Why is Medical Care So Expensive ?

1. Why is Medical Care So Expensive ? Neil A Kurtzman MD Sandra Sabatini PhD MD

2. Feynman’s Rules Richard Feynman 1918-88 The universe in not only stranger than you think, it's stranger than you can imagine Anyone who says he understands quantum mechanics, doesn’t understand quantum mechanics

3. Medicine is a surrogate for the entire economy

4. Absence of medical insurance is not absence of medical care

5. Possible Causes of Increased Medical Care • Technology • Pharmaceuticals • Doctor’s fees • Insurance companies • Hospital fees • Government • Defensive medicine • No competition

6. Insurance The equitable transfer of the risk of loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

7. Cost Comparisons • CPI • Toaster • 24”TV/26”HDTV • Phonograph/iPod Classic

8. Comparison Costs • Car ( Ford ) • Gallon of gas • Loaf of bread • Consumer Price Index

9. Cost Comparisons • Median Wage $/yr • House, median $ • Medical Insurance $/yr • College, total costs/yr

12. Total Health Expenditures • United States of America • Switzerland • Canada • United Kingdom • Japan

14. United States of America • 320 million population; heterogeneous with most of the population urban; highly concentrated on each coast and Texas • Private, government, employee-based insurance began during WWII • Unfunded mandates • Unfunded liabilities of Medicare = $38.6T or $328,404/person! (WSJ June 24, 2013)

17. Switzerland • ~ 8 million population, relatively homogeneous, land locked; long-lived • Compulsory basic insurance (not risk based); $84 - 8% of income up to ~ $1500; this may be supplemented with private (risk based) which enhances room type, dental, additional Rx, etc • Health care cost ~ 11.5% GDP and rising; just recommended abolishing mammography as one effort to control costs (NEJM, 22May 2014)

18. Canada • 25 – 30 million people, relatively homogeneous • ~ 90% live within 200 miles of the USA border • Canada Health Act -must have public insurance; does not address delivery • Some private clinics allowed; cannot operate at profit; 2006 BC provincial gov’t shut one down • Provinces use wait-time strategies(ie, rationing); those with $$ come to USA

19. Japan • ~ 120 million population; completely homogeneous • Long-lived; use MD and health services more than in other countries; 33% hospital stays > 30 days; 8.2 MDs/1000 (cf USA) • High prevalence of HTN, diabetes and smoking • 70% govt & 30% patient responsibility; 8.5% of GDP; all hospitals non-profit & run by MDs

21. United Kingdom • 60 – 70 million population • NHS began after WWII; went 65 years without building a new hospital • 90% population covered by NHS 10% population buy private insurance **Salaries of NHS physicians 2x that of private **Rationing of services --- age, time of appointment, type of service offered, etc

22. N I C E • National Institute for Health & Care Excellence • Est 1999, United Kingdom for the NHS • Provide evidenced-based guidance (clinical guidelines, tech appraisal, Dx review, etc) • Develop quality standards/outcomes • Provide information services for managers, MDs, commissioners, local govt • QALY = quality-adj life yr (eg an intervention is cost effective if <20k pounds; if >30k there MUST be “strong reasons”) (NICE Guidelines Manual, p 54)

23. I P A B • Independent Payment Advisory Board • 15 member US govt agency created in 2010; members appointed; confirmed by Senate • Has the explicit task of achieving savings in Medicare without affecting coverage or quality • Can change Medicare program; Congress can overrule only by supermajority vote

24. Mass Medical Society – 2013 Report

26. The Greater the Government Involvement the Lower the Productivity and the Higher the Cost

27. Medical Care Spending,2011 • Public Health 3 % • Infrastructure, research 6 % • Administrative 7 %* • Rx, durable medical 13 % • Professional services 30 % • Inpt/nursing home/etc 42 % • Total $2.7 trillion _______________________________ CMS data in JAMA 310: p 1950, Nov 2013

28. Professional Personnel In 2011--- Total = 21,587,800 MDs = 830,700 RNs = 2,725,000 DDS = 96,000 US Dept Labor - 2013

29. USA Insurance Status 2012(% Population) Private 54 % Medicare 11 % Medicaid 13 % Military 4 % Uninsured 15 % ______________________________________ (data from US Census, JAMA 310:1952, 2013)

30. Actual Causes of Increased Medical Care • Inappropriate use of the Insurance Model • Medicare • Third party payers separate the patient from costs • Lack of price competition • Technology without competition • Unrealistic expectations by the public • The idea that medical care is a right • Unreformed tort law

32. $164 Billion in 2015 Budget (6.7 million pts)

33. It will be of little avail to the people that their laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood. James MadisonThe Federalist #62

34. Mancur Olson (1932-98) Great systems can only be reformed after they collapse Passionate minorities prevail in a democracy Benefits persist irrespective of their societal value If you like your benefits, you will keep your benefits

35. You have heard of too big to fail Medicine is too big to fix!

36. Thomas B Edsall: Joseph Pulitzer II and Edith Pulitzer Moore Professorship in Public Affairs Journalism at Columbia University New York Times Nov 19, 2013

37. A man cannot know more than a tiny part of the whole of society…all a man’s mind can effectively comprehend are the facts of the narrow circle of which he is the center…nobody can know who knows best…The fundamental assumption…is the unlimited variety of human gifts and skills and the consequent ignorance of any single individual of most of what is known to all the other members of society taken together. Frederich Hayek

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