Lessons from “How Doctors Think” for Hospital Operations

Dr. Jerome Groopman is the Chair of Medicine at the Harvard Medical School and staff writer for the New Yorker. His 2007 book How Doctors Think seeks to inform lay readers through a collection of medical case studies about the training that physician receive and the thought process through which they gather information and formulate the diagnosis. Most importantly, however, the book emphasizes the cases in which the logical process through which the diagnosis is developed fails and the physician misdiagnoses the patient and puts their life in danger. Sometimes the diagnostic process repeatedly fails to correctly identify a condition across multiple physicians. How Doctors Think begins by presenting the case of Anne Dodge who had been misdiagnosed for fifteen years by psychiatrists, internists and dietitians as suffering from bulimia and irritable bowel syndrome until a gastroenterologist finally identified celiac disease as the cause of her weight loss. Dr. Groopman also recounts how three renowned Boston-area surgeons had misdiagnosed the hand pain he was experiencing, including one diagnosis that was not a real medical condition (pg. 170). Diagnostic errors like these provide a stark contrast to the idealistic public image of physicians as precise and evidence based practitioners.

The book argues that most of these errors are not due to malice or incompetence, but are a natural byproduct of the mental heuristics that physicians must use to treat patients in a timely and efficient manner. Although physicians are trained in medical schools to carefully record the patient’s narrative and consider all possible options, the operational realities of the healthcare environment such as time-consuming electronic medical records and decreasing appointment durations force physicians to increasingly rely on shortcuts that are vulnerable to cognitive errors.

Dr. Groopman concludes by urging patients to participate more in the diagnostic process by asking physicians key questions such as “Are there any other possible causes?” and “Does any of the evidence not match the diagnosis?” The purpose of these questions is to force the physician out of their diagnostic autopilot mode and give them a chance to recognize any logical fallacies they may have committed. This collaboration would ideally improve physician decision making, decrease the frequency of medical errors, and improve patient outcomes.

Implications

The transition of payment systems from fee-for-service to pay-for-performance through programs like DSRIP and MACRA will inevitably put pressure on providers to standardize processes in order to reduce variability and improve population health outcomes. How Doctors Think reveals the significant variability that exists in physician decision making caused by individual practice preferences and errors during diagnosis, which is a major challenge for large healthcare organizations trying to meet their performance targets. Because “as many as 15 percent of all diagnoses are inaccurate” (p.24), organizations that can control and reduce this variability will be increasingly rewarded by programs such as DSRIP for standardizing their care. Safety net hospital are more vulnerable to such variation because they are more likely to face the resource constraints that force physicians to reduce their time with patients, which Dr. Groopman identifies as a major cause of diagnostic error. Fortunately analyzing the types of errors that physicians make provides a framework to understand how physician processes need to be adjusted and what changes can be made in the organization to reduce the occurrence of these errors. It is therefore recommended that all providers, but especially safety net hospitals, address the problems presented in How Doctors Think by implementing three operational reforms: communication standardization, diagnosis standardization, and treatment standardization.

 Communication Standardization

Dr. Groopman emphasizes that good medicine relies on effective communication between the patient and physician. This requires the standardization of physician’s communication practices to ensure that they are obtaining as much information as possible from the patient.

Physicians should be trained to ask open-ended questions when interviewing patients, which avoids leading the patient towards a diagnosis that the physician is already thinking of, and “maximizes the opportunity for a doctor to hear new information” (p.18). The physicians should also be able to interview the patients quietly and uninterrupted, as distractions can cause the physician to miss important information (pg. 75). When the patient makes a statement that conflicts with the physician’s clinical judgement, the physician should make an effort to not dismiss the patient (pg.264). To maximize trust, the physicians must explain the condition and its risks in a clear manner, but also be prepared to spend more time with the patient when it is clear to the physician that the patient is still nervous or uncertain (pg. 88). Accordingly, the hospital should make it easy for physicians to extend their time with the patient or to schedule a follow-up appointment. Physicians should also explain why they are performing any tests and specifically what they are looking for (pg. 172) to engage the patient and give them a chance to express their own opinions and concerns. Finally, the physician needs to clearly explain all possible outcomes, the positive and negative features associated with those outcomes, and the likelihood of those outcomes (pg. 173) to enable patients to make the choices most consistent with their preferences. This discussion should always be framed within the context of the condition to minimize the risk of patients fearing the treatment’s side-effects more than the disease itself (pg. 246).

Diagnosis Standardization

Safety net hospitals should implement a diagnostic checklist that physicians must review at the end of each case to ensure that they are not committing a logical fallacy in their diagnosis. Common errors that physicians make include:

  1. Representativeness – assume the symptoms correspond to a standard case (pg. 44)
  2. Availability – diagnosis affected by ease with which options come to mind (pg. 64)
  3. Search satisficing – stop searching for problems once you find one diagnosis (pg. 169)
  4. Vertical line failure – thinking inside the box when data and symptoms disagree (pg.171)

To avoid these logical failures, after the physician decides on a diagnosis they should be required to go through the following questions that Dr. Groopman recommends in the epilogue of How Doctors Think:

  1. What else could it be?
  2. Is there anything that doesn’t fit?
  3. Is it possible there’s more than one problem?
  4. What is the patient worried about?
  5. Review the patient’s story from the beginning.

In addition, patients should be encouraged to ask these questions and should be trained to do so through informational materials available to them in waiting areas and posters around the hospital. The benefit of this strategy is that it engages the patient in their health and prevents the physician from ignoring the checklist by going through it carelessly to save time.

Finally, this diagnosis verification process can be further enhanced by implementing systems of physician peer monitoring, such as radiologists reviewing a sample of each other’s slides and discussing the diagnoses that are found to be incorrect (pg. 188). This allows physicians to identify mistakes in a safe environment and collectively improve their skills. The knowledge that they are being peer reviewed also encourages physicians to more careful in their decision making.

Treatment Standardization

Treatment protocols should be standardized across physicians practicing in safety net hospitals to reduce variation and ensure equity in the treatment that patients receive. Dr. Groopman highlights how two very different procedures can be believed to be the optimal treatment protocol at the same time simply because they are both championed by a prominent physician who “did it that way” (pg. 163). Physicians are also susceptible to influence from the industry to prefer treatment plans based on non-clinical incentives that may not put the patient’s interests at the forefront, which may be the case with spinal fusion surgeries (pg. 228). As much as possible, treatment protocols should be directly based on the available clinical evidence and physicians practicing at the safety net hospital should be expected to conform to them. This has the benefits of reducing variability, increasing the rate of physicians’ expertise gain, increasing NYC Health + Hospital’s ability to negotiate with insurers, and makes it easier to explain and justify treatment plans to patients.

Conclusion

Although How Doctors Think was published in 2007, experience with the healthcare system today quickly reveals that few of the lessons this book contains have been addressed. In fact, many providers have made the situation worse by continuing to put physicians under time-pressure without developing the physician workflows necessary to maximize patient-physician interactions or redesigning organizational processes to improve diagnostic quality. This fundamental gap in understanding between management and physicians demonstrates why How Doctors Think should be required reading for healthcare administrators.

Primary Care: Collapsing the Pipeline

With a 35,000 primary care physician shortage coming up in 2025, eventually the healthcare policy agenda is going to shift back to the medical education pipeline. In my previous piece on the Iranian healthcare system, I predicted that community health workers were a political dead-end because of the labor market lockout that the AMA has on the healthcare industry. I still predict that’s going to be true, which means that the conversation is instead going to focus on training physicians more efficiently. Fortunately, there’s already work being done on this front.

NYU SoM’s annual report highlights (NYU Three Year Pathway) the three-year medical program that the school launched in 2013. Back then the primary goal of the compressed schedule was to lower the overall cost of medical education and differentiate NYU SoM from the rest of the competition in the medical school marketplace, but the efficiency gains due to reduction in training must not be ignored.

The first batch of students in the compressed program are now graduating, with 15 out of 16 in the inaugural class successfully completing the degree. In addition, testing of the students shows the three year students demonstrating better knowledge and clinical skills than four year students at the end of their respective programs. This finding has enormous potential ramifications and requires additional research. Was the first three year class special, with top performing students self-selecting into the more ambitious program? I’d like to see a comparison of the three year program graduates against other program applicants who were rejected from the three year program due to space limitations and enrolled into the four year program instead. In addition, the three year students may be performing better because they’ve simply had one year less to forget everything that they crammed in MS1; it would be interesting to compare the clinical skills and knowledge of the three year graduates against their four year conterfactuals after they’ve been practicing medicine for a decade to determine which method is really better at integrating the knowledge for long term use. In the meantime, however, the three year program appears to be winning.

accelerated-three-year-md-pathway

What’s important about the accelerated program is that it’s still not fully optimized. The majority of the program time savings is done through cutting down on the time dedicated to electives and residency interview. This is possible because the three year applicants are admitted with a guaranteed residency slot. However, the  students in the three year program retain the option of switching back into the four year program,m which means that the core curriculum is still over-training physician to be able to go to any residency. The core curriculum can therefore be collapsed even further to focus only topics and rotations relevant to primary care. I would be shocked if such a degree can’t be reduced to a two year program. Could we produce a family physician in one year? Probably not. But a two year program would be a 100% efficiency gain.

Not to mention that being able to filter out primary care physicians out of the same pipeline that needs to train academic researchers and neurosurgeons would allow institutions to price the degree more appropriately, therefore further reducing the cost barrier of entry. The specialization could also allow institutions to relax their requirements for acceptance. Could we then get away with accepting people with high school degrees into this specialized primary care program, therefore collapsing the current 8 year primary care physician pipeline into a 2 year one? I don’t see why not. There’s no reason to require a Bachelor’s degree; practicing clinicians don’t use what they learn for their premed coursework and MCAT. Students in Europe start medical school straight out of high school and our kids aren’t any dumber.

The efficiency gains are enormous, but we’ll need to do the work to achieve them.

AHCA Post-Mortem: We’re in trouble

I’ve been holding back from writing about the AHCA, because I wanted to let the dust settle from the fallout of this bill. I say fallout because right from the start it was obvious that the bill was dead on arrival. It just didn’t do anything. It ended the individual mandate, and replaced it with a slightly worse mandate. It ended tax credits, and replaced them with slightly different tax credits. It ended risk adjustment transfers, and implemented a risk adjustment fund. It ended the poor Medicaid funding structure, and replaced it with a slightly better structure that made everybody anxious. If it wasn’t for the estimated $337 billion in savings over ten years, which made everybody really anxious, the only way to make sense of the bill was that it was intelligently designed to be just innocuous enough to pass popular muster, but just incompetent enough to make the core components of the Affordable Care Act to slowly death spiral out of existence.

Back in November, immediately after the election, a mild hysteria spread throughout the health policy and administration community. President Trump ran and won on a platform that emphasized the repeal and replacement of the Affordable Care Act, and many vulnerable populations that non-profits work with would have been adversely affected by such a bill. I calmly told my fellow students that there’s nothing to worry about, because safety net benefits are virtually impossible to repeal once they have been implemented.  How come? Because it is much easier to demonstrate the specific individual cases that would be adversely affected by the repeal of such programs than to show the widespread, but individually marginal, improvements that a large amount of people would benefit from. And this is exactly what happened to the AHCA.

First the Republicans were pilloried in the town halls, which made them hesitate.

And then the CBO report came out, the conclusions of which made moderate Republicans completely drop support for the bill.

CBO and JCT estimate that, in 2018, 14 million more people would be uninsured under the legislation than under current law… In 2026, an estimated 52 million people would be uninsured, compared with 28 million who would lack insurance that year under current law.

So the AHCA died. Which means that we’re in a lot of trouble.

How come?

A few week after the AHCA report, the CBO issued another report that didn’t get nearly as much coverage despite being arguable the more important one, the 2017 Long Term Budget Outlook. The media didn’t report on it, because the outlook is terrible.

Forecast

In fact, it’s so bad, that by 2038 virtually all of our tax revenue is going to be consumed by social security and healthcare expenditures (85%), which means that everything else will have to be funded by debt. We’ll have to bring back the “Army of One” recruitment slogan because the DoD will literally only be able to afford one guy on payroll whose responsibility will be to sweep the Pentagon and keep it clean for tourists.

Forecast2

Healthcare and social security, by the way, are driving this persistent deficit, which is why they keep increasing as a percentage of the budget. So how much course correction do we need to make to get ourselves out of this hole?

CBO estimated the magnitude of changes that would be needed to achieve a chosen goal for federal debt. For example, if lawmakers wanted to reduce the amount of debt in 2047 to 40 percent of GDP, its average over the past 50 years, they might cut noninterest spending, increase revenues, or take a combination of both approaches to make changes that equal 3.1 percent of GDP each year starting in 2018. That amount would total about $620 billion in 2018. If, instead, policymakers wanted debt in 2047 to equal its current share of GDP (77 percent), the necessary measures would be smaller, totaling 1.9 percent of GDP per year (about $380 billion in 2018)

We’re expected to cut spending by $380 billion per year just to stop the debt load from growing?? Not only the Republicans were incapable of agreeing on the $337 billion over 10 years draft of the AHCA, they couldn’t even vote on the watered down manager’s amendment version that only saved $150 billion over ten years. If the Republicans can’t even pass this legislation, where in the budget are we supposed to find $380 billion per year? It’s certainly not going to be in the military, which at 16% of the federal budget is dwarfed by the 64% dedicated to benefits. The political reality is that we’re simply not going to find these spending cuts. The US is going to keep using debt to fund benefits, which will need to be paid for by future generations of Americans. The political establishment in Washington is now committed to walking millennials off a fiscal cliff.

And so, we’re in trouble.

So what happens next? Is there any hope? Entitlements clearly need to be cut and reformed, so how do we get there? In public policy there is a concept that draws heavily on biological sciences called punctuated equilibrium. The theory is that policy, which is a fixed legal construct, generally remains stable and unchanged for long periods of time. However, the world continues to change, which creates misalignment between the policy and reality. This misalignment creates errors, which don’t immediately cause a change in policy because of friction, but continuously accumulate. Eventually the accumulation of errors becomes unbearable and it overcomes the friction therefore punctuating the equilibrium and forcing a period of rapid policy reform that corrects the errors and settles into a new equilibrium. One example is how the decades of inactivity in federal healthcare reform were punctuated by the stars aligning in 2010 and Democrats being able to pass the Affordable Care Act without concern of a Republican filibuster. Unfortunately, the next punctuation is unlikely to happen until 2028, when the Medicare trust fund is scheduled to run out of money. At that point Medicare will need to rely entirely on current payroll tax revenue to make payments, which would require at least 13% in spending cuts increasing to 21% cuts in the subsequent decades. This is painful reality that should create sufficient public uproar to force serious reform from Washington. Maybe. Until then, however, healthcare reform just might be dead on arrival.

NY’s Alternative Price Transparency

I recently attended a panel discussion about the future of healthcare reform and specifically the American Health Care Act that the Republicans unveiled (review coming up soon). When I asked the panelists about the importance of price transparency for the effective functioning of a free market, I was told that New York State passed a law requiring the top providers in the state to post prices for their procedures. This surprised me because I had never heard of this law, what great news!

A quick search of “New York price transparency law” reveals several unrelated articles about price transparency in general, a few links about a new pharmaceutical price transparency effort being pushed and then finally a link to New York Senate Bill S77 which seeks to “enact the transparency in health care fees act”. That sounds great so far, what does this thing do?

  S 2999-L. HEALTH CARE BILLS.  1. FOR PURPOSES OF  THIS  TITL  "HEALTH
CARE  PROVIDER"  SHALL  MEAN  A  PRACTITIONER IN AN INDIVIDUAL PRACTICE,
GROUP PRACTICE, PARTNERSHIP, PROFESSIONAL CORPORATION OR  OTHER  AUTHOR-
IZED  FORM  OF  ASSOCIATION, A HOSPITAL OR OTHER HEALTH CARE INSTITUTION
ISSUED AN OPERATING CERTIFICATE PURSUANT TO THIS CHAPTER OR  THE  MENTAL
HYGIENE  LAW,  A  CERTIFIED  HOME  HEALTH AGENCY OR A LICENSED HOME CARE
SERVICES AGENCY, AND ANY OTHER PURVEYOR  OF  HEALTH  OR  HEALTH  RELATED
ITEMS  OR SERVICES INCLUDING BUT NOT LIMITED TO A CLINICAL LABORATORY, A
PHYSIOLOGICAL LABORATORY, A PHARMACY, A PURVEYOR  OF  X-RAY  OR  IMAGING
SERVICES,  A PURVEYOR OF PHYSICAL THERAPY SERVICES, A PURVEYOR OF HEALTH
OR HEALTH RELATED SUPPLIES, APPLIANCES OR  EQUIPMENT,  OR  AN  AMBULANCE
SERVICE.
  2.  PRIOR  TO  PERFORMING  ANY  HEALTH  CARE SERVICES, ALL HEALTH CARE
PROVIDERS SHALL ADVISE PATIENTS IN WRITING OF THE FEE TO BE  CHARGED  TO
THE PATIENT FOR THE SERVICES TO BE RENDERED IN THE EVENT SUCH FEE IS NOT
PAID FOR BY INSURANCE.
  S 3. This act shall take effect immediately.

Beautiful! This is exactly the bill that our healthcare system needs. When does this go live?

Capture

Oh…it hasn’t passed into law yet, it’s still a proposal. That must be why I never heard of this bill. But it’s in the health committee, so that’s good news, right? It’s a good cost control mechanism that also has the benefit of protecting consumers from surprise billing, surely it will pass, right?

 LEGISLATIVE HISTORY :

S.344 of 2015-2016 (Hoylman): Died in Health
A.250 of 2015-2016 (Rozic): Died in Health
S.7124 of 2014 (Hoylman): Died in Health
A.3518 of 2013-2014 (Rozic): Died in Health

Of course it won’t pass. This is yet another incarnation of a bill that gets brought up every year (thank you state senators Hoylman and Rozic), gets sent to the health committee, and dies there. Well, I wonder why it keeps dying there? It’s most likely not so different from what happened to the price transparency law that was passed in Ohio:

The hubris of the healthcare lobby, as displayed by its actions after the law passed unanimously in June, 2015, is unfortunately telling.  The lobbyists who are ostensibly representing Ohio providers failed to even inform their members that this legislation passed, leaving the vast majority in the dark and unprepared to comply with the law.  This failure to inform provider members of legislation that would affect their practices is not surprising given the confidence of the lobby in its ability to reverse the will of the people.  According to the healthcare lobby, it “had the votes” (meaning had enough “friends” in the legislature) to repeal the law.

So if we don’t get to have true price transparency, as I was misinformed by the panelist, what do we have instead? In 2015 New York State passed a bill establishing FAIR Health as a benchmark pricing tool to protect consumers. FAIR Health claims that law offered “comprehensive healthcare cost transparency”, which is a very loose definition of comprehensive, since it does no such thing. What FAIR Health does do is provide an award winning consumer website that tells me that in my area my estimated out of pocket cost for a hemodialysis procedure with one physician evaluation is $85.50…

Capture

… which means absolutely nothing! What theoretical provider matches this estimate? What theoretical plan matches this coverage setup? What if the provider is out of my network? Of course they don’t even provide a recommendation of a provider that most matches this estimate.  And as a consumer that magical word “estimate” is really unsettling, because if I walk into the wrong facility, that cost could easily be much higher. So do I feel like I am protected from surprise fees? Am I able to shop around for a hemodialysis at the price best for me? Absolutely not, because we don’t have “comprehensive price transparency,” we have alternative price transparency.

And as long as we allow lobbies to hijack the legislative process to protect entrenched monopolies, that’s the price transparency we deserve.

If Air Travel Worked Like Healthcare

This is an older video from 2010, but all if it is still true. It speaks volumes to how the ACA does nothing to address the real problems in the healthcare market.

Healthcare reform has repeatedly failed because Washington continues to misdiagnose an over-regulated noncompetitive provider market as a health insurance coverage problem. We don’t need Obamacare. We need Southwest General Hospital. Healthcare is too important not to be left to the free market.

Review: Rand Paul’s Obamacare Replacement Act

January 2017 is Obamacare hunting season and Sen. Rand Paul decided to throw his replacement plan proposal into the mix of Republican ideas on the discussion table. Finally we have something concrete and serious from the Republicans to work with. The summary can be found here and law nerds can find the entire 149 page bill on Capitol Hill here. So how does it look? Well, it’s not great. It’s actually pretty bad for a variety of reasons rooted in poor understanding of economics and human behavior, but let’s go over the summary section by section.

Repealing Obamacare

  • Effective as of the date of enactment of this bill, the following provisions of Obamacare are repealed: Individual and employer mandates, community rating restrictions, rate review, essential health benefits requirement, medical loss ratio, and other insurance mandates.

Alright, repealing the individual mandate is an immediate reprieve for the 6.5 million poor taxpayers whom the government was forcing to pay $3.0 billion in penalties because they valued having money for things like food and rent more highly than subsidized health insurance. Repealing the employer mandate is a benefit more broadly to the working class by making it easier for employers to hire above the 50 person boundary imposed by Obamacare. Repealing the insurance regulations and requirements allows them to revisit their plans and deliver a greater diversity of products that better match consumers needs. We’re doing well so far, let’s see what’s next.

Protecting Individuals with Pre-Existing Conditions

  • Provides a two-year open-enrollment period under which individuals with pre-existing conditions can obtain coverage.
  • Restores HIPAA pre-existing conditions protections. Prior to Obamacare, HIPAA guaranteed those within the group market could obtain continuous health coverage regardless of preexisting conditions.

Another good change. The patient protection portions of the Patient Protection and Affordable Care Act were popular for obvious reasons, but they’re also the reason why it should be called the Patient Protection and Unaffordable Insurance Act. The Obamacare regulations give far too much protection to individuals and open up the insurance market to abuse by patients who take advantage of their information asymmetry by signing up for insurance only when they anticipate heavy usage of the healthcare system. Rolling back the regulations to the 1996  HIPAA pre-existing condition rules restores to insurance companies ways to protect themselves from such manipulation. These are good changes so far, but unfortunately this is the repeal portion of the bill. The rest is the replace portion, and it’s all downhill from here.

Equalize the Tax Treatment of Health Insurance

  •  Individuals who receive health insurance through an employer are able to exclude the premium amount from their taxable income. However, this subsidy is unavailable for those that do not receive their insurance through an employer but instead shop for insurance on the individual market.
  • Equalizes the tax treatment of the purchase of health insurance for individuals and employers. By providing a universal deduction on both income and payroll taxes regardless of how an individual obtains their health insurance, Americans will be empowered to purchase insurance independent of employment. Furthermore, this provision does not interfere with employer provided coverage for Americans who prefer those plans.

This is very bad economics. For those not familiar with this issue, there is a massive loophole in the tax code where health insurance benefits provided by the employer are not subject to taxation. The rule is rooted in World War II wage controls where employers were not allowed by the government to give employees salary increases because of the war effort, but the worker unions negotiated to be allowed to receive health insurance benefits instead of additional wages. Except the tax code did not have any provisions for these health insurance benefits. By the time that Congress realized this loophole, the unions had also realized that  they were effectively receiving a subsidy from the government on every dollar that they got paid in health insurance as opposed to wages, and the practice became so widespread that politicians were not able to muster the courage to go through with the fix. The result is that 60% of Americans receive insurance through their employer. This is an enormous economic problem, because it completely distorts the insurance market. The employer does not know your preferences, willingness to pay, and healthcare needs. Therefore making the employer  the primary purchaser of health insurance guarantees sub-optimal insurance selection and decreases market competition. If your employer provides only one or two insurance plan choices, did you as a consumer really participate in the insurance marketplace? By tying the insurance to the employer rather than the individual, it makes insurance less portable and forces the individual to renegotiate their insurance every time that they get a new job or move between state which makes people less likely to do so if they do develop a condition. In addition, the tax loophole results in an effective market distortion of the pricing signals (if they existed, more on that later) that the economy creates. By giving health insurance an effective 20-30% subsidy, this guarantees that people will purchase more insurance than they need and that providers, knowing that there is an excess of insurance protection in the marketplace, increase their prices in order to take advantage of this fact. This doesn’t make healthcare easier to pay for the insured, and makes it MORE difficult to afford for the uninsured. Expanding this loophole to insurance premiums for the sake of “equality” only makes the problem worse!

Expansion of Health Savings Accounts

  • Provides individuals the option of a tax credit of up to $5,000 per taxpayer for contributions to an HSA. If an individual chooses not to accept the tax credit or contributes in excess of $5,000, those contributions are still tax-preferred.
  • Removes the maximum allowable annual contribution, so that individuals may make unlimited contributions to an HSA.
  • Eliminates the requirement that a participant in an HSA be enrolled in a high deductible health care plan. Currently, in order to be eligible to establish and use an HSA, an individual must be enrolled in a high-deductible health plan. This section removes the HSA plan type requirement to allow individuals with all types of insurance to establish and use an HSA.

In addition to the above changes, there is a very long list of HSA deregulation giving people more freedom in how they can spend their HSA accounts and how they can transfer that money between people and funds if necessary. This is the core of the new Republican healthcare agenda, trying to move people off unlimited premium driven insurance plans and to a more cash based healthcare market. It’s a great idea, but it’s necessary to be critical and skeptical about this bill’s implementation. Critical because these changes further expand the tax loophole described above to cash based purchases of healthcare, which further inflates healthcare prices. This hurts the uninsured more than everybody else, because the insured are loss protected after their deductible limit is reached. It’s also necessary to be skeptical, because promoting health savings accounts implies that people are able to take their cash and use it to make purchases in a transparent competitive free market. No such thing exists.You can’t go to your local hospital’s website, navigate to the orthopedics section, and find out the cost of a hip replacement. Healthcare is the only industry where there are no publicly available prices and it’s acceptable to quote a price after the service has been delivered. Imagine airlines billed you for a transcontinental flight AFTER you arrived at your destination. Would you be surprised if they tried to overcharge you? Without transparent prices it’s completely irrational for consumers to try purchasing their healthcare on a cash basis. It’s safer to stick with your insurance than risk it with the HSA. Providers, for their part, will never be the first to provide prices because doing so would mean that they would have to actually compete for business and innovate, instead of generating profits by overcharging your insurance behind the scenes. Despite all the changes proposed by Sen. Rand, HSA’s in this bill are a non-starter without provider side reforms.

Charity Care and Bad Debt Deduction for Physicians

  • Amends the Internal Revenue Code to allow a physician a tax deduction equal to the amount such physician would otherwise charge for charity medical care or uncompensated care due to bad debt. This deduction is limited to 10% of a physician’s gross income for the taxable year.

Is this real? Somebody pinch me. Besides the obvious critique that this is a physician senator peddling to the physician special interest, here’s why this is a terrible idea. In Brazil health expenditure is a limitless tax deduction. So what do people do? They go to their friendly neighborhood physician and have him write out receipts for a large amount of fake healthcare which they use to reduce their taxable income while giving the physician a kickback for his cooperation in the scheme. Every single physician will max out this Sen. Paul tax deduction. Physicians  who did not have enough uncompensated care during the year will go to their friendly neighborhood uninsured patients to “provide” charity care until they reach 10% of gross income. In addition, this rule encourages physicians to increases the cost of their services, because Increasing their billing to insured patients increases their gross income, which in turn increases the allowed net amount of the 10% tax deduction.

Pool Reform for the Individual Market

  • Establishes Independent Health Pools (IHPs) in order to allow individuals to pool together for the purposes of purchasing insurance.
  • Amends the Public Health Service Act (PHSA) to allow individuals to pool together to provide for health benefits coverage through Individual Health Pools (IHPs). These can include nonprofit organizations (including churches, alumni associations, trade associations, other civic groups, or entities formed strictly for establishing an IHP) so long as the organization does not condition membership on any health status-related factor.

Sure, deregulation is good, but this won’t go anywhere as long as employers provide insurance. Businesses will always have more negotiating power against insurers than self-organized groups of individuals, so people will always get a better deal from their job than their individual group.

Interstate Market for Health Insurance

  • Increases access to individual health coverage by allowing insurers licensed to sell policies in one state to offer them to residents of any other state.
  • Exempts issuers from secondary state laws that would prohibit or regulate their operation in the secondary state. However, states may impose requirements such as consumer protections and applicable taxes, among others.
  • Gives sole jurisdiction to the primary state to enforce the primary state’s covered laws in the primary state and any secondary state.
  • Allows the secondary state to notify the primary state if the coverage offered in the secondary state fails to comply with the covered laws in the primary state.

In addition to HSA’s, this is the other major tent pole of the new Republican health insurance agenda. Trump especially emphasized deregulation of state barriers on insurance as a major fix to the health insurance market. That’s probably not the case. The problem is that insurers trying to move into new states do not have a provider network in the target state, and therefore have no negotiating power which results in plans that are more expensive and networks that are smaller than the incumbent insurers. Even Kaiser ended up fumbling when they tried expanding to the east coast. The idea is good, and the changes are a move in the right direction, but it likely won’t be meaningful except for cases where insurers are especially abusive in their relationship with the local providers.

Association Health Plans

  • Association Health Plans (AHPs) allow small businesses to pool together across state lines through their membership in a trade or professional association to purchase health coverage for their employees and their families. AHPs increase the bargaining power, leverage discounts, and provide administrative efficiencies to small businesses while freeing them from state benefit mandates

More bad policy. We discussed already how employer sponsored health insurance is bad because it limits individual participation in the insurance marketplace and results in suboptimal health insurance utilization. While this change has the understandable goal of increasing small business bargaining power against insurers, it only expands the employer’s presence in the insurance marketplace when we need less of it. In the words of American philosopher Donald Trump, “Bad!”

Anti-Trust Reform for Healthcare

  • Provides an exemption from Federal antitrust laws for health care professionals engaged in negotiations with a health plan regarding the terms of a contract under which the professionals provide health care items or services.
  • This section applies only to health care professionals excluded from the National Labor Relations Act. It would also not apply to contracts or care provided under Medicare, Medicaid, SCHIP, the FEHBP, or the IHS as well as medical and dental care provided to members of the uniformed services and veterans.

Hold on. Full stop. What? So if a health insurance company tries to negotiate a rate with an independent specialist, the Sherman anti-trust act is waived and he is allowed to collude with all the other independent specialists in an area in order to push up his negotiated rates? In an economy where physicians are generally overpaid compared to their counterfactuals? From an economic perspective that’s fine, cartels fall apart because there’s always an incentive for members to cheat and eventually one of the colluders will independently agree to lower rates in exchange for more referrals. But Anti-Trust Reform? Let’s at least be honest Sen. Rand “Physician Special Interest” Paul that this will only increase cost of care and call it Trust Empowerment.

Increasing State Flexibility to Conduct Medicaid Waivers

  • Provides new flexibilities to states in their Medicaid plan design, through existing waiver authority in current law.

The final tent pole in Republican healthcare policy, giving power back to the states, a tale as old as time. This is guaranteed to be part of the final policy, regardless of whose plan is passed. Innovation and decentralization is good and I look forward to what the states will create.

Self-Insurance Protections

  • Amends the definition of “health insurance coverage” under the Public Health Service Act (PHSA), and parallel sections of ERISA and the Tax Code, to clarify that stop-loss insurance is not health insurance.
  • This provision is designed to prevent the federal government from using rule-making to restrict the availability of stop-loss insurance used by self-insured plans.

This is interesting. Some of these regulations are decent, like requiring stop-loss insurance to cover unpaid claims if the small business plan terminates. Others, like requiring a certain amount of healthcare spending before stop-loss is allowed to kick in, are very invasive. That being said, it is completely correct to say that stop-loss insurance is not health insurance. If it were, every single financial product that insurance companies use to manage their risk profile could be construed as health insurance.

Conclusion

What’s the verdict? It’s pretty disappointing. The only good thing it achieves is the repeal itself, because the replacement is mediocre. A mixture of decent changes that aren’t going to reduce costs significantly (interstate sale, individual pool reform) and well-intentioned bad policy (tax treatment equalization, association health plans).

In fact, it’s embarrassing that people claim Sen. Rand Paul is libertarian leaning when this bill engages in such heavy manipulation of the tax code and obvious  pandering to the physician special interest. The biggest problem with the bill is that it focuses entirely on health insurance reform and does nothing with respect to  regulation on the provider side of the equation. Obamacare proved that you can’t reduce health care costs through financial engineering, but even Obamacare tried to address provider behavior with bundled payments and the accountable care organizations. Healthcare COSTS will not be reduced until providers have to quote prices, until incumbents are no longer protected by certificates of need, and until the physician trade union is no longer protected by scope of practice and licensing restrictions.

Failing to push any provider side change(except for empowering their cartel powers!), or provide any evidence based insurance reforms, the bill gets a C+. Why not an F? There’s a fringe case where it could work out. The tax treatment equalization section means that there will be no tax treatment difference between employer sponsored health insurance premiums being paid directly by the employer or by the employee. Therefore some employers may opt to increase employee wages and not pay directly for health insurance in order to appear more competitive in the job market. Healthy employees then could choose to opt out of health insurance and keep the money instead of buying through their employer. This would result in an employer sponsored insurance death spiral due to increasing average costs, which would ultimately increase the uninsured population and could force providers to compete on price. That’s a lot of ifs, however. A simple “providers must quote a real price on their website for every episode of care that they provide” bill is much more reliable.

Rare diseases are the great case for UHC

The Economist’s article reporting on developments in gene therapy for rare diseases mentions something important:

The lessons from Glybera, the first gene therapy to be sold in Europe, still loom large. It cures a genetic condition that causes a dangerously high amount of fat to build up in the blood system. Priced at $1m, the product has only been bought once since 2012 and stands out as a commercial disaster.

Incredibly high need for the patient, but high development costs, essentially non-existent consumer base, no competition, no economies of scale, and no consumer bargaining power. Any one of those can destroy a market, but all at once? The only thing that would make it worse is if the patients can’t pay. Oh, right. They can’t. Because it costs $1m. If I’ve ever heard of a perfect government job, then this is it.

In the US, rare disease treatments will need to be covered by CMS and the associated costs spread across the entire tax base, because the free market will quite literally never be able to find a humane solution for this problem. Good luck using charity, vouchers or tax credits to cover a $1m treatment.