THE BLOG

Health Reform War Won

02/25/2015 12:51 pm ET | Updated Apr 27, 2015

The war to reform American medicine has been won.

The transformation began with the enactment of Medicare and Medicaid during the Johnson years -- which allowed prices to be contained as a growing percentage of bills were paid by large entities, especially the government -- and the HMO act during the Nixon years -- which endorsed the idea of an efficient system where experts decided on how to treat any problem, effectively setting limits on volume.

Once the tools were in place to control both price and volume, the rest was just fine-tuning, which is still ongoing. The basic principles were ratified in Obamacare and are no longer under serious challenge. The change hasn't relied entirely on government action, but reflects private sector movement in the same direction.

There will continue to be attacks from extremists in caves on both sides who refuse to acknowledge that the war is over and continue to lob grenades in an effort to enlarge consumer choice (from the right) or enact a single-payer scheme (from the left), but these are becoming increasingly irrelevant minor distractions.

Basically, we've gone from a system where patients paid most of the bills to one where insurers do. That's illustrated in a nifty chart showing how patients were paying more than 20 percent of hospital bills in 1960 but only three percent now. The change in doctor bills went from 60 percent payment from patients then to 10 percent.

The new system delegates decisions on both treatment and payments to institutions with both expertise and market clout. As a result, medical economics are beginning to resemble ordinary economics. The old rules where supply created demand and costs weren't a consideration in making treatment decisions are disappearing.

From the patient's perspective, this all means that we're living longer and better and are less likely to confront difficult decisions about whether to deplete our assets to finance the medical care we need. A growing number of walk-in clinics offer appropriate care at an affordable price. Our care will rely increasingly on protocols based on evidence, a change that will inevitably grate on patients and doctors who'd like more freedom to make their own choices, however suboptimal.

The scenario is less rosy for providers. The number of days we spend hospitalized has been declining for decades and many hospitals have gone out of business when they couldn't fill their beds.

In an effort to capture a growing share of a shrinking market, hospitals are hiring physicians in the hope that this will help fill beds.

Physicians who see their incomes declining are increasingly willing to make such deals. A lawyer who negotiates such deals reflects that his clients are not going in the payroll to make more money, but as a strategy to slow their declining income. More than half of America's physicians are now employees.

Medicare Part A spending per beneficiary peaked in 2011 has been falling annually since and is projected to be less this year than it was in 2008. That relieves pressure on the Medicare spending and sends a positive signal about government health spending generally, which has been a major component of deficit concerns.

It could also alleviate the wage stagnation issue as employers can direct a larger amount of higher compensation payment toward salaries rather than health insurance premiums.

The changes that have swept through so much of our economy in the past few decades, resulting simultaneously in greater efficiencies and painful adjustments for those who the old ways worked well for, are finally impacting American medicine.