This analysis considers how the US healthcare system would change if we were to transition from the current multi-payer system to a single-payer system. The analysis first presents facts that will be important in considering what a single-payer system might look like. Then, given these facts, the analysis considers specific issues about the transition.
1. Four factors affect a person’s risk of premature death.
Behavior, genes, environment, and healthcare services are the four factors that Impact people’s risks of premature death (Kaiser Family Foundation) (see Figure 1).
(i) Behavior: 40%
From Kaiser Family Foundation: “Health behaviors, such as smoking and diet and exercise, are the most important determinants of premature death.”
According to OECD, “Health at a Glance 2015”
While genetics is a risk factor, only about 5% to 10% of all cancers are inherited. Modifiable risk factors such as smoking, obesity, lack of exercise and excess sun exposure, as well as environmental exposures, explain up to 90-95% of all cancer cases.
(ii) Genes: 30%
(iii) Social and Environment: 20%
Figure 2 (from Kaiser Family Foundation) displays specific social and environment factors contributing to health.
More from the OECD report:
Recent analysis shows that, although overall spending on social services and health care in the United States is comparable to other Western countries, the United States disproportionately spends less on social services and more on health care.
(iv) Health Care: 10%
2. Behavioral factors contribute to lower quality health in the US.
The US has “worse” health indicators, such as lower life expectancy and higher infant mortality, than those in other developed countries. These discrepancies are not necessarily due to “worse” healthcare, but rather “worse” behavior and environmental factors. As noted above in Fact 1, according to the OECD report, the US spends more on healthcare and less on social services than do other developed countries. From the OECD report,
On life expectancy in the US:
In the United States, the gains in life expectancy over the past few decades have also been more modest than in most other OECD countries. While life expectancy in the United States used to be one year above the OECD average in 1970, it is now more than one year below the average. Many factors can explain these lower gains in life expectancy, including: 1) the highly fragmented nature of the US health system, with relatively few resources devoted to public health and primary care, and a large share of the population uninsured; 2) health-related behaviours, including higher calorie consumption per capita and greater obesity rates, higher consumption of prescription and illegal drugs, more deaths from road traffic accidents and higher homicide rates; and 3) adverse socio-economic conditions affecting large segments of the US population, with higher rates of poverty and income inequality than in most other OECD countries (National Research Council and Institute of Medicine, 2013).
On Infant mortality in the US:
One of the explanations that have been given for that the high rate of infant mortality in the United States is that it is based on a more complete registration of very premature and low birth weight babies than in many other countries (Joseph et al., 2012). In order to remove the impact of differences in registration practices of very small babies, the figures shown … for a majority of countries (including the United States) exclude deaths of babies of less than 22 weeks of gestation period or 500 grams birth weight. The rate in the United States nonetheless remains higher than the OECD average, especially for post-neonatal mortality (deaths after one month) which is greater in the United States than in most other OECD countries. There are large differences in infant mortality among racial groups in the United States, with Black women more likely to give birth to low birth weight infants, and with infant mortality more than double that for White women (10.9 vs. 5.1 in 2012) (NCHS, 2015).
3. Under the current environment, healthcare expenditures will continue to rise.
The fact that people are getting older and living with more chronic conditions, combined with the increasing availability of healthcare treatments, means that demand for healthcare services will continue to rise into the future.
The population is getting older.
According to the OECD report,
Longer life expectancies … and declining fertility rates mean that older people make up an ever-increasing proportion of the populations of OECD countries.
On average across OECD countries, the share of the population aged over 65 years has increased from less than 9% in 1960 to 15% in 2010 and is expected to nearly double in the next four decades to reach 27% in 2050
More people in the population are getting chronic diseases.
According to the Centers for Disease and Control,
Chronic diseases and conditions—such as heart disease, stroke, cancer, type 2 diabetes, obesity, and arthritis—are among the most common, costly, and preventable of all health problems.
• Eighty-six percent of the nation’s $2.7 trillion annual health care expenditures are for people with chronic and mental health conditions.
• As of 2012, about half of all adults—117 million people—had one or more chronic health conditions. One in four adults had two or more chronic health conditions.
• Seven of the top 10 causes of death in 2014 were chronic diseases. Two of these chronic diseases—heart disease and cancer—together accounted for nearly 46% of all deaths.
• Obesity is a serious health concern. During 2011–2014, more than one-third of adults (36%), or about 84 million people, were obese (defined as body mass index [BMI] ≥30 kg/m2). About one in six youths (17%) aged 2 to 19 years was obese (BMI ≥95th percentile).
• Arthritis is the most common cause of disability. Of the 54 million adults with doctor-diagnosed arthritis, more than 23 million say they have trouble with their usual activities because of arthritis.
• Diabetes is the leading cause of kidney failure, lower-limb amputations other than those caused by injury, and new cases of blindness among adults.
More healthcare treatments are becoming available all the time.
Increases in demand for new treatments has been increasing healthcare expenditures . According to the OECD report,
The quantity of drugs consumed has increased over time in many therapeutic classes. Between 2000 and 2013, among countries for which data are available, the use of antihypertensive, antidiabetic and anti-depressant medications nearly doubled, while the use of cholesterol-lowering drugs tripled ...
4. Single-payer healthcare is financed by the government and entails centralization of control.
Single-payer healthcare is a system
in which the state, financed by taxes, covers basic healthcare costs for all residents regardless of income, occupation, or health status.
Single-payer systems may contract for healthcare services from private organizations (as is the case in Canada) or may own and employ healthcare resources and personnel (as is the case in the United Kingdom).
Centralization of control means the state decides how to allocate the funds it collects. This responsibility for allocating funds leads to bureaucracy (which adds time and money costs to the process) and lack of responsiveness to particular needs of the population.
In “Still Think A Single-Payer System Is Best? Read This First,” Neil Chesanow describes the tendency of centralized systems to yield undersupplies in some areas and oversupplies in others.
However, a recent Medscape article looked at the problems inherent in a single-payer system, dubbed "Medicare-for-all," and identified many that could be significant.
One critic noted that single-payer systems in Canada, the United Kingdom, and other developed countries have to impose strict central planning. Rather than leave healthcare choices up to individual physicians, their patients, and free-market forces that could balance supply with demand, the government sets the rule. This would inevitably result in shortages of some services and gluts of others.
Another source reports on the lack of responsiveness in the UK system relative to the US system in “Brief Comparison – UK Healthcare System vs. U.S. Healthcare System“
There is one large negative to the UK system – it received relatively low marks for its responsiveness. The U.S. health care system ranks number one on responsiveness in the same WHO survey. While the financially unconstrained U.S. system is quite responsive to its citizens “needs” and “wants”, the financially constrained U.K. system is much less responsive. In the UK system, tight control of funding and health resources have resulted in the intangible “wants” being constrained resulting in waiting lists for non-essential medical care and low marks from WHO for responsiveness (Bolnick, 2002).
So a transition from a multi-payer to a single-payer system will involve larger bureaucratic costs. On the other hand, two of the often-stated advantages of transitioning from a multi-payer to a single-payer system are (i) the elimination of profits for private-payers, and (ii) the elimination of administrative inefficiencies associated with having to deal with multiple payers. Nonetheless, proponents of a single-payer system often fail to mention the higher levels of waste, fraud, and abuse endemic in public systems, but which tend to be rooted out in private systems.
Figure 3 presents the total profit and administrative costs of private insurers versus the administrative costs of Medicare and Medicaid programs. The recent increases in administrative costs of Medicaid are due to a combination of (i) much larger enrollments in the Medicaid program under Obamacare; (ii) inefficient use of services, delivered in ERs, rather than in GP offices; and (iii) increases in waste, fraud, and abuse (see, for example, Brian Blasé, “ObamaCare Medicaid Expansion: A Lot Of Spending Of Little Value”).
So, then, without sufficient controls to (i) stem the bureaucracy, (ii) stem waste abuse and fraud, and (ii) encourage efficient venues for treatment of care, the saving from the elimination of payer profits might be more-than offset by greater inefficiencies.
5. Almost all OECD countries except the US have single-payer systems.
And almost all single-payer systems are supplemented, at least to some extent, by private insurance systems (see Figure 4 from the OECD report).
The US has a multi-payer system. The primary components include:
- Private insurance, which is administered by private payers;
- Medicare, which administers some services itself (through CMS) and contracts out to private healthcare insurers, Medicare Administrative Contractors (MACs) to process medical claims:
A Medicare Administrative Contractor (MAC) is a private health care insurer that has been awarded a geographic jurisdiction to process Medicare Part A and Part B (A/B) medical claims or Durable Medical Equipment (DME) claims for Medicare Fee-For-Service (FFS) beneficiaries. CMS relies on a network of MACs to serve as the primary operational contact between the Medicare FFS program and the health care providers enrolled in the program. MACs are multi-state, regional contractors responsible for administering both Medicare Part A and Medicare Part B claims.
- Medicaid, which is administered by the government (CMS).
6. All healthcare systems in developed countries are struggling financially to meet the healthcare needs of patients.
Systems administrators have been cutting payments to providers, number of treatments providers are allowed to perform, and payments for pharmaceutical products in an attempt to rein in costs.
Cuts in prices for pharmaceuticals
From the OECD report on price cuts for pharmaceuticals
Since 2008, price cuts have been very common. At least one third of OECD countries implemented measures to reduce regulated prices of pharmaceuticals.
Cuts in payments to doctors
In the US, the government (CMS) has been reducing its payments to Medicare providers “each year since 1999” in an attempt to reduce costs. As Robert A. Book reports in, “Single Payer: Why Government-Run Health Care Will Harm Both Patients and Doctors”
Medicare determines the level of its payments to physicians based on a complex formula involving crude estimates of the relative costs of providing different services, annual adjustments based on estimates of demand for services, and growth in the Medicare population and the overall economy. The annual adjustment process is expressed in the "Sustainable Growth Rate" (SGR) rule which attempts to constrain the growth in Medicare spending and "make up" for the differences between previous years' estimated and actual utilization.
Each year since 1999, the SGR calculation has called for a reduction in the Medicare payment levels (a "negative update") for physician services, because actual use outstripped previous forecasts, and forecasted future utilization outstripped the growth rate of the Medicare population and gross domestic product (GDP)... Negative updates were allowed to go into effect in only three of the last 11 years-in the other eight years, after intensive lobbying from physician groups.
More from Robert Smoldt, Denis Cortese, Natalie Landman, and David Gans, “Medicare Physician Payment: Why It’s Still A Problem, And What To Do Now” (see Figure 5):
Cumulatively from 2001 – 2014, while general inflation increased 33.4 percent and physician practice expense increased 60.6 percent, Medicare payment rates only went up 2.9 percent!
Increases in waiting times
From the OECD report
Long waiting times for health services is an important policy issue in many OECD countries (Siciliani et al., 2013). Long waiting times for elective (non-emergency) surgery, such as cataract surgery, hip and knee replacement, generates dissatisfaction for patients because the expected benefits of treatments are postponed, and the pain and disability remains. While long waiting times is considered an important policy issue in many countries, this is not the case in others (e.g., Belgium, France, Germany, Japan, Korea, Luxembourg, Switzerland, United States).
From Randi Druzin, “Crossing the Border for Care” on wait times in Canada:
In citing those numbers in its 2015 report, "Leaving Canada for Medical Care," the organization said difficulties in obtaining timely medical care at home is, increasingly, leading Canadians to seek it abroad. "It is possible [they] may have left the country to avoid some of the adverse medical consequences of waiting for care, such as worsening of their condition, poorer outcomes following treatment, disability, or death," the report says. "Some may leave simply to avoid delay and to make a quicker return to normal life."
Canadians could expect to wait 9.8 weeks for medically necessary treatment after seeing a specialist in 2014, the researchers found, three weeks more than the time physicians considered to be clinically "reasonable."
The public health care system sends some Canadians abroad for treatment partly because of a lack of available local resources, the report says.
Neil Chesanow, “Still Think A Single-Payer System Is Best? Read This First” on wait times in the UK:
In England, nothing gets done without layers and layers of reviews and approvals. People wait months for a CABG [Coronary artery bypass graft]. Specialists are booked out for months.
7. Private payers subsidize care of public payers
Medicare reimbursements to providers are generally lower than the corresponding reimbursements from private payers. Tami Lihby reports in “Medicare pays doctors less than private insurance” that (see Figure 6)
Overall, Medicare's allowed charges are roughly 80% of the charges allowed by private insurers - about the same as they have been since 1999.
To the extent that providers cannot cover their expenses for Medicare (and/or Medicaid) patients, they will see fewer Medicare patients and more privately insured patients. In other words, private payers subsidize Medicare patients. In a single-payer system, however, providers don’t have the option of using private-payer patients to subsidize single-payer patients, which could lead to adverse outcomes for single-payer patients. Robert A. Book describes this in more detail in “Single Payer: Why Government-Run Health Care Will Harm Both Patients and Doctors.”
What many fail to appreciate, however, is the extent to which the existence of multiple, competing payers prevents government payers such as Medicare from reducing their payment levels to much lower levels than prevail now. As it stands, a reduction in Medicare payment rates can induce physicians to drop Medicare patients and try to make their living from a higher percentage of (or even only) privately insured patients. This would inevitably result in reduced access to care for Medicare patients-and thus political pressure from those patients for increased Medicare payments to improve access.
The Medicare Model
If Medicare or something like it were the "single payer"-the sole purchaser of health care – no such pressure would exist. If the single payer established lower payment rates, by definition physicians could not drop out and make their living from other patients, because there wouldn't be any other patients… The inevitable result would be much lower payment rates and lower income for physicians.
Patients would suffer as well, especially in the long run. Because fewer highly talented people would be willing to undergo the years of training (under difficult working conditions and low pay) to become physicians, patients would suffer decreased access to health care and longer wait times. Lower payments would mean that physicians would invest less in advanced medical equipment and would likely spend less time with each patient. In addition, with fewer people undergoing the training necessary to conduct medical research, new treatments and cures would be developed at a slower rate, costing many lives.
8. Patients in the US pay higher prices for healthcare but the US leads the world in tertiary care
In the US, doctors earn more money, prices for prescriptions and procedures are higher, and more money is spent on new technologies and cutting edge research.
As Peter Ubel describes the situation in “People In The US Are Footing The Bill For Switzerland's Medical Care”
In the United States, we have a health care cost problem. We spend significantly more money on healthcare than our peers. And a big portion of this cost problem is a price problem . Our doctors make more money than similarly trained doctors in Europe. Our hospital executives make more money than their peers in Canada. And we pay more money for prescriptions than we would if we lived elsewhere.
Our higher spending has contributed to the ability of the US to lead the world in specialty care, perhaps at the expense of higher prices on primary care than for that in most other OECD countries. Patients Beyond Borders describes this phenomenon in “Hospitals and Surgery in the United States.”
Through most of the twentieth century, venerated US medical institutions dominated the world in research, academics, training, complex diagnosis and technology-driven treatment. As with other sectors, the US now shares the healthcare landscape with top medical and academic institutions around the globe.
A US academic medical center typically offers technologies and surgical expertise considered too expensive or too specialized for patients in many other countries. The US also offers a confidence factor: top US medical institutions remain the envy of the world, with unmatched high standards and rigor. Similarly, US physicians are subject to the most arduous system of ethical and legal accountability in the world.
Each year, some 300,000 international patients visit the United States seeking excellence in specialty care—especially in complex or "high-acuity" cases. US facilities and physicians are rarely able to beat the price at a JCI-accredited hospital in India, Turkey or Thailand; however, American specialists often are called upon to treat cases considered difficult or untreatable elsewhere.
Finally, the high prices paid in the US for treatments subsidize new treatments developed and used globally, not just in the US. In particular, healthcare developers outside the US (e.g., in Europe) sell their innovations in the US for high prices, thereby enabling them to recover any costs of development not covered by sales of their innovations to other countries at controlled prices. This means that the US is subsidizing healthcare innovations used in other countries outside the US.
Without the high prices in the US, incentives to developers of healthcare products and services would change to match the prices and other incentives created in the alternative (single-payer) system.
9. The US multi-payer healthcare system is an unsustainable payment system, more so than an insurance system.
An insurance system collects fees to cover unexpected (risky) needs. Generally, insurance providers collect relatively small premiums from all customers to cover subsequent, unexpected costs of a few customers. In the US healthcare system, however, insurance providers collect relatively high premiums from all customers to cover all – both expected and unexpected – healthcare expenses of all customers. In other words, the US healthcare system is more of a redistributive payment system than a traditional insurance system.
In sustainable insurance systems, the total premiums collected cover the total payouts to customers that experience adverse events:
Total Premiums ≥ Total Payouts,
∑ i Premiumsi ≥ ∑ i Payoutsi, for all customers i.
There are four features that characterize sustainable insurance systems:
- Insurance companies have a good understanding of what makes an adverse event more or less likely to occur (i.e., what determines risk), that is, they know the set of Risks, Riskj, for all possible covered events j.
- Insurance companies are able to estimate those risk factors fairly accurately for each customer, that is E(Riskji) ≈ Riskji. for all possible covered events j and customers i.
- Insurance companies are able to estimate the costs of each adverse event fairly accurately, that is, E(Costji) ≈ Costji. for all possible covered events j and customers i.
- Insurance companies are able to charge customers premiums based on those estimates of risk and costs, that is, Premiumji ≥ E(Riskji) x E(Costji), for all possible covered events j and customers i.
When sustainable insurance systems contain larger numbers of customers, then insurance providers are able to estimate risks and costs for each individual more accurately. And since premiums are based on risks and costs, better estimates of risks and costs lead total premiums collected to better approximate total payouts each period. In other words, generally speaking, “with larger pools of customers, insurance systems are better able to spread risks.”
The US healthcare system, however, has become increasingly unsustainable, mostly because the premiums are not largely based on risk. And because the US healthcare system does not involve premiums that are largely based on risk, having larger pools of patients will not necessarily serve to better spread risks. Moral hazard (risky behavior by people who don’t bear the full costs of their actions) will continue to wreak havoc on the system.
More specifically, from Fact 1 above, we saw that the primary determinants of health are behavior and environment. For the US healthcare system to be sustainable, it would need to base customer premiums on customer behavior and environment. As per government regulations, however, insurance providers collect fees from patients that are not highly correlated with the risks (behavior and environment) or magnitudes of expenses. Rather, premiums are increasingly influenced by income, youth, and health, which is generally the reverse of how healthcare insurance would normally work. In our system healthy people and rich people tend to pay premiums that are “too high” relative to their risks, while poor people and sick people tend to pay premiums that are “too low” relative to their risks. In particular, healthy people are subsidizing sick people “a lot,” and because of this, their premiums are “way too high.” This leads many of the healthy people, that is, the low risk people, to drop out of the system (i.e., not buy health insurance). Without those premiums, however, the payouts for medical expenses incurred by patients end up exceeding the premiums collected; that is, there tend to be cost over-runs. Insurance providers have been reacting to the cost over-runs by increasing premiums to all customers, and in particular to healthy people. In response, healthy people have been paying “way too much” for health insurance and continue to drop out of the system, causing more cost overruns and causing the system to become more unsustainable.
For the US healthcare system to become more sustainable, it is essential that customer premiums become highly correlated to risk, that is customer behavior and environment.
Clearly, it is not unusual for poor people to live in unhealthy environments, and thus suffer from poorer health as a result. As a compassionate nation, we want to subsidize healthcare services for the poor. In this case, rather than charging poor people in bad environments higher premiums to cover their higher risks, the nation could subsidize their healthcare, as we do. However, a more sustainable subsidization of health for the poor than the current system would entail a combination of (i) subsidies that depend on customer risk and behavior, while at the same time (ii) investing in trying to improve the environments to make them less threatening to poor people’s health.
Summary of Facts: what a transition to a single-payer systems would look like
So what we have are the following facts:
- Behavior and environment have a greater impact on the state of a person’s health than do genes or healthcare, and people in the US tend to engage in less healthy behavior and benefit from less healthy environments than do people in other developed countries.
- Demand for healthcare services will continue to rise as the population gets older, suffers from more chronic diseases, and has greater access to healthcare treatments.
- Transitioning from a multi-payer to a single-payer system would likely increase (i) bureaucracy; (ii) unresponsiveness and wait times; and (iii) waste, fraud, and abuse; but it would (i) eliminate profits to payers and (ii) some of the bureaucracy associated with dealing with multiple payers.
- Relative to the current system, a single-payer system would likely result in lower payments to physicians, lower payments to pharmaceutical companies, and less investment in technology. Specific incentives for physicians to provide quality care would depend on the nature of their reimbursements.
- Incentives for the development of new healthcare technologies (medications, devices, procedures, and IT technologies) globally would likely change. They would be more likely to focus on treatments for large volumes of patients at lower prices, rather than treatments for fewer patients at higher prices.
- A single-payer healthcare system would not be sustainable if people’s premiums or payments into the system were not highly correlated with their risks of healthcare expenses.
Since physician reimbursements would decrease, then all else equal, fewer physicians would choose to practice medicine, and/or those who remained would be of lower quality than those current in the system. A smaller supply of physicians would lead either (i) to more care by non-physician providers (e.g., physician assistants, nurses, aides, etc.), and/or (i) to longer wait times for patients seeking care. An increase in the incidence of lower quality physicians would lead to lower quality care.
Price controls on medications would likely decrease research in areas in which there are fewer patients, in particular, the areas that have recently been benefitting from the release of new, high-priced specialty medications.
If the single-payer system failed to link patients’ fees to behavior and environment, then the system would continue to be unsustainable, due to moral hazard. In particular, as new, costly treatments became available for people with chronic conditions, the system would have to increasingly ration the provision of services, likely through longer wait times.
1. What should the purpose of a government-sponsored healthcare system be?
In private payer (insurance) systems, each individual (theoretically) decides for himself how much healthcare services to consume.
Regarding government-sponsored healthcare, however, the problem with the current system is that there is no clearly defined purpose for the system. Without having a purpose to inform them, system participants don’t have clear guidance as to the numbers and types of services to provide to whom. This creates constant cost overruns and tensions over allocation of government funding healthcare as opposed to meeting needs for alternative government services. As the OECD report notes,
Health care is competing for public resources with different sectors such as education, defence and housing. The size of the public budget allocated to health is determined by a number of factors including the type of health and long- term care system, the demographic composition of the population and the relative budget priorities.
The amount of money needed to fund a government-sponsored healthcare system depends on what the purpose of the healthcare system should be.
a. If the purpose is to treat the sick, then, in Figure 7, we need funds in the amount of A to treat M* individuals to bring them up to a minimum threshold level of health.
b. If the purpose is to provide a good level of health to all, then, in Figure 7, we need funds in the amount of (A + B + C) to treat G* individuals to bring them up to a good level of health.
c. If the purpose is to improve the quality of life for all, then, in Figure 8, we need to provide funds for P* individuals.
2. How should a single-payer system in the US work and what types of incentives will it create?
While many advocate a Medicare-for-All system, Medicare is not, in fact, a single-payer system. Furthermore, it doesn’t provide the same services to everyone. Rather, beneficiaries pay separate premiums for the types of services they choose to receive (see Figure 9):
- Medicare Part A – Hospital Insurance
- Medicare Part B – Medical Insurance
- Medicare Part C – Medicare Advantage
- Medicare Part D – Prescription Drug Coverage
- Medicare Supplement (also known as Medigap or MedSup)
Understand, too, that it was CMS, the administrator of Medicare and Medicaid, that developed and implemented the use of detailed diagnosis and treatment codes and the pay-per-treatment system. From “History and Development of CPT,”
The Healthcare Common Procedure Coding System (HCPCS) is a set of health care procedure codes based on the American Medical Association's Current Procedural Terminology (CPT). Commonly pronounced Hick-Picks. This system is a uniform method for health care providers and medical suppliers to report professional services, procedures, and supplies. The CMS developed this system in 1983 to:
1. Meet the operational needs of Medicare/Medicaid.
2. Coordinate government programs by uniform application of CMS policies.
3. Allow providers and suppliers to communicate their services in a consistent manner.
4. Ensure the validity of profiles and fee schedules through standardized coding.
5. Enhance medical education and research by providing a vehicle for local, regional, and national utilization comparisons.
Additionally, extensive data collection and reporting requirements were implemented under Obamacare, in part so that researchers could aggregate and study population health and treatment information to aid in the development of better treatments. It is therefore not likely that a single-payer system run by the US government generally, and/or CMS specifically, would back off from the currently complex coding requirements.
So now we have the following Issues to consider about the implementation of a single-payer system in the US.
a. Should the distributions of fees across the population depend on
• Genes or Pre-existing conditions?
b. How should providers be reimbursed for their services?
• Per visit
• Per treatment?
• Per patient?
c. Should there be deductibles and copays for services?
• Office visits to GPs? Specialists?
• Imaging and Lab Tests? Planned procedures?
• Visits to the ER?
• Hospital Inpatient Stays?
The specific characteristics of fees and payments systems chosen in a., b., and c. will affect
- The behavior of patients with regard to their chosen lifestyles and patterns of consumption of healthcare services, and
- The incentives of providers regarding the quantity and types of treatments they offer patients.
3. Points to Ponder: How will innovation and quality of care change under a single-payer system?
A single-payer system will entail price controls on payments to providers (physicians, pharmaceutical companies, medical device companies, etc.). More specifically, as stated earlier (Fact 8), US patients pay higher prices than patients in other OECD countries for physicians, pharmaceutical, medical equipment, etc. So if the US were to adopt a single-payer system, presumably all the prices would be cut from their present levels. In fact, Neil Chesanow indicates that
Studies of countries with universal coverage show that their doctors earn up to 70% less than doctors here.
And, as noted previously, the OECD reported indicated that
Since 2008, price cuts have been very common. At least one third of OECD countries implemented measures to reduce regulated prices of pharmaceuticals.
The incentives for physicians to provide high quality care would depend in no small part on the reimbursement schedules established (as discussed in Issue 2 above). What type of care will the payment schedules to providers under a single-payer system incentivize them to provide?
Higher prices in the US also subsidize the development and use of new medical treatments and procedures used for patients in other countries but reimbursed at much lower rates. In particular, under the current system, pharmaceutical companies have an incentive to develop
- Marginally better medications than those currently on the market, because they can patent the improvements and charge much higher prices
- High-priced medications to treat specialty diseases
- Products that treat, rather than cure, chronic conditions
At the same time, the current system provides little incentive for innovators to develop solutions that will
- Cure chronic conditions
- Decrease the costs of providing care to patients (i.e., process innovations)
- Improve treatments while lowering costs (product innovations)
- Utilize off-patent or unpatentable products to improve patients’ health
How will the focus of pharmaceutical companies (and other developers of new healthcare procedures and treatments) change under a system of price controls? How do we devise a system that will encourage innovators to focus development efforts on Set B innovations, rather than on Set A innovations?