Introduction to U.S. Health Policy (part 2)

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A major theme running through Donald Barr’s Introduction to U.S. Health Policy is the challenge of developing a health care system with care that is accessible and affordable as well as of high quality. The United States has a long way to go in this respect, given that our system is the most costly in the world but less than optimal in accessibility or health outcomes. Barr’s discussion of doctors, hospitals and pharmaceutical companies provides many clues as to why this is the case. The role of health insurance–public and private–will be the topic of the following post.

Barr describes the professionalization of the medical profession in the twentieth century, a movement led by the American Medical Association. Medicine became more science-based; doctors had to be licensed; medical schools were certified and became centers for medical research. The number of people who could call themselves physicians went down, but their pay and prestige went up, especially for specialists.

Today the US has about one physician for every 400 people, but service is uneven in a number of ways. Specialists outnumber primary-care physicians by over two-to-one. Wealthy suburbs of metropolitan areas are better served than inner-city or rural populations. African Americans are underrepresented in the medical profession, making up 13% of the population but only 4-5% of the doctors. On the other hand, international medical graduates (IMGs) have become a substantial segment of the profession. US hospitals offer more residency training positions than US medical school graduates can fill, partly because Medicare reimburses hospitals for the costs of such programs. “Adding a residency program (or expanding an existing one) not only adds to the prestige of the hospital, but also provides a source of inexpensive labor. In many hospitals, especially inner-city hospitals providing care to large number of poor patients, residents provide the bulk of direct patient care….U.S. medical graduates tend not to choose many of the inner-city hospitals for their training, leaving numerous unfilled training slots at these hospitals. To have sufficient personnel to take care of patients, these hospitals turn to international graduates to fill the residency programs.” Ultimately, IMG’s are especially likely to become medical specialists themselves.

In a perfectly competitive free market, an oversupply of services in a specialty or a region could be expected to bring prices down. But because doctors have so much authority to prescribe treatment, more doctors usually means more procedures at the same high prices. “Instead of reducing the price of care, the rising number of specialist physicians has contributed to the increasing cost of care.”

The Affordable Care Act aims to expand the delivery of primary care in several ways: by directing more funding for graduate medical education toward programs for primary care training, rather than more specialized training; by increasing reimbursements for primary services; and by increasing support for a new way of organizing primary care, the patient-centered medical home. The PCMH is a “team of providers, including physicians, allied professionals such as nurse practitioners or physician’s assistants, as well as support personnel with a range of professional skills.”

American hospitals are generally more expensive than those in Europe or Canada. Up until the 1980s, hospitals had little incentive to limit the care they offered, since they often received public money to expand and full reimbursement for patient care. “The payment system encouraged the acquisition of new facilities and technology, even if they duplicated facilities and services readily available elsewhere in the country.” More recently, cost controls have been imposed, most notably the Medicare prospective payment system (PPS), which pays only a fixed amount per admission, based on the patient’s diagnosis-related group (DRG). That has resulted in shorter hospital stays and more outpatient procedures. However, if the hospital has to spread its fixed costs across a smaller number of occupants because a lot if its beds are empty, that is also an inefficiency that contributes to high systemic costs.

Although American hospitals have traditionally operated on a nonprofit basis–and most still do–the balance has been shifting as some older hospitals close and new for-profit ones appear. The research cited by Barr suggests that “rather than reducing hospital costs, for-profit hospitals increase costs compared to nonprofit hospitals, without corresponding increases in quality or improvements in outcome.” In many cases, physicians have become owners or managers of for-profit operations to which they refer their own patients, such as kidney dialysis centers. There the research shows that “compared to treatment in nonprofit kidney dialysis centers, the treatment of patients with kidney failure in for-profit centers is associated with higher death rates and lower rates of referral for kidney transplantation.” Because of the conflicts of interest involved, the Affordable Care Act prohibits any new physician-owned hospitals.

Prescription drugs are also more expensive in the United States than in many other countries. They amount to about 10% of all national health expenditures. The US grants manufacturers a twenty-year patent on new drugs, in order to provide an incentive to engage in the process of research and development. Why incur the costs of a medical breakthrough, so the argument goes, if someone else can come along and copy your discovery? Critics suggest, however, that a lot of drugs are getting more patent protection than they deserve. “Less than 10 percent of new drug applications approved by the U.S. Food and Drug Administration are for new compounds that represent a significant improvement in therapy. Most new drugs are chemical modifications of existing drugs.” Once one company has developed a profitable drug, another company produces one that’s just different enough to get its own patent. The new drug doesn’t compete so much on the basis of superior quality or lower price, but primarily on aggressive marketing to doctors (and increasingly, directly to patients, thanks to relaxed regulation by the FDA). Gifts such as “educational” travel to doctors have resulted in several highly critical reports, such as by the National Academy of Science and the Association of American Medical Colleges. US policies obviously help keep drug prices high, but they may not have the intended effect of fostering innovation. Barr cites research by Keyhani concluding that “the United States did not contribute disproportionately to innovation in the development of new types of drugs when compared to countries that had adopted price regulation for pharmaceuticals.” But the Kaiser Family Foundation found that for every year they studied, “pharmaceutical manufacturers enjoyed the highest profit margin of any industry in the United States.”


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