Treating A Scorpion Sting: $ 100 In Mexico Or $ 12,000 In U.S.

By Jenny Gold
Kaiser Health News, November 28, 2011

Say you’re trekking through the desert in Mexico, minding your own business, when all of a sudden a scorpion scrambles up your boot and stings your leg. You hobble over to a nearby clinic, where you’re given a dose of anti-venom that brings you fast relief. The charge for the serum is about $100.

Now imagine instead that you happen to be hiking in Arizona, and the same type of scorpion stings you. You make it to the emergency room, where the charge for a dose of the same anti-venom costs can cost as much as $12,000, according to a survey by The Arizona Republic.  Since patients need three to five doses, the cost can reach about $50,000.

The drug, called Anascorp, has been available for years in Mexico, but was just given FDA approval in August  for the U.S. market. Anascorp is designed to treat the sting of the Bark Scorpion, a particularly poisonous species.

Milton Ellis, president of Rare Disease Therapeutics, a Tennessee-based company that has the rights to Anascorp in the U.S., told The Arizona Republic that the cost of the drug is based on a number of factors, including the expensive clinical trial the company sponsored to get FDA approval and the expected demand for the serum. The company sells the drug for $3,500 to another firm that provides it to Arizona hospitals for about $3,780, The Republic found.

Hospitals mark up the drug to cover other costs, including the expenses of patients who are uninsured and the heavy discounts it gives to insurers.

Dr. Leslie Boyer, director of the Venom Immunochemistry, Pharmacology and Emergency Response (VIPER) Institute and the principal investigator of the Anascorp study published in the New England Journal of Medicine,  says she was surprised and “a little saddened” by the high cost of the drug. “It’s priced at a level where we can only use it for the very sickest patients, when I know that people with more moderate symptom would also benefit but might not be able to afford it,” she explains.

If the drug were “priced for the walking miserable,” instead of only those patients with the most severe symptoms, more of the drug would be sold and the price could be lower, she explains. As it is, she worries that rural Arizona hospitals, which tend to be the least wealthy, will not be able to stock the anti-venom and will still have to send critically-ill patients on a long helicopter or ambulance ride instead.

The high prices, she says, are “a public health problem.”

****

Response

Don McCanne says:
(Comment is awaiting moderation as of this posting.)
November 29, 2011 at 12:38 PM

Results of a quick Internet search:

Study posted yesterday at ClinicalTrials.gov:
http://clinicaltrials.gov/ct2/show/study/NCT00624078?term=Anascorp&rank=1

Sponsor: Instituto Bioclon S.A. de C.V. (Mexico
Collaborator: University of Arizona

R&D at Instituto Bioclon:
http://www.bioclon.com.mx/bioclon/html/investigaciond_en.html

“The Bioclon Institute’s technology plan has been implemented through a financing strategy that combines the Institute’s own investments with resources from governmental institutions through agreements with: The National Science and Technology Board (El Consejo Nacional de Ciencia y Tecnologia) (Mexico), The Commerce Secretary (La Secretaria de Economía) (Mexico), and The Food and Drug Administration (United States).”

The fact that government-supported research (United States and Mexico) can result in a product that sells for $100 in Mexico and $12,000 in the United States, says much more about how health care is financed in the United States than it does about government and private roles in research.

All other wealthy nations have controlled health care spending much more effectively, while covering everyone, by using financing systems that require considerable government oversight. We rely on a fragmented system of private plans, public programs (and no programs at all for far too many), that has allowed runaway spending without a commensurate improvement in quality and outcomes.

It really is time to dump the administratively wasteful but expensive private insurers which have been ineffective in slowing cost escalation. We should improve Medicare, and then provide it for everyone. We might not be able to get the price of Anascorp down to $100, but negotiations through our own public Medicare administrators would set pricing based on legitimate costs and fair profits – a price that would undoubtedly be a small fraction of the $12,000 being charged.

http://capsules.kaiserhealthnews.org/index.php/2011/11/treating-a-scorpion-sting-100-in-mexico-or-12000-in-u-s/comment-page-1/#comment-19404

And…

Antivenom for Critically Ill Children with Neurotoxicity from Scorpion Stings

By Leslie V. Boyer, M.D., et al
The New England Journal of Medicine, May 14, 2009

Among critically ill children with neurotoxic effects of scorpion envenomation, intravenous administration of scorpion-specific F(ab′)2 antivenom resolved the clinical syndrome within 4 hours, reduced the need for concomitant sedation with midazolam, and reduced the levels of circulating unbound venom. (ClinicalTrials.gov number, NCT00685230.)

Supported by grants from the Food and Drug Administration (FD-R-002385-01) and the Arizona Biomedical Research Commission (0001).

http://www.nejm.org/doi/full/10.1056/NEJMoa0808455#t=abstract

Instead of administered pricing, our government depends more heavily on the market for the pricing of our health care when payments are made through private insurers. Only the magic of the marketplace can price a $100 vial of antivenin at $12,000! Obviously we do not have nor ever will have a functioning free market in health care. It’s time to abandon this myth and move on with an effective method of controlling costs through fair pricing – a single payer national health program.

New Evidence of the Association between Hospital Market Concentration and Higher Prices and Profits

By James C. Robinson, PhD, University of California, Berkeley
National Institute for Health Care Management, November 2011

After a swell of hospital mergers and acquisitions in the 1990s, the industry has again been experiencing significant consolidation as large hospital systems have bought up smaller systems and stand-alone hospitals left vulnerable by the recession. The local and regional chains resulting from consolidation typically wield greater bargaining leverage than do stand-alone facilities. The evidence from several decades of research on this topic shows higher hospital prices following consolidation and recent work documents how large hospital systems serving multiple markets are able to extract higher prices for all facilities in their chain, not just in markets where they are dominant.

Two provisions of the 2010 Affordable Care Act (ACA) have brought new attention to the issue of hospital market power. First, because the ACA coverage expansions will be financed in part by slowing the rate of increase in Medicare payment updates, there is concern that hospitals with as yet unexploited pricing leverage will attempt to recoup some of the lost Medicare revenue by raising prices to private insurers. Second, the integration of hospitals and physicians into the accountable care organizations (ACOs) encouraged by the health reform legislation is expected to accelerate provider consolidation in local markets. Indeed, hospitals are already consolidating with physicians at a fast clip, and many observers are asking whether this integration will give hospitals (and physicians) additional pricing power vis-à-vis private payers.

In this essay I present findings from a new study that adds another piece of evidence to support concerns over hospital consolidation and market power. Specifically, using individual level data from 61 hospitals for patients treated during 2008 for any of six high-cost inpatient cardiac or orthopedic procedures, I show that hospitals in concentrated markets charge significantly higher prices to private payers than do their peers in more competitive markets. Furthermore, these prices are significantly above their direct costs of providing care.

The work reported here confirms earlier studies showing that hospitals are able to extract higher private payments when they hold more market power. Public policy has been ambivalent with respect to the ongoing consolidation within hospital markets. While antitrust regulatory agencies have challenged a number of hospital mergers in the past few decades, these challenges rarely culminated in decisions to disallow a merger. Now provisions of the ACA are encouraging further consolidation of hospitals and physicians, and the final antitrust review regulations from the Department of Justice and the Federal Trade Commission have eliminated the proposed mandatory review of certain prospective ACOs.

It will take some time to see what types of ACOs are allowed to form and how they will affect the competitive structure within their markets. It is clear, however, that the ongoing consolidation of local hospital markets is already frustrating the efforts of employers and private insurers to moderate the growth of health care costs. While the use of administered pricing systems largely insulates public payers from the effects of provider market power, the higher reimbursement rates that dominant providers can extract from private payers during rate negotiations put significant upward pressure on private premiums. In response, employers and other purchasers of private coverage have begun demonstrating a new willingness to accept limits on their health plan’s provider network, and private insurers are developing new products using tiered networks that exclude or disadvantage providers judged to not deliver value commensurate with their higher prices.

http://nihcm.org/images/stories/NIHCM-EV-Robinson-Final.pdf

The increase in hospital market concentration has resulted in higher prices with enormous profits, simply due to the boost in leverage that consolidation of hospitals has had in price negotiations with private insurers. How will the Affordable Care Act impact this?

The Federal Trade Commission will be relaxing antitrust review of provider consolidation in order to allow greater freedom for accountable care organizations to experiment with delivery system reform. Consolidation will likely increase.

To counter this, private insurers are already developing new products such as those with tiered networks which will penalize patients financially if they use the dominant providers in their communities.

So the intent is to improve quality and the cost effectiveness of health care by encouraging integration of the health care providers, as through accountable care organizations, yet we will be seeing higher costs and higher profits as a result. That inevitably means that premiums for the private health plans will be higher – a problem that the Affordable Care Act was supposed to address.

What is the link that causes this unintended perversity? It is the insistence of our policymakers that the private insurers be included as the financial intermediaries. Plenty of studies have now shown that the private insurers do not have negotiating clout in markets with provider consolidation. So why should we continue to include them, especially when they waste so much in imposing a huge administration burden, while taking away patients’ choices of health care providers?

The government does have the leverage to get the pricing right. We should have it representing all of us in obtaining the best value for our national health expenditures. An improved Medicare for everyone is the vehicle that we need.

By Sean F. Reardon and Kendra Bischoff, Stanford University
US2010 Project, November 2011

Report Abstract
 
As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common. In fact, the share of the population in large and moderate-sized metropolitan areas who live in the poorest and most affluent neighborhoods has more than doubled since 1970, while the share of families living in middle-income neighborhoods dropped from 65 percent to 44 percent. The residential isolation of the both poor and affluent families has grown over the last four decades, though affluent families have been generally more residentially isolated than poor families during this period. Income segregation among African Americans and Hispanics grew more rapidly than among non-Hispanic whites, especially since 2000. These trends are consequential because people are affected by the character of the local areas in which they live. The increasing concentration of income and wealth (and therefore of resources such as schools, parks, and public services) in a small number of neighborhoods results in greater disadvantages for the remaining neighborhoods where low- and middle-income families live.

From the Conclusion

During the last four decades, the isolation of the rich has been consistently greater than the isolation of the poor. Although much of the scholarly and policy discussion about the effects of segregation and neighborhood conditions focuses on the isolation of poor families in neighborhoods of concentrated disadvantage, it is perhaps equally important to consider the implications of the substantial, and growing, isolation of high-income families. Given that in 2008 the top 10 percent of earners controlled approximately 48 percent of all income in the United States (Piketty & Saez, 2010), the increasing isolation of the affluent from low- and moderate-income families means that a significant proportion of society’s resources are concentrated in a smaller and smaller proportion of neighborhoods. As we argued above, this has significant consequences for low- and middle-income families, because the isolation of the rich may lead to lower public and private investments in resources, services, and amenities that benefit large shares of the population, such as schools, parks, and public services.

http://cepa.stanford.edu/system/assets/drupal/RussellSageIncomeSegregationreport.pdf

Comment: 

By Don McCanne, MD

As the more affluent members of our society continue to concentrate themselves in their upscale neighborhoods, they take our resources with them, including some of the best of our health care services. Not only do they leave behind fewer resources for low- and moderate-income families, they also leave behind the political will to do something about it.

Can we convince those in the affluent communities that most of them are still a part of the 99 percent? Or will their guileless but infelicitous complacency perpetuate inertia?

Growth in the Residential Segregation of Families by Income, 1970-2009

By Sean F. Reardon and Kendra Bischoff, Stanford University
US2010 Project, November 2011

Report Abstract

As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common. In fact, the share of the population in large and moderate-sized metropolitan areas who live in the poorest and most affluent neighborhoods has more than doubled since 1970, while the share of families living in middle-income neighborhoods dropped from 65 percent to 44 percent. The residential isolation of the both poor and affluent families has grown over the last four decades, though affluent families have been generally more residentially isolated than poor families during this period. Income segregation among African Americans and Hispanics grew more rapidly than among non-Hispanic whites, especially since 2000. These trends are consequential because people are affected by the character of the local areas in which they live. The increasing concentration of income and wealth (and therefore of resources such as schools, parks, and public services) in a small number of neighborhoods results in greater disadvantages for the remaining neighborhoods where low- and middle-income families live.

From the Conclusion

During the last four decades, the isolation of the rich has been consistently greater than the isolation of the poor. Although much of the scholarly and policy discussion about the effects of segregation and neighborhood conditions focuses on the isolation of poor families in neighborhoods of concentrated disadvantage, it is perhaps equally important to consider the implications of the substantial, and growing, isolation of high-income families. Given that in 2008 the top 10 percent of earners controlled approximately 48 percent of all income in the United States (Piketty & Saez, 2010), the increasing isolation of the affluent from low- and moderate-income families means that a significant proportion of society’s resources are concentrated in a smaller and smaller proportion of neighborhoods. As we argued above, this has significant consequences for low- and middle-income families, because the isolation of the rich may lead to lower public and private investments in resources, services, and amenities that benefit large shares of the population, such as schools, parks, and public services.

http://cepa.stanford.edu/system/assets/drupal/RussellSageIncomeSegregationreport.pdf

As the more affluent members of our society continue to concentrate themselves in their upscale neighborhoods, they take our resources with them, including some of the best of our health care services. Not only do they leave behind fewer resources for low- and moderate-income families, they also leave behind the political will to do something about it.

Can we convince those in the affluent communities that most of them are still a part of the 99 percent? Or will their guileless but infelicitous complacency perpetuate inertia?

Organization for Economic Cooperation and Development (OECD)
November 23,2011

Why is health spending in the United States so high?

The United States spends two-and-a-half times more than the OECD average health expenditure per person.

Rich countries spend more than poor countries. Chart 3 (at link below) shows that for nearly every country, if you know how rich they are, you can predict their health spending per person per year to within a few hundred dollars. The United States is an exception – Americans spend nearly $3000 per person per year more than Swiss people, even though Swiss people have about the same level of income.

Where does the money go?

Hospital spending is higher than in the five other OECD countries, by over 60%.

Spending on Ambulatory care providers – that is, physicians and specialists as well as dentists, is much higher than in the other OECD countries – almost two-and-a-half times the average of the other five countries.

Spending on Pharmaceuticals and medical goods is higher in the US than in any other country, but overall accounts for a smaller share of total health spending than in the other countries.

Spending on Public Health and Administration is particularly high – more than two-and-a-half times the average.

Are U.S. health prices high?

Overall, the evidence suggests that prices for health services and goods are substantially higher in the United States than elsewhere. This is an important cause of higher health spending in the United States.

Does the U.S. provide too much health care?

(The United States) does not have many physicians relative to its population; it does not have a lot of doctor consultations; it does not have a lot of hospital beds, or hospitals stays, when compared with other countries, and when people go to hospital, they do not stay for long. All these data on health care activities suggest that US health spending should be low compared with other countries.

On the other hand, the US health system does do a lot of interventions. Table 3 (at link below) shows that it has a lot of expensive diagnostic equipment, which it uses a lot. And it does a lot of elective surgery – the sort of activities where it is not always clearcut about whether a particular intervention is necessary or not.

Why is health spending in the United States so high?
http://www.oecd.org/dataoecd/12/16/49084355.pdf

Health at a Glance 2011: OECD Indicators
(The entire publication can be accessed for free at this website.)
http://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2011_health_glance-2011-en

Comment: 

By Don McCanne, MD

The Organization for Economic Cooperation and Development (OECD) has just released “Health at a Glance 2011: OECD Indicators.” It “provides the latest comparable data on different aspects of the performance of health systems in OECD countries.” You should save the link above that provides free access to this publication since the data are frequently used by the policy community to compare the United States with other nations.

When examining the tables, charts, graphs and text, keep in mind that the data are sometimes presented in a manner that does not always correlate with highly credible data from other sources.

For instance, the category of public health and administration does not include the same administrative costs as measured by Woolhandler and colleagues in their landmark NEJM articles. Nevertheless, the OECD still reports that public health and administrative costs in the United States are more than two-and-a-half times the OECD average.

Also, the OECD estimates of public spending for health care in the United States leave out two important categories. The tax deductibility of employer-sponsored plans amounts to a subsidy of taxpayer funds, plus taxpayers also pay for the employer component of health insurance premiums for employees of federal, state and local government agencies. Although the OECD reports the percent of government spending on health care in the United States as being one of the lowest, on a per capita basis our public spending on health care is actually higher than the public and private spending combined in almost all other nations.

So when you hear others cite the OECD data, it would be helpful if you have a heads up on the actual data and how it compares to that of other reliable sources. Save the link above for future reference.

Health at a Glance 2011: OECD Indicators

Organization for Economic Cooperation and Development (OECD)
November 23,2011

Why is health spending in the United States so high?

The United States spends two-and-a-half times more than the OECD average health expenditure per person.

Rich countries spend more than poor countries. Chart 3 (at link below) shows that for nearly every country, if you know how rich they are, you can predict their health spending per person per year to within a few hundred dollars. The United States is an exception – Americans spend nearly $3000 per person per year more than Swiss people, even though Swiss people have about the same level of income.

Where does the money go?

Hospital spending is higher than in the five other OECD countries, by over 60%.

Spending on Ambulatory care providers – that is, physicians and specialists as well as dentists, is much higher than in the other OECD countries – almost two-and-a-half times the average of the other five countries.

Spending on Pharmaceuticals and medical goods is higher in the US than in any other country, but overall accounts for a smaller share of total health spending than in the other countries.

Spending on Public Health and Administration is particularly high – more than two-and-a-half times the average.

Are U.S. health prices high?

Overall, the evidence suggests that prices for health services and goods are substantially higher in the United States than elsewhere. This is an important cause of higher health spending in the United States.

Does the U.S. provide too much health care?

(The United States) does not have many physicians relative to its population; it does not have a lot of doctor consultations; it does not have a lot of hospital beds, or hospitals stays, when compared with other countries, and when people go to hospital, they do not stay for long. All these data on health care activities suggest that US health spending should be low compared with other countries.

On the other hand, the US health system does do a lot of interventions. Table 3 (at link below) shows that it has a lot of expensive diagnostic equipment, which it uses a lot. And it does a lot of elective surgery – the sort of activities where it is not always clearcut about whether a particular intervention is necessary or not.

Why is health spending in the United States so high?
http://www.oecd.org/dataoecd/12/16/49084355.pdf

Health at a Glance 2011: OECD Indicators
(The entire publication can be accessed for free at this website.)
http://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2011_health_glance-2011-en

The Organization for Economic Cooperation and Development (OECD) has just released “Health at a Glance 2011: OECD Indicators.” It “provides the latest comparable data on different aspects of the performance of health systems in OECD countries.” You should save the link above that provides free access to this publication since the data are frequently used by the policy community to compare the United States with other nations.

When examining the tables, charts, graphs and text, keep in mind that the data are sometimes presented in a manner that does not always correlate with highly credible data from other sources.

For instance, the category of public health and administration does not include the same administrative costs as measured by Woolhandler and colleagues in their landmark NEJM articles. Nevertheless, the OECD still reports that public health and administrative costs in the United States are more than two-and-a-half times the OECD average.

Also, the OECD estimates of public spending for health care in the United States leave out two important categories. The tax deductibility of employer-sponsored plans amounts to a subsidy of taxpayer funds, plus taxpayers also pay for the employer component of health insurance premiums for employees of federal, state and local government agencies. Although the OECD reports the percent of government spending on health care in the United States as being one of the lowest, on a per capita basis our public spending on health care is actually higher than the public and private spending combined in almost all other nations.

So when you hear others cite the OECD data, it would be helpful if you have a heads up on the actual data and how it compares to that of other reliable sources. Save the link above for future reference.

By Ezekiel J. Emanuel
The New York Times, November 12, 2011

The range of expert opinions on how much of (administrative costs) could be saved goes as high as $180 billion, or half of current expenditures. But a more conservative and reasonable estimate comes from David Cutler, an economist at Harvard, who calculates that for the whole system – for insurers as well as doctors and hospitals – electronic billing and credentialing could save $32 billion a year. And United Health comes to a similar estimate, with 20 percent of savings going to the government, 50 percent to physicians and hospitals and 30 percent to insurers.

http://opinionator.blogs.nytimes.com/2011/11/12/billions-wasted-on-billing/

And…

Cutting Health Costs by Reducing the Bureaucracy

Letters, The New York Times
November 20, 2011

To the Editor:

Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings (“Billions Wasted on Billing,” Sunday Review, Nov. 13).

Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.

A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions – computerized and standardized billing – won’t do the job.

Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.

Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.

Steffie Woolhandler
New York, Nov. 14, 2011

The writer, an internist, is a professor of public health at the City University of New York.

http://www.nytimes.com/2011/11/21/opinion/cutting-health-costs-by-reducing-the-bureaucracy.html?ref=opinion

NEJM – Costs of Health Care Administration in the United States and Canada
http://www.nejm.org/doi/full/10.1056/NEJMsa022033

Comment: 

By Don McCanne, MD

The landmark 1991 and 2003 New England Journal of Medicine articles comparing health care administrative costs in the fragmented, multi-payer financing system in the United States with the single payer system in Canada were meticulous, peer-reviewed studies that confirmed that a massive amount of administrative spending in the United States is potentially recoverable – an estimated $380 billion for 2011 alone.

Politicians and academics who believe that we need to support politically feasible models of reform, such as the Affordable Care Act, have attempted to ignore or discredit these numbers. Even the most noted attack on these numbers, by Brookings economist Henry Aaron, was based on a back-of-an-envelope calculation arbitrarily assuming health care wages to be one-tenth of what they actually are in the United States. There is some irony in this attack by the highly-respected and otherwise highly-credible Aaron when in the same article he states, “I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”

During the reform process, administrative inefficiencies were frequently brought up as a problem that needed to be addressed, but the perception of the extent of the problem always fell far short, at least by those who controlled the process. This led to grossly deficient suggestions such as merely streamlining insurance billing functions through computer systems (which already exist) and through a simplified universal billing form (which is already in use). This myopic thinking has led to grossly deficient estimates of potential savings, such as that of Ezekiel Emmanuel who suggests a savings less than one-tenth of the true potential.

It is true that not much of the current administrative waste can be recovered as long as politically influential individuals, such as Ezekiel Emmanuel, insist the the private insurers must remain as an intermediary in our health care financing. Their business product is administration.

As you watch the development of new innovations by the insurance industry, you will see that they all involve even more administrative products. As long as they are in charge, they will always try to capture a larger portion of our national health expenditures. However, since administrative costs will now be limited to 15 to 20 percent of their premiums, you will see these new administrative services being introduced as “health care.” Only the label has changed.

Billions Wasted on Billing

By Ezekiel J. Emanuel
The New York Times, November 12, 2011

The range of expert opinions on how much of (administrative costs) could be saved goes as high as $180 billion, or half of current expenditures. But a more conservative and reasonable estimate comes from David Cutler, an economist at Harvard, who calculates that for the whole system – for insurers as well as doctors and hospitals – electronic billing and credentialing could save $32 billion a year. And United Health comes to a similar estimate, with 20 percent of savings going to the government, 50 percent to physicians and hospitals and 30 percent to insurers.

http://opinionator.blogs.nytimes.com/2011/11/12/billions-wasted-on-billing/

And…

Cutting Health Costs by Reducing the Bureaucracy

Letters, The New York Times
November 20, 2011

To the Editor:

Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings (“Billions Wasted on Billing,” Sunday Review, Nov. 13).

Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.

A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions – computerized and standardized billing – won’t do the job.

Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.

Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.

Steffie Woolhandler
New York, Nov. 14, 2011

The writer, an internist, is a professor of public health at the City University of New York.

http://www.nytimes.com/2011/11/21/opinion/cutting-health-costs-by-reducing-the-bureaucracy.html?ref=opinion

NEJM – Costs of Health Care Administration in the United States and Canada
http://www.nejm.org/doi/full/10.1056/NEJMsa022033

The landmark 1991 and 2003 New England Journal of Medicine articles comparing health care administrative costs in the fragmented, multi-payer financing system in the United States with the single payer system in Canada were meticulous, peer-reviewed studies that confirmed that a massive amount of administrative spending in the United States is potentially recoverable – an estimated $380 billion for 2011 alone.

Politicians and academics who believe that we need to support politically feasible models of reform, such as the Affordable Care Act, have attempted to ignore or discredit these numbers. Even the most noted attack on these numbers, by Brookings economist Henry Aaron, was based on a back-of-an-envelope calculation arbitrarily assuming health care wages to be one-tenth of what they actually are in the United States. There is some irony in this attack by the highly-respected and otherwise highly-credible Aaron when in the same article he states, “I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”

During the reform process, administrative inefficiencies were frequently brought up as a problem that needed to be addressed, but the perception of the extent of the problem always fell far short, at least by those who controlled the process. This led to grossly deficient suggestions such as merely streamlining insurance billing functions through computer systems (which already exist) and through a simplified universal billing form (which is already in use). This myopic thinking has led to grossly deficient estimates of potential savings, such as that of Ezekiel Emmanuel who suggests a savings less than one-tenth of the true potential.

It is true that not much of the current administrative waste can be recovered as long as politically influential individuals, such as Ezekiel Emmanuel, insist the the private insurers must remain as an intermediary in our health care financing. Their business product is administration.

As you watch the development of new innovations by the insurance industry, you will see that they all involve even more administrative products. As long as they are in charge, they will always try to capture a larger portion of our national health expenditures. However, since administrative costs will now be limited to 15 to 20 percent of their premiums, you will see these new administrative services being introduced as “health care.” Only the label has changed.