The Problem, the Mission, the Method and a few Recommendations:
The US spends a lot more on healthcare than other developed countries, both in total expenditures and as a percentage of GDP. How to slash US healthcare spending without compromising quality of care? Look at how other countries do it and apply some of their good ideas to our own system. A few recommendations:
- Multi-payer system with strict cost controls, like Japan and Germany.
- Fee schedule set by federal or regional governments, like Japan and Canada.
- Increase medical fraud prevention, detection, and prosecution (more on this later).
- Greatly expand number of nurse practitioners as independent primary care providers and gatekeepers to specialists, as is already happening in the US and several European countries but needs to be ramped up even more.
- Institute a no-fault medical malpractice system, like the one in Denmark.
- Develop federal guidelines for medical testing and treatment, much like the NICE system in Britain.
A Little Background for Calculations:
US GDP is 18.57 trillion (2016), of which 18% is 3.3 trillion: roughly what we spend on healthcare. There are about 800,000 active physicians* in the US, of which 43% are primary care doctors. On average, US physicians earn about $300,000 a year (compared to $72,000 a year in Japan). US physicians earn so much largely as a result of high reimbursement rates and revenue-sharing arrangements such as being paid a percentage of billings, collections, and/or profits. These rates and arrangements encourage over-testing, over-treatment, and fraud. So much money to be made!
Although private insurers have higher administrative costs as a percentage of total expenditures than Medicare, their costs are lower per beneficiary. Medicare loses somewhere between 8-15% to medical fraud, compared to 2% or less for private insurers. This is partly because private insurers spend more than Medicare on claims management and utilization review - administrative expenses that save more than they cost.
Half of US healthcare spending goes to outpatient care and administration, areas in which the US spends more proportionately than other developed countries, as per the following table:
Calculations: Reducing US Healthcare Spending by 31%
Yeah, my original goal in this series was more ambitious, but a 31% cut would get us to Denmark, which is good enough for me. The revised goal, then, would be to reduce annual healthcare spending to $2.3 trillion. In other words, we're looking for savings of a trillion dollars. Let the calculations begin!
First, the proposed fee schedule would be comparable to the current Medicare schedule, which is roughly 75% of what private insurers pay (Clemens and Gottlieb, 2013). Private insurers pay about half of US healthcare. Long calculation short), we have just saved roughly $1 trillion.
Yeah, the doctors will sing a sad song, but consider this: geriatricians and cardiologists - who draw most of their patients from Medicare and Medicaid populations - make good money. For instance, in Arizona, the average base salary (not counting bonuses, profit-sharing, etc.) for geriatricians is about $186,000 a year and about $396,000 for cardiologists. This is close to the national average.
Second, Nurse Practitioners would take over 80% of primary care work. Based on current salaries, and then adding some, they'd make on average about $150,000 a year. Over time, about 275,000 NPs would replace primary care physicians, saving about $60,000 per position, saving about $17 billion.
Third, Medicare and Medicaid fraud protection would just get better and better, reducing fraud rates in half. Assuming a current Medicare/Medicaid fraud rate of 10% and assuming Medicare/Medicaid is responsible for close to half of US healthcare spending, this would save about $8 billion.
Fourth, assume that defensive medicine - due to fear of litigation - increases the cost of outpatient services by 5% overall, conversion to a no-fault malpractice system would result in a net savings of about $70 billion (.42x3.3x.05)
Fifth, uniform testing and treatment guidelines would discourage unnecessary tests and procedures because they wouldn't be paid for. They'd also provide some protection against litigation and/or malpractice fines, further reducing defensive medicine. Let's say they reduce the cost of outpatient services another 5% - that's another $70 billion in savings!
Finally, we'll assume that between the fee schedule, treatment guidelines, and reduced litigation, overall administrative costs will be cut by 50% - from 8% to 4% of overall spending (still four times what Japan pays and Japan has a multi-payer system with 3500 private insurers, who still make some profit). That would save us $132 billion (.08*3.3*.5)
Ok. Drugs, which cost about $1443 per capita in the US, about $700 more, on average, than what other developed countries pay. But the US subsidizes their cheap drugs as well as pays for our R&D, so there's not that much room for cutting costs. Let's just pretend we reform the clinical trials system and stop subsidizing other countries' cheap drugs - thereby cutting the national drug budget by $350 per capita. Long calculation short: that's another $57 billion in savings.
Okay, let's add it all up, in trillions: 1 + .017+.008 + .070 + .070 + .132 + .057 = $1.354 trillion!
Oh hell. Let's just say I over-estimated savings by 354 billion. We still saved one trillions dollars in US healthcare spending!
This is doable!
Links:
http://fortune.com/2016/04/04/doctor-salaries/
https://www.texmed.org/June16Journal/
https://www1.salary.com/AZ/Physician-Geriatrics-salary.html
https://www1.salary.com/AZ/cardiologist-salary.html
https://www.nytimes.com/2014/08/16/business/uncovering-health-care-fraud-proves-elusive.html
http://www.healthcarebusinesstech.com/healthcare-fraud/
https://www.nationalreview.com/2012/10/medicares-efficiency-robert-moffit-alyene-senger/
https://jamanetwork.com/journals/jama/article-abstract/2674671
https://www.aamc.org/data/workforce/reports/458480/1-1-chart.html
https://www.bls.gov/ooh/healthcare/nurse-anesthetists-nurse-midwives-and-nurse-practitioners.htm
https://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm
https://www.statista.com/statistics/186269/total-active-doctors-of-medicine-in-the-us-since-1949/
http://fortune.com/2016/04/04/doctor-salaries/
References:
Bradley Sawyer and Cynthia Cox How does health spending in the U.S. compare to other countries? Kaiser Family Foundation. February 13, 2018
Clemens J, Gottlieb J. Bargaining in the shadow of a giant: Medicare's influence on private payment systems. NBER Working Paper No. 19503. Cambridge, MA: National Bureau of Economic Research; October 2013. http://www.nber.org/papers/w19503.pdf.
Krause, TM , Ukhanova, M and Revere, FL Private Carriers' Physician Payment Rates Compared With Medicare and Medicaid The Journal of Texas Medicine, 2016; 112(6).
Papanicolas I, Woskie LR, Jha AK. Health Care Spending in the United States and Other High-Income Countries. JAMA. 2018;319(10):1024–1039. doi:10.1001/jama.2018.1150