Numbers Don’t Lie . . . People Do

Yes, I’ve strayed from the healthcare basics focus that I intended to take. I’ll get back to that, I promise. But this is something I’ve been wanting to post about for a while now.

Picture a child learning how to count. Now picture that child trying to use that new skill to count trees on her way home from school. She walks past a tree and says, “One.” Then she walks past another, even bigger one, and says, “Two.” And then she walks past a little tiny bush. She ignores it, confidently praising herself for knowing that that’s not a tree. But then she walks past a pretty tall bush. It has a trunk. It has leaves. Is it a tree? She gets confused and decides not to apply stuff she learns in school to her life anymore.

What was her problem, and what does that have to do with healthcare? She had a problem with identifying what she should count and what she shouldn’t. This is an essential fact of counting–it’s a game of categorization. By counting trees, you have to define what a tree is and what a tree isn’t. And this has everything to do with healthcare! Have you ever heard the number 46 million come up in healthcare debates before? You got it! It’s the number of “uninsured” people in the U.S.

I always took that number at face value. After all, numbers don’t lie. Right? Right. But that number was obtained by some people somewhere deciding who should be considered “uninsured” and who shouldn’t. So are they completely unbiased when they are deciding what to count and what not to count? I argue that they are not.

Numbers are almost always used for political purposes! The mere fact that you’re counting something presupposes that it’s worth counting, probably because you think it will help you know if you’re right in suspecting something’s wrong. In the case of healthcare, people were probably hearing anecdotes about how someone didn’t have insurance died because of it (probably leaving her kids behind as orphans). “Wow! I think the number of uninsured people in the U.S. is a problem! I’m going to check that by counting them.” And then, after they decide how to count uninsured people, they get a number. And they don’t stop there. They use that number to incite action. Why else would someone count something? “Look, that’s really neat that I got that number. Let’s stare at it.”

So, am I saying that the people advocating universal health coverage are the ones who are counting (and skewing) the number of uninsured people in the U.S.? Glenn Beck certainly thinks so. He estimates that number of uninsured people to be closer to 9 million, not 46 million. And I don’t know if he’s right or wrong. I haven’t done the research to find out how the powers that be get to that 46 million number.

What I am sure of, though, is that the principle is correct. It seems cynical to say that you shouldn’t trust any numbers or statistics, but it also seems naive to completely ignore the politics that goes into obtaining a number. I’ve seen charts that show health spending growth by country. Depending on which countries are included on the chart, some make it look like the United States’ health spending growth is pretty average, others make it look like we’re an extreme outlier (implying something should be done about it NOW!). But maybe this is all a good thing. I mean, if no one was convinced that healthcare is a problem, would we be going through this whole “let’s improve healthcare” movement? Probably not.

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The Secret Problem with Healthcare

I’ve decided it’s a good evening to wax Platonic a little bit and write in dialogue form.

Interviewer: I see you like to study health policy. What do you think are the biggest problems with our healthcare system today?

Taylor: Cost, quality, and access; we spend way too much money and still don’t have relatively great outcomes or access to care.

Interviewer: How do you think we can solve them?

Taylor: You missed a question.

Interviewer: What do you mean?

Taylor: Didn’t you mean to ask me what’s causing the problems before you asked me how to solve them?

Interviewer: *Gives me the “go on” look*

Taylor: Well, you’ve just exemplified the secret (fourth) problem of healthcare: ignorance. We skip the second question. We don’t really understand what’s causing the problems we identify. Instead, we jump right to ideas about how to solve them (i.e., answering the third question). So, go ahead and try again.

Interviewer: Thank you, but that will be all. And remember, don’t worry about calling us–we’ll call you.

This is my explanation for being so slow to form an opinion on reform proposals. I don’t really know what would help yet because I don’t really understand all the root causes of the problems. I guess one can probably never understand all of the root causes, but one can surely understand the two or three main ones to each problem. And there doesn’t seem to be a single place online or anywhere that I can go to find them clearly laid out and thoroughly explained. It’s probably because we keep skipping the second question.

Now if only I could figure out what justice is . . .

Does supply and demand work in healthcare?

[Update: This is one of my first posts on this blog, and it’s also one of my most popular. Too bad it’s a long post that isn’t the clearest. So here’s a shortened and clarified version.]

On Wednesday, I went to the Health System Reform Task Force meeting at the Utah State Capital building. I recently learned that most governmental meetings are open to the public, so you can go to them whenever you want! During the meeting, they often have someone present some kind of informational presentation to help them get a better idea of what’s going on in healthcare. Last month, a physician from Intermountain Health Care presented on prescription drug abuse in Utah. (It’s pretty bad, if you didn’t know. Actually, I think he said that Utah is the worst state for prescription drug overdose fatalities.) This month, a physician talked about some “demonstration project” he’s leading to improve pediatric care in Utah. It was pretty interesting, but the most interesting part was when he said the following: (These are direct quotes transcribed from the audio recording of the meeting.)

“Supply and demand, which in most markets works perfectly, doesn’t work so well in healthcare. The demand for healthcare really sees no limit, especially if cost is not a factor for the consumer, and that is the case, of course, in most third-party payment situations. But I think it’s also the case in situations where life is in the balance. It’s hard to put a limit on how much you’re going to demand. And also, I think consumers can’t adequately evaluate their options. Shopping around for a physician, shopping around for a surgeon is not easy. Shopping around for emergency care when you really need it is impossible. So the ability really to be a wise and educated consumer and make conscientious choices is difficult. And also the supply of physicians and providers is not driven by normal market forces. We see a lot of increasing specialization for reasons that aren’t necessarily fitting with the supply-demand curve. Specialization is driven by income, especially because specialists make considerably more in most cases than primary care physicians.”

This got me thinking, and I started evaluating his statements and typing notes on my phone. Then I was surprised when the senate chair of the committee challenged him on it after the presentation.

“I just had one comment, and maybe you could clarify if it was an intended comment. You mentioned in your presentation that supply and demand did not apply.”

Physician’s interjection: “I didn’t say it did not apply, I said it didn’t work, like it does in most markets. So, just to clarify your question.”

The Senate Chair continued, “Well, the comment I have on that is that supply and demand function, whether we want it to. It functions, it’s natural law, whether we want it to or not. We can try and interfere with it, but, a lot of the things, I believe I could demonstrate a lot of the problems you presented there are a result of interfering with supply and demand. And so, the idea that it doesn’t function and we can try and overcome it, I think that’s a basis for failure in the long run, that we’re just going to have to control healthcare more and more because if supply and demand is going to function, and its results are, the unintended consequences we’re trying to control. So we continue to regulate more and more. . .”

And the physician’s response, “I’m probably not sophisticated enough economically to speak to the question, but I hear what you’re saying and I agree.”

At this point, I almost raised my hand, walked to the microphone, and answered his question. I should have. But I wasn’t sure if I was allowed to do that, so I hesitated and missed the opportunity. That means I get to say here what I would have said there:

My honorable legislators, supply and demand carry with them a few assumptions. When those assumptions are violated, supply and demand don’t work as well as we would expect. Two key assumptions are violated by our current healthcare system. The first is that consumers have price/quality information so they can shop around for the best value. The second is that consumers actually pay the price of what they buy.

The First Broken Assumption. Let’s think about an example of digital cameras. Without important information like how much a camera costs or how many mega-pixels it has and how many times zoom it can do, how do consumers choose the best value? They can’t! And thus, there’s not much incentive for camera manufacturers to take risks to improve cameras because it won’t help them make more money. Innovation is stifled without that incentive. To bring this back to healthcare, why would a doctor’s office make an innovation like install an electronic medical record that would temporarily disrupt process flows and require a large upfront cost if it won’t help convince more patients to come?

The Second Broken Assumption. This is a tricky one. Yes, consumers pay the full cost for their healthcare–they have already done it through insurance premiums or reduced salary. But they don’t see that full price directly like it’s coming straight out of their wallet, so they don’t perceive that they’re paying the price. Thus, they don’t care so much what the price is. This inflates demand in a big way! Think about the man whose father is about to die. He’ll tell the doctor to do whatever it takes to keep the father alive, but how willing would he be to do that if the man knew he was going to have to pay $600,000 right out of his own bank account?

That’s what I would have said. It’s almost exactly what the physician said, but I don’t think he understood it quite well enough to realize that the things he was talking about were actually just the broken assumptions of supply and demand in healthcare.

After I thought this, I understood a part of the health bill in an entirely new light. It’s requiring states to form these “health insurance exchanges” that are essentially websites that list all the state’s available insurance plans, their prices, and their benefit packages. What will this do? Help people know prices! Help people know value! It’s a way to solve the first broken assumption.

There are many critics of “market-driven healthcare.” They say it has never worked in the U.S., so how can advocates of it be so ridiculous? Well, I guess now we know why it has never worked, and now all you conservatives can understand your argument for less government in healthcare, assuming (as does the Senate Chair for the Health Reform Task Force) that it’s the government that is causing those assumptions to be broken.

Innovation, Infrastructure, and a Bankrupt Government

Since I’m on the topic of healthcare costs lately (and will be for a while, probably), I’d like to talk about the potentiality of healthcare spending bankrupting our national government. Is it possible? I don’t really know, but that’s obviously the worst-case scenario with all this crazy spending we’re doing. I’ve heard a number of different quotes that say effective, cost-curve-flattening health reforms would solve virtually all of the federal government’s fiscal woes. At 18-ish percent of GDP, that’s not that hard to believe.

But there is a little-known upside and a somewhat-known upside to huge amounts of spending.

The somewhat-known upside: innovation. Yes, America’s health system is best known for more than just spending. It’s the source of more healthcare innovations than anywhere else. So maybe that means we’re just subsidizing the world’s cures to . . . everything. This aspect of our system is what I always think about when I wonder how we could reduce spending, because if we reduce spending at the expense of the strong incentive to innovate, is that a net positive or negative?

The little-known upside: infrastructure. Yes, investors follow the money, and why do you think the United States has the nicest hospital facilities and technologies in the world? There’s money in healthcare! This health infrastructure might be the best thing that ever happened to healthcare in the U.S., because it will keep on giving after we’ve found a way to spend less. Think of the internet bubble. Remember how this country spent tons and tons of money on the internet in the ’90s, and then there was that huge stock-market crash? Well, most people probably don’t know that, even after that huge crash, we now have tons and tons of fiber-optic cable all over our country. That infrastructure is said to be one of the leading factors that allowed the internet to grow as fast as it did in the U.S., probably helping us maintain a world-power economy in the midst of huge changes in the structure of business. So a long-term upside to crazy health spending is the infrastructure that it gives us.

I guess what I’m saying is, yes, we’re spending a ton of money on healthcare, but we are also reaping some benefits too, namely innovation and infrastructure. So here’s the final question: Do we think it’s better to have healthcare innovation and infrastructure or a fiscally solid federal government?

Kinds of Healthcare Costs

I learned that there are two kinds of medical costs, broadly categorized: care costs and managerial costs. They’re kind of self explanatory, don’t you think?

The interesting thing about the U.S. healthcare system is that I’ve never seen an aggregate percentage estimate of just how much of our total healthcare spending (you know, that 18-ish percent of GDP) goes to managerial costs. Maybe some health economist has come up with that number somewhere, but I haven’t seen it. Think about it–you would have to estimate and add the total managerial costs of Medicare, Medicaid, the private insurance sector, CHIP, the VA system, the system for congress and for those with kidney failure and for native Americans. . . . Sounds fun. Other countries have anywhere between 2 to 5 percent estimates for their total managerial costs.

What I have heard, though, are estimates for the total managerial costs of Medicare (2 percent) and the private insurance industry (20 percent). You’d think the 2 percent is awesome and the 20 percent is horrible. Well, the 20 percent is horrible, but not bad considering they’ve got to spend so much money on screening applicants and trying to find ways to deny claims and developing thousands of new compensation plans and payment schedules and paying awesome executives. (It is the private sector, after all.)

And as for the 2 percent, I think it might be a little too low. Maybe a little more spending on managerial stuff could go towards ways to prevent fraud, cause apparently that’s a pretty big thing with Medicare. So maybe every extra dollar of fraud prevention would save a few dollars of fake claims, up to a point. That would maybe leave the Medicare number up around 3 percent, which is still not too bad. Unless you don’t trust government’s estimates of their own efficiency. They want to look good, right? Number-fudging isn’t that hard to do, especially with something so complex as healthcare.

Qualifications?

I read this book once–it’s called Complications by Atul Gawande. Two things happened: (1) I decided Dr. Gawande is awesome, and (2) I realized that the delivery of healthcare is imperfect. I don’t know how I missed it before. Maybe it has something to do with the fact that I grew up in Canada. (The secret’s out!)

From reading that book until now, I’ve read nearly everything I’ve been able to get my hands on about health policy. So, in the midst of taking the MCAT (twice) and my wife giving birth (twice), I’ve been reading about this. And I have some goals to go along with this reading. I’m convinced I can improve the delivery of healthcare in this land of freedom. I can make it more efficient and effective. How? Well, I’m studying business strategy. I’m studying health policy. I’m studying the delivery of healthcare from the front lines–as a physician (in training). I figure being a student of these aspects of the health system is a good start. Another good start is this blog. This is my place for synthesis of information. It’s where I turn disparate facts about the health system into useful knowledge and understanding. So, thanks for joining me. If you learn from this blog something–anything–about how healthcare works in the United States, then maybe you will be more likely to know a good policy when you see one. So let’s figure out how this system works, the causes of its problems, and how to solve them.

Who understands health policy?

A better question is, Who can explain health policy if they understand it? Well, I figure a student is often more likely to be able to explain simply what little he knows than some high-level expert who is thinking at a completely different level than 95 percent of Americans. Let the fun begin.