The Public Pollcy/Can Government Keep Health Costs Down?

...But as Lewis Thomas has pointed out in The Ia'vas of a Cell and in a splendid recent issue of Daedalus,* the cost of medicine is a function not only of our advancing know" "Doing Better and Feeling Worse: Health in the United States," Winter 1977...

...It was 5 o'clock and dusk...

...Second, it should be remembered that the whole purpose of insurance--private as well as public--is to moderate the harsh"The A Iternative...

...When Medicare and Medicaid were introduced in 1965, no one predicted that within a few years the programs would be costing $20 billion annually, let alone a figure nearly twice that for last year...

...We may be able to prevent premature death, but people will always die, and if we find a cure for cancer they will die of something else that might be even more expensive to treat...

...Box 877, Bloomington, Indiana 47401 [] New subscription [] Renewal PLEASE PRINT [] One year (10 Issues) $10 Name [] Two years $18 [] Three years $25 Address [] Payment enclosed City State Zip [] Please bill me X71 The Alternative: An American Spectator April 1977 23 ness of the marketplace...

...And if he bought enough rounds, he could make a speech and the customers wouldn't even laugh...

...Thus the Department of Health, Education and Welfare is proposing an agency to regulate hospital budgets, and will most likely make many similar suggestions before the year is out...

...The quality of health care, it is refreshing to observe, is not at issue...

...Americans spent $140 billion on health care in 1976, up from $40 billion in 1965, from $73 billion in 1970, up 19% over 1975...

...The case may be hopeless...

...Some people say TV killed the tavern business," Stanley said...

...There seem to be good reasons, for example, to adopt a catastrophic insurance plan, such as that proposed by Senators Long and Ribicoff...

...If patients feel that deductibles and coinsurance terms are too high, they will find supplementary insurance policies to pay for their copayments...

...HMOs have had only limited success in inexpensively treating the poor and the aged...

...Martin The Alternative: An American Spectator April 1977 25...

...one of the nation's most energetic and sprightly journals of opinion...

...The costs of pediatric care are relatively small and the benefits comparatively great: children have fewer chronic and incurable diseases than adults, and they can probably benefit more from preventive measures...

...like the inhabitants .of almost every Western nation, enjoy superb care...

...Ed...

...In the discussion that followed this and the other talks, a prominent educator-administrator said government had to understand that university faculties were selected on the principle of excellence and that this principle distinguished professors from garbage collectors, whose selection, one gathered, may properly be governed on grounds other than excellence...

...Many economists, however, see changes in the reimbursement mechanisrr/ as a solution to rising costs...

...Scientific research is time-consuming and erratic, and the insights that lead to ~genuine understanding are often arrived ataccidentally...

...Why shouldn't they...

...As Lewis Thomas points out, complete checkups are largely unnecessary: only a few diseases--glaucoma, cervical cancer, and breast cancer among them--can be detected early enough to make a difference in treatment, and even fewer require complicated examination...

...But the Medical Uncertainty Principle makes it very difficult to know what care can be eliminated...

...and the only reason Japan isn't worried is that its national income is rising even faster than medical inflation...

...Medical costs have been rising at an irritating rate, and we oughtto limit them if we can...

...We have developed sophisticated surgical and therapeutic treatments that sometimes can destroy existing cancer cells and more often can prevent them from multiplying...

...But the growth of third-party payments has also had two inflationary effects...

...The difficulty is that when we discuss the claims and expectations of government with respect to higher education we are bound to take account of the political-intellectual atmosphere in which government frames those claims and expectations...

...It is demonstrable that government has come to believe in its own superior competence and morality and has as a consequence undertaken controls that have made economic markets and social processes work less well than they otherwise would...

...But the advance of medical technology also contributes to rising labor costs...

...Third-Party Payments...

...Scientific knowledge, nutrition and public health, and pharmaceuticals have so advanced that today the major causes of premature death are accidents and diseases related somewhat Adam Meyerson is managing editor of The Alternative...

...So did Mayor Anton Cermak, an anti-Prohibition hero...

...People want to do more than just drink in a tavern...

...We are beginning to understand that certain substances can cause cancer...

...Specialized education is enormously expensive, and specialized expertise is so valuable that patients have been willing to pay handsomely for it, particularly if aided by insurance...

...The Carter Administration should therefore be prepared to take the consequences of greater inflation if it insists on some form of national health insurance...

...But there are limits to the economies that-can be expected...

...Most insurance plans--private and public --reimburse hospitals, nursing homes, and doctors' offices retroactively, i.e., for costs already incurred...

...Such solutions have a good deal of merit to them...

...That's one reason they ac~u~ for the most deaths...

...What is more, the frontiers of medical knowledge are beginning to approach the natural limits imposed by death...

...Look at this ancient cash register...

...He said he saw the ad and he was willing to take it off my hands for $1,200...

...In only three Western countries, Herbert Klarman points out, are medical costs not rising much faster than national income: England has kept health costs down by minimizing capital spending, with the result that hospitals are too few and too old and waitlists are gigantic...

...It would help if the universities were publicly more assertive...

...and national health insurance proposals to increase third-party coverage will make these incentives even stronger...

...Thus it is that labor represents 60% of hospital costs, and tile medical system employs more workers than any other sector of the economy...

...And well it might, for cost is the problem of American medicine today...

...And in the last few years, the amount of unnecessary treatment has -certainly been increased by the fear of malpractice suits...

...Consider how often we go tothe doctor for minor :ailments when the local pharmacist or paramedical aide will do...

...Certainly it makes sense to require some form of copayment for Medicaid recipients, as many state governors are now proposing...

...Mayor William (Big Bill) Thompson came in with the local cigar-puffers...

...I was struck not only by the persistence of the claim to university uniqueness but to the apparent use of garbage collection as a metaphor for the activities of the rest of the society.] [] THE PUBLIC POLICY by Adam Meyerson Can Government Keep Health Costs Down...

...It turns out that the Kaiser Plan's success has been due in good measure to the quality of its patients--usually hard-working union members and their families...

...The record abroad is equally discouraging...

...In most industries new machinery replaces marginal workers, but in medicine it ironically increases dependence on labor --for fancy electrocardiograms require readers and new diagnostic labs require new technicians...

...One reason that health costs are rising is simply that the specialized expertise and sophisticated technology of modern medicine are expensive...

...Medicare / Medicaid and Blue Cross / Blue Shield agencies have all begun carefully scrutinizing medical budgets, checking for abuses, mismanagement, and unnecessary treatment...

...Medical bills have traditionally been paid directly by patients or their families...

...The problem of cost is especially severe for government, which now accounts for over 40% of health expenditures...

...Thus the New York State Department of Health has discovered a solution to its rising Medicaid bills: it will simply reduce its Medicaid expenditures by 3%, no matter what the hospitals' costs, are...

...But a more serious problem is that the goal of stopping medical inflation may conflict with other political objectives and with some fundamental facts about the character of modern medicine...

...The young people move away as fast as they can afford to...

...Look at the English pubs with their darts...

...More important, by reducing the direct connection between a patient's expenditures and his medical care, it has correspondingly reduced his cost-consciousness...

...They also cost a great deal of money...

...Thanks to Medicare, Medicaid, and private insurance, most people have the financial wherewithal for medical care when they need it, Gaps in access remain: 10-15% of Americans are uncovered by any insurance, a higher proportion of children are uncovered, and millions have no protection against catastrophic medical bills...

...What is more, American government has been unsuccessfully trying to cut medical costs for seven or eight years...

...They sat at the tables and played pinochle, banging down the cards until their knuckles were swollen...

...The Puerto Ricans go in their own places...

...At the same time that third-party payments have reduced incentives to economize in seeking health care, the form they usually take has encouraged extravagance in providing it...

...But the few HMOs that have been started have mostly been disappointments: their costs have tended to be higher than average, when they have cut costs they have done so only by skimping on services, and they continue to be regarded suspiciously by most doctors, without whose enthusiastic cooperation no medical system is worth its price...

...And for those diseases that still elude prevention, we can usually alleviate the pain...

...Malpractice insurance now costs billions of dollars a year, but the costs are much higher in that doctors and hospitals now conduct all kinds of diagnostic tests, most of them unnecessary, lest they conceivably be accused of neglecting their duty...

...THE GREAT AMERICAN SALOON SERIES & Mike Royko A Requiem for Tavern Like old-time politicians, old-time saloons are fast slipping away...

...Unfortunately, there is little hope that medicine Can cut its labor costs, at least in the short term--unless hospitals are prepared to resist wage demands, or patients are willing to sacrifice creature comforts, or both are willing to sacrifice the quality of medical care...

...to preventable human behavior (e.g., cancer...

...Universities and higher education, for example, are not more complex than corporations and the economic marketplace, and the case against the politicization of the former is really no stronger than the case against the politicization of the latter...

...You know it wasn't designed for any grocery store...

...Estimates of the major NHI plans before Congress range from $3 billion to $13 billion in 22 The Alternative: An American Spectator April 1977 additional outlays per year, but cost overruns among defense contractors are nothing compared with those in HEW...

...Particularly costly are the creature comforts that patients increasingly demand: the hotel functions of hospitals are subject to all the inflationary pressures of hotels, now that semiskilled janitors, dishwashers, and orderlies are unionizing and becoming more aggressive in their wage demands...

...In those days, a good tavern was a political center...

...Labor-Intensive Service...

...In 1973 be wrote "A Requiem for a Tavern" for his column and later collected it in his volume, Slats Grobnik and Some Other Friends...

...Time March 7, 1977 Join Milton Friedman, William E. Simon, Irving Kristol, William F. Buckley, Jr., and thousands of other thoughtful Americans who read The Alternative...

...now their prevention is simple and inexpensive...

...As Wildavsky points out, the way to resolve uncertainty is for patients to seek, and doctors to prescribe, as much care as possible--usually up to the level of the patient's insurance...

...But price controls are almost always deceptive: medical costs continued to rise, even though doctors and" hospitals could not pass them on, and as soon as the controls were removed the prices accordingly rose much higher than before...

...When the police knocked out the sociable card games...

...So far their efforts have been more successful in generating paperwork and frustration than in reducing costs...

...He took out a copy of an antique-dealer's magazine...

...The Nixon Administration saw an answer in prepaid group practice, or Health Maintenance Organizations (HMOs), modeled after the prestigious and comparatively inexpensive Kaiser-Permanente Health Plan in California...

...Remember, too, the egalitarian impulse of modern politics, which wants to offer all citizens access to fine medical care, regardless of their income...

...The ad described the bar: 26 feet long, solid mahogany, built by Brunswick in 1886...

...But lower-class Americans now visit doctors' offices as often as upper-class ones, and while the poor do not get as good care as the rich (in no country do they do so), they generally get as much care...

...Perhaps this will become clear if we review some of the reasons why medical costs are rising...

...Look, I put an ad in for all my fixtures...

...But the diseases that account for most deaths today--heart disease, cancer, stroke, and kidney disease--are all still in the "halfway" stage...

...When John Swastek, his immigrant father, opened the place, a 3-cent-a-ride streetcar clanged past...

...Herbert Klarman has discovered, for example, that rates of hospitalization depend to a remarkable degree on the availability of hospital beds, and that hospital costs could be cut considerably simply by limiting the number of beds...

...The rigors of the marketplace are not completely absent: patients will economize in choosing their private insurance policy, taxpayers will balk at enormous expenditures for public insurance, and most insurance policies contain provisions for deductibles and copayment (Medicaid is a conspicuous exception...

...Perhaps that will change in the long run, if ways can be found to steadily increase the productivity of medical workers...

...I told him to start talking at $8,000...

...The Medical Uncertainty Principle...

...Growing regulation is incompatible with that expectation and the public case can surely be made by the most articulate group in our society...

...So I think it's time to lock it up...

...Like education, opera, and other "service industries," health care is plagued by rising wages without corresponding increases in productivity...

...Despite all its remarkable achievements in the last hundred years, medical understanding is in some respects still in its infancy, and for many diseases medical technology can only provide what Dr...

...The antido~e ~ expensive "halfway technology" is ~intensified scientific research, but as Dr...

...Thomas calls "halfway" treatment-alleviating symptoms, prolonging life through repeated treatment, but not actually curing the disease...

...It rings up quart, pint, halfpint...

...By so doing, they probably can provide better care...

...Why bother economizing if Blue Cross or Medicare will foot most of the bill...

...This incentive system necessarily leads to higher medical bills for everyone, to higher premiums for private insurance, and to higher taxes for public insurance...

...Polio and tuberculosis each required expensive "halfway technologies" of their own, Until we recently began to understand them...

...but catastrophic care is by definition the most expensive kind of care, and to limit its costs, it might be best to follow the suggestion Martin Feldstein made several years ago in the Public Interest: i.e., to couple catastrophic insurance with fairly high deductibles varying according to income...

...Consider one of our favorite rituals--medical checkups...

...On the contrary, modern medicine is one of the great achievements of Western man, and the majority of Americans...

...Kidney dialysis machines, open-heart surgery, brain scanners--these have had a remarkable impact in extending lives and/or easing pain...

...I laughed at him...

...Is it realistic, then, for the Carter Administration to try to stop this inflation...

...Also mahogany, with ornate carving, pullout wine racks, and one of those huge mirrors that movie cowboys are always throwing things at...

...Twenty-five years ago, health costs represented 4.5% of GNP, in 1975 they were 8.3 % ; soon the figure will be much higher...

...The problem of cost is exacerbated by that of revenue: it was once assumed that national health insurance could be easily financed by payroll taxes, but it is becoming clear that payroll taxes will have to increase enormously just to keep the social security system solvent...

...Most of us are healthy, after all, and it is hard to imagine how lucky we are to be relieved of the pain and the constant threat of death that have afflicted men, women, and their loved ones for most of history...

...When my father opened this place, the bar cost $3,700...

...In the meantime, perhaps we should worry a little less about health costs...

...Senator Javits and Representative Scheuer have introduced a bill calling for comprehensive insurance for children and p r e g n a n t mothers...

...There is in much of the rhetoric coming from university leaders today a defensive note with an unattractive whining undertone, partly, one supposes, because they are aware that they seek an autonomy not granted to others and which many of them have vigorously opposed granting to others...

...One problem confronting it will be inadequate knowledge: we do not really understand the economics of medicine well enough to explain, say, why the removal of a gall bladder costs twice as much in Manhattan as in Philadelphia...

...Millions of Americans do not get enough medical care, but millions more get perhaps too much...

...but health, as any grandmother will tell you, is just about the most valuable thing in life...

...It is a fact of life that advances in the quality and/or comfort of medical care require increasing dependence on labor...

...By the time I pay for my license and dram-shop insurance, it costs me almost $2,000...

...Medicine, of course, is advancing, but few would contend that we are twice as healthy as 25 years ago, even though health expenditures take up almost twice as much of our income proportionally...

...Retroactive Reimbursement...

...But we do not understand how or why cancers grow, and therefore we cannot prevent cancer as we can prevent polio by vaccination or tuberculosis by isoniazid and other drugs...

...Stanley was explaining why, after almost 70 years in his family, the corner tavern was being shut down at the end of the month...

...and the most it can hope for is that the form it chooses will be less costly than others...

...This, in fact, has happened with many Medicare and Blue Cross patients...

...Take cancer, for instance...

...A candidate could get more votes by buying a round than making a speech...

...Or the singles bars, for that matter, with their strenuous games...

...Men with lunch pails and accents came in after work and ordered their nickel shots and nickel beers...

...They propose reimbursement at predetermined prices, or arbitrary limits on total reimbursement...

...Since 1950, however, they have increasingly been paid by third parties--Blue Cross/Blue Shield, other private insurers, Medicare and Medicaid...

...Why should anyone expect that government would suddenly become more modest about its righteousness and abilities when it turned to higher education...

...Thomas cautions us, we should not expect any cost-cutting miracles...

...That was 70 years ago and you could buy a good brick two-flat for that money in those days...

...Please check the appropriate boxes and mail this form to: The Alternative, Subscription Department, P.O...

...Medicine is only a quasi-science, medical care is only imperfectly related tc health, therapies often do not work, diagnoses are often impossible...

...Mike Royko knows this well...

...And ironically, one of the possible advantages of comprehensive national health insurance is that government could force the medical industry to economize, by placing an upper limit on medical expenditures...

...With the author's permission we republish it...

...In the first place, the idea of making patients share more of the costs conflicts with prevailing notions of equality: one of the most popular national health insurance bills, Kennedy-Corman, proposes to eliminate deductibles and coinsurance altogether--on the grounds that medical care is a "right" and that any required payments would hurt the poor...

...It is possible to increase patients' costconsciousness by adjusting deductibles and terms of coinsurance--that is, by increasing the proportion of medical bills _9 that patients must pay directly...

...But depending on the terms of copayment, the rational thing for a patient to do is to seek care up to the limits of his insurance...

...I don't think he understood what he was getting...

...Similarly, the training of neurosurgeons, gastroenterologists, and other specialists has incalculably improved the quality of health care in America, but it has done so at a price...

...In the cocktail lounges along Michigan Av., the martinis were starting to flow...

...You know what did it...

...Doctors and medical institutions have therefore had little incentive to keep costs down, for they know they can usually pass costs on...

...If the society does not understand higher education and research and their needs, it is also true that universities have too little troubled to understand other institutions and their needs...

...To make sure you receive your copy of The Alternative regularly (we are rarely found on newsstands), use this handy order form and subscribe today...

...Stanley slapped the reddish wood...

...A Pulitzer prize winning columnist for the Chicago Daily News, Royko is author of Boss: Richard J . Daley of Chicago...

...Some famous political bellies bellied up to Swastek's mahogany...

...So many of the people are old, living on their pensions...

...It is also refreshing to observe that access is no longer the problem it once was...

...The Carter Administration has sensibly decided that before it makes any proposal for national health insurance it had better do something about medical costs...

...But remember those fundamental facts about medicine...

...The back bar was in the ad, too...

...On the other hand, sometimes therapies do work and sometimes a new test will lead to a successful diagnosis...

...Cost, however, is irritating everyone...

...Federal Medicare and Medicaid costs are going up from $36 billion in 1976 to a much higher figure this year, and without some drastic change in our medical system national health insurance would add substantially to government costs...

...If the Administration wants more comprehensive insurance, it might be best to limit it to children, as proposed by Theodore Marmor of the University of Chicago...

...Halfway Technology...

...they see it as a foot in the door for a complete national health insurance plan, but it might be wiser to think of it as an ultimate goal...

...Some dealer called me from Kentucky...

...And hospitals, in particular, have bought as much sophisticated equipment, have hired as many employees, and have offered as much care as their insurance review boards have let them get away with...

...ledge but also of our continuing ignorance...

...That suggests to me that the fate of the universities ultimately depends upon whether the large intellectual class they house comes to understand the institutions of our society or continues to press for statist, central control in all areas but their own...

...A glance down the empty bar would have been enough: " J u s t look around the neighborhood...

...The eager young glands were beginning to congregate in the singles bars on the Near North Side...

...I am indebted for much of my analysis to the superb essays by Thomas, Aaron Wildavsky, John H. Knowles, .Herbert E. Klarman, ~and Eli Ginzberg...

...Neither state health departments nor private insurance companies have done any better...

...At work is what Aaron Wildavsky aptly calls "The Medical Unceitainty Principle...

...No attempt to cut medical costs can succeed if doctors and patients act this way...

...Remember that advances in medical care require increasing dependence on increasingly expensive labor, that scientific knowledge is incomplete and technology therefore costly, that uncertainty in diagnosis and treatment makes it difficult t o know what medical care to eliminate...

...As a result of private and public insurance, millions of Americans can afford kinds of medical care they otherwise could not afford, and millions more are shielded from the financial hardship of potential emergencies...

...At the moment, the record of proprietary or profit-making hospitals shows some hope for increased productivity in the hotel functions of hospital care, but their record has been far less successful for medical treatment itself...

...Look at it, the cigar counter, the package cabinet, they're mahogany too...

...For a short time, the Nixon Administration had greater success when it imposed medical price controls...

...military demands have forced the Israelis to limit their medical expenditures...

...in 1972, prices went up only by 2% after an average annual rise of 6...

...It's too bad history can't be put in an ad because Stanley's fine mahogany bar has had a lot of it spilled across the top...

...One might even say that our health care today is a bargain...

...We reach the conclusion that unless we are prepared 24 The Akernative: An American Spectator April 1977 to sacrifice either quality or access, there is little we can do to cut costs...

...By vastly increasing access to medical care, it has ipso facto vastly increased medical expenditm'es...

...As health costs go up dramatically, health benefits increase undramatically, and the result is increasing frustration both among those who pay the bills and among doctors and hospital administrators, who see no way of keeping costs down...

...But in Swastek's Tavern, 1859 W. Chicago, there were only Stanley the owner, a friend, and the sleeping watchdog...