The Great $2 Billion Cost Cut “Promise” Meets Another Obstacle

By ROGER COLLIER

Roger collier

It turns out that the hospital, insurance and pharmaceutical organizations who announced with great  fanfare a couple of weeks ago their plan to cut/maybe think about cutting* $2 trillion/maybe nothing* from their costs may have been even more devious/disingenuous/stupid* than was apparent at the time.  [*choose one]

The New York Times pointed out yesterday that any such organized effort to reduce prices could face antitrust charges. In the Times’ words: “Antitrust lawyers say doctors,  hospitals, insurance companies and drug makers will be running huge legal risks if they get together and agree on a strategy to hold down prices and reduce the growth of health spending.”

The drug manufacturer lobbyists who so eagerly participated in the May 11 meeting with President Obama should have been especially aware of the issue. Back in 1993, it was their trade group that, in an effort to soften the threat of Clintoncare, offered to limit pharmaceutical price increases to the CPI rate, then were told by the Justice Department that this would violate antitrust laws.

And, again according to the Times, it was the AHA who complained recently to the Federal Trade Commission that antitrust laws make it difficult for providers to collaborate and lower costs.

So, first these organizations promise to cut costs by $2 trillion, then they say they didn’t really mean it, and now it turns out that it would probably be illegal (which they should have been fully aware of, anyway). Who’s trying to fool whom?
Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE [reformupdate.blogspot.com].

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16 replies »

  1. I don’t think that the antitrust laws are the major obstacles that will prevent the medical industry groups from cutting costs. I think that their self-interest and pursuit of self-preservation will cause they to dig in. See http://mdwhistleblower.blogspot.com/2009/05/obamas-health-care-reform-let-games.html
    The White House photo-op between Obama and the medical industry was a brief marriage of convenience. dovorce proceedings are already underway.

  2. Margalit,
    Indeed they do not have the tools. However, even with the tools, they will not know which end to hold.

  3. How is this example showing anything?
    Maybe I am not as savvy a “consumer” as you are, but if I called the doctor and said that I want this mole removed and the doctor said that he needs to see it first and make sure it needs to be removed, and make sure that it’s not more than just a mole before he schedules a procedure, I would have made the two appointments, and I absolutely hate going to doctors.
    Do you really think that “consumers” in general have the necessary tools to discern what is medical necessity and what is not?

  4. “Not until the consumer has real pain will costs change.”
    And this is where there is the most money to be saved. There are billions ot be saved by just doing things smarter. i.e. I called the biggest dermatologist on my side of town to remove a mole, they require you set one appointment to have it chekced out, then come back a second time to have it removed. Nothing about that is cost or time efficient so I called someone else and have it all scheduled for the same day. The first pratice is still one of the busiest in town, until those patients willfulling going in twice are forced to pay enough to make them reconsider this process nothing will change.

  5. Right now every healthcare price covered by “insurance”, (if that term is still real) is based on a percentage of Medicare allowable plus allowable deductable and co-payments. What could be more rigged than that? Medicare and federal law has destroyed all markets in healthcare. Not until the consumer has real pain will costs change.

  6. Healthcare guru, I don’t know what you’re thinking about when you say this:
    “If you think these people at the top had not used every opportunity to cut cost, you are mistaken. So, if that is the case, then this promise has to be more as those cost cutting seems to have increased the cost.”
    It is possible to simultaneously cut costs on some things–exactly the things you say you are to your board and the public–while raising prices or promoting higher utilization on other things.
    People in all parts of healthcare enact specific measures to save costs all the time, and they often succeed. Insurers really do sometimes make changes that cut down on admin costs, providers really do sometimes enact measures to reduce admissions to the ER among asthmatics, etc. The problem is that these savings are often limited to one organization at a time, and they are dwarfed by other phenomena (new drugs, new treatments, expansions of the definition of disease, etc.) that bring increased costs.

  7. Peter – As crazy as it sounds, I think we could make a lot of progress toward getting the various stakeholders on board. There are walls that have to be knocked down, and they can be knocked down with the right approach. Each stakeholder group needs to know that they won’t have to give up more than other groups. It needs to be an equally shared sacrifice. The only stakeholder group that needs to be disproportionately affected is certain procedural specialists. There’s not a physician alive that should be making more than 3x PCP compensation.
    There are actually some cost improvements that can be made that won’t hurt the bottom line of any of the major stakeholders. A good place to start is processes related to claims submission and adjudication. There’s $50-$70 billion in savings to be had there. That would cover a nice chunk of the uninsured. If we start with win-wins, we have a better chance of building momentum.

  8. The FTC has made it very clear that, absent one of the two safe harbors (financial risk sharing and/or clinical integation), ANY agreement on price (set, raise, lower, min, max)among physician competitors may be challenged as an antitrust violation. Of course the FTC doesn’t seem to mind when the big insurers set prices and refuse to bargain with legitimate physician organizations because they are purchasers, not sellers.

  9. No one is stopping them from cutting cost. And more importantly no one has stopped them.
    If you think these people at the top had not used every opportunity to cut cost, you are mistaken. So, if that is the case, then this promise has to be more as those cost cutting seems to have increased the cost.
    Anyway, the $2 trillion sounds lots of money but it is nothing when compared to overall spend. Was it 1.2% annual?
    It is antitrust if they work together to do that but it is not if they work together to improve operations, delivery, mfg, etc.
    rgds
    ravi
    http://www.biproinc.com
    blogs.biproinc.com/healthcare

  10. Deron, do you think you could get those “solutions” to be willingly accepted by all the disparate stackholders?

  11. You want a group that can really make an impact on reform? Let me have a room with jd, tcoyote, Brian K., D. Kibbe, and Roger. I can assure you that we would come out of it with some real solutions.

  12. I think the hospital, insurance and pharmaceutical organizations can still potentially do some good. For example, in the area of data sharing, they can work on ways to save on costs and be more efficient. They can discuss areas like this that can be improved through a group effort, without discussing specific prices for the end services they offer.
    It is correct that they will need to be careful to stay away from discussions regarding limiting pharmaceutical price increases and the like.

  13. This post really misses the point. The groups that are meeting are not promising to collude to reduce prices or competition, as far as I can see. They are going to propose ways in which (a) they can become more efficient across industry sectors and (b) they can work with government to fashion better regulations and laws to remove perverse incentives in the system.
    The proposals that the group owes Obama in the first week of June will include recommendations for government to intervene to reform markets. There will be little if any attempt to “collude” in a purely private fashion. Government will play a coordinating role, and so the proposals will not run afoul of antitrust law.
    Now, one can question certainly how much follow through there will be when push comes to shove, but anti-trust issues are not going to play a major role.

  14. I found the whole idea fishy, without being to verbalize it … how would companies that are supposed to be competitors agree on a mutual goal of cost reduction?

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