OP-ED

Neither the Republicans Nor the Democrats Want to Face the Provider Cost Problem

A key piece of Paul Ryan’s deficit reduction plan is to change Medicare as we know it. It appears his bold Medicare premium support proposal is failing to gain traction–it is dead as part of any deficit reduction deal this year. Worse, his Medicare proposal looks to be giving Democrats lots of political ammunition for the 2012 elections.

What lies at the heart of Ryan’s Medicare difficulties is that he would all but abandon future seniors (those now under age-55) to a health care system whose age-adjusted premium support would increase each year only at a rate equal to the increase in the consumer price index while their health care costs would likely continue to increase far faster.

Simply, Ryan just shifts the future burden of uncontrolled Medicare health care costs from the federal government to the senior. That will solve a big part of our federal deficit problem but hardly help people.

Yes, he offers a defined contribution health care solution with the promise of invigorating the markets and making costs lower. But we have had a form of Medicare premium support and private competition for years (Medicare Advantage) and there isn’t a lot of evidence the market can get the cost control job done on its own. (See: Defined Contribution Health Care—The Conservatives’ Silver Bullet)

The Democrats have had a field day scaring people over the Ryan proposal because, quite frankly, the Ryan plan gives them a lot of legitimate ability to do so. I guess the definition of a terrible policy proposal is one your opponents can successfully attack without having to mislead people.

But Ryan isn’t the only one guilty of trying to put consumers into a health care system that limits federal spending by shifting the excess cost burden from the government to the consumer.

I call your attention to Jim Capretta’s recent column at Kaiser Health News. Here is a key paragraph:

Ryan’s critics have focused particular attention on his plan’s indexation of the Medicare “premium support credits” to the CPI in the years after 2022, suggesting that this idea is somehow beyond the pale. But this is sheer hypocrisy on their part because the indexing of government-financed premium credits below cost growth is in the president’’ plan too, and yet not a complaint has been heard about that from its advocates. That’s right. After 2018, if the aggregate governmental cost of premium credits and cost-sharing subsidies provided in the state-run exchanges exceeds about 0.5 percent of GDP (a condition that the Congressional Budget Office says will be met), the recently-enacted health law requires the government’s per capita contribution to health plan premiums in the exchanges to rise more slowly than premiums. The administration actuaries interpret the law to mean that the government’s contributions toward coverage will rise with GDP growth after 2018. CBO appears to have a different interpretation. Still, under all interpretations and projections, it’s clear that the exchange credits in the new law will not keep pace with expectations of rising health costs. And that’s exactly what the president is now saying is so wrong with Ryan’s Medicare plan.

In fairness, Capretta also makes the broader point that he believes the Ryan plan would create the rigorous competition Medicare needs to control costs.

But in my mind, the real issue here is that both Ryan and the Democrats have made the same mistake.

Both are mostly avoiding the fundamental health care problem in the first place—chronic escalation in costs much higher than either GDP growth or the consumer price index. Neither side has offered a bold plan designed to change the current fee-for-service provider payment incentives that just keep fueling these unaffordable costs. Neither side seems either willing or capable of taking on the provider.

But both are willing to control future federal spending by dumping the excess health care cost problem on the consumer.

I don’t think we are going to have a real health care debate in this country until the voter/consumer/patient comes to understand the long-term threat they face from health care costs that show no sign of abating and they demand that the politicians aim for a solution not on their backs but on the backs of the people sending them these bills.

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.

Livongo’s Post Ad Banner 728*90

41
Leave a Reply

30 Comment threads
11 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
17 Comment authors
Mohitholiday shopping, christmas shopping, online shopping, internet marketing business, internet marketing advertising, money making business, money making opportunity, making jewelry online, home based jewelry business, jewelry business, resell jewelry, handProviderVirginia Health Insurance ExpertBeyonce Recent comment authors
newest oldest most voted
Mohit
Guest

I agree that there are many ways in which bringing trnasparency to the healthcare marketplace would be a very good thing, particularly as it relates to measures of high value care. However, this is an area in which one should be very careful before making any blanket ideological statements about the power of the market or the government. The provision of most medical services, particularly those that drive the vast majority of medical costs, is very much unlike, for example, optional and standardized laser eye surgery . When talking about health costs and how to control them, keep in mind… Read more »

holiday shopping, christmas shopping, online shopping, internet marketing business, internet marketing advertising, money making business, money making opportunity, making jewelry online, home based jewelry business, jewelry business, resell jewelry, hand
Guest

I loved up to you’ll receive carried out proper here. The caricature is attractive, your authored material stylish. nonetheless, you command get got an shakiness over that you want be handing over the following. ill unquestionably come more beforehand once more as exactly the similar just about a lot often inside case you defend this hike.

Provider
Guest

It is the best time to make a few plans for the long run and it is time to be happy. I’ve read this put up and if I could I wish to counsel you some attention-grabbing things or tips. Maybe you could write next articles referring to this article. I desire to learn more things about it!

Virginia Health Insurance Expert
Guest

Nobody wants to attack the cost problem because it’s not politically viable, there are too many hands in the healthcare profit cookie jar, and Americans generally have the “someone else should pay for it” syndrome when it comes to healthcare costs. Just look at how many people complain when their insurance won’t cover an office visit for $20. They can’t get past the point of realizing that health INSURANCE is to protect against a catastrophic financial loss, not to take $60 off their cost of an office visit. If I had a nickel for every time I’ve heard “I just… Read more »

Beyonce
Guest
Beyonce

Very interesting article.
It is very toughest to control chronic diseases such as osteoporosis or Parkinson’s disease as prescribed as – Oxycodone or Lortab – medicines are very expensive that is why is very complicated.

Rafael Nadal
Findrxonline

Barry Carol
Guest
Barry Carol

Margalit – Most PBM contracts in recent years pass drug rebates back to the self-funded employer / customer / payer. The most significant part of PBM profits comes from filling generic prescriptions by mail so they have an enormous incentive to switch prescriptions from brands to generics whenever possible, especially for maintenance drugs. As long as the doc doesn’t check the DAW (dispense as written) box on the prescription form, they can do this. It is also a key source of their value added in marketing themselves to payers. Nobody, including Wal-Mart, makes much money on brand name drugs outside… Read more »

Peter
Guest
Peter

“When some poor kid from a third world country is brought here for some amazing life changing surgery who pays for all the resources?” So Nate, is your argument that we should continue to pay high provider costs so third world kids can get free medical care? Isn’t your job Nate to reduce provider costs every day? Aren’t you denying some poor third world kid a chance to get life changing surgery by reducing provider costs? Don’t you buy cheap drugs from Canada for your clients to save money? Doesn’t that send good U.S. money out of the country and… Read more »

Barry Carol
Guest
Barry Carol

rbaer – Regarding brand name drug pricing, there are really two issues. The first is just how profitable do the drug companies need to be to earn the cash flow and attract external capital needed to sustain a business model capable of innovation? Historically, I think the large drug companies were more profitable than they needed to be. That said, it’s not unusual for some of the large volume drugs to sell for 30%-40% less in other countries as compared to the U.S. Drug companies go along with that because marginal production costs are tiny and, even a 30%-40% discount… Read more »

rbaer
Guest
rbaer

Barry, Nate, There a lot of claims, http://www.plosmedicine.org/article/info:doi/10.1371/journal.pmed.0050001 seems to be a possibly unbiased guess (as opposed to industry self reporting), but no matter what, our allocation of resources in terms of drugs is obviously wrong/dysfunctional/unproductive if you just look at the 81 K of pharm reps in the US, direct to consumer advertising, and the quality of original products lately (considering the magnitude of resources). Re Boston, CA, NYC: I save you the discussion that complaning about 300K in these few high-priced metro areas amounts to whining (but even conceding your point, that 200-300 K figure that I mentioned… Read more »

steve
Guest
steve

http://www.sciencedaily.com/releases/2008/01/080105140107.htm

Also, Marcia Angell, ex-editor NEJM, has written extensively on the topic. Pharma is very good at obscuring their marketing and promotions costs. When I was offered a consulting fee for work on a drug, it would have been listed as an R&D expense. In reality, they just wanted me to speak about the drug at meetings. (Turned it down as family needed me home.)

http://freegrab.net/angelltruth.htm

Even better, but much longer.

http://www.nybooks.com/articles/archives/2004/jul/15/the-truth-about-the-drug-companies/?page=1

Steve

Margalit Gur-Arie
Guest

“As for “me too” drugs, the issue there relates to formularies. Should payers cover these drugs or not….”

That would largely depend on the dollar value of the rebates the manufacturer is willing to offer to the PBM and it has very little to do with patients and their definitional issues.

rbaer
Guest
rbaer

As for price differences for services, I think Barry is mostly right, but I would add that administrative complexity does play a role. The number of people in hospital administration in the US are just stunning if you come from middle Europe – billing, credentialing (in Germany, that’s considered a state matter, like driver’s licenses), advertising, discharge planners and some of the manpower is for patient care (bettere physician/patient ratio, more PT, OT … a WELL RUN US hospital is probably better equipped than most European counterparts, but i believe there is not that much bang for the buck. I… Read more »

rbaer
Guest
rbaer

Barry, I am surprised that you bring up the canard of “drug research paid by the US”, although it seems to be a more educated variant (the less educated is, heard here and elsewhere: all pills are developped in the US with US dollars, which is patently false). We know that pharm companies’ R&D spending is usually less than their marketing costs. We also know that current reimbursement patterns (a worldwide problem, but the US leading) lead to dysfunctional allocation of resources (billions for barely, nonsuperior or inferior blockbuster drugs and me-too drugs). The countries with universal coverage control prices,… Read more »

Nate Ogden
Guest
Nate Ogden

Pretty compeling arugment against you here;

http://www.rossde.com/editorials/edtl_rx.html

From annual SEC filings so I would tend to believe them, pretty big penalities for lieing.

“Pharmacia’s sales in North America (mostly in the U.S.) amounted to 60% of total sales in 2001. The prices of Pharmacia’s drugs in North America could have been reduced by 11% if research and development costs were allocated proportionally across all markets, still without affecting profits.”

Advertising is half that of R&D

Would like to see some data to back up your argument that R&D is less then marketing.

Barry Carol
Guest
Barry Carol

Peter – While we’ve seen numerous comparisons showing that various services, tests, and procedures cost considerably more in the U.S. based on what insurers, including Medicare, actually pay for the care, I’ve never seen a good comparison of what it costs doctors and hospitals to provide the care. For doctors, we know that, for the most part, specialists earn more in the U.S. than in most other countries and we also know that they emerge from medical school with more debt. It would be interesting to see a comparison of practice expenses, though – staff salaries and benefits, office rent,… Read more »

Peter
Guest
Peter

“More doctors = higher healthcare costs.”

I’ll agree with that, another doctor is just another profit center to be satisfied. But doctor culture also equals higher costs. As for who’s the fool maybe you should read this:
http://www.cfra.org/Health-Care-in-Rural-America

MD as HELL
Guest
MD as HELL

Throw in an EHR and you cut productivity which will really raise the cost.

Peter
Guest
Peter

Yes Barry much here gets repeated. But as Robert Laszewski says the provider cost problem is not being addressed, nor will it ever be. So, will more private insurance address the problem, if you also believe in access – not if you look at provider costs here compared to other world systems. Just because systems are part private or “going” private, does not mean that is the solution. If it were we’d have the best and cheapest system in the world. Most world systems are government controlled/regulated even if part private. I’ll take Germany’s system where only about 10% of… Read more »

platon20
Guest
platon20

“but the medical cartel controls the prices and the gates to care”

You are a fool sir, More doctors = higher healthcare costs. Thats why New York and Miami have the highest number of per capita doctors in the world. They also have the highest healthcare costs per capita in the world. Meanwhile, rural medicine, where doctors are very few and far between leads to lower costs.

Margalit Gur-Arie
Guest

There aren’t enough rich patients to fund pharmaceutical research. If only the rich bought drugs, there would be no drug companies. It’s the millions and millions of relatively poor with their $1 bills, and the governments that administer their money, that make drug manufacturers rich. Taking these folks (or their government programs) out of the market will bankrupt everybody, and most importantly will leave your beloved rich without life saving expensive medications.
Be careful what you wish for…. Without Medicare men, Viagra would have to sell for $100,000 a pill to allow Pfizer to break even.

Nate Ogden
Guest
Nate Ogden

Margalit, you liberals and your made up facts.

“Cialis, Viagra, Levitra and other erectile dysfunction drugs are not considered necessary by the U.S. Department of Health & Human Services. Apparently many men disagree. Hence the $3.1 million charged to Medicare Part D for the drugs in 2007 and 2008.”

Ya that 3.1 million sure brought the cost down. Its not 2005 anymore. Time to update the argument.