German system provides ideas for American health care reform

Princeton economist Reinhardt provides useful background in testimony, writings.

While some may call it “socialized medicine,” European systems of health care have features of financing and regulation that Americans should consider in reforming the U.S. health care system, Uwe E. Reinhardt, PhD, of Princeton University told Congress last month. In testimony and writings by the respected health care economist, five major functions of the health care systems are addressed: Financing of health care, pooling risks for protection of individuals and households, purchasing health care from providers, producing goods and services required for proper treatment, and regulating clinical and economic activities.

In testimony before the House Committee on Ways and Means on April 22, Reinhardt called out those who stereotype the financing mechanisms used in European countries: “The same citizens and politicians who look askance at ‘socialized medicine’ reserve the purest form of socialized medicine—the VA health system—for the nation’s allegedly much admired veterans. A foreigner may be forgiven for finding this cognitive dissonance bizarre.” He went on to review the structure of the American insurance system and explore ways of “making the public plan function like a private plan.”

Reinhardt, in an interview of the German Health Minister published with Tsung-Mei Cheng in 2008 in Health Affairs, had focused specifically on the German and Dutch systems, writing: “These countries seek to harvest the power of competition among nongovernmental insurers and providers of health care within a unifying regulatory framework aimed at keeping the competition fair and preserving for health care, as much as is possible, Europe’s hallowed Principle of Solidarity.

In that interview, the German Health Minister, Ulla Schmidt, reflected on how medications are handled under that country’s system. Asked by Reinhardt whether reference pricing—under which relatively low-cost drugs within a therapeutic class are paid for but patients must pay the difference if more expensive alternatives are used—was controversial among German drug manufacturers. Schmidt replied: “It certainly is. Until our recent reform, reference pricing for drugs applied to generics only—that is, to products with the same chemical composition. Now the therapeutic groups for reference pricing include on-patent brand-name drugs as well. The [Joint Federal Committee] puts comparable drugs into therapeutic groups. The national association of sickness funds then sets the reference price, which is reimbursed by the sickness fund. Because German patients hate making copayments for drugs, the manufacturers of rival brand-name drugs then have little choice but to lower their prices to the reference price, if they  want to preserve sales volume.”

Reinhardt closed his House remarks with this assessment: “Even the opponents of a new public health plan for non-elderly Americans will probably concede that the private market for individually purchased health insurance remains underdeveloped and needs a restructuring before it can serve the needs of the American people better than it has heretofore….

“Even if Congress in the end decided not to permit the establishment of a new public health plan, a rather daunting set of new regulations would have to be imposed on that market to meet the social goals posited for our health system by President Obama. It would also require a mandate on individuals to have basic coverage, a proposal eschewed by the President during the election campaign, albeit not by his Democratic rivals.

L. Michael Posey, BPharm (mposey)
Posted May 4, 2009, 3:00 pm EDT