John Goodman on Priceless Healthcare: The Problems With Healthcare

A while ago I finish John Goodman’s great book Priceless:Curing The Health Care Crisis. If you learn one thing about this book it is how to make healthcare more free market oriented. People forget the free market does not exist in healthcare like it does in technology, the grocery store, and other markets. People also forget that doctors and hospitals work for insurance companies. Goodman made some excellent points in the book. I wanted to share not only what I learned but my comments as well. 

Part of the problem with health insurance is that very few people are paying for their own healthcare. In fact, 90% of the costs is paid by someone else (government, insurance, company). It is interesting how doctors nor most health professionals can't tell you the price of tests, drugs, or other services. In fact Medicare has 7,500 different billing codes. According to Goodman there are actually Medicare 6 billion prices at any given time. Medicare by the way will go broke as the unfunded liability is around  There is actually something called the International Classification of Diseases which is now on its 10th edition (starting in 2014) and will feature over 68,000 codes. Some of the codes are bizarre including people who get sucked into a jet engine and contact with dolphins. The codes seem to dumb down critical thinking and decision making. The way I understand these codes is doctors have to explain to the insurance company why a patient saw them. The "code" is suppose to explain what the purpose of the visit was and then is used to determine how much doctors get reimbursed. There is plenty of fraud and abuse in these codes. There will be bill padding, up charging, kickbacks, along with other shenanigans.

How confused would people be if we had food insurance and went to McDonald's and had no idea what a burger actually cost? We should make healthcare single payer in terms of having the individual pay of course. I will talk later about how we can actually do this using a free market system.

Health insurance is a very bizarre market. Employers offer what is known as group health insurance. Due to HIPPA rules in group insurance everyone has to be offered insurance (regardless of their health condition, age, or sex). Health insurance is tied to unemployment which is strange. Part of the reason why so many people are uninsured is their health insurance isn't portable. Could you imagine how many uninsured drivers we would have if your car insurance was tied to employment? Actually if you think about it you actually need car insurance to utilize your health insurance. Despite what some people say the insurance market is highly regulated by each individual state and if an insurance company wants to raise rates they first must get approval from the state to do so. The average profit margin of the insurance companies like Aenta, WellPoint, and Humana is only 3.5%. Compare this to the rich profit margins of broadcasting which has a profit margin of roughly 69% or software companies with an average profit margin of 18%.  They are also told how much they can spend on "administrative costs" which is known as a medical loss ratio which requires 85% of their premium income on medical care and less than 20% on administrative costs. However, no one can seem to define what administrative costs precisely are. Could you imagine if bureaucrats were able to tell Wendy's how much they could spend on food?

Speaking of insurance President Barack Obama promised people that if they liked there plan they could keep it. However, employers may just drop employees as employers can always just just pay the $2,000 fine/employee if the employee amount is greater than 50 employees. The Congressional Budget Office predicts that 9 million will actually lose their healthcare insurance. In terms of cost Avik Roy at Forbes does an excellent job of summarizing the costs of both California (64% to over 160% increase) and the Ohio Department of Insurance which recently said they were going to be increasing premiums 88%. People fail to realize that since insurers will be forced to insure people with above-average risks they will recoup that money by charging healthy people higher premiums.

The average wait time for the emergency room (ER) has been increasing in recent years. In 2009 (the last year for which data is available) the mean wait time was 58 minutes (which is a 25% increase from 2003). Some patients wait and die in the ER. In 2008, this happened to Michael Herrara of Dallas, Texas who waited 19 hours at Parkland Hospital Retail and died waiting for care. Compare this to retail clinics (for-profit) which are often open around the clock, post prices online, and often have little to no wait time. This may explain why retail clinics have had a four fold increase with an estimated 6 million people using a retail clinic in 2009. What is even more surprising is that 91% of patients are satisfied with retail clinics. The only free market hospital in the country is the Oklahoma City Surgery Center which posts prices and one of the only free market doctors (Dr. Michael Ciampi) posts prices online, Even the Cancer Treatment for America posts success rates online.

When looking to other countries it seems the United States actually does have a decent quality healthcare system despite what critics like Michael Moore say. The problem with world rankings is that they take into account things that have nothing to do with healthcare. For instance the fact that Americans kill each other more, have more fatal car crashes, and other events distract from the quality of medical care. Another example is when the United States calculates things like infant mortality we count all births instead of other countries which use more liberal measures and only count the infant dead depending on various factors which would artificially make their infant mortality statistics look better.

Canada which touts its "free" healthcare isn't so free. Canada also outlaws private insurance. Of course Canadians are paying for healthcare in the form of longer wait times. The wait times in Canada are horrendous. 10% of patients wait more than 8 hours in the emergency room. 25% of Canadians wait more than 4 months to see a specialist. No wonder why close to 30% of Canadians find the length of wait time for a specialist unacceptable. Canada is also behind on medical technology as well. According to Goodman, the United States has 1,000 PET (positron emission tomography) units while Canada has only 24 units. This technology is used to diagnose cancer. What is astounding is that even the people uninsured in the United States get more access to medical treatment than other countries. In the United States even the uninsured get more preventive care in Canada (prostate exam, mammogram, etc). Also doctors in the United States typically spend more time with patients than nearly any other country.

British National Health Service found after 30 years access to healthcare was better than when the program started. Speaking of Britain in a survey that came out a few months ago 40% of people who work for the National Health Service wouldn't even recommend it to their family or friends!

The United States is also facing an increasing in shortage the number of drugs available. Data from the University of Utah shows there was a shortage of 74 drugs in 2005 and by 2010 increased to was 211 drugs. Some of these drugs are used to treat serious and life-threatening conditions. There are a few reasons why these drugs are in such short supply.  A program known as the 340B program requires drug companies to give 23% rebates on brand named drugs and a 13% rebate for generic drugs to providers that treat a large number of people without means, clinics treating Medicaid patients, and hospitals and clinics in the Public Health Service, etc. Another reason why there is a shortage is because the FDA after 2010 began heavily regulating drug manufacturing plants. As can be seen on page 11 of this House Oversight Committee report the number of FDA warning letters to manufacturers increased 155% from 2010-2011 and 250% from 2009-2011.

Speaking of costs what I learned in reading Goodman's book was that even "preventive care does not actually lower costs. This study done in Health Affairs showed that preventive care actually increases costs. The study showed 20% of preventive options actually lowered costs while 80% of preventive options actually increased costs. Something else I learned was the price of lab tests are 50-80% lower in hospitals compared and also available within one day. Wal-Mart has multiple drugs that can be purchased for only $4 for a one month supply (Wal-Mart has saved people $3 billion on prescription drugs as of March 2013)

What will even make things worse is a bureaucratic led Preventive Services Task Force which will decide who should or shouldn't get a mammogram, prostate exam, or colonoscopy. I am not a doctor but I do know everyone is different in terms of how they respond to drugs, treatments, and the side effects they receive. A cookie cutter top down approach is a pretty ignorant way to run healthcare.

As someone who is interested in technology even I thought electronic medical records (EMRs) would have done a world of good. These records started around in 2004. Recently one of my doctors learned the EMR system for one hospital but now is no longer seeing patients at a different hospital because he doesn't want to learn their EMR system. He told me he spent 12 hours just learning the EMR system for one hospital. President Obama years ago wanted to "invest" take $50 billion of taxpayer money over 5 years to look into EMRs and the results haven't been too great. This Washington Post editorial finds that after the Children's Hospital of Philadelphia added electronic prescriptions resulted in a threefold increase. The EMRs also add about half an hour more because part of the program is the person using them having to keep okaying hundreds of messages the EMR system might have. Even the New York Times published this article that showed that EMRs did not help doctors help increase productivity or quality benefits. 

Medicare and Medicaid are two more future train wrecks waiting to happen. The Medicare unfunded liability $89 trillion. Not to mention Medicare fraud is about $60 billion a year. Between both Medicare (for people over 65) and Medicaid (people with few resources) the waste is about $100 billion per year. Medicare is expected to go broke between 2016-2024. A survey from the American Medical Association (AMA) shows that about 20% of doctors are already reducing the number of Medicare patients they see. According to Goodman about a 1/3 of doctors don't take Medicaid patients. What is tragic is that children on Medicaid wait 22 days longer than children on private insurance. According to Goodman an experiment in Florida showed that when Medicaid enrollees could choose between private managed care plans the cost was lower and patient satisfaction was much higher than traditional Medicaid.People like to say how efficient and cost saving Medicare is. However, the facts tell a different story. Robert Brook at the Heritage Institute shows that actually private insurance spends less on administrative costs than Medicare (which is quite amazing given how much private insurance companies can spend is heavily regulated). 

Bloomberg Article: Medical School $278,000 Debt (Because Lack of Free Markets)

This recent story from Bloomberg got me somewhat irritated today. The story discusses how medical school students are burdened with medical school debt. Going to a private medical school for 2012-2013 is over $50,000 according to the AAMC. What is really shocking is that 79% of medical school students will have more than $100,000 in debt. Note this is just for going to medical school this doesn’t even begin to look at overall debt (mortgage, car payments, credit card debt, etc).

I examined the 2012 physician compensation report (by Medscape) which can be found here. Salaries range on the low end of $156,000 for pediatrics to $315,000 for radiology. Specialties like gastroenterology can make over $300,000 while plastic surgeons make $270,000 and internal medicine doctors make $165,000. What I found it interesting that 9% of doctors don’t discuss the cost of treatments considering they don’t even know what the costs are. In the business world you would be out of business if you had no idea what the costs were.

The question is why is medical school become so expensive? Medical knowledge has only grown exponentially over time and you could argue doctors know actually face competition because patients can often Google their symptoms and figure out what they have (doctors also use Google as well). This surgeon discusses what practicing surgery was like in the 1970’s.

Supercomputer Watson (made by IBM) can analyzed 1.5 million records in seconds, attend medical school under a minute, in just two years researchers at the for-profit IBM have reduced the size of Watson from a master bedroom to a pizza box while increasing the speed by 240%. Conventional medicine can get diagnoses right only 50% of the time while Watson can get around 90% of cases correct (less for cancer given how complex they are). Of course, these percentages will only improve over time.

What is interesting is that the average MCAT and GPA scores of the people who get accepted into medical school has steadily risen since 2001. According to this medical journal from 1911 there were 129 medical schools which is roughly the same number of medical schools in 2013! Granted since 1911 the population has exponentially grown exponentially so by definition there are fewer people per doctors.  This may be why so many doctors don’t spend much time with patients.

A no-brainer would be to allow more medical schools to open to allow let more people become physicians. Starting a medical school is no easy task either. Another no brainer is allowing nurse

practitioners and physicians assistants as I mentioned in this post. The empirical evidence I have seen shows nurse practitioners and physician assistants as just as effective as doctors and cost a fraction of what doctors cost.  The cost of medical education falls is yet another example of the Peter Rule. The Peter Rule which states that: over time if prices rise and qualify suffers look to government intervention as the culprit. 

The Case For More Nurses and Physician Assistants

With much people still talking about healthcare reform I thought there was one area thing people were not talking about: nurse practitioners (NPs) and physician assistants (PAs). I see both of these professions doing mountains of paperwork and it seems as if they are not being put to their highest valued use: helping and serving patients. States like Texas nurses practitioners are required to have a doctor sign off on 10% of the charts. However, 34 states don’t have this requirement. Not only does this waste time for the nurse practitioner but also takes time away from the doctor who is trying to help patients. There is an expected shortage of doctors (expected to grow to 130,000 by 2025) however there are some issues with this.  Why not add 155,000 nurse practitioners and over 83,000 physician assistants? So let’s assume that only 90% of nurse practitioners and physicians assistants are working with patients. If they on average see 8 patients a day that means 1.7 million more people per day could see a medical professional! Every week that would be close to 11.99 million who would have access to someone who could help them.

Much of the criticism comes from people who say things like “Nurse practitioners and physicians are not as qualified as doctors”. Sometimes things that seem true are not true once you look at the evidence. What is fascinating is this article in The Journal of the American Medical Association from January 2000 entitled “Primary Care Outcomes in Patients Treated by Nurse Practitioners or Physicians a Randomized Trial” the study concluded that even when patients were randomly assigned to either a nurse practitioner or doctor the outcomes were comparable. What is even more fascinating is that the patients with hypertension did better under the care of the nurse practitioners than doctors.

Perhaps the real icing on the cake is that the American Medical Association would publish this considering it has a vested interest no one other than doctors see patients. A 2000 RAND study found no evidence that nurses provided lower quality care than their counterparts and actually could reduce office visits by 35%. This case study showed that in the late 1990's when nurse practitioners were introduced to Loyola University for their cardiovascular program the mortality rate decrease from 3% to .9% in only 4 years, complication rates decreased, and the costs also decreased. This study in a 2 year follow up found that there was no difference between the care physicians provided and that of nurses. This study showed that nurses and PAs provided similar care as HIV experts and even better care than non-HIV experts.

Women’s right activists should embrace more this since nurses make up 92% of all nurses. By giving the women in this field more responsibilities it will increase their pay which I see as positive. The elitist view view that only doctors can help people is such utter nonsense.  Medical information is more dispersed now than ever before. States and the AMA should allow nurse practitioners and physician assistants to provide care. As I mentioned the level of care is similar to that of a physician, healthcare costs would be reduced, statistically speaking women would be given more responsibilities and in turn make more money. I see all of these things as positive. The only people who wouldn’t like this are people who would have to compete with these “new” medical professionals. 

Genome Sequencing Cost 2001-2012

Interesting the genome has gone down dramatically since 2001 and most likely will continue to go down. The  big decrease seemed to come after 2008 and I suspect will be very affordable within the next 10 years and perhaps just another test that the doctor does. As more genomes are sequenced we can compare them, look at them over time, and see how they change to get cancer, diseases, and other illnesses along how they repair. It is amazing how the free market works when people get greedy and want to serve their fellow man.

Patrick Soon-Shiong: Billionaire Taking Genome From 8 Weeks to 1.47 Seconds

Since I am always interested in new technology I thought it was pretty cool when I saw this story about Patrick Soon-Shiong who is a billionaire are selling companies he started. Currently, he is worth $7.3 billion and is chairman for Nanthealth.

What Patrick wants to do is launch a genomic supercomputing platform that would reduce the time needed to sequence a cancer genome from currently 8-10 weeks to just 47 seconds. Soon-Shiong just presented some data that showed that after collecting 6,017 cancer genomes from 3,022 patients (having over 19 different types of cancer) they were able to be analyzed in 69 hours which is very quick. This was also a lot of data coming in at over 96,000 gigabytes of data. The idea is to provide real-time information to doctors and patients to help them make better decisions when it comes to health. Nanthealth who worked with oncologist (cancer doctors) saw incorrect recommendations drop from 32% to basically 0%.  

I have always wondered why supercomputers where modeling climate change, weather, or the earth’s crust. Putting a supercomputer to use for things like helping patients is a much better use of taxpayer money if it can lead to timely information that can be used by patients. As the number of people on the network grows, doctors will gain more information, meaning they will be able to help more people.  In 2012 it is estimated 1.8 billion people will get cancer and the supercomputer will be able to analyze about this amount (5,000 patients per day). The cost of the genome has dropped dramatically and will continue to drop as the quality increases (one thing I worry about right now is how accurate the genomes are however this should prove over time).

 I discussed in this post the failure of the war on cancer from the government. This has the potential to also help sequence other types of diseases that could give doctors and patients again more data. Trial and error will give quick feedback to what really works and what doesn’t work. This is how a market system works. I suspect however privacy groups will be up in arms about sharing any type of information as they always are. One question I always ask if they are so concerned about privacy why do they post about their bowel movements on Twitter or Facebook?

Lowest Blood Supply in 15 Years and How General Blood Can Help

I saw this recent headline that the blood supply was at its lowest level in 15 years. This is quite interesting because our population has only grown dramatically since 1996. The article blames the low supply on the weather and the fact that Fourth of July fell in the middle of the week which of course is utter nonsense. Donations of blood have been increasing at 3% per year while demand has been increasing closer to 6%-8% per year.

What the article failed to mentioned was how the American Red Cross has a monopoly on the supply of blood. I go back to one of the basic principles of economics: when there is a shortage look to incentives to determine the cause. A few weeks ago while waiting in a doctor’s office I read this article about how a company called General Blood is trying to change that. General Blood buys blood cheap from blood centers and then distributes them overnight to hospitals all over the United States. Blood is also worth different prices in different markets. For example a pint might be worth $210 in Wisconsin while $265 in New Jersey.  

The market for blood is a $4.5 billion business and currently the Red Cross controls 44% of this. As a result every year 1.3 billion pints of blood go to waste (between 5%-14%). Apparently 1 pint of blood can save three lives. So in theory the amount of wasted blood adds up to 3.9 billion people. Surgeries One thing the blood market doesn’t have is an exchange which would make it much more efficient to match types of blood, what areas need blood first, and the best way to get blood to where it needs to go in the shortest amount of time possible.  The federal regulations with blood are burdensome ridiculous and should be scaled back since real people are suffering and even in some cases dying because they are unable to get blood in a timely fashion.

One hope this is on the horizon is artificial blood. This article claims that artificial blood could be here within the next decade or so but I won’t hold my breath. The blood would just be a temporary place holder for people in emergency situations which would be positive.

The position the government takes on regulation the sale of organs, blood, and everything else under the sun causes more harm than good. As I mentioned in this post about bone marrow, this post about kidneys, and this post about organ donation the government only gets in the way of people making voluntary choices about their own body. As economist Dr. Walter E. Williams would say the true test of whether you own something is whether or not you can sell it. According to the government we do not own our own body since we are able to be compensated for our own body parts or organs and create a market for them. 

Obamacare and Healthcare

Today the Supreme Court ruled in a 5-4 decision that the government can force people to buy health insurance. What the Supreme Court did in essence is place a tax on people for not doing something. The legislation entitled Patient Protection and Affordable Care Act plans to try to provide more people with health insurance. I like the key word “affordable”. If you ask someone what is the cost of an affordable house, college, or health insurance could they give you a number? The AMA endorsed the plan in this press release. According to a Gallup Poll done in December 2011 around 17.7% of Americans didn’t have health insurance. This turns out to be close to 50 million people. However, this paints a false picture. Around 25% of these people who are counted as uninsured can get Medicaid and the State Children’s Health Insurance (S-SHIP) but never enrolled. Another 20% of the people who are counted as uninsured are not legal immigrants. Also greater than 33% of people have incomes over $66,000 yet many choose not to purchase healthcare since they are young. Also a very small percentage of people (2.6%) of people go without health insurance for three years or longer.

Another big question is about pre-existing conditions. I would say on this there are some people who through no fault of their own have conditions that they had no fault in causing. However, the idea of insurance is to plan for unforeseen events. One problem is that health insurance is often tied to employment. You can’t take your health insurance policy with you from company to company since the company is paying for it. A better system would be companies just to increase the pay by the amount of what the insurance is worth and let consumers purchase their own health insurance. Also since people can’t purchase health insurance across state lines it artificially increases in the price of insurance. This requires insurance companies to comply with different regulations and restrictions which impose costs on them which are passed on to the consumer. If you don’t believe that there is much regulation in insurance can you even name three new insurance companies in the past five years?

The government does a poor job of managing the money taxpayers give it. Medicare fraud is estimated at $48 billion for 2010. Total spending on Medicare was around $528 billion which means 9% of spending on Medicare is payments to bogus people. If any private organization had a business like this they wouldn’t even exist. If people were paying with their own money instead of a third party paying this wouldn’t occur. Speaking of Medicare according to this article the last two months of a patient’s life cost Medicare $55 billion and it estimated that 20%-30% of the expenses have no impact yet the government keeps spending money.  

The idea of free markets is to create competition which drives down prices and increases options which would allow more people to have health insurance. Two other things that increase cost as I have pointed out here and here the lack of not enough private hospitals and FDA also increase the cost of healthcare. If we had more hospitals it would increase competition and bring down costs. The FDA limits the type of drugs that can go on to the market which artificially increases the price since drugs that the FDA doesn’t approve will never end up in the hands of patients even though some people in the clinical trials benefit. Allow patients to use drugs after the drugs were tested for safety in Phase I and you would see more innovation and prices for drugs drop like a rock. Healthcare isn’t complex we just need more free market solutions. 

Jordan Flynn: The Case for Bone Marrow Compensation

On Rock Center with Brian Williams there was a story about a young girl named Jordan Flynn who suffers from fanconi anemia an incurable disease that requires the patient to have a bone marrow transplant. People like Jordan not only suffer but thousands of people die every year because they can’t find a bone marrow donor.

Currently due to a 1984 law (National Organ Transplant Law) it is against the law to be compensated for organs. “Do-gooders” like Michael Boo of the National Marrow Donor Program worry that compensation would make donating bone marrow unsafe because people may not disclose all their information. Mr. Boo needs to first take an economics course to realize that compensation will not only lead to more bone marrow but higher quality bone marrow. If people were paid for bone marrow based on the quality they would have every incentive to make sure they were donating the highest quality so they could get the most money (being self interested can work wonders). Also companies could be created to check the quality of the bone marrow before it was used. In addition to this the process would improve which over time would reduce the risk and make it safer. Also this could lead to new discoveries in other areas as well given most things are discovered by accident.

Data shows that only 2% of the entire population is on the national registry for bone marrow. One problem is that people can back out at any time and face no penalty. If people were paid a few thousand dollars they might be more willing to roll up their sleeves and let the blood flow out and money flow into their bank account.

It is bizarre why people would object to selling bone marrow when people sell things like sperm, hair, eggs, and essentially rent other body parts. Of course politicians and “do-gooders” pay no price for the harm done. Innocent people are in pain and may die because of a law that essentially doesn’t even benefit anyone. Is there anyone who has been saved or helped because of the 1984 National Organ Transplant Act?

End The FDA Monopoly

As I have mentioned here here and here about much of the FDA does not only stifle innovation but more people die because the FDA does not allow drugs on the market that could save lives. What is interesting is today there is even more drug regulation than ever before despite we now know more than ever about the human body and how it operates.

Writer Doug Bandow echoes this same message. The FDA nor politicians pay no price if a drug fails to get passed that may save lives. There might be outrage from people who could benefit from the drug like in the case of Avastin where people were outraged when the FDA panel ruled that the drug was not effective for breast cancer. I wonder how many individuals on the FDA panel currently have a family member, friend, or loved one with breast cancer. Perspective of course matters. People who often have serious illnesses are not only informed about their particular illness but have more knowledge than politicians and in some cases more knowledge than individual doctors. The time people and family members have to wait to get approves comes at a cost. The length of time to approve drugs has increased from 7 months in 1962 to 10 years by 1970. Now it takes between 10 to 20 years. Waiting a decade or so for a drug that could help people with life threatening and chronic illnesses is undue pain that no one should go through. By the FDA waiting to approve drugs people not only suffer in pain but some die. The Competitive Enterprise Institute found that when the FDA waited to approve beta-blockers cost 100,000 lives. This was because the drug was already approved in other countries yet the FDA waited three years to approve the drug.

Getting rid of the underlying monopoly would do a wonder of good. I think there might be an analogy to the FDA and financial services industry. If the FDA were in the financial services industry it would like something like this...An investor wants to purchase a new security, however  first the individual has to go to an individual certified by the state to practice financial advising (parallel to AMA). Once with the financial advisor the financial advisor can only recommend products that the (FPA-Financial Products Agency or FDA equal) approves. However, not only does the security have to be approved, but the security has to be related to the risk tolerance of the individual client. Clearly, as you can see people would be up in arms if this process were true. More choices, means more freedom, which means better outcomes whether it is in medicine or financial services.

It would be best to abolish the FDA all together and allow the underwriting laboratories or third parties to independently test the drugs. There would even be competition because drug companies could use more than one lab to test whether or not their drug was effective and to run the experiments. By the FDA limiting how many drugs are on the market limits the choices. Not only does it limit choices it leads to few drug companies since so much money is required to create just one drug. Drug companies have so many failures that the only drugs people talk about are the blockbuster ones. This is why drug prices are so high because consumers pay for the drugs that the FDA doesn’t approve (company passes along costs to consumer). More drugs will lead to more experimentation which is a good thing because no two people are alike. Not even the greatest scientist possesses 1/10^th of 1% of the total knowledge of the human body.  What makes us believe politicians will do any better?

The Case for Legalized Organ Sales: Kidneys

    

Something I have been thinking recently about is the organ transplant market which limits the amount of organs that can get to people. More than 92,000 people are waiting for a kidney in the United States but there are less than 17,000 that were made available for transplant last year. In the world there were less than 65,000 kidney transplant operations in 2007. More than 5,000 people die waiting every year waiting for a kidney. The chance that people will get a kidney has also been decreasing over time. In 1992, there was a 50% chance of getting a kidney on the waiting list. These days that percentage is down to only 20%. People who have to wait have to be placed on dialysis which is not only time consuming but also usually have to go three times a week for many hours. People who have a kidney transplant live on average 10 to 15 years longer than if they were on dialysis.  The cost of dialysis is not cheap either. Dialysis alone consumes 10% ($17 billion per year) of the Medicare budget.

Due to the 1984 law entitled the National Organ Transplant Act (NOTA) it is illegal to except payment for organs. This is interesting because people accept payment for donations like blood, sperm, and we all sell our brains on a daily basis. Due to this act it has lead to the underground system of illegal organ donations. According to Havoscope the average price paid for a kidney buyer is $150,000. This recent article talks about how in China, India, and Pakistan people are paying $200,000 for kidney even though they only offer the donor $5,000. The high price of what someone would pay for a kidney signals that there are not enough kidneys to go around. Economist Gary Becker has done some work on this subject and in this paper estimates that at a price of $15,200 per donor there would be a large supply of available kidney donors. Iran has actually paid people $1,200 along with some health insurance and no longer have a shortage. 

In a market system people who donated their kidneys would be rewarded if they kept their kidneys in pristine condition. This would allow them to get a premium which would increase the quality of the kidney that was donated which I would predict increase the quality of life the donee would have. The risk of dying in a kidney transplant is 0.1% and if we legalized it would decrease even further as transplant surgeons figured out how to make it not only better but safer. People who are against organ sales or “do-gooders” argue that people who want to donate their kidney  are of course not rational, have no idea what the consequences are, and left to their own devices would not be able to make a decision unless a bureaucrat decided for them.  If someone regardless of their financial position wants to sell something that they own who are we to tell them what they can or can’t do? If a person is offered $20,000 for their kidney which they could use to pay down debt, go to college, or start an investment fund what is the harm in that?

Allowing people to sell their kidneys would work wonders for all the people that have to suffer and worrying about waiting for a kidney. What do politicians tell to the families of the 5,000 people that died waiting for a kidney?  The donors will be better off because they will be compensated and the donee will be better off because they will not have to go on dialysis which is time consuming and expensive. By doing this the amount of government support for dialysis would be reduced which I think is highly desirable. As Walter E. Williams would say the true test of whether one owns something is whether or not he can sell it. By definition according to the government individuals do not own their own kidneys. 

FDA: Stifling New Cures

In this report by Avik Roy of the Manhattan Institute finds that the cost of Phase II trials is increasing the costs of drugs. Roy finds that 90% costs related to the development of a drug occur in Phase III. Roy response is to allow drugs that have passed Phase I and Phase II trials to be marketed to patients. This is something similar to what I have purposed, however I would be okay with letting drugs on the market once they have been approved from a safety standpoint. Since everyone has different body chemistry, cells, and since no two people are alike it is unwise for the FDA to make a blanket statement when they disallow certain drugs that could clearly benefit certain individuals.

The costs of drugs according to the Tufts Center for the Study of Drug Development have increased from $100 million in 1975 to $1.3 billion (in 2000 dollars). The cost even after adjusting for inflation has dramatically increased. One reason the costs have increased is because the trials have required more patients, more resources, longer trial periods, and more medical tests to be performed. In 1999 the average length of a clinical trial was 460 days. By 2005, the average increased to 780 days (or just over 2 years).

The author’s suggestion of allowing limited marketing before Phase III is a step in the right direction. I would also want to not require prescriptions for drugs. What is really interesting is why people need to waste their time to make an appointment just so a doctor could renew a prescription (think of how wasteful it is for someone to make an appointment with a dermatologist just to get face wash). If a prescription weren’t required people would still go to the doctor for medical advice. Also moving drugs from behind the counter to over the counter would dramatically drop prices since places like CVS, Walgreen's, and Wal-Mart would all have to compete with each other. The most important point however is that people along with their doctors could experiment with different drugs to see if they helped. This would allow for more information to be spread to the masses which in the long run would benefit everyone. Some people might get hurt in the short term but in this world we do face tradeoffs.

It seems puzzling that year after year the FDA increases regulation when we have more data about who we are and how we operate. Medical data has exploded in the past few decades leading doctors and patients to know more about certain conditions. In some cases now patients know more than some doctors especially if they have a certain illness. Doctors sometimes will look up symptoms during a patient’s visit to pinpoint exactly what they might have. Also with genome sequencing doctor's can look at a patient’s DNA and have a better understanding of what illnesses or diseases they may get face in the future. With all this information you would think the FDA would be regulating less. Knowledge is power and there is no question the FDA is doing more harm than good. 

Natural Orifice Surgery: Surgery of the Future?

                Something interesting I have learned about in the past week weeks I natural orifice surgery. I saw an article about a woman who had her appendix removed through her vagina. This reminded me of surgeries they use to do in ancient times. The way natural orifice surgery works is the surgeon operates on the body through natural openings such as the mouth, vagina, rectum, and urethra. By doing this the surgeon doesn’t have to cut the skin which can lead to infections and complications. Only around 1,000 patients in Europe, Britain, and America have undergone this surgery. Hopefully more people will undergo this surgery in order to see if it has benefits over traditional surgery.

                Surgeons have already used natural orifice surgery to remove prostates, kidneys, appendices, gallbladders; it can even be used to perform weight loss surgery.  Surgeon Kurt Robert of Yale University performed the first appendectomy (appendix removal) in 2008. The surgery was less than an hour and half and the woman had no visible scars. Dr. Mitchell Humphreys of the Mayo Clinic removed the prostate of one man in 2010 and so far has had no signs of complications. Dr. Vikram Reddy a assistant professor of surgery at Yale University is experimenting with natural orifice surgery for patients with Crohn's disease (gastrointestinal). One other advantage to the surgery is that there is less of a chance of the patient of hernias. There however are risks associated with this procedure like any procedure. Since there is an internal incision usually made it can cause internal leaking from the incision made on the inside of the body.

                There is no doubt natural orifice surgery is in its early stages. Hundreds if not thousands of surgeries will have to be performed in order to determine if this new type of surgery offers any benefits.  What is fascinating is how surgeons use to have to make large and long cuts to perform surgery. Then in the 1980’s and early 1990’s surgeons started doing laparoscopic surgeries. Then in the early 2000’s robotic surgery was introduced. Perhaps natural orifice surgery will take off in the next ten years. Only time will tell.

First Free-Market Hospital: The Surgery Center of Oklahoma

Perhaps the only free market hospital is in Oklahoma City, Oklahoma. The Surgery Center of Oklahoma performs all different types of surgeries ranging from ear, nose, throat, general surgery, urology, ophthalmology, and various orthopedic surgeries. What is different about The Surgery Center is Oklahoma is that they don’t go through insurance companies. Let me repeat this no insurance is involved in these procedures. What is even more interesting is that the prices for all surgeries are included on the website.  By doing this the surgery center is able to not have to deal with the bureaucracy of insurance companies and able to actually charge less because of the bureaucracy. The surgery center also has an infection rate of only .3% in 2006, .04% by 2008, and in 2010 only .001% which is a fraction of the national average of 2.6% per year.

I am always curious why finding outcomes of hospitals is so hard to find. For anyone with insurance they really don’t care what the cost of a procedure is because usually there is a price ceiling on what they pay in any given year. This would be the same thing as going to the grocery store with no prices loading up on whatever you desired an then paying a fixed amount every time you visited the store (think co-pay). In this scenario, there is no incentive to care about what the cost of anything is or its benefits. Health care works the same way. We need a single-payer system of people paying out of their own pockets. A common complaint to this might be that “People can’t pay out of their own pockets because prices are too high!” People fail to realize the reason why prices are high. If the American Medical Association got rid of their cartel and let more people practice medicine, the FDA allowed patients to take drugs after they passed Phase I of clinical trials, and if prescription drugs available without prescriptions the price of health care would drop faster than you could say abracadabra. All of the things I mentioned artificially increase the price of medicine. Also getting rid of the employer deduction for health insurance and allowing individuals to decide would help. Another thing that would help is allowing people to buy health insurance in different states. Why it is illegal to buy health insurance in different state is beyond me.

The United States needs more hospitals like The Surgery Center of Oklahoma. When people have to pay with their own money they pay much closer to attention to the costs and benefits. Setting up a hospital is no easy feat due to the massive amount of regulations required to start one. I would prefer to lower to barriers to entry and allow anyone open a hospital. We want hospitals popping up like McDonalds and Wal-Marts. It would be positive to have more for profit hospitals. People might say “Well for profit hospitals have no incentive to make people better”. Organizations and businesses have reputations. If a hospital was known to make people worse no one would go there putting the hospital out of business. More for-profit hospitals would cure our quasi private/public health system. 

Personal Omics Profile: Future of Medical Testing?

Medical testing may be reaching the next frontier. Recently Michael Synder of Stanford University spent the last two years sequencing his DNA, genome, and metabolites. During the two year period, researchers used iPOP or Personal “Omics” Profile. IPOP looks at not only the genome, proteome, and other vital information. Over the course of two years Synder provided a blood sample every two months to study his body. Over the course of the study Synder got sick and researchers were able to look at the changes in his body in real time. The data showed that Synder was at an increased risk of type 2 diabates. By modifying his diet and exercising he was able to bring his vitals back into range erasing the increased risk for diabetes. In essence he was able to see a few years into the future due to the real time data. The researchers look at different metrics to see what was going on with Synder’s body.

This is the first look at medical testing in real time. The human body is complex and we have many different genes. Genes only tell us whether or not people have an increased risk of decreased risk of getting a getting illness or disease. However, by studying these genes and genome in real time researchers will be able to get a better understanding of how the body transforms over time. For instance, how a normal body gets cancer. Also this can lead to how people improve, get better, and stay healthy. Understanding this process could lead to novel therapies in the future.

I hope more studies that use the IPOP are done in the future. A better study would be to look at certain populations with a particular disease or illness and measure the changes in real time. One drawback however is the amount of testing that is required. I don’t know how many people would be willing to get a blood test every month. Hopefully, in the process researchers can devise ways to get information by less invasive means.

War on Cancer Failure

In 1971, President Richard Nixon declared a war on cancer or what is known as the National Cancer Act of 1971. I hate when politicians say things like we have a “War on Poverty” or a “War on XZY”. The only thing this really means is a massive amount of money will be used to fund whatever the war is for. It isn’t as if people didn’t get cancer before the 1970’s the government just decided we should use more tax dollars to fund it.

A recent report from the American Cancer Society found that the death rates for all cancers decreased 1.3% per year from 2001-2006. This is of course after a 21% decrease between 1990-2006. The five year survivial rate for all cancers has increased from 45% in 1975 to 68% currently. One cancer that has seen a large increase in survivial rate has been prostate cancer. The survival rate in the 1970’s was 67%. Today the five year survivial rate is 99.9%. Some cancers have made very little progress in finding any treatment. For instance, there is very little that can be done for pancreatic cancer. The one year survivial rate is only 25% while the five year surivival rate is a miserable 6%.

After looking at this data one might thing well things are getting better. However, one could make the argument that things could be greatly improved. The greatest enemy in the war against cancer is the FDA. It currently takes hundreds of millions of dollars and nearly a decade of research to bring any drug to market. In the meantime while drug companies are trying to get their drugs approved hundreds of thousands if not millions of people suffer as a result. Once a drug is approved however the FDA can’t tell doctors or patients how to use those drugs. This leads to what is known as off-label usage. Off-label usage occurs when a drug is approved for a certain ailment, however doctors experiment and prescribe the drug for a different ailment. A study from Mark Ratner and Trisha Gura in 2008 showed that 50%-70% total usage of cancer drugs are off-label use. It would make sense cancer drugs would have probably the most off-label use since these people have the most to lose. The number of patients just to run trials for the drugs has increased. In the late 1970’s only 1,600 patients were needed. By the 1990’s this number increased to 4,200. This has substantially increased the cost of trying to bring the drug to market which decreases the number of people that can benefit from the drug. People often complain about greedy drug companies. This if of course looking at the effect without looking at the cause. The reason why drug companies charge high prices is because their costs are high due to regulation. The business of creating drugs is based on failures. Drug companies know they will have many of failures which is reflected in the price of blockbuster drugs. The reason drug companies have failures is because the FDA overzealously is obessed with the safety of a drug. The FDA needs to understand that there is no thing as a perfectly safe drug. The question is how to improve the quality and quantity of live in individuals. Of course, there will be trade-offs but let patients and doctors decide. One no brainer solution is once a cancer (or any drug) has passed the first phase of FDA to allow it to be used in the market. The purpose of the first phase is to determine whether or not a drug is safe. Once a drug is determined to be safe by the FDA patients and doctors can run their own experiments to see whether or not it works. Different patients will of course react differently to drugs. By allowing more experiementation there would be more data and knowledge about the drugs which would help drug companies, patients, and doctors. If drug companies were worried about liability they could have patients sign waiver forms or enter into some type of contract that would say if the patient is harm the drug company has to compensate them.

The FDA is creating chronic inflammation in the drug discovery process. Today, patients often have better and more information than doctors of yesteryear. Decentrailizing power and allowing patients and doctors to make their own choices will only improve things. I personally don’t think “cures” exist given one important rule of economics. In life there are no solutions just trade-offs.

Richard Rainwater: The Billionaire and His Battle

A few weeks ago I read a story about Richard Rainwater and his battle with a potentially fatal disease. Rainwater is probably most famous for managing the investments of Bass family. The Bass family earned most of their money though oil and then diversified into investments. According to an article in Fortune, in 1988 the Bass family was the fourth richest family. The family is responsible for the Sundance Square in downtown Fort Worth, Texas, and the Bass Performance Hall. Rainwater helped the Bass family amass enormous wealth. From the period of 1970-1986 Rainwater turned $50 million into $5 billion or around a 26% annual return. In the process Rainwater himself was able to create a fortune for himself. In 2011, Forbes listed his net worth at $2.3 billion. All of this is now in the past as Richard Rainwater is faced with incurable and fatal brain disease.

Rainwater has a disease known as progressive supranuclear palsy or PSP. The disease itself is very rare but fatal. The average life expectancy is around four and half years. In trying to do something about his disease Rainwater organized his own medical and research team trying to try to come up with some solutions. These days Rainwater has around the clock nursing care and his speech has become incomprehensible.

In addition to all of this, there will no doubt be an issue with Rainwater’s estate. Rainwater planned to give most of his money to his own charitable foundation. He plans to leave each of his children $5 million although one of his sons already has $50 million. Rainwater’s wife Darla Moore who was a former Chemical Bank executive will receive approximately $60 million (this was decided by Darla picking a random figure out of baseball cap). There will be no doubt there will be an estate battle here.

The tragic thing however is how an energetic billionaire can rapidly transform into someone who needs 24 hour care help. Although, the odds don’t look good for Rainwater hopefully with him self-financing his own disease may be able to benefit other people or at the very least shed light onto PSP which seems to be related to dementia and Alzheimer’s. I had been hoping that Rainwater would publish a memoir but now I think that is out of the question given his condition. Money at this point doesn’t matter to someone like Rainwater. For Richard Rainwater his most scarce resource is time.

America Obesity Epidemic?

People often talk about obesity being an epidemic. As if there was something in the water that was somehow making us all larger. Recently, in the news there was a story about how Americans are now 20 pounds heavier than they were 20 years ago. The average weight for men is around 196 and 160 for woman (note these figures are self reported). Around 62% of Americans are overweight or obese. You have to be careful because many times people are overweight or obese as defined by BMI (Body Mass Index). This can be misleading because some people have more muscle which makes it appear they are overweight. There is a prediction that by 2030 more than ½ of Americans will be obese. The problem with this prediction is trends don’t persist forever. People start to wake up and realize they are overweight and start working out and start to eat more sensibly. The problem is often is it hard to keep up this up. There are predictions that life expectancy will decrease in the coming years because we have so many overweight people.

Many people have tried to pinpoint the causes of the rise in weight gain. Some people blame genes, shifts in the role of work lives, and individual choices. Blaming genes to me is a red herring. I would agree that some people might carry genes that could make them more likely to be heavy but I don’t think somehow overnight genes just made people bigger. A better explanation might be because of the changes in the role of the family. Years ago most housewives cooked nightly meals for the family. Times changed and housewives moved into the labor force. This would allow less time for making home cooked meals like in the good old days. Today, it seems as if people get more take out, fast food, or pick up pre-made meals from the store. According to a survey done by CBS in 2005 21% of families ate out at restaurants 2-3 nights a week. Around 17% of people ate fast food 2-3 nights per week. Years ago people rarely went out to a restaurant to eat (usually it was for a special occasion). Fast food companies like McDonalds, KFC, and even Taco Bell were are formed before the 1970’s but people didn’t really start eating at these places until the 1980’s and 1990’s.

However, what I find interesting is why everyone is so worried about how much other people weigh. Shouldn’t we be more concerned about our own health? Somehow people think overweight or obese people are a problem. If anything it helps non-overweight/obese people because it makes them relatively more attractive. I suppose people don’t like the “externality” of looking at large people (which I am sympathetic to). However, people should be able to eat and drink what they want. We all should have the freedom to choose what we put into our bodies. After all we own our own body.

Pfizer and Over The Counter Lipitor

I read an article in today’s Wall Street Journal that discussed Pfizer trying to get the FDA to approve Lipitor for over the counter use. The patent for Lipitor expires by the end of this year and Pfizer wants to make sure that people are still aware of the drug. Drugs get a patent for a decade. After a decade the drug company loses the patent to make the drug and a generic substitute comes onto the market. People often say the generic is exactly like the original drug however this is a little misleading. The original drug can have a better quality delivery system, higher self life, and more effective even though the molecules for the original drug and the generic are the same.

Pfizer being very aware that Lipitor is going to become a generic drug wants to allow consumers to purchase the drug without the prescription (known as over the counter). I have always wondered why the FDA has not made more drugs over the counter. Many drugs that you need a prescription for are not very dangerous. Plus, if consumers really wanted to do harm they could just up the dose on over the counter prescriptions already.

There are benefits to putting prescription drugs on the market. The first if the drugs were allowed to be sold over the counter more people would have access to it. Drug stores and regular stores would have to compete on drugs which would reduce the price of drugs. Also another benefit would be since people are sometimes reluctant to go to the doctor you would provide them with the opportunity to take particular medicines.

The FDA worries about people taking the wrong dose or possible drug interactions which is understandable. People care more about their risk tolerance profiles than any bureaucrat. Plus, no doctor has perfect knowledge of any individual patient. Patients when they are in need seek information. I really don’t find the argument of “people don’t know what’s good for them” very compelling. Today, we have more information than leading doctors did 20 years ago. I would be more sympathetic to this argument if it were made decades ago.

Allowing people to take drugs without a doctor’s prescription would not only increase quality of life but lead to better information. Doctors could run their own trials with patients and measure the effects of the drugs on people. I don’t see why a drug should have to go through the FDA again for non-prescription use after the FDA approves it.

Health Care: Problems, Solutions, and Cures

Recently, I have been thinking a lot about markets and how healthcare really isn’t a free market. When I think about free markets I think about people buying goods and services. In any free market people decide what products and services they want. Healthcare does not work like this. According to the U.S. Department of Health and Human Services in 1960 close to 50% of total health expenditures were out of pocket. In modern times this percentage has dropped to 10%. However, other people picking up the tab (insurance companies, government, third parties) has skyrocketed from 55% in 1960 to close to 90% in recent years. Clearly, this is not a free market when someone else is paying. One problem is that insurance covers too many things. I can understand a market for catastrophic insurance (getting cancer, a serious illness or disease), but for everything else we should let free markets reign.

One argument you hear a lot is “Insurance companies are just greedy”. Insurance companies profit margin are just a little above 3%. Software companies, oil companies, and even telecom companies have higher profit margins. Health insurance companies are highly regulated.

Another problem I see is one of barriers to entry in medical care. The American Medical Association (AMA) restricts who can and can’t become a doctor. The AMA is in charge of granting medical schools. What is very interesting is that today there are around 129 medical schools which is less than the 166 medical schools we had a century ago. This is all despite the fact that the number of medical school applications has increased exponentially in the last 100 years! I am perfectly okay with allowing nurses to do some of the duties of doctors. A lot of ailments that people have (sinus infection, aches, and sore throat) nurses could easily handle. In 2008, there were around 2.6 million nurses. Nurses would be paid more since they would be engaging in more valuable activities. The other major problem is the FDA (Federal Drug Administration). The cost of developing one drug in 2008 was $993 million. If you are one of the major drug companies you are going to be very sure you have a product that can make it to market. The FDA requires that companies go through a clinical trials and a four step process. The drug has to first be evaluated for safety, then the drug has to be evaluated to see if it effective, then people have to actually take the drug and double blind tests with placebos have to be in place. This process takes many years. Meanwhile people with the ailments that the drugs are trying to cure or help are suffering. The number of patients required to conduct a clinical trial have also increased. In the late 1970s only 1,600 people were required for a trial. By the mid 1990s this number increased to 4,200. The number of drugs getting approved every year by the FDA is not in the hundreds its only a couple dozen. In 2009, the FDA only approved 25 new drugs. Yet in that same year more black box warnings were issued than the amount of drugs approved. The black box label warnings are warnings for people who may misuse the drug even though there are directions and a list of possible side effects already on the prescription. Could you imagine if iTunes was in charge of approving new songs and only approved 25 songs in one year? Consumers would be outraged. People could argue “Well songs are one thing but health is another issue”. I think I care more about my life then even my own doctor. There are times when consumers are more informed than even their own doctors because people do actually seem to care about living. When people are dealing with decisions that have huge consequences they will seek information. The icing on the cake is prescription drugs which I mentioned in a previous post. There are close to 4 billion prescriptions written a year. What doesn’t make any sense is requiring a prescription for harmless things like benzyl peroxide (face wash) which I don't believe anyone has ever died from. Drugs like this should just be moved to over the counter which would free up time for the doctors writing the prescription and the consumers who have to waste their time going to the doctor. Also consumers would save money because if you got CVS and Walgreens competing for prices they would drive down prices instead of insurance companies trying to figure out how much they would cover. Moving hundreds of prescriptions from back of the pharmacy to over the counter would improve healthcare.

People are often mad because of the prices they pay for healthcare, but often see what are causing the high prices. Getting rid of the AMA would allow more people to become doctors which would bring down the cost of medical care. Also bringing more drugs over the counter would decrease the cost of prescription drugs since they would be sold in free market places like CVS and Walgreens which would have to sell the drugs for what consumers would pay.

Diabetes "Cure"

A recent study showed that people that only consumed 600 calories for 8 weeks may reverse diabetes. So 11 people were in the study (not very large, usually need at least 30 for a good sample size) and for 8 weeks drank a liquid diet of vegetables. Although, this doesn’t sound pleasant I am sure more people would be interested if this method could reverse diabetes. What is really interesting however is that 3 months after going off the 600 calorie diet 7 of the 11 were free of diabetes (remember they were only on the diet for 2 months). The average weight loss was 33 pounds. Considering the average weight of the patients was 220 pounds this is still a substantial amount of weight loss. What is also interesting is that the fat in the patients’ pancreases decreased in the time of the study. Before the study there was about 8% fat in the pancreas. After the study the level of fat was 6%. Apparently fat is stored in the liver and pancreas when we consume more calories than we burn.

Considering 25 million people have Type 2 diabetes this is interesting news. I doubt whether many people could go through 8 weeks of only consuming 600 calories per day. It would be interesting to see a follow up study where patients would consume either: 600, 700, or 800 calories and then see what affect that would have on the body. Also the real question is how long someone would have to be on this diet to actually reverse diabetes. The body has a system for homeostasis (calibrating things back to normal). Also if the fat is stored in the pancreas and liver what would happen if fat could somehow be removed from these areas? I didn’t even mention throwing in Type II diabetes drugs which could even help the outcome. I am sure more studies will be done in the future and have a feeling there will be no miracle pill for obesity, diabetes, or any other serious illness.

More importantly I think people think of obesity as a bigger problem than it actually is. Some people argue that it is in our genes that cause us to be obese. I wouldn’t deny this, however if genes were the cause how did so many people become obese even when their parents weren’t obese? Food has become more plentiful, cheaper, and easier to access. People also are working fewer jobs that require physical labor. It would be interesting to see a chart of rates of obesity and the percent of people with manufacturing jobs. Also people don’t assume there is any benefit to being obese. If people want to live fewer years of live but consume really tasty food who are we to deny them? People claim that life expectancy will decrease with the current generation. I don’t find this too compelling when drug companies keep innovating and we are just beginning the journey with figuring out the human genome. We will only know more about the human body and food in the years to come not less. The question is whether people do anything with this information.