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The Biggest Idea in Health Care

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Uwe E. Reinhardt is the James Madison Professor of Political Economy at Princeton University and a member of the boards of directors of Amerigroup (NYSE: AGP  ) and Boston Scientific (NYSE: BSX  ) . Prof. Reinhardt is one of the nation’s leading authorities on health-care economics and calls the health-care sector the “strongest economic locomotive working for us.” He estimates that health care will be one-fifth the size of the U.S. economy by 2015, and believes this is an ideal time to expand health insurance coverage for the uninsured.

I recently interviewed Reinhardt to get his thoughts on health care’s impact on our economy. This is part two of our interview; if you missed it, go back and read part one.

Andy Louis-Charles: What is the biggest idea in health care today?

Uwe E. Reinhardt: The biggest idea is actually an old one: Instead of paying piece-rate (fee-for-service) for health care, which induces providers to package many pieces (services) into the treatment of patients, there should be one payment for all of the services required, according to good clinical science, in the treatment of given illnesses. Although it is probably not politically correct to say anything good about government in this country, I will tell only Motley Fool, Inc., that the federal government actually has led in this regard. In the 1970s, it experimented with case rate payments for Medicare patients receiving hospital care. These payments are now known as DRGs, after Diagnosis-related Groupings. But the idea should be broadened to far more treatments in and out of the hospital.

Louis-Charles: What should citizens know about their U.S. health care system?

Reinhardt: Citizens should know that, on average, the health care they receive in this country is as good as that received by citizens elsewhere in the industrialized world, and at its best it is arguably the best care in the world. On the other hand, the way we pay for our health care -- ... how we structure health insurance -- is probably the worst. If anyone in health reform debates abroad suggests that a particular proposed reform will make their system like the U.S. system, that always is the kiss of death of such a proposal. 

Louis-Charles: Have the large, for-profit health care benefits companies like UnitedHealth Group (NYSE: UNH  ) , Humana (NYSE: HUM  ) , Aetna (NYSE: AET  ) and WellPoint (NYSE: WLP  ) been good or bad for health care?

Reinhardt: So far they have covered roughly two thirds of the American population and accounted for about one third of total health spending. Whether they have done this better than a public program could have can be debated. I do not view them as particularly innovative -- not as innovative as, say, is Medicare. But overall they have served the American people to the latter's satisfaction. At the same time, the complexity (the operative word might be chaos) they seem to love has driven up substantially the administrative burden on the U.S. health system, and it has also stood in the way of the smart, systemwide adoption of health information technology. Other countries seem ahead of us in terms of implementation, even though Americans invent much of the hardware and software used for that purpose.

Louis-Charles: Are retail in-store clinics a good trend in health care (i.e., CVS Caremark's (NYSE: CVS  ) MinuteClinic)?

Reinhardt: I think these clinics are a useful innovation. They are convenient, probably offer better hours, and they also provide badly needed competition for a health system that has always found it hard to provide 24/7 coverage at affordable prices. One should expect traditional providers -- mainly doctors -- to harrumph over "poor quality," but I would argue the opposite. Large companies have a reputation to protect. Like McDonald's, they cannot afford to offer shoddy care.

Louis-Charles: Your thoughts on a single-payer system? Should health care be treated any different than police, fire, or postal services?

Reinhardt: Many countries with single-payer systems (Canada, Taiwan, etc.) ask that question. Those countries do view health care like fire protection and elementary and secondary education, and they structure their health system accordingly. We are rather an exception, viewing health care as basically a private-consumption good, but we don't quite believe that either -- hence the coexistence of unbridled kindness and unbridled callousness in our health system. We do not have our head straight on this issue. Other countries have.

Fool contributor Andy Louis-Charles does not own shares of any company mentioned in this article. WellPoint and UnitedHealth Group are Motley Fool Inside Value recommendations. UnitedHealth Group and Amerigroup are Motley Fool Stock Advisor picks. The Fool owns shares of UnitedHealth Group. The Motley Fool’s disclosure policy cures the common cold.

Read/Post Comments (3) | Recommend This Article (20)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 06, 2009, at 6:47 PM, dumdumm wrote:

    I had the unfortunate need to use the Canadian health system while on vacation and while the two doctors involved and thier staff were wonderful the hospital and it's resources were sadly lacking. Two nights in the emergency room ( no hospital bed available ) and $14,000 dollars later we had to charter a jet to return us to the US ($29,000 ) because they thought her back was broken and the 2 hospitals had Zero MRI machines. It turned out she had three fractures. We thank God we live in the USA where in our city of 450,000 we have at least 21 MRI machines. Thank you Cigna.

  • Report this Comment On February 07, 2009, at 8:47 AM, ERPhysician wrote:

    Althought excellent care can be obtained in the US by those who have excellent insurance, the US ranks well behind other industrialized countries in almost all commonly accepted measures of health quality. Canada in particular has significantly better infant mortality and life expectancy, at less than two thirds the cost per capita. Canadians, like most Western Europeans also have the priceless security of knowing that illness does not jeopardize their families financial security.

    A single-payer system, "Medicare for all," would also relieve American industry of the constantly rising costs of their workers' and retirees' medical care. This would be one of the the easiest ways to make American goods more globally competitive accross the board, and could generate a full 1 or 2 percent of total GDP in savings. That is money that could be invested in capital, education and infrastructure projects that we desperately need to stimulate our economy.

  • Report this Comment On February 14, 2009, at 3:24 PM, LEGALAlienmt wrote:

    While I am in agreement with the universal healthcare (or medicare for all) option for Americans and "legal aliens", the USA is a country that is more than 7 x`s the size of Canada and many other countries with Gov`t programs .Clearly medicaid and medicare are already poorly run and do not always benefit those in the program as well as they should, some getting way more and some getting way less than adequate care. The fraud and abuse going on now would be even worse in such a gigantic goverment run program, the only bright spot could be the amazingly huge taxes that Canadians, Germans, English etc. pay in order to have "free" healthcare. The real solution could be an overhaul and streamlining of all current policies with no room for any profit,even if just a policy for those newly un-employed or not yet 65. I say this after depleting all life savings going on Cobra due to an illness. I only work in order to have H. Insurance lest this happens again!

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