Why the ACA Won’t Do Squat: Part I — Learning the Players

My Twitter buddy Denis Fitzpatrick author of the brilliant This Mirror In Me (seriously, get it. You won’t regret it) asked me what I thought of the Obamacare Act (the Affordable Care Act). Honestly, I don’t think it’s going to work and I do think it’s going to make things worse in the long run. But then, the Republicans’ plan will do the same, just breaking and worsening different things. That’s because both sides think that with just a few tweaks, the entire system can be made to work perfectly according to their ideology. Libertarian, Communist, Socialist, Green — whatever — everyone thinks they know the one or two things that Must Be Done To Fix The US Healthcare system.

 

And they are all dead wrong. At this point, the only way to fix the system is to tear it completely down and start over. Why? Because it’s shoddy and rotten from the foundation up. If the American healthcare system were a building, it would have toppled right over years ago. And no, adopting a Universal or Single Payer System like in France, the UK, Canada, Australia, New Zealand or whatever Health Care Mecca you favor won’t fix it because of the fundamental differences in American governmental structure and in American social culture. Not to mention that adopting those systems will lead to a significant draw-down in the development of new treatments, more effective treatments, new devices, and the advancing of medical science in general (read on and you’ll see why).

 

But, before you can start to fix anything, you have to know the players and most people — even most Americans — don’t know the players which is why I think their view of the game or the rules that need to be changed is simplistic and unlikely to work at best, harmful and likely to cause a lot of unintended consequences at worst.

 

So, who are these players? Well, there are a lot of them so go get a cup of tea/coffee/beer/whiskey and then get settled in because we’re going to be a while.

 

Player One: Health Insurance Industry — The insurance industry is currently the second largest actor in the American healthcare market. This wasn’t always the case — prior to the Second World War, the health care industry was rather small and most people didn’t bother with insurance. Visiting your local doctor and getting the few, primitive antibiotics (Sulfa drugs, Quinine, etc) that were cutting edge was an out-of-pocket expense for most people. If you couldn’t afford to pay everything at once, the local doctor would work out a payment system with you. Some doctors would even accept barter-goods (chickens, milk, eggs, etc) in lieu of legal tender (cash) from their local patients. Of course, back then, options such as surgery did not exist for rich or the poor. During the Second World War when most American men of working age were drafted and sent overseas to fight, women picked up the slack in the war machine by working in the factories. Every factory wanted the best workers but could not raise wages to compete¹ — so they had to offer other benefits and health insurance was a major one. After the war, companies continued to offer these benefits instead of discontinuing them and raising wages. Thus, the industry exploded over the next several decades as insurance became more common and medical technology began to really take off.

 

Player Two: The Government — The government is the largest player in the healthcare market. Through the Medicare and Medicaid programs, the US government decides exactly how much a doctor or hospital can charge for any given service. They do this not by paying what the actual good or service costs but by saying they will reimburse X% of the charged cost². Wonder why a single aspirin in a hospital can cost $100 a pill (or more)? It’s because the government only reimburses a percentage of the charged cost and because insurance companies, working with the government, have legally ensured that everyone has to be charged the same — even patients who are willing to pay out of pocket. If the doctors charge at the actual cost, then they’ll only get a fraction of it back from government or insurance companies. So, if they want to stay in the green, they have to inflate the costs. Welcome to Economics 101.

 

The government, in the form of the FDA (Food and Drug Administration) and the USPTO (US Patent and Trademark Office), also plays another large role by determining what treatments and regimens and surgical procedures will be available for use in the US. The FDA approval process is a very long and very expensive process designed to protect the American public from snake oil treatments. However, patent law in the US forces the drug company or tech company to apply for a patent at the beginning of the FDA approval process to keep from being scooped by a competitor later in the game. Patents only last for twenty years and the approval process generally takes between seven and twelve years, leaving a decade, on average, for the drug or tech company to recoup the R&D (Research and Development) and the approval fees on not only that drug or device but also on all the ones that didn’t get approved.

 

Player Three: The American Medical Association — Just about every country has an association like the AMA. The AMA provides the credentials that allow physicians to practice medicine in the US. The AMA also decides how many teaching hospitals there will be, how many students will be accepted into medical schools, what the standards for admission and graduation are, how long residents must serve, and many other things. Basically, one of the AMA’s functions is to determine how many doctors will be allowed to practice medicine in the US at any given time.

 

Player Four: American Trial Lawyer Association, Malpractice Insurance, and Stupid Jurors — You wouldn’t think that lawyers would be a major player in the healthcare field, but they are. Specifically, malpractice lawyers are a major player. It used to be that malpractice meant the doctor had performed the wrong surgery (ex: instead of a tonsillectomy, he did a hysterectomy), had left a surgical instrument inside the patient after surgery, or had prescribed a medicine or treatment that he knew would be ineffective or otherwise done something that he should have known would cause harm (such as suggesting a patient take arsenic). Today, thanks to trial lawyers and the general effectiveness of the medical system, malpractice generally means the patient or his estate isn’t happy with the results. The doctor doesn’t have to actually have done anything wrong. He could have done everything right and he will still get sued for a bad outcome.³

 

Player Five: Doctors, hospitals, labs, and other healthcare providers — These are the actual people who do the work in medicine. Training to be a doctor takes nearly a decade (and in some fields, longer) because medicine is as much an art as it is a science. The training is not only fantastically expensive here in the US since doctors are trained on state-of-the-art machinery, the latest treatments, the latest in pharmacology, etc — but these men and women also willingly forgo almost a decade’s worth of potential earnings in order to receive this training. So, once they finally graduate and enter the field, most of them are in at least six-figures worth of debt that they have to pay off but they’re also practicing a very demanding, highly-skilled bit of work which means that they are not going to work for free. Nor should they anymore than a plumber, a carpenter, an architect, or a lawyer would work for free. However, not only are these institutions and people working in a field that has a high barrier to entry (and thus less competition), they are also constrained to charge a certain amount based off what the government is willing to reimburse them for seeing Medicaid and Medicare patients.

 

Player Six: Pharmaceutical companies and Medical tech companies — Yes, they do spend a lot on marketing directly to doctors trying to get doctors to prescribe the latest and greatest (and most expensive) treatment to their patients. However, they also develop those wonder drugs that we’re all so fond of that have extended our useful lives from beyond 50 to nearly 80 years of age these days. For every “me too” clone drug on the market, these companies are investing in research in five different drugs to treat diseases or conditions that we once thought were impossible to treat, cure, or reverse (think about the recent development in better prosthetic limbs that can now be tied into the nervous system or the recent discovery of a possible cure for AIDS, not to mention things like targeted nanobots being used to treat cancer).

 

Player Seven: Other non-US governments — “You should just re-import drugs from Canada/Mexico/the UK/France. It’d save you so much money.” Every time someone suggests this, I think of the old AT&T ad about reaching out to touch someone only change “touch” to “throttle.” Look, the fact here is that countries with nationalized health care systems like France, the UK, Canada, et al pretty much tell drug makers and medical tech companies what they can charge (often well below the cost, not to mention the R&D re-coup) and give the companies the choice of either not selling within their borders at all or even possibly having those governments get the pill or device and reverse engineer it and flood the market with a generic version (nations in South East Asia and all of China are famous for this). Back

 

A big part of the reason prescription costs on new drugs and devices are insane in the US is because so many other countries refuse to pay the full development cost for those drugs or devices, let alone pay enough to keep those companies able to continue R&D into to future treatments or to recover losses from treatments that didn’t make it to market. Frankly, I can understand a poor nation like Chad or Afghanistan refusing to pay full price but I have a hard time feeling a whole lot of sympathy for other First World nations free-riding and forcing me to pay more so they can stay on the gravy train.

 

Player Eight: Patients — You might think they should be a bigger player than they are but patients, by and large, are the smallest cogs in the wheel here. Every other player in the medical field is pretty much a single-issue voter and campaign contributor. Us patients, us rubes don’t tend to vote for someone solely on their medical stances. Also, if the medical industry had to decide between keeping us happy or the government happy…well, they know who butters their bread and it sure as hell ain’t us.

 

So, those are the players in the game. Notice I haven’t really endorsed any specific changes. While I have given some outlines on certain ways the players work together and against each other, I haven’t gone into detail on how they all interact to make the pre-ACA system work the way it does. My next post will be on the medical “industry” as it functioned in pre-Industrial America, Industrial America, and then post-WWII America. It’s going to be a while before I get into specific changes to “fix” the system so if you’re looking for that, just bookmark this site and check back every few days. There’s a lot of ground to cover over who the players are, how they work, what they do, and whether they’re good or bad or both (and in which cases).

 

And, before you start making assumptions about my political stance: I’m currently registered member of the Penguins Are Awesome party. I mistrust the Democrats and the Republicans, think that Libertarians are overly idealistic, that Communists must have slept through the twentieth century, and that penguins are fuckin’ awesome, man. Because they are. There’s a city in Scotland that agrees with me ’cause more people voted for a guy in a penguin suit than voted for the Liberal Democrats⁴. I’m not conservative. I’m not liberal. I’m a pragmatist who loves penguins⁵.

 

— G.K.

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¹ The major reason the factories couldn’t raise wages was because the US went to a “war footing” economy. No consumer goods were being produced at a high rate so raising wages would have resulted in horrific inflation of the money supply. Since the government didn’t want this to happen, they began to sell “War Bonds” to remove excess money from the economy and offered companies a tax break on benefits like health insurance to keep them from raising wages and starting a vicious spiral of inflation that would have exploded even worse once the GIs came home with their wartime earnings. So, in short, there weren’t many consumer goods on the market like cars, refrigerators, etc to soak up the excess currency so workers were offered something of high-cash value (for the time) that wasn’t cash in order to attract better workers while keeping the economy from going tits up. Wikipedia — Health Insurance In the United States: The Rise of Employer Sponsored Coverage. Also, a good history of Medical Practices in the US can be found in My Brother Ron: A Personal and Social History of the De-institutionalization of the Mentally Ill.

 

² Granted, this is a vast over-simplification. Reimbursement is decided on a variety of schedules, charts, and tables that have little to nothing to do with what the procedure actually costs. However, for further reading, you can start with Uwe E. Reinhardt’s How Do Hospitals Get Paid? A Primer from the New York Times and Megan McArdle’s Who Should Set Medicare Prices? from Bloomberg News. Going into depth on this with just Medicaid and Medicare alone would take years because those programs and their reimbursement methods are as labyrinthine, chaotic, and subject to random changes as the US tax system.

 

³ Former Vice Presidential candidate John Edwards once took a case to trial where a girl had been born with cerebral palsy. The mother had refused an Emergency Cesarean which meant that the OBGYN could not force it on her. However, Edwards argued that the OBGYN’s failure to break the law and force the Cesarean on a non-consenting patient who claimed ignorance of the risk factors in a natural birth in her case meant that the OBGYN was guilty of medical malpractice. Playing on the sympathies of jurors who had no clue about how such medical decisions were made, Edwards won the case and the doctor (or his malpractice insurance company, rather) had to pay the family $4,250,000. (Details at Wikipedia — John Edwards: Legal Career). However, the fact is that cases like this happen daily throughout the US.

 

In some places it is difficult to find a practicing OBGYN and, for some women who have high-risk pregnancies, no OBGYN will take them on as patients. Cases like that one are why. Still, all doctors must carry malpractice insurance and, statistically, any healthcare worker (doctor, nurse, paramedic, orderly) who has practiced for more than three years has been named a defendant in a malpractice trial. My late brother, an EMT Basic, was named in a case and all he did was drive the damned ambulance! I got that three years’ statistic from a paper I read back in 2006 after my brother contacted me in a tizzy of worry because he didn’t know what to do after being told he was named in a malpractice suit. I’m trying to see if I can find it online or in my rather messy apartment. But, ask any doctor, EMT, or nurse in the US and chances are they have been named in a malpractice suit even if all they did was a routine temperature check on the patient.

 

Also, even if the doctor/EMT/nurse/whatever is cleared of malpractice, they and their insurance still have to bear the cost of the case. That’s part of why so many settle out-of-court. It’s cheaper to do that than it is to risk losing the case because of Stupid Jurors or to pay the lawyers for the cost of going to trial. Things like this are why so many people bandy about “tort reform” or “malpractice reform” as a Silver Bullet to Fix the American Medical System. Those things might help but they are not the only thing needed!

 

⁴ Man Dressed As Penguin Receives More Votes Than The Liberal Democrats (image taken from 25 Reasons Why We Love Scotland.

 

⁵ Seriously, what’s not to love about penguins? They’re flightless birds who have an adorable waddle-walk and they look like they’re wearing little tuxedos! Penguins. Are. Awesome.