You Get What You Pay For

We have precisely the health sector in this country that we are paying for. As we are barraged from all sides with articles, books, and now movies about how absolutely awful our system is, it is important to realize that if we want change, we must start by improving the payment and incentive structures that direct how it functions.

  • A conference of senior and seasoned health policy analysts that I attended in Princeton this week focused on the shortages today — and the much greater shortages projected for the future — in the health care workforce, especially primary care doctors and nurses.

    But why is this surprising? Primary care doctors are paid an average of about $90 for half an hour of their time (which must cover their own salary as well as all of their office overhead) while radiologists, for example, are paid about $600 for the same amount of time. Medical school graduates are making very smart economic decisions in flocking to specialties because that is what we are paying them to do.

  • Florida is becoming renowned for having a huge concentration of specialists catering to wealthy seniors. Between Medicare and their supplementary Medigap or retiree coverage, seniors’ health care consumption is virtually free. (One Princeton speaker observed: If you think you are old and rich, go to West Palm Beach and you will find that you are neither?)

    Jack Wennberg of Dartmouth and others have shown that seniors in Miami consume more than twice as many Medicare dollars as seniors in Minneapolis, for example, but the Miami outcomes are no better and in some cases, they are worse. Seniors in Florida are consuming a great deal of health care because that’s what the system subsidizes them to do, and physicians respond by offering an abundance of services.

  • And speaking of outcomes, one participant at the Princeton conference said our current system could just as easily be called ?pay for mistakes.? Doctors and hospitals get paid even if they make errors. And you could argue that they get paid more if they make mistakes because they can be paid again to fix the problem.

    This week, we received refreshing news that the Geisinger Health System in Pennsylvania is offering surgery with a guarantee: The hospitals will charge a flat fee that includes a 90-day warranty. And the doctors themselves came up with a list of what they considered best practices to help avoid errors in the first place. We offer a short summary of an article about the initiative in the round-up below.

  • And the big news of the week was the saturation coverage of Michael Moore’s newest movie, ?Sicko,? due in a theater near you on June 29. That is, if the U.S. government doesn’t ban it because Moore may have gone to Cuba illegally in his search of the best-on-the-planet health care for a group of sick American patients.

    Give me a break! Cuban surgeons botched several surgeries on Fidel Castro, for heaven’s sake, and a surgeon from Spain had to try to repair the damage. One has to wonder, if Moore were to need medical care for heart trouble, for example, do we really think he would go to Cuba for his care?

  • Already a rebuttal to Sicko is circulating. It’s worth a few minutes of your time to watch this short clip about the difficulty of obtaining surgery in Canada and the consequences of the long waiting lines for one woman who needed surgery for a bladder malfunction.

    The only surgeon who could do the procedure in her region was limited to 12 a year, and he already had more than 30 people on his waiting list. The outcome for this Canadian woman was not good. And the film also depicts the distortions of decisions about who gets surgery in a health care system where payment decisions are made by politicians.

    Canada spends a lot less on medical care than we do in the United States, and they, too, get what they pay for.

  • And in the United Kingdom, Prime Minister Tony Blair had made improving the health care system one of his top priorities. The parliament boosted spending on the National Health Service from 6.5% to 9.4% of GDP, primarily focused on increasing access to care by hiring more health care workers and giving new incentives to general practitioners to produce better results.

    They did boost the pay of GPs, but are questioning whether they got anything for the added spending. A report from the House of Commons shows that one group did particularly well — the number of senior managers went up by more than 62% compared to an overall increase in the health care workforce of 24%.

But while Americans are being brainwashed into believing that our health care system is the worst in the developed world, opinion polls consistently show that the great majority of Americans are satisfied with their health care system.

We have an obligation to embrace what is good and to do a much better job than we have of fixing what is wrong, particularly by adjusting the incentives to get better care and lower costs and to cover more of the uninsured. We can show the world what a functional, responsive, innovative, and affordable 21st century health care system should look like. We just have to shift the incentives so that is what we are paying for.


But the threats to innovation continue, nonetheless: The physician who brought attention to the problems with the Merck painkiller Vioxx, cardiologist Steven Nissen of the Cleveland Clinic, has mined the GlaxoSmithKline research database, which was posted on GSK’s website, for information about its diabetes drug, Avandia. Nissen concluded that the data showed a higher risk of heart attacks associated with the drug.

GSK says that the meta-analysis that Nissen conducted of 42 studies misses important differences in the design of the studies. The FDA, in a news release, says the evidence is ?contradictory? and that it ?has not confirmed the clinical significance of the reported increased risk.? It will perform its own analysis of the data, including whether other drugs in the same class could have similar risks.

No drug is without risk. The most important thing is for doctors and patients to have the best and most timely information available. And those risks should be weighed against what the drug is designed to treat, such as the much greater risks of blindness, kidney failure, and limb amputation associated with diabetes.

As part of our 21st century health care system, we need a much better way of getting accurate information to patients. Headline-grabbing articles about medicines for pain, menopause, heart conditions, depression, and now diabetes are scaring too many people away from medicines they may need even as later studies show the findings to be much more nuanced and perhaps even wrong.


Health Policy Matters will return after the congressional recess. Have a peaceful Memorial Day.

Grace-Marie Turner


  • The health care system: Towards significant changes
  • Alzheimer’s disease and cost-effectiveness analyses: Ensuring good value for money?
  • 2007 Towers Perrin study on account-based health plans
  • Wal-Mart health clinics divide US medics
  • In bid for better care, surgery with a warranty
  • Innovation-driven health care: 34 key concepts for transformation

Author: Claude Castonguay
Source: Canadian Health Care Consensus Group, 05/07

The Canadian health care system is a monopoly that is ?closed to external pressures, impervious to real change, adaptation and innovation, and which favours inefficiency,? writes Claude Castonguay, one of the father’s of Quebec’s health care system. ?We have to move beyond ‘the patchwork solutions’ and ‘filling the gaps’ methods used to respond to problems that continue to arise,? writes Castonguay. He lays out a step-by-step process for health care reform in Quebec and writes that ?the most significant change that should be introduced to our system is the separation of the roles of purchasers and providers of health care services.? Castonguay also includes several health care reform proposals, including the increased development of medical clinics and the abolition of prohibition against private health insurance. Dr. Jacques Chaoulli successfully challenged that ban in 2005, yet Quebec is ?one of the only jurisdictions where the role of private health insurance is limited to providing coverage for services not covered by the public sector.?
Full text (pdf):

Authors: John Vernon, Ph.D., Robert Goldberg, Ph.D., Yashodhara Dash, M.B.B.S., Guruprasaadh Muralimohan, M.S.
Source: Center for Medicine in the Public Interest and ACT-AD, 05/14/07

John Vernon of the National Bureau of Economic Research, Bob Goldberg of the Center for Medicine in the Public Interest, and others examine the impact of cost-effectiveness analyses on treatments for Alzheimer’s disease, including the quality-adjusted life year (QALY) that is commonly used to measure the costs and benefits of medical technologies. These analyses are increasingly being used to justify reimbursement, coverage, and clinical guidelines decisions. Vernon and Goldberg argue that ?using comparative effectiveness of treatments and technologies in order to make coverage and reimbursement decisions based on additional or incremental value?would deny Americans significant social and economic gains from medical innovations.? The current estimation of $50,000 per QALY has not changed in more than twenty years and “is substantially lower than recent estimates?which are close to $175,000,” write the authors. Using this new figure, Vernon and Goldberg find that new drugs that would produce a 5-year delay in Alzheimer’s disease onset for all new cases between 2010 and 2050 would yield a benefit of almost $4 trillion.
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Source: Towers Perrin, 05/22/07

Employees are not taking full advantage of their account-based health plans (ABHPs) “because employers have not explained the benefits in ways that resonate with employees or make them comfortable” with this new way of managing health spending, according to a survey from the consulting firm Towers Perrin. Communication between employers and employees about these new health accounts and plans, such as HSAs and HRAs, is the most significant issue impacting their success. The survey also ?shows that when employees have an understanding [of] how their ABHP works and feel comfortable with the level of financial risk associated with it, they more actively utilize the plan and its resources, and become smarter health care consumers.”
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The IRS recently announced the 2008 annual contribution limits for health savings accounts. For 2008, the maximum HSA contribution will be $2,900 for an individual and $5,800 for families.
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Author: Christopher Bowe
Source: Financial Times, 05/23/07

Illinois and Massachusetts are among states that are considering stricter regulations on the new generation of retail health clinics that are expanding in Wal-Mart, CVS, Target, and other stores nationwide, the Financial Times reports. Advocates of the clinics point to improved access to care and lower costs, but physician groups like the Illinois State Medical Society and the American Medical Association have voiced concerns about quality and whether the clinics can deliver what they promise. Despite these concerns, ?the retail clinics show that business is pushing for change on its own without waiting for government,? concludes the Times. ?And walk-in clinics could do for US healthcare what low-cost Southwest Airlines did for the airline industry, by making healthcare better, faster, and cheaper.?
Full text:

Author: Reed Abelson
Source: The New York Times, 05/17/07

A hospital group in central Pennsylvania is taking a radical approach to surgery, reports The New York Times. Geisinger Health System ?essentially guarantees its workmanship, charging a flat fee that includes 90 days of follow-up treatment,? writes the Times. Under Geisinger’s program, which focuses on elective heart bypass surgery, ?the hospital charges a flat fee for the surgery, plus half the amount it has calculated as the historical cost of related care for the next 90 days,? reports the Times. Rather than billing for any additional hospital stays, Geisinger absorbs the extra cost — which typically runs from $12,000 to $15,000. Since the program began in February of last year, ?patients have been less likely to return to intensive care, have spent fewer days in the hospital and are more likely to return directly to their own homes instead of a nursing home,? the Times reports.
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Author: Richard L. Reece, MD
Source: Jones and Bartlett Publishers, 04/07

In his new book, Dr. Richard L. Reece, a pathologist, writer, editor, consultant, and speaker, provides an in-depth look at innovative trends in health care from both the physician’s and consumer’s perspective. Reece breaks down health care innovations within six key areas, including hospital-physician joint venture innovations, employer and health plan innovations, constraining costs and expanding markets, and consumer innovations. Dr. Reece’s book ?is an intelligent, knowledgeable analysis of the impact of innovations on the future of U.S. health care,? writes Harvard Professor and Manhattan Institute senior fellow Regina Herzlinger. ?If you want to continue doing what you are doing, this book will enable you to assess how you fit into this new world and to adapt yourself if needed.?
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Value-Driven Health Care through Quality Improvement and Measurement
Kaiser Family Foundation Webcast
Friday, May 25, 2007, 2:00 p.m. ET
For additional details and registration information, go to:

Robin Hood, Robber Baron, or Rubik’s Cube? How Fair Is the Distribution of Benefits in the U.S. Health-Care System?
American Enterprise Institute Event
Thursday, May 31, 2007, 9:15 a.m. – 11:15 a.m.
Washington, DC

For additional details and registration information, go to:

Vital Signs & Side Effects: The Consequences of Likely California Health Reform
Pacific Research Institute Luncheon
Thursday, May 31, 2007, Noon – 1:30 p.m.
Sacramento, CA

For additional details and registration information, go to:

Is there a role for markets in health care?
Galen Institute and International Policy Network Luncheon
Thursday, June 14, 2007, 12:00 p.m. – 3:00 p.m.
Washington, DC

For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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