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American Healthcare: Worst value in the developed world? Part 2: How do other countries produce value? [PODCAST]

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In part two of this three part series, John Dalton, Advisor Emeritus at BESLER Consulting, compares and contrasts the healthcare systems of various developed countries.
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Mike Passanante: Hi, this is Mike Passanante. Welcome back to the Hospital Finance Podcast.

Today, I’m joined again by John Dalton. John is a senior advisor emeritus here at Besler Consulting who has joined us to discuss his topic, American Healthcare – Worst Value in the Developed World.

John recently completed 13 years on the board of trustees at the St. Joseph’s Healthcare System where he chaired the Strategic Planning Committee. He serves as honorary trustee at Children’s Specialized Hospital where he is a former board chair. And most recently, he was named by the New Jersey Hospital Association as its 2017 Hospital Trustee of the Year.

Welcome back, John.

John Dalton: Thank you, Mike. It’s nice to be here again.

Mike: John, in part one of the series, we ended with the Commonwealth Fund’s conclusion that the US delivers “high cost care of mediocre quality” with per capita expenditures of $3100 higher than the average of the other 10 developed countries in the study.

John, which countries did you decide to examine more closely after looking at that data?

John: To start with, I wanted to get one country with each of the three approaches—two-tier insurance mandate and single payer. And the choices became pretty obvious: France does two-tiered; Germany, insurance mandate; and United Kingdom, single payer.

So, those are countries that most would agree are somewhat similar to US in terms of robust economies, high immigrant populations, fair amount of diversity. So those are the three I chose.

I also dusted off a book I had read after I came back from Russia in 2008 that provides a very good on the ground approach and look at those three countries as well as some others. It was written by a journalist named TR Reid. The title is The Healing of America: A Global Quest for Better, Cheaper and Fairer Healthcare.

For anyone interested in healthcare outside the US, it’s very readable and quite enjoyable. I would recommend it.

So, I started by looking at key data from the three countries, both the percentage of GDP change, the spending per capita and the outcomes.

France, with its two-tiered system, in 2013 spent 10.9% of GDP on healthcare, $4100 per capita.

Germany with the insurance-mandate approach was at 11% of GDP. They’re basically a dead hit with France, but they were spending $4495 per capita, more than France.

The United Kingdom with the single payer approach was only 8.5% of GDP compared to the 11% of the other two. And only $3405 per capita spending.

The US on the other hand is at the top of the heap with 16.4% of our GDP—that’s about one dollar out of every six going to healthcare—and $8508 per capita. For a family of four, that’s $34,000.

On the outcomes—the life expectancy, infant mortality, child mortality—France is at 82 years, Germany at 81, UK at 81 and the United States at 79 in 2012.

For the infant mortality rates, we were higher than all three countries.

So, I began by looking at each of the three countries.

Mike: John, let’s take each one in turn. The French use a two-tier approach to providing healthcare. How does their system work?

John: Well, France’s system is based on private doctors treating patients who buy health insurance to cover most of the cost. It’s purchased through work. The employer and the worker split the cost. And the monthly premium is withheld from the worker’s pay check.

Every one must belong to an insurance fund, so the government pays the premium for those who are unemployed.

In France, patients are expected to pay at time of service. They pay upfront. They then get reimbursed by their insurance fund for roughly 75% to 80% of the fee. However, they can also buy supplemental insurance to cover part of the rest of the cost.

In France, doctors make house calls and they receive higher payment for doing so.

As I’ve mentioned, they can buy supplemental health insurance to cover co-pays and non-covered services. Most Frenchmen do so.

All 14 sickness insurance funds are not-for-profit entities. The administrative costs are well below 5%—thanks in part to their Carte Vitale.

The secret sauce for the French is that they’ve had full interoperability since 1998. So, all Frenchmen carry a Carte Vitale. It’s a credit card with a chip, carrying your entire medical history. If you lose one, you got to pay for its replacement.

But basically, when you go into a French hospital or doctor’s office, there is no medical records department. It’s all on the Carte Vitale.

Another nice part of the French system is when a doctor submits a bill, as a credentialed doctor, the fund must pay the bill. No denials.

The French system has full freedom of choice. So, if Gaston decides to eat, drink and be merry and doesn’t feel well in the morning, he can go to any doctor that he chooses. He can see any specialist at any time.

The National Health Ministry negotiates with doctors, hospitals and drug companies, and then dictates what providers can charge for treatment and what price will they pay for prescriptions.

Something like 77% of health expenditures are covered by these government-funded plans. The remainder are the patients payment or payments from the private supplemental insurance plans. That’s the two-tier approach.

Mike: Are there any downsides to the two-tier approach?

John: One of the major ones is that the French physicians do earn far less than their US peers. But they do enter their practice unburdened by student loan debt. The government pays for their medical education.

There had been several attempts at healthcare reform to limit their freedom of choice, but those faced voter resistance and efforts to control payments to providers have resulted in some doctor strikes to preserve their income. There was a major one in Leone in 2014.

And although freedom of choice can be expensive, the upside is that the French outlive Americans by three years while spending less than half per capita than we do on healthcare.

Mike: So, let’s move on to Germany then. Germany has something called the insurance mandate approach. Can you talk to us about that?

John: Germany came as somewhat of a shock to me because it’s the oldest universal health system in the world. And it was implemented by Otto von Bismarck. Bismarck, as you recall, was the iron chancellor who through wars and what-not, united Germany into an industrial military power back in the 1800s.

So, here’s this militaristic dictator, an autocrat, founding the first universal healthcare program.

Now, why did he do it? It was one way of preserving a unified Germany. He was the inventor of much of the modern welfare state. And it was his leverage to make sure that he had working class support for unifying the German Republic.

His Sickness Insurance Law was enacted by the Reichstag in 1883. So it’s already survived for around 133 years, two world wars, the partitioning of East and West Germany and the like. It’s amazing!

In Germany, medical insurance is mandatory. Everyone must have medical insurance. The premiums are income-based. They average 15% of income. And they’re paid jointly by employers and by workers through payroll withholding.

A German can chose from more than a hundred provide insurance plans, what is called Krankenkassen. They compete vigorously for business. As not-for-profit enterprises, these funds exist to pay medical bills, not to pay dividends to stock holders. They must accept all applicants, no pre-existing conditions, and they must pay any claim that is submitted by a recognized doctor or hospital—no denials.

The coverage does include guest workers, legal or illegal. And there’s a government buy in for low income and unemployed Germans.

As in France, patients are free to choose any doctor or hospital. Most German hospitals are either municipal or charity operations, but there are some for-profit chains.

The bulk of medical professionals are general practitioners working in their own private clinics. The sickness funds negotiate with the doctor’s union to determine what procedures and treatments are covered in the national benefit package. So, there’s an essential health benefits package for all Germans.

Patients never see a bill. So, US post office—but they are subject to a small co-pay. Germany, to its embarrassment, was 10 years behind France in achieving interoperability. But they implemented their digital health card in 2008. So again, no medical record rooms.

As a result, their administrative costs are much lower than the US, a little less than 5% of the spend and with more than a hundred insurance plans competing vigorously for their subscribers.

Mike: John, did you identify any downsides with the German approach?

John: As in France, complete freedom of choice. In a system with minimum waiting times and high quality, it costs a lot of money. So the Germans are very concerned about their $4451 per capita spend higher than France and the UK—but a lot lower than us.

Physicians do earn less than their US counterparts, but they receive free medical education and they are not burdened with student loan debt.

The government has been under a lot of pressure to moderate its cost increases, so the current situation in Germany is that the government and the sickness funds are putting a squeeze on providers.

Mike: So, let’s move on to Britain. They have a famous single payer approach. Can you talk to us about how they got there?

John: Britain was an interesting study. They were late to the game in terms of implementing universal healthcare unlike France and Germany. And they took a distinctly different approach.

The National Health Service was created by two polar opposites, Lord William Beveridge, a social reform aristocrat who was raised in India (a tea plantation in Darjeeling and Aneurin Nye Bevan, a Welsh coalminer who was appointed in 1945 as Minister of Health by Labor Minister, Clement Attlee.

As many will recall, at the close of World War II, shortly thereafter, the British dumped Winston Churchill who was their prime minister and installed a labor government. Under that government, Attlee appointed Bevan as his health minister.

Beveridge had read a report back in 1942 called Social Insurance & Allied Services. It promised free healthcare to all with payment coming from general taxation, not from medical fees or insurance companies. So, it’s a totally different approach from France or Germany.  

It was a morale booster because it was issued right around the time that London was being bombed during the Blitz.

His plan faced strong opposition from British medical associations and the health insurance programs—no different from what we see here in the US. But with the labor government, Bevan was very clever. He crafted a compromise that allowed general practitioners to remain as private operators and to allow insurers to market policies to customers who chose not to join the National Health Service.

So, that’s how they got universal healthcare.

In the United Kingdom, income and social security taxes are much higher than the US in every income bracket, but then it resulted in a system, a healthcare system that delivers with minimal paperwork and no billing.

Its nation-wide network of general practitioners are independent. They’re paid on a capitation basis. So that produces a very strong incentive for them to practice preventive medicine.

For those of you who are fans of Doc Martin, the BBC’s program, you pretty much know how a general practitioner practices in the UK—or specifically, in his case, Port Wenn, Wales. GPs make house calls. They manage many conditions. And their offices are called “surgeries.” They manage many conditions there that would be handled by specialists in the US. So that’s one key to their cost-effective delivery.

About 60% of British physicians are general practitioners compared to only about 35% in the US in internal medicine and primary care.

The British general practitioners do enjoy income levels comparable to US primary are physicians. They’re on a par.

Specialists are called consultants, and they cannot see a patient without a referral from a general practitioner. So, unlike, France and Germany, the Brits do have limited freedom of choice. Your GP tells you where to go.

The British have what they call the National Institute for Health & Clinical Excellence (NICE). And that’s the organization that determines the range of medications to test and procedures that are covered, similar to what Sarah Palin used to call “death panels.”

Mike: So John, one of the things we hear about on this side of the Atlantic is long waits for non-urgent care within the National Health Service. What’s the reality of that?

John: The reality surprised me maybe traveling with the Brits in 2008 and following them thereafter, we hear all kinds of anecdotes about problems with the National Health Service and the dreaded queues.

The evidence is somewhat different. Basically, there are waiting lists for non-urgent or elective procedures, things like hernia repair, varicose veins, elective surgeries. We have queues in the US, but we don’t call them queues. There are also long waiting times here for those.

On the OECD’s report, Health at a Glance in 2015, it noted that the waiting times in the UK now are lower than in other OECD countries reporting such data. So, it’s less of an issue than a lot of the anecdotal evidence that we hear.

One big downside is that the consultants earn considerably less than their US peers. As you’re aware, in the US, there’s a great disparity between incomes with the specialists and our primary care practitioners. That’s different in the UK.

The National Health Service has been subject to tight budget constraints. So their concerns that they have not been able to address high risk factors like smoking, alcohol consumption and obesity that are above the OECD average, but still better than what we have here in the US.

So, despite negative perceptions of “the national health,” the Brits developed the best value for their money in the developed world. And that’s a tough nut for a full-blooded Irishman to swallow.

Mike: So, based on the data, other countries may have to bow. The Brits do it best based on some of the objective measures.

What other findings account for the ability of France, Germany and the UK to produce value?

John: Well, each of them take differing approaches, but there are some common themes. In all three countries, most of the physicians are private general practitioners and have no student loan debt to carry. All three countries have full interoperability and no denials. Those help to keep administrative cost low.

In the US, for example, Medicare, ¢97 of every premium dollar goes to services. And in those three countries, at least ¢95 out of every premium dollar goes to services.

The real secret sauce is a robust social services safety net in all three countries to deal with housing, nutrition and environmental issues. That’s what makes them go.

That led me to another good summer read earlier this summer. It’s called The American Healthcare Paradox: Why Spending More is Getting Us Less. It’s written by Elizabeth Bradley and Lauren Taylor. Interesting book. It’s a little bit dry and technical, but a lot of well-researched statistics.

Let’s go back to the World Health Organization’s definition of health. WHO defines “health” as, “a state of complete physical, mental and social well-being,” emphasis on social. In their book, they make a compelling case that when social services spending is taken into account, the US is not a high spender.

Now, what’s in social services spending? That’s public and private spending on old age pension and support for older adults, survivors benefits, disability, sickness cash benefits, family supports, employment programs and other social services that exclude health expenditures.

They had a very interesting exhibit showing several of the countries that we’ve been talking about. And adding social services percentage of GDP to healthcare percentage of GDP, it’s kind of shocking when you look at the list. We’re 25% of GDP on combined health and social services.

France, on the other hand, devotes a full one-third of its gross domestic product to the combined health & social services spending—12% health, 21% social services.

Germany devotes 29% of GDP to both—18% to social services, 11% to health.

The UK is next after us with only 23% of GDP—again 15% on social services, 8% on health.

So, here we are on 16% on health, 9% on social service. It’s looking quite different, but a moderate spender compared to France and Germany.

The research further found that countries that have high healthcare spending relative to social services spending like the US had significantly lower life expectancy and higher rates of infant mortality than countries that favored social spending like France, Germany and the UK.

So, I could’ve avoided all of my research and just read their book. They reached the same conclusion.

And the reality is with health and social services spending already consuming 25% of our GDP, and the gridlock that we experienced in Washington for almost forever, it’s very unlikely that the federal government is going to step up social services spending.

So, where is leadership on this issue going to come from? In my opinion, it’s got to come from the leaders of not-for-profit hospitals and health systems in order to achieve the triple aim. It’s not going to come from government. It’s got to come from us. That’s going to be our burden.

And for those of us in the healthcare community, it’s not without risk because if we do this right, in-patient admissions and ED visits are going to decline because we’ve sacrificed them for the greater good of our communities. So it’s a lot of risk with little reward, but that’s how I see us getting there.

Mike: John, that’s quite a challenge. I’m looking forward to exploring what elements we might be able to apply to the US to begin narrowing the gap with the other OECD countries, and equally important, attaining the triple aim.

We will discuss that in part three of this series. We’re looking forward to having you back for that, John. Thanks so much.

John: You’re welcome, Mike. See you soon!

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