Tuesday, January 25, 2011

Principles of Efficiency

So why is it that other countries deliver health care with greater economic efficiency than the United States?

For starters, it would be hard not to: The United States doesn't really have a health care system. It's a more like a fragmented, uncoordinated apparatus linked by a loose and often contradictory regulatory framework and characterized by both overtreatment and undertreatment. An onerous administrative burden, health care driven by profit and not value, and the absence of several vital traits of an economically efficient system combine to give the United States the most expensive health care in the world, although by no means the best.

What are some of those key traits? Let's look briefly at two systems that are efficient, despite diametrically opposed approaches to universal access. The health care system of Finland (%GDP on health care of 8.5%, HCE of 7.6) is government-owned and -operated -- classic Beveridge Model socialized medicine. Singapore (%GDP on health of 3.4%, HCE of 21.5) is a public-private partnership funded by a combination of government subsidies, a limited NHI scheme, mandatory Health Savings Accounts, and out-of-pocket payments. Nonetheless, these two disparate systems have much in common:

  • a national health policy formed by a democratic process and directed by the national government
  • a commitment to universal access and care, regardless of ability to pay
  • an emphasis on preventive health based on primary care and public education
  • a strong government regulatory presence
  • targeted policies and incentives aimed at bolstering efficiency within the model (Finland, for example, has a pharmaceutical policy that rewards use of generic drugs.)
As we'll see again and again, these are vital elements in the successful delivery of health care based on value, a results-driven approach that Michael Porter and Elizabeth Olmstead Teisberg, in their influential book, Redefining Health Care: Creating Value-Based Competition Based on Results, that produces both quality and efficiency. (Click here to for Porter and Teisberg's excellent web site.)

So, it turns out that the road to efficiency is straight enough. Obviously, negotiating the obstacles of special interests along the way is another story. 

HealthMatters will discuss each of these conditions in detail in later entries.


  1. Really good post.

    I have to think about the idea, we have no healthcare system in the USA. I think we have one, but its the worst model possible for an advanced capitalist country.

  2. Ren, I've learned that the consensus within the health care field -- left to right -- is that whatever US health care may be, it resembles nothing systematic. Instead it emerged partly as a function of opportunity and partly as a function of problem-solving. The two most important developments were Medicare/Medicaid (1965) and the formalization of the employer tax exemption for health benefits (1954).

    The latter not only ensured that most Americans -- except for the elderly and the poor -- had health insurance, it essentially cemented private insurance as the basis for health care access. Medicare brought public insurance to the elderly via a National Health Insurance model. (Canada's NHI is called Medicare after our program). Medicaid is a little different, but the same basic idea.

    What no one anticipated was the extent of medical inflation or the movement of providers away from primary care into specialization, caused partly by financial incentives and partly by advances in technology and techniques. The expense of specialization had the effect of exacerbating inflation, especially as more and more physicians became specialists.

    There have been two major efforts within the field to curb costs. One -- HMOs -- has been relatively successful, but limited in part because doctors don't want to work on salary and because HMOs depend on a ready supply of primary care docs, and fewer and fewer medical students are going into primary care. (Today, 30% of American docs are PCPs, and the number is dropping.)

    The other, managed care, failed because both providers and patients hated it. Basically, insurance companies attempted to use the cost controls of HMOs without using what people liked about them (like having your own PCP).

    Now, we have this fragmented loose network of employer insurance, Medicare/Medicaid, self-insurance, and out-of-pocket payment (co-pays and uninsured). Employers are covering less and less and asking for higher and higher co-pays because of expense, and -- until the ACA -- small business were dropping out. The ranks of the uninsured and underinsured got bigger and bigger and costs continue to rise.

    The ACA is more like insurance reform than health care reform. It buys time, but in and of itself will likely not be enough to prevent a crisis. Much more needs to happen, which is why I'm doing this blog. A great deal of it has nothing to do with coverage, although I think that ultimately we must get everyone under the same umbrella.

    The last is a massive undertaking, and taking the path of least resistance makes sense. In this country, that means basing universal coverage on insurance -- what is known in policy circles as the Bismarck Model. I'm not saying that this is ideal, but it's probably the way that makes the most sense politically.

    We can and should learn from other countries -- Bismarck Model or not -- which is the other point of this blog.