Health Reform is Possible; Voters Still Hold the Power

In a post originally published here on The Health Care Blog and reprinted Health Care Policy and Marketplace Review health care analyst Brian Klepper asks: “Is Meaningful Health Care (Or Any Other Kind Of) Reform Possible?”

His answer: “I’d be surprised. Delighted! But surprised.”

Klepper believes that the lobbyists are just too strong. Always incisive, he pulls no punches: “In a policy-making environment that is so clearly and openly influenced by money,” it’s just not likely that “Congress will be able to achieve health care reforms that are in the public interest.”

I disagree. I believe economic pressures are pushing us toward a political turning point. (If you want to understand what is happening in history or in politics, follow the money.) The Bush administration has been thoroughly discredited. Americans are ready for change. Health care reform will not happen tomorrow; it will require a bare-knuckled political fight. But it will happen, and this is why: Although lobbyists are powerful, so are voters. And they realize that we are approaching a flashpoint: middle-class Americans are being priced out of our health care system.

But let’s begin with the lobbyists. Klepper asks readers to examine a review of lobbyist spending that appeared in an April 15th report published by OpenSecrets.

The numbers are, indeed, daunting. Last year, health care lobbyists spent nearly a half-billion dollars wooing Congress — “an average of about $832,000 for each Senator and Representative.” Though as Klepper points out, “Of course there’s nothing new here. For decades the health care industry has leveraged its money and influence, shaping policy to its own ends.”

And what are the industry’s “ends?” Growth. Like any business, health care businesses want to grow. Their aim: ever-rising sales and profits.

But as former NEJM editor Marcia Angell has pointed out: from society’s point of view, we do not want to see health care spending continue to spiral faster than GDP. Americans cannot keep up with runaway health care inflation. There is an inherent conflict between the lobbyists’ goals and society’s need to make health care affordable.

Meanwhile, the players in the health care industry who are bent on growth are always selling — and selling hard. Yet, too often, their products and services provide no health benefit. “There is broad expert consensus that one-third to one-half of all health care expenditure is waste,” says Klepper. “Talk privately with most health care professionals – physicians, hospital execs, health plan administrators, benefits managers, supply chain execs and there is reasonable agreement” on what is needed.

Put simply, we need to squeeze the waste out of the system. “Such changes could drive tremendous savings for individual, corporate and governmental purchasers,” Klepper writes, “but at significant cost to health care firms and professionals. Revenues and profitability would plummet.”

He then turns to the possibility of finding a solution: “What will it take for Congress to mount serious, public interest efforts that focus on serious issues?”

“As far as I can tell, there are two – and only two – solutions here,” says Klepper. “Both are highly improbable.”

One is for “America’s largest corporations, the organizations that drive national policy through lobbying now, to galvanize to preserve the common interest. . . . What’s needed is a national business coalition that collaboratively focuses on what’s good public policy for the country – what’s in our common short- and long-term interest. This is tough.”

Tough indeed. Klepper is suggesting that the very corporations that have persuaded Congress to ignore “the common interest in favor of special interests now” get together to advise Congress on the public good.

His second proposal is, as he acknowledges, equally improbable. “It would require a new Congress, under new leadership, to resolve to rid itself of its lobbying cancer, and to do so in a way that is highly visible and publicized. There would be ferocious opposition from industry. Hence the need for visible, articulate leadership from key political and business leaders.”

Once again, Klepper turns to “business leaders” to lobby for “the public good.”

But this is not their job. Nor is it their area of expertise. This is why we have government. By law, a corporation’s first obligation is to make a profit for its shareholders. It is expected to reach for the highest profit possible. Government is assigned the task of overseeing and, when necessary, regulating businesses when they over-reach, to ensure that their efforts do not interfere with our rights as citizens.

Particularly when we are talking about necessities — such as heat, electricity, or health care  — government is supposed to represent the interests of customers or patients, pushing back when the corporate “me-over-we, money-over-people” philosophy threatens the rest of us.

Corporate America was not always so obsessed with profits. But sometime in the 1980s, CEO’s became hooked on growth, and for more than two decades, their mantra has not changed. Plenty is never enough.

I have written in the past about how, when it comes to health care, more is not always better: excess capacity in the form of too many hospital beds, too many MRI units, and too many specialists. Over two decades of work done by researchers at Dartmouth shows that in regions of the U.S. where patients receive more aggressive, intensive and expensive care, outcomes are not better. Often they are worse.

One cannot expect the lobbyists for a growth industry to be enthusiastic about containing costs. But this does not mean that reform is impossible.

A Turning Point

I agree with Klepper that, for decades, corporate interests have been shaping public policy. During nearly thirty years of conservative rule — interrupted by eight years of initially liberal, but ultimately centrist government — lobbyists have accumulated more and more power.

But American history is a story of pendulum swings. Today, I believe we have come to a turning point, not unlike the inflection point we reached in 1980 when Ronald Reagan was elected president.

One piece of evidence: the vote, earlier this month, on the Medicare bill, which surprised many observers. On his blog, Bob Laszewski called the landslide House vote, which went against the insurance industry, “the most amazing turn of events I have seen in 20 years of following health care policy in Washington, DC.”

When legislators saw powerful lobbyists representing for-profit insurers lined up on one side, and seniors and the AARP on the other side, they knew who to fear: the seniors.

Voters still have tremendous power. And as we head toward Medicare reform — and eventually toward national health reform — legislators are going to have to weigh the power of the vote against the power of the lobbyists’ dollar.

Voters are tired of being gouged by drug-makers, device-makers, and some health care providers. Taxpayers, who pick up more than half of the nation’s health care bill can no longer afford levitating medical expenses.

Moreover, there is no reason why health care costs need to continue to climb year after year, faster than GDP. As I have written here aging boomers are not pushing prices higher. The median age in the U.S. will rise just three years, to 39, over the next quarter century — and only then will the aging of America begin to accelerate. (Even then, boomers will age just as they were born, over a period of decades.)

There is nothing inevitable about soaring health care prices. We have models in other developed countries where health care inflation is not nearly the problem that it is here. Indeed, even at home, there are regions where Medicare’s costs are not spiraling. And, as noted, outcomes are just as good, often better.

Klepper is right: money is power. But so are votes. Legislators know that no amount of campaign contributions will save them if voters decide that they are putting corporate interests ahead of their health care.

Next year, Congress will once again be forced to revisit the question of reining in Medicare spending. Four years ago, Medicare’s hospital trust fund began to spend more than it takes in. In 11 years, it will no longer be able to meet its full obligations. Medicare needs to become more efficient, which means eliminating the waste.

In the vote earlier this month, legislators made it very clear that they do not want to take an ax to the fees that Medicare pays physicians with an across-the board cut. There are easier ways to put Medicare on a firm financial footing. And I predict that Congress will find some of the money Medicare needs by repealing the two most costly elements of the Medicare Modernization Act of 2003 (MMA).

First, that law agreed to pay for-profit insurers who agreed to offer Medicare Advantage a bonus of 13 percent to 17 percent over what it cost Medicare to offer the same benefits directly. Since then, complaints that Medicare Advantage is not delivering value for Medicare’s dollars have been mounting, and they’re coming both from seniors and from the Government Accounting Office. I predict that Advantage insurers are about to lose that windfall. (Indeed, just last week, Bob explained that even UnitedHealth realizes that “the days of higher Medicare Advantage payments are limited..”

Secondly the Medicare Modernization Act specifically prohibits Medicare from using its size and leverage to negotiate for discounts on prescription drugs. The Veterans’ Administration—which is allowed to bargain—pays 50 percent less for ten of the twenty drugs that are most popular among Medicare beneficiaries. My guess is that next year, Congress may well decide to let Medicare begin to use its clout.

It’s worth remembering that the MMA was not a popular bill. Indeed, the bill was pushed through Congress, under the cover of darkness, amid charges that one Congressman was offered a bribe to vote for the bill. (This was later confirmed by the House Ethics Committee).

Presidential candidate John McCain did not vote for the bill—which suggests that whoever wins the White House, the MMA is vulnerable.

If my predictions prove true, and Congress stands up to both insurers and drug-makers, this will, I think, set a precedent for meaningful national healthcare reform. The lobbyists do not own our government.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of  “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.

11 replies »

  1. A letter to Sen. Snow from a constiuent
    MS Senator, Be the most influential member of the senate and work with the Democrats to craft the health care bill. Strip away the special gifts to LA and NB. Be sure that it is fiscally responsible. Be sure that the house isn’t given away in the bargain but don’t stop the bill. Despite what is screamed from AM radio. Despite what you are being told by the poles, we want this change. We need this change. As the job market shrinks, as the burden of health care grows too burdensome for the businesses that still do carry it, it will become glaringly obvious that things cannot go on as they have. Health insurance as it is has become a competitive disadvantage. It is a burden on our companies on the international stage and is driving our jobs off shore. Business has no nationality; it is only loyal to the bottom line and to their stock holders. Why burden them with this bloated health insurance system?
    Your party leadership may attack you, the right wingers may howl in disapproval but we, your constituents, the people who keep reelecting you, will be as proud of you as any politician could ever hope for. Please, for the sake of us all,Tom Scannell

    In case you don’t already know, in Oakland, California – this coming Friday evening, a couple of the co-authors of California’s universal healthcare bill SB840 will be having a townhall. Included on the bill is Senator Sheila Kuehl’s Healthcare Consultant (who I think did most of the detail on writing the bill), Sarah Rogers and likely more key people.
    THIS NEEDS YOUR ATTENTION – it is CRITICAL that people show up and let the powers that be right now know that it is NOT ok to sweep this under the rug yet again and that we are not going to settle for another lame a excuse of a healthcare proposal (regardless of whether it comes from the Obama camp or the governator).
    Humanist Hall
    27th near Broadway
    Oakland, California
    For details: visit Singlepayernow.net
    Here are highlights from the last hearing on the bill: YouTube – California Considers Healthcare for ALL-The $ issue

  3. Just discovered this weblog through a link in the NYTimes to a recent post by Scott Shreeve, then noticed this sequence originated by Ms. Mahar. A side note to Ms. Mahar that your book Money-Driven Medicine is on my recommended list of best books on healthcare policy. Outstanding content and particularly well-written.
    On the topic here: I have not read Mr. Klepper’s article, but will. Ms. Mahar’s comment in reference to part of the article reprinted below misses the point of USA business’s potential value as a “player” in healthcare policy.
    quotation start: “One is for “America’s largest corporations, the organizations that drive national policy through lobbying now, to galvanize to preserve the common interest. . . . What’s needed is a national business coalition that collaboratively focuses on what’s good public policy for the country – what’s in our common short- and long-term interest. This is tough.”
    Tough indeed. Klepper is suggesting that the very corporations that have persuaded Congress to ignore “the common interest in favor of special interests now” get together to advise Congress on the public good.quotation end
    Businesses suffer economically from the current system: they pay for medical care on behalf of employees, spending money on healthcare administration along the way, without any control over the prices of services that they are paying for. In other words it is in business’s interest collectively to trade their spending on healthcare premiums for a tax in whatever form, presumably a dedicated tax such as the FICA taxes, that pays into a single payer/insurer fund.
    The advantages to business collectively is two-fold: (1) elimination of their own administrative costs – not large, but still substantial – and (2) the benefit indirectly through a single payer/insurer’s ability to eliminate the current hundreds of billions of dollars that currently go to non-value-adding activities under the current private insurance system. Ultimately also from a revamping of the medical services delivery system that in turn “wastes” somewhere between $500 billion and $750 billion per year in otherwise unnecessary spending (from the perspective of the recipient – not provider – of the medical servicea). The combined savings realizable essentially can halve the current total healthcare bill of $2.2 trillion per year to $1 trillion plus to match the spending level of other OECD countries on medical services.
    The challenge is to find a group of Republican politicians – possibly including some of the right-wingers that populate almost all of Republican slots in Congress, but certainly the few Republican moderates who do exist – whose constituency is private business in its totality to explain the advantages to business collectively of such reform and then to sponsor relevant legislation with Democrats whose interest in single payer/insurer derives from other bases. Business collectively as lobbyists on this issues needless to say vastly overwhelms the individual special-interest industries that continually thwart reform.
    This is most definitely doable with a few willing, influential political participants.

  4. Actually, I’m a vocal critic of the pharmaceutical industry, and neither own nor sell pharmaceutical stocks. They are a terrible investment. Since you probably don’t read the Wall Street Journal anymore, you probably missed their story about the number of prescriptions written in the US actually falling this spring, for the first time in fifteen years, and that a record 70% of those written were for generics. The private sector did that, not the government.
    The Medicare spending reports I look at (the ones which come out from CMS every January in Health Affairs) do not break out the portion of Part A which is accounted for by hospital administered drugs (IV medications, for example). Pharmaceutical expenses were among the most rapidly growing hospital expenses, but I don’t think they add more than about 2% to the roughly 10% share of health spending accounted for in the actuary’s report. A lot of the drugs administered in doctors offices are actually given to physicians as part of pharmaceutical marketing expense (hence inside the 10%), with the important exceptions of chemotherapy and the anti-TNF drugs now given for arthritis. We can look at this later, but I’ll bet the chemo drugs are inside CMS’s estimates for drug spending, not buried in the physician numbers.
    Devices were not dismissed. There have been bribery/Stark violation scandals in orthopedics which are merely the tip of a very slimy iceberg. If hospitals had a free hand in bargaining with these companies over the scandalous mark-ups on devices, we’d see prices in this space come down smartly. My point was simply that to lump devices and drugs together is not analytically useful, since they are driven by completely different incentives and payment models.
    My point stands unrefuted: hospitals and doctors is where the big cost saving challenge in Medicare is, and neither candidate is talking about how to do it.
    I also favor a comparative effectiveness institute, something long overdue.

  5. Peter–
    Don’t lose hope.
    I truly believe that we are reaching a pendulum swing in American politics. This won’t make people smarter–but it will change the conventional wisdom, and I think, move it in a more intelligent direction.
    In 1980, we experienced one pendulum swing–when Ronald Reagan was elected. For the next 28 years, the U.S. would be controlled by conservatives–puncutated by 8 years when an initally liberal adminstration woudld become Centrist, running scared from the power of conservatives in Congress.
    Now, everything is turning in the other direction.
    Here, I’m not talking so much about Obama (though the fact that we have our first African-American presidentail candidate does suggest that the country is ready for change.)
    I’m talking about the fact that Congress is beginning to show some spine –standing up to Medicare Advantage insurers in the vote on Medicare last month, and now the chairs of the Senate Finance and Senate Budget Committees have proposed legislation that calls for a Comparative Effectiveness Institute. This is something that Pharma and Device-Makers bitterly oppose. . .
    We’ll see what happens. But we can be pretty sure of turnover in Congress, moving in a more progressive direction . . .

  6. Tcoyote and Peter–
    Thanks for you rocmments
    You write: “In 2006, drugs accounted for less than 10% of Medicare spending, not counting the part buriedin Part A (Hospital care), a number I don’t know.”
    If you are following Medicare spending closely, you realy should know how much of spending on drugs is hidden in hospital bills and doctors’ bills (for drugs administered in hospitals and the doctors’ office.)
    The fact that you don’t suggests that you may be either an institutional investor with major holdings in Pharma, or a Wall Street analyst promoting Pharma stocks.
    Fully 20 percent of our spending on drugs is spent on cancer drugs. (This comes from a WSJ front-page artcile quoting an analyst at MOrgan Stanley who is also an M.D. I’m at home so I don’t have the URL in front of me. )
    Very few of these drugs are bought retail (in drugstores.) Most are administred in the hospital or a doctor’s office and hidden in doctors’ and hospital bills.
    You slide over devices–a growing industry that analysts on Wall Street tell me, probably equals 3 percent percent of our nation’s total health care spending.
    Who is the most likely consumer for artificial knees, hips, heart devices, etc? People over 65.
    As I said in the post, drugs and devices combined probably approach 20 percent of Medicare spending.

  7. I’m actually a close follower of Medicare spending trends and Maggie is wrong about hospitals and doctors. According to HHS Actuary, hospital and physician spending accounted for almost 70% of the total Medicare bill in 2006. In 2006, drugs accounted for less than 10% of Medicare spending, not counting the part buried in Part A (Hospital care), a number I don’t know. The 2007 Medicare drug spend will probably be somewhat higher reflecting the complete phase-in of MMA.
    On out of pocket costs, consumers paid only about 12.5% of the nation’s healthcare bill directly, or about $256 billion, and of that amount, $47.6 billion was spent on prescription drugs. That’s about 1/4 of total out of pocket expenses, and a far higher percentage than for any other major category of health spending. Those high copays are one reason why growth in prescription drug spending has slowed to virtually zero late this spring, according to IMS Health.
    Medical devices are a completely different can of worms, and are not meaningfully affected by consumer copays, so let’s keep them out of this for clarity sake.
    Drugs are important, but national spending on drugs is dwarfed by spending on institutional care and the professional services that direct it. Hospitals cost us $650 billion in 2006 and physicians another $448 billion, in combination more than five times the nation’s drug bill.
    If Medicare is to slow spending growth, hospitals and doctors have to be paid both differently and more stringently. If we made intelligent and systematic use of drugs, we could probably cut hospitalizations and needless physician care significantly.
    The important question Maggie raises about drug costs is whether the federal government, with its hands tied by Congress (both parties), can actually do a better job of negotiating discounts than the pharmaceutical benefits management industry. There is only one way to find out: let ’em try. My bet is on the PBM’s. The way CMS works, they’ll assign two 27 year old staffers to set it up and it’ll take about six years (HIPAA, passed in 1996, is STILL being rolled out). After the lobbyists and OMB get through with it, it won’t be a fair fight, believe me.
    The prohibition against the feds negotiating with pharma was stupid overreaching by the industry, and abolition of the prohibition will not meaningfully affect an already sick and reeling industry. Its troubles run far deeper . . .

  8. Maggie, I’ve lost hope that there is enough intelligence in the American voter to force politicians to do the right thing. There was a discussion on NPR several weeks ago about the increasing stupidity of the American citizen. Look at the recent off-shore drilling debate. It caused the usual eloquent Obama to blink on his initial (and correct) view that drilling will not reduce prices and is not the solution. Americans think by drilling there the price of gas will be lower – without being smart enough to understand that the price of oil is set world wide and that there is NO American oil price, just a world price. The price of Alaskan oil is the world price – not the U.S. price. Again corporate/political issue twisters win the day. As it is with healthcare, if the voters present condition is that their health premiums are subsidized by their employer, they can’t look farther down the road (or at their neighbor’s situation) to see the need now for political action on healthcare costs. I don’t see a tipping point yet.
    As for seniors, they have a conflict of interest. While they enjoy the benefits of tax dollars greater than non-seniors, they also fight tooth and nail to keep their own taxes down. If they are tired of being gouged by the healthcare industry, I’m tired of seniors demanding more and more of healthcare and less and less taxes to pay for it.

  9. Bev M.D. and tcoyote–
    Thanks for your comments.
    Bev, you’re entirely right, Congress doesn’t like big and complicated. But legislators also don’t like being trageted by angry seniors.
    Let me backtrack a minute to say that I don’t expect the full-scale national health reform that we need in 2009 or 2010. It’s going to take time. Things will have to get worse.
    But I do expect Congress to begin reforming Medicare in 2009 and 2010. The reason: they have no choice. Medicare really is running out of money. And while Congress may sit there and watch Fannie Mae head for the wall, no one wants to have to say that Medicare went under on his watch.
    I think Medicare reform will come before National Health Reform–and I think that it could serve as a very good demonstration project for how to reform heatlhcare and do it right. (I’ve written about this here: http://www.healthbeatblog.org/2008/07/why-congress-sh.html
    The Medicare Payment Commission (MedPac) has been writing some excellent reports with specific recommedations. People like the CBO director read them–and understand that they are right.
    You note that someone on this blog has argued that most Americans are still covered by their employer or Medicare/Medigap and are generally happy with their coverage. I might have said that myself. And it’s true.
    But for seniors on Medicare, things have been getting tougher just this year. First, it’s getting harder to find doctors who will take Medicare. Even though Medicare didn’t slash their fees last month, doctors say they are tired of the whole game (Congress threatening across-the-board cuts every year or six months.) Some no longer take Medicare. Many more are no longer taking new Medicare patients.
    The most recent Medicare Payment Advisory Commission report says that “30 percent of seniors report some difficulty when trying to find a new primary care physician who will take Medicare.”
    Meanwhile, the MedPac Advantage plans are turning out to be a disappointment for many who become sick and try to actually use the insurance. There has been a lot of cost-shifting to seniors.
    Finally, seniors are pretty good at standing up for their own self-interest. Do you remember the Grey Panthers? If the AARP stands up with them, you have real power.
    And if they take on the lobbyists and win–we’re one giant step closer to real national reform.
    You are entirely right. Rather than taking an axe to doctors fees, across the board, someone needs to go over the fee schedule with a scalpel, redistributing dollars. I’ve written about this in other posts. MedPac recommends raising fees for primary care docs and paring fees for certain services offered by certain specailists in a “budget-neutral” way. MedPac also suggests having a panel that has no financial interest in Medicare fees do this–perhaps a panel of physicians who are on salary, and not paid fee-for service.’
    But you exaggerate what share of Medicare dollars go to physicians and hospitals. In the national health care market, about 11% of our $2.2 trillion health care dollars goes to pay for the drugs we buy retail–in a pharmacy. Another 3% or more pays for the drugs that are administered in a hospital or a doctor’s office and show up on our hospital or doctors’ bill. (These are usually more expensive drugs.) Another 4% or more goes to pay for all sorts of devices–knees, hips, hearts devices, etc.
    That’s 18% or more–approaching /5 of health care spending. And when you look at Medicare you find that seniors consume many more drugs and devices (especially very expensive cancer drugs) than the general population. So let’s take a guess: Maybe 25% of Medicare’s dollars go to drug and device makers? Maybe 22%?
    Negotiating for discounts is not just a liberal hobby-horse. We’re talking about real money.
    As for broad public support–we’ll see broad support among Seniors for Medicare reform as it gets harder to find a doctor who takes Medicare, and co-pays and deductibles continue to go up. See my response to Bev, and the post I cite. I expect Medicare reform to precede–and pave the way for–national health reform.

  10. I would really like to believe that we have reached a tipping point. However, I have thought that we had reached a tipping point so many times over the last many years, and invariably the public’s and Congress’ attention has turned in other directions. Some time ago, a commenter to this blog indicated that most Americans engaged at all with the political process are still covered by their employers or Medicare/Medigap and are generally happy with their coverage. Therefore, the impetus from this group (who are the most likely to write their Congressmen) is lacking – in contrast with the laser focus of the many health care interest groups.
    In short, I wish for it, but I just can’t see it happening. The problem is too big and complicated and Congress doesn’t like big and complicated.

  11. Maggie is right about the need to reform Medicare. The two main “battlegrounds” she has chosen, however, are classic liberal warhorses: undoing two symbolic neoconservative victories- promoting the outsourcing of the program to private plans with indefensible above-cost subsidies and preventing the federal government from directly bargaining with drug companies.
    Both are peripheral to the main challenge: reforming how doctors and hospitals are paid (for the 80% of the program which flows directly to them, not thru the health plans, which are still only 20% of Medicare enrollees) to correct the inflationary bias in the program and eliminate a lot of unnecessary care.
    To take on the real source of health cost inflation will require Congress to redistribute Medicare dollars across the whole program: from specialists to primary docs, from the major teaching institutions who have gotten fat on Medicare IME and DME subsidies to community hospitals and comunity health centers, and most troublesome, from the desperately ill and overtreated older seniors to younger seniors with avoidable medical problems. This is something private plans were supposed to do, but didn’t.
    Let’s see how much public pressure there is for playing Robin Hood with Medicare dollars; she’s right that it needs to happen. She’s wrong about the degree of public support for it. Neither candidate is talking about Medicare reform right now because they don’t want to scare seniors into voting for the other guy. Separating seniors (and seniors to be) from the Medicare Industrial Complex is a huge public education challenge, which I predict that both candidates, who are increasingly cautious as they approach this fall, will avoid.
    Congress’s real challenge isn’t righting the wrongs of the Bush years. It’s a lot harder and more fundamental. It’s about redressing inequities in the health system itself. I hope she’s right about the broad public support. I sure don’t see it.