Health Care – Exploring The Real Problems

In a comprehensive Atlantic article, “How American Health Care Killed My Father”,  businessman David Goldhill analyzes what is really wrong with heath care that none of the reformers are talking about. And he proposes  real solutions – exactly the opposite of what is being discussed in Congress.

The story starts with his father walking into the hospital after work with a mild case of pneumonia, and dying in the hospital five weeks later from infections contracted in the hospital itself. It concludes questioning the $636,687.75  that the hospital billed medicare and his mother for such bad quality service. Along the way, Goldhill explores how medical care has come to be paid for so completely differently than every other service our modern society provides. He makes a strong case that the morel hazard embedded in the third party payment system is the fundamental cause of the skyrocketing costs of questionable quality of the system.

He includes some shocking facts: roughly “one hundred thousand deaths [are caused or influenced by infections picked up in hospitals]: more than double the number of people killed in car crashes, five times the number killed in homicides, 20 times the total number of our armed forces killed in Iraq and Afghanistan.” And more shocking, most hospitals don’t have strict rules requiring basic sanitation. He points out that many doctors and hospitals reject the policy of implementing of a “simple checklist of ICU protocols governing physician hand-washing and other basic sterilization procedures”, which has been shown to  reduce  “hospital-infection rates by two-thirds within the first three months of its adoption.” Goldhill goes on to point out that “blood clots following surgery or illness, the leading cause of preventable hospital deaths in the U.S., may kill nearly 200,000 patients per year.” He asks the critical question: “How did Americans learn to accept hundreds of thousands of deaths from minor medical mistakes as an inevitability?”

Goldhill explains that providing more third party payment in the health care system is not the solution, but rather the fundamental cause of all the problems people decry. As a businessman he explores how “America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.”

He clarifies that: “I’m a Democrat, and have long been concerned about America’s lack of a health safety net. But based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system—largely problems of incentives—our reforms won’t do much good, and may do harm. To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.”

Including both private systems and public systems like medicare, Goldhill suggests “insurance is probably the most complex, costly, and distortional method of financing any activity; that’s why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you’ve paid your share. An expensive and wasteful absurdity, no?”

He decries the “moral hazard” build into our system of third party payments for health care, “the tendency we all have to change our behavior, becoming spendthrifts and otherwise taking less care with our decisions, when someone else is covering the costs.”  “Moral hazard has fostered an accidental collusion between providers benefiting from higher costs and patients who don’t fully bear them”

He points out: “Certainly, Medicare wasn’t paying for the quality of service during my dad’s hospital stay. And it wasn’t really paying for the quality of his care, either; indeed, because my dad got sepsis in the hospital, and had to spend weeks there before his death, the hospital was able to charge a lot more for his care than if it had successfully treated his pneumonia and sent him home in days.”

The quibbling in Congress is about whether to add somewhere between $900 billion and $1.5 trillion we don’t have to spending on health care, while “already, the federal government spends eight times as much on health care as it does on education, 12 times what it spends on food aid to children and families, 30 times what it spends on law enforcement, 78 times what it spends on land management and conservation, 87 times the spending on water supply, and 830 times the spending on energy conservation.”

Goldhill suggests that all the current proposals for  “comprehensive reform will not address the underlying issues, any more than previous efforts did. Instead it will put yet more patches on the walls of an edifice that is fundamentally unsound—and then build that edifice higher.” And he suggests that the “most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system.”

Goldman exposes the hugely expensive scheme that makes health care seem and feel low cost or even free to consumers while inefficiently stealing vast amounts that would otherwise go to their personal income and transferring it into the medical system. He calculates that if health care costs were restrained to raise only at the rate of general inflation, employees of a 22 year old person entering the work force would total  $1.77 million throughout his career and over $4 million if health care continues to rise the way it has over the last decade. ” He describes the very real quality and cost reduction benefits of shifting the entire medical payment system, putting the cost and responsibility for health care directly on the consumers by putting those dollars back in salaries and wages while making individuals responsible for wise purchasing in the routine aspects of their health care, with insurance reserved for catastrophic costs.

The general direction that Goldhill prescribes matches the recommendations from John Mackey, many of which he has tested in his own business, Whole Foods Markets, and which is described in his recent Wall Street Journal op-ed.

As Goldhill points out, unfortunately “these ideas stand well outside the emerging political consensus about reform.”

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Filed under Economic Policy, Health Care

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