• *Catastrophic Care*: Chapter 3

    began my series on Goldhill’s Catastrophic Care by characterizing the health system as unresponsive to consumers and evidence. I’m on board with the idea that increasing patient cost sharing (but in a smart way) could help make the system more patient friendly, more convenient, and reduce (some) prices. John Goodman convinced me of that and Goldhill reinforces it. At the same time, the experience in other industrialized nations illustrates it is not the only way. Nevertheless, increased cost sharing seems to be the U.S. trend, so I do hope it is a helpful step. I also hope that patients who want evidence-based therapies will be able to find them more easily in a market more oriented to serve patients as opposed to third party payers. However, evidence-based is a much harder thing for a patient to discern than convenience. So, I worry about this.

    In any case, what’s to be done about the care that is covered by third-party payers even in a more consumer-directed market? After all, nobody is talking about not having insurance at all. Goldhill is talking about retaining insurance for catastrophic, random events. Wouldn’t cancer fall in that category? Yet, from Chapter 3,

    when Medicare cut reimbursements in 2005 on chemotherapy drugs, it saved almost 20 percent of the previously billed costs. But Medicare’s cancer treatment costs actually rose in this period, as the total number of treatments ordered by doctors rose to compensate for lost income from the lower reimbursement rates.

    This strongly suggests a lack of evidence-based care. All other things being equal, following the evidence should lead to the same amount of cancer treatments. Reimbursement rates shouldn’t matter. But of course they do, and that’s not surprising. Wouldn’t the same issue arise under catastrophic coverage? Why not? Lower prices are lower prices. How do we achieve lower prices without getting up-sold by a provider attempting to maintain his income level? The answer isn’t “patient cost sharing” when we’re talking about random, super-expensive cancer care, is it? That falls in the insured, catastrophic range, right?

    Moving on, I can’t resist also sharing this passage from Chapter 3:

    My wife grew up in the former Soviet Union, where there was no pointless multiplicity of brands of toilet paper, no class differentiation of thickness of tissue, no wasteful spending on attractive packaging and useless marketing. There was just toilet paper. Sadly, it was expensive, often in short supply, and uniformly rough. The United States has more than fifteen brands of toilet paper. In the grand scheme of things, it truly doesn’t matter whose paper is the thickest, the softest, the most absorbent, or even the cheapest. But providing those choices—allowing toilet paper manufacturers to chase consumers on whatever basis they choose–has resulted in all toilet paper (even the unbranded generic product) being thicker, softer, more absorbent, and cheaper than the soviet one-size-fits-all solution.

    I think we can make some distinctions between toilet paper and health care. Or narrow it to cancer care, if you wish. I’m very happy with our toilet paper choices in the U.S. If my favorite brand changes the nature of its product, as happened recently, it’s not hard to find another option. At worst, I am out the cost of a package of toilet paper I don’t like.

    What happens if, on the other hand, I’m one of those patients suddenly told I need cancer treatment only because my (catastrophic) insurer cut payment rates, not because my condition actually warrants it? The loss is potentially much, much larger. This is not to suggest that consumer-directedness cannot help. I think it can. (Though I still think some patients could be harmed, but many are harmed now too.) What I’m suggesting is that consumer-directedness is not the whole solution. Once catastrophic coverage is involved, we are back to the standard problems of third-party payment.

    All posts in this series are tagged with Catastrophic Care.


    • “”when Medicare cut reimbursements in 2005 on chemotherapy drugs””

      “This strongly suggests a lack of evidence-based care.”

      Based upon the page you quoted from I don’t think one can say it *strongly* suggests anything. There frequently is more than one way of doing things and all might stand equally as far as evidence is concerned. Medicare can cut fees on items to lower than the physician’s costs. Around 20 years ago the GAO finally studied how much it cost a physician to provide the flu vaccine. They determined that to break even the physician had to charge $15, but they were paying only $7.50. When the pharmacies first started giving flu shots and there was an alert the lines could be hours long in front of the door (Florida). They didn’t have the expenses of a physician such as liability, malpractice insurance, follow up concerns or reporting problems and they were charging $15 while physicians were reimbursed $7.50. If there was a problem with the shot it was the physician that was called in the middle of the night.

      Strange as it seems physicians don’t like to go bankrupt and don’t like to see their patients die so they were the one’s providing the vaccine at below cost all those years before the problem was recognized and before the pharmacies started to give the shot. By the way earlier in time when physicians were collecting a fee for service the price of a shot was most commonly $15 and Medicare wasn’t reimbursing for the flu shot.

      Medicare patients were clambering for the flu shot so the physicians could have charged $30 and that wouldn’t have been out of line. That shirt you buy at Macy’s is marked up 4 times or more so when the price is half off plus an additional half off there is no loss on the shirt (additionally frequently the shirt manufacturers have to make up the losses hen the shirt doesn’t sell). Most physicians didn’t charge more for the flu shot because competition forced physicians to keep the prices down. Word of mouth spreads fast and though only a few people investigate price and quality the word spreads fast.

      The loss of money when Medicare took over paying for the flu shot with much lower fees I am sure were made up elsewhere in part. This did not affect the standard of care of the flu shot nor was evidence based medicine not being adhered to.

    • Reimbursing providers using episode based payments determined by the quality of care they routinely demonstrate would help. It would address overtreating the same patient(s) as in the 2005 Medicare example – they would not get any more money for the extra procedure/test/exam. However, providers could start to treat relatively healthy patients who really don’t require treatment in the first place. We could argue, in my opinion correctly so, we already do this, but would it get worse? One would hope whomever is underwriting the catastrophic care plans would audit providers to ensure this doesn’t occur. But then you risk the 1990s all over again – insurers getting in the way of providers and patients feeling like insurers are just trying to save money. Is there a way to monitor and eliminate providers who enage in this type of behavior without the negative perceptions we encountered back then?

    • “I’m on board with the idea that increasing patient cost sharing (but in a smart way) could help make the system more patient friendly, more convenient, and reduce (some) prices. ”

      The question will always be is the “increasing patient cost sharing” truly intended to influence patient behavior, or is it simply another way to make more money/profit by extracting more cash from a motivated (distressed?) buyer?

    • Goldhill argues that because insurers seek profits, their incentive is to increase prices and expand healthcare coverage, not contain costs. But firms in all markets seek to maximize their profits. Fortunately for consumers, if markets are competitive, then market forces will restrain prices no matter how eagerly sellers seek those profits. And this would be true in healthcare markets even if the buyers were health plans rather than individuals.

      Restraining prices is how competitive markets operate and it’s why we should like them. If healthcare prices are too high, then the answer is to enforce the antitrust laws in order to fix uncompetitive markets. A system that relies on individuals to purchase services isn’t going to result in lower prices if the various markets are not competitive. Yet Goldhill doesn’t get around to discussing antitrust at all.

      If competition restrains prices, then the second of Goldhill’s concerns -expanding healthcare coverage – is not really a problem. People have their individual value scales and if individuals prefer to spend more on additional healthcare over additional units of other goods and services, then so be it. It would be hard to defend the view that would prohibit such a group to pay more or to call the plan a “Cadillac” plan and tax it.

      Maybe we don’t realize we’re buying too many services so perhaps we’re victims of a “false consciousness.” Usually, the argument is that advertising creates its own demand, but Goldhill specifically laments the lack of marketing in the industry, so that can’t be the cause of this false consciousness. Another cause could be that providers themselves are able to influence patients by virtue of their superior knowledge, but would individuals who have access to an unlimited supply of money (under Goldhill’s health accounts) really reject their doctor’s advice?

      As Goldhill points out, Medicare coverage has incessantly expanded since its inception so we might consider government to be the problem. If government is the cause of overtreatment, then the system that Goldhill proposes is unlikely to be effective. Goldhill calls for individuals to deal directly with providers as much as possible, but his proposal still calls for a central authority to operate not one, but two insurance systems (although one would be called “Health Accounts” and its premiums called “contributions”). Not much is likely to change.

    • I just don’t see consumers putting a lot of pressure on providers except at the margins, like for flu shots. I mean, really, if I get cancer, I’m supposed to research my condition and challenge my doctor’s recommendations? How many doctors will welcome this? And how many patients will be demanding their doctors discuss the research they’ve dug up showing that acupuncture can cure cancer or some other nonsense?

      When I got caught up in the vaccine-autism scare, I could quote an impressive array of research. All of Wakefield’s has been discredited, but at the time, he was a doctor who’d been trained at a decent school and working at a decent hospital. I could tell the outright quacks from the scientists, but I couldn’t recognize the flaws in Wakefield’s research.

      I think Atul Gawande’s idea of check lists and having protocols for most diagnoses are a better bet for reining in costs than expecting patients to challenge their doctor’s best judgement. Maybe more severe punishment for doctors convicted of abusing patients for profit might help, too.

      • SAO,

        The opportunities are huge. Let’s take orthopedics for example, since it is one of the biggest spend areas (particularly when you include spine). Patient preferences (including exposure to marginal costs) could include:
        – choice of whether diagnostic imaging is used when it is not called for by guidelines
        – choice of type and provider of diagnostic imaging
        – choice of physical therapy versus surgery or pain management when 2 year outcomes are similar (very common with acute back pain, loose shoulder, etc.)
        – choice of prosthetic implant (protocol might suggest a low-end knee, but a patient may want to spend more out of pocket for an “athletic” knee)
        – etc., etc.

        The problem is that most people imagine these conversations occurring between a patient and a surgeon. (Which explains silly statements like “Do you expect patients to negotiate with neurosurgeons?”) This is where specialty navigation is so key. In the examples above, it would be PM&R (physical medicine & rehab). You only see a surgeon for surgery consults.

    • Or, in the case of a doctor my wife knew, but can no longer talk about, the doctor may halve doses and double the treatment time but still keep their original billing regimen, with the reduced rate offset by the extra charges.

    • There are indeed many areas of our life where competition does restrain prices – clothing, restaurants, electronics, just to name a few.

      But competition is not always as benign as Alsan suggests above.

      The long history of labor abuse in those three fields alone is enough to give one pause. Competition means getting the cheapest labor, and doing the work in the cheapest location, and damn the consequences for pollution or used up workers.

      Health care costs would fall tomorrow if medical tourism became common. We ship cell phones and TV sets around the world to save money every day. If we shipped patients around the world, the savings would be enormous.

      Health care has been an island of protectionism in an increasingly ruthless American labor market. This is why health care has been our major source of new family-wage jobs. (cf Michael Spence)

      I can understand why this is causing cost problems. But we have to be careful that the cure is not worse than the disease.

    • If you buy a crappy brand of toilet paper, you can throw it out and buy another. Try doing that with your aortic valve replacement.


    • I suspect “evidence-based medicine” is just the latest trendy term for what insurers and CMS have supposedly been doing over the past 50 or so years. In its weakest form, what we’ve seen so far, it is merely a cover for the industry’s efforts to expand the definition of needs. In its strong form, it’s likely to lead to excessive bureaucratic control over the practice of medicine, with terrible therapeutic results (Groopman and hartzband have written extensively on this danger and its incompatibility with advances in individualized care, especially for cancer).

      The first quote from this chapter is intended to illustrate how powerfully and subtly economic incentives operate on the practice of medicine, and how difficult it is for a bureacratic buyer of complex goods to regulate costs (all consumers care about are prices). The second, of course, is not intended to suggest that the markets for cancer care and toilet paper are identical but rather to illustrate how the power of competition can so massively improve the quality and value of even the simplest of goods — one where the seeming lack of possible variation would suggest that central control would work.

      To me, unleashing the potential benefits of normal competition in health care are so large that we need to re-balance the payer system to encourage. I believe that, as we’ve seen in other markets, competition will have the effect of increasing both the availability and usability of data on effectiveness and safety than the current system. I’m not proposing getting rid of the government, but rather suggesting that having it perform a strong traditional regulatory role overseeing a more competitive industry (and seeking the much more attainable objectives of transparency, truth-in-advertising, quality certification, etc) is much more likely to produce better results over time than its current position as major customer. Not perfect (and like any complex system, not ideal in each case), but much better.

      • Evidence-based has a pretty simple definition to me as a consumer. Is there credible evidence to support the purported benefits and harms of the suggested service? This is essential information along with price. Without it, I am truly lost.

        • Who determines what is evidenced based? Look at the disputes over mammograms. When a payor is involved determining what is evidenced based depends on expenditure as well. Sometimes it can even be political. Physicians debate the evidence all the time and there are frequently differences of opinions.

          • This is up to the consumer. I’m generally happy with the USPSTF approach. Same goes for Consumer Reports. Not claiming perfection, but far better than trusting the doctor I see because a friend said he was “nice” (which is how most of us pick doctors).

            • I have no direct experience with the USPSTF, but isn’t something like Consumer Reports inherently going to be more limited to more material goods rather than a service-based ones. It’s fairly trivial for me to look up the CR review of cell phones or washing machines if I’m buying a new phone or appliance, but not so much if I’m trying to decide which restaurant to eat dinner at, or the best place for a haircut, or a good mechanic to change my transmission fluid.

              While this may primarily be a local/national issue, in those instances, I’m forced to chose based on either direct word-of-mouth, identical to your example of a friend saying a doctor is “nice” or some slightly more crowd-sourced or “expert” version of the same such as looking up reviews on Yelp or a similar site, or finding a newspaper/blog review of the business. A larger sample size than one friend’s opinion, but I don’t think it’s inherently different.

              Healthcare is sufficiently complex that I don’t think it can be easily pigeonholed as only a service or material good, but it certainly seems to me that the market solution for something like “picking a family doctor” won’t look much different than your example of how things currently work.

            • That’s an excellent article, and I didn’t mean to diminish CR’s excellent work in the area of healthcare, but I still think it’s of limited value in terms of the service-based aspects of healthcare. Articles like those along with posts here at TiE and more primary sources like NEJM also do an excellent job at educating us as consumers which will theoretically help improve costs and decision-making in the patient-doctor relationship. This is particularly important in an environment with increased cost-sharing, but doesn’t address the other side of that conversation, i.e. how I select the doctor to have that conversation with.

              At any level of education I’m still going to be reliant on my doctor to interpret tests and provide the lion’s share of guidance as far as treatment plans go. Given that the doctor-patient experience will vary so much based on individual doctors and individual patient preferences I remain skeptical about us determining a much better method for to pick our doctors outside of some form of word-of-mouth.

            • @Austin: “This is up to the consumer.”

              Great answer to the question “Who determines what is evidenced based?” If that is so then you must believe that the problem of information asymmetry is not as great today as many, including Arrow, believe. That would help permit one to opt for a market solution.

              By the way patients aren’t as dumb as one might think. Frequently when they make a decision based upon a friend’s advice it is based upon a friend’s advice that has similar desires and they believe to be smarter than average. Unfortunately a lot of times emotion gets in the way of clear thinking leading to bad decisions just like on this blog.

            • Not at all. I think information asymmetry is a significant issue. Therefore, who should determine what is evidence based? I do not wish to impose that determination on anyone. Because of the information asymmetry, I am not comfortable relying on my doctor alone. I am, instead, more comfortable turning to the USPSTF. You may not be. I think this is a personal choice.

              Now, the question of who determines what insurance (public or private) should cover is a different one. There we probably have to make a collective decision. (Some think the market can solve this problem, but I’m rather skeptical that will ever work in practice.)

            • Yes, the doctors opinion is not sacrosanct but neither is the USPSTF. You know as well as anyone how long it takes to get a consensus, create a protocol and have it published. But, that is not all there is to it for frequently the protocol is based at least partly upon studies and many studies take years and then it takes a couple of more years to run the data and produce the work. That is why protocols are old news by the time they are released. Of course old news can still be the best treatment plan to follow unless…

              I believe elsewhere you mentioned that sometimes there are conflicting protocols. There may be good reasons for that. Then again a patient can belong to a specific subset not recognized by the protocol but the experts that treat that subset whether it be related to race, genetics, history or even a specific area of the country. Take infection for a simple problem. In most areas one antibiotic might work perfectly while in a limited location the bugs might be resistant to that antibiotic. That is why physicians will frequently follow the lead of local and distant experts though sometimes they are criticized for correct actions.

              I agree with you with regard to insurance at least in part. We should have a basic insurance health plan that covers reasonable needs. In that way people don’t have to understand all the legalistic text in the plans except for where plans differ from the basics. That reduces information asymmetry and can be easily enforced by contract law which is more effective than many of the healthcare rules and regulations that the government generously provides us.

            • We’re not arguing. When it is my money, I will interpret “evidence-based” as I like. You may do as you wish. I did not insist that you like the USPSTF’s guidance.

              When we enter into the same insurance contract, we are implicitly submitting to the insurer’s decisions about coverage. I want those to be evidence based too. But whose evidence? Can the free market provide the variety of insurance products to satisfy heterogeneous evidence preferences? In theory of course! In practice, I doubt it.

      • @David- CMS is pretty much forbidden to look at evidence based medicine. If something works, compared to a placebo, they mostly have to pay for it. If it costs more than existing treatments, and doesnt actually work as well, as long as it beats placebo Medicare ends up paying for it. Same with the private insurers. As a practitioner, it would help me to know if something works, if it works better than other treatments and if it is cost-effective.

        While competition is appealing in its simplicity, you need to figure out to make it work, understanding that price is not always what drives decision making by patients, or even if you want the competition to take place at that level, or if it should be between insurance entities. Geography matters much more than people think. Convenience matters. Personal recommendations matter. Most of the things we buy, we can return, or we buy them over and over, or our friends buy them. Not so for you cancer care, your gallbladder surgery or most of the big ticket items in medicine, which is what drives most of our costs.

        So, I dont want to speak for Austin, but I think most of us are open to the idea of seeing if competition can work, even if our experience suggests it might not. I think we would just like to see some evidence. We know from existing evidence that those countries with lower costs, everyone else, is not doing so, for the most part, based on competition.


        • “We know from existing evidence that those countries with lower costs, everyone else, is not doing so, for the most part, based on competition.”

          You called? Here in Japan, costs are strictly controlled. Period. If you are insured, the cost of a procedure is defined (as are what procedures are covered). The patient pays 30% up to a per-month limit. And they are very aggressive about using generics if at all possible. It’s health-care heaven for the patient. Everyone’s covered, no one goes bankrupt from medical charges. And the per-capita cost is 1/3 that in the US.

    • For markets to work, there have there have to be some foundations in place. Price transparency, for example. Try getting an answer in advance to a question like “What will this hip surgery cost?” In today’s system, it simply can’t be done.

      Another foundation is information symmetry. If one party to the transaction has important information that is unavailable to another, the market will always be distorted.

      A third requirement is rational decision-making. But people faced with sudden devastating news are often not at all rational. That’s behind the success of so many quack treatments like Laetrile or homeopathic medicine.

      If we really want to harness market competition, we need to find ways to effectively address these issues, and others like them.

    • I think we mostly agree on these issues. We both want free choice regarding who or who not to trust, free choice regarding which insurer to choose and an ability of the insurer to make rational decisions. The last is merely contract law and that is why I suggest a standard insurance contract that can be understood by the public with additions or subtractions just as we do with other types of insurance. To prevent the insurers from taking advantage of the patient I would place the burden of fact upon the one who writes the contract if there is ambiguity. That helps to provide transparency.