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Health care costs are, at least nominally, an obsessive focus of the American health policy debate. But politicians' discussion of the issue is inevitably hemmed-in by the practical political power of important lobbying groups. All those "health care costs" you often hear bemoaned are what health care providers like to call income and politicians are generally reluctant to squarely challenge the financial interests of hospitals, pharmaceutical companies, and doctors.
If they were, here are four ways to trim health care costs that would be taken more seriously.
1) Let in more immigrant doctors
American doctors earn substantially higher incomes than doctors in foreign countries, which means that foreign doctors could raise their incomes by moving to the United States. Conversely, American patients could save money by being treated by immigrant doctors.
Source: Congressional Research Service
The existence of a supply-demand mismatch for MDs can also be seen in the fact that despite high wages, the United States has a relatively small number of doctors per capita.
Of course, there are already many immigrant doctors practicing in the United States. But like most would-be migrants, foreign-born doctors face difficulties in obtaining visas.
Even worse, foreign-born doctors face a great deal of difficulty in obtaining a license to practice medicine in the United States even as studies show that patient outcomes for Americans treated by immigrant doctors are just as good as those treated by native-born doctors.
The key to substantially increasing the supply of immigrant doctors, and thus bringing down health care costs, is to create a simple, rules-based system by which a foreign doctor can prove his worthiness to practice in the United States. Ideally the system would include a pathway for foreign medical schools to establish themselves as educating US-qualified physicians. Many foreign countries appear to have a comparative advantage in affordable medical education, and it would serve the interests of both the United States and those countries to have a clear pathway in place by which foreigners could be trained to work as doctors in the United States.
2) Curtail pharmaceutical monopolies
Many medications that are highly effective in treating illness are also extremely expensive. Vox's Sarah Kliff recently wrote about a Hepatitis C treatment that costs $1,000 per pill. And yet pills are not expensive to manufacture. Costly medications are expensive primarily by design. As a matter of public policy, the United States Congress has seen fit to create financial incentives for medical innovation by granting pharmaceutical companies monopolies known as patents that shield new drugs from market competition for years.
This leads to high costs for patients and windfall profits for drug companies. Those profits become the financial engine that makes new research worthwhile.
But patents also make innovation harder in some respects by making it more costly for new researchers to build on previous work. What's more, they are hardly the only possible means of financing new research. Economists ranging from George Mason University's Alex Tabarrok to Joseph Stiglitz have proposed moving away from medical patents to taxpayer financed prizes for key breakthroughs.
A large cash prize creates an incentive to innovate just as much as a patent does, but offers several important advantages. First, nobody needs to be priced out. All those $1000 hepatitis pills generate a lot of revenue, but also a lot of patients who end up with no pills at all. With a prize, the money is raised in a way that doesn't need to exclude anyone. Prizes can also direct R&D efforts at problems that are genuinely important, rather than ones that happen to interest a large market. The patent system is better at generating treatments for conditions that annoy rich people (baldness) than conditions that kill poor people (malaria).
Last but by no means least, a prize-based system would reduce the amount of money and effort firms currently spend on trying to game the patent system. Right now, for example, companies like AstraZeneca spend time doing things like reformulating the active ingredient from Prilosec into a quasi-new drug called Nexium in order to get a new high-margin product to sell. Prizes could be targeted at innovations with real health benefits, rather than the current mix of payoffs for innovation and payoffs for hacking patent law.
3) Let non-doctors treat patients
In some states, licensed nurse-practitioners are allowed to provide basic medical treatment within their sphere of competency without oversight from a doctor. In the states where most Americans live, this is illegal. But the state-to-state variation allows us to compare the quality of care provided by NPs to that provided by MDs, and it shows that NPs are just as good on objective outcome measures, and better on subjective accounts of patient satisfaction.
If other states acted in line with Institute of Medicine recommendations and let their NPs practice autonomously, patients could get the cheaper health care they provide. Studies of Certified Nurse Midwives and Certified Registered Nurse Anesthesiologists have, similarly, found that they treat patients as well or better than physicians.
These various categories of advanced practice nurses receive training and education that is not as time-consuming and expensive as the training provided to doctors. Consequently, their services — where legal — can be obtained more cheaply than those of doctors. Relying more heavily on advanced practice nurses would save money directly through this channel. It would also leave doctors with more time on their hands to treat patients who really do need to see a doctor, bringing more supply and lower prices to those cases.
A similar dynamic obtains in the field of dentistry. Most years the vast majority of people need no dental care beyond basic tooth cleaning that a dental hygienist can provide. But in many states it is illegal for a hygienist to practice without the direct supervision of a dentist. The need to involve a dentist raises the costs of a routine tooth cleaning, and by occupying fully qualified dentists' time also reduces the amount of time they have to spend with the patients who really need to see a dentist.
4) All-payer rate setting
In Germany, the Netherlands, and the exotic foreign land known as Maryland they practice what's called all-payer rate setting. That means that instead of each insurance company negotiating separately with each hospital group on prices, a government commission sets a price that everyone pays. And it works. Maryland has curtailed cost growth without inducing any noteworthy shortages of health care facilities:
Another advantage to all-payer rate setting beyond the simple ability to set low rates is that it would eliminate some of the necessity of doing everything through an insurance company middleman. Right now, one of the services your health insurer provides is a real insurance function that helps you hedge against risk. But for many people, the insurer's most important practical role is as a negotiator. Since the insurance company has a lot of scale, it can get a good price from a doctor or a hospital. An uninsured person would have to pay at a much higher rate.
Reducing the insurance company's role as a negotiator would let insurers focus more on the insurance function, and allow routine care to be handled in a more consumer-focused way. And by eliminating some of the advantages to sheer scale on the insurance side, it could also promote more competition in the health insurance industry.
