Wednesday, February 25, 2009

Costs, Government reform - - Can Health Costs Be Controlled from the Top-Down?

None of this will come without cost, nor will it be easy. But this is America. We don't do what's easy. We do what is necessary to move this country forward.

For that same reason, we must also address the crushing cost of health care.
This is a cost that now causes a bankruptcy in America every thirty seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas.

And it's one of the largest and fastest-growing parts of our budget.

Given these facts, we can no longer afford to put health care reform on hold.
Already, we have done more to advance the cause of health care reform in the last thirty days than we have in the last decade. When it was days old, this Congress passed a law to provide and protect health insurance for eleven million American children whose parents work full-time. Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives. It will launch a new effort to conquer a disease that has touched the life of nearly every American by seeking a cure for cancer in our time. And it makes the largest investment ever in preventive care, because that is one of the best ways to keep our people healthy and our costs under control.”

President Barack Obama,
Address Before Congress, February 24, 2009

A central tenet of the Obama administration is that you can centrally control health costs from the top-down – by combining data collected by EMRs, using that data to force doctors to comply with “evidence-based medicine,” and creating a Federal Comparative Research Institute that uses data to decide what works and what to pay for.

Before Obama plunges too deeply into the abyss that says information technologies and comparative research are a cure-all for costs, I ask that he and advisors consider IT performance so far in this country and in Britain. That experience vividly illustrates the flaws of health IT and comparative outcomes as means of saving money.


The Obama approach runs against the philosophy of Friedrich Hayek (1889-1992), who noted that in a centrally planned economy, a small group decides how to distribute resources. But central planners never have enough information to allocate resources reliably. Efficient use of resources, and control of costs, Hayek argued, reside only in free exchanges of price information at the level of the marketplace , synchronized through spontaneous self-organization of buyers and sellers.

Yea for Government-Induced Comparative Effectiveness, Says Robert Wachter,M.D, Professor of Medicine

Government can control costs through evidence collected through information technologies used to compare effectiveness. In a February 24 piece in The Health Care Blog, “Are We Mature Enough to Make Use of Comparative Effectiveness Research, “ Dr. Robert Wachter, who coined the word “hospitalist” in 1996 in a New England Journal of Medicine article, and who serves as a professor of medicine in a West Coast Medical school, argues that Comparative Effectiveness Research and its applications mark a mature society.

“Thanks to White House budget director Peter Orszag, a Dartmouth Atlas aficionado, $1.1 billion found its way into the stimulus piñata for “comparative effectiveness” research. Terrific, but – to paraphrase Jack Nicholson – can we handle the truth?
In other words, are we mature enough to use comparative effectiveness data to make tough decisions about what we will and won’t pay for? I worry that we’re not.

Is it worth wasting our time and money on comparative effectiveness research? I’m hoping that this is a new day – the coming implosion of the health care system is now well recognized, as is the quality chasm. We simply must find ways to drive the system to produce the highest quality, safest care at the lowest cost, and we need to drag the self-interested laggards along, kicking and screaming if need be. Comparative effectiveness research is the scientific scaffolding for this revolution, so bring it on. “

Nay for Government-Controlled IT and Comparative Research, retorts Greg Scandlen

Greg Scandlen, Director for Health CARE Choices, in “Research & Commentary: Health Information Technology, argues the opposite, as follows,

“As part of the federal government's economic stimulus package, Congress has authorized spending about $20 billion on health information technology (health IT) and another $1 billion on comparative effectiveness research. These provisions achieved wide bipartisan support in Congress and in the health care industry, based on the hope that the investment will help improve efficiency, cut costs, and result in better care. The reality is likely to be far different.

Proponents of heavy government spending rely heavily on a short RAND Corporation analysis from 2005 that predicted $77 billion in annual savings and improved outcomes. RAND estimated "implementation would cost around $8 billion per year, assuming adoption by 90 percent of hospitals and doctors offices over 15 years." It said, "The benefits can include dramatic efficiency savings, greatly increased safety, and health benefits."

Unfortunately, RAND assumed an error-free system that is quickly and enthusiastically adopted by virtually the entire health care system. That might happen, but it is an absolute best-case scenario. Even then, instead of "dramatic savings," the $77 billion hoped-for savings amounted to a mere 4.5 percent of total costs, placed at $1.7 trillion by RAND.

Far more likely is that every penny of the $20 billion will be wasted on systems that don't work and can never be implemented. That was the outcome of federal attempts to upgrade technology at the IRS, the FBI, and the air traffic control system. And these are all relatively simple enterprises involving single federal agencies. Health IT is vastly more complex and must include hundreds of thousands of private organizations that have invested in legacy systems that work reasonably well and are as varied as there are providers.

This also has been the experience of the United Kingdom, which has been trying to adopt a similar information technology upgrade for its National Health Service (NHS) since 2002. This plan was far less ambitious than the U.S. version, involving merely 30,000 physicians and 300 hospitals, all of whom are already employed by the NHS. Originally estimated to cost 2.3 billion pounds, it is already at 12.7 billion pounds--$18.4 billion, or about as much as provided in the stimulus package for the entire United States. A recent report to Parliament admitted the program is four to five years late and may never be implemented as envisioned. The project has lost two of the four vendors who were working on it, and some of the elements that have been installed are not meeting expectations.

This is not to say health IT is a bad idea or that hopes for it are unwarranted. Quite the opposite. The health care system sorely needs better management tools and better application of technology. There is currently a vast amount of entrepreneurial energy, innovation, and money being invested in developing, refining, and marketing the tools the system needs to come into the twenty-first century.

The danger is that massive federal intrusion will bring all that innovation to a screeching halt. Systems work best when they are developed from the ground up, not imposed from on high. In ground-up development, flaws can be detected and eliminated without much systemwide damage. Poor vendors can be removed without disruption to the whole system.

We do not yet know what the optimal system will be. Imposing federal standards on health IT in 2009 means the entire system will be locked in to those standards for very long time to come and innovation will not be rewarded.

The RAND study said "market forces" are an obstacle to health IT. Just the opposite is true. The market is the best way to test and refine new ideas. The process of repeated testing and refinement may seem slow to people who want instant solutions and shortcuts, but the failure to engage in that process often results in massive mistakes and wasted billions.’

Centralized comparative research to decide where to spend government health money, or reliance free markets to set those prices? Take your pick. Obama has made his choice.

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