The Goal: cut the cost of US healthcare in half while achieving universal coverage and excellent quality of care without the heavy hand of big-time taxes, regulations, and bureaucracy. Hah! Yeah, I know. But gotta try.

The Situation: As a percentage of GDP, the US spends about twice as much on healthcare as other developed countries. This is a problem. See Part I of this series for details. For those who say healthcare is not a basic right, that means some people should be denied treatment, even if they die as a result. That’s fine. This post is not for you.

The Process: Identify the problem areas. Figure out why they're problem areas. Come up with fixes. Throughout the process, compare the US healthcare system to cheaper systems elsewhere to figure out what went wrong and how we can make it better.

Progress So Far: Outpatient services and healthcare administration are the biggest problem areas in the US. Outpatient services alone make up 42% of US healthcare spending, which is close to $10,000 a year. Physician profit-sharing arrangements and the ease of gaming reimbursement systems* are important reasons why US medical bills are so high. Physicians' political clout, via the AMA, also plays an outsized role in stalling meaningful reforms that could reduce US healthcare spending, e.g., granting nurse practitioners a bigger role in primary care. 

The cost of drugs is less a factor than is often thought: although the US spends, on average, about $700 more a year per capita on pharmaceuticals than other developed countries, much of this “excess” spending is because US consumers subsidize the other countries’ cheap drugs, as well as fund R&D in the US, the global leader in new pharmaceutical products. Bottom line:  even if most of the extra $700 in drug spending could be eliminated without undesirable side-effects (!), the annual savings of a few hundred dollars per capita would barely make a dent in the overall cost of healthcare in the US.

And then there's the cost of healthcare administration, in which the US is also world leader, but in a bad way. Our multi-payer system is partly to blame - all those insurers with their different reimbursement rates and requirements - but some multi-payer healthcare systems spend much, much less than what we do on administrative costs.  Like Japan, which spends less than $40 a year per capita on healthcare administration, compared to about $752 per capita in the US.

How does Japan do it? Two words: Fee Schedule. Specifically, a single comprehensive fee schedule that is strictly enforced by the government and hard to game.  As one economist put it:

“There is only one payment scale in Japan.  If a doctor won’t accept the price in the schedule, he won’t get any business... So the doctors accept the price.”

Take MRI scans, which cost about $1500 in the US. In Japan,  the fixed price for an MRI scan is around $100 (depending on body part). Now you'd think that Japanese doctors wouldn't do that many MRIs because they couldn't make any money off them. But no - just the opposite: Japan leads the world in MRIs. What happened is that Japanese doctors asked MRI manufacturers to develop an inexpensive MRI scanner. And they got a cheap machine so they can do cheap MRI scans and still make a little profit. Sometimes the heavy hand of regulation can be a spur to innovation.

What can we learn from the Japanese healthcare system? Let me count the ways: 

Multi-payer and universal healthcare can go together.

Insurance companies can be part of the system.

Regulations can spur cost-saving innovation.

Governmental cost oversight is essential.

Ugh, but my goal was to achieve universal coverage and excellent quality of care without the heavy hand of big-time regulations. Fair enough, but not all regulation is bad. Sometimes the market alone isn't enough. I say this as a lover of capitalism, for whom the word "corporate" elicits a sigh of gratitude.

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*An example would be “upcoding”: assigning an inaccurate billing code to a medical procedure or treatment to increase reimbursement.

Next: Why healthcare is different: markets alone cannot solve the problem of universal access to essential care. Some concrete suggestions.

References and Links:

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

https://medicalskeptic.wordpress.com/2010/06/10/mri-japan-and-the-u-s/