Rise of the Robots: Technology and the Threat of a Jobless Future (26 page)

An even more effective variation on this theme might be to allow a small number of large competing insurance companies—in effect, a sanctioned oligopoly. This would inject an element of competition into the system. The companies would still be large enough to have significant market power when negotiating with providers, and they would have little choice but to compete on the basis of enabling high-quality care since their reputations would determine their success. Tight regulation of the industry would limit price increases and prevent the companies from engaging in undesirable practices like, for example, designing insurance plans geared specifically toward “cherry-picking” younger, healthier patients or offering plans with substandard protection. Instead, they would have to focus on genuine innovation and efficiency.

Consolidating existing insurance companies into one or more regulated “health care utilities” might provide many of the advantages
of a single-payer system while preserving the industry. Rather than being wiped out, the shareholders of private insurance companies might conceivably see gains as a result of an industry-wide merger. The mechanism by which such a consolidation might be brought about is, of course, far from obvious. Perhaps the government could issue a small number of operating licenses, and it might even hold an auction as it does for the electromagnetic communications spectrum.
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Set “All-Payer” Rates

An alternate, and perhaps more feasible, strategy is the implementation of an “all-payer” system. In this scenario, the government essentially sets the schedule of prices that can be charged by health care providers. Just as Medicare dictates the prices it will pay, an all-payer system would do the same for all patients receiving care from any given provider. An all-payer approach is used in the health care systems of a number of countries, including France, Germany, and Switzerland. In the United States, Maryland also has such a system for hospitals, and the state has seen relatively slow growth in hospitalization costs.
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All-payer systems vary in the specifics of their implementation; the rates may be set through collective negotiation between providers and payers, or they might be established by a regulating commission after an analysis of actual costs at particular hospitals.

Since an all-payer system enforces the same prices for all patients, it has important implications for the cost shifting that goes on between private patients and those covered by the public systems in the United States (Medicaid for low-income people and Medicare for those over sixty-five). When a single rate is set, the public prices have to rise considerably, putting more of a burden on taxpayers. Privately insured patients, and especially those who are uninsured, will typically benefit from lower prices as they are no longer subsidizing the public programs. This has been the case with Maryland’s program.
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It seems to me that a much simpler approach that might produce immediate savings would be to set an all-payer
ceiling
rather than a specific price. For instance, suppose the ceiling were set at the Medicare rate plus 50 percent. In one example from Brill’s article, a blood test that Medicare says is worth $14 might then be priced at any amount up to $21—but it could never reach anything like $200. Insurance companies with sufficient market power would still be free to negotiate a price lower than the ceiling. This strategy would immediately eliminate the worst excesses, and as long as the ceiling was set high enough, it would still provide sufficient revenue to providers. A 2010 fact sheet published by the American Hospital Association claims that Medicare paid “90 cents for every dollar spent by hospitals caring for Medicare patients in 2009.”
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If the industry’s own lobbying organization says Medicare is covering 90 percent of hospital costs, then a ceiling somewhat higher than the Medicare rate should be sufficient to allow enough cost shifting to make up for that missing 10 percent.
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An all-payer ceiling would also be very
easy to implement since it is based directly on the already-published Medicare rates.

One of the most hopeful approaches to controlling health costs, which is gaining some traction in the current environment, is to transition away from a fee-for-service model and toward an “accountable care” system in which doctors and hospitals are paid a set fee to manage the overall health of patients. One of the primary advantages of this approach is that it would reorient the incentives regarding innovation. Rather than simply offering a new way to hoover up even higher fees according to a fixed schedule, emerging technologies would be viewed in terms of their potential to reduce costs and make care more efficient. The key to making that happen, however, is to push more of the financial risk associated with patient care away from insurers (or the government) and onto hospitals, doctors, and other providers. Needless to say, the latter are unlikely to accept that increased risk willingly. In other words, in order to drive a successful transition toward accountable care, we still need to address the market power imbalance that often exists between insurers and providers.

In order to bring relentlessly increasing health care costs in the United States under control, I think it will probably be necessary to pursue one of the two general strategies I’ve outlined. We will have to move toward a single-payer system where either the government or one or more large private firms exercise more bargaining power in the health insurance market, or alternatively we will need to have regulators exercise direct control over the rates paid to providers. In either scenario, moving aggressively toward an accountable care model might be a vital part of the solution. Both of these approaches, in various combinations, are used successfully by other advanced countries. The bottom line is that a pure “free market” approach in which we cut government out of the loop and expect patients to operate like consumers shopping for groceries or smart phones is never going to work. As Kenneth Arrow pointed out over fifty years ago, health care is simply different.

This is not to say that there are no significant dangers associated with either approach. Both strategies rely on regulators to either control premiums or set the prices paid to providers. There is an obvious risk of regulatory capture; powerful companies or industries may exert influence that bends government policy in their favor. Attempts at such influence have already been successfully directed at Medicare, which is specifically prohibited from using its market power to negotiate drug prices. The United States is virtually the only country in the world where this is the case; every other national government negotiates prices with the drug companies. The result is that Americans, in effect, subsidize lower drug prices in the rest of the world. The three years between 2006 and 2009 saw a 68 percent increase in the rate of “prescription abandonment” in the United States.
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This happens when patients request that a prescription be filled, but then walk away when they find out the cost. It’s something of a mystery to me why this is not more disturbing to Americans, and to grassroots conservatives in particular. The Tea Party, after all, got started after a famous rant by CNBC personality Rick Santelli, who decried the fact that people with mortgages they couldn’t afford might be subsidized by taxpayers. Why aren’t average Americans more upset about the fact that they are paying the pharmaceutical freight for the rest of the world—including a number of countries that have significantly higher per capita incomes than the United States?

In spite of this problem, Medicare consistently provides high-quality care at a cost significantly lower than in the highly fragmented private insurance sector. In other words, we should not make the perfect the enemy of the good. Nonetheless, Medicare’s prohibition against negotiating with the pharmaceutical industry deserves to be subjected to a great deal more public scrutiny. The industry argues that inflated drug prices in the United States are necessary in order to fund further research. However, there are likely more efficient and certainly more equitable ways to ensure that drug research gets
funded.
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The potential to reform or streamline the Federal Drug Administration’s procedures for testing and approving new drugs also surely exists.

Another issue with Medicare, and one that touches directly on the subject of this book, is that waste can easily be driven by the direct advertisement of products to senior citizens who are told explicitly to pressure their physicians for a prescription and that Medicare will then pick up nearly the entire cost. One government audit found that up to 80 percent of the motorized scooters paid for by Medicare were not really needed by the elderly patients who received them and may actually be harmful to their health. The two largest scooter manufacturers spent over $180 million on advertisements directed at Medicare recipients in 2011.
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This is another issue that deserves close scrutiny because, as we’ve seen, there is soon likely to be a profusion of robotic equipment geared toward providing home-based assistance to senior citizens. Such advances have great potential to improve quality of life for the elderly while reducing the cost of their care—but not if we pay for technology in cases where it is unneeded or perhaps even detrimental. The specter of millions of comfortably seated senior citizens watching advertisements telling them that Medicare will happily pay for a robot capable of retrieving their television remote should give us pause.
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W
HILE RECENT APPLICATIONS OF
AI and robotics to the health care field are impressive and advancing rapidly, they are, for the most part, just beginning to nibble at the edges of the hospital cost problem. With the exception of pharmacists, and possibly doctors or technicians who specialize in analyzing images or lab specimens, automating even a significant portion of the jobs done by most skilled health care workers remains a daunting challenge. For those seeking a career that is likely to be relatively safe from automation, a skilled health care profession that requires direct interaction with patients remains an excellent bet. That calculus could, of course, change in the more distant future. Twenty or thirty years from now, I think, it’s impossible to say with any real confidence what might be technologically possible.

Technology is not the only consideration, of course. Health care, more than any other sector of the economy, is subject to a complex web of rules and regulations imposed by governments, agencies like the FDA, and licensing authorities. Every action and every decision are also colored by the looming threat of litigation if an error—or perhaps just an unlucky outcome—should occur. Even among retail pharmacists, the specific impact of automation on employment isn’t easily discernible. The reason is likely regulation. Farhad Manjoo interviewed one pharmacist who said, “Most pharmacists are employed only because the law says that there has to be a pharmacist present to dispense drugs.”
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That, at least for the moment, is probably something of an exaggeration. Job prospects for newly minted pharmacists have worsened significantly over the past decade, and things may well get worse. A 2012 analysis identifies a “looming joblessness crisis for new pharmacy graduates” and suggests that the unemployment rate could reach 20 percent.
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However, this is likely due largely to an explosion in the number of new graduates entering the job market as pharmacy schools have dramatically increased enrollments.
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Relative
to most other occupations, there’s little doubt that health care professionals enjoy an extraordinary degree of employment security as a result of factors completely unrelated to the technical challenges associated with automating their jobs.

This may be good news for health care workers, but if technology has only a muted impact on health care costs even as it disrupts other employment sectors, the economic risks we face will be amplified. In that scenario, the burden of soaring health care costs will become even more unsustainable as advancing technology continues to produce unemployment and ever-increasing inequality, as well as stagnant, or even falling, incomes for most workers in other industries. This prospect makes it even more critical to introduce meaningful reforms that will correct the market power imbalance between insurers and providers so that advancing technology can be fully leveraged as a mechanism for increased efficiency across the health care sector. Without that, we run the risk that our market economy will eventually come to be dominated by a sector that is inefficient and, indeed, not an especially well-functioning market at all.

Controlling the health care cost burden is especially critical because, as we’ll see in
Chapter 8
, the last thing American households need is an ever-increasing drain on their discretionary income. Indeed, stagnant incomes and growing inequality are already undermining the broad-based consumer demand that is vital to continued economic growth.

So far, we have focused primarily on the ways in which technology is likely to transform existing employment sectors. In the next chapter, we’ll leap a decade or more ahead in time and imagine how things might look in a future economy populated with entirely new technologies and industries.