• *Catastrophic Care*: Chapter 1

    I’m reading David Goldhill’s Catastrophic Care: How American Health Care Killed My Father–and How We Can Fix It. All posts are tagged with Catastrophic Care. This one is about the first chapter.

    I began reading the book in a rather grumpy mood. I’m feeling a bit less grumpy, but not enough to prevent myself from griping about the length of Chapter 1. That it seemed long is my problem, not Goldhill’s. I’ve just seen all the arguments before, so it was tedious to read them again. But, if you haven’t heard the set up for the case for a smaller role for government and insurers in health care, by all means read it.

    It includes the standard example of LASIK surgery.

    It is seldom covered by insurance and exists in the competitive economy more typical of [other goods and services]. So people who get LASIK surgery—or, for that matter, most cosmetic surgeries, dental procedures, or other typically uninsured treatments—act like consumers. If you do an Internet search, you can find LASIK procedures quoted as low as $299 per eye—a price decline of roughly 90 percent since the procedure was first commercialized in the early 1990s. You’ll also find sites where doctors advertise their own higher-priced surgeries (which usually cost about $1,500 per eye) and warn of the dangers of discount LASIK. Many ads publicize the quality of equipment being used, as well as the performance record of the doctor, in addition to price. In other words, from day one we’ve had an active, competitive market for LASIK surgery of the sort we’re used to seeing for other goods and services.

    Here’s where you’d expect me to point out why the LASIK case doesn’t generalize, the standard counterargument. It’s a fine argument, but I’m not going to make it. Instead, let’s talk about how LASIK does generalize. I’ve actually been thinking about this (again) lately, even before reading Catastrophic Care. So, this is a good opportunity to reveal my not-fully-developed thoughts.

    LASIK is an elective procedure, the purpose of which is well understood by the patient. I’m on board with the idea that insurance shouldn’t cover such things, or if it does, not the full cost and certainly not the marginal cost. All health procedures just like this are good candidates for the purview of John Goodman’s “New HSA.”

    Now, let’s push the boundary. Let’s think of some things that are not exactly like LASIK. Here are some easy ones: trauma care, repair of a broken bone, insulin. I think one can make a case that insurance should cover those, either because their need is urgent and not predictable and/or because they are cost-effective in some sense. The cost liability for these can reasonably be assigned to third-party insurance.

    What about an MRI scan? Is it elective? Is the purpose always clear? Is it urgent or not? What about an angioplasty? How about an antibiotic for a sinus or ear infection? Or a routine health check with various cancer screenings (prostate for men, breast for women, say)? Are these like LASIK or not?

    I admit I can twist myself in knots on some of these, though not all. What about you? What makes something elective? Does it have to be life saving to be non-elective? What makes its purpose clear to the patient? Does the patient need to understand all the risks and alternatives?


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    • There are no bright lines. Some cases are clearly on one side, some things are clearly on the other, some are much less clear.

      Maybe the test would be whether there would be any ill effects from waiting a protracted period.

      Do patients ever understand all the risks and alternatives?

    • The problem with many of your examples is that they force your consumer between his doctor and his insurance. If the doctor wants an MRI to better diagnose something, is the consumer going to say, ‘No, figure it out some other way?’ How happy would the doctor be if patients expected them to diagnose something but refused the diagnostic tools the doctor is used to using?

      When I go to the doctor with an ear infection, I expect her to decide if I need an antibiotic or not. And if one gets prescribed (either because the doctor gives me what she thinks I want or because I have a bacterial infection) I buy it and take it.

      Add to this that second opinions tend to be expensive. If you’re not sure you need an antibiotic for that ear infection, it will be more expensive to ask another doctor than to just buy and pop the pills.

      The problem is that there’s such a strong profit motive in American medicine and the gatekeepers to more spending have little incentive to rein in spending.

      • Put another way, the person who effectively decides how much you will pay is the person who gets more profit the more you pay.

        • @foosion
          That is only true to a limited extent. Hospitalization and most of the expensive testing ordered by the primary care doctor is done by others who reap the profits.

    • For me, elective procedures are those which aren’t emergencies. The benefits may be unclear, or they may be clear but you could potentially get by with them. These procedures might be the most price sensitive: if you insure elective procedures, you will drive utilization up higher than is needed. When I say the benefits aren’t clear, I mean that a randomized trial might not find benefits for a general population, but a consumer might decide that they want them anyway. A lot of orthodontic services are elective, a lot of routine chiropractic care is elective (I use routine chiropractic care, btw, because I am convinced of the benefit for me). I mean, you could forgo the LASIK, or the cosmetic orthodontia, or I could get a massage rather than see a chiropractor.

      For non-elective procedures, clearly life-saving ones are most likely non-elective. They save your life. And you would often not be in a position to accept or refuse. Right now, I’d say that evidence based care is or should be non-elective. We want insulin-dependent diabetics regularly taking insulin. I would think if people were fully exposed to price, non-elective procedures should be pretty inelastic. Unless people run out of money.

      I’ve started to think of procedures that are semi-elective as well. The benefits may be unclear. I would say that MRIs are semi-elective. Or if there’s a generic drug and we know the patient hasn’t failed on the generic yet, then the branded drug is semi-elective. The problem is, there’s no bright line between the categories. Let’s imagine someone with depression. He’s been on Effexor for some time. He goes into Medicaid, and their policy is that you have to take the generic. He takes venlafaxine (iirc), but he says it doesn’t control his depression. Elective? Semi-elective? If it really doesn’t control his depression, then I would have said elective, but how can you be sure? Presumably if he got on Medicaid he’s got other stuff going on, like maybe losing a job.

      Or let’s consider talk therapy. I know insurers were/are worried about elective use of many behavioral health services, because they can’t tell how many visits are necessary. They could arbitrarily impose a number (e.g. we’ll cover 30 visits, or we’ll look at our claims and cut off the 95th percentile of claimants), but that would be arbitrary. Clearly insurers think of many behavioral health services as semi-elective. Inpatient behavioral health admission (for a psych emergency) isn’t elective, because it’s unpleasant. But with a residential stay or talk therapy, you can’t control the upper bound of the expenditures, because you don’t know what it’s doing or if it’s helping, necessarily. But clearly, the patient is deriving some benefit from it.

    • Insurance is for unpredictable and catastrophic loss, so insulin fails the test as does the MRI scan and all preventative services. On the other hand trauma care, broken bones (due to the ridiculous prices in the US), and angioplasty are all acceptable. Antibiotics for sinus and ear infection – not – as it is not a catastrophic loss for almost everyone.

      Perhaps, for medical care I see the wisdom in replacing catastrophic loss with “undue distress” measured as a ceiling placed on medical expenditures as a % of household income.

      Think about it we could get rid of Medicare and Medicaid as well as all private plans and replace them with universal guranteed renewable “undue distress” insurance that covers all medical expenditures past a progressively determined % of household income with tax credits for the very poor all financed through a sickness fund that is automatically deducted from payroll. The payroll deduction could be progressive as well.

      The sad thing is the average worker has no idea how much money this could put back in his/her pocket.

      Of course we would need to also rethink (deregulate) the supply side which will encourage competition and innovation that is cost effective (if you don’t think there are 100’s of things innovators could do today to provide lower cost care without any drop off in quality if given the chance, you are not thinking hard enough).

      Nevertheless the term health insurance is becoming more and more of an oxymoron.

      Consider this from Greg Mankiw’s Blog:

      At a White House briefing Tuesday, Health and Human Services Secretary Kathleen Sebelius said some of what passes for health insurance today is so skimpy it can’t be compared to the comprehensive coverage available under the law. “Some of these folks have very high catastrophic plans that don’t pay for anything unless you get hit by a bus,” she said. “They’re really mortgage protection, not health insurance.”

      I have the same problem with my other insurance policies. My homeowner insurance doesn’t cover the cost when my gutters need cleaning, and my car insurance doesn’t cover the cost when I need to fill the tank with gas. Instead, the policies cover only catastrophic events, like my house burning down or a major accident. Now that the Obama administration has fixed the health insurance system, I trust they will soon move on to solve these other problems.

      • Health insurance isn’t like auto insurance or homeowners insurance. All those types of insurance involve pooling risk. Health insurance is also about buying power, without which a lot of medical goods and services wouldn’t be affordable.

        • You are exactly wrong. It is largely because of the way we use health insurance that prices are so ridiculous.

          • Recall the recent discussions about the obscenely HIGHER prices that uninsured people routinely are charged by hospitals. As Austin has pointed out many times, US healthcare spending is almost entirely a story of high prices, not overutilization. We actually use less care than other countries with much lower overall healthcare spending.

            At a minimum, we have to solve the price tranparency issue before anyone can hope that market forces will rein in costs. Try calling your local hospital and asking how much it will cost you to have a colonoscopy.

            • David, Great point. We did call those providers for you!

              We are a New York City startup revealing cash or self-pay prices for common procedures. They vary by a factor of 10.

              Come on over and take a look, at clearhealthcosts.com, and then let us know what you think! We’re learning and growing, but we’ve got a pretty good data set!

      • JRI goes wrong with his first Clause: “Insurance is for unpredictable and catastrophic loss” which is quite misleading if applied literally to health insurance. That one’s house may burn down is an odd event and generally unpredictable. It is entirely predictable that the substantial majority of people over the course of their lifetime will suffer from significant illness. I have no idea of JRI’s income but for a very large percentage of people in the United State’s any significant illness requiring hospitalization is in fact catastrophic and one of the leading causes of personal bankruptcy.

        Moreover there are many good reasons why we want people to get medical care readily and not wait until, e.g., they are worse and can be treated only at greater, infect others, etc.

        It is all well and good to speak of deregulating the supply side but what percentage of consumers have the ability to meaningfully assess their doctor’s recommendation, to read the [fill in the blank] number of bills they will get from a hospital stay or to determine the likely cost of different types of treatments for a serious illness? Have you tried to comparative shop in advance for what the total cost would be of a colonoscopy, a knee replacement or similar at your local hospitals/doctors?

        • @Oxbird
          Have you ever had to buy a car or a new home? If so, the chances are you didn’t have the cash available. What did you do? Think of HSA’s

          One can always blame bankruptcy on medical issues, but for the most part that is not the cause, financial management is. If one has a high deductible commensurate with their income then one doesn’t generally have those extraordinarily high bills. By the way a lot of the bills you see are a lot higher than what is actually accepted in payment.

          The public health department deals with healthcare issues that can cause havoc in the rest of the population. There is both overlap and gaps, but the fear you express is or can be covered by that agency.

          I believe that you have to reorganize your thinking so that you can pick out those groups that need additional help rather than wasting a lot of money and causing a lot of harm to over 300 million people.

    • Thanks for reading and commenting on the book Austin. Very interesting, as always.

      LASIK may seem elective to you and me, but most health treatments today lie at some unclear point on a spectrum ranging from the obviously essential to the completely discretionary. What’s most instructive about LASIK is that the patient has the time – and need – to consider and make consumption decisions. And essential to my overall argument is that health care itself has changed so much in the past fifty years that this reality is now true for most care. It’s this time — not the subjective judgment of “elective” nature of a treatment — that suggests the potential for competitive markets.

      The conventional perception that health care addresses only urgent and non-discretionary needs, with a desperate customer incapable of weighing information, is simply outdated — applying to a shrinking minority of treatment. Roughly 100% of us will be diagnosed with a chronic condition at some point of our lives, and care for these are now estimated to account for the majority of spending. Almost all treatment for chronic conditions involves varied alternatives, including patient lifestyle changes. Even for the most severe conditions, not only does the patient have the time to consider her choices, she must do so: there are rarely simple right answers for every patient.

      If we consider the major sources of growth in health care – chronic conditions, cancer treatment, hip/knee/back surgery – patient decision-making is essential. The reason cancer centers and LASIK clinics (not to mention AIDS clinics, cardiac centers, maternity wings, etc) both advertise for patients isn’t because they’re both “discretionary” services; it’s because in each the patent must decide how and where she wishes to be treated. I find the implicit belief that our health care intermediaries are able to – much less today do – perform this proactive decision-making truly absurd; the intermediaries are purely –- and always impersonally – reactive.

      I’m not trying to re-litigate the correct health care policy for the US in the 1930’s, 1960’s, 1970’s or 1990’s; my interest is how the quality, value and safety of care can be meaningfully improved for the realities of a service that is both ever-more personalized and pervasive. What I find amazing is that the terms of the policy debate don’t seem to have changed even though health care itself has been transformed.

      Even calling all these thousands of diverse goods and services “health care” reinforces the policy presumption that they are all somehow fundamentally similar in terms of demand, information asymmetry, and market failure. We struggle to deal with issues like end-of-life care not because they are inherently difficult, but rather because we can’t see that our model of “medical necessity” has little value in guiding what are essentially personal preference choices.

      As you know, I’m not calling for making health care a free market industry. I’m suggesting a re-balancing of the roles of government, intermediaries, and patient/consumers to restore competition and re-structure fundamental incentives. I don’t expect to convince the high priests of health care policy; I doubt anyone becomes a health care economist or policy analyst because they believe health care is fundamentally similar to other markets. And I suspect it took several hundreds of years before the food experts of old conceded that competition, markets, and choice had some role to play in that most essential, “non-discretionary” of goods. However, with the nature of care changing so rapidly, I believe we’ll soon have little choice but to match the reality of patient-centered care to the primacy of consumer preferences.

      • David
        You need to provide much more if you wish to persuade readers LASIK and chronic care treatments for conditions like CHF and diabetes hold equivalent standing insofar as both require same time commitment for maximizing “value.”

        The demographics, stress, complexity, etc, etc… (btw, just Google demographics of LASIK patients. Not too many FPL<250% or less than HS education seeking treatment–nor being sought after by providers of rx)

        I also would not categorize management of a HgA1C of 10 elective, nor for the same reason place heart patients with worsening functional capacity and shortness of breath in shop around, enlighten me domain.

        I am agnostic on the subject of consumerism and self-motivated care to a point. But the big ticket stuff engenders a different approach with nuances beyond treatments like LASIK.

        Having read your response above, as articulate, congenial, and engaging as it might be, I am less inclined to read Austin's further review given your take. Seems overly simplistic and removed from what caregivers encounter on front lines. Try explaining chemo x and y to a patient. I do, and when answers not knowable, the doctor can be lost as patient–more the norm than not btw.

        Please elaborate a bit more as I wish to understand your position.


      • One of the ways in which health care is changing is the emergence of truly catastrophic costs for treatment of chronic conditions. People with autoimmune diseases like Rheumatoid Arthritis, or Crohns, can spend many tens of thousands of dollars per year on medications.

      • @David Goldhill
        Thanks for your comments. They were very informative. One of the things not mentioned enough is that asymmetry of information exists everywhere. However, things are changing so fast so we now have rapidly developing knowledge bases and support groups online that are especially good for those that have chronic diseases or have to make decisions as to which treatment option to use. Some of the patients become so educated in their own diseases that they might even know more than everyone treating them except for the specialist and even he can learn something from his patient.

    • David, Austin et al–

      Thanks for the great conversation. It’s always enlightening here!

      My 2 cents: It’s easy to disagree on the definition of health care and the need for an MRI or chiropractic. But most people would agree on one thing: we should know what stuff costs.

      We’ve done pricing surveys you both are familiar with, and guess what: Lasik prices, in something resembling an open and competitive market, vary by a factor of 3, while MRI prices, blood test prices, ultrasound etc., vary by a factor of 10. (see price lists on clearhealthcosts.com) Those cash or self-pay prices that we are revealing pretty much mimic the range of payments from insurance providers, according to our reporting.

      So If your insurance company paid $2,300 for your MRI, as mine did, wouldn’t you be curious about their business model and their desire to reduce payments? I am.

      Would you change your behavior with this knowledge? Say another insurer offered a lower premium and paid $500 for the same MRI. If you had this knowledge, and if the money was coming out of your pocket, would you choose a different insurer? a different policy? a different provider?

    • Brad: Just to make clear: my point is that the distinction between elective and non-elective is not the crucial factor for determining whether a more normal market would drive greater value/quality for any particular health service. I’m arguing that as health care continues to evolve away from straightforward and urgent fixes for problems to long-term management of conditions, the benefits of more normal competitive behavior among providers — stimulated by more normal paying for health services — far exceed the costs. As always, I’m not arguing that there is any perfect approach that works in all cases, but that the current health value proposition is so bad, the room for improvement from re-balancing the system is massive . David

      The devices you and I are using to communicate would have been regarded as inconceivably complex for the consumer market when Medicare/Medicaid were created in 1965. The personal computer, Internet, and mobile communication are ubiquitous not because we all got computer science degrees but because making these products simple, cheap, and accessible made many people very rich. In health care, no one can get rich by making it simple, cheap, and accessible which is an ever greater disaster for us patients.

      Im suggesting a completely different mindset about health care, and I agree it requires more than short comment (thank you Austin for the forum); that’s why i wrote a book.

    • I’ve heard a figure quoted that something like 95% of medical care is of an ambulatory nature — the patient propels themselves to the caregiver. If that is the case, patients have the opportunity to compare prices to an extent far greater than most policy wonks imagine. Consider the experience of a close friend of mine. In the past 12 months she was told by her doctor to get both a CT scan, and an MRI. The negotiated prices for these two services varied from about $430 to nearly several thousand dollars, depending on where she received the service. Of course, the prices varied so widely because most people don’t bother to compare prices. Indeed, my friend didn’t even know she should compare prices until I suggested the price quoted by an area hospital was nearly 10 times what she could get the CT scan done for elsewhere. Getting diagnostic centers to disclose their actual prices was an effort, but not significant when compared to the savings ~$2,500 savings. However, if more people were required to cover the marginal costs of making poor decisions (i.e. ambulatory patients getting an MRI done at a hospital rather than a lower-cost diagnostic imaging center), more medical providers would compete on price and make it easy to compare prices.

      I’ve done research on cosmetic surgery prices over time (http://www.ncpa.org/pub/ba731). I have an update coming out later this summer. It’s amazing how much more competitive the market for cosmetic surgery is compared to market for medical care. I agree that we cannot compare prices using our iPhones from the back of an ambulance on the way to the hospital emergency room. But there are a lot of medical services that fall between getting Lasik and being treated for a heart attack.