Tuesday, November 24, 2009

Health Care - Defining More Problems

Part II

No debate on health care can be complete without a discussion of physician and drug costs. In a Congressional Research Service report dated September 17, 2007, the following table shows the compensation for specialist and general physicians for five countries whose health care we are often compared to (Japan was not listed in the report).

Country - Specialists - General Practice
United States - $230,000 - $161,000
Australia - $247,000 - $ 91,000
Canada - $161,000 - $107,000
UK - $150,000 - $118,000
France - $149,000 - $ 92,000
Germany - $ 77,000

These figures were adjusted for cost of living and normalized for lifestyle opportunities. On average, we pay our physicians 50% more than other developed countries. However, there are some mitigating factors that cause this. First, the cost of education in this country is quite a bit higher than anywhere else in the world. In France, for instance, I’ve been reading that the cost of medical school is only 150 Euro and subsidized heavily by the government. It’s not surprising that the competition is very fierce to get in for this nearly free education. In Canada, a Quebec resident going to medical school in that province does attend for free.

In the U.S., the typical cost of medical school is $150,000 to $300,000. If you are a medical student graduating with a debt of $200,000, then you will need to make sufficient salary to retire the debt. To pay this off in 10 years at 9% interest rates means our physicians start out needing $30,000 a year salary just to cover this debt. (I used an interest rate of 9% in order to give the student a slight return on his medical school educational investment).

In addition, we have the most expensive medical malpractice insurance costs in the world. Without major tort reform, it will mean physicians will have to continue to carry very expensive malpractice insurance to cover the risks of litigation. The cost of premiums varies greatly depending on the type of specialty and which state you are in. Premiums range from $50,000 to $200,000 per year. While a practice may pay some or all of these premiums as part of the benefits offered to its physicians, it does add to our overall medical costs.

It is my belief that these two areas alone make up the difference between the cost of our physicians and those in other developed nations.

One way to keep physician costs down would be to greatly subsidize their education. Graduating more physicians would increase competition and help to keep prices in check.

The second thing would be to cap litigation claims. Under a universal health program, ongoing care would be provided so there would not have to be any payments for treatment under any litigated settlement. The only damages left would be for pain and suffering, and loss of income. What I would suggest investigating is a formula that provides long term disability insurance coverage for the patient to cover their loss of future income, and a cap on pain and suffering in the range of $250,000 to $500,000.

Another area that needs review is what we pay for drugs in this country. Recent studies find that most developed countries pay about 70% of the price we pay for the same on-patent drugs. For generic drugs we pay about the same or a bit less than other countries.

Also, the number of drugs prescribed in other developed countries is about 40% less than in the U.S. This suggests that the perks many doctors receive from drug companies are causing a conflict of interest and the public is paying for it. It seems obvious that we need to have the government be able to negotiate drug prices, and to provide better oversight on the relationships between doctors and drug companies. It is also my opinion that fear of litigation also causes an excess of ordered tests and drug prescriptions as an anticipated defense in the event of a malpractice claim.

There is a lot of overpricing and abuse in our health care industry. There have also been numerous reports of massive amounts of fraud in the Medicare program and the cost to taxpayers is in the billions of dollars. Government oversight and enforcement is woefully inadequate. Any health care bill must provide for increased personnel for audit review and fraud investigations. If there has been a fault in Medicare it is in this area.

My final posting on health care is my solution to the health care crisis.

Health Care - Defining the Problems

Part I

There is a great debate going on about the state of health care in this country. There are few who would agree that our health care system and how we cover our citizens is just fine as it is. Instead, it seems the debate is trying to figure out what’s broken and what needs fixing.

Often, we hear arguments against universal health care, which is offered by most of the developed world, versus our fee for service – private health care insurance model. Many believe that our model produces the best health care system in the world. However, the data doesn’t support that claim.

Let’s start with some facts so we can try to identify the key issues. According to the United Nations World Population Prospects 2005-2010 report, the life expectancy and infant mortality rankings of the U.S. when compared to other key nations that are often used to measure our health care system are quite illuminating.

Life Expectancy - Infant Mortality
1. Japan - 3. Japan
5. Australia - 12. France
10. France - 14. Germany
11. Canada - 17. Australia
22. United Kingdom - 22. United Kingdom
23. Germany - 23. Canada
38. United States - 33. United States

Others notables ahead of us:
30. Costa Rica - 10. South Korea
33. United Arab Emirates - 12. Slovenia
34. South Korea - 28. Cuba
37. Cuba

However, according to the Federal Interagency Forum on Aging-Related Statistics when we in the U.S. reach the age of 65, we have an above average life expectancy and rank 9th on a list of 27 countries. I pulled the same 27 countries from a World Health Organization (WHO) study which covers all ages and on that list we rank 21st out of 27. Could this improvement from 21st to 9th be because at 65 we are all universally covered by the government run health program known as Medicare?

However, even when we reach universal coverage status, we still find Japan (#1), and France (#3) ahead of us in the 65+ life expectancy rankings. Even so, this report shows the benefits of universal coverage. When everyone is covered we moved from 21st to 9th place. We even surpassed the UK (#14) and Germany (#15) in the 65+ rankings. (Canada and Australia were not in this report, so I don’t know how we did against them).

What this suggests is that universal coverage, 100% access to health care, is one of the keys to improving life expectancy and infant mortality.

We often hear about private enterprise and the free market as the most efficient method of administering health care. Governments are deemed bureaucratic and inefficient at running any program. Yet according to a report by the World Health Organization (WHO), the U.S. has the worst cost versus care provided in the developed world. We spend more per capita on health care than anyone in the world and yet we rank 37th in health care rankings.

The following table compares where the U.S. ranks in health care expense versus health care quality against other key nations.

Country - Health Expense Per Capita - Health Care Ranking
United States - 1 - 37
Germany - 3 - 25
France - 4 - 1
Canada - 10 - 30
Italy - 11 - 2
Japan - 13 - 10
UK - 26 - 18
Cyprus - 39 - 24
Chile - 44 - 33
Costa Rica - 50 - 36

All of these countries have government run health care programs and they are delivering better health outcomes for a lot less money. Even Cuba, which has a spending rank of 118th, delivers the 39th best health care system. This is only slightly behind the U.S. system, and as noted above Cuba outperforms the U.S. in life expectancy and infant mortality.

It’s clear to me that the lack of universal coverage lowers the ranking of our health care system. The high cost of premiums and the ability of insurance companies to deny coverage for any reason, but especially for pre-existing conditions are the primary reasons for our inability to achieve universal coverage. Thus, it appears that the insurance companies and private enterprise are costing us far more money than we should be paying and it is affecting our ability to deliver the best health care possible.

Compare the table below from data produced by the Organization for Economic Co-operation and Development (OECD) from its 2003 study. (The numbers in parentheses after the country name are the WHO world health rankings).

Per Capita Expenditures Share as %
Country (rank) - Per Capita Expenditures - % Share of GDP
United States (37) - $5,711 - 15.2%
Australia (32) - $2,886 - 9.2%
Canada (30) - $2,998 - 9.9%
France (1) - $3,048 - 10.4%
Germany (25) - $2,083 - 10.8%
Italy (2) - $2,314 - 8.4%
Japan (10) - $2,249 - 8.0%
UK (18) - $2,317 - 7.8%

The average of the seven countries listed after the U.S. is $2,685 per capita and 9.2% as a share of GDP. The U.S. is spending more than double that average per capita and 65% more as a percentage of our GDP for a health care system that ranks 37th in the world. This is outrageous and must be changed. I will further this discussion in my next posting and offer my solutions.

Thursday, November 19, 2009

Economic News Comment for Thursday 11/19/09

My favorite economic indicator was out this morning and was up again for the seventh straight month of increases. The coincident/lagging ratio is part of a set of three economic indicators, the most famous being the leading economic indicator, which was also up.

The co/lag ratio is one of the best forecasting tools for the arrival and termination of recessions. When the ratio turns down and falls steadily it indicates a recession will start in about six months. The reverse is also true. When the ratio begins rising steadily, it implies the recession will end in about six months.

The current ratio bottomed in March 2009 and began its climb. By June it was clear the trend was higher, and I made the prediction that the recession would end sometime in September, which is six months after the March low. It appears that the recession, in fact, did end around that time.

However, the current economy is struggling to create new jobs and the housing market is still facing lots of uncertainty. The mortgage industry can’t seem to get any traction and seems to be stuck bouncing along its bottom. The difficulties in these two areas appear to be dampening consumer spirits as we head into the holidays.

On the other hand, new orders are rising, and inventories are so low that they are now at a point which should support additional restocking orders. Corporations are lean and mean having cut employees and excess inventories. The result is they are sitting on mountains of cash. Productivity gains have exploded these last two quarters. Historically, they have never been this high without seeing corporations increase employment.

Because of the depth of this recession, the worst economic decline since the depression of the 1930s, it is going to take time for employment to recover. Employment is a lagging indicator and is one of the last areas to recover. The rate of job loss has slowed substantially in recent months but it has yet to turn positive. However, by next spring, I believe we will see new employment growth.

Monday, November 2, 2009

Economic News Comment for Monday 11/2/09

The ISM Manufacturing Index was out this morning and was reported better than expected at 55.7. (Anything above 50 is considered expansionary). However, the big surprise in the report was the employment sub-index which came in at 53.7, up 7.0 points from last month. It was the first time above 50 in over a year.

In the past 30 years, with over 350 monthly reports in the archives, there have been only 3 times that the employment sub-index has been over 50 and we didn’t create new jobs in the monthly Employment Situation Report which will be released on Friday. At this time, the trade is estimating we will lose between 55,000 and 200,000 jobs in the upcoming report. This may end up being the 4th time in 30 years that we lose jobs with a 50+ reading, but it does suggest that rising employment is just around the corner.

Also in this report, it appears that inventory destocking has run its course and we are starting to restock at the manufacturing level. This should also mean more hiring.

Another indicator is the quarterly productivity report. Much of the gains in corporate earnings have come from cost cutting and employee layoffs. That means getting more out of one’s existing workforce either through lower wages or greater gains in per unit labor output.

Since wages have held steady, it implies that most of the gains have come from increased productivity of the workforce. In the second quarter, overall productivity gains were 6% higher. In the past 30 years, we have never had productivity this high without positive gains in employment growth. Thursday, we will get the first look at productivity growth for the 3rd quarter. Another large gain is unlikely as it is difficult to continue to get this level of growth out of employees on a continuous basis without seeing an increase in employment.

This recession has been the most severe since the Depression of the 1930’s so maybe Friday’s employment number will still show a loss of jobs. However, don’t be surprised if the number fools everyone and shows a positive gain of 50,000. If it does, the stock market will rise sharply.

Thursday, October 29, 2009

Economic News Comment for Thursday 10/29/09

The first estimate for the third-quarter GDP was reported this morning at 3.5%. This was better than the 3.0% estimate and last quarter’s -.7%. Inflation also came in below expectations and this report has the stock market up sharply. The Dow is up 115 points.

Since I believe that the recession is over and that the recent modest correction in stock prices is only temporary, I took advantage of the current decline to move another 7% of my retirement portfolio into the stock market. I am now 78% in stocks, 5% in bonds, and 17% in short term interest rate accounts.

Last April, when I moved back into stocks, I invested only 45% of my portfolio into equities. All summer, I have been slowly transferring from interest rate funds to stocks whenever the market had a correction. I am now finished with my movement into stocks.

November starts the strongest up-seasonal for stocks and should last until the end of January. August through October is usually the number one seasonal downtrend for stocks but this year the correction came a bit earlier in June. The decline was a modest 8.8%. There has been little or no correction during the August/October eriod. This contrarian price movement has happened only twice before in the last 25 years. In those two years, the market had a strong rally into the end of the year and that’s what I’m looking for this year.

The Co/Lag ratio (my favorite economic indicator) has been predicting a September end to the recession since last May, and this morning’s better than expected GDP number plus the superior earnings quarter we’ve seen for corporations, gives me hope that the rally will continue. That’s why I’ve moved so aggressively towards the stock market.

Normally, the rule of thumb is that your portfolio should be the same percentage in bonds as your age and the rest in the stock market. Since I’m 63, that means I should have 63% of my portfolio in bonds and 37% in stocks. Given that I’m 78% in stocks shows you how aggressive I am currently investing in equities.

Starting in mid-January, I plan on pulling my stock portfolio back to around 40%. I’ll do it in pieces over a month or so on any big rally days, but for now I’m done adjusting and will let this mix ride until after the first of the year.

Saturday, October 24, 2009

My Trip to Haiti; July 2009 - Part II

I hadn’t been back to Haiti since 1980 and Michele was curious as to how Haiti of today compared with the Haiti I knew 35 years ago. Sadly, there were mostly minuses in Port au Prince.

When I lived there, Port au Prince had a real charm. Yes the city was crowded and dirty, but the suburb of Petionville, which is where I lived, was a delightful place. There were some good restaurants, a few good hotels (the Olaffson was very eclectic with some strange and mysterious characters hanging out there including Graham Greene, author of the Comedians), and the people of Haiti were wonderful. Power, water, and telephone services were spotty but this only added to the sense that you were on a true tropical adventure.

Today, Port au Prince is teaming with people, far more than ever before. The crush of traffic is four times worse than it was. There is little or no zoning, so small offices sit amongst residences, and small ugly cinderblock buildings abutt the streets making it feel like the walls are closing in on you. There are motorcycles everywhere, where once there were none when I lived there.

Gone is the charm. I felt like I was in India where the overcrowding and pollution are notorious.

However, I did see one huge positive. What is still alive and well is the spirit of the Haitian people. They have always been and still are wonderful. And when I arrived in Port Salut, I found the charm I once knew in Port au Prince still existed; it had just moved to this remote rural part of Haiti.

The most gratifying reason for living in Haiti has always been the people. I am pleased to say that hasn’t changed. Haitians are the most hopeful group of people I have ever known, even when there appears to be no reason for hope. They are friendly and kind, and quick to laugh. They are industrious and very hard working. They value their communities to the point that many never leave, even to visit Port au Prince. They are family oriented and villages often form committees to help each other. For instance, often if someone dies, the village pitches in to pay for the funeral. If a road needs improving, scores of villagers volunteer their time and effort to make repairs.

Haitians are a proud people and they are especially proud of their independence as a country and their freedom from slavery which they won, in battle, from the French in 1804. They are keenly aware that they are the first independent black nation in the western hemisphere. In their culture, many of their traditions are deeply rooted in their African heritage.

When I lived in Haiti, I remember making a trip to a rural area where I was approached by an old woman who implored me to ask my government and the Haitian government to provide them with schools and medical help. This is still true today, and is what I heard at the meetings I attended with Michele. Haitians aren’t looking for handouts nor are they looking for our pity. Instead the message I hear is: provide me with the health care so I can be productive – educate me so I can lift myself out of poverty.

I was happy to go back to Haiti and overjoyed to know that the spirit of Haiti still lives in the people I meet on this trip. These are hard working people who share the same values we hold dear. They are worthy of our investment in them because I know with a little help, they will one day lift themselves out of poverty, a poverty they had little to do in creating, but that story is for another column.

My Trip to Haiti; July, 2009 - Part I

In 1971, three months after the death of Francois “Papa Doc” Duvalier, Haiti’s President for Life, I arrived in Haiti to live and work for the next two years. I built a bulk liquid storage facility and pier for my employer, the I.S. Joseph Co. We were importers of fats and oils, which I then sold to the local Haitian soap manufacturers and vegetable oil refiners.

Haiti was my first major job assignment after college and was one of the premier highlights of my career. It is because of this experience, and my ten-year tenure on Mount Sinai Hospital’s board of governors, where I was vice-chairman of the board, chairman of the strategic planning committee, and a member of the finance committee, that encouraged Michele Boston to ask me to join the board of No Time For Poverty.

Recently, I accompanied Michele, along with Sara, Jeff and Sydney on a trip to Haiti where Michele met with numerous groups of elders and civic leaders from the Port Salut area and its surrounding villages. Our typical day started out with a visit to one of the remote villages to view possible sites for the NTFP health outreach programs.

Our guide was the very able and well connected Giles Felix who is a very valuable friend to the NTFP project. Giles knows everyone. He is well respected by the community and an ardent supporter of ours. Michele would not be able to move as fast as she is in networking with the various interest groups and communities if it weren’t for Giles.

Also accompanying us was Nixon, whose background is a worthy story in and of itself, who did the interpreting for Michele at the meetings. Nixon’s English is superb, and he will soon be trained as a nurse here in St. Paul before returning to Haiti to live in Port Salut and work at the Timoun Nou Yo clinic.

Henry, our engineering student and former mayor of Port Salut, was also with us and provided additional translating assistance, along with driving support over some very rough and treacherous turrain.

After our village visits, we would then meet various groups at local restaurants and clubs to explain the project and ask for their input and support. Among the various groups that Michele presented to were the local village councils and administrators, the police, court, and customs officials, local healers and mid-wives (some of which are men), and religious groups, including the Catholics, the Protestants, and the Vodou priests.

Overwhelmingly, each of these diverse groups where very enthusiastic about the coming clinic. Many of them told us that NTFP was the first group to come to their community and ask for their input first before building the clinic. They appreciated the respect we were showing them in considering their views and they all pledged their support to do what ever was necessary to make this project work.

The only lament that was heard was that the clinic would not be serving adults as well. Michele’s quick response that brought a chuckle from the crowd was that if this project helped make their children healthier, they would be able to support them in their old age.

However, she was quick to follow up on a serious note, since health and education issues are two of the most important priorities of nearly all Haitian communities, to let them know that NTFP would be bringing in American physician teams (like we did in May 2009) who would be able to see people of all ages and in some cases be able to perform surgery in our clinic. This made everyone very happy.

Prior to my arrival in Haiti, Michele, Lori, and Sara traveled to Jeremie, which is north of Port Salut but cut off from direct travel due to a mountain range. The three of them spent five days with the Haitian Health Foundation, a Connecticut based health organization that for twenty years has successfully operated a clinic and health outreach program in Jeremie. Michele is partially using their program as a model for our Port Salut project.

After realizing how serious and dedicated NTFP is about its commitment to Haiti, HHF opened its doors to them and has offered to help train our nurses at their clinic, and to also send personnel to Port Salut to help train our health agents in the field.

Because Michele has spent the past four years developing relationships first and listening to the advice of the Haitian leaders in Port Salut, she has made strides that the HHF people said took them much longer to accomplish. It was a real tribute to the dedication and insight Michele has shown.