Municipalize Medicine?

The New Yorker‘s Atul Gawande on “What a Texas town can teach us about health care“:

McAllen is in Hidalgo County, which has the lowest household income in the country … McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami—which has much higher labor and living costs—spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. …

President Barack Obama said in a March speech at the White House. “By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care.” …

El Paso County, eight hundred miles up the border, has essentially the same demographics. … Yet in 2006 Medicare expenditures … in El Paso were $7,504 per enrollee – half as much as in McAllen. … There’s no evidence that the treatments and technologies available at McAllen are better than those found elsewhere in the country. … Nor does the care given in McAllen stand out for its quality. … The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine. …

In a 2003 study, … Elliott Fisher, examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received sixty per cent more care than elsewhere. … Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse. …

In an odd way, this news is reassuring. … If we brought the cost curve in the expensive places down to [the cheap place] level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. …

It was a depressing conversation—not because I thought the [hospital] executives were being evasive but because they weren’t being evasive. The data on McAllen’s costs were clearly new to them. … Local executives for hospitals … have only the vaguest notion of whether the doctors are making their communities as healthy as they can, or whether they are more or less efficient than their counterparts elsewhere.

Hmmm. McAllen’s overuse is paid for by the whole nation now.  But if it was funded locally, raising McAllen’s tax rate over El Paso, and putting it at a competitive advantage at attracting workers and employers, I’ll bet McAllen’s political and business elites would know about the problem, and try to deal with it.  They might succeed, reducing local overuse, or they might fail, making McAllen whither into an object lesson for other towns to avoid.  Either way, local feedback would reduce local overuse.

We’d expect the same if McAllen’s taxes were sky high from trash collectors going into folks’ houses to collect trash.  Municipal services are sometimes wasteful, but overall competition and comparability keep them in line.  Few municipalities build unused roads, but Congress more often builds roads to nowhere.

Some expect national regulators will reign in spending by flagging some treatments as wasteful, but this seems unlikely.  Obama may be popular, but on medicine he isn’t remotely as popular as doctors. Surveys show the public thinks the main problem is “Americans don’t get the tests and treatments they need” … “because drug and insurance companies make too much money”; “insurers should pay even if their doctor recommends a treatment that has not been proven to be more effective than a cheaper one.”  Medical spending may have to bankrupt the U.S. before its citizens will admit they spend too much.

But I do see a U.S. political compromise with a better chance to rein in spending growth: municipalize medicine.  We have now nationalized half the industry, we strongly and nationally regulate the other half, and we face a correlated risk of national bankruptcy if we choose badly on national medical policy.  Instead, consider letting government take full control of the industry, but at a municipal level, with minimal national regulation and so minimal correlated risk.  Some municipalities will find ways to cut overuse, and others will fail, but failures can then emulate successes. Instead of a disastrous national extreme eventually teaching the nation one very expensive lesson, local disasters can convince nearby folks piecemeal that they spend too much on medicine.

We could require municipalities to give universal coverage, and require national standards so businesses could avoid dealing with differing local regulations. But we should otherwise give municipalities wide discretion on cost control measures. They could receive federal funds, but depending only on demographics, and usable for other purposes; the key is for local folks to pay for local practice variation.  Municipalities should be empowered to charge new residents higher prices, just as insurance companies now charge for pre-existing conditions.  (Perhaps the districts folks leave should pay districts they go to.)

While its no one’s first choice, my libertarian friends prefer this proposal to the status quo.  Progressives should like its universal coverage, full government control, and strengthened local communities ties.  Conservatives should like its cost reduction prospects and reduced national control.  Maybe the medical reform debate should be less about government versus private control, and more about centralization versus decentralization.