that so humiliates and infuriates doctors—would not pertain. A separate disciplinary agency or panel would handle cases of gross negligence, incompetence, or breach of duty.

Sweden, Denmark, Finland, and New Zealand have used no-fault malpractice systems for 20 to 30 years, with admittedly mixed results. Yet several academics, most notably Harvard’s David Studdert and Troyen Brennan, have studied these countries’ systems and concluded that a U.S. system modeled on that of Sweden could more consistently compensate victims of avoidable mishaps and more effectively reduce error and incompetence—all for the same cost. No-fault would also make doctors and patients allies rather than adversaries when something goes awry.

In Sweden, when a patient suffers avoidable injury, whether through gross negligence, such as a botched surgery, or through a more understandable but avoidable mistake, such as a misdiagnosis or medication error, the patient—usually with help from the doctor’s office—fills out a form requesting compensation. That request, along with relevant doctor and hospital staff reports, gets reviewed by an adjuster who decides whether the injury might have been avoided had treatment differed. If the claim passes that hurdle, a panel of legal and medical experts considers it. If the panel decides the injury rose from avoidable error, the patient is compensated. The award varies according to the nature of injury, the degree and duration of the patient’s disability, the expenses incurred, and other factors; it may also include compensation for pain and suffering. The entire process usually takes less than six months. Patients who feel unfairly denied or undercompensated can appeal, but they cannot sue. The system is funded by premiums charged to regional organizations of medical facilities and physicians. These premiums are substantially lower and more stable than malpractice premiums in a tort system.

Such a system would generate more claims than does our present malpractice system—indeed, compensating more of the injured is part of the point. The system would save money, however, by eliminating punitive damages and legal costs. The legal and administrative costs of our present system (lawyers’ fees, court costs, paid experts) account for 60 percent of the estimated $24 billion the malpractice system consumes each year. A no-fault system would cut that to 20 percent or 30 percent, roughly doubling the money available for the injured.

This does seem an intriguing “centrist” way forward — it more effectively meets the needs of patients, yet it effectively freezes out the trial-lawyer lobby that is tightly aligned with the Democrats and at least some Republicans. 

While Levy challenges Shannon Brownlee’s “overtreatment” meme (with which I am more sympathetic), Brownlee and her occasional co-author Michael Fine have forcefully pressed the case for expanding access to high-quality primary care

Every American would have a primary care doctor near home. Those who already have primary care physicians, physician assistants or nurse practitioners they trust could keep them, and those doctors and their practices would be offered incentives to provide more effective and efficient care than they currently do within our fragmented, disorganized system. More open hours, for example, short waiting times, and care coordination for the chronically ill. Every primary care practice will be rewarded for providing better information, and making available the time to discuss that information, so that patients fully understand the risks and benefits of their choices. Primary Care for All would provide access to a multidisciplinary primary care team, which might include a social worker or psychologist, a nutritionist, a visiting nurse, a pharmacist, and a physical therapist, all of whom practice with the primary care physicians as part of a team.

And Brownlee offers a strategy for paying for this new system:

The simplest method for financing Primary Care for All is for all payers (including Medicare and Medicaid) to put $400-500 per beneficiary per year into a Primary Care Trust — a state-based, non- profit, private-public partnership, responsible for paying all primary care practices on a capitated basis, with incentives to address health disparities in the population, as well as for working with populations with geographic, language and cultural barriers to care. These funds would pay for the primary care of all Americans, not just the uninsured. Paying for primary care cannot be left to individual insurers to pay a capitated fee to selected primary care physicians because insurers currently underpay for primary care, leaving in place the fragmented, inefficient market for primary care, and leaving primary care practices with nowhere to turn, when their costs exceed their incomes. The nation now spends on average $250 per capita per year on primary care, which leaves practices without the wherewithal or incentives to organize into larger practices, or to develop the infrastructure needed to provide coordinated, effective, efficient care.

The Primary Care Trust would allocate part of the funds it receives to ensure that all Americans have primary care available, and that the participating primary care practices have the resources needed to adhere to the standards of Primary Care for All (which will be described in a companion White Paper). Coverage for primary care is already in place for the 250 million Americans who now have health insurance. People without health insurance would also be required to pay into the Primary Care Trust, but would receive tax credits for doing so. Those living in poverty would receive public subsidies for primary care, to be funded either by tobacco and alcohol taxes, or taxing employee health benefits that exceed a certain threshold. Of the approximately 50 million Americans who have no health insurance, 65 percent, or 32.5 million people, earn below 200 percent of Federal poverty levels and would require subsides. Primary care for lower income Americans would cost $13-16.25 billion a year in new spending, an amount dwarfed by savings projected from bringing primary care to all citizens, which ranges from $45 to $450 billion dollars a year. [Emphasis added]

Suffice it to say, this is an approach that most conservatives would instinctively reject. What I’d want to know is whether the promised cost-savings are credible. If they are, and if the cost-savings are on the high end of Brownlee’s range, the case for her approach might be fairly strong. Indeed, one wonders if it might be understood as a better complement to an approach like that advocated by Yuval Levin and Ramesh Ponnuru than that offered by PPACA and the president’s allies, a view that I imagine Brownlee and Fine would reject. 

To return to Levy for a moment, his brief mention of regulatory barriers struck me as particularly interesting, and it raises the Christensen critique of the U.S. health system — the lack of business model innovation due to stifling regulations that protect incumbents. (For an example of the kind of innovation that could make a difference, consider Jason Hwang’s take on Hospital at Home.)

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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