Two points on healthcare that should worry you

     Well, actually, it’s three points but two are related and written by the same author. I wanted to share this information because, for reasons I hope are rather obvious, healthcare in this country is a pervasive subject; one that you should be following even if you only care about subjects (government, economy, business, immigration, etc) you don’t believe have anything to do with the local hospital chain or the cost of odd-sounding procedures.

First, a short one — “You Can Thank the Health Care Industry for the Economic Recovery” by Margot Sanger-Katz with this accompanying graph:

cdn-media.nationaljournal.comSince the recession hit in late 2007, a huge proportion of the new jobs have been in the health sector—hospitals, doctors’ offices and nursing homes. All along, those jobs have been rising at a steady clip, while jobs in all other sectors have seen more dismal performance.

If health care jobs had just held steady, the unemployment rate would be a full point higher. If they had taken a dive with the rest of the economy, the current unemployment rate would be 10.8 percent, according to an analysis from the Altarum Institute, which track health employment trends.

 

Which segues into a second, longer-form piece by the same author on the double-edged future of the employment boom in health care — “Health Care: Great for the Economy Today, Terrible Later.” Some selected excerpts (emphasis mine):

But the long term may not be as rosy—for Pittsburgh or for the country. The growth in the health care sector also produces ever-growing costs. Health spending, nearly 18 percent of the U.S. economy, is contributing to personal bankruptcies, driving up the cost of domestic labor, and crowding out other government priorities (infrastructure, say, or education).

[…] It’s an example, in miniature, of what could happen nationally. Federal health entitlement programs alone are projected to balloon from less than 6 percent of gross domestic product today to more than 10 percent in 2037, according to the Congressional Budget Office, when they will exceed spending on all other government functions except Social Security. About half of that increase can be blamed on our aging population and the expanded benefits under the 2010 Affordable Care Act, but the other half represents what health economists call “excess cost growth”—the annual increases in spending for each person’s care. A health system this pricey won’t be able to keep adding good jobs like Sciulli’s without acting like ballast. “It’s a good thing for now, but as the economy begins to recover and we don’t need those health care jobs, we’re going to be desperate to reduce the growth rate in health spending,” Roehrig said. “Because we just can’t afford it.” The health care boom that is propping up the American economy, could eventually come back to haunt us.

The rest of that is quite good, and while focused on Pittsburgh specifically the issues raised by Sanger-Katz represents a national conundrum of sorts; the job growth in this sector has been one of the few bright spots in a otherwise stagnant economy, yet it also reflects our largest long-term budgetary problem in unsustainable spending for healthcare services. Additionally, there is research (by way of The Incidental Economist) that suggets that such job growth is pretty inefficient — which is to say, if the job boom isn’t producing noticeable health gains then public/private resources could be more effectively used elsewhere. On the other hand, reform vis a vie cost control will inevitable produce losers (from the same research linked above, and emphasis mine):

Many reforms aim to reduce these inefficiencies, thereby improving health and potentially slowing the growth of health care spending. These reforms would focus spending by public programs such as Medicare on rewarding higher-value care and reducing the incentives to provide therapies with unproven benefits. The net effect of such policies on employment in the health care sector is unclear: on the one hand, they might reduce employment by improving efficiency and allowing us to get the same health outcomes with fewer health care workers. Such policies might also lead to a change in the mix of people employed within health care — such as increased numbers of nurse practitioners or reduced numbers of administrators. On the other hand, improving the productivity of the health care sector might increase the incentives to spend more on health care, thereby increasing the share of the economy devoted to health care in the long run.

Such a picture also highlights the rather simple concept that your spending is someone else’s income, especially in the case of a non-tradable sector like health care. In particular this is true whether you’re thinking about private spending or public; for instance, some of the bi-weekly taxes we pay are then transfered to program recipients for the explicit purpose of healthcare consumption which equals someone’s bi-weekly paycheck. It’s a little simplistic, sure, but in the opposite vein of thought that allows some folks to believe the government only creates jobs when it comes to military spending some folks fail to see that our government is simultaneously fueling a lot of this healthcare job growth. In a purely technical sense there’s nothing inherently wrong with this, insomuch as we value the programs that facilitate this and are willing to fund it, but it will cost us — in jobs lost if reforms are successful, in fewer entitlement benefits or other public spending priorities if they’re not.

As Sanger-Katz wrote, roughly half of the expected increase in federal entitlement spending “represents what health economists call “excess cost growth”—the annual increases in spending for each person’s care.” Which brings me to the other point, on a subject I admit I knew nothing about until recently, courtesy of Austin Frakt:

If you’re an evidence-based thinker or an advocate of transparency you’ll practically be moved to tears by Brian Klepper’s account of the latest chapter in the life of a relatively obscure committee [RUC]. […]

Thus ends the latest attempt to dislodge what is perhaps the most blatantly corrosive mechanism of US health care finance, a star-chamber of powerful interests that, complicit with federal regulators, spins Medicare reimbursement to the industry’s advantage and facilitates payment levels that are followed by much of health care’s commercial sector. Most important, this new legal opinion affirms that the health industry’s grip on US health care policy and practice is all but unshakable and unaccountable, and it appears to have co-opted the reach of law.

Again, I knew nothing about the committee known as Relative Value Scale Update Committee (abbreviated to RUC). The Health Affairs piece written by Klepper is really frustrating to read (emphasis mine):

The RUC exerts its influence by rolling up the collective interests of the nation’s most powerful medical specialty societies and, indirectly, the drug and device firms that support and benefit from their activity. The RUC uses questionable “methodologies,” closed to public scrutiny, to value medical services. CMS has historically accepted nearly 90 percent of the RUC’s recommendations without further due diligence. In a damning October 2010 Wall Street Journal expose, former CMS Administrator Tom Scully described the RUC’s processes as “indefensible.”
The RUC’s distortion of America’s health care market, ramping up both care and cost, cannot be overstated. It has consistently over-valued specialty services and undervalued primary care services.

To the extent that a significant portion of our national healthcare spending simply goes to paying higher (relatively speaking) prices, I have no idea how much an entity like the RUC is responsible for that phenomenon. But any responsibility borne from this type of price collusion strikes me as unacceptable, and if the Independent Payment Advisory Board (IPAB) can functionally eliminate the RUC then its potential is greater than we realize.

 

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