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Interview: A Glimpse into the Future of Health Care with Robert Graboyes

If you hear that Congress has a new health care reform plan, you’ll probably have questions like: How will my insurance plan be affected? Will my coverage change? Can I still choose my doctor? How much will it cost me?

You probably won’t ask: What conveniences in service will be ushered in by these reforms? What new treatments and therapies will we have in the future if these reforms are passed? Will we forgo new cures because of these policies?

That’s to be expected since innovation is by its nature surprising. And there is also the fact that what we have called health care reform has mostly been about reforming the financing of health care. Yet how we pay for health care, and which policies we employ to control its costs can help or hinder the pace of medical innovation. At stake in health care reform is not just who pays how much for today’s cures, but whether we will have cures and delivery mechanisms tomorrow that we don’t have today.

Robert Graboyes, who is a fellow at the Mercatus Center, has studied health care innovation and he argues that American health care is stuck in a “Fortress” mentality—too focused on avoiding risk and defending existing health care providers from new sources of competition. As a result, he says, health care has not seen the kinds of disruptive innovation that other sectors of the economy—in particular information technology—have seen in the past 25 years. We talked with Graboyes about what innovation we might see soon if we can get our health care policy right.

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The Insider: What kind of health care innovations do you think we ought to be seeing that we are not seeing?

Robert Graboyes: I’ll begin with new classes of drugs—some tailored to a particular individual’s genome.

A more down-to-earth realm is electronic health records. People of both parties salute the idea. They assume EHRs will bring efficiencies, and yet what we’ve gotten is a muddle that physicians absolutely hate. The current set-up doesn’t serve clinical purposes very well. They’re not all that useful to the doctors or the patients. They are mainly designed for the administrators and insurers.

How often do you have to write down your name and address? How much time does your doctor spend asking questions you’ve answered a hundred times before? And how much information is lacking? I go to several doctors—a primary care physician, some specialists. Each of those doctors wastes time asking questions that really ought to be in some sort of central record.

The problem is the development of electronic health records is being heavily determined by federal law—in particular the HITECH Act, which is part of the Affordable Care Act. It’s not designed for clinical purposes. It’s not designed to please the doctors or the patients.

The development of electronic health records is being heavily determined by federal law. It’s not designed for clinical purposes. It’s not designed to please the doctors or the patients.

On another front: three years ago, the least expensive prosthetic hand cost about $5,000. On average they were more like $30,000 or $40,000 until a puppet maker in Washington State and an injured carpenter in South Africa collaborated to develop 3D-printed prosthetic hands that cost between $20 and $50. Now, the Food and Drug Administration did not interfere with them; they were exempt from the approval process. However, if the makers were to decide to motorize the hands or add sensors, the hands would be classified as medical devices and likely fall under FDA scrutiny. As a result, some of the most interesting development in this area is no longer happening in the United States. It’s happening in Colombia, Paraguay, and Chile where, I’m told, their governments have made clear that innovators are welcome to develop those things there.

Then there’s the business structure of care: I wrote not long ago about direct primary care. In this practice model, service is typically available 24/7/365. You pay a fee of around $60 monthly and after that there’s no additional charge for your primary care.

One particular direct primary care company offered to a couple of states to provide care for $1 per day ($365 per year) per person for undocumented immigrants. States are paying huge sums for that population to go to emergency rooms when they become ill.

Under this proposal, the undocumented immigrants would get all their primary care from this provider and they wouldn’t have to go to the ER anymore. The government said that would be great, but then they would consider the provider to be an insurer and regulate it accordingly. The company argued it was not an insurer; it was a primary care provider that just had a different payment system. The government said: That’s fine, but we’ll consider you an insurer. So it threw away the opportunity to save a lot of money.

TI: Is the problem badly written regulations, badly implemented regulations, or something more fundamental with the design of health care?

RG: All of the above, but mostly fundamental design problems. You can’t really “design” the health care system, but we try mightily, and that is part of the problem. There’s a long list of policies that ultimately have to be altered, and they are mostly not part of the health care reform debate we see on television everyday now.

The Medicare reimbursement system divorces the prices of health care from the actual underlying costs of producing care. It’s a price control system. If something doesn’t go into the Medicare reimbursement protocols, it’s not going to be compensated, and that’s the death knell for that technology. The problem leaks into both Medicaid and private insurance plans; they lean very heavily on the design and structure of Medicare’s pricing formula. So, Medicare’s reimbursement system is the biggest problem.

The second is the FDA’s approval process.

The third is the bias in both federal and state laws toward the establishment of multipurpose general hospitals instead of specialty hospitals. In some countries, specialty hospitals gain great skills and efficiencies by doing enormous volumes of relatively few procedures.

The next big group of problems are regulations at the state level. We have laws that limit hospital competition. Scope of practice regulations that prevent substitution of expensive physician labor with less expensive, perfectly competent non-physician health care providers like nurse practitioners. Corporate Practice of Medicine Doctrine laws that restrict the business structure of health care companies and make it difficult for skilled managers to bring their synergies into health care.

In some states, medical licensure laws make it difficult for out-of-state physicians to move there and begin practicing. Regulations make it difficult to purchase from less expensive international providers. It’s hundreds and thousands of separate regulations and laws that together slow the development of new technologies and business structures.

TI: What other things can states do on their own to eliminate the bottlenecks holding up innovation?

RG: First of all, they can get rid of certificate-of-need laws. In CON states, when a hospital, or even a physician’s practice in some cases, wants to buy a particular piece of equipment, they have to obtain permission from the state. It’s an expensive and time-consuming process. They are quite often rejected. So it stifles competition.

Secondly, they can change scope of practice laws to allow nurse practitioners, pharmacists, a variety of other non-physician health providers to provide services independently, autonomously. Some states have already taken this step and it works quite well.

Corporate Practice of Medicine Doctrine highly restricts who can own, and invest in health care businesses and physician practices. To a large extent, that cuts people with management efficiency expertise out of the health care field. Various laws restrict who may employ whom. I used to work at a couple large places that had in-house doctors for employees. In some states that’s simply not possible; it’s illegal for a company to hire a doctor to see patients at the company. There were a couple of years in which that was basically where I got my primary care. Luckily, I was young and healthy. I actually did have a primary care doctor at some distance, but it was very nice to be able to go to the 17th floor and see the doctor on any given day.

There’s a company I have written about—Opternative—that uses a laptop and a smart phone to provide at-home autonomously-done eyeglass refraction examinations. (Each exam is certified afterward by an ophthalmologist—an M.D.) So if you need a new pair of eyeglasses, if you want to get a new prescription, then you can do the examination at home; it is clinically on par with going to an office and paying someone else to do the refraction. And yet, some states have banned this. And by the way it’s sometimes “red states” that have been first to try and first to stop the technology.

Some states are very open to telemedicine; others are not. In a sense, my mother’s life was saved by telemedicine. She happened to be communicating with my nephew, who is a doctor. She was 92 and he was talking to her via FaceTime. She described a sore she had, he asked questions, and observed her through the iPad’s camera. She didn’t think that she was particularly sick, but the conversation and visuals suggested she might be at the beginning stages of septic shock. Had she just gone on instinct and waited a day or so to call her doctor for an appointment, she may well not have survived. But thanks to essentially an amateur bit of telemedicine, she was able to get another year of life.

Some states make professional telemedicine virtually impossible.

Some states make professional telemedicine virtually impossible. They have put into place restrictions that say, for instance: Yes, you can use telemedicine, but only with a doctor you have met personally. So, if your doctor is asleep, or away, or seeing someone else, you wouldn’t have access to it.

So, there are tremendous benefits to telemedicine, especially in rural states, where you tend to be more isolated. Or if you’re a single mother with three or four kids, it’s very difficult to find a way to get to the doctor’s office if one of the children is sick, and telemedicine offers more opportunities. Telemedicine can mean earlier and less expensive diagnosis.

TI: So is it correct to say that current reform efforts are too focused on policies affecting the demand side and not enough on supply side issues?

RG: Absolutely. I think that’s the critical weakness of current debate. We’re moving the deck chairs around and ignoring the icebergs.

Before the Affordable Care Act there were about 200,000 primary care physicians in America. There were several times that number of specialists. There were a number of hospital beds, and nurses, and lab machines, and other resources. We had formulas for mixing these things into care—recipes for how you take resources and make care from it. So the ACA in 2010 promises care to 20 million to 30 million people. Plus, it promises the rest of the American population relatively free access to about 65 preventative services. So it promises a lot more on the demand side but it does not really increase the supply of resources or change what we do with those resources.

So, if you’ve had about a week of introductory economics then you know that if you have a vertical supply curve and you move the demand curve to the right—i.e. you increase demand without touching the supply—then what you get is higher prices not more care. So, what the ACA did was create a lot of winners and a lot of losers both in terms of the care they got and the financial burdens they bear.

Now, there have been a number of conservative or Republican alternatives for replacing the ACA, and essentially you can make the same criticism of them all: They shift around the demand, they change some of the cost structure, they change who is in front of whom in the queue. But again that does not make serious changes in either the available resources or what we do with those resources. There are quite a number of policies that could actually change the recipes, change the resources. That’s what we’re not doing but that’s ultimately what we’re going to have to do to get to these innovations that should be happening.

Recently, I’ve been pushing a thought experiment I call the Calendar Test: You’ve got a doctor who works 10 hours a day. Five hours is administration, reading charts, reading journal articles, having meetings, dealing with insurers, etcetera. And for five hours he sees 20 patients for 15 minutes apiece. Now somebody goes out on the street and hands out four gift coupons to people saying they’re entitled to a checkup and examination today. Now the doctor either has to work longer hours, cut all the appointments short, or kick four prior appointments out. The alternative is to loosen the doctor’s calendar by shifting part of the care to non-physician providers, to machines, and to patients themselves. Neither the ACA nor conservative plans do much to promote these alternatives.

TI: Isn’t fiddling on the demand side simply the inevitable consequence of getting government involved in the business of health care? That’s what government knows how to do—put people in programs and tell them they are covered—right?

RG: Yes, the government does that. Are they good at it? That’s a whole different issue. Unfortunately, the way the federal and state governments do health care suffers from the same problems that come from centrally planned economies. You get price controls. You get misallocation of resources. You get a skewing of priorities. I would like to see the government spending less time flooding people into programs.

Health care is just the about the only major product in one’s life where you don’t have any motive to lean over the fence and ask your neighbor for his thoughts. We ask about lawn mowers and restaurants and cars and most anything else. But in health care we have built this set of walled cities for separate populations. I will never have the same policy my next-door neighbor has. We have nothing to talk about; we have no basis for comparison or reason to have the conversation.

Over the years, the federal government has decided that old people ought to be in Medicare, poor people ought to be in Medicaid, military people ought to be in Tricare, veterans in the VA, federal government employees should be in the Federal Employees Health Benefit Plan, employees of big businesses ought to be in plans of one variety, people in small businesses ought to be in a different kind of plan, American Indians ought to be covered by the American Indian Health Service, and individuals who don’t fit these categories should be in individual plans. There’s very little mobility between any of these walled cities.

What we’ve gotten is a rather fragmentary system where for artificial reasons, competition doesn’t work and we do not get the sort of positive feedback moves that you get in every industry in America.

TI: Are there any examples of government successfully retreating from a sector of the economy that can serve as a model for health care reform?

RG: Yes. A great example is information technology. In the very early 1990s—the early days of the internet and cellular technology—it appeared that Congress was going to tighten up the regulations to regiment the information technology industry. But instead, there was a concerted effort to persuade them otherwise, and a bipartisan consensus to go in one direction flipped and became a bipartisan consensus to step away from tight oversight. So the government which had originally built and owned the internet and set rules for it, stepped to the side and said: Let’s let the market do it. They were aware there would be problems, that there would be dangers in doing this, and yet, for one time, they said: Rather than trying to imagine every problem in advance and stopping it before it happens, let’s let things proceed, see what the market does, and when problems develop, we’ll deal with them as we go along.

I argue that the computer on your desk and the industry in which they’re embedded is every bit as dangerous as medical care. Incompetent or malevolent agents using computers can do an awful lot of damage to you, as can the same in medicine. And yet, Congress stepped away and we got the Internet Age.

Imagine instead that we had gone to a world where if you wanted to design a new app or a new cellphone, you would have to get something like FDA approval. Say we had a Federal Department of Apps that made you spend millions of dollars and 15 years of waiting to get approval for your app.

Last year, in the 21st Century Cures Act, Congress loosened the regulation of software in medical devices. Medicine and information technology overlap in quite substantial ways. I don’t want to say that medicine at this point is a sub-field of IT, but at times it can seem that way. A lot of the things that will change medicine in the next 20 years will be the use of diagnostic devices, thus reducing an awful lot of the practice of medicine to algorithms that can be handled by machines.

I went to a dinner a couple of months ago with a group of medical school professors and public policy experts—a very impressive group. The question came up: How much of what we call medicine is reducible to algorithms that could be learned by a machine? I think the lowest estimate in the room was 80 percent. The highest estimate was 97.5 percent.

Recently, a woman in Japan was diagnosed with leukemia, but the doctors weren’t having any success treating her, and they were very frustrated. After months of frustration, they consulted with Watson, the IBM computer that won on “Jeopardy!” Watson examined her patient chart, asked some questions, went out on the Web, read 20 million articles on cancer and came back with a diagnosis. She had, said Watson, a very rare type of leukemia that the human doctors had missed for all those months. Watson did this in 10 minutes.

So we’re going have to look at a lot of liability laws. How we deal with these things legally will be a big factor in determining whether that kind of capability is accepted and used.

We are entering an era now where we have medical devices that allow individuals—people who don’t know anything about medicine—to handle a great number of the procedures that used to be limited to a physician.

I have an example about myself. About a year ago I had a bout of atrial fibrillation. My heart went into arrhythmia. Since that time, I carry a small, inexpensive device on my cell phone, just pasted onto the back of my iPhone, that allows me to do an electrocardiogram in 30 seconds and very quickly get a diagnosis as to whether my heart is in normal rhythm. I don’t have to go to a doctor to do that. If I want to, I can punch a button and the device will send the EKG to a doctor instantly and I can get a quick reading for very little cost.

Last year, I thought I was having an episode on a remote road in Western Pennsylvania and I used this device to ascertain that, no I was doing just fine. My heart rate was a little faster than usual, but there was nothing wrong with it. And I then calmly got back on the road and continued driving the remaining four hours home instead of going to a hospital. A $99 device saved somebody $2,000 or $3,000, which would have been the cost had I actually gone to the ER, gotten wired up, and gotten checked out.

We are about to see a very rapid multiplication of devices like this. I expect that in the next 20 years, an awful lot of what you used to go to the doctor to do, you will do yourself at home, quickly, at any hour. You will get results that are clinically about as good as a doctor would give you—or maybe better.

One of my co-authors on a forthcoming paper, an expert in electronic health records, believes that devices will give the typical patient the same technical capability as a Harvard trained technical team provides today. You will have that in your home at all times.

TI: It sounds like you are an optimist in spite of the many flaws in government policy. Is that right?

RG: I am extremely optimistic about the future. The question is going to be: Where does this innovation happen? Will the best innovations start happening in other countries because we have put impediments in the way? Some other countries could well leapfrog over us. There is a chain of cardiology hospitals in India—called Narayana Health—that are among the best if not the best cardiology hospitals in the world today. They do massive numbers of heart operations, so their surgeons get better and better. They run the hospital kind of like Toyota runs a car factory.

A couple of years ago, a bypass operation at the Cleveland clinic cost around $106,000. At Narayana it was $1,600. And their outcomes rival or beat any of our places here. A former president of the American Medical Association told me he had visited a cardiology hospital in India and added that he had never been in an institution of that quality in his entire medical career. Two or three years ago, Narayana opened a hospital in the Caribbean just a little ways south of Miami. With an hour and a half plane ride you can be having surgery there. I’m trying right now to ascertain what the difference in the cost is. You won’t get a bypass for $1,500 there, as you would in India. But you can get it at quite a substantial discount over what it costs in the United States. A lot of these hospitals catering to medical tourists have American-trained doctors, American-board-certified doctors.

If we don’t progress enough here, then people will look to other countries for sources of care. The technologies are multiplying at such a rate that I think it’s actually going be quite difficult for American regulatory authorities to exert the control over medicine that they once had.