By ROBERT LASZEWSKI
If the Obamacare health insurance exchanges are not able to get a good spread of risk––many more healthy people than sick––the long-term viability of the program will be placed in great jeopardy.
Given the early signs––far fewer people signing up than expected, enormous negative publicity about website problems, rate shock, big average deductibles, narrow provider networks, and a general growing dissatisfaction over the new health law––it is clear to me that this program is in very serious trouble.
But that trouble would not necessarily transfer to the health insurance plans participating on the state and federal health insurance exchanges.
Obamacare contains a $25 billion federal risk fund set up to benefit health insurance companies selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market. The fund lasts only three years: 2014, 2015, and 2016.
The government’s risk management program for the insurers has three parts:
A revenue neutral Risk Adjustment System designed to level adverse claim costs between health plans.
A Reinsurance Program that caps big claim costs for insurers (individual plans only).
A Risk Corridor Program that limits overall losses for insurers.
Of the $25 billion, $20 billion is earmarked for the Reinsurance Program and $5 billion goes to the U.S. treasury.
First, the Reinsurance Program caps big individual claim costs for insurers––in 2014, 80% of individual costs between $45,000 and $250,000 are paid by the government, for example.
Then comes the Risk Corridor program. Participating health plans will receive payments from the federal government in any of the following circumstances:
The plan’s costs for any benefit year are more than 103% but not more than 108% of the health plan’s targeted amount. The feds will reimburse 50% of all costs in excess of 103% of the medical cost target.
If the plan’s costs are more than 108% of the annual target, the feds will first pay the health plan a flat 2.5% of the target and then reimburse the plan for 80% of their claim costs above the targeted amount––with no upside limit.
Target cost is simply defined in the new law as a health plan’s “total premiums (including any subsidies) reduced by the administrative costs of the plan.” It is whatever the health plan projected its premium needed to be to pay medical costs.
So, a plan is on the hook for all claim costs up to 102% (2% more) than the target cost.
But, if the health plan has costs at 110% of the medical cost target, it will be responsible for only 102.4% of the target (a 2.4% shortfall)––only about a quarter of its losses.
If the health plan’s medical costs come in at 120% of the expected claim cost target level, the health plan will only be responsible for 104.4% of the target (a 4.4% shortfall)––again only about a quarter of its losses.
While health plans won’t be losing anywhere near as much money as they would have if the medical loss ratio were a disaster, because of the claim Reinsurance Program and the Risk Corridor Program, they will be losing money.
If the health plans have claim costs below the expected target, they would have to pay the excess back to the feds using the same formula in reverse.
The statute very specifically limits funds collected to $25 billion over the three years––$12 billion in 2014. The source of these funds is the Obamacare $63 annual “Belly Button Tax” assessed on almost all people covered under a health insurance plan.
The reinsurance program has done and will continue to do what it was intended to do; help attract and keep more carriers in Obamacare than might have otherwise come. No matter who did health insurance reform, Democrats or Republicans, there was always going to be a transitionary period when those currently sick and unable to get coverage before would come flooding through the doors.
Does this mean that health plans would be happy to see their plans underpriced in the first year, as well as the second and third year? No, they will not have any incentive to see their products dramatically underpriced the first three years only to see their prices zoom in the fourth year and create havoc.
But, my sense is that health plans, because they are so insulated from big losses, will generally stand pat with their 2014 rate structures for 2015––no matter how bad the early claims experience looks. I expect that the health insurance industry will be content to give the Obama administration one more chance to reboot Obamacare in the fall of 2014, when the 2015 open enrollment takes place.
But that is all the patience I see the industry having. While they will continue to be protected from losses in 2016, two years will be enough patience for them and they will be eager to at least begin to transition their rates to the proper level in 2016 rather than face a huge adjustment in 2017 when the reinsurance program ends.
What consumers/voters will be thinking about Obamacare come November 2014 is still to be determined. But insurers won’t be losing a lot of sleep over it.
Robert Laszewski 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. 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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To the title of the post:
No spiral.
It will just auger in like a meteorite……splat!!
What if $25B isn’t enough? Early enrollment results show that enrollees aged 55 or more make up 33% of enrollees, but only 11% of the uninsured. Did the carriers with plans on the exchange account for this much of a skew when they were putting together their rates? I can’t imagine that the administration will be able to increase the $63 belly button tax when their own supporters (the unions) are already trying to weasel out of it.
Right you are.
And the Scandinavian countries have the advantage, in addition to smaller populations, of fairly homogeneous social profiles, not to mention Norway’s deep, deep pockets from North Sea oil. I read somewhere that Norway is the only country with an ongoing budget surplus. As the saying goes, rich or poor it’s nice to have money.
I suppose we will always have a segment of the electorate willing to put poison pills into social programs lest a growing population of ingrates learn to abuse them.
Thanks, Bob. I’m sure it’s good. I may get to it sometime but I have a feeling I’m already in the choir. I also already watched the Blyth talk linked by Peter above and gave it a push at my Facebook page a few weeks back.
Sometimes I wonder if I’m an echo chamber of my own making like the atavistic masses drinking the Fox koolade, but I really don’t think that is the case when I discover I’m in the company of others whose universe is diverse enough that links like these are not remarkable. For reflecting people these ideas are part of the landscape. (It’s a sad commentary, isn’t it, when the best I can do on a Sunday morning is a comments thread at The Health Care Blog?)
Carry on, gentlemen.
~~~~~~~~~~~~~~~~~~~~~~~
Before I quit, I have to mention something I saw lately in my post-retirement work as a caregiver, a suprapubic catheter. This is another example of a medical advance in the miracle category that makes life better for many. A You Tube search even includes a quadriplegic changing his own suprapubic catheter! (And who hasn’t already seen the TV ads for catheters?) These medical devices appear to be a growth sector of the economy.
But I have to wonder, as vast numbers of the population are uninsured or under-insured, if medical technology is not creating the same type of social divide between the haves and the have-nots that dental care has done for years. Years ago it was brought to my attention that early childhood nutritional deficiencies and neglect often leads to problems in dental development later in life. That, together with the lack of money, results in millions of people with dentures instead of crowns, caps and implants.
As medical science continues to get better (and more widely available for those who can afford it) I am more convinced than ever that if we don’t find a way to make these resources available to as many people as possible, regardless of their economic status, we are setting the stage for increased class division and possible social unrest.
Another ethical challenge we must confront is how much of this modern magic is appropriate for us if our bodies keep living long after our minds have left. I don’t have any easy answers, but it’s time to start raising the questions. I’m glad for a young person who is able to produce his own You Tube video but I’m not sure I feel the same about someone in his nineties with Alzheimer’s, no longer able to respond to those around him or feed himself. (Which doesn’t even broach the subject of pacemakers that can continue to operate on a corpse or implanted filters that prevent pulmonary embolisms.)
Pter1 –
The employer doesn’t know what anything costs either until the bills arrive after the insurer paid them on its behalf. The employee doesn’t care if he or she is insulated from the cost and has access to a broad network of providers. The doctor, who makes the referral to a hospital or imaging center or whatever doesn’t consider it part of his job to know or to care about costs unless the patient brings it up as an issue of concern due, usually, to a high deductible.
The Certificate of Need program was intended to help government control supply, especially of hospitals and freestanding surgical centers. However, they’ve been largely ineffective in accomplishing that. The long term trend, fortunately, is toward fewer hospital beds per 1,000 of population. I think price transparency would be enormously helpful for hospital based care especially. Surgical procedures lend themselves to bundled payments. Specific outpatient procedures can be priced pretty easily. Other inpatient care could be priced on a per diem or case rate (DRG) basis no matter how much care is needed with one per diem price for a standard room and a much higher price for an ICU bed.
To cite one extreme example of the benefits of price transparency, a couple of years ago I called five local pharmacies out of curiosity to get their cash price for several drugs I was taking. One of those is Simvastatin, a cholesterol lowering generic drug. My local supermarket, Stop and Shop, quoted $546 for a 90 day supply. The price at Costco: $9.99! That’s a 55 to 1 difference. That’s crazy. I was already getting them from a mail order pharmacy (Optum Rx) at reasonable cost.
John –
Unemployment benefits, food stamps, and Medicaid are all counter-cyclical. As more people meet the income criteria to receive benefits in a weak economy, enrollment increases. On the other hand, programs that need to be funded by state and local government like K-12 education and subsidies for higher education are indeed cut back during economic downturns as state and local tax revenue shrinks.
Many countries in Western Europe are having increasing trouble financing their generous social safety nets especially as their population ages. You might also want to check the unemployment rate in most of these countries. It’s significantly higher than ours, especially for young people including those with college degrees. With all due respect, I don’t think anyone here should be in a rush to copy France. Germany is doing OK but only 40% of the population owns a home. Switzerland and the Scandinavian countries are also OK but they are small homogeneous societies. The four Scandinavian countries combined have a population of only 23 million. Switzerland has a bit over 7 million. They’re all content to pay half or more of their income in taxes. We aren’t.
note to John Balland –
you would enjoy an article by Joseph White called ‘The Politics of Belief and US Health Care Reform.’ Anything by Prof White is worth reading, of course, starting with his book Competing Solutions that is still my bible on health policy.
America has a large group of voters who really believe in the freedom of the individual. (some of these voters eagerly accept Medicare and Social Security, but I digress.) Anyways, this contingent of voters will vigorously oppose any new social insurance.
Most European nations have no such contingent, or a very tiny one. Their entire electoral map is way to the left of ours.
“Imagine if we had single payer supermarkets or single payer gas stations with no money exchanged at the point of service.”
Barry, we don’t have or need those, and I don’t advocate that.
“In New York City, newly elected liberal mayor, Bill DiBlasio, ran, in part, on working to oppose the closing of any more hospitals even if they aren’t needed.”
A bad economic decision is just, that no matter who advocates.
Barry, I don’t know how much price transparency government health care has in other countries, not much I think. When you’re not paying directly the prices are just a meaningless blur anyway – would you really look at the bill. Would you really care how much the price sticker is on a Mercedes when you’re not paying? Price/cost control has to be in the system. I can’t imagine in employer subsidized care that the employer does not have price transparency, yet they seem no better at system cost controls.
Make everyone self insured on the individual market and let’s see who screams for single-pay first when not even that controls prices.
John, & others,
I just watched an earlier link of Bobby Gladd’s – “Austerity – The History of a Dangerous Idea”, very timely to your comment John on economic cycles.
A must see. “Austerity in times of plenty and spending in times of need.”
http://www.youtube.com/watch?v=JQuHSQXxsjM&feature=youtu.be
“I think government run/controlled health systems more efficient because they operate on scare(r) dollars, here it seems there are no scarce dollars just higher billings. Imagine if the price of food went up 6% -10% compounded yearly, would people complain.”
Peter1 —
Imagine if we had single payer supermarkets or single payer gas stations with no money exchanged at the point of service.
Numerous countries, in effect, make a political decision as to what percentage of GDP they want to spend on healthcare and they get there by restricting supply. The thing is that the politically determined GDP percentage to be spent on healthcare has little or nothing to do with the actual healthcare needs of the population. Restricting supply means making people wait, sometimes for lengthy time periods, for non-emergent care.
In New York City, newly elected liberal mayor, Bill DiBlasio, ran, in part, on working to oppose the closing of any more hospitals even if they aren’t needed. NYC hospitals have a lot of employees who belong to the SEIU, a politically favored group in liberal circles which worked hard to elect him.
Healthcare costs escalated faster than general inflation for a long time because well insured people, including those on Medicare and Medicaid, are largely insulated from costs and healthcare prices are opaque and kept that way through the enforcement of confidentiality agreements. There is no reason, aside from politics, why these can’t be outlawed.
A relatively low percentage of care must be delivered under emergency conditions and we can have special rules that cover how much can be charged for that. For the rest, let’s have price (and quality) transparency like we do throughout the rest of the economy. People will be much more price sensitive when they know exactly how much their employer provided health insurance premium is including the share nominally paid by the employer and when they are spending their own money on the portion of their care that is within the deductible amount.
If I may jump in, part of the dynamic is how we in America regard how social benefits relate to economic and living cycles. Countries with strong social safety nets have crafted them to be counter-cyclical, but ours tend to be pro-cyclical. We tend to be generous when the economy is flourishing and tight-fisted when times are tough — the very times that a large number of people are struggling to make ends meet. But countries with generous unemployment support systems, reliable universal health systems, old-age pensions, maternity benefits that make ours look Dickensian — they take a longer view of the economy, knowing that better employment opportunities lie ahead, old people eventually die, support for new parents makes for stronger families, etc.
Much of America still subscribes to the old Puritan work ethic, that those who are rich are enjoying God’s blessings for thrift, hard work and clever enterprise. And the poor are being punished for sins they or their families committed, with the list of sins started with sloth, gluttony and greed. So our so-called “safety nets” include the punishments of COBRA (health insurance rates double the moment your income vanishes and even that vanishes after eighteen months), drug screens for those getting public assistance and EMTALA which mandates nothing more than literal life-saving “stabilization” of medical emergencies but nothing in the way of aftercare. The list is longer but you get the idea.
I guess my point Bob was that government knowingly uses job lose all the time in economic policy so why should the hospital sector be exempt.
Ontario Canada did a purge of some underused hospitals years back then built some new ones later. People naturally want walk to convenience but always want the other guy to take the tax savings hit. There would have to be controls on political hospital building for purely election gains. People in remote and sparsely populated areas just live with longer drives to everything.
I think government run/controlled health systems more efficient because they operate on scare(r) dollars, here it seems there are no scarce dollars just higher billings. Imagine if the price of food went up 6% -10% compounded yearly, would people complain.
Bob —
I’m pretty sure that dividends and other investment income would count as part of the income amount used to calculate the health insurance subsidy. Withdrawals from savings would not. Even if he has an IRA or 401-K, he can’t withdraw the money before age 59 1/2 without incurring a 10% tax penalty on top of regular income taxes. I agree that he is probably looking at total modified adjusted gross income in the $30K range which is less than 200% of the FPL for a couple. He is too young to be eligible for social security unless he is disabled in which case he would be eligible for Medicare two years after being declared eligible for a social security disability benefit. If he has a pension, it’s probably quite small based on his age.
Note to Archon 41:
In order for the retired engineer to get such a large subsidy, he and his wife must be living on a taxable income of about $30K a year.
Maybe withdrawals from savings or dividends are not counted as income for purposes of ACA subsidies?
I am not sure we know the whole story here.
Note to Peter1:
I am not sure that the federal government cut very many employees due to austerity. Even if they did, the political impact of a job loss in Alexandria VA is much, much less than the impact of closing an un-needed hospital in Billings MT.
The NYT here gives us a revealing insight into the liberal psyche: The primary function of government is to provide benefits, and is to be judged in terms of the amounts it can spew out, whether interminable SNAP and unemployment benefits, “prosperity zones,” communication devices, “tax refunds” for those who don’t pay taxes, health insurance, etc. You can sneer at “trickle down economics,” but diverting to government benefits and services funds that should be flowing into reinvestment, while “maxing out” our lines of credit, can’t end well. We seem to be following the playbook of the Robert Mugabe school of economics.
“I cannot imagine a federal agency causing large numbers of nurses and hospital-based doctors to lose their jobs.”
Like the Fed, SEC, Fanny/Freddy Mac pre-crash policies causing massive layoffs and the government employee austerity cuts post crash? Republicans always seem supportive of dissolving government programs and jobs, why not the hospital sector.
Bob, I can’t imagine this happening over night or without compensating adjustments. But if present cost projections occur for health care how do we pay for it if wages do not parallel?
From “Enrollees at Health Exchanges Struggle to Prove Coverage,” Robert Pear, NYT, 1-10-14: “…Mr. Donahue, 58, a retired software engineer, is delighted with his new coverage from BCBS of Texas. The monthly premium for him and his wife is $1,062, but the federal government pays a subsidy of $903. The couple pay the remainder, $159 a month. “It’s a superb deal,” Mr. Donahue said.”
Is this a great country or what? Wonder how much he has stashed in his IRA?
Another problem with single payer is that the government would feel obligated to keep all current hospitals in business. I cannot imagine a federal agency causing large numbers of nurses and hospital-based doctors to lose their jobs. (Canada has actually done this, but Canada ain’t us.)
In other words, even if a single payer authority imposed lower fees and price controls, there would have to be other government aid to prevent hospital layoffs and outright closings.
Sort of like aid to farmers, but at much greater dollar figures.
“Virtually every hospital currently claims that it couldn’t make money if it had to accept Medicare rates from all comers even if there were no uncompensated care and it received more than it does now for Medicaid patients.”
So you believe that every hospital is operating at it’s lowest margin/best efficiency. If other industries operated like hospitals (just can’t stand the cuts) they would not be as sustainable as the health system. Other industries get edicts from the top – cut or else managers get the cut.
“there is enormous potential for improvement within the current structure. ”
Not from how you describe the present system – unflinchingly unable to change.
Peter1 –
Medicare filled a need for the retiree population that was not being adequately addressed by private insurance. Medicaid did the same for the non-working poor and those with very low incomes. More than 150 million working Americans get their health insurance through an employer today. The vast majority of those, including union members and people who work for large companies that offer comprehensive health insurance, are generally satisfied with what they have and are not willing to trade it for the unknown quantity of a taxpayer financed single payer system.
Moreover, the most likely financing mechanism for a single payer healthcare system would be a dedicated value added tax which would probably start out at a level too low to pay the bills and would then be quickly raised. People don’t trust the government on something like this especially after the botched Obamacare rollout and its associated broken promises including the if you like what you have you can keep it line.
If Medicare were extended to the entire population, there would no longer be a private sector to shift costs to. Virtually every hospital currently claims that it couldn’t make money if it had to accept Medicare rates from all comers even if there were no uncompensated care and it received more than it does now for Medicaid patients. Doctors find Medicare’s documentation requirements burdensome and they know that Recovery Audit Contractors (RAC’s) can review their billing up to three years after the date of service and demand payments for issues as minor as inadvertent coding errors. The RAC’s receive a 9% commission on all the money they recover for CMS.
The potential for unintended adverse consequences is enormous here. If we were starting with a clean sheet of paper, we probably wouldn’t replicate the system we have now but that’s not possible. We have to build on what we have and there is enormous potential for improvement within the current structure. There are lots of strategies to pursue as I outlined earlier.
Barry, thanks for your mention of facility fees. They are pure price gouging.
Massachusetts passed a recent law calling for mandatory price disclosure before scheduled care when a patient requests it
There will probably be a lot of legal dodges and lax enforcement (just like the timid ACA regs on overcharging the uninsured), but the law is a step in the right direction.
If I were the czar of health care I would go much further. I would require that if a patient is not informed of the cost of care at least 5-15 days beforehand, then they do not need to pay the bill.
The world still runs on fear and greed, and for a long time hospitals have had no fear in terms of billing. That must change.
Do us all a favor, 41.
Put a sock in it.
Thanks again, Barry Carol, for taking time to reply. I guess we need to keep fingers crossed for the ACO experiment.
I switched PCPs a couple of years ago when a family member died as the result of unconscionable neglect on the part of a nearby small practice which had served our family the few times we needed medical attention over several years. Since I am a Medicaid beneficiary (and learned early on about MA) I deliberately looked for a convenient office which would be part of a very large local network, deliberately looking for a local group most likely to become an approved ACO. That may or may not happen, but I have been more than pleased with my PCP and his staff. The landscape is changing rapidly in the Atlanta area and this year I took the leap to another MA plan.
Four years ago the only MA plan available in our county ended and none were offered so my wife and I returned to original Medicare for a couple of years. In the short span of three years we now have half a dozen MA options from which to choose, one of which includes — you guessed it — the PCP I already have, picked almost from the Yellow Pages.
My wife remains with Medicare because her medical history and needs during the last few years have been more than mine. She will have more options with Medicare than I have with an HMO. But since my premium is zero at this point and the plan included prescriptions, I expect to save a lot by letting myself be kidnapped by a private plan, even though I will face a much higher supplemental insurance premium should I decide to return to original Medicare.
In any case, none of us can predict the future and as a senior caregiver I know first-hand how close we all are to that final appointment. Meantime, I’m keeping an eye on healthcare reform with the intensity of a cat watching a mouse hole.
“The issue isn’t fraud in Canada. It’s fraud in the U.S. The CBO and others that have looked at this issue estimate improper payments in the Medicare and Medicaid programs could be as high as 10% of total spending though it’s difficult to quantify precisely.”
Well Barry, I can’t account for the U.S. being a culturally dishonest nation, but there are ways to curb it if legislators (culturally dishonest?) change the way Medicare and Medicaid are structured – but IF it’s 10% what do you want to spend to get it to 2%?
“As for the healthcare systems in Canada and the UK, they both restrict supply to help control costs”
“there are lots of examples like tiered and narrow networks; tiered drug plans; high deductible and low deductible plans;
Benefit cut, benefit cut, benefit cut – all tied to restrict access (rationing) and help control costs.
“Standard fee for service Medicare didn’t even offer a drug benefit for the first 41 years of its existence while private insurers offered it for decades.”
If you’re talking about Med Part D then you know why it was finally “offered”. Seniors were having to drive to Canada (that socialist gulag) to buy drugs or go without – yes Barry a real private sector success story.
“If Americans wanted a single payer healthcare plan, we would have had one a long time ago.”
Medicare?
“While people in Western Europe may be highly satisfied with their healthcare system and the rest of their social safety net and don’t mind paying half their income in federal, state and local taxes to support it”
Well Canadian income taxes are higher but pretty close to U.S. They also pay provincial sales tax of about 7% (not oil rich Alberta), but our state sales tax here is also 7%. They pay a 7% GST federal VAT tax but when that was instituted the wholesale tax was lowered. In Ontario they levied a health care surcharge tied to income, which was I believe, about $800 for upper income group. Gas is about double, food about the same, housing in big cities quite costly, but so it is here. Local property taxes are quite high, at least compared to my county tax, but I bet I could find comparable rates here in U.S. But here’s the kicker – they get single-pay health care with no deductibles, no narrow tiered networks and they also have a drug benefit plan.
“Even if we somehow got a single payer plan, it would cost a lot more here because our doctors will expect to be paid more for a variety of reasons, our litigious society will drive more defensive medicine, our patients’ expectations are higher and there would be more fraud.”
What you’re describing Barry is the present system morphed into single-pay – not the best success prescription.
John –
We may eventually reach the point in the U.S. where empty hospital beds are considered a good thing. To do that, however, we need to move away from the fee for service / DRG / case rate payment model of reimbursement in favor of shared risk / shared savings contracts and, eventually, capitation and global budgets. The big stumbling block, I think, is that most hospitals, and other providers for that matter, are not very good at estimating their costs (actuarial risk) a year in advance. They don’t feel comfortable assuming the risk and may feel that they don’t have adequate financial reserves to absorb the consequences of a bad forecast. For all the liberal complaints about insurers adding no value, one thing they are good at is estimating and assuming actuarial risk.
While consolidation in the hospital sector leads to increased market power and the likelihood of higher prices per service, test, procedure, DRG and case, it should also improve the financial ability to absorb financial risk. Indeed, some of these large hospital systems are already in the insurance business with Kaiser the most prominent but there are others and more will probably enter the market over time.
The Accountable Care Organization (ACO) concept may also help to move our health care system away from the fee for service payment model. To the extent that the ACO can control the entire continuum of care, it should be better able to estimate and control overall healthcare costs. For sophisticated care that the ACO may not be able to provide in house, it could establish contractual arrangements to treat its ACO members for that care at a price known to it in advance. The problem with the early Medicare ACO’s, I think, is that patients with FFS Medicare still have the right to go to any provider they choose whether in the ACO or not. It’s unreasonable to hold an ACO responsible for care costs beyond its control.
I would like to match the consequences that happened from 1930s to 1981 with the present Obamacare. You’ll be surprised to find a lot of similarities between them. I would suggest you to go through the obamacare sites like http://insuranceexchangehq.com and you’ll find those similarities.
Thanks. Barry Carol. That helps explain the origin and need, I suppose. I know hospitals are expensive places and a lot of what they do can be done elsewhere at much lower costs. When you mention the metric of beds per thousand population I think of something I came across by a doctor from Finland who said they don’t regard empty beds as a problem. Empty hospital beds, he said, mean the community is more healthy — totally alien idea to the US need to squeeze ROI out of every dollar, even money spent for good health care.
I know there is a range of financial pictures from one hospital to another. A few in the Atlanta area have had to close while others have prospered. I know when Grady, the downtown hospital serving the urban poor, was facing financial problems a few years ago, it sent shock waves to a few suburban hospitals who knew without Grady they would be hit with even more indigent cases than they already had. I sensed a powerful coming together of those suburban hospitals to insure the continued viability of that place. I don’t know if any Certificates of Need were involved but I am certain that a serious effort was made to keep that institution from failing — and it seemed to have more to do with it’s role in charity cases than the fact that it may be the most important and efficient trauma center in the Southeast.
I have a real problem balancing the challenges of that community hospital with the fact that it is surrounded by several so-called “non-profit” hospitals awash with money and upscale resources — marble floors, live plants, TVs everywhere, plush waiting areas, valet parking, etc. It seems so inequitable, even if the quality of medical care is excellent in all those places.
John –
The CON regulations came into being in the mid-1970’s and I think 36 states still have them in some form. There is no doubt that they’re controversial but there is plenty of doubt that they’ve had much effect in slowing the growth of healthcare costs. In 1945, the number of inpatient hospital beds per 1,000 people in the U.S. was about 10. Now it’s just over three and the long term secular trend is down. Yet, most of the upward healthcare cost pressure is coming from the hospital sector because of the combination of market power and the proliferation of new technology from MRI machines to robots used in surgeries to medical devices.
An increasing percentage of hospital revenue is coming from outpatient services many of which probably don’t need to be done in a hospital setting. One thing I think payers should push for is to eliminate facility fees for any services, tests and procedures that can be done just as safely and easily in a doctor’s office, independent clinic or freestanding non-hospital owned imaging center. Also, price and quality transparency is most needed for hospital based care. That’s where the highest costs and the biggest cost disparities are concentrated.
My favorite comment about cultural attitudes regarding health care was something Maggie Mahar said about the French.
My friend who lived in France said that there health care system is so good because “The French feel that nothing is too good for another Frenchman.”
Unfortunately, Americans do not feel that way about each other.
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Changing the subject a little (or adding something to the discussion I have not seen mentioned) I was not aware of the “certificates of need” until I worked in a health care system. The implication is that a state authority gives permission on a case by case basis for additional hospitals, specialty centers and/or procedures before they can be made available.
I found this is a widespread practice involving thirty-five or more states, referred to as CON states. (Something ironic about that acronym.) On the face of it the purpose seems to limit replication of unneeded services. But looked at another way, it sets limits on what other industries regard as competition. What business it is of the state to mess with competition among private operations, even if they are non-profit? Everybody else is in a dog fight for survival, why not health care providers? “Certificates of Need” strikes me as just another political wrinkle in an already byzantine system calculated to grant cartel status to big providers. If certificates of need are really what they sound like instead of a grant for franchise territory, they should oblige any new providers to furnish meaningful services to rural or other under-served areas in return for getting that status.
Maybe someone can help me get a better attitude about this.