Since the program’s creation it has expanded tremendously. This would be a good thing if it meant more low-income patients were being treated, but that has not been the case. According to a 2014 analysis by the Alliance for Integrity and Reform (a group funded by the pharmaceutical industry) and Avalere Health, fewer than two-thirds of participating hospitals provide charity care at a rate higher than the national average. In January 2018, the New England Journal of Medicine published a study showing that, all other factors being equal, hospitals which participate in the program have between 200 and 900 percent more specialty doctors in the areas served by Part B drugs than hospitals that don’t.1 Furthermore, the study showed that these specialty doctors were less likely to serve poor patients than equivalent doctors in hospitals that do not participate in the program.
So, even while the program has grown considerably, patients are not benefiting.
Fortunately, bipartisan legislation has been introduced in Congress which would pause any further expansion of the 340B program and allow Health and Human Services to collect information needed to better police the program against abuse.
The Trump administration, however, is not waiting for Congress. It announced steps to make sure the drug discounts under the program benefit patients, not hospitals’ bottom lines. The Centers for Medicare and Medicaid Services (CMS) issued new, reduced Medicare reimbursement rates that more accurately reflect the acquisition costs of the drugs hospitals are receiving under 340B. This will save taxpayers money. Furthermore, CMS is exploring ways to make sure that Medicare patient co-pays, which are usually a percentage of the total cost of a drug, reflect the discounted price rather than the list price. This will save patients a lot of money.
CMS has also introduced a proposed rule in Medicare Part D with the same goal. It would make sure that any discounts drug manufacturers negotiate with pharmacy benefit managers are reflected in the co-pays that seniors pay for drugs. The money would now go to the patients rather than the big pharmacy benefit companies.
Finally, the Trump administration has begun reforming regulatory hurdles that had prevented drug manufacturers and payers, such as insurers and Medicaid programs, from creating payment models based on the effectiveness of drugs. This is an important development in ensuring that patients have access to many new types of highly effective specialty drugs and treatments. These “miracle drugs” may have high up-front costs, but they are so effective that they can save significant amounts of money in the long term. These reforms would allow value-based payment arrangements over a multiyear period based on the ongoing health of patients with expensive diseases. This new process would expand access to patients while not bankrupting state governments or driving up premiums for insurance customers.
THE LEFT’S SINGLE-PAYER DISASTER
I strongly encourage President Trump and Congressional Republicans to continue the strategy of a 1,000-step health reform journey rather than putting everything in one big bill.
However, they do need to communicate their successes and approach better. A properly communicated and properly implemented incremental health care reform focused on commonsense steps will offer a powerful contrast with the Democrats’ full-throated embrace of single-payer health care—a solution which, every time it is given serious consideration, is soundly rejected by the American people.
And no wonder. Single-payer health care violates almost every historic American principle which has made our country great and successful.
Most importantly, single-payer is anti-free choice. It puts the bureaucracy at the center of health care instead of the patient and doctor. Under single-payer, there is just one health insurance option (the government, since it eliminates all private insurance) and your choices in treatment are limited by what the government is willing to pay for.
The fact is, if you socialize medical costs, then you must socialize medical decisions. It is unavoidable. Just look at Great Britain, whose National Health System in early 2018 had to delay all nonemergency surgeries due to a flu outbreak. In 2017, the Red Cross declared the British National Health Service a “humanitarian crisis.” Rationing is unavoidable in socialized systems—that’s why we see the same food lines in Venezuela this century that we did in Soviet countries in the last century.
Single-payer also discourages personal responsibility. The fact is that for most people, their health status is largely determined by personal choices. So, by socializing health costs, you are forcing people who follow healthy lifestyles and have lower medical expenses to pay for the medical expenses of those who don’t.
Of course, many medical conditions are the result of bad luck rather than personal choice. Still, according to the Centers for Disease Control and Prevention (CDC), one out of every six health care dollars are spent treating three chronic conditions—cardiovascular disease, diabetes, and cancer. The CDC estimates that nearly 80 percent of heart disease and stroke cases, 80 percent of type 2 diabetes, and 40 percent of cancer cases could be prevented through changes in diet, exercise, and smoking habits.
A reasonable health care system would find ways to encourage healthy living and personal responsibility while creating safety nets for those afflicted with very expensive diseases at little to no fault of their own. Single-payer, socialized medicine makes no such distinction, and most Americans reject the idea that they should be forced to pay for the consequences of other people’s lifestyle choices.
Finally, socialized medicine crushes innovation, which has been the cornerstone of America’s identity ever since the days of Ben Franklin. This is critically important to understand because innovation—new treatments, cures, breakthroughs—is what saves lives that could never have been saved before.
Socialized health systems are so starved of resources that they lack the capital to produce breakthrough medicines and treatments. That’s why as European countries adopted price controls on drugs and further socialized their health care systems throughout the latter half of the twentieth century, the percentage of new drugs (defined as drugs with “new chemical entities,” as opposed to a repurposing of an existing medicine) coming from the United States grew from 32 percent in the 1980s to 57 percent in the 2000s. As Europe controlled prices, it began to kill innovation.
Socialized medicine is also exorbitantly and prohibitively expensive—a lesson two liberal states recently learned.
In 2014, Vermont, the state that gives us socialist Bernie Sanders in the Senate, decided it was going to set the example for the rest of the country and adopt a single-payer system. The effort fell apart once the math became clear. Vermont would have to raise its payroll tax to 11.5 percent and set premiums at nearly 10 percent of people’s income to afford it. Democratic Governor Peter Shumlin, who initially supported the effort, had to reverse course, admitting that a single-payer health system would bankrupt the state.
A similar story unfolded last year when California sought to enact a single-payer health care bill. Estimates showed the program would cost $400 billion per year, which would require raising the state income tax to 15 percent to raise the additional $200 billion. The bill passed the ultraliberal California Senate, but it was widely known that it was a show vote, so they could claim a victory for their base.
The bottom line is this: A system this expensive, requiring such debilitatingly high taxes will crush the innovation that produces new cures and treatments that save lives in medicine. Furthermore, it will shift power from patients and doctors to Washington bureaucrats.
PRINCIPLES FOR CONTINUING THE HEALTH REFORM JOURNEY
President Trump and Republicans should continue their step-by-step health reform journey toward a twenty-first-century health system by focusing on changes in a number of areas, which I will briefly touch on next.
All of these changes should be made within a framework of reinforcing traditional American values of individual freedom and choice, personal responsibility with compassion, and maximizing innovation.
Americans should
expect to have freedom of choice in health care—choice of insurance, choice of doctors, and choice of treatments. Americans should also expect to have access to the type of information necessary to make informed choices.
In addition, a health system consistent with historic American values would reinforce personal responsibility and self-sufficiency. It is completely reasonable and in line with the type of strongly rooted American values that Trump is tapping into to expect most Americans to be responsible for their own health care expenses—be it through insurance, paying out of pocket, or some other method.
We should also recognize, however, that some people, through no fault of their own, will be hit with diseases that are very expensive to treat. Others simply cannot afford basic insurance. For those who are legitimately priced out of the health system, we should have safety nets in place that make sure nobody slips through the cracks.
This would be a system that reinforces personal responsibility but has compassion for those who get hit with catastrophic health care costs. We can guarantee health care for far less than guaranteeing health insurance.
Meanwhile, the government should not be able to force you to purchase anything as a condition of being alive, even something as important as health insurance. If Americans want to pay for health care out of pocket or decide they will take the risk, they should be allowed to do so.
Of course, with freedom comes personal responsibility. If a person who can afford health insurance chooses not to and then gets sick, he or she should receive the care they need, but should also be expected to pay for it. This may require that the individual pay higher premiums to insurers for a designated period and have a portion of his or her paycheck automatically deducted to compensate the hospitals and doctors. We could also look at additional steps, such as allowing consideration of whether a person has health insurance to be a determining factor in his or her credit rating.
Ultimately, we want to create an incentive structure which, when combined with reforms that drive down the cost of premiums, makes it so financially risky to go without health insurance that few people choose to do so.
Finally, a twenty-first-century health system consistent with historic American values would maximize the rate of medical innovation reaching patients. The faster new cures and treatments are made available, the more lives and money will be saved. According to a study in Health Affairs, for example, the use of statins (a cholesterol lowering drug) has led to a 27 percent decrease in health care costs per patient due to fewer strokes and heart attacks. The same study estimated that between 1987 and 2008, the use of statins generated $1.25 trillion in economic value from years of life saved. During that time, more than $200 billion was spent on statins, meaning statins created a net value of $1 trillion.
Innovation is also critical to the delivery and management of health care. One of the biggest drivers of health inflation is waste and fraud in health care. The Left, with single-payer, tries to address this challenge by putting the supposedly rational and unbiased bureaucracy in charge. Given the rate of fraud in the Medicare system, which we will get into next, this approach clearly does not work.
A truly American system would use new computational capabilities and market-based reforms in transparency to remove inefficiencies and identify ways to improve people’s health while saving money.
NEXT STEPS
The following is a brief overview of reforms to get us to a twenty-first-century health system that lowers costs, increases access, and improves health outcomes. Each of these reforms is consistent with the American tradition of preserving individual freedom and choice, encouraging personal responsibility, and maximizing innovation.
INCREASE TRANSPARENCY
One of the primary reasons for health inflation is the hidden nature of health care costs. Few hospitals or providers list their prices because they have different contracts with each different payer. Similarly, while drugs have a “list price,” it is almost never the actual cost being paid. The real cost is negotiated separately with a pharmacy benefit manager or directly with an insurer.
The problem is that the hidden nature of health care costs makes it practically impossible for patients to understand what their premiums are paying for. So, they have no way of knowing if they are getting a good bargain from their insurance company. It also makes it difficult for patients to be active participants in their health and be informed consumers.
President Trump and Congress should pass reforms to enable patients to compare the costs of different solutions in real time, so they can make responsible choices.
FIGHT FRAUD IN HEALTH CARE
The FBI estimates that between $100 billion and $300 billion per year in government spending is lost to fraud. Much of that is in Medicare and Medicaid. This is a staggering amount of money. In fact, it is between $1 trillion and $4 trillion over 10 years. Yet, relatively little attention is paid by Washington to solving the health care fraud problem. This is even though virtually all the challenges we face about how to fund health care for the poor through Medicaid and other poverty programs could be solved by eliminating one-third of that theft, all without touching a single honest person’s benefits.
By comparison, the rate of fraud in the credit card industry is around one-tenth of 1 percent. The Trump administration and Congress should invite experts from the credit card and other industries that have successfully policed fraud to come in and help design digital systems similar to theirs. Imagine if health care fraud was identified and stopped as rapidly as you get a notice (via a text message or phone call) from your credit card company when there is a suspicious purchase made on your account.
FROM DISABILITIES TO CAPABILITIES
The ratio of working-age adults receiving disability has doubled since 1990, growing to 1 in 20 Americans. Some of this increase is due to an aging population, but a study by the Federal Reserve Bank of San Francisco estimated that at least half of that increase was due to fraud. As the economy changed and manufacturing and other jobs that do not require advanced degrees left the country, many people fraudulently enrolled in disability once their unemployment benefits ran out.
This is not just outrageous; it’s tragic. For many Americans, our disability program has become a poverty trap. A Washington Examiner study showed that only 13 percent of people who enroll into the program work for pay once they start receiving benefits. Since disability includes Medicare or Medicaid, depending on the program, a person on disability likely receives greater value in benefits from not working than with a minimum wage job earning $15,000 per year.
To fix our disability system, President Trump and Congress should not only insist on tougher enforcement, but they should explore reforms that engender a cultural shift in the way we think about disabilities. Instead of focusing on what a person’s disability is, the focus of our programs should be on matching their capabilities to possible employment. Moving from disabilities to capabilities would maximize the number of Americans working and being productive. It would also dramatically increase the lifetime income and choices of people currently trapped in the disabilities system.
VALUE-BASED PURCHASING
The fee-for-service model of health care payment is a big part of America’s health inflation problem. The model, which pays providers based on the number of procedures they perform, promotes redundancy and waste while creating a perverse financial incentive to ignore health outcomes in favor of health procedures.
The Medicare system accounts for one out of every five dollars spent in health care, and as such, can be an enormous instigator of reform. President Trump and Congress should expand the pilot programs experimenting in moving away from fee-for-service toward value-based purchasing agreements, which pay based on health outcomes rather than procedures. They should also develop similar programs in the VA, Tricare, Medicaid, Indian Health Service, and other government health programs.
MEDICAL LIABILITY REFORM
Another big driver of waste in our health care syst
em is the constant threat of lawsuits faced by doctors. Estimates show that defensive medicine (when a doctor orders extra tests he or she knows are not necessary just to avoid being sued) costs the health system $46 billion per year.
Medical liability reform will bring down the cost of care, saving patients money, and freeing up time for doctors to see more patients. President Trump and Congress should look at what states have done and at the workmen’s compensation boards as models for reform. New Zealand has had enormous success with a workmen’s compensation model to replace law-suits, and it is worth studying as a possible replacement for the current adversarial, lawyer-dominated system.
CREATE HIGH-RISK POOLS
Roughly 5 percent of Americans account for 50 percent of health care spending. These are people with especially expensive diseases that require specialty or ongoing treatment.
One of the biggest reasons why the individual marketplace under Obamacare faced such rapid rises in premiums was that more sick people relative to healthy people enrolled than expected. People who did not qualify for subsidies based on their income were walloped with huge premiums, large deductibles, and no choice but to purchase the plans or pay a tax penalty.
Maine took a different approach. This state flagged the most expensive conditions to treat and, working with insurers, created a separate, heavily subsidized risk pool for patients with those illnesses. The pools are called “invisible” because the patients are unaware they are in separate pools. It is all handled on the back end between the insurers and the state government.
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