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Health Reform Bills Would Be Great For the Business Of Health Care

Editors Note:  This piece by veteran THCB contributor, Robert Laszewski, first appeared on Kaiser Health News. The piece is republished here with permission.

Democrats-cap-and-trade-bill-house-renewable Have you noticed how none of the big health care business special
interests is running any negative health care reform ads? Why should
they when each is poised to gain billions of dollars from it?

As
President Barack Obama has said many times, any health care bill that
costs about $1 trillion would be paid for, roughly half and half, with
savings in the health care system and new revenues (taxes).

All
told, health care providers will likely get hit by $500 billion in
federal payment reductions over 10 years from what they would have
received otherwise. This is their "savings" contribution to help pay
for the overhaul effort. It amounts to no more than a couple of
percentage points less than they would have received anyway.

But
more importantly, the Congress is getting ready to spend $1 trillion
over the same 10 years mostly to expand Medicaid and provide subsidies
to the uninsured to help them purchase private health insurance and be
able to pay their medical bills. The health industry, by giving up $500
billion, gets millions more patients armed with public and private
health insurance cards. Not a bad deal—particularly when the other $500
billion needed to finance the bill comes from new levies on taxpayers,
not bigger industry cuts.

The details show an even prettier picture for the business of health care.

The
American Medical Association came out in favor of the House Democratic
health care bill when the House Democratic leadership promised the
doctors $230 billion in new spending to cancel out any future Medicare
physician cuts (which are scheduled under an existing law called the
Medicare Sustainable Growth Rate Formula). As a result, the doctors
don’t have to give up anything under the health bills, and would
actually pick up $230 billion under the House bill over 10 years.

The
pharmaceutical manufacturers also cut themselves a deal with the Senate
Finance Committee and the White House. They limited their contribution
to health care reform to only $80 billion over 10 years. But in return,
they got a commitment that their cuts would not be deeper, and maybe
more importantly, that their drug patents for cutting-edge biologic
drugs would be guaranteed 12 years of exclusivity.  They are so happy
they are getting ready to spend tens of millions of dollars in advocacy
advertising in favor of health care reform. One Associated Press report
says they will spend at least $150 million.

The hospitals
also cut a similar deal. They limited their losses to $155 billion over
10 years—a spot they appear more than happy with. Heard any hospital
executives complaining about health care reform lately?

Bear
in mind that at current trends we are on track to spend almost $40
trillion on health care in the United States over these same 10 years.
Those hospital and drug company voluntary cuts are chicken feed. The
doctors are not even being cut.

Then there is the intriguing
story of the insurance industry. No negative anti-reform “Harry and
Louise” ads from them this time. Why? They know the public option
health plan designed to compete with them is all but politically dead
out of legitimate fears the government would end up dominating the
market. Why call attention to yourself when all those folks at the town
hall meetings and cable TV are doing the job for you?

The
insurance companies are pretty sure they will have to give up about
$150 billion in “extra” private Medicare payments—but that might not
even happen at the rate things are going for the Democrats.

Assuming
the public option is going to be sacrificed by the president and
Democratic leaders to get a health care bill, that leaves legislation
that would mandate (through an individual mandate and maybe some type
of employer requirement)  that millions of Americans buy insurance.
Even better, those people would be getting subsidies that would cost
the federal government as much as the $700 billion so they could afford
to buy those new health insurance plans—billions of dollars that would
get passed on to hospitals, doctors, drug companies and all the rest.

From the looks of these health care bills, this “health care reform” thing will be great for business!

But
as far as “bending the curve” and beginning to make our health care
system any more affordable or sustainable—or any less of a burden on
patients and taxpayers—I can’t find it.

If that were the case, we’d be seeing lots of negative ads.

All we are getting is lots of negative pubic reaction because people smell something is not quite right.

Robert Laszweski has been a fixture in Washington health policy
circles for the better part of three decades. He currently serves as
the president of Health Policy and Strategy Associates of Alexandria,
Virginia. Before forming HPSA in 1992, Robert served as the COO, Group
Markets, for the Liberty Mutual Insurance Company. You can read more of
his thoughtful analysis of healthcare industry trends at The Health
Policy and Marketplace Blog
, where this post first appeared.

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17 replies »

  1. Somebody needs to explain this to me like I’m a 4-year-old. Hospitals and physicians claim that the Medicaid and Medicare reimbursement rates alone don’t meet their costs. They need privately insured or self-pay patients to make up the difference.
    So why don’t physician practices and hospitals establish their business models and build their budgets in a way that they can turn a small profit on the lesser reimbursement, seeing as they know that Medicare and Medicaid are a large portion of their customer base and only projected to grow? Doctors, hospitals, these are your customers. For physicians, move to a location that charges less rent, find ways to pool your purchasing, find ways to pool your labor resources, join a group or start with a clean sheet of paper and rebuild the practice from the ground up. For hospitals, do away with the atriums and the fountains and the gardens. Go lean. Get Six Sigma training.
    Whatever. Get creative. In fact, stop reading me because frankly, you know your business better than I do. Go find something you know needs fixing.
    I really don’t see any excuse. People in healthcare professions are the smartest of the smart. They got the best grades in high school, they got the highest SAT scores, they went to the best colleges, they scored high on the MCATs, they carried high GPAs through college.
    These are can-do people.
    So why, when told to adjust their business models such that they are built around the largest and highest-volume portion of the potential customer base, is their answer, “I can’t”?

  2. In most markets a few health plans account for a huge market share. Most of these plans contract with physicians on a take-it-or-leave-it basis with no negotiation over fees. In the vernacular this is called “divide and conquer” and is how these healthplans use their huge market power to control prices paid to most physicians. Add in Medicare and Medicaid and you have a situation where “prices” paid to physicians are almost totally controlled. If a plan pays $100 for a service, it makes no difference what a physician charges, if they are “par” all they’ll be paid is $100. Hence more and more docs are dropping out of poor paying plans. Health plans use databases they control (Ingenix subsidiary of UnitedHealth) to artificially reduce what they pay, pushing more costs on those with out-of-network coverage. AG Cuomo in NY is leading the charge to fix this situation.
    So long as we base our payment to physicians on fee-for-service that rewards ever more services and procedures, rather than on some other method (capitation, episodes of care, etc.) we will forever be in this game of controling unit prices while encouraging ever more utilization, regardless of outcome. There has got to be a better way.

  3. Dr Wonderful, you must not have practiced in a hospital recently to say we do not need health care reform, only insurance reform. Nothing could be further from the truth, whether one is a doctor or a patient.

  4. What is needed is genuine overhaul, rather than patchword solutions. 3200 will only hold down costs if a public option is part of the deal. If it is not, the money will mushroom. Why not consider something like what Switzerland has, or Germany? Insurance should not be a business, but rather a pooling of risks by citizens. Non-profit. And the government must create regulations that make it truly non-profit in its behaviors. The billing scheme must be completely revamped by citizen groups and policy analysts who look at the data on what sorts of physician activities actually make the biggest impact, as well as which types of health professionals should be induced to perform which activities. Procedural specialties will, unfortunately, lost out. That is why many cringe at the idea of reform. Over the past 15 years I have witnessed the turn in prestige within medical disciplines away from general surgery and internal medicine, two core disciplines that save lives. Certainly preventive medicine makes a big difference (as in Britain) but it is not given status because it is not given money. This is not plain market forces that favor certain fields (I’m avoiding mentioning the big money fields out of the wish to not alienate people!). It is arbitrary rules that have been in effect for 3-4 decades. Billing overhaul is needed. One EMR for the nation. One method of payments. Uniform forms for all insurance companies. Administrative costs are outrageous. As a physician I spend so much of my time navigating the heterogeneous landscape of insurance policies. Needless waste. There must be a way for the knowledgeable citizenry to overcome the entrenched money interests. What is it?

  5. One of the main problems with health care overspending is the problematic inducements that that shape the practice patterns of physicians. The billing system is set up to favor doing procedures and getting people out the door and back into the clinic again. I’m not really paid, as a primary care physician, to solve people’s problems. I’m paid to generate bills. I have no market incentive to hold down laboratory and imaging costs. But this is only one of the problems.

  6. Bob, one thing you forgot to mention, and has fallen off most people’s radar, is administrative savings. AHIP has proposed changes to streamline administration that would result in tens or hundreds of billions in savings over the next decade on both the health plan and provider side.

  7. The deal between Big Pharma and the Democrats certainly was a travesty. I didn’t realize BOTH Republicans and Democrats are servants of the Pharmaceutical Industry. Incidentally anyone who thinks Edward Kennedy was a true “Health Advocate” should read this editorial by Byron Richards:
    “On the subject that matters most to me, health freedom and access to natural health options, Senator Kennedy was no friend of the people. His utopian view of health care for everyone, with no way to pay for it, is rooted in a philosophy of excessive government control that is at odds with free choice and true health freedom.”

  8. DrWonderful, tackling health costs only from the insurance industry side will not bring down costs. A public option would have to have enough financial clout to force universal budgets on providers and control utilization. It would also have to be able to negotiate prices with drug companies, device makers, specialists. Keeping the private insurance industry alive is only an impediment to reform, getting rid of private health insurance is only the first step to larger reform. If we kept private insurance then it and all providers would have to be highly regulated anyway.

  9. Let’s face facts. The status quo will remain as long as the health insurance industry is allowed to collude and price fix premium rates. The only way we can change the system fundamentally is to either create a public option or repeal the health care insurance industry’s anti-trust exemption. That’s the heart of the matter here. We do not need health care reform. We need health insurance reform. No more. No less.

  10. Tim, I would like to ask you to share the number of PPO contracts you have negotiated. Having contracted thousands of physicians and a dozen or so hospitals while owning a PPO for the better part of a decade I’ll stand by my statement. When our contract came up for renewal and UMC increased our per diem 10% their revenue on our business increased 10% that day and going forward.

  11. Most people who have been diagnosed with chronic depression and anxiety have probably been prescribed modern anti-depression and anxiety medications such as Prozac, Celexa, Zoloft, Paxil and other SSRI related medications which seem to be the favorite choice of every modern doctor of the 21st century. Is this findrxonline in article.

  12. Robert’s observations and concerns are spot on. If it walks like a duck and talks like a duck….
    The only aspect of this that is not touched upon is how this model has played out to date in Massachusetts. They’ve gone down the path of expanding coverage and spending money up front, and are now grappling with how to get costs under control. I suspect the Obama administration is watching closely for clues as to what strategies to use at the national level.

  13. More attention needs to be directed to other aspects of reform. The Health Care system needs much more than just financial considerations and availability.
    Much more needs to be done to see that the professionals providing the care are actually qualified professionals and they are using their skills to HEAL, not just line their own pockets at the expense of hurting others.
    In addition to my own bad experiences attempting to gain quality care, as well as others whom I know and thousands of others seen on the internet, I’ve recently been emailed a link to a new blog with a story far worse than my own, and he/she has apparently only begun to tell their tale. There was a bit in his/her tale that reminded me of several known situations, so perhaps it might spark some recognition and contribute to any venue of improvement:
    http://enoughdangit.blogspot.com/ .
    Something must be done.

  14. Nate,
    As I think you know, it is not possible for providers to simply “increase the rates they charge private plans” and actually generate more revenue.
    You might argue that providers can replace lost revenue from a rate cut in one place with a volume spike elsewhere (indeed, utilization is the core subject of this discussion, isn’t it?) — but not a rate increase.

  15. Nate, you may have a point but the bigger balloon is over-utilization. Push down on fees, and up pops utilization. In any case, the insurers rarely pay what they are charged. You are right about the cost shifting though.

  16. it also needs pointed out every time in history government has reduced public reimbursement rates providers have increased the rates they charge private plans. Any dollar saved in federal payments will surely show up as additional expenditures from private in 2- years when contracts are up again.
    There is no savings only massive cost shifting.

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