Tuesday, February 28, 2017

Market Solutions to Health Care Costs

Some of us have been hopeful for a long time (since March 2010 when it was enacted) for the repeal of Obamacare. We don’t even like the idea of “repeal and replace,” because any replacement should not be a different government program; it should be free market solutions. All government needs to do is get the heck out of the way.

But, for those who fall into the pit built by the big government control types, and fear what would happen if you take away the boondoggle that has been foisted upon you, please remember: people had health care before the inaccurately named Affordable Care Act.

Imagine three years ago, when this was being debated, if President Obama said, “I’ve got a great plan. I’m going to take away the healthcare of 5 million Americans in order to cover 100,000. And while I’m at it, I’m going to jeopardize the healthcare of 100 million Americans who have employer-provided plans…. And while I’m at it, I’m going to cost millions of jobs and force millions of people into part-time work, working 29 hours a week.” Is that a good deal for America? People would have laughed at it. If he’d simply been honest, he would have been laughed out of the room…. Because the only way to sell this law was to mislead the American people.
At this point, we also ought to be honest about what the ACA has really cost us. I’ll leave the data to others for now. But here’s a summary from Casey Mulligan, a University of Chicago economics professor, from a couple of years ago:

In summary, the ACA has three major taxes in it. Two are taxes on full-time employment and the other is a tax on income. They may be implicit, they may be hidden, politicians may not call them taxes, but that’s what they are. Their economic impact on workers varies widely, affecting low-skill workers the most. They create all kinds of productivity problems and will have visible and permanent effects on the economy. I have estimated that employment will be three percent less over the long term because of the ACA, and that national income—or GDP, if you like to think of it that way—will be two percent less. If you look at the productivity costs alone—forgetting the fact that there will be a number of people not working anymore—they come to $6,000 per person who gets health insurance because of the law. And I’m not beginning to count the payments needed for health care providers.
In conclusion, I can make you this promise: If you like your weak economy, you can keep your weak economy.
Doing anything but completely repealing Obamacare is to burden people who ought to have the burden relieved.

There are free market options—options people would be more likely to turn to as government stops forcing a bloated, ugly, expensive, coercive plan on them.

To remind us of one of the free market alternatives, libertarian Tom Woods linked to a previous podcast discussing concierge care, or direct primary care. The guest was Dr. Josh Umbehr. I wrote about his practice in 2013, after an interview he did with Mark Levin.
image from Atlas MD blog

Just to remind us that free market options work, and are already possible, I’d like to share some of the interview with Tom Woods. 

Dr. Umbehr is a primary care physician in Kansas. At the time of the interview, his direct primary care practice was five years old. As he described it, the bulk of what most people need is family medicine. At his practice they pay a flat rate per month based on age, like a gym membership.
I looked up his practice, and it’s $10 per child, $50 per adult age 20-44, $75 a month for age 45-64, and $100 for age 65+. He says,

For that membership you get unlimited home visits, work visits, office visits, technology visits. Not limited by what insurance will pay for. No copay at our office visits. Any procedure we can do in the office is included free of charge, because that is what the membership is covering—just like any equipment at the gym is included in the base membership price. So, stitches, biopsies, joint injections, ultrasounds, bone scans, lung scans, urine testing, strep throat testing, minor surgical procedures—all included for free.
He's talking about a lot of savings, because of wholesale medications, labs, imaging, and pathology, that physicians have access to. Here’s an example:

We ordered some blood work. We have our negotiated cash discounts of usually 95%. And a patient’s blood work was accidentally billed through the insurance rate, because of a computer mistake at the lab, and the price that they were quoted was $1028. We ran that back through our system; it cost $39—a 97% savings by just cutting out the middleman.
He describes how they save enough money just on medications to cover the cost of the membership:

We can dispense medications in Kansas, just like a pharmacist. Forty-four states allow physicians to function like this. And so, I can order the medications wholesale from the same places the pharmacies do. But I can get 1000 blood pressure pills for $8.34. Even after my 10% markup, they’re under a penny a pill. Walmart would literally have to give them away to out-compete us. And if they did, great, we still win. It’s not a value that is a revenue generator for us; we’re adding to the value of the membership.
He makes the comparison to Costco membership, or to Walmart or Amazon, who focus on value for the customer.

These savings have been available for at least a couple of decades. It just takes a doctor to look at a new business model and be willing to try it. He said that in medical school they actually taught that dealing with business was beneath them, something they shouldn’t dirty themselves with. But, if they take an oath to “do no harm,” that ought to include no financial harm. If he can save a patient money while providing better health care, that’s giving more and better life. That’s what doctors should be doing.

Some doctors say it’s hard to get patients just to pay a $20 copay; how would they get their patients to pay $50? Dr. Umbehr lays it out like this:

Netflix to Blockbuster. Netflix figured out how to give me 10,000 videos for $7,  when Blockbuster could only give me 1 for $7. So, if we apply that same innovation to health care, it only stands to reason that we can drastically reduce the cost curve.
The Silicon Valley formula is, you have to be 10x better before the barrier to change is overcome. We’re 20x better.
What about the system as a whole? Is this just helping the few individuals who use it but don’t need much beyond basics? He says no, it helps everyone. For example,

The total cost, if you go back to the last year I have data for—I think it was 2011—the cost for all prescription medications in the US was $263 billion. The cost for all cancer care [prescriptions] was $157 billion. So, if we could, with our wholesale changes, and we can get cancer medicines cheaper. Not all of it. Not everything’s cheap. Some of it is just expensive. But if you get that lower…
We had an example where we had a breast cancer chemotherapy pill that was $600 for every two weeks at the pharmacy and $6 or $7 with us—a literal 99% savings. We gave it to her for free just so that we could say now we provided chemotherapy.
So, if we took, let’s just be minimal and say we only save $157 billion out of that $263 billion of prescription for all the things that are expensive—then we pay for all cancer care.
Besides savings through insurance, administrative costs are also much lower:

The average physician would have 7 employees per doctor to run a practice. We have half of a full-time equivalent per physician—because of less regulation, less red tape, less bureaucracy. That would drive down the cost of care.
More savings examples, for the health care system overall:

One of my favorite examples is Imitrex, a migraine medicine, that at the pharmacy, for the name brand, as I pull it up now $565 cash price, anywhere from $447 to $486 with a coupon; the generic is $260 cash price, as well as $101 that I get for $5—my patient gets for $5, because I don’t need to make revenue off the medication.
I’m trying to make them healthier; I’m trying to save them money; I’m trying to show the value of my membership. So, every month they refill that medicine I’m saving them at least $100. Their membership’s $50; their medicine’s $5. I’m giving them $45 of their life back. That’s life—that’s time, that’s energy.
So, when someone says, well this only works well for the rich or the healthy, that’s ridiculous. This works out best for the sick and the poor. Just like any market, I’m reaching the people most likely to benefit from a food service, or a phone service, or a car service. So, people who want to save money on their medicines and are sick enough to need medicines benefit the most from this system.
So, the government is paying $101 for that medicine, instead of the $5 that it should be.
Dr. Umbehr’s practice, in Kansas, is Atlas MD. They also have a blog, and offer free help to other physicians wanting to try this business model.

I looked online for something nearby. Searching “direct primary care” I didn’t get anything closer than Austin. But “concierge care Houston” came up with at least one possibility not too far away with four physicians.

I’m also interested in health savings accounts. In fact, Dr. Umbehr recommends using health savings accounts and a catastrophic high deductible insurance policy in addition to his practice for full coverage at the lowest cost.

If we want everyone to be provided good quality health care at affordable costs, we need to do exactly opposite of the Affordable Care Act: repeal government interference, and replace it with the free market.

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