Globalizaton and Health Care Reform

In recent years there have been two parallel movements that suggest completely divergent directions for health care reform. The first, the status quo or various extensions of the status quo such as proposals for a single payer system, mandating employee coverage, mandating employer coverage, health spending accounts and similar Republican and Democratic proposals, are based on the assumption that the current, heavily regulated health care system only needs a few tweaks. The second direction is globalization, in other words a radically free market approach that tackles the fundamentally erroneous assumptions about the current regulation-based system. No major politician has proposed any free market-based approach to health care reform for several reasons.

First, as Howard Katz points out:

>"The advocates of socialized medicine have simply and dogmatically asserted, 'Health care is a right.' They never tried to argue for this. They never presented what they considered proofs. They simply assert it as self evident. This is because to them altruism is self evident. Altruism is morality.

>"I argue that free health care led to the Holocaust...

>"since the bypass operation does not help (and probably hurts) the patient, doing it at a lower cost is not a benefit. If you want to help heart patients, the easiest way is to let them take vitamin E. However, the medical profession is so hostile to vitamin E (because it is low cost and works superbly) that they have gotten the FDA to prevent truthful advertising by vitamin E manufacturers and wholesalers (in contradiction to the First Amendment)...

>"The FDA, by the way, is an excellent example of the failures of socialized medicine...There have been several cancer cures discovered over the course of the 20th century which have the ability to cure a large proportion of the cancers which are today fatal. But the FDA has banned or suppressed them."

Second, our health care system is the most expensive in the world, but our health outcomes are mediocre for the industrialized world. Our mortality rates are higher than Japan's, France's or Canada's, but our health care costs are at least 50 percent higher. There are a number of reasons for the fact that our costs are the highest in the world. We do have a first-world quality health system, but so do countries with lower mortality rates and lower costs, such as Japan, France and Canada.

There are a number of reasons for the higher costs here. These include:

1. Heroic end of life care. In many plans 1/3 of the total costs are due to a miniscule percentage of participants. It turns out that there is often no life extension benefit to this kind of care, which can cost a million dollars or more per case.

2. Costs of bureaucracy and control. I don't have a percentage, but it is more than a couple of percent. There are many examples, for instance, of hospitals that have hired entire departments to manage DRG systems mandated by state laws, Medicare and insurance companies.

3. Costs of unnecessary care; iatrogenic (physician-caused) illness. Again, it is difficult to pin down exact numbers, but Rand did a study in the 1980s where it showed the charts of recipients of cardiac bypass operations to Canadian physicians. A large percentage of the cardiac bypasses would not have been given in Canada. The same is true of other operations such as for prostate cancer and a number of other things. It is difficult to pin down exact numbers, but at $50,000 a pop, if a third of cardiac bypass operations are unnecessary the costs are staggering. Unnecessary hospitalization leads to complications, causing costs that simply would not have existed where unnecessary care is not given. I knew someone in college who died from administration of an anesthetic when she was in her early twenties. My wife's friend's mother was crippled for life in her 70s because of an improperly executed medical test. Unnecessary care leads to unncecessary iatrogenic illness.

4. Costs due to uncovered people who cannot get treatment who subsequently develop life threatening illness and hospitals must treat much more expensively than they would have if care were affordable.

5. Costs of unnecessary technology that small hospitals purchase to seem important and then charge patients to cover capital costs paid by third party payers. There are enough mammography machines in the US to give every woman two a year, but most women do not get one and it turns out that they give them breast cancer.

6. Lack of attention to wellness because people assume that all illness can be cured.

The problem with our health care system is over-regulation. Yet, all the Republican solutions and Democratic solutions involve extending or reshaping the regulation.

Why not sidestep regulation altogether?

This can be accomplished through overseas medical treatment. Globalization has resulted in lower costs in almost all fields with the exception of heavily regulated ones, such as higher education and health care, where people are unlikely to go overseas and globalization has proceeded most slowly.

That is about to change. Already, hundreds of thousands of people around the world travel to foreign countries for treatment. Medical tourism is already on offer by a range of apparently good-quality hospitals in India and elsewhere such as India Medical Tourism. There are also Thai, Phillipine providers, and a a number of other countries where treatment is available.

Back in the 1950s, many Americans believed that goods "made in Japan" were of low quality. As it turned out, by the 1970s "made in Japan" meant better quality than U.S.-manufactured goods. There is no reason why health care can't be provided in the third world. This would side-step the bloated, highly regulated and mediocre-quality US healthcare system. There are several reasons to believe that quality can be managed adequately now and improved over time to levels that surpass US levels of quality.

1. Although health care standards here are likely higher than in many third world countries now, there is no reason that they can't learn to do it better than we do. In the 1950s Japanese manufacturers were associated with low quality. Today, the quality of Japanese manufactured goods is the best in the world.

2. Many US physicians come from India anyway.

3. There are more Indians with intelligence in the top 25% of the American intelligence distribution than there are Americans.

4. The training here is not unique. We have no knowledge or abilities that can't be easily duplicated in Asia.

5. The problem here is the system, to include the regulation, the tax system, licensure and special interest pressure such as from the drug companies. There is no reason why health costs should be increasing faster than general inflation. Gains in outcomes in healthcare have been good, but no better than in other fields.

6. Most gains in mortality rates have not been due to the quality of health care. Rather, they have been due to public health and personal habits.

7. Health care here is of mediocre quality. Our mortality rates are around the mean for the developed world. Yet, we spend 50% more than other countries.

8. The costs trends are a product of the way we do it, the political arrangements, not the technology or quality of care.

9. As Howard Katz points out, many people here are avoiding the system altogether. You see a rapid growth of holistic treatments, homeopathy and the like because many people are increasingly convinced that going to the hospital will make them sicker.

In order to make globalization of health care work, payers have to work with providers to develop treaties whereby they can co-manage facilities with third world providers. Just as Wal-Mart and many other US corporations have gotten involved in managing factories in China and information technology facilities in India, so can health care providers, hospitals and HMOs get involved in co-managing facilities in the third world. These will offer tremendous economic opportunities to third world citizens. For example, there is no reason why US universities can't be encouraged to open medical schools in third world countries.

With co-management, the absence of burdensome healthcare regulation and government intervention, health care quality and standards in the third world can be elevated to a higher level than in the US. Also, there would be the elimination of the US tort system, which has amounted to a government scam on behalf of trial lawyers here.

Naturally, many object to the idea of care that avoids regulation. They are happy paying 50% more for mediocre mortality. They are happy with the conditions in the Walter Reed Medical Center. They believe that without regulation, quality is impossible.

These assumptions are false. Good quality medical care does not require government intervention. Rather, government intervention has reduced the quality of medical care.

Others believe that we already have a free market system. This is not so. Most health care costs are heavily influenced by government intervention. Tax incentives, subsidies, government programs and the like make our health care system almost an extension of the government. The fact that it has performed so poorly in comparison with other sectors of the economy suggests that government has failed.

The problem of health reform is one of education. Payers such as big corporations need to learn how to co-manage facilities overseas, or encourage their HMOs and insurance companies to do so.

If a significant percentage of American healthcare is globalized, costs will dramatically be reduced. Many unnecessary operations, such as cardiac bypass operations, will be eliminated because the current incentive structure will be dissipated. Care will become affordable so the problem of the uninsured will go away. The massive waste and mismanagement that characterizes the current system will start to be eliminated.