Economics

Half the Cost. Half the Jobs?

flying cadeuciiHealthcare costs far too much. We can do it better for half the cost. But if we did cut the cost in half, we would cut the jobs in half, wipe out 9% of the economy and plunge the country into a depression.

Really? It’s that simple? Half the cost equals half the jobs? So we’re doomed either way?

Actually, no. It’s not that simple. We cannot of course forecast with any precision the economic consequences of doing healthcare for less. But a close examination of exactly how we get to a leaner, more effective healthcare system reveals a far more intricate and interrelated economic landscape.

In a leaner healthcare, some types of tasks will disappear, diminish, or become less profitable. That’s what “leaner” means. But other tasks will have to expand. Those most likely to wane or go “poof” are different from those that will grow. At the same time, a sizable percentage of the money that we waste in healthcare is not money that funds healthcare jobs, it is simply profit being sucked into the Schwab accounts and ski boats of high income individuals and the shareholders of profitable corporations.

Let’s take a moment to walk through this: how we get to half, what disappears, what grows and what that might mean for jobs in healthcare.

Getting to half

How would this leaner Next Healthcare be different from today’s?

Waste disappears: Studies agree that some one third of all healthcare is simple waste. We do these unnecessary procedures and tests largely because in a fee-for-service system we can get paid to do them. If we pay for healthcare differently, this waste will tend to disappear.

Prices rationalize: As healthcare becomes something more like an actual market with real buyers and real prices, prices will rationalize close to today’s 25th percentile. The lowest prices in any given market are likely to rise somewhat, while the high-side outliers will drop like iron kites.

Internal costs drop: Under these pressures, healthcare providers will engage in serious, continual cost accounting and “lean manufacturing” protocols to get their internal costs down.

The gold mine in chronic: There is a gold mine at the center of healthcare in the prevention and control of chronic disease, getting acute costs down through close, trusted relationships between patients, caregivers, and clinicians.

Tech: Using “big data” internally to drive performance and cost control; externally to segment the market and target “super users;” as well as using widgets, dongles, and apps to maintain that key trusted relationship between the clinician and the patient/consumer/caregiver.

Consolidation: Real competition on price and quality, plus the difficulty of managing hybrid risk/fee-for-service systems, means that we will see wide variations in the market success of providers. Many will stumble or fail. This will drive continued consolidation in the industry, creating large regional and national networks of healthcare providers capable of driving cost efficiency and risk efficiency through the whole organization.

What’s the frequency?

So what’s the background against which this has to take place? What’s going to affect healthcare from the outside? Mainly three broad trends:

The economics of yawns: We can expect more of the same, with continued inequality, most economic gains going to the top 1%, and continued deprecation of the middle and working classes. This will express itself in an ever mounting need and demand to bring people greater access to healthcare, which includes bringing the actual costs to the consumer/patient/voter down.

Boomers again: Boomers will continue bulking up the Medicare demographic. The current trends will become even more stark: costs per beneficiary down, overall costs up. Just pre-retirement Boomers were the group hit hardest by the great sucking sound of 2008 which magically disappeared massive amounts of equity in home values, IRAs and 401Ks. The effects span generations: Not only are the Boomers struggling themselves, they have far fewer resources available to give help when their children and grandchildren sink into a health crisis.

Political momentum: The relative success of the ACA in getting people covered  gives the political momentum to expanding coverage further, such as through expansion of Medicaid in states that have not accepted it. It will especially add oomph to any political or market attempt to lower the actual cost of healthcare for the patient/consumer/voter.

Political momentum: The relative success of the ACA in getting people covered  gives the political momentum to expanding coverage further, such as through expansion of Medicaid in states that have not accepted it. It will especially add oomph to any political or market attempt to lower the actual cost of healthcare for the patient/consumer/voter.

What will grow anyway?

However successful we are or are not at making healthcare leaner, one thing the next few years will not be is business as usual. The current trend toward massive regulatory complexity will most likely continue. There are no forces or mechanisms emerging yet that would change that trend. At the same time, the economics of running a healthcare organization will get much more complex, which means so will strategic planning, capital planning, and every other top management task.

So we can expect growth in the regulatory compliance sector of healthcare employment. At the same time, healthcare planning, forecasting, financing, and strategy skills need to put on muscle, whether in-house or through consultants.

How will parts of healthcare get lean, trim down, atrophy?

Waste: Any payment system that gets around fee-for-service and puts the healthcare provider at some risk for good outcomes will push healthcare providers to compete to give the best possible outcome at the best available price. Any such competition will tend to drive wasteful, unnecessary, and unhelpful practices out of the market — you’re not going to do it if you can’t get paid for it. These include such common practices as complex back fusion surgery for simple back pain, computer analysis of mammograms, the use of anesthesiologists in routine colonoscopies, the routine use of colonoscopies for mass screening, some two thirds of all cesarean sections, over $1 billion worth of unnecessary cardiovascular stents done every year, and on and on. If your business model or your career depends on a technique that honestly doesn’t score all that well on a cost/benefit scale, this would be a good time to rethink your business model or career.

Prices: With growing price transparency and a growing willingness of buyers to go far afield if need be to find the right deal, it will become increasingly difficult for manufacturers of devices, implants, pharmaceuticals — indeed, any supplier to healthcare – to continue to insist on outsize profit-driven prices. It will be hard to charge $21,000 for a knee implant when the exact same device can be bought in Belgium for $7000. Similarly, with reference pricing and comparison shopping becoming more common, it will be very difficult for your hospital to get business if you insist on charging over $100,000 for a new knee.

Automation: Many job categories across healthcare, from messengers and janitors to neurosurgeons and oncologists will be supplemented or in some cases entirely replaced by robots and software.  We are already seeing widespread automation of  labs and pharmacies. HVAC systems are auto controlled and remotely monitored. Security is enhanced with surveillance cameras, robotic patrols, and position sensitive ID badges. But automation will move much higher up the skill scale, as DNA analysis and volumetric CT and MRI scans replace much of the work of many oncologists, and next-generation scan-driven high precision proton beams replace neurosurgeons at some of their most delicate tasks — even as new custom-built DNA-based personal pharmaceuticals may obviate any need for surgical removal of tumors at all.

Automation of various kinds will show up increasingly in every task category throughout healthcare, extending individual’s powers, raising productivity, and increasing the team’s capacity while eliminating jobs.

Cost Accounting And Lean: Under a fee-for-service system, in which you can charge for each item, inefficiency is a business model. If you’re getting paid a bundled price or a per-patient per-month stipend, suddenly inefficiency is a drain on the bottom line. You simply must recognize your true costs and use strong “lean manufacturing” protocols to get them down. In the organizations that get this right we can expect large increases in productivity, which will mean both increases in capacity and loss of some jobs, either in the organization that is succeeding or the organizations that it is competing against.

What will grow?

In a healthcare economy that is moving toward “leaner and better,” which categories would increase?

A leaner and better healthcare will have to do far more in preventing and managing chronic disease. We are losing rather than gaining the extra primary care physicians that we need to lead that charge. The most successful disease prevention and management programs are based on team care. The most efficient and effective way to influence behavior, especially of “super users,” is through trusted lines of communication with real clinicians — being efficient requires putting a crew on it, increasing rather than decreasing the people who have actual patient contact. So we can expect strong growth in any category that could add to that crew, such as:

“Complementary and alternative” practitioners: When you get paid to do medical stuff to people, why give any business to rival modes? But when you get paid to help people be healthier, why not throw into the mix modalities such as chiropratic, acupuncture, and others which can often show strong results at a fraction of the cost? Why not try them first?

Physical therapy: Remember those Boomers massed at the gates? Many of the aches and pains of aging are better served by cortisone, ibuprofen and yoga than by back fusion surgery and new hips. Physical therapists, like chiropractors and acupuncturists, can be a first line of defense against higher medical costs.

Home health: Vulnerable populations (such as pregnant women, newborns, people with multiple chronic conditions, and the frail elderly) can often be cared for in the home for far less cost than any acute care that can be avoided. New communication technologies can make home health care cheaper, more constant, more data-driven, and more effective.

Enhanced medical home: The Vermont Blueprint and other programs have shown the efficiency and effectiveness of expanding the “medical home” home concept into teams staffed by physician assistants, nurse practitioners, community health specialists, behavioral health specialists, indeed any category of helper that can strengthen and deepen the bond with the family caregiver or the patient.

Behavioral health and addiction: In a fee-for-service world, the behavioral practices have been given short shrift. Considering how much illness and accident is driven in one way or another by addictions and other behavioral problems, any healthcare system run by “value” rather than “volume” is going to hire a lot more psychologists and family counselors.

IT support: The Next Healthcare will be modulated not only through docs’ BYO devices, but through multiple types of cheap sensors, gadgets, dongles, and apps. In order for them to be medically useful, they must be integrated into the system’s IT and EMRs. The need for integration and support of the device swarm will grow rapidly.

Tech industry: We can expect that creating such devices and software, especially those connecting the patient and caregiver to the clinic and clinician, will be a big growth area in the tech industry.

What’s the trend?

The shift can’t be captured in one Big Trend That Devours Everything. But there is this: Most of the things we will doing less are the kinds of things that have made a lot of the “procedure guys” rich over the last few decades, unnecessary procedures and tests that use lots of big machines, expensive implants and other hardware. Most of the parts that will grow emphasize real patient contact, though often at a lower skill and expense level. “Fewer back surgeons and implants, more physical therapists and exercise classes” could stand as a metaphor for the shift.

So while “healthcare at half the cost” would definitely mean fewer jobs in healthcare, it would not mean half the jobs. It would mean more jobs in direct patient handling, especially in primary care, while allowing less profit for suppliers and providers and high-end procedure specialists doing unnecessary work as well as charging unsupportably high prices. And that, my friends, would be a success.

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58 replies »

  1. @Joe: “Allan, I am underwhelmed both by your graciousness and by your discussion skills.”

    Joe, you are so easily underwhelmed. I merely commented on your op-ed with a different point of view so any repetition of certain concepts only meant that your op-ed hadn’t changed much.

    I don’t know why you are so upset at me. If my skills are so devoid of useful content you should have been able to decimate any of my criticisms. That you haven’t simply means that you were unable and that what was criticized was justly criticized. That doesn’t mean that some of your arguments don’t have merit. It simply means that you are unable to create reasonable arguments to defend your positions or generalizations.

    “Any future comments addressed to me will go unread.”

    Joe, I never asked you to respond. You responded because you thought you could show me and everyone else where I went wrong. You weren’t able to do that and you refused to grapple with the specifics that tear many of your arguments apart.

    That you fail to respond doesn’t mean I will fail to post. It will only mean that I will have a bit more extra time.

  2. Allan, I am underwhelmed both by your graciousness and by your discussion skills. You have simply re-asserted and re-assumed everything that you asserted and assumed before. You have failed the Turing test. Carefully looking over the nine pages of Pica type in my voluminous contract, I failed to find any clause that mandates that I respond to bots. Any future comments addressed to me will go unread.

  3. “Medical tourism” of this sort is not a “game-changer” on its own. But it is part of a pattern of strategies that employers are beginning to use more widely that will tend to rationalize prices, including bundling in general, and “centers of excellence” (much like the medical tourism strategy, but without the travel) and reference pricing (paying everything if it’s below a reference price, and making anything above the reference price a co-pay).

    All of these have been strategies for large employers who have the mass and resources to devote to making these large deals across markets. But as the strategies have become rapidly more popular in recent years, consultancies have sprung up to put together similar deals for much smaller employers, or buying groups of small employers. So I think this pattern of strategies has the potential for bigger impact in the future.

  4. @ Peter1: “rambling nonsense”? One has to question your knowledge and comprehension on this subject.

    OK here it is. Based upon your most recent statement you foolishly believe:

    Medicaid pays better than private health insurance. Let’s all give you a big laugh.

    Many people with good insurance lost their insurance and now are on Medicaid. You don’t believe that. Let’s laugh again.

    A person might enter a hospital with no insurance and leave with Medicaid. You don’t know that? What do you know?

    I’ll stop here because I am laughing so hard that I am pe-ing in my pants.

  5. You have things all wrong here at least where I am concerned. I am not squeezing everything into more marketplace vs more government. The same incentives of denial to treat can exist under total government control or in a free market. To clear up what I believe you misunderstood was that in an HMO the bad portion of the incentive not to treat might be improved by a marketplace because in a marketplace people vote with their dollars on a continuous basis.

  6. Joe, you use the term ideologically driven, but doesn’t that apply what you have written? In my opinion, absolutely …And no, the real science is not on your side though you will find some studies that are closer to op eds agreeing with you. Generalizations can be suductive when one offers what the reader wants to hear, but then proving those generalizations becomes very difficult when getting down to the nitty gritty where your arguments seem to fail.

    “Almost none of these 40 posts address the argument I am actually making.”

    First one has to get through the generalizations before they can discuss “half the jobs”. Maybe it should be half the jobs, maybe not. There are an awful lot of people studying healthcare problems, creating businesses off healthcare problems, lobbying with regard to healthcare problems, etc. all without directly effectuating care. In other words a lot of people are sucking off of big tuna and have an agenda that permits them and a lot of others to continue doing so.

    “ Allan dismisses my entire discussion of other ways “

    I don’t dismiss the alternate ways. I even stated how I felt the marketplace would enhance the efficacy of those other methods. What I did point out was that the incentives of certain methods were the same as the methods used by HMO’s and therefore we should recognize that we will face a lot of the same problems, maybe more so because of some of the legislation within the ACA. We don’t have to continuously prove certain facts, but if you would like to prove that incentives don’t matter then show us a legitimate studies that are specific.

    “little or no controls for the quality of care.”

    You have to prove that the controls regarding risk and quality of care are out of their infancy something that is yet to happen. So far we choose metrics that are pretty much yes and no which leaves out the complicated care where the problem exists.

    The problem today with regard to the incentives are almost the same as the problem during the Ware study. Yes, court cases changed the dynamics as did a few other things previously mentioned. That is probably why the popularity of HMO’s declined. Today we have new entities using the same INCENTIVES, but different laws (some of them that might increase the abuse)

    Changing the letters from HMO to ACO doesn’t change the concept or the incentives.

    So far we have discussed this in numerous posts, but to the present you have not produced any scientific studies that prove the basic incentives have changed or that the paper trail of not performing a needed task has suddenly appeared. I’ll wait for your proof, but understand I’m not interested in generalizations. I’m interested in the specifics.

    Enjoy the UK.

  7. More or less compensated care:

    “Where did you get that prediction from?”

    As you say, it is my prediction. There are plenty of good researchers that have added up the numbers and believe that will be the result. You are entitled to your own predictions. I should have said privately insured (not on Medicaid) though even with Medicaid that statement might turn out to be correct.

    Be careful in your calculations. Being uninsured before didn’t mean Medicaid wouldn’t pay the Medicaid rate for a person. Quite frequently people in the hospital are enrolled in Medicaid when they qualify so the hospital can be paid. Also remember that a lot of these people that are uninsured have money. When they are sued they often pay more than the going rate.

    Good insurance to Medicaid:
    Many people have lost their good insurance. Right? That insurance paid more than Medicaid. Right. In many cases that insurance was replaced by Medicaid. Right? If Medicaid pays less than their former insurance wouldn’t that reduce funds to hospitals?

    The sum total is that there may be less compensated care rather than more (excluding growth).

  8. “There isn’t less compensated care as likely we will have more people uninsured this year than previously.”

    Really? Where did you get that prediction from?

    “Additionally many of the so called new insured previously had better insurance that paid more. They will now be on Medicaid which pays less.”

    Medicaid eligibility has nothing to do with the ACA, it’s income and asset based – the poorest of the poor, especially in states that refused FED paid expansion.

  9. Peter1 you have to move up the blog until you see the first reply above the comment you are replying to.

    There isn’t less compensated care as likely we will have more people uninsured this year than previously.

    Additionally many of the so called new insured previously had better insurance that paid more. They will now be on Medicaid which pays less.

    “You seem to want higher compensation for Medicare, how will that drive down costs?”

    I didn’t say anything of the sort recently.

    However, some sorts of improved compensation would help drive costs down based upon the knowledge that certain reductions in compensation have likely increased costs. However, to be truly effective one has to permit more of a marketplace.

  10. Barry, it’s only a game changer if they can handle a large enough volume to affect local high priced markets – I don’t see that happening. It probably will have more of an effect on their local markets if other hospitals can’t get that contract business. It also appears it is only to fill in otherwise surgery down time and for large employer contracts. The long suffering individual market is still out of luck.

  11. Peter1,

    Famous medical centers like the Cleveland Clinic are offering employers, including Boeing and Lowe’s, very competitive bundled prices for profitable procedures like heart surgery. Pricing includes transportation for the employee / patient plus transportation and lodging for a spouse / companion. The employee can probably get better care than he might at his local hospital, even if it’s an academic medical center.

    The pricing may not be as low as marginal cost but it’s probably considerably lower than what it commands from insurers on behalf of patients in its local market. Since they presumably have some excess capacity, the idea is to attract patients that they would not otherwise treat. If local hospitals start to lose enough of these very profitable patients, it could lead to price reductions. At least that’s my take.

  12. “On one hand, on can certainly see markets whose economics are driven by heavy consolidation leading to rise in both utilization and prices, such as Idaho and southwest Georgia.”

    And my local area in Durham/Chapel Hill NC. Duke and UNC are dominate monopolies who drive prices up and buy small lower price clinics. As well we have a well compensated work force in education, research and tech that, like in real estate, drives prices up for the low(er) wage support people.

    “Cleveland Clinics, Mayo, and Johns Hopkins are reaching into regional markets across the country and siphoning off many of the most profitable patients for procedures and implants and such”

    You lost me there Jeff. Why would “siphoning off the most profitable” be good for lowering prices?

  13. @ allan,

    “Why not? You will still have the uninsured and there is a good chance there will be more of them. You will also have more patients on Medicare many that formerly had better insurance that paid more. Therefore, the hospital will likely be being paid less.”

    allan, from the hospitals point it means less uncompensated care. For Medicare If you mean we have an aging population, that would be correct. An aging population on Medicare is a market that hospitals will have to deal with. You seem to want higher compensation for Medicare, how will that drive down costs?

  14. > Consolidation

    I believe it was Peter1 who pointed out the difficulty that consolidation poses for any attempt to drive down prices and costs in healthcare. Keep in mind that this article assumes that attempt will work, and tries to explore what shape it will take.

    The actual effect of consolidations is more complex, and the evidence available does not easily line up on one side or the other. On one hand, on can certainly see markets whose economics are driven by heavy consolidation leading to rise in both utilization and prices, such as Idaho and southwest Georgia. On the other hand, the strongest bull markets in healthcare costs over recent years have been in the most fractured markets, such as Dallas, Las Vegas, and Atlanta. And Scott and White dominates the regional market around Temple, Texas, but uses that dominance to help keep that region’s cost inflation well below that of the rest of Texas. The existence of large consolidated multi-regional chains like Christus, Catholic Health Initiative, Ascension, Banner, and Bon Secours do not seem to have a simple cost effect one way or another in their markets. So the relationship between market consolidation and costs is not simple.

    One complexity is the way large medical combines with big brands, such as Cleveland Clinics, Mayo, and Johns Hopkins are reaching into regional markets across the country and siphoning off many of the most profitable patients for procedures and implants and such, often combining their reputation for quality with actual lower prices and other cost savings for employers. This obviously punctures the market dominance of the regional players and will over time force them to bring their prices and costs more in line with more efficient players across the national market.

  15. Third: Here as in many other places, by Allan and by tediously numerous and repetitive throngs of posters elsewhere, my arguments are tortured and re-molded and beaten until they can attacked as being arguments for “more government” and against the “free market.” They are not. The interactions between governments at all levels and the healthcare marketplace are irreducibly complex. Arguments about the effectiveness of various incentive models on health outcomes and cost simply cannot be squeezed into the “more government” versus “more free market” mold without doing such fundamental violence to the discussion as to render it dead on arrival.

  16. Hmmm. How does one respond to such a long set of ideologically driven posts that disregard the scientific literature as well as the actual arguments I am making while attacking my intellectual integrity?

    Lightly, I would guess. I am on a summer writing retreat in the Midlands of the UK, and don’t intend to spend all of it arguing online.

    But I will address a few points.

    First: This article is not about whether various risk-based models, wisely executed, can powerfully reduce costs. My arguments on that are elsewhere. This article says, if we assume that it is possible to do that, what is the shape of that cost reduction? Specifically, does it mean half as many jobs. Almost none of these 40 posts address the argument I am actually making.

    Second, Allan dismisses my entire discussion of other ways of taking on risk and getting paid for it by citing a several-decade old study of HMOs. But “Non FFS” ≠ “HMO”. It especially does not equal so-called “HMOs” as they were defined and managed several decades ago, in which they were explicitly designed to manage cost entirely by lowering utilization, with little or no controls for the quality of care. Many models explicitly paid primary care docs to “just say no.” The Ware study simply does not provide us any insight into the possible effectiveness of the many different ways of not being strictly fee-for-service. Nor can we bunch all those ways together and state for argument that the way they manage risk are all the same as the HMOs studied by Ware et al. That is simply not true, and when we look at individual attempts at re-distributing risk, their effectiveness or lack of it) seems to lie in the details of how incentives are re-distributed — the very data that you drop out at the beginning of the argument by simply imagining that their incentives are all the same.

  17. @Peter1: “After ACA the uninsured should not be the problem.”

    Why not? You will still have the uninsured and there is a good chance there will be more of them. You will also have more patients on Medicare many that formerly had better insurance that paid more. Therefore, the hospital will likely be being paid less.

  18. Peter1,

    A fairly significant percentage of uninsured patients treated at NYC’s Health and Hospitals Corporation safety net hospitals are undocumented immigrants and thus not eligible for subsidized health insurance under the ACA. So, that problem will persist. Also, Medicaid reimbursement rates are considerably below Medicare rates and most hospitals claim that Medicare rates don’t cover their full costs, especially for outpatient care. Medicare does pay quite well for some procedures, notably surgeries, but not for others.

    I think most hospitals have at least a rudimentary sense for what their costs are by department. Chargemaster rates have nothing to do with anything. They are arbitrary markups above costs and don’t have much impact other than on the uninsured and insured patients who find themselves out of network. Decades ago, chargemaster rates actually were a legitimate reflection of costs to provide care. When negotiating reimbursement rates, the large insurers generally negotiate up from Medicare these days and not down from the chargemaster.

    Some of our largest cities, including NYC, still have excess hospital capacity despite numerous closings over the last 20 years or more. Often state, county or city governments will provide subsidies to keep these hospitals afloat well after they should have closed because of pressure from unions to protect jobs and pressure from those who live near the hospital who don’t want to travel even a short distance farther to access a competing hospital. As more and more care can be safely provided in an outpatient setting, the need for inpatient beds will continue to decline. As that happens, the system will shed excess and unnecessary costs.

  19. @ Barry,

    “In the inner cities, the biggest financial problem faced by the safety net hospitals is a poor payer mix. For New York City’s Health and Hospital Corporation’s 11 hospital system, for example, 35% of its patients are uninsured and another 30% are on Medicaid which pays well below costs.”

    Barry, somethings wrong when we want lower hospital costs but say they cannot exist without charging more than Medicaid/Medicare will pay. After ACA the uninsured should not be the problem. Profits need costs to justify, I doubt a hospital’s costing system as it seems internally generated bunk – hence the chargemaster.

    As far as I know this is the only country that reimburses hospitals based on the patient’s economic status. Inner city hospitals serving the largely poor in other western countries would not be forced to close unless there were viable options for those citizens.

    Here is the issue in Ontario Canada.

    http://www.thestar.com/news/canada/2013/05/02/ontario_budget_will_see_more_hospital_downsizing_and_community_upsizing_health_minister_says.html

    Of course no way for any hospital there to bully the reimbursing entity as it’s the government and it’s accountable to the voters.

  20. Barry, my computer is on the blitz so I will make this short. Pardon any errors.

    In answer to your question: There are many ways this can happen.

    Medicare has to authorize payment and the number to each facility so they have control.

    The CON.

    PPACA Section 6001

    Different agencies exert control in different ways. In sum total These and other things lead to a diminution of Independent outpatient clinics.

    With regards to costs that you mentioned, try looking at what differentiates the healthcare sector from other sectors of the economy. In those sectors who is responsible for paying the costs of food, clothing and housing? Who purchases their life insurance, car insurance, and liability insurance?

  21. Cut costs not Jobs!

    Recently we signed a Revenue Cycle Management project with a Texas based hospital. There were only 3 billers processing entire claims. Hence, the hospital was losing revenue, since only 3 in-house staff were transferring claims of 17 physicians. The Hospital management contacted us and we’ve helped them reduce their workload and increase their billing efficiency. The management has retained their in-house billers and now they enjoy working with us too

  22. allan and Peter1,

    I’m not sure I understand how the government is preventing new surgical centers from opening or how widespread it is. Assuming the project can get zoning and permit approval from the town where it is to be built, what is the government entity that has the power to say no and how widespread is that practice across the country?

    Unlike electric and gas utilities, which are natural monopolies and are regulated by government as to the rates they can charge, hospitals are not natural monopolies. Hospitals have been closing for decades. Shortly after World War II, the U.S. had 10 hospital beds per 1,000 of population. Now the number is about three and the long term trend is down. Better drugs, less invasive surgical techniques that permit faster recoveries and the ability to perform more procedures in non-hospital settings are all contributing to the declining need for hospitals.

    I think an average occupancy rate in the 80%-85% range is an efficient operating level for a hospital. Some surge capacity is needed but there are quite a few hospitals that operate at very low occupancy rates, especially in rural areas. Perhaps many of those could be converted to emergency rooms with more serious cases transported by helicopter to a full service hospital further away when needed.

    To deal with the higher cost hospitals, in addition to price transparency, I would like to see insurers be fully able to contract with some hospitals within a system but not others. Many powerful hospital systems today require insurers to accept all of their hospitals, at least within a state, into their network or none of them. I also like tiered networks that require patients who want to go to a higher cost facility because it has more amenities unrelated to medical outcomes to pay at least enough of the incremental cost out-of-pocket to get their attention.

    In the inner cities, the biggest financial problem faced by the safety net hospitals is a poor payer mix. For New York City’s Health and Hospital Corporation’s 11 hospital system, for example, 35% of its patients are uninsured and another 30% are on Medicaid which pays well below costs. It’s hard to make ends meet under those circumstances and that helps to account for why many of these hospitals are overcrowded, understaffed, and in sub-par physical condition.

  23. @Peter1: ” investor hospitals are not created to lower costs.”

    Of course not. They are there to make a profit. In the end everything else being the same the hospital that can do its business for a lower cost is the survivor. That expensive hospital would never have been built if the investors didn’t see a need. If there turns out to not be a need the investors are out of money, no one else.

    I have been in public hospitals and under most circumstances I would choose a newer privately owned hospital that has new equipment. I’ll set you up in a bed at Kings County Hospital Brooklyn and we will see how satisfied you will be.

    “Show me how?”

    For colonoscopy under Medicare the facility charge for a hospital is reimbursed almost double the reimbursement paid to an outpatient surgical center. The government is preventing new outpatient surgical centers from opening up.

    Billing machines make no money unless someone is paying them.

  24. allan, investor hospitals are not created to lower costs. They do however provide grander and grander more expensive high overhead and high cost facilities to “sell” to prospective patients. Those marble entrance ways don’t provide health care, just costs.

    Hospitals should be considered utilities with controls that reflect community goals not investor goals.

    “yet the federal government is trying to reduce the number of outpatient facilities.”

    Show me how? Every time a health care facility is created a billing machine is also created. Maybe lower costs, but maybe not reduced billing volume.

  25. Peter1, the healthcare monopolies you are talking about are government created. I provided you with one of the best examples of monopoly, IBM accused of such by the US government and European governments. Multiple suits. In the end their monopoly if it ever existed wasn’t broken by government. It was broken by the competitive marketplace.

    Utilities can be looked at in numerous ways, so one might make an argument that they are a true government good that individuals could not adequately provide while at the same time protect from bystanders. However, their monopoly is also based upon government control. Am I permitted to go into competition with them? No.

    “CON laws are an attempt to allow full utilization of existing hospitals. If all beds are full then the cost per bed can be lower. ”

    No!

    We can have full utilization of all hospitals by blowing a bunch of them up, but then we have inadequate beds, but by your logic lower cost per bed. Who knows how many beds are actually needed? No one.

    How does a CON law help the situation? A group of investors intend to create a facility more modern and better than the present one. If they fail they lose their own money. If they succeed they make money. What you are really doing is creating monopolies for only certain entities are permitted to open cardiac surgical departments where a lot of money exists to be taken. Those that can’t get that money don’t generally do as well.

    The reason we have unwanted monopolies is due to the policies you support, yet you are the one complaining about monopolies. That is sort of odd.

  26. Barry: “once CMS completes its phase-in of payment reductions in 2016 or 2017, it will remain a very viable and growing business”

    What you say may or may not occur. A lot depends upon how the government manages healthcare affairs. The experts have been predicting all sorts of things for about 50 years and for the most part those that thought they had a good plan were wrong. I don’t make such predictions. I look at the incentives, economic principles and and the money trail. As they change my opinion changes.

    You are looking at it from the profit point of view. I am looking at things from the medical point of view and where the best care can be obtained. If the insurers continue to be tied to government and government permits them they will have good profits. If government suddenly changes its views toward insurers they may suddenly find themselves in a hole similar to the hole brokers now are trying to climb out of. Let’s say government converts the ACA to Medicare for all. Those insurers close to government will oversee the program. The rest will die or at least their health insurance portion will die. That is one of the reasons things are so anti-competitive. Stock brokers that make these predictions won’t be as terribly affected as they make money on both the purchase and the sale.

    I am quite aware of how all businesses and people manipulate their circumstances to meet or not meet the requirements set by government, but I am interested in healthcare not all the wasteful and temporary manipulations made because of too much government control.

    Stop looking at month to month numbers. They might be good for business, but they are not good for setting policy. That is what trends are for.

  27. Mr. Carroll says:

    “I don’t know about how supplemental plans work in Massachusetts as Dennis Bryon described or even what supplemental plans up there look like. The standardized supplemental plans with 10 different specific benefit packages to choose from are subject to medical underwriting as I described earlier unless you get one as soon as you’re eligible or after losing employer coverage. Also, Medicare has an open enrollment period that starts in October each year for a reason. You can’t switch plans at will outside of the annual open enrollment period unless you qualify under one of their life changing event exceptions.”

    I am not sure why I am mentioned in this paragraph. I did read the back and forth between allan and Mr. Carroll and I still can’t figure out how anything I have written elsewhere applies… and I have written nothing here?

    But if it somehow matters to this discussion in some way that I cannot figure out, there are two basic types of Medigap plan in Massachusetts, not the 10 available in most states. The very expensive type covers all the co-pay/deductible gaps in Original Medicare and adds on to the limited number of per-incident (but not lifetime) acute-care/skilled-nursing days covered by Original Medicare. The one that is just expensive provides the same gap coverage as the very expensive one but does not cover the Original Medicare Part A and B deductibles. Neither offers an annual out of pocket spending limit. Enrollment is both continuously open and guaranteed (leading to all kinds of game playing around scheduled surgeries, etc/)

    Minnesota and Wisconsin also offer non-standard Medigap plans. Many but not most states provide guaranteed issue of Medigap at other times besides first eligibility (that is, the beneficiary is not subject to medical underwriting in many states). Some states but only a few offer continuous open enrollment.

    Open enrollment for Medicare runs from January to March all over the United States, and does not begin in October as the author states.

    I presume the author was referring to public Part C Medicare Advantage, not Medicare, and although open enrollment is probably not continuous for most people on such plans, it is probably open to a greater extent than you think for close to half the people on Medicare. Anyone on Social Security Extra Help can change plans monthly if desired. Anyone on a state pharmaceutical assistance program can change twice a year including during the October-December period. Anyone can upgrade to a 5-star plan anytime (but such plans are not available in every country). These three categories add up to almost 50% of the market.

    And please remember that a person that wants to sign up for a public Part C health plan has to first sign up for Parts A and B.

    Again, since I did not initially comment on this post I am not sure why I was referenced. But those are the facts relative to Medigap and Medicare Advantage in Massachusetts and — where indicated — elsewhere.

  28. “Monopolies without government involvement have limited life spans for when they raise prices that incentivizes other companies to enter the sector and compete.”

    Limited life spans can mean decades. The investment (and rational) in breaking a hospital monopoly where lower prices with an already captured cliental would be very hard to justify to investors. Not one hospital system here (or anywhere else I doubt) advertises lower prices.

    We have a power monopoly here already with a single provider. However it has oversight from a utilities commission (although weak) that must approve rate increases. Are you saying that government oversight should not be part of our power monopoly as it will die a natural death if left alone? Who is going to string the additional competing power lines? Maybe you mean people can just turn their power off if prices get too high and that will force lower prices – not likely. Duke/Progress power is promoting lower usage but raising prices as they do it to benefit their investors.

    CON laws are an attempt to allow full utilization of existing hospitals. If all beds are full then the cost per bed can be lower. Also in health care two of something does not split the business in half – it doubles the business and increases health spending.

    As I mentioned Duke and UNC hospitals here continue to expand and gobble up local clinics or establish their own at hospital pricing – insurance has little control over price reduction. The few cash pay customers are certainly not enough to act to lower prices.

  29. My bottom line on Medicare Advantage is that once CMS completes its phase-in of payment reductions in 2016 or 2017, it will remain a very viable and growing business, at least for the larger insurers in the market. Medicaid, for its part, also continues to grow as more states move beneficiaries into managed Medicaid from unmanaged Medicaid and are saving money in the process. On the employer side, fully insured risk business continues to decline as more employers shift to (administrative) fee based self-funding.

    It’s also interesting to note that 2014 is the 5th straight year that overall Medicare spending is coming in lower than the budget experts estimated at the start of the year. For the first nine months of fiscal 2014, according to the most recent CBO Monthly Budget Review, Medicare spending is up only 1.2% despite roughly 3% enrollment growth. The current standard Part B premium of $104.90 per month is over 9% below its 2011 peak of $115.40 and is likely to decline again next year.

    If eliminating the tax preference for employer provided health insurance proves to be politically non-viable, even as part of a broad based tax reform effort, private exchanges will likely continue to grow. If state regulators will eventually eliminate the confidentiality agreements between insurers and providers that currently preclude the disclosure of actual contract reimbursement rates, then we can get to full price transparency which would be extremely helpful, I think, for both patients and referring doctors.

  30. OK Barry, I think we are on the same page. You really are talking about private exchanges both ACA and non-ACA types. Exchanges have been around for quite awhile. They are essentially middlemen that don’t actually carry the risk of the insurer.

    I remember the IMX exchange and a few others I think from the 1980’s, but we are still here today debating healthcare reform and how to fix all the problems. I think IMX is gone.

    To be honest at this point of the discussion it doesn’t matter to me what type of marketing or middlemen are used to provide healthcare as long as the marketplace is preserved meaning no coercion along with a level playing field. To date we hear a lot of promises, but they never seem to pan out except perhaps for the HSA that beat expectations.

    What confuses me about what you say is that on the one hand you say you would like to end the tax deduction and I believe third party payer as well and in the next sentence you talk about private exchanges that have depended upon both the tax deduction and third party payer. (I think almost all economists agree that a third party payer system is a bad system.)

    We will never get a healthcare solution if principals cannot remain stationary for more than a few hours. That is what happened with drawing up the ACA. No principals and a mutt of a plan that will never win a prize for competence.

    “On Medicare Advantage, when listening to the earnings conference calls of the two largest market participants, UnitedHealth Group and Humana, they say that the payment cuts, especially over the last two years, have largely eliminated the payment premium vs. FFS Medicare, at least in most of the markets they participate in. ”

    You listened to earnings calls in particular markets. I don’t know how honest these calls are. I have participated in quite a few myself and take these things with a grain of salt. I quoted kff.org for the exact law and quoted what they said. Do you think kff.org was in error?

    “Since they are subject to the 85% minimum medical loss ratio rule and they target their pretax profit margin at 5%, any excess profitability gets plowed back into more benefits for members or lower premiums. ”

    You think that is all that is involved?
    1)Has the MLR ever been proven to work? No.
    2)Has the MLR been tried before? Yes and it didn’t work in the states where it was tried.
    3)Were rebates paid? Yes, but what was the premium money doing for those 18 months? Making money. In other words the insurers had an interest free loan.

    I suggest you start concerning yourself with a set of principals to stand by and they you start looking at incentives.

  31. allan,
    Private exchanges are comparatively new and are starting to gain traction with employers. The early interest is in providing retirees with health insurance options on a defined contribution basis but I believe Walgreen is implementing the approach for active employees as well. The private exchanges are run by the large benefits consulting firms including Towers Watson, Hewitt Associates and Mercer. The advantage for insurers is that they get access to hundreds and sometimes thousands of employees at a time which saves money on marketing and administrative costs as well as brokerage commissions which allow them to offer premiums that are lower than they would be if they were selling policies one at a time in the regular marketplace.

    I do think employees who get health insurance through an employer and those who buy it on their own as well can be educated to appreciate that 80%-85% of the insurance premium they pay is for medical claims and that some providers, especially hospitals, are paid far more than others for the same work with no difference in quality. If they tell their doctor that they care about costs because it affects their premium, the doc will presumably help them get the care they need from cost-effective high quality providers. I made it clear to my primary care doctor that I care about costs even when taxpayers or insurers are paying and he’s a cost conscious practitioner to begin with.

    On Medicare Advantage, when listening to the earnings conference calls of the two largest market participants, UnitedHealth Group and Humana, they say that the payment cuts, especially over the last two years, have largely eliminated the payment premium vs. FFS Medicare, at least in most of the markets they participate in. Since in any given year, the healthiest 50% of seniors account for only 4% of Medicare costs, it’s possible that they could still wind up with higher than expected profitability. Since they are subject to the 85% minimum medical loss ratio rule and they target their pretax profit margin at 5%, any excess profitability gets plowed back into more benefits for members or lower premiums. Since there are additional benefits for seniors, payment comparisons are not apples to apples as they would be if the benefits were identical. Of course, if benefits were identical, including the 20% coinsurance and no out-of-pocket maximum liability, there wouldn’t be any reason to choose an MA plan.

  32. Monopolies can always occur and we always hear claims that monopolies exist. It is not something the free market desires. But, what happens when a monopoly occurs? If the monopoly causes prices to fall I doubt you would be worried so one can only guess that you are worried that with a monopoly we will have higher prices. Monopolies without government involvement have limited life spans for when they raise prices that incentivizes other companies to enter the sector and compete.

    We heard a lot of complaints about the IBM monopoly. Where is that monopoly today? The reason we see the development of monopolies in the healthcare sector is government creates rules and regulations that keep out competition.

    Why do all sorts of procedures have to be done in the hospital? Did you ever hear of CON laws (consideration of need). They create monopolies. CON laws are laws created by government. You realize that outpatient procedures such as colonoscopy are much less expensive in outpatient centers yet the federal government is trying to reduce the number of outpatient facilities.

  33. “I’ve said all I’m going to say on the Ware study.”

    Barry, you need not say more for I quoted from the body of the study and provided more than enough evidence that what I have said is valid and should be widely recognized.

    We both agree that price transparency is important, but it doesn’t become important to the individual when he doesn’t have control over the dollar. If patients don’t care about prices neither does the physician treating them. Patients, for the most part, are not directly involved when a third party payer system exists.

    ACO’s may try to save money just like HMO’s following the dictum of one early HMO that had written in its guide for new employees “delay in treatment means profit”. If one saves money by denying treatment I wish the money would go back to the patient.

    Medicare Advantage: Are you now agreeing that Medicare Advantage is being paid more per capita than traditional Medicare based upon the law?

    MA does attract patients with below average risk and you seem to be agreeing that MA continues to be paid more based upon lower risks. Is that correct?

    You realize of course that patient gaming exists in the system as well. There are msa MA plans. While healthy, people add to their bank accounts. When sick they change to traditional Medicare keeping those bank accounts.

    “I don’t have a problem with people being able to buy their own health insurance plans that best meet their needs but I think this is a separate issue from 3rd party payment for healthcare.”

    We agree.

    Third party payer could be ended tomorrow if all people were offered the same tax deductions whether they chose the care offered by their employer or chose their own.

    Patient choice of insurance plans permits tailoring insurance to the patient’s needs, keeps prices down, reduces moral hazard and permits innovation along with a host of other things.

    ” I would address the tax issue by getting rid of the tax preference for employer provided health insurance rather than extending tax deductibility to individuals who buy their own coverage.”

    That means you would end tax deductibility of healthcare. I can’t disagree, but that idea which is the best idea is probably not politically viable. If we could do that then government would be out of the healthcare business and involve itself mostly outside of the marketplace (age <65) by targeting benefits to those in need.

    I like your idea of budget neutrality.

    I agree with your idea of defined contribution though I am not certain how you define 'private exchange'. Defined contribution could be via dollars, but the only reason for that would be to gain a tax deduction which contradicts what you want above. A higher salary in lieu of a defined contribution leads to the same end point unless taxes or special accounts are being considered.

    The problem being created by ending what we are calling community rating is that the older groups will pay a higher premium. In general older people earn more and at a certain age no longer have kids to support that eases the burden. However the problem remains. Instead of essentially taxing the individual within his premiums one could use general revenues to provide a subsidy to all helping everyone purchase insurance and a targeted subsidy to those in need. That only has minimal impact on the marketplace unless the subsidies are being used as redistribution payments. Other partial or complete solutions can be managed with insurance plans that insure to keep premiums level or with things like HSA's where savings occur when young and are spent when the person is old.

  34. The reason I think price transparency is important is that it would make it a lot easier for referring doctors to identify the most cost-effective high quality providers in real time and send their patients to them. If the docs are part of an ACO or participate in a shared risk / shared savings insurance contract, they can benefit financially by keeping costs below a targeted level just by sending patients to less expensive facilities as opposed to withholding care altogether. For care that can be scheduled in advance, giving patients the ability to price shop would be helpful but I’m not sure how many would actually do it unless they have meaningful skin in the game based on a high deductible or tiered network insurance plan.

    On Medicare Advantage, to the extent that MA plans are being paid somewhat more than the care would cost under standard FFS Medicare, I don’t think it’s because they can’t manage care or they’re paying providers significantly more. I think it’s attributable to attracting a population with below average risk scores. My understanding is that the average risk score for participants in the largest insurance plans is 0.80 to 0.85 with 1.0 defined as average risk. While lower risk scores mean lower payments from CMS, risk scoring is still a very imprecise science that still tends to overpay for the healthy and underpay for the sick.

    I don’t have a problem with people being able to buy their own health insurance plans that best meet their needs but I think this is a separate issue from 3rd party payment for healthcare. I would address the tax issue by getting rid of the tax preference for employer provided health insurance rather than extending tax deductibility to individuals who buy their own coverage. I would offset the loss of the employer tax preference with lower marginal income tax rates and a higher standard deduction to ensure that the change is revenue neutral to the federal government.

    I would also like to see employers move to a defined contribution model for employee health insurance which would let employees choose from a menu of options offered through a private exchange. One problem though is that current employer coverage is, in effect, based on pure community rating which means that a young employee pays the same contribution toward the premium as an older employee for similar coverage. If the private exchange policies used the same 3 to 1 maximum age rating band as the ACA plans use, then employers would have to vary their defined contribution by age as well.

    I’ve said all I’m going to say on the Ware study.

  35. But monopolies, or at least reduced competition, are a creation of a “free” market you embrace. Do you want government to determine that private companies cannot be sold a bought? Here in NC the two largest hospitals in the region have formed alliances or outright purchased smaller hospitals. They have also bought formally small affordable clinics and applied hospital price gouging to the operation of services – all within a free market.

    How does the ACA promote or not promote large entities? Health care is a very complex industry requiring large investments and insurance will not survive without a critical mass of subscribers. Mom and pop corner hospitals are just not be viable.

  36. Dealing with the changes in healthcare that you mentioned:

    You have some good points, but we have to deal with the limitations we have. Medical care has that very problem, but nonetheless decisions regarding treatment have to be made despite conflicting studies and things that weren’t studied in the recent time frame.

    You like the idea of the HMO so it appears you wish to put aside all the things known about them. For you the HMO may be the best thing, but for others it may not be. That is why I believe that all types of plans should compete with one another on a level playing field. That type of competition would go a long way to solving some of the problems I see with HMO’s.

    As far as Kaiser goes, one should not hold them in awe. I don’t find Kaiser a pleasant organization and it has had problems extending itself to other states in part due to certain ways they manage their affairs. California is good for them as they have a lot of political pull. The state also has micra and settlements of suits against Kaiser are most often settled through arbitration where the arbitrator likely favors Kaiser and the unfavorable results (to Kaiser) are sealed.

    I won’t deal with the other statements as they are voluminous and not proven. Some are part true and others are just too thin to comment on. However, I would like to touch upon the additional payments for Medicare Advantage. At the present time they are still relatively high. I so happened to have agreed with the Obama administration on this issue that MA extra benefits should be cut. I didn’t agree with the way the money was to be used.

    “The ACA of 2010 revised the methodology for paying plans and reduced the benchmarks. For 2011, benchmarks were frozen at 2010 levels. Reductions in benchmarks will be phased-in over 2 to 6 years between 2012 and 2016. By 2017, when the new benchmarks are fully phased-in, the benchmarks will range from 95% of traditional Medicare costs in the top quartile of counties with relatively high per capita Medicare costs (e.g., Miami-Dade), to 115% of traditional Medicare costs in the bottom quartile of counties with relatively low Medicare costs (e.g., Boise).

    The ACA specified that plans with higher quality ratings would receive bonus payments added to their benchmarks, beginning in 2012. The ACA also reduced rebates for all plans, but allowed plans with higher quality ratings to keep a larger share of the rebate than plans with lower quality ratings. A CMS demonstration was implemented in 2012 that superseded bonuses specified by the ACA, raised the size of the bonus payments, and increased the number of plans that would receive bonus payments, providing an additional $8 billion in bonuses between 2012 and 2014.”

    http://kff.org/medicare/fact-sheet/medicare-advantage-fact-sheet/

    One last comment. Price transparency isn’t a big question for those that are insured though with recently increased deductibles we might see more patient concern. Third party payer negatively affects price transparency. Don’t confuse third party payer with a person that buys insurance for themselves.

  37. Barry, yes, your quote is correct, but how significant is that finding not mentioned in the conclusions and why could that finding be possible? (quotes within my response are from the body of the actual study)

    Studies did not note appreciable differences after 1 year. “Were these studies too brief to draw conclusions about health outcomes? Supporting this explanation, significant differences in health outcomes observed between the FFS and HMO systems after 4 years of follow-up in the MOS were not statistically significant after 1 year. The importance of a longer follow-up is underscored by the observation that the 4-year statistical models reported here explained twice as much of the variance in patient outcomes as did the same models in analyses of 1- and 2-year outcomes (MOS unpublished data).”

    I believe they initially didn’t find any appreciable difference between HMO and FFS because the more years studied the more apparent the problems became for HMO patients. (One has to read the entire study to understand what it is really saying. For those not doing so I will coin the the term ” a Pelosi mistake”, but I appreciate your effort and your intellect.

    “Those in HMOs experienced an average decline of -2.0 in physical health; those in FFS improved 5.4 points, on average (P<.001)." I and others have concluded that with time the differences become greater and greater as partly demonstrated by the study. People with money have all sorts of ways to ameliorate the problems associated with HMO's including switching back to Medicare FFS and gaming the system. That was done quite frequently. I cannot say with certainty how that problem was adequately treated by the study. However, we do know that most people at some time in their life become sick so whatever problem is faced by the elderly and chronically ill poor logically would have an effect even on those that are not poor or elderly. We need a lot longer study where people are unable to change back onto Medicare FFS or obtain care in another way outside of the HMO.

    Results and conclusions are two different things. You provided a result. I provided a conclusion. If someone rolls the dice 11 times and snake eyes pops up 5 times one might conclude that the dice were weighted. However, if one were to note that one number popped up twice that would be a result (statistically that is exactly what happens), but wouldn't mean the dice are loaded.

    Why do you think the conclusion stated "During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems" and didn't contain what you would have liked to have seen? I repeat, results and conclusions are two different things.

  38. allan,
    In the 5th paragraph on the first page of the summary labeled results, the last sentence reads as follows: “For patients differing in poverty status, opposite patterns of physical health and for mental health outcomes were observed across systems; outcomes favored FFS over HMO’s for the poverty group and favored HMO’s over FFS for the non-poverty group.”

    Even if your original assertion is correct, I dispute your contention that the results hold today solely because of the payment incentives. While I’m the first to argue that incentives matter, we have care management tools today that we didn’t have in the late 1980’s. Kaiser, for example, which I assume was included in the LA portion of the study, has extensive electronic records today which it didn’t have then. We didn’t even have e-mail in the late 1980’s and cell phones were early in their development cycle and expensive.

    On the mental health front, I think we have many more effective drugs to treat depression than we had in the 1980’s. I also think patient satisfaction is taken more seriously today through Press-Ganey scores and other approaches and post utilization audits can help to ensure that the standard of care was delivered. All things considered, while the incentive to withhold care to save costs and enhance / preserve profitability is higher with bundled payments, I think the risk to patients implied by the Ware study is overstated in today’s environment.

    Separately, CMS has been cutting payments to Medicare Advantage providers for several years now with the cuts implemented in 2013 and 2014 being quite significant. My understanding is that we are getting close to parity in payments and could well be there by next year with the possible exception of rural providers. It’s also important to note that MA plans offer enhanced benefits albeit it with more limited choice of providers and eliminates the need for a supplemental plan. This makes MA plans especially attractive to lower income beneficiaries.

    I don’t know about how supplemental plans work in Massachusetts as Dennis Bryon described or even what supplemental plans up there look like. The standardized supplemental plans with 10 different specific benefit packages to choose from are subject to medical underwriting as I described earlier unless you get one as soon as you’re eligible or after losing employer coverage. Also, Medicare has an open enrollment period that starts in October each year for a reason. You can’t switch plans at will outside of the annual open enrollment period unless you qualify under one of their life changing event exceptions.
    Finally, I don’t think 3rd party payment is the problem per se. I think the lack of price transparency for both patients and referring primary care doctors is the problem. I also think people need to have health insurance unless we are prepared to let them die at the emergency room door if they don’t. Otherwise, we will have free riders.

  39. Peter1, you responded to me, but that quote was from Joe Flower.

    You are absolutely right. Monopolies are anti-competitive and inhibit the marketplace. They are not considered desirable. However, on the other side of the table, governments like to deal with large entities rather than multiple smaller ones. The ACA promotes large entities over smaller entities and new entrees that might be more innovative.

  40. “The lowest prices in any given market are likely to rise somewhat, while the high-side outliers will drop like iron kites.”

    Only if you believe consolidation is not a factor in your perfect marketplace mindset.

  41. @Joe: “Internal costs drop: Under these pressures, healthcare providers will engage in serious, continual cost accounting and “lean manufacturing” protocols to get their internal costs down.”

    That is exactly what the marketplace does. The problem is that we have a third party payer system so the party receiving care is not the one paying for it. That means cost control is out the window unless a better mechanism is used.

    If the individual had the same tax deduction as he would as an employee and could purchase insurance he would be purchasing insurance that was cost effective and able to provide him with the care he desired.

  42. @Joe: “Prices rationalize: As healthcare becomes something more like an actual market with real buyers and real prices, prices will rationalize close to today’s 25th percentile. The lowest prices in any given market are likely to rise somewhat, while the high-side outliers will drop like iron kites.”

    Joe, I am glad to see that you are looking towards a free market.

    What doesn’t exist in a free market:
    1)coercion
    2)third party payer
    3)mandatory insurance
    4)monopolies or near monopolies

    All of these are features of the ACA except the ACA strangely enough moves slightly away from third party payer, but not sufficiently away.

    You are right though in one aspect. By using a real free market prices would drastically fall.

    The reason we don’t have real prices is because government has prevented a real free marketplace from functioning. Unfortunately from what I have read from your writings it seems that you rely upon government to effectuate what you believe to be good policy and because of that the marketplace is destroyed.

    Suggestion: All your ideas of different ways of serving the public are reasonable ideas. You should have your HMO/ACO if that is what you want, but, for a marketplace to exist all these ideas must be left to compete on a level playing field (it forces any choice you made to perform better) That means no coercion or mandates. That also means adjusting the tax codes so that the individual gets the same tax treatment as an individual that he would get as an employee.

  43. Please post a rationale for your assertions. “I was at a dinner party and we solved the healthcare problem.” Is not a credible discussion for this forum.

  44. Drivel. Hey why don’t we cut healthcare in half by uh uh oh cutting healthcare in half.

  45. Barry, I note you never responded to my request for proof of your statement on Ware. Perhaps you missed the post below. If you don’t answer the question then I will assume that what you say is faith based, like religion, something we don’t like to question. But then don’t act as if your comments represent science. Act as if they were religious.

    You said:

    “Ware also showed that non-elderly and non-poor patients did better under the HMO even then.”

    Show me. I want to learn. I read the study and never saw that conclusion though I did see: “During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems” Are you faith based or do you rely upon fact?

    Take note I don’t want to deny you the type of care you prefer, but it appears that you mind if I choose my type of care. I also don’t like paying Medicare Advantage about 15% more than FFS Medicare and I don’t like when your group unhappy with the denial to treat then change to FFS Medicare to get the procedure. You can afford to pay the extra bucks instead of unfairly taking it out of the system. I also am unhappy that the last time around when risk was applied, the group with the incentive to deny care (HMO) was paid about 1/3 more than they should have been paid.

  46. In the context of patients with a chronic disease or condition, “keeping them healthy” really means managing their care as efficiently as possible in order to minimize ER visits and hospital admissions. This can include closely monitoring weight and blood pressure with the patient reporting results daily. It could mean being accessible via phone or e-mail to answer questions and concerns on a timely basis. Such communications are not generally billable under a fee for service payment model. As Joe’s essay noted, the super utilizers need a lot of attention and since the most expensive 1% of patients account for 20% of costs in any given year and the most expensive 5% account for 50% of costs, the cost of special attention for these patients is easy to justify and should pay off in fewer ER visits and hospital admissions.

  47. Part of this paradigm shift is that savvy health care organizations may try to attract better “risks’, e.g., those patients who are more likely to be compliant with treatment and to have better results. It remains to be seen if risk adjustment is truly aggressive enough to fully offset the cost differences. Very solid piece!

  48. The Ware study holds today especially since it is dealing with incentives that remain unchanged. There is no credible study to refute the Ware study. This study can be used today and anytime one makes ridiculous claims.

    “Ware also showed that non-elderly and non-poor patients did better under the HMO even then.”

    Show us. Quote the data. Take note that in the conclusion “During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems” there was no mention of what you say and for good reason.

    “how many were spared costly and possibly painful treatments ”

    All of this is voluntary so it is up to the patient to make that choice. It is not up to an institution that makes a profit from his death to make that decision. There was and probably still is some concern regarding an HMO that owns a hospice. Claims have been made that patients were pushed into hospice and left to die to save the HMO money.

    I believe you have every right to choose the type of care you wish. However, the right to shift back and forth to Medicare FFS should be severely impaired so that Medicare doesn’t get dumped upon when a patient realizes they will not be getting the needed care in their HMO. Rules have made this change more difficult, but not difficult enough.

  49. What does it mean for a provider organization to “keep you healthy?”

    What does it mean to keep an obese diabetic patient with hypertension, coronary disease, COPD, and depression healthy?

    I honestly don’t know if doctors have the ability to keep their patients healthy.

  50. allan,

    Wasn’t that Ware study you keep citing from the mid-1980’s and hasn’t the medical world changed a lot since then? Data is better. Technology is better. There is greater ability to do more for the patient in the home and monitor progress remotely. Ware also showed that non-elderly and non-poor patients did better under the HMO even then. If the elderly population died sooner under HMO care, how many were spared costly and possibly painful treatments that merely prolonged the dying process rather than improved their lives? How hard should we try to keep an 85 or 90 year old patient with advanced Alzheimer’s or dementia who no longer recognizes family members alive?

    I’m part of the Medicare population now and I would prefer to be part of a provider organization that coordinates care and avoids duplicate testing and that gets paid to assume some financial risk but earns more to keep their patients healthy as opposed to receiving a check for every little thing it does for me or to me whether I need it or not.

  51. How does one respond to such a long ideologically driven posting that disregards the scientific literature?

    One takes it piece by piece:

    @Joe: WASTE: “Waste: Any payment system that gets around fee-for-service and puts the healthcare provider at some risk for good outcomes will push healthcare providers to compete to give the best possible outcome at the best available price. ”

    Is that true? No. This has been proven in the past and proven again and again. I provided Joe with one of the best studies ever done by Ware. It compared HMO to FFS/PPO. What they actually were comparing were incentives. The incentive to over treat and the incentive to deny necessary care (under treat).

    Here is the conclusion of that article and many others that followed. “During the study period, elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in FFS systems” Thus contrary to all of Joe’s arguments the alternative incentive of denial of care puts the patient at risk for a good outcome. The FFS model doesn’t generally do that though it might provide more marginal treatment.

    I disagree with the words that followed since Joe seems to be cherry picking his findings and not using real data so what we have is a mixture of true and false information that provides nothing one can appropriately deal with. I’ll give one example, cesarean section. In California a number of years back the public health department noted that a lot of cesarean sections were being performed. They put in place a lot of restrictions on cesarean sections that were followed. What they found was increased costs necessitated by those children who had deformities and disease because a cesarean section wasn’t performed. The health department got rid of those rules.

    I am not saying that all cesarean sections that are done are warranted. I am simply saying that Joe’s claims are one sided and not backed up by the evidence. This makes it all the more difficult to create a healthcare system that functions appropriately. It appears in his article that ideology is trumping science. Thus everything stated in this posting has to be taken with an extra large grain of salt.

  52. “Healthcare costs far too much. We can do it better for half the cost. But if we did cut the cost in half, we would cut the jobs in half, wipe out 9% of the economy and plunge the country into a depression.”
    __

    We could expand better access to better care to more people. There will never be a shortage of need, particularly with an aging population.

    I know you know this. Your opening scenario was rhetorical, obviously.

    Health IT just had it best VC quarter ever. Medical real estate leasing is going gangbusters. Not exactly leading indicators of a market in decline.

    Great post.

  53. Shifting blotted hospital overhead, charges and waste to lower prices will allow patients extra money to spend elsewhere in the economy – the broad economy (and jobs) will not suffer, and maybe even those with food insecurity will eat better or be able to keep their home with lower hospital bills.

    It’s the same if Obama had let GM die a well deserved demise, spending would have shifted nationally to the other auto manufacturers. Do we argue that we shouldn’t want less government because it will have a negative effect on the economy?

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