Health care reform

The Future of Health Care Is Innovation, Not Government Control

Pioneering treatments may require equally pioneering payment models.

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What Sen. Bernie Sanders' "Medicare-for-all," former President Obama's Affordable Care Act, and former House Speaker Paul Ryan's Medicare "premium support" model all have in common is an overemphasis on health insurance coverage—who needs it, who is eligible for it, at what level, and who should pay for it (private sector vs. state governments vs. federal government).

Yet insurance coverage and health care are two different things. A focus on the first one has resulted in an endless debate over which third party pays for people's health care bills. Whether your preference is the government or private insurers, both end up creating massive distortions and moral hazards, which then results in higher costs and poorer-quality health care.

My colleague Dr. Robert Graboyes encourages us to instead think about how to produce better health (not health insurance—not even health care) for more people at a lower cost, year after year. This requires allowing and fostering the kind of revolutionary innovation in the health care industry that we've seen in other fields, like information technology. It requires allowing consumers to choose treatments, even high-risk ones. But it also requires innovation in the provision and payment of health care.

For instance, advancements in cell therapy and personalized treatments could one day offer a cure for cancer or disorders currently considered incurable, sometimes with only a single injection. In 2017, the Food and Drug Administration approved its first cell therapy treatment, Kymriah, for acute lymphoblastic leukemia. The FDA expects 10 to 20 cell and cell therapy approvals annually by 2025.

Kymriah is a marvel of modern science that reengineers a person's cells so that they attack cancer cells, but a one-time treatment for children costs an eye-popping $475,000. When considered against the costs of a lifetime of treatments, even a very expensive cure can be a bargain, though the exact savings are difficult to calculate because they're spread between patients, providers, insurers, and governments. That, along with a high upfront cost, poses a challenge within the standard fee-for-service payment model.

This is where the need to allow innovation beyond the development of new treatments is apparent. Enabling sufficient experimentation for this process to deliver its full (and difficult-to-measure) potential in new delivery and payment systems is key.

For instance, some providers and insurers may want to experiment with outcomes-based pricing. Agreements between manufacturers and payers could allow prices to adjust according to the outcome as measured by a variety of possible health metrics. A treatment that fails to work within a certain time could result in no payment owed.

Such agreements already exist, but government regulations and requirements prevent a larger number of people potentially interested in experimenting with them to even try. Some manufacturers are required to offer Medicaid the "best," or lowest, price that they negotiate with any other buyer. However, in an outcomes-based system, the lowest price could be $0. Medicaid rules would force all payments down to $0, which is obviously untenable.

Even anti-corruption efforts pose a problem. The Anti-Kickback Statute seeks to prevent exchanges of value between manufacturers and other parties that might influence drug purchases, but it doesn't allow for payment models that rely on measures of value instead of volume. As Duke University researchers explain, an "arrangement between a device manufacturer and a provider wherein the manufacturer would agree to reimburse the provider's costs associated with hospitalization (or other medical services) resulting from a defective device…implicates the AKS because OIG"—the Department of Health and Human Services Office of the Inspector General—"considers the reimbursement of potential ancillary costs to be 'remuneration' that can influence providers to purchase the device."

Outcome-based payment models aren't likely to be a panacea for a vast and complicated health care system. Innovators, however, can come up with new delivery and payment systems to meet the industry's need. As more cell therapy and other high-cost one-shot treatments are developed, finding creative ways to make them accessible to the public could prove for many to be the difference between life and death.

Laws and regulations designed for the health care system of the past need to be updated and flexible enough to deliver emerging treatments to consumers. Politicians should ideally reduce the government's role in the health care market overall so that as-yet-unknown innovations are not similarly constrained in the future. Succeeding in that endeavor would make the need for health coverage much less important.

*CORRECTION: This piece initially referred to Kymriah as a gene therapy. It is a cell therapy.

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  1. When will the puissallanimous pretend friends of freedom at Reason come out in favor of the right to self medicate with medicines that *don’t* get you high?

    1. Long before you can post relevant posts. In fact, they already have, many times.

      What a maroon.

      1. Note the lack of quotes and citations.

        1. Here you go. Notice that the article about Trump’s “Right to Try” was published a few days ago, and talks favorably about allowing people with life threatening diseases to get access to experimental drugs and treatments.

          An August article titled, “Subsidies and Price Controls Aren’t the Answer to Skyrocketing Prescription Drug Prices” discusses how the FDA gets in the way of access to life saving drugs.

          I would agree that in general Reason tends to focus more on recreational drugs like MJ, Nicotine, etc. Nevertheless, they are at least consistent in position, if not emphasis.

          1. Point to the one that calls for ending prescription drug laws.

            1. Provide the quote.

        2. Its why we call it the alphabet troll.

          Reason intern sock keeping that web traffic *HIGH*.

          1. Hypocrisy, thy name is lc1789:

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            Do you need me to link the rules of NAFTA and USCMA so you can compare and contrast the “worseness” for us?

          2. Poor trolls.

        3. So, the fact that alphabet soup didn’t do the work you should have done is his fault? You made a stupid assertion, got called on it, and tried double down. Seriously, even a casual glance through the archives here shows just how wrong you are about what reason advocates for.

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  2. It’s always interesting finding out statists strangle societies. I always expect it, because that is all bureaucrats anywhere are capable of; but the government ones are the worst because markets drive the private ones out of business.

    I just don’t have the interest or imagination to waste on thinking up such tactics, but they are fun for late night reading.

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  4. But who will control the innovation if not government?

    Comrade Ocasio-Cortez has some excellent plans if only the peoples will give them a chance.

  5. As the rest of the world gets richer you’d think the new demand for top grade medical care would lower the cost per service. Globalisation could save us money.

    1. No, the demand for “Top Grade” healthcare leads to the creation of new “Top Grade” health care solutions. What we need is demand for “mid grade” or “low grade” health care. If a manufacturer can develop a cure that costs $50,000 or a treatment that costs $100, they will always develop the former. Because there is no demand for cheap treatments when everyone basically has a “right” to the top grade treatment. If people were discriminating towards the price of their various health care options, then some manufacturers would go after the cheaper treatments, because there would be a market of millions of people that would choose the more affordable option over the more expensive one.

      Why do Ford and Mercedes exist? If everyone had a “right” to the best car money could by, no one would ever buy a cheap economy car.

      1. Yup. Everyone pay cash for minor medical stuff. Catastrophic health insurance for major medical stuff.

        End most FDA regulations to allow ease of drug competitors.

        End most licensing and regulations for doctors and nurses to make their educations cheaper and make it easier to get into the field.

        1. lc, great job yesterday over at Volokh on the Michelle Carter thread.

          1. Thanks. I go over to Volokh every once in a while. They have some good discussion sometimes even with the regular trolls.

            I think quite a few of the self-professed “lawyers” are not, but many of them think judges constantly decide correctly according to the law and rational thought.

            Brett has some good things to say but I had to challenge him on government’s role to protect us from ourselves.

        2. My God, LC, with your plan none of us would even live to see the world end in 12 years!

          1. I could get Alexandria the Not-Great to stomp away in frustration in under 1 minute.

        3. “End most licensing and regulations for doctors and nurses to make their educations cheaper and make it easier to get into the field.”

          So you can pay less for cheaper and easier less qualified people to treat and diagnose. Go for it.

          The tuition fees are not going to drop.

          You do not know this. The State boards and Feds are pretty easy to deal with in “licensing and regulations”. What matters far more are specialty boards which are internal to the industry and are not run by the government.

          You are younger and healthy you should have minimal insurance, but to claim that what is working for you now is going to eliminate Medicare and Medicaid is hyperbole.

          1. Cutting federal pell grants and students loans would see a quick drop in tuition.

            Schools would need to drop prices to attract students because there would be less students.

            Supply and demand.

      2. Another idiot. *All* new technologies are expensive, and only the rich can afford them. Introduction and use breeds familiarity, leading to cheaper production and higher demand, and eventually the tech is common and cheap. All relative of course.

        Examples? Pick any tech you want, explore its history. If you can’t be bothered to do that, tough noogies.

        That’s how things work, even when governments corrupt markets, as they massively do with healthcare. It’s just slower and less smooth. Instead of people who need a product determining what is popular, it’s bureaucrats and politicians, with a good dose of bribery mixed in.

      3. No, if everybody had a right to a car, it would be a shit car. More like a Trabant than a Ford.

      4. We need to learn to accept that we can’t live forever.

        1. what’s this ‘we’?

    2. The government enabled rent seeking of the medical mafia expands faster than our riches.

    3. I think for some technologies more people using them WILL lower costs… For other things it probably won’t, as it won’t adjust the quantities of scale much.

      But some fancy machine that today might only sell 1,000 units worldwide, but cost 1 billion to develope… Well that’s a million dollar machine + profit margin. If 10,000 were sold, they might be able to lower the cost to $200,000 each and still make more profit.

      One problem though is that because so many countries have socialist systems, the US ends up bearing almost ALL the R&D costs for the whole world, because we have a semi free market. This is a major issue as is. BUT even if that stays the same, increased volumes in industrializing countries should still lessen the burden on us, just not as much as it should.

  6. It is hard to disagree that existing laws and regulations are a major limiting factor to any sort of innovation or substantial alteration of the marketing or delivery of healthcare.

    But the other, and I would argue larger problem is that, due to the practices of the prior half century or so the majority of the population is ignorant of the actual costs involved and grossly unaccustomed to assessing the value of any available options.

    On the one hand you have large numbers of (largely young) healthy people forgoing significant income (in the form of insurance premiums, and employer healthcare contributions) who do not understand what they are missing; and on the other end you have (older, less healthy) people who never really purchased any sort of long term solution to their needs being invisibly subsidized by the former.

    Neither group has been exposed to the sorts of information and experiences that might render them capable of navigating new markets successfully.

    I’m afraid we are all mostly screwed.

  7. If you do not allow people to be price conscious, you will never free the market to innovate less expensive treatments. Imagine if in the 80’s, the US had guaranteed a PC for every household in the country. There would have been no need for computer manufacturers to create multiple tiers of CPU- they’d just focus on building the next best processor. Once price is off the table among your customers, they are going to merely shop for what is the fastest, or some other criteria. And the CPU manufacturer has no incentive to reign in the costs.

    We can go out today and buy a computer for $200 that is more powerful than the 486 my dad and I built for $3000 ($5400 in 2019 dollars) in the early 90’s. And we can do that because manufacturers saw a market of millions who wouldn’t pay $5000 for a computer, but would pay $1000.

    US price fixing/subsidies are rapidly turning the markets for college, housing, and health care un-affordable to even the middle class. Until the US backs off these stupid policies, the unseen cost is calls for more government intervention to “fix” the problems they have created.

    1. You have just accurately diagnosed the problem: progressivism, aka socialism, aka communism.

      Problem caused by government? Solution, more government.

    2. +100

    3. “If you do not allow people to be price conscious, ”

      We are not allowed to be *free* to purchase and consume medicine and medical services without permission from government gatekeepers to healthcare.

    4. Yup. I’ve used essentially this exact argument for this subject, and others, before.

      Think something as simple as an XYZ disease treatment. If treatment 1 is $100,000 bucks, and has a success rate of 99.9999%, right now that is basically all that will sell into the market. Potential treatment 2 that only costs $250, and gives a success rate of 99.9998% basically won’t sell into the US market… Because why bother? Who cares that it’s $99,750 more, nobody is paying for it anyway right???

      That’s basically as ridiculous as some of the REAL WORLD examples are I have read about. New drugs being pushed that are literally no better than older ones, or only VERY slightly better, for literally 1,000x the cost. It’s nuts.

  8. but a one-time treatment for children costs an eye-popping $475,000

    I wonder if anyone actually pays that, though? That is probably the list price they use to justify what they charge insurers and the government (which could be 10% of that amount).

    I have a friend who was diagnosed with Stage 4 lung cancer (despite being a devout Mormon who never smoked in his life). He was initially given three months to live, but he found a doctor who prescribed targeted immunotherapy drugs. The cost for treatment was quoted at well over $50K for him, but he had been forced onto the Obamacare exchanges a year before and had a crap plan that covered almost nothing (after having a good one for years before, despite being self-employed). When he said something about his worries about paying for the treatment, the maker knocked it down a bunch and then tossed in a pre-loaded debit card to cover medical expenses up to the cost of his insurance deductible, so he ended up paying very little (although not nothing).

    So I suspect that very few people ever pay anything near $475K for the leukemia treatment.

    Reason regularly complains about the lack of price transparency in medical situations, and I think this just illustrates the problem.

    1. How is he doing now?

    2. In fact very few people do end up paying quite a bit for these treatments- instead it is the insurance company that pays. Yeah, there is a lot of money being fudged around. Drug manufacturers get subsidies from the government, and they also get manufacturing monopolies. They give some of that money to the truly unfortunate, which is basically a marketing cost. If some Cancer Treatment Center tries offering a treatment, and the patient cannot pay for it, then the center might try some other treatment and decide to use that. So manufacturers are willing to forego some profit for new treatments to make sure they penetrate into the market. However, once they have market share, they will start charging a ton for the treatments. Your friend was basically a beneficiary of a customer acquisition cost.

      As I note above, this type of price hiding is common in the health care market, specifically because Consumers often have no need to demand price transparency.

      1. To be fair, a one-time $475,000 treatment is exactly what insurance was designed for–to cover risk in the event of a catastrophic event.

        It’s the use of “insurance” for routine healthcare that needs to end. You shouldn’t have to use insurance to get an annual checkup and bloodwork done, or get an antibiotic prescription. If you do, your insurance rates should reflect that accordingly.

        1. This cannot be said enough. Calling what we largely have today “insurance” is a major part of the problem. It leads people to all manner of false notions and misconceptions.

          The worst, IMO are the dental and optometric plans, which are nothing more (or less) than group negotiated discounts and enforced savings plans. As such they are fine products, but calling them insurance is grossly misleading.

        2. Definitely.

          Cash for routine and minor medical stuff and catastrophic insurance for heart attacks and cancer.

          1. That sort of proposal is actually the delusion of our current system.

            Cash for routine/minor means only wealthier people will actually see the doctor on a regular basis. For everyone who earns less than a doctor, they will see a doctor as often as they engage a lawyer or a M&A banker or a systems architect. Which means they will become very unhealthy over time – and thus end up clogging the system for the catastrophic care (unless we decide that ‘it’s ok for such people to die since they didn’t take care of their health before’).

            And the majority of expensive catastrophic care is incurred for the over-65’s anyway – who pay near nothing for the costs of their care.

            1. Taxes will be far lower, so everyone will have more money in their pockets. There would be no Medicare, Medicaid, or Obamacare.

              If people cannot afford a few hundred dollars per person per year in annual checkups and a few hundred more for bone breaks, etc, then we are doomed as a Nation anyway.

              People used to pay cash for minor medical procedures, so they can do it again.

              Having elective surgery to have a knee replacement at 75 years old is not a catastrophic medical need. If that person cannot afford to replace their own knee, then R.I.P.

              1. Taxes don’t pay for our govt medical stuff. Cost-shifting does. And the cost-shifting is equal-dollar cost shifting (not some % based) so is extremely regressive. So no – taxes will NOT be lower.

                If people cannot afford a few hundred dollars per person per year in annual checkups and a few hundred more for bone breaks, etc,

                I’m not saying people pay zero out of pocket. I’m saying out-of-pocket amount is not directly tied to particular fee-for-service stuff. Every country (except UK-Beveridge model) out there requires up to roughly $1000 to be paid cash and out-of-pocket. Obviously less if you don’t use at all. That’s beyond the tax burden. But for most people, that’s a real expense they will self-ration.

                What they get for that is far different than here. They get all the routine care they need. But it means they ‘see the doctor’ (generalist) about 3x more often than here (10x more often in Japan which encourages hypochondriacs) and have about 4x more generalists to choose from so they can build trust. That doctor then becomes a gatekeeper they can trust to stay healthier and be the knowledgeable gatekeeper who understands them as a patient when they do need specialists. And that gatekeeper/concierge role of the GP is what saves LOTS of money on the specialist/insurance side.

                1. Bullocks.

                  Studies have been done on people who have HSAs, and there are ZERO differences in health outcomes. BUT costs are reduced by 1/3rd or so.

                  Because all the layers of billing bureaucracy go POOF and disappear.

                  You’re ALSO forgetting that if people are paying say $100 a month for catastrophic care, and NOT paying $500-1000 a month for full coverage, that they have MORE cash in their pockets THAT VERY INSTANT than they have now to cover those minor charges. This gives them the cash flow to sock away a few hundred a month to cover that couple thousand dollar deductible when it comes up.

                  My dad went to the doctor the other day, we haven’t had full coverage insurance since I was in HS. His bill: $100. Done. No BS. That was it.

                  An HSA or similar system is THE ONLY sane way forward. It will bring market mechanisms back into health care, and it will leave people with more cash than they have now to cover regular stuff. If we need to “help” the extremely poor, we can just make the guvmint put a deposit into their HSA account every month, which can only be used for healthcare expenses.

                  How about that?

                  1. You are deluded about what portion of medical spending is ‘routine’ v ‘catastrophic’. And what the actual distribution of spending is.

                    1% of peeps incur 20% of the total – avg $115,000/year with about $15,000 out-of-pocket
                    5% of peeps incur about 50% of the total – avg $51,000/year with about $12,000 out-of-pocket

                    Those two categories would be catastrophic for most people since they also tend to eliminate one’s ability to earn income and thus pay for insurance. Anyone who thinks this is going to be pre-saved via HSA or done via private insurance (which does NOT manage this but merely tries to cherry-pick the healthy and offload the sick to govt) is a moron. And THIS is where the spending is.

                    50% of peeps incur 3% of total – avg $250/year with $20 out-of-pocket
                    80% of peeps incur 17% of total – avg $1500/year with $400 out-of-pocket

                    This is the routine care.

                    You can argue about the midhigh 15% who incur 33% of the spending. Some are the one-time expense stuff – some are higher-income doing discretionary stuff (and yes they spend significantly more/year at same health level). But the real problem here is that ‘population-wide averages’ are completely meaningless. And yet those averages are what form the basis of ‘insurance’.

                    1. Derp.

                      Do you have any clue how insurance works?

                      The people paying for catastrophic for decades will get their $100K a year when they get old, or have a heart attack at 50 or whatever. All the little shit, and BIGGER deductibles will be paid out of pocket. The short version of the story is that people end up with hundreds of thousands of dollars in an HSA by the time they actually get sick, just like most middle class people do with their 401Ks.

                      This is EXACTLY how our system used to work. Studies show that HSA users spend 1/3 less, this INCLUDES older people who ARE having major expenses. IMO most of these savings come in the form of many people not pissing money away on all the small stuff, AND shopping around for intermediate stuff. If you’re paying YOUR money up to $10K or $15K, you might be willing to call a couple hospitals before having an $8-12K procedure done to find the one that changes 8 grand instead of 12.

                      Any which way, these savings are real and known. I think some studies have showed saving as low as 20-25%, but others were over 30%. This is probably just the mild introduction of market mechanisms into the process. Imagine if it were at a greater scale.

          2. If we ever have universal health care, catastrophic coverage with a hefty deductible seems to be the only reasonable way to go about it. Of course, it is not as politically useful as giving away “free” stuff.

        3. Yes but the insurance company will balk at paying for a new diagnostic procedure or treatment. Thus the provider takes the risk and often just does it. For something like this the pharm company may agree to provide the drug to establish a track record of success and cost to be determined later.

          Most of us do just pay for basics. When you get a “free” physical checkup the insurance company is betting it will save money in the long run.

          I have hypertension. Cheap to see doc couple times a year and the pill is an inexpensive common generic. Far less expensive than the stroke or heart attack.

          1. Competition will lead to some companies for certain catastrophic procedures and others not.

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  11. deRugy yaps about insurance creating distortions and problems (true) and then

    encourages us to instead think about how to produce better health (not health insurance?not even health care) for more people at a lower cost, year after year.

    Very true.

    But then presents some wild-eyed new tech that can ONLY apply to a near-negligible number of people and can only be paid for by a group pool or multimillionaire. Fucken yeesh.

    better health for more people at lower cost every year = GP’s backed up mostly by pediatricians, obgyn, internal, and geriatricians. In a GOOD healthcare system that delivers good outcomes for most people, those doctors would be prob 60+% of doctors so that the 90% of people who only need those docs for most years of their life can actually access healthcare, not be seen as hamsters on a wheel when they do see them, and BE healthier. At MUCH lower cost.

    Instead of 70%, our system has:
    GP’s – about 10%
    Internal – about 10%
    Pediatricians – about 3%
    ObGyn – about 3%
    Geriatricians – less than 1%

    We don’t have doctors who deliver healthcare to lots of people cheaply. We have specialists who deliver expensive heroic care to very very few people very very expensively. This isn’t rocket science.

    1. Basically we need to break our current medical training system – which was created in 1910 (Flexner Report) by two Gilded Age philanthropists (Rockefeller, Carnegie) asserting that our system needed to be a combo of a previous-eras philanthropist (Johns Hopkins) delivery and German science/technology. All of those folks simply took for granted all basic health care — because THEY WERE RICHER THAN ANY MERE DOCTOR.

      All our govt programs are simply boondoggles/subsidies built on that system – rather than an actual rethink of the medical care system that is required in any country where most people are not richer than doctors and where they will thus have to ration care somehow

      1. What you’re missing is that our own healthcare system WAS WORKING FINE… Until the government started “trying to make it better.”

        People used to have catastrophic insurance, and pay for normal shit out of pocket. Doctors tended to do a lot of volunteer/charity work back then, and charities would cover catastrophic care for those that didn’t have insurance and docs didn’t volunteer to do.

        It all worked just fine. Things have only gone to shit AFTER we did away with that system. Return to that system, and the market will adjust to fill whatever needs the customers have. Just like every other market when it isn’t distorted.

    2. “We don’t have doctors who deliver healthcare to lots of people cheaply.”

      We don’t have citizens free to deliver healthcare to themselves.

  12. Yeah, enough time wasting with argument about payers. Let’s get on to government MANDATED health care. And keep this absolutely equal.

    But how can we all have the 9am appointment every day?

  13. Screw all this crap.

    Let’s just do it like in Logans Run!

    I think it was everybody just got whacked at, what, 27 or something? It’d be pretty sweet. DEFINITELY save us a ton on our healthcare. And we wouldn’t have to look at fat, ugly, old people anymore.

    Either that, or we could just all get HSAs and immediately cut healthcare spending by 1/3 or so… And probably a LOT more than that after all the market mechanisms really kick in that would happen with an HSA based system.

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