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Why is Medical Care So Expensive ? Neil A Kurtzman MD Sandra Sabatini PhD MD Feynman’s Rules Richard Feynman 1918-88 The universe in not only stranger than you think, it's stranger than you can imagine Anyone who says he understands quantum mechanics, doesn’t understand quantum mechanics Medicine is a surrogate for the entire economy Absence of medical insurance is not absence of medical care Possible Causes of Increased Medical Care Technology Pharmaceuticals Doctor’s fees Insurance companies Hospital fees Government Defensive medicine No competition Insurance The equitable transfer of the risk of loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Cost Comparisons 1958 NOW Change CPI 29 233 8x Toaster 6.5 hr 1.35 hr 24”TV/26”HDTV 136 hr 6h Phonograph/iPod Classic 43 h 10 h 4.8x decrease 22.6 X decrease 4X decrease Comparison Costs 1958 Car ( Ford ) NOW Increase 10.3 Gallon of gas $1960 - $30,300 3900 24 cents $3.25 Loaf of bread 19 cents $2.50 13.2 Consumer Price Index 29 8 233 13.5 Cost Comparisons 1958 Median Wage $/yr House, median $ Medical Insurance $/yr College, total costs/yr NOW Increase $4650 $52,000 11.2 $30,000 $202 K 6.7 $134 $8900 67 $2725 $58,135 21.1 Total Health Expenditures United States of America Switzerland Canada United Kingdom Japan United States of America 320 million population; heterogeneous with most of the population urban; highly concentrated on each coast and Texas Private, government, employee-based insurance began during WWII Unfunded mandates Unfunded liabilities of Medicare = $38.6T or $328,404/person! (WSJ June 24, 2013) Switzerland ~ 8 million population, relatively homogeneous, land locked; long-lived Compulsory basic insurance (not risk based); $84 8% of income up to ~ $1500; this may be supplemented with private (risk based) which enhances room type, dental, additional Rx, etc Health care cost ~ 11.5% GDP and rising; just recommended abolishing mammography as one effort to control costs (NEJM, 22May 2014) Canada 25 – 30 million people, relatively homogeneous ~ 90% live within 200 miles of the USA border Canada Health Act -must have public insurance; does not address delivery Some private clinics allowed; cannot operate at profit; 2006 BC provincial gov’t shut one down Provinces use wait-time strategies(ie, rationing); those with $$ come to USA Japan ~ 120 million population; completely homogeneous Long-lived; use MD and health services more than in other countries; 33% hospital stays > 30 days; 8.2 MDs/1000 (cf USA) High prevalence of HTN, diabetes and smoking 70% govt & 30% patient responsibility; 8.5% of GDP; all hospitals non-profit & run by MDs United Kingdom 60 – 70 million population NHS began after WWII; went 65 years without building a new hospital 90% population covered by NHS 10% population buy private insurance **Salaries of NHS physicians 2x that of private **Rationing of services --- age, time of appointment, type of service offered, etc NICE National Institute for Health & Care Excellence Est 1999, United Kingdom for the NHS Provide evidenced-based guidance (clinical guidelines, tech appraisal, Dx review, etc) Develop quality standards/outcomes Provide information services for managers, MDs, commissioners, local govt QALY = quality-adj life yr (eg an intervention is cost effective if <20k pounds; if >30k there MUST be “strong reasons”) (NICE Guidelines Manual, p 54) IPAB Independent Payment Advisory Board 15 member US govt agency created in 2010; members appointed; confirmed by Senate Has the explicit task of achieving savings in Medicare without affecting coverage or quality Can change Medicare program; Congress can overrule only by supermajority vote Mass Medical Society – 2013 Report The Greater the Government Involvement the Lower the Productivity and the Higher the Cost Medical Care Spending,2011 Public Health 3% Infrastructure, research 6% Administrative 7 %* Rx, durable medical 13 % Professional services 30 % Inpt/nursing home/etc 42 % Total $2.7 trillion _______________________________ CMS data in JAMA 310: p 1950, Nov 2013 Professional Personnel In 2011--- Total MDs RNs DDS = 21,587,800 = 830,700 = 2,725,000 = 96,000 US Dept Labor - 2013 USA Insurance Status 2012 (% Population) Private 54 % Medicare 11 % Medicaid 13 % Military 4 % Uninsured 15 % ______________________________________ (data from US Census, JAMA 310:1952, 2013) Actual Causes of Increased Medical Care Inappropriate use of the Insurance Model Medicare Third party payers separate the patient from costs Lack of price competition Technology without competition Unrealistic expectations by the public The idea that medical care is a right Unreformed tort law $164 Billion in 2015 Budget (6.7 million pts) It will be of little avail to the people that their laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood. James Madison The Federalist #62 Mancur Olson (1932-98) Great systems can only be reformed after they collapse Passionate minorities prevail in a democracy Benefits persist irrespective of their societal value If you like your benefits, you will keep your benefits You have heard of too big to fail Medicine is too big to fix! Thomas B Edsall: Joseph Pulitzer II and Edith Pulitzer Moore Professorship in Public Affairs Journalism at Columbia University New York Times Nov 19, 2013 A man cannot know more than a tiny part of the whole of society…all a man’s mind can effectively comprehend are the facts of the narrow circle of which he is the center…nobody can know who knows best…The fundamental assumption…is the unlimited variety of human gifts and skills and the consequent ignorance of any single individual of most of what is known to all the other members of society taken together. Frederich Hayek 30