City Journal Magazine | David Gratzer | Summer, 2007
Socialized medicine has meant rationed care and lack of innovation. Small wonder Canadians are looking to the market.
Mountain-bike enthusiast Suzanne Aucoin had to fight more than her Stage IV colon cancer. Her doctor suggested Erbitux—a proven cancer drug that targets cancer cells exclusively, unlike conventional chemotherapies that more crudely kill all fast-growing cells in the body—and Aucoin went to a clinic to begin treatment. But if Erbitux offered hope, Aucoin’s insurance didn’t: she received one inscrutable form letter after another, rejecting her claim for reimbursement. Yet another example of the callous hand of managed care, depriving someone of needed medical help, right? Guess again. Erbitux is standard treatment, covered by insurance companies—in the United States. Aucoin lives in Ontario, Canada.
When Aucoin appealed to an official ombudsman, the Ontario government claimed that her treatment was unproven and that she had gone to an unaccredited clinic. But the FDA in the U.S. had approved Erbitux, and her clinic was a cancer center affiliated with a prominent Catholic hospital in Buffalo. This January, the ombudsman ruled in Aucoin’s favor, awarding her the cost of treatment. She represents a dramatic new trend in Canadian health-care advocacy: finding the treatment you need in another country, and then fighting Canadian bureaucrats (and often suing) to get them to pick up the tab.
But if Canadians are looking to the United States for the care they need, Americans, ironically, are increasingly looking north for a viable health-care model. There’s no question that American health care, a mixture of private insurance and public programs, is a mess. Over the last five years, health-insurance premiums have more than doubled, leaving firms like General Motors on the brink of bankruptcy. Expensive health care has also hit workers in the pocketbook: it’s one of the reasons that median family income fell between 2000 and 2005 (despite a rise in overall labor costs). Health spending has surged past 16 percent of GDP. The number of uninsured Americans has risen, and even the insured seem dissatisfied. So it’s not surprising that some Americans think that solving the nation’s health-care woes may require adopting a Canadian-style single-payer system, in which the government finances and provides the care. Canadians, the seductive single-payer tune goes, not only spend less on health care; their health outcomes are better, too—life expectancy is longer, infant mortality lower.
Thus, Paul Krugman in the New York Times: “Does this mean that the American way is wrong, and that we should switch to a Canadian-style single-payer system? Well, yes.” Politicians like Hillary Clinton are on board; Michael Moore’s new documentary Sicko celebrates the virtues of Canada’s socialized health care; the National Coalition on Health Care, which includes big businesses like AT&T, recently endorsed a scheme to centralize major health decisions to a government committee; and big unions are questioning the tenets of employer-sponsored health insurance. Some are tempted. Not me.
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Yeah, conservatives typically brand any solution that has any governmental involvement as “socialist.” But many of these solutions can actually reduce costs.
For example, The State could control what hospitals can offer certain services. At the merely suggestion of that, a true conservative’s blood would boil. But if you think about it, it makes sense.
Most hospitals are non-profit, and thus are not driven by the desire to make a large profit. But they are driven by issues of perception and prestige. Let’s say that Hospital A has an ongonig heart transplant program. Hospital B says “hey, we want a heart transplant program too” — not because they could do it better, and not because the area needs another program, but just because it’s a “status” thing.
So Hospital B starts a heart transplant program. In order to do that they have to establish a whole program of services with high overhead costs. Now half the patients get transplants at Hospital A and half at Hospital B. What was once a high-quality program at Hospital A is now a crippled program. Because fewer patients get transplants at Hospital A, the physicians and other staff get less experience with transplants and post-transplant care. Hospital B also has a crippled program, for the same reason. So we go from one hospital with a thriving program, with staff getting lots of experience, to two crippled programs with no one getting enough experience. In addition, the expensive program costs at both hospitals are now distributed over half the number of patients.
Bottom line — both hospitals end up with weak programs, patients get worse case, and expenses in both hospitals are higher. And all of this so that Hospital B can say “we have a heart transplant program too!” The lesson is that not all competetion is created equal, and competition doesn’t always lower costs, especially in healthcare.
#61 Mr. Holman,
By your logic, shouldn’t any industry with significant overhead costs and work that benefits from experienced practitioners be controlled by the government?
Imagine the better quality that would be obtained if the government specified bridge-building to one civil engineering firm, or awarded sewer construction to a single contractor. I’m sure the government officials making these decisions would not be swayed by which firms would offer the best bribes or campaign cash. I’m sure we could all rest well knowing these decisions would only consider which firm is right for the job. And the firms would not have to waste as much money and time advertising, recruiting employees, etc. The cost savings would be passed down to the consumer, right?
Oh, wait a minute, I almost forgot that without the threat of competition there is no incentive for better quality control or reduced cost.
#63 Mr. Scourtes:
“Because health care is so important to us both as individuals and as a society, government must intervene to address these market failures.”
I have argued previously that the government needs to intervene (I am not a libertarian), but not in the way that you suggest it should.
Greater transparency in pricing (a suggestion you made) may not result in a theoretically perfect market, but it would go a long way to improving the one we have now.
D. George writes: “Imagine the better quality that would be obtained if the government specified bridge-building to one civil engineering firm, or awarded sewer construction to a single contractor.”
Well, yes, actually that’s what you would want to do. It is just the concept of the “prime vendor” applied to construction services.
What you would do would be to have a competitive selection process in which one (or possibly a few) contractor was selected for a long term construction contract for specific services. Because of the large volume of work, the prospective contractor can offer lower rates — in other words, the contractor gets a smaller sliver of pie, but from a much larger pie. Because of the large volume of work at stake, the contractor has a great incentive to do quality work. Bad quality = cancelled contract.
The advantage for the government is that they don’t have to go out to bid on every job. That lowers the overhead costs of getting the work done. Another huge advantage is that you actually know who has done the work. Otherwise, if there is a problem, after a few years, utilizing many contractors, you have no idea who has done what work, and it is impossible to hold anyone accountable.
So you have suggested what really is a very good business model for work like that.
D. George: “I’m sure the government officials making these decisions would not be swayed by which firms would offer the best bribes or campaign cash.”
That sort of thing like more likely to happen with smaller contracts that have a very low level of review. Larger contracts are more visible and have more levels of review. I mean, what you’re suggesting is that public contract staff would commit felonies in awarding large contracts. I suppose that’s always possible, but no more likely in prime vendor contracts than for any other kind of contract.
D. George: “Oh, wait a minute, I almost forgot that without the threat of competition there is no incentive for better quality control or reduced cost.”
The issue is not lack of competition, but where and how the competition occurs. Do you want to have a competitive process for one big contract, or do you want to have a competitive process every time there’s a pothole or a leaky pipe, or peeling paint?
D. George: “Greater transparency in pricing (a suggestion you made) may not result in a theoretically perfect market, but it would go a long way to improving the one we have now.”
Hospital “prices” mean almost nothing. In my hospital years we used to call it “funny money.” That’s because most reimbursement is not based on what is charged. What is actually paid is based on contractual relationships between hospitals and insurance plans.
It’s quite possible that shopping around might not save you or anyone else any money. Example: your insurance plan has contracted with local hospitals to pay $800 for CT scans. Your out of pocket is going to be $160, or 20 percent. So anywhere you go, the hospital will end up with $800. The insurance plan will pay out $640. You will pay $160. Shop around all you want, neither you nor anyone else will save a dime.
Or — your insurance plan contracts with a single provider for CT scans. So there’s only one place for you to go. And if you don’t go there, you pay everything out of pocket. There again, no real reason to shop around.
As Dean as said, the whole way that the medical industry operates is very different, and the normal rules don’t apply.
D. George and Father: I’m going to shock you by agreeing with some of your comments.
First, I read an article that reported that large physician groups that have implemented electronic medical records and other technologies are already saving significant anounts of money compared to smaller phsycian groups still keeping records on paper. So D. George, you are right there are savings to be realized there without the governments help.
Second, I read this article about the Dartmounth Atlas, a highly respected survey of health care costs througout the nation. Check out this article, it is very revealing. The Dartmouth researchers continue to find huge geographic variations in cost throughout the US for the same exact conditions. More importantly these variations are reflected in the amounts Medicare pays hospitals and physicians throughout the US. For example:
In fact the researchers found that if Medicare paid every hospital and physician the same amount as they paid in Salt Lake City the program could save a whopping 32%. So Medicare itself, while administratively leaner than private insurance, also lacks sufficeny mechanisms for controlling costs.
Third, politicians in Washington are aware of these overpayments but contuinue to maintain them as a sort of pork-barrel rewards system for local constituents. So your point about Government being subject to corrupting influences that decrease efficiency is demonstrated here.
Well enough agreeing. I still want to hear the conservative solution for acheiving universal coverage in the US, which i think is an absolutely non-negotiable goal. Matt Miller writes in Time magazine:
http://www.time.com/time/magazine/article/0,9171,1651525,00.html/
Insight into the Canadian system as a free-rider on the American system
Source: http://www.americanthinker.com/blog/2007/08/canadas_universal_health_care.html
Note 63, Dean, response to “perfect market” straw man
First, the “perfect market” hypothesis is something used in theoretical economics to set up a model. Every economist recognizes that “perfect markets” are theoretical and that every real market market is an approximation. However, there is no doubt that real markets (although less than perfect) work very well to increase productivity and quality of output.
The entire history of the world demonstrates that. The wealthiest societies are those with the freest markets. One to your specific quotes:
I
Ever hear of a “second opinion?” I would greatly encourage anyone with a serious medical condition to visit more than one doctor before signing on to a major medical procedure. Dean apparently believes that we should bow to ou medical masters and never question or check their recommendations.
There exist well-developed markets for professional services: these include pharmacists, laywers, accountants and consulting engineers. The same paragraph could have been written by merely substituting the word “lawyer” or “engineer” or “accountant” for doctor above.
I recently had surgery on my left eye. I paid $5,000 for the service of the hospital. All the surgeon needed was a basic, standard sterile operating room with basic equipment, lights and a sterile field. We have 15 or more hospitals in my metropolitan area but nothing in the system allowed to phone around and fine out what each would have charged. Maybe another hospital would have had the excess capacity and would have allowed them to charge me less.
This is not the Middle Ages, we peasants don’t stand in mystified awe before our medical masters. They can compete for our business.
This is a non sequitar, since insurance companies are capaple of keeping totally up-to-date records of what hospitals and doctors charge. Insurance companies could keep these records open to the public and up-to-date, the issue could be solved with one phone call.
A characteristic of the “universal health-care” system that Dean endorses is that the system significantly narrows the definition of what is an emergency that requires immediate care. People in Canada are put on waiting lists for what is considered urgent care in America.
Try again Dean, no score.
Dean, why no call for “comprehensive overhaul” of the
Canadian system
When I and other commenters document that people die waiting for surgery in Canada and that Canadians have to go to America to get certain types of health care not available in Canada, why don’t you call for “comprehensive overhaul” of the Canadian system?
After all, even a single negative anecdote, justifies a “comprehensive overhaul” of the American system?
Is it because the Canadian system is already the single-payer, government run system you really love anyway?
#65 Mr. Holman:
Good points about the construction business, but there is a difference between the way those contracts are awarded and your proposal for medical care. In the case of road builders, there are usually a number of projects in an area, and contractors can bid on each project. A diversity of contractors is maintained.
Awarding all of the heart bypass surgeries in an area to one medical provider for a certain number of years, on the other hand, would shut out all other providers. The next time the contract was up for bid, there would be no credible providers of that service in a particular area that could compete. The existing provider would have a tremendous advantage in having equipment already set up, expertise already in place, etc. This would result in a monopoly that would be hard to break.
I still maintain pricing (both those prices set by insurance contracts and out-of-pocket prices) could be more transparent. You said the normal rules don’t apply. I agree, and I think that is part of the problem. It is unusual for it to be so difficult to obtain a cost estimate prior to service.
#66 Mr. Scourtes:
“D. George and Father: I’m going to shock you by agreeing with some of your comments.”
I’m not shocked. You were the one who first mentioned that efficiencies could be gained by converting to electronic medical records.
I think that if we attacked four or five different problems (many mentioned above) through either legislation or just implementation of new technology (perhaps with short-term tax or other incentives to speed implimentation of technology), the cost of medical care in this country would be much reduced. I do think this would require some government involvement, particularly regarding how we handle (or don’t handle) immigration, and getting more transparency in pricing, etc. I support a massive overhaul of the system. I just think that leaving the system in the private sector is probably better than socializing it.
“I still want to hear the conservative solution for acheiving universal coverage in the US, which i think is an absolutely non-negotiable goal.”
Reduced medical care costs would result in much cheaper insurance. Most people would purchase insurance, and most employers would offer it. That is not the case now because it is so expensive. Of course, there is no perfect system. There will always be some very poor, even homeless, people that do not thrive even under the best of circumstances. With much reduced cost of care, the government would be able to step in and provide medical care as a welfare program for this small minority of people. I’m not totally against government assistance, I’m just against setting up the system so there is incentive to abuse the system (as in the case of mass illegal immigration today, or welfare back in the 1970s and 1980s).
D. George writes: “Awarding all of the heart bypass surgeries in an area to one medical provider for a certain number of years, on the other hand, would shut out all other providers. The next time the contract was up for bid, there would be no credible providers of that service in a particular area that could compete.”
I’m not thinking in terms of the state awarding a contract, but of the state regulating hospitals somewhat like how public utilities are regulated. Such regulation would involve any large new programs or large increases in existing programs. The point would be to ensure that hospitals don’t end up building excessive capacity or unnecessarily duplicate services.
For example, if you had four hospitals in an area and three of them offered advanced trauma care, and those three programs had a good geographic distribution, then you wouldn’t need a fourth program. But as the population grew, or as population densities changed over the years, then a fourth trauma program might make sense.
Likewise with transplant programs. Let say (just throwing out a number here) that a good heart transplant program needs to do at least 40 cases a year. If the area generates that many cases a year, then one program is all that is needed. If the number of cases grew sufficiently beyond that, then it would make sense to have another program.
In other words you manage expensive health care as a resource. Hospitals would still compete in the vast majority of services. They would still have contracted rates with insurers. They would still have incentive to contain costs. You simply end up avoiding unnecessary program and capital construction costs and the whole system works better.
D. George: “I still maintain pricing (both those prices set by insurance contracts and out-of-pocket prices) could be more transparent. You said the normal rules don’t apply. I agree, and I think that is part of the problem. It is unusual for it to be so difficult to obtain a cost estimate prior to service.”
They can give estimates for specific services (e.g., CT scan) but it is much more difficult to give estimates for other treatments (e.g., treatment for lung cancer.) That’s because it’s not clear what the treatment will involve. Radiation? Chemo? Surgery? Also, as I mentioned before, for insured patients, most of the payment rates to the hospitals are already set. If you’re a Medicare patient, Medicare is more or less going to pay the same amount wherever you get the treatment. In one sense Medicare has already “shopped around” for you and developed a standard rate wherever you go.
But I think you might have the wrong model in mind. Do you watch your own family’s expenses closely because you “compete” with the neighbors? Of course not. You watch your expenses because you have to live within a budget. That’s pretty much the case with non-profit hospitals. A hospital has to put around 6 percent on the bottom line every year in order to have funds to maintain the physical plant, purchase equipment, and generally keep things updated. You don’t have that and your facility starts to deteriorate. (In other words, a hospital that “breaks even” is actually losing money.) That’s the financial reality for hospitals, and it provides an incentive to control costs.
Dean writes: “The Dartmouth Atlas clearly shows that much of the abuse rests with hospitals and other providers. Why is it for example that the Mayo Clinic, one of the finest medical facilities in the world, is able to function with half as many physicians per capita than UCLA?”
As a former hospital medical data analyst, I wouldn’t call it “abuse.” Hospitals and physicians function largely independent from each other. In other words, it’s not like all the nephrologists in an area get together each month to discuss the financial implications of various treatment and diagnostic options for patients in renal failure. In fact, beyond their own professional fees, most physicians don’t actually know how much all of this stuff costs. Frankly, probably many of them don’t even know off the top of their heads how much their own fees are. Physicians go into medicine because they want to help people, not to be accountants. Most physicians I’ve known find the whole financial and insurance thing to be an annoyance if not a downright impediment to the practice of medicine. Christopher’s wife is a physician; it would be interesting to hear her take on this.
Another issue is that many Medicare patients see a number of different physicians. The primary care physician isn’t going to know anything about the cost of care provided by the orthopedist, or the ophthalmologist. The ophthalmologist isn’t going to know about the cost of care provided by the oncologist.
But this brings up an interesting point related to single payor systems. In a single payor system, all the medical and financial data reside in one system. The only way you can even do a study like the one mentioned in the Dartmouth Atlas is if you have access to all the data. With the single payor system you can see what’s going on with each patient no matter what physicians or hospitals they go to. That way you can look at the financials of tens or hundreds of thousands of similar cases around the country and look at variations in costs and treatment patterns across all these cases. Outside of a single payor system, it would be the labor of Hercules to try to do something like that.
Call it socialized medicine if you want, but a single payor system can provide a huge advantage in controlling medical costs through the development of best practices based on actual clinical and financial data.
Dean: ” Why does Medicare pay some California hospitals four times more than others, without improving outcomes or patient satisfaction?”
Because no one knows that until someone does the study. And no one can know it without the data. From my years in the hospital world I can tell you that information is gold, even in a single hospital. I once did a study on the number of typed and crossmatched units of blood in various surgical cases. You’d see things like physicians ordering anywhere from one to four units of blood typed and crossmatched for the same kind of case. And then you find that over the last two years, no more than one unit was ever transfused during the procedure. Using that information you can then establish standards that can save tens of thousands of dollars in lab costs every year. And that’s just in one hospital. Imagine what you could save throughout all hospitals.