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Month: August 2009

The Health Care Cost Shifting Myth

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By AUSTIN FRAKT

Picture 12 There is a pervasive notion that providers of health care can make up for lower payments received from one set of payers (e.g. Medicare, Medicaid, uncompensated care) by increasing prices charged to other payers (e.g. private insurance companies). To the extent it occurs cost shifting offsets attempts to control overall health care costs through reduced fees paid by public insurers. It makes “bending the cost curve” harder.

However, it is a myth that providers can fully shift costs. That they could do so violates, in most cases, principles of economics. Moreover, empirical evidence suggests cost shifting, where it occurs, is done so a minimal level: only a small fraction of decreased payments by public payers shows up as an increase in charges to private payers. Losses associated with one payer are largely not recouped from another.

Some take price discrimination as evidence of cost shifting. However, price differentials are not necessarily the recouping of losses from one payer by overcharging another. As described in the 2001 Health Affairs paper by Richard Frank “Prescription Drug Prices: Why Do Some Pay More Than Others Do?” price discrimination can be due to unequal bargaining power across classes of purchasers. In other words, in maximizing profits, providers charge different prices to different market segments. In such cases, by definition, profits cannot be further increased by cost shifting.

It’s true that cost shifting could theoretically occur under specific conditions. One case is when a provider has monopoly power that it has not fully exploited, for instance charging private insurers less than it could. More fully exploiting its monopoly power with respect to those payers, such a provider can recoup losses. Still, there is a limit to how much of the lost revenue can be recouped. The monopoly profit-maximizing price level imposes a ceiling.

Another instance in which cost shifting could occur is in a more competitive market in which all providers have roughly the same level of undercompensated care. All competitors in such a market might choose to increase charges to private insurers by the same amount, maintaining their relative competitive positions. However, if one competitor elects to reduce costs or reduce its burden of undercompensated care, it might be able to charge private insurers less then others, thereby increasing its market share. So, cost shifting may not be a stable equilibrium.

The literature provides estimates of the extent of cost shifting in cases where it is theoretically possible. The March 2009 MedPAC Report to Congress: Medicare Payment Policy (Chapter 2A) includes a summary of such evidence. It concludes that the dominant dynamic in the market is that hospitals with strong market power have abundant financial resources. In turn they have a high cost structure (perhaps due to provision of relatively higher quality care) that causes lower or negative Medicare margins. In contrast, hospitals that are forced to run efficiently are adequately funded by Medicare payments. That is, Medicare payments are sufficient to cover costs but some hospitals run inefficiently and make it appear otherwise. Therefore, MedPAC has concluded that increased Medicare payments to hospitals would not reduce rates charged to private insurers. The primary effect would be to induce lower cost operations.

The MedPAC report cites mixed evidence from the literature on the level of cost shifting, as does the December 2008 CBO report Key Issues in Analyzing Major Health Insurance Proposals. A few studies from the 1980s found evidence of cost shifting at a rate of up to fifty cents on the dollar. However, conditions in the 1990s were less conducive to cost shifting and the rates were found to be on the order of a 0.4 to 1.7 percent increase in private payments in response to a 10 percent reduction in Medicare and Medicaid fees. In a 2005 study of geographic variation in health costs of the Federal Employees Health Benefits Program, the GAO concluded that the considerable variation it found was not due to variations in payments from other payers.

In conclusion, cost shifting is not as large and widespread a phenomenon as some would believe. Under some market conditions it is inconsistent with economic theory. And, while it can occur under other market conditions it is far from a dollar-for-dollar shift in costs. The most recent studies of the phenomenon find little evidence of cost shifting or very low levels of it. Claims that reductions in public payments for health care will necessarily show up as commensurate increases in private payments are unfounded.

Austin Frakt blogs at The Incidental Economist and is a health economist and principal investigator with the Department of Veterans Affairs’ Health Services Research and Development Service and assistant professor with the Boston University School of Public Health, Department of Health Policy and Management. The views expressed in this post are his alone and do not necessarily reflect the positions of Boston University or the Department of Veterans Affairs.

Separating Fact from Fiction and Health from Health Care

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By JAMES S. MARKS, ROBERT WOOD JOHNSON FOUNDATION

James S. Marks In an editorial on Wednesday, The New York Times debunks the often-cited claim that America has the best health care system in the world.  For the politicians who routinely use this as a plank in their efforts to stifle reform, the Urban Institute study (disclosure: this study was funded by the Robert Wood Johnson Foundation) is an objective rebuke. The U.S. health care system is not the best – far from it.  And Americans, with a life expectancy that still trails many other countries, are not the healthiest people in the world.

Clearly, this country desperately needs health reform.  But the study, the editorial, and the entire current discourse around health care neglect an important truth about reform: fixing the health care system alone will not significantly improve Americans’ health.

For example: medical spending consumes 16 percent of the U.S. GDP and is projected to reach a staggering one dollar for every five earned by 2018.  And yet, only 10-15 percent of preventable mortality is linked to health care.  This and our terribly poor international rankings in length of life are telling signs that our tremendous investment does not do enough to address the factors that make us sick in the first place.

Our current national debate must look beyond health care – the so-called repair shop of our health system – and focus on our health.  Fixing health care will require insurance reform, cost containment and sound economic policy.  Fixing health will require us to look at our neighborhoods, our schools and our workplaces.  From our earliest years of life, these are the places that determine how long and how well we live in America.  The recommendations of the Robert Wood Johnson Foundation Commission to Build a Healthier America, which identify pockets of success where programs are making a real difference in people’s health, provide a useful place to start.

In schools, where obesity threatens the current generation of children with sicker and shorter lives than those of their parents, solutions are critically needed.  By guaranteeing daily physical activity in schools – which fewer than 3.8 percent of elementary schools provide – and linking federal funds for school meals to their nutritional value, we can reverse the epidemic and help our children grow up healthy.

In our neighborhoods and communities, we must consider the health impact of investments and development to ensure that they help promote physical activity, make healthy foods more readily available and lay a foundation for prosperity.  With public-private partnerships, we can bring grocery stores and nutritious food into underserved neighborhoods and help both the stores and the neighborhoods thrive.  By incorporating bike lanes, sidewalks and trails into our transportation planning, we can help make the daily lives of Americans more physically active.

All of this amounts to a change in the way we think about health in this country.  Health care reform, while critically important, will not avert the crisis of poor health that we’re facing.  The Times editorial and Urban Institute study shine an important light on the dubious claim that we have the best health care system in the world, but they don’t go far enough.  It’s time that we debunk the larger myth, that Americans are the healthiest people in the world, so all of us – from the halls of Congress to the family dinner table – can start working to improve the health of the country we love.

Dr. James S. Marks, M.D., M.P.H., senior vice president at the Robert Wood Johnson Foundation and director of the Foundation’s Health Group.  Dr. Marks oversees all of the Foundation’s work in childhood obesity, public health and vulnerable populations.  Prior to RWJF, Dr. Marks was an assistant surgeon general and director of CDC’s National Center for Chronic Disease Prevention and Health Promotion.

Advice For State REC Planners

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By DAVID C. KIBBE & BRIAN KLEPPERKathleen-sebelius

On August 20th, HHS Secretary Kathleen Sebelius and ONC head David Blumenthal announced $598 million in grants to set up about 70 “regional extension centers” (RECs) that will help physicians select and implement EHR technologies. Another $564 million will be dedicated to developing a nationwide system of health information networks.

The RECs are based on the example of agricultural extension offices, established over 100 years ago by Congress, which offered rural outreach and educational services across the country. These extension services made America’s agricultural revolution possible, dramatically increasing farm productivity. By analogy, the Administration hopes that on-the-ground health IT trainers and implementation experts can facilitate small medical practices’ adoption of EHR technologies, especially in rural and under-served areas, enhancing care quality and efficiency around the US.

The comparison between RECs and agricultural extension offices is probably a good one, and we applaud this effort. But there are some striking differences between agriculture and health IT. For one thing, many best farming practices were well known by the early days of agricultural extension services. The road map under ARRA/HITECH for successful small medical practice health IT acquisition and use is still under development, and remains full of tough questions and unknowns.

In fact, under Dr. Blumenthal’s leadership, the government is now crafting specifications for Meaningful Use, HHS Certification, security, and interoperability. It’s not yet clear what “meaningful use of certified EHR technology” means. So we could be in a cart-before-the-horse situation. It might be a little premature to set up technical assistance programs if we can’t provide specific guidance on how to assist. Even fully CCHIT-certified comprehensive EHRs can’t meet the Meaningful Use criteria today, so the REC’s geek squads will have their work cut out for them.

However, a body of knowledge and experience already exists about successful health IT system implementation in small primary care and specialty practices. For several years, one of us (DCK) worked under the auspices of the American Academy of Family Physicians (AAFP), helping family physicians’ practices prepare, select, implement, and maintain information technology offered by EMR and EHR vendors. The AAFP’s current Center for HIT staff has expanded this effort, assembling an impressive body of resources and tools. It was augmented as well by the work of the Quality Improvement Organizations (QIOs) that participated in the Doctors Office Quality-Information Technology (DOQ-IT) programs between 2006-2008.

Some of this knowledge is anecdotal, and should certainly be revised in light of the definitions and specifications that the ONC will issue later this year and likely finalize by spring of 2010, according to Dr. Blumenthal. But the AAFP’s and QIO’s hard-won lessons may be useful to those who are planning the new effort.

Here’s some broad guidance for state planners who are applying for these grants and who hope to set up their RECs by early 2010.

  1. Keep your advisory services simple and targeted on solving actual problems. Hire people with hands-on medical practice experience, who will carefully listen to what physicians and practice managers want the EHR technology to do for them and their patients. Physicians in small practices generally will use EHRs in caring for patients and for managing office accounts. Overwhelming change won’t be welcomed. Instead, focus on incremental implementations that try to solve information management problems without interrupting work flows.Start with one system or workflow area, gaining success and then moving on to another. For example, some practices may be ready to implement ePrescribing, but are not ready to replace paper records with an electronic documentation system. Many practices have found that  Web portals facilitating patient communications are a good EHR starting point, because they let doctors and patients exchange information online and asynchronously, easing telephone line congestion.
  1. One size does not fit all. General IT skills are useful. New rules will soon specify how physicians and hospitals can qualify for the HITECH incentive payments and which products will be certified. Even so, there may be many different routes to successful EHR use. A flexible perspective is paramount. Favor advisers with generalized health IT system knowledge, rather than expertise with a particular vendor’s product.Some medical practices will choose a single-vendor EHR with all the added features, but others will mix and match modular applications that together create can minimum system capability needed for HITECH meaningful user status and incentive payments.

    Similarly, some practices will prefer to locate data servers inside their practices or at the community hospital. Others will opt for Clinical Groupware, web-based and remote services EHR technologies that offer less hassle and expense for maintenance and security. Recognizing and differentiating between EHR technology offerings is going to be a major challenge for REC personnel in the near future.

  1. Skate to where the puck will be. The old paradigm of health data management tried to collect a patient’s complete data in a single database application, owned, maintained and controlled by a particular organization. However, throughout other disciplines, information management has become Web-centric and based on meta-data searches augmented by real-time communications and shared group activities.  Think Wikipedia, Google docs, Microsoft Sharepoint, the Apple iPhone, and, yes, even Facebook, as representative of where health IT is migrating over the next few years.Eric Schmidt, CEO of Google, and a member of the President’s Council on Science and Technology, PCAST, recently urged President Obama and David Blumenthal to consider Web-based technologies as the basis of the national health information network.  He warned that “the current national health IT system planned by the administration will result in hospitals and doctors using an outdated system of databases in what is becoming an increasingly Web-focused world. The approach will stifle innovation.” Mr. Schmidt’s advice, and similar advice from Craig Mundie of Microsoft, is coming from within the Administration, not from outside it. In other words, it’s much more likely to be heeded than if were it coming from the opposition.

    We hope that ONC’s specifications, issued as guidance to the RECs by mid-2010, reflect market-driven innovations that can reduce the cost and complexity of EHR technology acquisition and use. Otherwise we’re in for a national exercise in chaos.

  1. Don’t waste time re-inventing the wheel. Every REC should network with every other REC, regardless of location or stage of development, to share lessons and experience, and to avoid wasted effort. In the past, for example, regional helper organizations – some QIOs and medical societies – independently formed exclusive contracts with one or two EHRs vendors, hoping these arrangements would simplify choices and implementation. These proprietary relationships were invariably unsuccessful for the helper organization and for the practices.Physicians and their organizations want to make health IT selections based on their own situations and needs. But almost always, they will seek the same kinds of IT support during implementation: e.g. networking, set up, Internet connectivity, security, and basic computer skills training for staff and physicians alike.

    RECs should collaborate on tools and instruction kits where ever possible: each REC doesn’t need to develop its own HIPAA privacy and security guide book, for instance. Remember that peripheral devices, such as printers, fax machines, and modems, are part of every office’s set up, and that these items can be troublesome to set up and use.

  1. Come to the task understanding that successful HIT implementation requires fundamental process re-design. We’ve learned this the hard way. Unless health IT helps re-design practice work and information flow processes so they can be more efficient and quality-promoting, then the IT is simply an expensive appliance. Process re-design also can determine whether the EHR technology deployment produces a return on investment (ROI). For example, re-designing the documentation process to reduce or eliminate dictation transcription services, relying instead on EHR data entry by office staff and the physicians themselves, can save money and lead to an ROI within 12-24 months. We have seen this occur frequently. On the other hand, practices that continue dictation at the old levels are simply adding new data capture expense, making it harder to justify the investment.

States are hurrying to get access to this stimulus money. Many organizations aspiring to be RECs are focused on the rapid grant/award cycles. But its critical for planners to focus on what it will take to get the job done, and setting the groundwork for effective regional centers that can offer thousands of practices the help they need.

David C. Kibbe MD MBA is a Family Physician and Senior Advisor to the American Academy of Family Physicians who consults on healthcare professional and consumer technologies. Brian Klepper PhD is a health care market analyst.

Impact of EHRs on Medical Education

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By GLENN LAFFEL

Glenn

Author’s Note: This the second of a 5-part series whose purpose it is to make the case for implementing a widespread, systematic approach to HIT education in medical schools and continuing medical education programs for physicians. A previous post reviewed challenges posed by the HIT Deluge.

Countries around the world are racing to digitize patient medical records. In the US for example, the American Recovery and Reinvestment Act allocated $21 billion to an incentive program designed to encourage the “meaningful use” of such systems.

The Federal government’s largesse is based on the premise that EHRs will improve the quality of care and reduce its costs, but the move will impact the health care system in many other ways as well. One area sure to be impacted is the education and training process for new physicians.

What kind of impact can we expect? In some ways, EHRs appear to enhance medical education, but there are as many or more instances in which the impact appears to be negative. Thankfully, careful planning can mitigate most of the collateral damage, a topic to be covered in this series’ next installment. For now, we’ll settle for a review of the good, the bad and the ugly.

Continue reading…

THCB Classified: HIPAA Webinars-on-demand

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The passing of the HITECH Act of 2009 mandated additional guidelines for the Health Insurance Portability and Accountability Act (HIPAA). On August 24, 2009 the Department of Health and Human Services (HHS) issued interim Security Breach Notification rules mandating compliance by September 23, 2009. All Covered Entities (CEs) and Business Associates (BAs) as defined by HIPAA are required to comply.

HITECH Answers provides to its subscribers a two-part Webinar series that deals directly with the HITECH Act’s impact on HIPAA and what CEs and BAs must do now to stay compliant. Presented by Jeff Rickman, Attorney-at-law and HIPAA specialist.

For more information visit www.hitechanswers.net/hipaa

Expect to hear a whole lot about this…

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By Matthew Holt

Seniors care about death panels (apparently) but they usually really care about drug prices and costs. Part of the political rationale for the Republicans passing Medicare drug coverage in 2003 was to deny the Democrats the ability to bundle seniors’ desire for drug coverage with a universal coverage bill. So far the Republicans have to say the least muddied the waters as to whether universal coverage is a good thing for Medicare recipients—or at least the ones that don’t care about their kids or grand-kids.

But there’s one minor trick. The deal with big Pharma that’s part of HR 3200 cuts the donut hole in half. That’s real money for seniors.

And when the cuts to Medicare Advantage become apparent, that donut hole is going to affect many more seniors who now are getting good benefits from Medicare Advantage and are pretty unaware about what’s about to happen to those benefits, according to this recent Silverlink/Suffolk University poll. (Hint, many Advantage plans will get much less generous).

In that case, knowing that there is something in the bill that helps them might change some seniors’ minds. Right now the Silverlink/Suffolk poll does not make happy reading for the Administration:

The survey also polled Medicare recipients on healthcare reform. Despite high levels of satisfaction and relatively strong amounts of optimism, nearly half of Medicare recipients polled (48%) say they do not believe the Obama administration is looking out for their best interests when it comes to healthcare reform. The remaining are split, with 28% believing the administration is looking out for them and 24% unsure.

Here We Go Again – Again

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By RICK PETERS

Last Friday morning, delirious, wasted, bone tired, driving home from the Emergency Room at 8AM in my beat-up little truck with only one speaker working. Amid all of us awash in the blogosphere thank the stars for NPR and professional journalism.  Steve Inskeep, from Morning Edition was interviewing Angela Braly, CEO of Wellpoint.  Perfect! Wellpoint is the largest health insurer in the U.S. in terms of covered lives. Also, Wellpoint, the former non-profit Blue Cross of California converted into a very profitable for-profit corporation, represents the epitome of for-profit medicine.

Mind you I’ve already thrown in the towel.  Any meaningful reform seems well past doomed. Harold and Louise are already back channeled through Newt and Sarah, and fringe lunatics are getting airtime, calling Obama a Nazi because they cannot understand the difference between National Socialism and Medicare. It would be comedy writ large if not for the gullibility of the American electorate. Oh well, here we go again.

The trouble is that our problems are so deep and fundamental that any sort of government driven health reform is destined to have limited impact despite the best intentions.  That’s what was so painful and profound about Inskeep’s interview with Braly.1 If we are going to even start to move this mountain we are going to have to foster change from within the system. That change is going to have to come from all of us as a society and as patients, families, health care providers, health care organizations, and influential health care managers and executives.

Newt and Sarah know the game they are playing – they’re politicians.  Their party is out of power and they are using opposition to health care reform to rebuild their base by any means necessary. Braly and her compatriots are a whole different animal.  They know exactly what is at stake.  Listening to the interview you might wonder how this ditzy soccer mom every got recruited to run a major corporation.  It’s uncanny.  She does not answer a single question.  What she does do, however, is illustrate what will essentially kill not only health reform but also real change.  What Braly does is deflect responsibility to everyone else in the system and not once acknowledge that not only do we have a problem but that we all share the responsibility for getting here – Wellpoint, Braly, and every one of us in health care included.

Braly’s no fool.  She is the third highest paid health insurance executive having been compensated $9,844,212 in 2008 by Wellpoint.2 Only Ed Hanway, CEO of CIGNA, and Ron Williams, CEO of Aetna, were paid more.  Wellpoint’s profit in the last fiscal year was close to 4% as even Braly admits, which is equal to or greater than the entire administrative cost of the Medicare program.  Inskeep calls Braly on virtually every statement she makes but as a pro, Inskeep just lets her dig herself in deeper.

I think I fainted.  I crawled out of the car and went in to go to sleep with it all blaring in my head.  My patient with gallstones diagnosed a month ago now with elevated LFTs and awaiting an ultrasound wanting to know if she could just go out a get a carne asada burrito and then come back for the test.  The Alzheimer’s patient who could not walk or feed himself or recognize anyone who fell out of bed and broke his hip and needed a hip replacement not only because he was full code, but because it is the only humane thing to do.  The health information systems we struggle with feigning silence when we know they are archaic and are killing our efficiency.  The practice variation and flaunting of evidence every one of us is guilty of as physicians.  The elderly couple with the husband with pneumonia who has to be admitted to the ICU with the wife pleading with us that the hospital copay will ruin them this month. The healthy forty year old female executive demanding a bone density test because she ‘paid for her insurance.’  The 340 pound 53 year old diabetic back again with an ischemic leg status post three resuscitations this year alone and over $125,000 in fully covered medical expenses now headed towards $175, 000.

Ms. BRALY: Our profit is in the 3-4 percent range – I think this year, around 4 percent. When you look, though, across health care, there are profit margins in a number of sectors around health care that are three, four, five times ours. If you look at biotech margins or pharmaceutical companies or device manufacturers, they’re three, four, five, six times the margin in the health insurance business. And the irony of that is it is our job to get to the efficiency of health care.

INSKEEP: There might be another irony there, as well, because if it’s your job to make things efficient and the cost of doing business keeps going up year after year after year, doubling in five years, as the president says, somebody might suggest you’re not doing a very good job.

The key is that none of us is doing a very good job but it’s too easy to point fingers and deflect blame.  I’m a pessimist about health care reform because I think the blocking and tackling have finally begun in earnest. I’m optimistic, however, about what we can and should still do even if we end up again with the status quo.

In that vein and with Matthew’s and the team at The Health Care Blog’s permission I am going to start a series of blogs called ‘Nuts and Bolts’ to talk about the incremental things we need to do no matter what happens in Washington. We need incremental changes throughout the health care ecosystem and while some need policy changes, others just need personal changes from each of us. The first installment will not be about ‘Death Panels,’ or policy, it will be about how critical it is for each of us to make our own decisions about our own lives and our own sense of death.  It will be called ‘Nuts and Bolts – Advance Directives.’ Then we can go from there.

“Meaningful Use” Criteria as a Unifying Force

By VINCE KURAITIS, DAVID C. KIBBE, MD and STEVE ADAMS

Over the past several years, many diverse initiatives have arisen offering partial solutions to systemic problems in the U.S. health care non-system.

We see Meaningful Use Criteria recommended by the HIT Policy Committee as a unifying force for these previously disparate initiatives. These initiatives have included:

  • Patient Centered Medical Homes (PCMHs)
  • Regional Health Information Organizations (RHIOs)/Health Information Exchanges (HIEs)
  • Payer Disease/Care Management Programs
  • Personal Health Record Platforms — Google Health, Microsoft HealthVault, Dossia, health banks, more to come
  • State/Regional Chronic Care Programs (e.g., Colorado, Pennsylvania, Improving Performance in Practice)
  • Accountable Care Organizations — the newest model being proposed as part of national reform efforts

Today

While there are some commonalities and overlap, to-date these initiatives have mostly arisen in isolation and are highly fragmented — they’re all over the map. Here’s a graphic representation of the fragmentation that exists today:

Continue reading…

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