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Category: Health Policy

We Freeze People, Don’t We?

By KIM BELLARD

Perhaps you’ve heard about the controversial Alabama Supreme Court ruling about in-vitro fertilization (IVF), in which the court declared that frozen embryos were people. The court stated that it has long held that “unborn children are ‘children,’” with Chief Justice Tom Parker – more on him later – opining in a concurring opinion:

Human life cannot be wrongfully destroyed without incurring the wrath of a holy God, who views the destruction of His image as an affront to Himself. Even before birth, all human beings bear the image of God, and their lives cannot be destroyed without effacing his glory.

Seriously.

Many people have already weighed in on this decision and its implications, but I couldn’t resist taking some pleasure in seeing “pro-life” advocates tying themselves in knots trying to explain why, when they legislated that life begins at conception, they didn’t mean this kind of conception and that kind of life.

John Oliver was typically on point, noting that the Alabama ruling was “wrong for a whole bunch of reasons. Mainly, if you freeze an embryo it’s fine. If you freeze a person, you have some explaining to do.”

The case in question wasn’t specifically about IVF, nor did the ruling explicitly outlaw it. It was a case about a patient who removed stored embryos and accidentally dropped them, and the couples whose embryos were destroyed wanted to hold that patient liable under the Wrongful Death of a Minor Act. The court said they could. Note, though, that neither the patient nor the clinic was being charged with murder or manslaughter…yet.

Although the Alabama Attorney General has already indicated he won’t prosecute IVF patients or clinicians, the ruling has had a chilling effect on fertility clinics in the states, with The University of Alabama at Birmingham health system and others indicating they were putting a pause on IVF treatments.

Justice Parker has long been known as something of a theocrat; as The New York Times wrote:

Since he was first elected to the nine-member court in 2004, and in his legal career before it, he has shown no reticence about expressing how his Christian beliefs have profoundly shaped his understanding of the law and his approach to it as a lawyer and judge.

His concurring opinion claimed: the state constitution had adopted a “theologically-based view of the sanctity of life.” Alabama is not alone. Kelly Baden, the vice president for public policy at the Guttmacher Institute, told BBC: “We do see that many elected officials and judges alike are often coming at this debate from a highly religious lens.”

Speaker Johnson has said:

The separation of church and state is a misnomer. People misunderstand it. Of course, it comes from a phrase that was in a letter that Jefferson wrote. It’s not in the Constitution. And what he was explaining is they did not want the government to encroach upon the church — not that they didn’t want principles of faith to have influence on our public life. It’s exactly the opposite.

And here we are.

Many Republicans are backtracking on the ruling.

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Putting the ‘value’ in value-based payments

By JOSH SEIDMAN

Like Matthew Holt, I have also been ranting about the fact that “We’re spending way too much money on stuff that is the wrong thing.” As Matthew said, “it’s a rant, but a rant with a point!” And that’s a lot better than most rants these days. In addition to having a point, I’m also bringing a lot of data to my rant.

More specifically, we’ve known for a long time that clinical care only drives 20% (maybe less) of health outcomes, yet we continue to spend more and more on it.

We do that despite the well-documented fact that the U.S. performs worse than most OECD countries despite spending far more. I remember, in my first health care job in 1990, being blown away that the U.S. spent $719 billion on health care (or $1.395 trillion in 2022 dollars). Here we are, trillions of dollars later ($4.465 trillion) doing the same thing and expecting a different result.

After more than 30 years in health CARE, I decided that I really wanted to start doing something about HEALTH, which is why 3 years ago I joined Fountain House, the founder of the clubhouse movement, a psychosocial rehabilitation model for people with serious mental illness (SMI)—a model now replicated by 200 U.S. clubhouses and another 100+ in more than 30 countries around the world. It was actually people living with SMI that launched Fountain House in 1948, realizing long ago that addressing social drivers of health offered a new road to recovery and rehabilitation. Now 75 years later, we’re finally seeing some parts of the health care system come to terms with the necessity of addressing health-related social needs.

With decades of evidence behind us, Fountain House has spent the last year and a half building an economic model to understand clubhouses’ societal economic impact when one takes into account a wide range of costs—mental health, physical health, disability, criminal justice, and productivity or lost wages.

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So what can we do about health care costs?

By MATTHEW HOLT

Last week Jeff Goldsmith wrote a great article in part explaining why health care costs in the US went up so much between 1965 and 2010. He also pointed out that health care has been the same portion of GDP for more than a decade (although we haven’t had a major recession in that time other than the Covid 2020 blip when it went up to 19%). However, it’s worth remembering that we are spending 17.3% of GDP while the other main OECD countries are spending 11-12%. Now it’s true that the US has lots of social problems that show up in heath spending and also that those other countries probably spend more on social services, but it’s also clear that we don’t actually deliver a lot more in services. In fact probably the most famous health economics paper of the last 50 years was Anderson & Rienhardt’s “It’s the Prices, Stupid”, which shows we just pay more for the same things. Anyone who’s looked at the price of Ozempic in the US versus in Denmark knows that’s true.

But suspend disbelief and say we actually wanted to do something about health care costs, what would we do?

There are 4 ways to cut health care costs

  1. Cut prices
  2. Cut overall use of services
  3. Reduce only unnecessary services
  4. Replace higher priced services with lower priced ones

Number 3 or reducing only unnecessary services is the health policy wonks dream.

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Why Not, Indeed?

By KIM BELLARD

Recently in The Washington Post, author Daniel Pink initiated a series of columns he and WaPo are calling “Why Not?” He believes “American imagination needs an imagination shot.” As he describes the plan for the columns: “In each installment, I’ll offer a single idea — bold, surprising, maybe a bit jarring — for improving our country, our organizations or our lives.”

I love it. I’m all in. I’m a “why not?” guy from way back, particularly when it comes to health care.

Mr. Pink describes three core values (in the interest of space, I’m excerpting his descriptions):

  • Curiosity over certainty. The world is uncertain. Curiosity and intellectual humility are the most effective solvents for unsticking society’s gears.
  • Openness over cynicism: Cynicism is easy but hollow; openness is difficult but rich.
  • Conversation over conversion: The ultimate dream? That you’ll read what I’ve written and say, “Wait, I’ve got an even better idea,” and then share it.

Again, kudos. One might even say “move fast and break things,” but the bloom has come off that particular rose, so one might just say “take chances” or “think different.” Maybe even “dream big.”


Around the same time I saw Mr. Pink’s column I happened to be reading Adam Nagourney’s The Times: How the Newspaper of Record Survived Scandal, Scorn, and the Transformation of Journalism. In the early 1990’s The Times (and the rest of the world) was struggling to figure out if and how the Internet was going to change things. Mr., Nagourney reports how publisher Arthur Sulzberger (Jr) realized the impact would be profound:

One doesn’t have to be a rocket scientist to recognize that ink on wood delivered by trucks is a time consuming and expensive process.

I.e., contrary to what many people at The Times, and many of its readers, thought at the time, the newspaper wasn’t the physical object they were used to; it was the information it delivers. That may seem obvious now but was not at all then.  

Which brings me to health care. Contrary to what many people working in healthcare, and many people getting care from it, might think, healthcare is not doctors, hospitals, prescriptions, and insurance companies. Those are simply the ink on wood delivered by trucks that we’re used to, to use the metaphor.

And it doesn’t take a rocket science to recognize that what we call health care today is a time consuming and expensive process – not to mention often frustrating and ineffective.

Why not do better?

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Supporting innovations in cancer treatment and prevention for our nation’s most vulnerable

By KAT MCDAVITT and LESLIE KIRK

Innsena has made a $100,000 contribution to CancerX, making Innsena the public-private partnership’s first Impact Supporter.

Why? There are few conditions in which the disparity in innovations benefiting underserved communities is more apparent than in the treatment and prevention of cancer.

Patients without insurance are more likely to present with more advanced cancers, and the cancer death rate for people of color is significantly higher than for white patients. More people die from cancer in rural communities than in urban settings. 

In CancerX, we found a community of partners taking on hard problems to equitably deploy innovative solutions that can reduce the risk of, and cure cancer for all patients. Even—and especially—when financial incentives do not otherwise exist for the private sector to solve those problems.  

Innsena is committed to improving equitable access, treatment and outcomes for the most vulnerable among us. We focus on supporting improved outcomes for Medicaid members and underserved communities. The disparity caused by the absence of incentives and funding for innovators to enter the Medicaid market can’t be overstated. 

But innovators, and the investors who fund these pioneers, are exactly what our industry needs to change health outcomes in underserved communities. 

We decided that, if the incentives to innovate in cancer care for vulnerable populations don’t exist, then we would create them. Our financial commitment to CancerX is a step forward that we hope will start a broader movement. 

Our team’s $100,000 contribution will help the team at CancerX to accelerate programs underway—including its effort to improve equity and reduce financial toxicity in cancer care and research—and to more rapidly launch new initiatives. 

We’re particularly proud to support the public-private partnership’s efforts to improve equity and reduce financial toxicity. Cancer deaths are inequitably distributed across the United States—and those patients who do survive are 2.5 times more likely to declare bankruptcy than those without disease. 

Likewise, a key component of CancerX is a start-up accelerator for companies bringing more digital solutions for the treatment and prevention of cancer, with special attention given to organizations that focus on disadvantaged populations. We’re honored to support the start-ups selected for the first CancerX accelerator cohort with both mentorship and financial support. 

And to that end, as individuals, we’ve gone one step further to support start-ups focused on preventing and curing cancer for vulnerable patients. We’ve also partnered with Ben Freeberg and his team at Oncology Ventures to ensure that digital health start-ups innovating for all patients in the oncology space have funding available to advance their causes. 

Innsena is joining more than 150 organizations already working together to make a difference for all patients in the prevention and treatment of cancer. CancerX is co-hosted by the Moffitt Cancer Center and Digital Medicine Society, alongside the US Department of Health and Human Services Office for the National Coordinator for Health Information Technology and Office of the Assistant Secretary for Health

We need more innovators working to improve care for the underserved. Join us in supporting CancerX. As a community we’ll make a difference. 

Kat McDavitt is President and founding partner of Innsena. Leslie Kirk is CEO and managing partner of Innsena.

Who to Blame for Health Costs: The Poisoned Chalice of “Moral Hazard”

By JEFF GOLDSMITH

How the Search for Perfect Markets has Damaged Health Policy

Sometimes ideas in healthcare are so powerful that they haunt us for generations even though their link to the real world we all live in is tenuous. The idea of “moral hazard” is one of these ideas. In 1963, future Nobel Laureate economist Kenneth Arrow wrote an influential essay about the applicability of market principles to medicine entitled “Uncertainty and the Welfare Economics of Medical Care”.    

One problem Arrow mentioned in this essay was “moral hazard”- the enhancement of demand for something people use to buy for themselves that is financed through third party insurance. Arrow described two varieties of moral hazard: the patient version, where insurance lowers the final cost and inhibitions, raising the demand for a product, and the physician version–what happens when insurance pays for something the physician controls by virtue of a steep asymmetry of knowledge between them and the patient and more care is provided than actually needed. The physician-patient relationship is “ground zero” in the health system.

Moral hazard was only one of several factors Arrow felt would made it difficult to apply rational economic principles to medicine. The highly variable and uniquely threatening character of illness was a more important factor, as was the limited scope of market forces, because government provision of care for large numbers of poor folk was required.  

One key to the durability of Arrow’s thesis was timing: it was published just two years before the enactment of Medicare and Medicaid in 1965, which dramatically expanded the government’s role in financing healthcare for the elderly and the categorically needy. In 1960, US health spending was just 5% of GDP, and a remarkable 48% of health spending was out of pocket by individual patients. 

After 1966, when the laws were enacted, health spending took off like the proverbial scalded dog. For the next seven years, Medicare spending rose nearly 29% per year and explosive growth in health spending rose to the top of the federal policy stack. By 2003, health spending had reached 15% of GDP! Arrow’s  moral hazard thesis quickly morphed into a “blame the patient” narrative that became a central tenet of an emerging field of health economics, as well as in the conservative critique of the US health cost problem.  

Fuel was added to the fire by Joseph Newhouse’s RAND Health Insurance Experiment in the 1980s,  which found that patients that bore a significant portion of the cost of care used less care and were apparently no sicker at the end of the eight-year study period. An important and widely ignored coda to the RAND study was that patients with higher cost shares were incapable of distinguishing between useful and useless medical care, and thus stinted on life-saving medications that diminished their longer term health prospects. A substantial body of consumer research has since demonstrated that patients are in fact terrible at making “rational” economic choices regarding their health benefits. 

The RAND study provided justification for ending so-called first dollar health  coverage and, later, high-deductible health plans. Today more than half of all Americans have high deductible health coverage. Not surprisingly, half of all Americans also report foregoing care because they do not have the money to pay their share of the cost!   

However, a different moral hazard narrative took hold in liberal/progressive circles, which blamed the physician, rather than the patient, for the health cost crisis.  

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Medicare Is Now Profitable as a Total Program Because of Medicare Advantage

By GEORGE HALVORSON

Medicare made $83.4 billion very real dollars in 2022. The 17% discounts below the average cost of fee-for-service Medicare, that happen in every county for Medicare Advantage, have been very real and extremely successful in paying for Medicare coverage — in a way that now makes the program a profit center for the US Government.

You can see the actual financial report page from the 2023 Medicare trustee report below. It shows that the Medicare trust fund grew in 2022 for the first time in decades. More than half of the Medicare members are now enrolled in Medicare Advantage plans. Those members cost significantly less than their equivalent fee-for-service Medicare patients.

These are the actual numbers from the trustee report.

The Medicare trustee report says that the total Medicare program grows per member by 6.7% every year. They project in that report that they expect that rate of increase to be consistent over the next decade. The enrollees in the Medicare Part A and Part B programs have expenses that increase slightly above that number every year. That’s been true for a couple of decades.

Medicare loses money on every Part A and Part B member when expenses for those programs are higher than the 6.7% average.

Medicare Advantage costs for Medicare Part C are increasing at a lower rate than that number. That means that Medicare makes money and creates a surplus with the Medicare Advantage patients.

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A New Day for Parkinson’s Disease Research Is Near

By STEVEN ZECOLA

The U.S. Department of Health and Human Service (“HHS”) is responsible for a wide range of activities relating to medical and public health. It has 60,000 employees and a $1.7 trillion annual budget with approximately $140 billion for discretionary spending. For the past 13 years, HHS has been spearheading a National Plan for addressing Alzheimer’s disease – with some notable successes.

Given its resources, expertise and charter, HHS should launch a National Plan to cure Parkinson’s disease patterned after its approach on Alzheimer’s disease.

Legislation, or Not

The U.S. House of Representatives has passed H.R.2365, the National Plan to Cure Parkinson’s Disease.

The bill would establish HHS as the central point for strategic direction and coordination of PD research.  It would require formation of a broad-based Advisory Panel to provide strategic advice and any on-going course corrections.

There is nothing preventing HHS from putting the structure of H.R. 2365 into effect now, and it should do so without waiting for Senate action or inaction. There is no incremental funding required to implement this National Plan, nor is any Congressional approval necessary.  This approach would mark an important step towards finding a cure for Parkinson’s disease, and is well within HHS’s charter.

A Cross-Section of Policy and PD Research

For those who have studied the application of regulatory policies to Parkinson’s disease research, it does not provide a productive narrative.

Levodopa was first discovered in 1910. In 1975, after 14 years of its “miraculous” treatment of PD symptoms, the FDA approved the drug. Levodopa does not cure or delay the progression of the disease. Yet, it has remained the gold standard of treatment of PD for the past fifty years. That is not to say there has been insufficient research or inadequate FDA approvals.  Rather, it’s a question of where the research dollars have been funneled. It turns out that levodopa becomes less effective over time and eventually produces uncontrolled shaking. Therefore, research dollars have been targeted toward drugs that delayed the need for levodopa or controlled its side effects.

An exception to this approach was Geron, which became a leader in embryonic stem cell research. It had raised $100 million to conduct clinical trials. However, most of that money was consumed by undertaking thousands of experiments on mice under the “guidance” of the FDA. Nevertheless, Congress saw the potential of embryonic stem cells, and passed the Stem Cell Research Enhancement Act.

While Congress cheered, the Evangelical movement viewed embryonic stem cell research as barbaric and akin to murdering a human life. It didn’t matter that embryonic stem cells could not become a living being unless they were implanted in a woman’s womb, and this step wasn’t part of the research efforts.  Notwithstanding, the Evangelicals convinced George W. Bush to veto the legislation, and a promising path for PD research was shut down.

More recently, the House has passed bills for a National Plan to Cure Parkinson’s in its last two sessions, but the Senate has failed to act, despite a myriad of sponsors of a bill with similar provisions.

Building Upon Lessons from the Past

In 2011, Congress passed legislation establishing a National Plan to Address Alzheimer’s disease (“NAPA”).  Thirteen years later, there are many lessons to be learned from that effort that can be applied in a National Plan for PD. Of particular note, the original plan had five objectives including to “Prevent and Effectively Treat AD/ADRD by 2025”. 

The first report by the Advisory Council specified that the current “level of resource commitment falls drastically short of the funding needed to accelerate the pace of research on prevention, cures, and treatments for AD”. It also recommended that the Secretary examine “[h]ow HHS uses existing authorities to reduce drug development barriers and accelerate development of new therapies” and specifically called for recommendations to “accelerate the FDA review process”.

What happened?  While funding was increased substantially and hundreds of potential treatments have been identified, only two drugs have been approved by the FDA under an “accelerated” review process.

While HHS may express pride in the accomplishments from the Alzheimer’s National Plan, it should conclude that the process to get an effective treatment identified and approved takes too long. For example, the FDA provides “guidance” to researchers even before clinical trials are submitted. It also regulates the provision of genetic tests. These actions needlessly slow development and reduce innovation.  

Similarly, the FDA’s regulation of Phase 1 and Phase 2 trials slows down development and does little to benefit the public interest. The FDA points to multiple ways that it has accelerated the drug approval process.  But the reality is that progress from PD research has been lacking.

On the other hand, in 2019, researchers issued a report – based on real-world observations — that Terazosin resulted in a lower incidence of PD and a slower development of the disease when it did occur.  Terazosin has been used for over 35 years to treat other maladies. Yet the drug underwent a 13-person Phase I trial to determine if it is safe. This phase 1 trial took several years to complete. This approach was a distraction that caused unnecessary delay and cost under the FDA’s regulatory regime.

The FDA will say that its rules do not require 3 (or more) trials nor does it mandate a particular trial design. This is disingenuous. Companies spending hundreds of millions of dollars on research cannot afford the risk of shirking the FDA’s standard procedures.

Taken as a whole, the HHS should limit the FDA’s involvement in PD research to approval of Phase 3 trials. Such an approval process will speed development and foster innovation yet maintain adequate safety controls by the FDA. Research organizations would be less constrained in developing their strategies and would be held to more responsibility for their approach to research.

A Multivariate Solution Is Likely to be Required

PD is a complex disease that has different manifestations when looked at from a genetic, diet, exercise, environmental (pesticides/pollution/solvents), vitamin, drug, electronic, radiation and possibly other perspectives. As such, a multivariate solution is likely to be required to successfully treat PD. 

Such a solution will not be well accommodated by the current FDA review process, with each different combination of therapies being subjected to regulatory review and intervention.  The process could drag on for decades.

HHS should recognize the need for a multivariate solution and plan accordingly, as described below.

Data Collection to Identify Multivariate Solutions

In 2010, The Michael J. Fox Foundation launched the Parkinson’s Progression Markers Initiative (PPMI) to find the biological markers of Parkinson’s onset and its progression. That study led to the impressive finding of a tool that can detect pathology not only of people diagnosed with Parkinson’s, but also in individuals that are at a high risk of developing it. However, after ten years, that study has only a few thousand participants. HHS should endorse and expand the scope of that study.

The “second version” of PPMI should be an overlay study designed with the end game in mind. That is, it should produce a mapping of individual people’s PD “score” over time against all relevant explanatory variables that could possibly impact PD for each individual. Such an approach is superior for identifying multivariate solutions.

To accomplish this objective, each participant would establish and maintain a unique portal for his/her own explanatory PD variables. The portal would include a series of hard-coded entry requirements covering scores of inputs. The initial set-up could be completed in piece-part (with the availability of outside assistance) and would auto-populate with each quarterly update (allowing for input of any changes that occurred after the initial set-up). The portal would interface with the growing number of portals of individual healthcare providers and would collect the diagnostic information from those systems. Personal “meters” of this sort are now actively being deployed in the field of Alzheimer’s disease given that certain therapies and drugs have shown progress against that disease.

As the above information from participants is collected over time, artificial intelligence software would be used to identify combinations of diet, exercise, supplements, genetics, sleep habits, therapies, electronics, radiation and drugs that point towards promising results. New treatments such as those undertaken in clinical trials would be added to the participant’s portal as they as are pursued by those individuals. All of the patient’s existing drugs would be analyzed in the context of all other relevant explanatory variables for that participant – over time.

As importantly, a comparative, quantifiable measurement of PD over time for each individual is required. The PPMI was originally focused on identifying a marker for PD and therefore uses a series of qualitative questions to gauge the patient’s development of PD symptoms over time. In contrast, the emphasis for this data collection effort should shift to the explanatory variables affecting PD progression over time.

In terms of the participant’s PD score, I believe a modified version of the Fitness program currently designed for the computer game “Wii” (which provides a quantitative estimate of an adult’s age based on how that person performed on certain activities) would provide more reliable results. Each participant would provide his/her own age estimator from the computer program on a quarterly basis as well as provide any updates for the various explanatory variables.

Once this revised format is established, the HHS should establish a goal of enrolling 100,000 PD participants into the study within two years.

A Better Approach for PD Research Is Available Now

HHS can – on its own accord – dramatically improve the efficiency and effectiveness of Parkinson’s research by: 1) adopting the industry-wide structure it utilized for Alzheimer’s disease, 2) embracing and expanding upon the current PPMI study and 3) limiting the FDA’s involvement in research to the approval of Phase 3 clinical trials.

Steve Zecola sold his web application and hosting business when he was diagnosed with Parkinson’s disease twenty three years ago.  Since then, he has run a consulting practice, taught in graduate business school, and exercised extensively

The Money’s in the Wrong Place. How to Fund Primary Care

By MATTHEW HOLT

I was invited on the Health Tech Talk Show by Kat McDavitt and Lisa Bari and I kinda ranted (go to 37.16 here) about why we don’t have primary care, and where we should find the money to fix it. I finally got around to writing it up. It’s a rant but a rant with a point!

We’re spending way too much money on stuff that is the wrong thing.

30 years ago, I was taught that we were going to have universal health care reform. And then we were going to have capitated at-risk entities. then below that, you have all these tech enabled services, which are going to make all this stuff work and it’s all going to be great, right?  

Go back, read your Advisory Board Company reports from 1994. It says all this.

But (deep breath here) — partly as a consequence of Obamacare & partly as a consequence of inertia in the system, and a lot because most people in health care actually work in public utilities or semi-public utilities because half the money comes from the government — instead of that, what we’ve got is this whole series of massive predominantly non-profit organizations which have made a fortune in the last decades. And they’ve stuck it all in hedge funds and now a bunch of them literally run actual hedge funds.

Ascension runs a hedge fund. They’ve got, depending who you believe, somewhere between 18 billion and 40 billion in their hedge fund. But even teeny guys are at it. There’s a hospital system in New Jersey called RWJ Barnabas. It’s around a 20 hospital system, with about $6 billion in revenue, and more than $2.5 billion in investments. I went and looked at their 990 (the tax form non-profits have to file). In a system like that–not a big player in the national scheme–how many people would you guess make more than a million dollars a year?

They actually put it on their 990 and they hope no one reads it, and no one does. The answer is 28 people – and another 14 make more than $750K a year. I don’t know who the 28th person is but they must be doing really important stuff to be paid a million dollars a year. Their executive compensation is more than the payroll of the Oakland A’s.

On the one hand, you have these organizations which are professing to be the health system serving the community, with their mission statements and all the worthy people on their boards, and on the other they literally paying millions to their management teams.

Go look at any one of these small regional hospital systems. The 990s are stuffed with people who, if they’re not making a million, they’re making $750,000. The CEOs are all making $2m up to $10 million in some cases more. But it also goes down a long way. It’s like the 1980s scene with Michael Douglas as Gordon Gecko in Wall Street criticizing all the 35 vice presidents in whatever that company was all making $200K a year.

Meanwhile, these are the same organizations that appear in the news frequently for setting debt collectors onto their incredibly poor patients who owe them thousands or sometimes just hundreds of dollars. In one case ProPublica dug up it was their own employees who owed them for hospital bills they couldn’t pay and their employer was docking their wages — from $12 an hour employees.

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Too much fawning over Len Schaeffer?

By MATTHEW HOLT

There’s a lot of strum & dangst about the uptick in system utilization that has boosted hospital profits and hit Humana and United’s bottom line (But not so much Elevance’s). Kevin O’ Leary over at Health Tech Nerds brought this up today and I was reminded of this piece I wrote in 2006. And a big issue was, how much understanding and control do insurers have over the utilization in (and out of) their networks. So take a look at this piece and particularly, given the issues at the BUCAHs and at smaller players like Agilon, consider how much insurers actually know about spending? And remember that Wellpoint was the 1990s name for what is now Elevance, via being called Anthem!–Matthew Holt

No one is arguing that Len Schaeffer isn’t a very bright guy, nor that he hasn’t done very well in America’s health care system. He’s also done very well out of America’s health care system. So when McKinsey publishes a fawning interview with the man who saved Blue Cross of California, and turned it into one of the most profitable for-profit health insurance companies, and then merged it with the other for-profit Blues, it’s perhaps appropriate to ask a few more questions.

Full disclosure here; in the distant past I’ve worked for several companies that are now part of the Anthem/Wellpoint collosus; and I currently do work for the California Health Care Foundation, which wouldn’t exist were it not for the fact that, when Wellpoint converted to for-profit status, it (and the California Endowment) were endowed with a huge chunk of stock. So you can take my comments in what ever light you like. In addition I’ve only done limited research here and a couple of things are retelling of tales I’ve heard, so if anyone knows more gossip, please email me.

Schaeffer is coming towards the end of his business career, but he started young and fast. He was head of HCFA (the artist now known as CMS) at age 33 in the Carter Administration. Now I call Mark McClellan the boy wonder, but he was 41 when he got the job! After leaving HCFA (before it got really exciting in the early years of the Reagan administration when DRGs were introduced, but being the first to introduce a type of DRG for kidney dialysis), and going via Group Health for a couple of years, he ended up at Blue Cross of California. He got there in the middle of an incredible screw-up.

Blue Cross had set up an HMO to compete with Kaiser called HealthNet. Incredibly enough somehow or other Blue Cross didn’t manage to enforce their formal corporate control over its board members on the board of HealthNet. So the board of HealthNet looked around the room one day, noticed that they might do alright if they were running a for-profit company, and declared independence. More on that story in this court documents. And apparently despite several years in court there was nothing Blue Cross could do. Retroactively Healthnet had to agree to endow a foundation with the state (the California Wellness Foundation) but the amount put into that foundation was a tiny, tiny proportion of HealthNet’s market value.

Schaeffer turned up to steady the ship at Blue Cross in the wake of the Healthnet screwup. In part he did this by turning Blue Cross from a warm and fuzzy non-profit into a pretty avaricious underwriter and a health plan that played very hardball with its providers (and members). More on that in the first section of this document, but it’s a reminder of a tack taken years later by Jack Rowe at Aetna.

But he clearly learned something from the experience.  The first thing he did was to set up a for-profit subsidiary called Wellpoint which started buying health plans and offering services (primarily outside California). Then he tried to put all of Blue Cross’ assets into Wellpoint. It looked like he’d away with this for a while, but then started  negotiations to take the whole thing for-profit. Apparently when the state first asked him the amount with which he would fund the foundation, his first offer was “nothing”.  This eventually got anted-up to $100m. Eventually the state (pressured by consumers’ groups) pointed out that it had quite a bit of control over the Blue Cross plans, and in the end the two Foundations were set up with lots of money and the majority of the stock, which gets spent doing good works in California (and funding some great research!) — not that everyone’s happy with it!

However, what amuses and dismays me is that Schaeffer is lauded for a couple of things, specifically the creation of new insurance plans and the shift to consumer care, and a commitment to IT. I really don’t understand what is so amazing about the new consumer plans, other than the Tonik brand has a lame web sites which look exactly like what a 50 year old thinks a 23yr old thinks is cool.  THCB readers already know that, while selling high deductible plans to youngsters may help a 23 yr old who needs catastrophic insurance, you’re not going to fix the problem of uninsurance by replacing it with under-insurance. But underwritten properly, these plans are very profitable for Wellpoint. And Wellpoint is damn good at underwriting.

So much so that you’d be surprised at what Schaeffer says is the main problem with American health care. Practice variation and lack of information:

The level of variation in our health care system is unbelievable. You could be hospitalized for nine days in New York and for three days in California with the same diagnosis—and those differences would have no impact on outcomes. There is no other industry in the world that uses so many different approaches to the same thing and in which these differences don’t relate to better results

So can’t health plans fix that? Apparently not:

As a health insurer, if you start by telling doctors, “We know what’s best; we’ll pay you for it,” you violate the fundamental principle that doctors want to exercise their own discretion. That’s what killed HMOs—telling the doctors what to do. Doctors don’t like to follow cookbooks, but, clearly, evidence-based medicine would work better for patients.

So because health plans failed at getting doctors to practice better medicine, instead they’re going to give them the information systems that show the doctors all about this variation, and it’ll magically self-correct. Except there’s the odd problem there too, including more cluelessness by health plans.

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