Can Socialized Medicine Save the U.S. Healthcare System?
Last week, I wrote about how the U.S. healthcare system was outdated and broken — in desperate need of an overhaul.
This week, I want to explore whether there are other models that are better.
I grew up in the United States, but I have spent a considerable part of my career traveling the world. To-date, I have visited more than 50 countries. With 20 of my 30 years in business devoted to healthcare, these trips have provided me with a wonderful opportunity to learn how healthcare works in different parts of the world by interacting with local teams, visiting hospitals, and meetings health professionals and health officials.
I have also experienced healthcare as an expat. My family and I lived in France for four years while my three children were young. This meant we utilized the French healthcare system quite a bit. In fact, we had not been in France for more than a couple weeks when my youngest son’s enthusiastic sprint through the house in a new pair of sneakers was abruptly stopped by a glass door. He has a scar on his right arm as a permanent reminder. For me wife and me, it was quite an indoctrination to the French health system. During our four years in France, we also spent time in ambulances, emergency rooms, small general practitioner’s offices and specialists’ clinics. Through it all, I saw a different type of healthcare system from the inside.
In many systems that exist outside the United States, the government provides healthcare for all, for life, through a taxpayer funded health plan. You may have heard of these types of models referred to as “Single Payer Systems”, “Universal Healthcare”, over even “Socialized Medicine”.
There has been a lot of debate here in the United States about how to overhaul our healthcare system. This is likely to continue, particularly as we get into the heat of the U.S. Presidential campaigns. Drawing from both my “outside-in” and the “inside-out” experiences, I will look at a few elements of healthcare from these “universal” models and compare them to the U.S.
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Conventional Wisdom #1: Healthcare Systems Outside the U.S. Think More Expansively
Assessment: Should be true, but is mostly false
In the United States, we have several private health insurance options, in addition to Medicare/Medicaid. In many cases, participation in these private plans is secured through a person’s employer. In other cases, a person can choose a private plan which best serves their needs. In both cases, an individual will likely not stay with the same health plan for an extended period of time. In fact, the average person stays with their health plan for approximately 5 years before switching to a new plan.
This matters because private health insurance companies are businesses. When considering whether to cover a new therapy, one factor is whether the cost of therapy justifies the benefit it delivers. This cost-benefit analysis has a 5-year time horizon, because the insurance company wants to see a payback (through lower costs associated with improved health) before a patient leaves their plan. This may work for some therapies, but not as well for therapies addressing long-term, chronic conditions.
If the benefits are delivered outside of their analysis window, the plan may refuse to cover the therapy or limit coverage to only a select group of patients who meet a strict criterion. If they do cover it, co-pays, deductibles and other mechanisms may shift some of the cost to the patient to reduce the plan’s costs further and, not surprisingly, become a further deterrent to adoption. When you consider that chronic diseases and mental health conditions make up 90% of the healthcare expenditures in the U.S. [1], the short-term assessment window makes it quite challenging to broadly introduce new therapies that will actually make a meaningful long-term health impact.
Contrast this with many systems outside the U.S., where healthcare is primarily run by the government. In these systems, because there is a single, universal health plan, there is no opportunity for a person to switch from one plan to another.
These plans aren’t for-profit businesses, but they are stewards of taxpayer dollars, which have funded the plans. As a result, these systems are also very cost conscious. You would think, though, a universal system that covers its members from birth to death will have a much more holistic, long-term view — certainly longer than a 5-year assessment window to evaluate what will be covered — right? Not quite.
Healthcare systems outside the United States are run by Ministers of Health, who are typically appointed by their elected leaders. If a new administration is elected in, chances are a new Minister will be appointed. Since healthcare is such a critical element in the politics of most countries, demonstrable progress must be made before the next election. The time horizon, unfortunately, for many Ministers of universal plans is therefore based on the election cycle.
Theoretically, a universal health plan should have a more expansive longitudinal view. Coverage decisions should not be short-term financial decisions, but rather a long-term evaluation of health outcomes and system cost-benefit trade-offs. These plans should think in decades, not years. However, they typically don’t. Practically speaking, the political dynamics at play don’t make them much different in this respect than their for-profit U.S. counterparts.
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Conventional Wisdom #2: Universal Healthcare Systems Negotiate More Effectively
Assessment: True, but they are still inefficient
With many international systems, there is a single, unified entity responsible for the healthcare needs of an entire population — the government. Government agencies’ ability to negotiate a lower price for pharmaceuticals, physician fees, etc. on behalf of an entire country’s populous is greater than private providers. The same is true in the United States. Medicare often pays less for the same services than private insurers. In fact, several countries are taking their negotiating power even further by evaluating “reference pricing”, which compares their country’s costs for healthcare services to how much other countries are paying for the same services, thereby benefitting form the lowest negotiated global rates.
While a government entity’s negotiating power may be more effective, I personally believe there is far more opportunity for efficiency — not by shopping for the lowest prices, but by comparing and paying for solutions that offer the highest value. In last week’s article we defined value: favorable health outcomes achieved versus the costs required to achieve them. Instead of negotiating to reduce fees for individual activities, systems would benefit from measuring and paying for value.
The administrative burden for an activity-based system is massive, but it’s an unfortunate and unavoidable control mechanism for a payment system desperately trying to reign in costs. A payment model focused on achieving value transparency and, most importantly, on prioritizing only the highest value items won’t need the same level of oversight and bureaucracy — economics and market forces will take care of most of that.
In addition, by focusing so heavily on cost control, there is a real risk of forcing providers into the healthcare system to offer only the most basic products and services. To promote public health, research, development and innovation are musts. A focus on value does not risk compromising health for the sake of a lower price, as it rewards those that can achieve the best outcomes at the lowest cost.
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Conventional Wisdom #3: Universal Systems Control the Costs of Clinicians More Effectively
Assessment: True, in systems where physicians salaries are fixed. But, in general, higher physician fees in the U.S. are a function of other dynamics.
Physicians in the United States are the highest paid in the world. In our system, physicians get paid for the various services they provide and different services are reimbursed at different amounts. Some universal healthcare models follow the same structure where physician fees for various services are negotiated (e.g., France). In other universal health models, physicians receive a fixed salary (e.g., Sweden). As you would expect, salaried models are more cost-effective than those that pay a physician for the various activities they perform. However, there are a few other factors at play here:
Physician Profile … in general, the United States has a greater proportion of specialists and sub-specialists than most other countries in the world. This wasn’t always the case. In 1940, over 75% of all physicians in the U.S. were general practitioners [2]. Today, it’s approximately 30% [3.4]. A major driver for this is the fee structure — fees for a specialist’s services are much higher than a primary care physician’s.
Education … medical school costs are substantially higher in the United States than in most other countries. This factor plays a major role in the decision for a physician in the U.S. to specialize.
Malpractice insurance … this cost is also substantially higher in the United States than in almost any other country — another reason for a physician to choose a specialty that offers greater compensation to cover these costs. Malpractice fears also lead to the practice of “defensive medicine”, which can cause additional activity and costs into the system without any potential health benefit for the patient.
Unless their physicians are all paid a fixed annual salary, an international system will have many of the same challenges controlling physician pay as we do in the U.S. The vast differences in physician compensation between the U.S. and other countries is not based on an inherent benefit of a universal healthcare model. Rather, it is driven by the mix of generalists to specialists and by the large administrative costs U.S. physicians must bear relative to their international counterparts.
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Conventional Wisdom #4: Patients Pay Less for Healthcare In Universal Models
Assessment: True
The United States healthcare costs are significantly higher on a per capita basis than anywhere else in the world. In addition, a similar basket of goods and services costs less in most countries than in the U.S. But, universal healthcare models bring significant taxes with it — at least 2x what we pay in the United States for Medicare [5]. In addition, in many of the countries that provide universal healthcare patient out-of-pocket costs (like co-pays) also exist. So, too, does private insurance for items not covered by the universal health plan.
Even with these elements, the U.S. system costs more for the patient than other countries. Why? Are universal health plans inherently more efficient?
To understand this, it may help to look at where the U.S. spends its healthcare dollars. In 2018, the two single biggest contributors to U.S. healthcare spending were the cost of clinicians and the cost of hospital stays. These two costs account for 53% of all healthcare costs, while pharmaceuticals account for only 6% and medical devices for 4% [6]. So, why are hospital and physician costs so high in the U.S. health system?
We covered the drivers of physician costs in the previous section. Hospital costs, however, have different dynamics. Interestingly, the U.S. has shorter average hospital stays than most other comparable countries (6.1 days in 2017 versus 7.7 days, respectively) [7]. If it’s not the length of stay, then is it the volume of hospitalizations that are greater in the U.S., or the costs associated with the stay? It’s both.
The U.S. has the highest adult chronic disease burden and the highest rate of obesity versus other comparable countries. In addition, it has a 50% higher hospitalization rate for diabetes and hypertension than the average for comparable countries [8]. These are known as preventable hospitalizations and the United States’ inability to help patients manage their chronic disease in primary care and outpatient settings is a key contributor to the outsized hospital spending that exists.
In addition, the average cost of a hospital stay in the U.S. is over $15,000, among the highest in the world [9]. There are a number of factors at play here — from more elective surgeries driving higher costs, to a greater degree of consumerism in the U.S., to higher prices for services due to a fragmented payment system.
When taken collectively, these dynamics lead to a more expensive system for patients in the United States.
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The Bottom Line
I could go on, but let’s get back to the question at hand: is importing socialized medicine the only way to resuscitate the U.S. healthcare system?
I would submit that while these systems are certainly cheaper, they are not necessarily better.
In the end, there is nothing magical about the systems outside the United States. As previously mentioned, in many geographies where universal healthcare is provided, there are also private options. The presence of private alternatives inside a system designed to be universal should be proof that even in the best “healthcare for all” systems there are flaws that a private market is attempting to remedy.
To put a finer point on it, there is no perfect system. In fact, one universal truth I have found in all my years of travel is that no one is completely content with their healthcare system. Whether it’s rising costs, physician shortages, administrative bureaucracy or long wait-times, there is substantial room for improvement everywhere.
In the end, if I were creating a healthcare system from scratch, my bias would not be to simply carbon copy someone else’s system. I personally believe that when it comes to specialized, acute care, the U.S. system is among the best in the world. However, when it comes to the effective, on-going management of chronic conditions, there are things we can learn and adopt from other countries (the Netherlands, for example, has not only low preventable hospitalizations, but has also taken some creative approaches that are quite interesting).
I would, therefore, start with the U.S. system and attempt to modify it with some common-sense solutions. By simply understanding that 90% of our healthcare costs come from the management of chronic diseases and that 53% of our spending is tied to physicians and hospital-related expenditures, we should have more than enough data to get started on the areas to prioritize.
In last week’s article, I outlined a few of the key elements. To summarize, they were:
Empower Patients … give them the tools and reward them for taking better care of their health, particularly as it relates to chronic conditions
Embrace “IntelliMedicine” … prioritize technologies that lower infrastructure costs and provide patients with real-time disease management and decision support tools in an effort to keep them out of the hospital
Establish Standardized Value Scores … provide transparency for all consumers of healthcare and, ultimately, create a payment system that rewards the solutions that provide the greatest value and that de-prioritizes other, lower-value alternatives.
In addition to those recommendations, I also see benefit in two additional steps:
First, in a public-private partnership that establishes a unified body to negotiate and harmonize rates for all healthcare goods and services in the short-term and to establish a new value-based payment structure in the long-term.
Next, enact reforms that ensure that medical education costs and legal action against physicians are held in check. (I realize this last one is a long, tough putt.)
Ultimately, the remedy to our broken system doesn’t require a wholesale import. We have many elements of our healthcare system that are truly best-in-class and we can make the necessary changes to more effectively drive outcomes and manage costs if we can exert our collective will in a few key areas.
Very soon, the Presidential debates will be upon us and, once again, healthcare will be a hot topic. Access will be a key element, and rightly so. There is no reason we shouldn't provide healthcare for our entire population. However, providing healthcare coverage for everyone without fixing some of the inherent challenges within the system isn’t practical or sustainable. So, I personally hope there is substantive debate on the topic that extends beyond access. That alone would be an encouraging first step forward.
References:
[1] Center for Disease Control: https://www.cdc.gov/chronicdisease/about/costs/index.htm#ref1
[2] American Journal of Medicine: https://www.amjmed.com/article/S0002-9343(17)30134-1/pdf
[3] Agency for Healthcare Research and Quality: https://www.ahrq.gov/research/findings/factsheets/primary/pcwork1/index.html
[4] Statistica: https://www.statista.com/statistics/186226/active-doctors-of-medicine-in-patient-care-in-the-us-since-1975/
[5] Analysis of Medicare taxes versus income taxes attributed to healthcare in England, France and Sweden
[6] Centers for Medicare and Medicaid Services: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/highlights.pdf
[7] OECD Health Statistics 2019: https://www.oecd-ilibrary.org/sites/0d8bb30a-en/index.html?itemId=/content/component/0d8bb30a-en
[8] Commonweath Fund: https://www.commonwealthfund.org/publications/issue-briefs/2020/jan/us-health-care-global-perspective-2019
[9] Debt.org: https://www.debt.org/medical/hospital-surgery-costs/
