A Conversation With Thomas E. Getzen, PhD: How Much Are We Willing to Spend?
MANAGED CARE July 2009. ©MediMedia USA
Reform may not address the real question
As a macroeconomist and someone who has been helping the Centers for Medicare and Medicaid Services take the long view of health care costs for years, Thomas E. Getzen, PhD, sees only a partial fix in the works in Washington. Something big will happen, he predicts, but the United States will still have to wrestle with the question of how much we are willing to spend on health care. A professor of health care management, health economics, and health finance at Temple University’s Fox School of Business, Getzen primarily teaches undergraduates and MBA candidates. His textbook Health Economics: Fundamentals and Flow of Funds is used by about 100 universities worldwide. Getzen also founded and now serves as executive director of the International Health Economics Association, which has 2,500 members in 72 countries. He spoke recently with MANAGED CARE Editor John Marcille.
Managed Care: You’ve written that health care changes such as encouraging the use of generic drugs can improve efficiency and health status, but will not usually reduce the aggregate costs of medical care. Is that something that applies as you look at health care reform activities today?
Thomas Getzen, PhD: People in Boston spend a lot more money on health care than the people in Bangladesh, and the reason they spend more is because they can. It has nothing to do with how sick they are. People in Bangladesh are actually sicker. If we wake up tomorrow and there’s no more AIDS, or we suddenly get rid of obesity, it won’t make a difference. If I’m in health care, I’m going to find something else to spend the money on. We have to look at macrodeterminants and macrorestraints, which really means the budget.
MC: Explain more of the economics of your argument.
Getzen: Have you ever overspent on a credit card? What finally happens if you keep overspending?
MC: You get in trouble.
Getzen: That’s it. And what keeps you from continuing to overspend is fear of trouble. The way you stay inside your budget is to live within your means. Basically, budget discipline comes down to budget discipline.
MC: So comparative effectiveness studies, information technology — these efforts are not going to have a significant effect on the budget?
Getzen: If you say, I’ve got this amount of money, how can I do a better job of spending it? All that stuff helps you. But if you say, Is it going to save money? No. What saves you money is not spending more than you earn next month. People who are brilliant could easily overspend and people who are not very smart might be very good at saving. I’ve never noticed a particular correlation with intelligence. That’s how it is in health care. We can buy smarter with evidence-based medicine, and I think we should. It makes more sense to purchase medicine on the basis of evidence than on the basis of no evidence, but can we rely on that to save $500 billion? No. I think this is something we are going to struggle with for another 10 to 20 years. One of the few attempts we’ve had to put budget discipline in place is that really popular measure with the clinical community called the sustainable growth rate formula in Medicare that says we are not going to spend any more next year than the rate of growth of the economy.
MC: And every year we back down.
Getzen: Yes, but eventually we are not going to back down. In the long run, you cannot spend more than you can make. From 1990 to 2008, the United States spent more than we could make. It was unsustainable. Things fell apart.
MC: But we ran a surplus in the late ’90s.
Getzen: We did, but how did we run a surplus? We raised taxes and cut spending.
MC: Isn’t that how you do it?
Getzen: Yes. It’s just not popular. So how are we going to run a surplus in health care? Raise premiums and cut what we pay providers.
MC: And are we going to do that?
Getzen: Yes, we are. Now exactly what the mix will be going forward is exactly what’s being debated in Washington right now.
MC: Do you think anything definitive is going to happen this year?
Getzen: Six months ago, I would have told you major change was coming. Now it looks like the United States is still not ready for major change. I think something big is going to happen this year, but it won’t be the end of the process. It won’t be definitive. There’s a lot of political capital on the table, and it will set the stage for what happens over the next 10 years. The magnitude of where we have to go is far from where we are now, and I’m not sure we can get there in one step.
MC: What steps do we need to take?
Getzen: Part of why it’s difficult to know what is going to happen is that a lot of the really important changes that have taken place in health care have not been labeled a big deal when they were started. They were often changes or clarifications in administrative rules.
MC: Can you give a couple of examples?
Getzen: One example is Medicaid, which was an afterthought to Medicare. Another really good example is the Employee Retirement Income Security Act. ERISA was a minor cleanup of some labor bills, and yet it has had a fantastic impact on health care plans. It is really in some ways the defining structure of legislation. It is the way that administrative rule was applied that has really changed the shape of health care benefits in this country. I think it’s pretty clear where we are going to be in 40 or 50 years, but we are not talking about the real questions yet.
MC: What are the real questions?
Getzen: If we look at most other countries, what you really have is a basic health care plan and then those who want more pay extra. So even if you look at the British National Health Service, about 5 percent opt to have something extra, a private health insurance plan that is either separate from or on top of the national standard. In other places, the number of people who purchase extra coverage is 65 percent instead of 5 percent. The big questions for us are: Is that base going to apply to 35 percent of people or 75 percent of people? How is that base going to be designed?
MC: And how is it going to be funded?
Getzen: The base usually is funded with something like a tax. It is proportional to income. Frankly, American medical care is priced so that at least a quarter of the population cannot afford it without subsidy. A family plan these days is about $13,000 a year. If you’re making $40,000 and your take home pay is $30,000, how could you possibly pay $13,000 for health insurance?
MC: The median family income is around $50,000.
Getzen: Yes. It’s just not feasible. The numbers don’t match. Back in 1965 when we put Medicare in place and health care spending was about 6 percent of gross domestic product, you could really talk about working class people being able to afford their own health care. Now you can’t do that. So the questions are, how are we going to run that base system and how are we going to run what happens on top? I think we’ll have mix of government and private payers, kind of like we have now. But somewhere down the road, we are going to say, there’s a base plan and you can buy additional care. That’s the kind of conversation that the American public is not ready for yet.
MC: Is that because the cost of health care is beyond the reach of so many people?
Getzen: Yes. Most people say they are willing to pay more taxes to pay for health care. And then you ask them, how much? People usually come up with something that is enough to cover maybe a quarter of the cost. So we have to very publicly talk about how much this is actually going to cost and how we are going to raise the money. That’s going to force a different kind of thinking. It is a very different purchasing process if we start from a budgetary perspective. Someday we will have to say: This is how much money I have to spend. How much health care can I get for that? What’s the best I can do?
MC: What has the economic crisis done to health care?
Getzen: The most important thing to understand about health care’s response to the economic crisis is that it is slow. Health care is the last and slowest industry to respond to a recession. Conversely, housing is a quick responder. In a recession, the first thing that happens is that the housing market falls apart. The last thing that happens is you get a little bit of response in health care. It takes at least two or three years for health care to respond to an economic crisis. Long after jobs started falling in every other segment of the economy, they were still holding up in health care until a month ago. When the housing market is in its next boom, health care will still be responding to the recession. Health care spending as a percentage of GDP is going to look horrible next year because GDP is going way down, while health care spending continues to climb. Then about the time GDP starts to climb, health care spending will begin to slow. So if you are a smart politician, you will claim credit at that point.
MC: That seems like something health care executives should keep in mind when they see those numbers.
Getzen: Yes. We’re all going to look like we have costs under control two years from now, but it will really be an artifact of this slow initial response. We are going to look very good because GDP will begin to climb and health care costs will be slowing.
MC: Should health care executives take a long view of costs?
Getzen: When you are a hospital executive, you are looking at your bottom line and what is going to happen to reimbursement. When you are at a health care plan, what you really want to know is what is going to happen to premiums next year, what’s going to happen to medical costs, etc. It’s really much more important to look at the macro level if you are doing this for the country as a whole. If you look at your individual business, you are really focused on the next 12 months and what’s happening to your business relative to the business across the street. That’s one reason why it’s very hard to deal with macro issues: The only people who have a real look at it are those who look at the big picture.
MC: Can we learn anything from the way other countries manage this?
Getzen: We can learn a lot of good and bad lessons. One thing is clear: Every country needs to find its own path. America is going to have to find something that works for Americans. That said, virtually every country with a modern health care system has a base standard of health care and an extra layer of care that can be purchased. That’s the norm. The other very important thing that we’ve learned is that the debate about the American health care system has shifted. Everyone used to look at us and say our medical care was the most efficient and best in the world. Now, they look at us and see that we are spending 30 percent to 50 percent more than everyone else and getting results that are good in some areas but pretty lousy in others.
MC: What are other countries interested in learning from us?
Getzen: They often look at our payment policies. The DRG payment policies have proven very popular in Europe. But a lot of countries look at our system and say, “Why would I want that? It costs more and doesn’t work as well as what I’ve got.” That said, a lot of countries have bad health care systems. Almost every country has serious flaws. But it is pretty clear that the United States could do a better job and spend less money. It would require some changes, and then you get to the iron law of economics, which is, every dollar of cost is somebody else’s dollar of revenue. So if we are going to cut costs, somebody’s revenue has to be cut.
MC: Is the leader on this Medicare? Is that where these ideas are going to come from?
Getzen: That has happened in the past, and it would be nice to see that. But I would also like to see some of it come from the private sector. Many places are doing a good job, including the Geisinger Health System, the Mayo Clinic, and Intermountain Healthcare. I’m hoping that we will create a health care system in the United States that encourages the growth of innovative organizations that really do meet patient needs and do so efficiently.
MC: Will health care economists contribute to the changes? How has the field evolved over time?
Getzen: One of my mentors says that when he got started in 1965, there weren’t but a dozen health economists. Now my association has 2,500 members. I’m lucky. I’m in a growth industry.
MC: You are seeing this on the international level, too?
Getzen: Most other countries have more health economists than the United States. The difference is that in the United States, most health economists focus on insurance questions, looking at Medicare and payment systems. In other countries, they have single payers so they spend a lot more time looking at the cost effectiveness of specific treatments. The bulk of health economics is looking at comparative cost effectiveness and clinical effectiveness.
MC: Do we need more of that in the United States?
Getzen: Yes, but we need it in the right places. Currently most of the incentives have been in the pharmaceutical industry. It’s the one place where there has been plenty of funding.
MC: What else are you working on?
Getzen: Probably the most intriguing project I’m working on has to do with economics and the use of human allografts (tissue banking), the buying and selling of bone, skin, spinal implants, tendons, and more. It’s a relatively specialized niche within health care. I chose it because having done health economics for 30 years, I’m convinced that there are two polar views of health economics. One view is that health care is a calling, and the sacred nature of that. The other side is that it’s a business and that there’s nothing really special about medicine. My point of view is there will always be a tension between the calling and the commodity. It’s very clear when you start looking at the pricing of something like human skin that you are not just talking about a commodity. At the same time, as you go through the processing, the distribution, and the surgical use of human tissue, you are very quickly aware that this is a business. You have to make your margins, and some things have high margins and some things are loss leaders.
MC: That’s the sort of comment I might expect from an ethicist more than an economist.
Getzen: An ethicist might not insist on the business side. One of the things that is often misleading in our public debates is that it’s difficult for people to get up in public and admit that this business is about something other than business. But, it isn’t easy to acknowledge that everybody who’s involved in health care has to be concerned about earnings.
MC: That sounds like a tension that may be difficult to resolve, especially for clinical executives.
Getzen: The ones who are successful are the ones who are able to ride the crest of that wave. You don’t really resolve it. It will never go away. What you do is understand it and work with it.
MC: Thank you.
Reform must bend to the iron law of economics: every dollar of cost is someone else’s dollar of revenue.
Health care is the last and slowest industry to respond to a recession.
In other countries, economists spend a lot more time looking at the cost effectiveness of specific treatments.