Presented to Cong. Jason Altmire at a PDA Roundtable Discussion on Healthcare on August 20, 2009
Perhaps the biggest sticking point in the single payer/national healthcare argument is cost. If you look at the system of healthcare we have now, it’s hard to imagine being able to provide that to everyone in the country.
But study after study indicates that we can.
June 1991, General Accounting office: “If the US were to shift to a system of universal coverage and a single payer, as in Canada, the savings in administrative costs (10% of health spending) would be more than enough to offset the expense of universal coverage.
December 1991, Congressional Budget Office: “(a) single payer system that paid providers at Medicare’s rates, that population that is currently uninsured could be covered without dramatically increasing national spending on health.”
April 1993, Congressional Budget Office: “The net cost of achieving universal insurance coverage under this single payer system would be negative.”
July 1993, Congressional Budget Office: “(Russo’s single payer Bill) would raise national health expenditures above baseline by 4.8% in the first year… By year 5 the new system would cost less that baseline.”
June 1998, Economic Policy Institute: “these higher costs would be more than offset by savings which would accrue within the first decade of the program.”
August 2005, The National Coalition on Healthcare: “This fiscal analysis of the impact of 4 scenarios for healthcare reform found that the single payer model would reduce costs by over $1.1 trillion over the next decade while providing comprehensive benefits to all Americans.”
But still, these statements and numbers don’t explain why our healthcare system is so expensive. We have by far the highest per capita healthcare spending in the world. We don’t have anywhere near the best outcomes. And many of us have no healthcare at all. What’s going on here?
Well, for one thing, our healthcare system is primarily a profit making system. From 1986-2005 hospital profits were $310 billion. In 1993 anti-trust laws were altered to allow more healthcare mergers. From 1993-2006, mergers and acquisitions in just 5 healthcare sectors equaled $1.407 trillion. The top 25 publicly traded healthcare corporations have a market capitalization of about $1.7 trillion. That means that the financing that flowed into healthcare during this period now expects and demands a return on investement.
How does this affect healthcare as a profit making device, as opposed to healthcare as a service? In 1995 Kaiser Permanente paid $96.1 million to it’s top 4 consultants to help structure for increased throughput, resulting in a reduction of 1600 RNs along with other staff. $96.1 million dollars was spent, not on delivering healthcare, but on determining how to increase profits. The money spent to increase profits resulted in less RNs to care for patients.
The stock holdings of the top 80 healthcare executives in 4 healthcare sectors in 2006 totaled $9.6 billion. Stock holdings expect and require a profit to be extracted.
From 2002-2006 profits of insurance companies publicly traded on Wall St. more than doubled. This statistic is reflected in the fact that in 2005, every Medicare Advantage Plan in every county was paid more than it’s enrollees would have cost if they had been enrolled in the traditional fee-for-service Medicare system. Medicare Advantage exceeded local fee-for-service costs by 12.4%, for a national total of $5.2 billion profit. Overpayment for the next 5 years could go as high as $30 billion.
A 2007 item in the New York Times stated: “Perverse incentives entice doctors and patients to use expensive medical services more than is warranted. And our fragmented array of insurers and providers eats up a lot more money in administrative costs, marketing expenses, and profits that do not afflict government-run systems abroad.”
First let’s consider the perverse incentives. Outpatient diagnostic imaging has a cost base that is 20-30% less than inpatient testing. This high profitability is causing physicians and investors to fund an expansion in outpatient centers.
Even though physicians who own imaging equipment self refer 2-8x more than peers without equity interest in equipment, the machines in an outpatient center have a much lower rate of use than the same equipment in a hospital. The equipment still has basically the same staffing and maintenance needs. Redundancy of machinery is occurring and creating inefficiency. For example, machines for extracorporeal shock wave lithotripsy doubled between 1988 and 1994. Treatment only increased by 40% since patients with kidney stones are limited. Cardiac catheterization labs increased by 90%, but utilization only grew by 41%.
The main category in which the United States spent more than would be expected according to national wealth is hospital care. For one thing, hospital utilization is 50-60% in the US, compared to 60-70% in peer countries. This causes higher overhead.
Under the Medicare for All Bill (HR676), regional allocation would require hospitals to be built where they’re needed. More rational allocation of resources would result in better utilization rates.
Payment for care at private hospitals is higher than that of non-profit hospitals. But a study of 26,399 hospitals revealed that mortality rates in private hospitals is higher than the mortality rate in non-profit hospitals. Private for-profit hospitals hire fewer highly skilled personnel per risk adjusted bed than do non-profit hospitals. This number is strongly associated with mortality. When dealing with populations where funding is similar, private hospitals are trying to achieve the same outcomes as non-profit hospitals with fewer resources. Fewer resources are the result of the private hospitals extracting an expected 10-15% return on investment mostly from the labor of caregivers.
According to the McKinsey Global Institute, inefficiencies and complexities in our healthcare system’s operational processes and structures account for the second largest increase over what we would be expected to spend according to our wealth.
Administration, regulation, and intermediation are the third largest overspend. 64% of this administrative overspend would not occur in a public system. Marketing, underwriting, and product design are a few of the areas of spending that would not be necessary. This calculation doesn’t even include the administrative burden on providers or the added human resource department demands to employers. Our administrative spending is six times that of our peer countries. Many studies point to this administrative waste.
In view of the extreme cost burden that insurance companies and for-profit healthcare place on our country without providing a compensatory return in healthcare outcome, a single payer non-profit system only makes sense. It’s been proven to work in other countries. We deserve no less.