1. Beliefs, Values, and Health in the United States Ira B. Wilson January 27, 2014

2. Sensipar Story PHP 310, 20142

3. Sensipar Story Medicare pays for kidney dialysis: very costly Erythropoietin story: anemia drug – Fee-for-service payment mechanism – Some is good, too much is harmful – Bundling effectively reversed overuse Sensipar: combats bone disease – Excluded from bundling in 2010 – Now again in 2013 PHP 310, 20143

4. Sensipar Story Inserted into “fiscal cliff” legislation by Senate finance committee – Max Baucus (Democrat, Montana) – Orrin Hatch (Republican, Utah) Increases Medicare costs ($500M) Lobbying by interest groups: 74 Amgen lobbyists Campaign financing Bipartisan PHP 310, 20144

5. What is your opinion of this story? A.This is OK; lobbying protected by the 1 st amendment (freedom of speech) B.It makes me a little uncomfortable C.It makes me very uncomfortable D.This is a complete corruption of the democratic process by money and influence PHP 310, 20145

6. Themes from Sensipar Case Science and drug development Payment mechanisms: FFS and bundling Role of interest groups, $, and lobbying Politics and health care Every dollar cut = a dollar of income lost for someone PHP 310, 20146

7. Overview Start to put health care in the US in a larger cultural context PHP 310, 20147

8. Goals US: big, complex, divided nation Markets Some relevant history – BCBS – Employer based health insurance – AMA and Medicare/Medicaid Fragmented US politics Interest groups and their influence PHP 310, 20148

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11. Size and Diversity US is large and very diverse Diverse in almost every dimension PHP 310, 201411

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13. 2012 Election Map by County PHP 310, 201413

14. 2012 Pennsylvania County Map PHP 310, 201414

15. Where are you from? A.Suburban or rural area B.Urban area PHP 310, 201415

16. Size and Complexity Complexity not surprising … but rather inevitable Has always been true (e.g., Civil War) and will always be true Our democracy is complicated and messy, and our health care system is firmly planted within it PHP 310, 201416

17. Markets Markets in general, and markets in health care in specific PHP 310, 201417

18. Markets Market justice vs. social justice framework: chapter 2, page 38 Why is health unlike other consumer goods PHP 310, 201418

19. Table 2.4: Comparison of Market Justice and Social Justice PHP 310, 201419

20. Market Justice vs. Social justice Brief discussion question: which of these approaches feels most right to you? Don’t analyze, just go with your gut feeling, and talk to the person setting next to you about it for 1 minute, then switch. PHP 310, 201420

21. Vote Which do you tend to favor? A. Market justice B. Social justice PHP 310, 201421

22. Market Justice vs. Social justice Market justice: what is really meant is market efficiency Social Justice: another word for this might be fairness Natural tension between efficiency and fairness, but most of us value both of them PHP 310, 201422

23. Markets in Health Care Krugman article (NYT, July, 2009), which is a summary of Arrow article (1963) PHP 310, 201423

24. Markets in Health Care Krugman article (NYT, July, 2009), which is a summary of Arrow article (1963) Markets don’t work well in healthcare because – You can’t know (in general) if or when you will need care, and when you do it is very expensive – Therefore you need insurance, but insurance companies make money by NOT paying for health care, so their interests may not be aligned with yours (principal-agent problem)* – The gamesmanship of trying to cover people who won’t need care, and denying claims is expensive *John Grisham novel/movie, The Rainmaker … PHP 310, 201424

25. Markets in Health Care Krugman: markets don’t work well in healthcare because – Health care is complicated, and you can’t comparison shop or rely on your experience – Even doctors have conflicts of interest because they can get paid for “selling” you services that may not help, or may hurt, and that you may not have the knowledge to refuse PHP 310, 201425

26. Markets in Health Care Mackey article (WSJ), markets would work IF: – Remove the legal obstacles that slow the creation of high-deductible health insurance plans and health savings accounts (HSAs) – Equalize the tax laws so that employer-provided health insurance and individually owned health insurance have the same tax benefits – Repeal all state laws which prevent insurance companies from competing across state lines – Repeal government mandates regarding what insurance companies must cover PHP 310, 201426

27. Markets in Health Care Mackey article Summary: move “toward less government control and more individual empowerment” PHP 310, 201427

28. Market Failure: Examples Theory of externalities* – Nashua River in Fitchburg MA – Erin Brockovitch – Carbon taxes Orphan drugs: no company will ever develop drugs with small markets if there is no chance of recovering their investment Drug safety: why we have the FDA *Externality: cost or benefit not reflected in price, but rather paid by a third party PHP 310, 201428

29. Market Failure: Examples Health plan choice? – First section assignment – After doing this, think about how it compares to the process of buying a computer or shopping for classes – Can you have too much choice? PHP 310, 201429

30. http://www.ted.com/talks/lang/en/sheena_iyengar_on_the_art_of_choosing.html PHP 310, 201430

31. Regulatory Failure Markets are imperfect … but so is the alternative: governments and regulation Extreme case: central planning in the former USSR* – Built Sputnik and ICBMs – But, shortages of consumer goods and food – No contraceptives “Government run health care” * Charles Wheelan, Naked Economics, 2010, page 85. PHP 310, 201431

32. Regulatory Failure “… a government staffed by angels could undoubtedly do a better job than markets run by humans…”* But … few governments are staffed by angels US tends to favor market based solutions, but all countries rely on a combination of market and government solutions in health care * Pauley MV. J Health Politics Policy and Law 1977;22:467-73. PHP 310, 201432

33. Take Home Messages Try not to think about markets in moral/ethical terms; don’t ask about if they work, think about when they work, and why Try not to think about government regulation in moral/ethical terms; think about when regulation is necessary, and how it can be done smartly Real issue is how to intelligently combine market and government approaches, which virtually all countries must do Globalization PHP 310, 201433

34. Some relevant history PHP 310, 201434

35. History (Book, Chapter 3) Private insurance – Blue Cross – Blue Shield – Employer-based private insurance The AMA and Medicare/Medicaid PHP 310, 201435

36. Private Insurance 19 th century Europe – Voluntary benefit funds – Set up by guilds and industries – Pay monthly premium and get assistance when ill Metropolitan Life and Prudential – 10-25 cents/wk along with life insurance – Paid for funeral and final illness expenses – Premiums collected weekly; administrative expense great PHP 310, 201436

37. Blue Cross (Hospitals) In 1929 Baylor University Hospital Arrangement with Dallas school teachers 21 days of hospital care for $6 per year Prepayment idea spread during Great Depression because of low occupancy rates Next: plans sponsored by groups of hospitals American Hospital Association (founded 1898) supported and the coordinated these groups Plans united into Blue Cross network By 1946, 43 Blue Cross plans with 20M enrollees PHP 310, 201437

38. Blue Shield (Physicians) Great Depression reduced patients’ ability to pay MD fees out of pocket In 1939 the California Medical Association set up first Blue Shield plan to cover MD expenses Idea spread nationwide Controlled by state medical societies Starting in 1974 Blue Cross and Blue Shield plans began to merge PHP 310, 201438

39. BCBS: Provider Driven Health insurance in Europe consumer driven In US, provider driven Thesis: control of this major source of insurance guaranteed that payments would remain high and that cost control would have a less important role* *Paul Starr, The Social Transformation of American Medicine, 1982 PHP 310, 201439

40. Employer-Based Private Insurance WWII price and wage controls (National War Labor Board) Competition for workers on the basis of fringe benefits (health insurance) Post-war, unions continued this strategy, negotiating for health benefits as part of compensation strategies Enrollment in group hospital insurance plans grew from 12M (1940) to 142M (1988) PHP 310, 201440

41. Tax Subsidy for Health Insurance National War Labor Board ruled in 1943 that employer and employee contributions to insurance did not count as wages, and that workers’ health benefits were not taxable This is an enormous public subsidy of private, employer-based insurance; estimated currently at over $260B annually* * Gruber J, NBER Working Paper 15766, 2010. PHP 310, 201441

42. AMA and Medicare/Medicaid In 1920 stated its opposition “to the institution of any plan embodying the system of compulsory [medical] insurance … controlled or regulated by any state or the federal government.”* Social Security Act (1935) contained a single sentence about studying health insurance … which because of an AMA letter writing campaign had to be dropped for fear that it would endanger the entire bill * From Hirshfield DS. The Lost Reform, 1970, quoted in Oberlander, The Political Life of Medicare, 2003. PHP 310, 201442

43. AMA and Medicare/Medicaid 1948 Truman health insurance program – AMA said that supporters of the plan included “all who seriously believe in a Socialistic State. Every left- wing organization in America … [and] the Communist Party.” – PR campaign warning that it would erode the quality of medical care, overcrowd hospitals, and reduce incentives for physicians to provide quality care – Pushed voluntary (not compulsory) insurance as the “American way” Oberlander J. The Political Life of Medicare, 2003. PHP 310, 201443

44. AMA and Medicare/Medicaid 1958 House Ways and Means Committee consideration of Medicare AMA response – Unwarranted intrusion of the government into medical practice – “the aged as a group are substantially better off on average than younger Americans” – Warning in the midst of the cold war that health insurance for the aged was the first step to national socialism Oberlander J. The Political Life of Medicare, 2003. PHP 310, 201444

45. AMA and Medicare/Medicaid Medicare/Medicaid did finally pass in 1965 Physicians are professionals who have a social contract with patients BUT, the AMA in the US also behaves as an interest group with its own agenda Long history as a powerful player in health care politics even though only 29% of physicians are members PHP 310, 201445

46. Take Home Messages Private insurance has a 80 year history and deep roots in American health culture Employer-based insurance has a history that reaches back to WWII and is deeply embedded in our tax code and in management-union relationships AMA is a powerful and savvy interest group (but only one of many) PHP 310, 201446

47. Fragmented politics, American values, and interest groups PHP 310, 201447

48. Fragmented Politics Theory of fragmented political power – Checks and balances – Separation of powers – Federalism President’s agenda may not be adopted States can pursue their own agendas Many opportunities to block legislation Parties weak by international standards PHP 310, 201448

49. Fragmented Politics “The American system is designed to default to inaction. A decentralized Congress, an overrated and weakened presidency, budget deficits, distrust of bureaucracies, erosion of state budgets, and federal preemption of state regulation … dictate policy gridlock.”* Weissert and Weissert, Governing Health: The Politics of Health Policy, 1996, p 3. PHP 310, 201449

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52. American Values Rugged individualism and individual freedom Suspicion and distrust of government in general, and more specifically of national government’s power and authority Faith in markets not in governments PHP 310, 201452

53. Role of Interest Groups Politicians alleged incapable of acting decisively in public interest Interest groups and private interests fill void to advance private agendas Policy making responds to financial resources of interest groups and re-election needs of politicians not to objective public and social needs Oberlander J. The Political Life of Medicare, 2003. PHP 310, 201453

54. Interest Group Politics Our system encourages self-interested groups of every conceivable type to play in the free market of ideas related to health care – Media set up to accentuate conflict – Internet, 24-hour news shows, blogs “This process poses a challenge for health specialists: Groups pushing their own interests will stand up and oppose even the most unambiguous scientific findings.”* *Morone et al. (Eds), Health Politics and Policy, 2008, p 49 PHP 310, 201454

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56. Take Home Messages The US is a large and disparate county with tremendous regional, state, and local differences Individualism, freedom, and markets are deeply held values Ambivalence about government control Payers and providers: long histories and traditions Piecemeal, fragmented, complex “system” in which interest groups play a critical role PHP 310, 201456

57. Take Home Messages “Culture eats strategy for lunch” (allegedly from management guru Peter Drucker) Understand the role of history and the culture it creates when you try to analyzed health issues and problems PHP 310, 201457