Response to Criticisms of “Universal Coverage Kills”

I have received a fair amount of criticism for my recent oped “Universal Coverage Kills,” which appeared at National Review Online and in the Orange County Register: Fun excerpts include:

  • A philosophically sympathetic eICU medical director emails that I am “off the mark.”
  • A “free-market believer and an attorney” emails that he is “upset about the increasingly anti-physician rhetoric of Mr. Cannon. It is extremely biased and counter-productive to the free market…The DOCTORS are the ultimate producers of health care. Get off their backs.”
  • A “libertarian doctor” emails that I “insult our intelligence with well-meaning but fundamentally obtuse, ignorant opinions. If you don’t know, and you clearly don’t know, ask a practicing doctor.”

Moving beyond my philosophical allies…

  • In a letter to the editor, an Orange County pediatrician writes, “Cannon’s preaching from his high horse that hospitals and doctors are ‘rewarded’ for medical errors is irresponsible and wrong. He needs to walk in our shoes and, perhaps, he will be less cynical and be more grateful that we, as a medical profession, are here to heal with our hearts and souls, to cure with our mind and body and to always do no harm.”

Bloggers have also offered their two cents:

  • WhiteCoat writes, “It amuses me when people possessing little knowledge of the inner workings of the practice of medicine write articles as if they are ‘in the know.’ Mr. Cannon’s article is one such work…there are several statements Mr. Cannon makes that are either purposely inflammatory or that show a fundamental lack of insight…I’m glad he links to a few statistics, but the conclusions he comes up with are flat out wrong.”
  • Ezra Klein mocks as usual, yet (damn him!) fails to provide any juicy quotes.

So what’s all the hubub about? I claimed that America’s grand experiment with universal coverageMedicare – has stifled innovations that reduce medical errors, and has thus caused unnecessary deaths.

Here’s my argument:

One way to discourage people from injuring each other is to force Smith to bear the cost of any injuries he inflicts on Jones. That’s the idea behind tort law (including medical malpractice liability), even if it sometimes doesn’t work very well (such as with medical malpractice liability).

Medicare tends not to do that. It generally pays health-care providers on a fee-for-service basis. That means that if a provider makes a mistake that injures a patient and the patient requires follow-up care, Medicare will pay for both the service that caused the injury and the follow-up services. Medicare’s payment system thus rewards medical errors with extra payments. The Medicare Payment Advisory Commission agrees: “At times providers are paid even more when quality is worse, such as when complications occur as the result of error.”

Medicare recently admitted that this is a problem, and has attempted a remedy. Medicare announced that as of October 2008, it will no longer pay for:

  • Hospital services attendant to any of a list of “hospital-acquired conditions,” such as catheter-associated urinary tract infections, or
  • Hospital or physician services attendant to “never events” such as operating on the wrong body part, operating on the wrong patient, or performing the wrong surgery on a patient.

In terms of using financial incentives to discourage medical errors, however, Medicare is late to the party. Markets have long since developed another payment system that forces providers to bear 100 percent of the (financial) costs of any medical errors.

Prepayment gives the provider a flat amount of money per patient. When combined with an integrated delivery system to form a “prepaid group plan,” where all the hospitals and doctors work for the same entity, prepayment places the cost of avoidable medical errors squarely on providers. Following a medical error, the providers themselves have to pay the cost of any additional care. Under fee-for-service payment, providers lose money if they reduce medical errors; under prepayment, providers profit by reducing errors.

That may explain why prepaid group plans are ahead of the rest of the market when it comes to deploying electronic medical records and other error-reduction efforts. As Lucian Leape and Donald Berwick note:

Several large, integrated health care systems, notably Kaiser Permanente, Ascension, and [yes] the Veteran’s Health Administration, have been leaders in implementing new safe policies and practices.

According to Paul Starr, prepaid group plans have been around since at least 1929, though the largest and best-known (Kaiser Permanente) dates to the 1940s.

(Prepayment is not perfect, of course. Providers get to keep whatever money they don’t spend on medical care, which creates obvious incentives to skimp. Evidence from and since the RAND Health Insurance Experiment, however, suggests that patients in prepaid group plans have fared no worse than other patients.)

So despite the fact that alternative payment systems have been available since 1929, it took that lumbering giant Medicare (created in 1965) more than 40 years to notice and then attempt to remedy the fact that its payment system rewards providers for medical errors. When pressed, some members of the Church of Universal Coverage will admit that government control of health care will lead to less medical innovation – i.e., fewer cool new drugs and medical devices. They less often admit that government suppresses innovation in the financing and delivery of medical care, even though that can be just as harmful. Indeed, considering that Medicare is the largest purchaser of medical care in the nation – so large private insurers tend to ape its every move – Medicare bears responsibility for an awful lot of deaths due to medical error.

Here’s what my critics had to say:

A couple of doctors argued I should not cite the Institute of Medicine’s estimate that medical errors kill up to 100,000 patients in U.S. hospitals every year. I am aware of the problems with the IOM’s method of identifying medical errors, and have written about those problems previously. Unfortunately, I’m not aware of a better estimate, and my critics do not offer one.

More important, the precise number of deaths due to medical error is beside the point. If we can agree that medical practice responds to financial incentives, then I’m sure we can agree that Medicare’s payment system has made providers less vigilant about avoiding medical errors than they would be in a market free to experiment with different payment systems.

Mostly, however, the doctors argued against Medicare’s new policy. Some illustrative excerpts:

“Some of these complications, such as wrong-site surgery, incompatible transfusion, and air emboli, are admittedly indefensible. However, others, such as pressure ulcers, ventilator-associated pneumonia, and catheter-associated urinary tract infections, are not necessarily reflective of poor care.”

“There is an irreducible minimum for post-operative infections…It is impossible to prevent all surgical wound infections.”

“While it certainly sounds reasonable to not pay for care that is the result of a patient injury, some injuries such as a post-surgical wound infection or bed sores, cannot be prevented in all patients. You can reduce the risk, but even with what is considered optimum care, bad things can happen because every patient is different and how the patient reacts to some insult to his or her body is different.

“When payment is denied for care for these type of complications, what will eventually happen is that the no physician or hospital will desire to care for the sickest patients…What occurs in those situations, is that the physician and the hospital is being punished for the patient’s poor health.”

The problem with those arguments against Medicare’s new payment policy (or any type of prepayment) is that they assume there is no room for improvement in error reduction – despite considerable evidence to the contrary.

  1. There may be “an irreducible minimum for post-operative infections.” But how do we know what that minimum really is? If all hospitals have an infection rate of 5 percent and some rogue hospital cuts its rate to 1 percent, Medicare’s old policy would penalize that hospital. That seems more like a recipe for protecting incumbents than reducing medical errors.
  2. Medicare’s new policy may encourage providers to avoid doing some procedures on subgroups of patients when the cost of those procedures (including the expected cost of complications) exceeds the payment. But the new policy also creates profit opportunities for providers who can reduce that expected cost by reducing the probability of infection within that subgroup.

Ultimately, those arguments tell us nothing about whether Medicare’s old payment policy is better than the new one. Prepayment creates incentives for providers to skimp and to avoid high-risk patients, but it also creates financial rewards for innovations that enhance patient safety. Fee-for-service payment may be better for patients, or it may be the last refuge of a scoundrel who just isn’t trying hard enough to improve patient outcomes.

More important, those arguments are also completely beside the point. The point is not whether Medicare’s new payment policy is better than the old one. We need experiments with different payment policies to see which produce the best outcomes for patients, and the rigidity that government brings to that process is downright harmful.

WhiteCoat, an ER doc, makes two interesting observations. First, he accuses me of “advocating a national HMO.” Yeah, that’s so me. Second, he writes:

if people like Mr. Cannon and our beloved government are so sure that all of these “errors” are preventable, then provide all of us overpaid brain dead doctors with a way to prevent the errors, then. Give me some links to those articles, there, Hippocrates. Put up or shut up.

I accept WhiteCoat’s challenge and draw his attention to the “About” page of his own blog, where he describes himself as having “undiagnosed ADD”:

I can literally be eating lunch, talking on the phone, admitting a patient and typing an entry on this blog all at the same time.

So here’s my advice on how to avoid medical errors. Put down the sandwich, hang up the phone, step away from the blog, and pay attention to your patient.

The Orange County pediatrician writes, “we do not allow surgical sites to get infected, air bubbles to enter a patient’s bloodstream or operate on the wrong body part so we can get ‘rewarded’ with extra fees.” As if I suggested such a thing.

And finally, Ezra Klein, who gets a little confused about dates and payment systems. Klein apparently thinks the market contributed no solutions to this problem until a couple of years ago when the Minnesota HMO HealthPartners started refusing to pay hospitals for “never events.” Surely, Klein would agree with Paul Starr that 1929 saw not just the creation of Blue Cross, but also the creation of the Ross-Loos Clinic and the nation’s first medical cooperative in Oklahoma, both of which were prepaid group practices. Surely, Klein would also agree that markets had therefore developed, by 1929, a payment system that forces providers to bear the financial costs of their errors. (But I should thank Klein for helpfully pointing out that Medicare’s new policy was also developed first by the private sector.)

Yet Klein also argues that government beats markets at finding the best payment system:

The vast majority of doctors are private. The vast majority of doctors remain on fee-for-service plans. Kaiser Permanente and Group Health Cooperative have not pioneered a new norm of salaried physicians. Not even close. Meanwhile, the Veteran’s Administration, which is the country’s largest socialized health care system, has its doctors on salary. Indeed, as the VA demonstrates, when government takes over health care, it salaries its physicians. So do most other socialized systems around the world. When government simply pays for health care on the private market, as with Medicare, it does not salary the physicians because it does not employ them. Instead, it pays them under private market norms. Weird how that works – it’s almost as if the market, where physicians retain their fee-for-service status, is failing us, but socialized systems worldwide have figured out the salary thing.

Again, Klein is confused. First, prepayment is not the same thing as having physicians on salary. For example, Kaiser Permanente is offering large employers access to its hospitals and medical group on a fee-for-service basis, yet physicians within that group still draw a salary. The distinction is important.

Second, Medicare is not a market-driven health care system. (Heads up: when health-policy wonks tell of the elderly woman who said, “Tell the government to keep its hands off my Medicare,” that’s a laugh line.) Medicare isn’t just government-run, it is socialized medicine.

Third, it’s a little odd to attribute the dominance of fee-for-service payment to market forces when one considers all that government has done to inhibit prepayment. Everything from Medicare, to medical licensure, to insurance-licensing laws, to corporate-practice-of-medicine laws, to laws prohibiting prepayment, to ERISA, to the tax exclusion for employer-sponsored health insurance premiums has inhibited the growth of prepayment broadly and prepaid group plans in particular. It’s almost as if the physicians have used the law – and their useful compatriots on the Left – to block competition from better ways of financing and delivering medical care. And the Left then responds by lamenting the market’s lack of progress.

I repeat my prediction: Ezra Klein will die a libertarian.

Random Searches = Poor Counterterrorism

terrorism [ter-uh-riz-uhm]
- noun
1. the use of violence and threats to intimidate or coerce, esp. for political purposes.
2. the state of fear and submission produced by terrorism or terrorization.
3. a terroristic method of governing or of resisting a government.

So, one would think that countering terrorism would involve resisting coercion by resisting fear and submission.

That’s not the case in Washington, D.C., where Metro officials plan to start random searches of travelers’ bags. Not because of any specific threat, but because “Americans everywhere are at some risk from terrorism.”

Let’s get something out of the way first: Random searches do not provide security against terrorist acts. If it comes to it, a bomber can inspire fear just as well by exploding a checkpoint as he can by bombing any other part of the Metro system. Other kinds of attacks can be snuck past random checks or even comprehensive checks. Random searches are security theater, designed to make it seem like something protective is being done when it’s not.

What random searches do is reward past acts of terrorism by demonstrating that they have successfully cowed our society, made it fearful, and subject to coercion. This will tend to encourage future acts of terrorism. Seven years later, the 9/11 attacks are still paying dividends.

Searching at random in the Metro system plays into the terrorism strategy. Metro officials mean well, there can be no doubt, but they’re patsies to terrorism.

Pension Nationalization: Peron vs. Kirchner

I just got back from a trip to Argentina, where Peronist President Cristina Kirchner announced a proposal to nationalize private pensions. This is theft on a grand scale—the assets are worth about $30 billion—at a time when government spending has skyrocketed and the possibility of yet another official default next year has increased. There is plenty to criticize about the populist regime’s latest moves, but in a 1973 speech, none other than Juan Perón emphatically condemns the nationalization of private pensions, calling it “theft” and referring to public pension systems as generally “inefficient” and “unsafe.” He describes a previous episode in Argentina when a government in need of money nationalized private pensions and depleted workers’ retirement funds, using them for other purposes. It was an “assault.” For those of you who understand Spanish, see the video that has caught Kirchner by surprise:

A New Blog on Free Speech and the Media

This is the time of the season for being fed up with politics and not least, of course, with the presidential election. (Actually, I reached that point a while ago). Part of my frustration comes from the candidates who appear willing to say anything, no matter how unrealistic, to win the White House. But part of my frustration lies also with the media who don’t hold the candidates to any standards that might inform voters who care enough to read and listen. This is all the more so since we are experiencing a financial crisis that elicits nothing more from the candidates than a promise “to fix the economy,” whatever that might mean. Shouldn’t the media demand more on our behalf?

Writing for a new blog from The Media Institute, Patrick Maines helps makes sense of my frustration. He points out that the media are following their practice of covering the financial crisis (and the presidential election) like a horse race. Yes, the crisis is helping Obama, but is that the most important thing to know right now? Maines writes:

The stark fact is that the national news media have underreported and misreported virtually every important aspect of our national nightmare: how we got into it, how we can prevent it from happening again, and, most importantly, how we can escape its worst effects now – and how our national leaders can help us.

Maines’ criticism is apt and convincing. The Media Institute, the home of the blog, works on free speech issues and receives substantial support from media companies. Of course, free speech does not necessarily mean good or even useful speech. But the answer to such shortcomings is more speech as Maines proves in his post.

I am intrigued that Maines criticizes the media, a pretty independent stance when you think about it. This blog bears watching as we head into a new administration that seems likely to offer many challenges to freedom of speech.

School Choice Can Fix Fairfax County School District Budget

The Washington Post reports today that the bad economy is forcing budget cuts for the Fairfax County school district. The cuts could include “no cost-of-living raise for teachers, an increase in class size and elimination of such services as busing to centers for gifted and talented students.”

Consider the fact that Fairfax spends around $16,000 on every student (when you add the goodies they leave out), I’d say it’s about time for a more efficient use of funds.

But if the school district really wants to save big bucks for taxpayers and not even have to increase class size or freeze teacher pay, there’s a sure-fire way: education tax credits.

The median tuition at a private school only runs around $4,500. If Virginia allowed tax credits for education, they could save more than $10,000 or every student who switched from public to private school.

A recent Cato fiscal analysis showed that 5 different states could each save billions with a robust education tax credit program.

Maybe Virginia policymakers should turn their attention from haphazard emergency budget cuts to a system of school choice that brings a massive and systemic increase in efficiency and improves education at the same time.

David Friedman at Cato

David Friedman will talk about his new book, Future Imperfect: Technology and Freedom in an Uncertain World, at a Cato Book Forum next Thursday, November 6.

Speaking at Google and to the San Francisco Chronicle, he describes his thinking this way:

“There are no brakes available. … If it can be done, it will be done,” he said at an event that was recorded and posted on YouTube. “So the interesting thing to me is not what should you stop but how do you adapt.” …

“I’ve got three different technologies that could wipe out the species,” said Friedman, a self-professed libertarian who is certain that neither politics nor central planning will avert a possible bad technological outcome.

“I am much more worried about the government making the wrong response and doing damage than I am about the government not protecting me,” said Friedman, adding: “It’s a mistake to think of the world as if there was somebody in charge. There’s never been anybody in charge.”

David Friedman has been one of the most interesting libertarian thinkers for more than 30 years, since he published his book The Machinery of Freedom. Don’t miss his take on the future of technology and freedom. Sign up here.