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Making Sense of Health Care Prices

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By JOHN GOODMAN

Take a look at the chart below. It shows representative prices for a knee replacement for different patients in different settings. The most shocking thing about the chart is that prices for essentially the same procedure are all over the map. Here are some obvious questions:

  1. Why is the price of a knee replacement for a dog — involving the same technology and the same medical skills that are needed for humans — less than 1/6th the price a typical health insurance company pays for human operations? Why is it less than 1/3 of what hospitals tell Medicare their cost of doing the procedure is?
  2. How is a Canadian able to come to the United States and get a knee replacement for less than half of what Americans are paying?
  3. How are Canadians getting knee replacements in the U.S. able to pay only a few thousand dollars more than medical tourists pay in India, Singapore and Thailand — places where the price is supposed to be a fraction of what we typically pay in this country?
  4. Why do fees U.S. employers and insurance companies are paying vary by a factor of three to one, when foreign, and even some U.S., facilities are offering a same-price-for-all package?

It’s amazing how often people cannot see the forest for the trees. Think how many volumes have been written trying (and failing) to explain why our health care costs are so high. Sometimes the answers to complex questions are more easily found by asking the simplest of questions.

Continue reading…

What Good are Health Insurers?

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By BILL KRAMER

Bill KramerAs the health reform effort moves into the final stages, everyone seems to be taking a whack at health insurers. Some of the insurers’ wounds are self-inflicted, such as WellPoint’s announcement of 39% premium increase for individual policies in California. Some of the attacks are calculated to build public support for health reform, since every good crusade needs a good enemy. Some of the criticism has even suggested that we don’t need private health insurers. Michael Hiltzik asked the question in a recent column “What do we need health insurers for anyway?” James Surowiecki – usually a careful and thoughtful observer of business and economic issues – said the following in a recent article in the New Yorker:

Congress [in its health reform bills] is effectively making private insurers unnecessary, yet continuing to insist that we can’t do without them. The truth is that we could do just fine without them: an insurance system with community rating and universal access has no need of private insurers.

Surowiecki goes on to comment on what the world would look like without private health insurers:

In fact, the U.S. already has such a system: it’s known as Medicare. In most areas, it’s true, private companies do a better job of managing costs and providing services than the government does. But not when it comes to health care: over the past decade, Medicare’s spending has risen more slowly than that of private insurers. A single-payer system also has the advantage of spreading risk across the biggest patient pool possible. So if you want to make health insurance available to everyone, regardless of risk, the most sensible solution would be to expand Medicare to everyone.

Not so fast. I would feel more optimistic that this would work if we had a different political system. One of the limitations of this approach is that Medicare’s spending is ultimately determined through the political process. The U.S. political system – for better or worse — allows the health care industry (or any other well-funded interest group) to use its financial resources and lobbying power to increase the flow of government funds into the health sector. The idea that Medicare has a “hammer” to force providers to accept lower payment rates is largely an illusion. In the current system, Medicare can do this only because there is a safety valve, i.e., a large private insurance segment that pays much higher rates to providers. If Medicare gets larger or replaces private insurance altogether, there will be less opportunity to use the safety valve, so providers will step up their efforts to use political pressure to increase payment rates in Medicare. I simply don’t see a strong countervailing political force that would exert sufficient political pressure to hold down costs.Continue reading…

The Laboratory of Democracy

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By PAUL LEVY

Paul levy People from other states would be wise to watch the sequence of events happening here in Massachusetts with regard to health insurance rates. As I described below:

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned downproposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Now, Rob Weisman at the Boston Globe reports on yesterday’s hearing in Suffolk Superior Court. The insurers argue that the action by the Insurance Commissioner is arbitrary and capricious, the traditional standard used to overturn a decision by a regulatory agency. The Division of Insurance argues, in part, that the insurers have not used up their administrative remedies before the agency, another traditional argument. A ruling is expected on Monday.Continue reading…

Watch Insurance Premiums Soar

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By DONALD JOHNSONDon Johnson

Enactment of ObamaCare will open the floodgates for new federal mandates that insurers cover expensive wellness and alternative care services and send health insurance premiums soaring. While the New England Journal of Medicine says 50% of physicians will leave medicine because of ObamaCare, it’s more likely that the number of practicing physicians will shrink by 10% to 15% over the next five years. This will force Congress to boost payments to physicians to keep them in Medicine and to get them to accept more Medicaid and Medicare benefiaries. So taxes and Medicare premiums will rise even faster. ObamaCare encourages more people and employers to drop health insurance and game the system. Therefore, we’ll see as many uninsured Americans citizens who aren’t covered by various government programs as we see now. But they may be the higher-income folks who are smart enough to game the system.

Meanwhile, the hospitals who think that they will be the biggest winners because there will be fewer uninsured and few patients whose bills won’t be covered by the government will wind up the big losers. State and federal legislators will tax the not-for-profits and cut margins for the investor-owned hospitals to the bone. Long-run, they’ll lose physicians and money. Same for drug companies. Now that politicians control health insurance companies and markets more than ever, they’ll use the insurers and various forms of price and utilization controls to make the pharmas unprofitable.

Democrats who lose their seats in November will become rich lobbyists until Republicans take power and put them out of business.

People Who Are Smart About Money Won’t Buy Health Insurance Until They Get Sick

ObamaCare will give working Americans who are smart about money strong financial incentives to become and stay uninsured until they need catastrophically expensive health care. If they recover and no longer need insurance, they’ll drop it until the next time. The number of people who can afford to buy health insurance today but don’t is about 15 million. In five years, it could be several multiples of that.

Economists are just figuring it out here and here. Even liberal bloggers are getting it.

Don Johnson blogs at The Business Word Inc. Between 1976 and 1986 he was editor of Modern Healthcare magazine. As its top editor, Don helped build Modern Healthcare, a Crain Communications Inc. publication, into the hospital industry’s leading business magazine and one of the top magazines in the country.

It’s Easier to Beat Up the Insurers

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By PAUL LEVY

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned down proposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Meanwhile, policy-makers ignore the underlying causes of the problem:

Just a few weeks ago, the Attorney General issued a report, after months of study, that explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that paid some providers substantially more than other providers.

As noted by my colleague Ellen Zane, in remarks consistent with the findings of the AG, “The funneling of dollars disproportionately among hospital and provider groups serves to warp the overall system balance.”

Taking a page from the debate on national health care, local officials seem to have decided that it is easier to beat up on the unpopular insurance companies rather than address the root cause of the problems. Here, though, the insurers are non-profits. If they are forced to charge prices below those that are based on actuarial determinants, there are no shareholders to absorb the losses. The most direct result is a reduction in capital reserves, a key metric the Division of Insurance is statutorily charged to protect.

Myths and Facts About Health Reform

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By MAGGIE MAHAR

This is the first in a series of posts that will try to pierce the myths and reveal the facts about the reform legislation. This first post focuses on the impact that reform will have on the private insurance industry–and on the industry’s customers.

MYTH # 1: Health Care Reform represents a “boon” for private insurers.

FACT It is true that, beginning in 2014, virtually all Americans will be required to buy insurance, or pay a fine. But while insurers will pick up a boatload of new customers, many will be refugees who have been battered by a health care system that rationed care according to ability to pay. Think of the boat as a life raft. These could be very expensive customers.

Moreover, between now and 2014, insurers will face some serious financial hits. These new rules will  make our health care system fairer and more affordable  But the rules also suggest that for-profit health insurance may not be a viable business unless insurers learn far more about what is best for patients.Continue reading…

Getting Over The New Normal

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By MICHAEL TURPIN

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Charles DarwinMichael turpin

In her 1969 Book, On Death and Dying, Dr Elisabeth Kübler-Ross describes the five stages of grief.  Over a 27 year career marked by mergers, acquisitions, and perpetual change, I have come to accept these five stages as necessary rites of passage that humans must endure as they navigate the inevitable shoals of change. It seems we all must endure denial, anger, bargaining and depression before we finally break through to acceptance.

While we all intellectually agree that our healthcare system is broken and is in profound need of change, most preferred that all the heavy lifting required to reduce healthcare costs as a percentage of US GDP, occurred on someone else’s watch.  As Woody Allen once quipped, “ I don’t mind dying.  I just don’t want to be there when it happens.”Continue reading…

What Happens Next in MA?

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By PAUL LEVY

Paul levyWhat happens next in Massachusetts with insurance reimbursement rates now that many of the facts and figures have been made public?

Here’s what I see. The dominant parties in the state on whose watch the disparities in the marketplace have taken place — Blue Cross Blue Shield and Partners Healthcare System — face financial and political problems, respectively. The PHS rates that are so much higher than others’ cause a major financial drain for BCBS. They do so in the short run just by the degree of current utilization. The effect is compounded over the long run, though, as PHS has a competitive advantage vis-à-vis other systems in recruiting community-based doctors and thereby brings more and more referrals into its hospitals. That these differentials have now been made public by the state creates a political embarrassment for PHS, which has often asserted that its creation brought about substantial economies of scale through integration of care.

I suspect that these factors will lead to a negotiated agreement between BCBS and PHS, where PHS takes a bit of a haircut in its current reimbursement contracts. Not so much that it dramatically affects the PHS bottom line, but enough so that both parties can say that they have cooperatively acted to slow down the rate of health care spending in the state. Will the new rates be anywhere near the statewide average? No way. Will they do anything to offset the competitive advantage that PHS has had or will continue to have? No.

Continue reading…

Antitrust Warfare

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By Daniel Palestrant, MD

Palestrant

Not since the days of monopoly busting and Standard Oil has anti-trust been such a contentious topic in American politics. Today, Teddy Roosevelt has been replaced by Nancy Pelosi and the oil barons have been replaced by……doctors? The healthcare debate is quickly turning into a dog fight about monopolies and price controls, and in doing so, unveiling some of the dark truths about how the money really flows in this country’s largest industry.

Turns out antitrust law has become so contorted and subverted that it now serves the interests of those it was meant to regulate far more than those it was meant to protect. This past week, the FTC announced a consent decree with Roaring Fork IPA, a physician network in Colorado ( click here). Of course, this is less than a week after the Speaker of the House announced that she will pin her party’s hopes of resurrecting healthcare reform on repeal of the 1945 McCarran-Ferguson Act, a little known antitrust exemption that benefits the insurance industry ( click here).

So why has antitrust become all-the-rage-all-of-a-sudden?  The Sherman Antitrust laws were originally intended to prevent monopoly behaviors, however, it has become a key tool in keeping physicians as indentured servants in our healthcare system.  As Medicare continues to reduce payment rates, more and more providers are choosing to opt-out rather than contract to deliver services at a loss. Most notably, the Mayo Clinic chose to do this a few weeks back ( click here).  What is fascinating, however, is that the FTC is claiming that the Roaring Fork’s decision (unlike Mayo’s) constitutes an anti-trust violation so egregious that it is worthy of an investigation and the consent decree.  With 65 physicians, Roaring Fork represents well less than 1% of the physicians in Colorado, so why the anti-trust concern?

The answer lies in the cozy relationship between the insurance industry and the FTC.  Insurers are determined to make sure that physicians are kept from having any leverage nor allowing market forces to create a balanced supply-demand between physicians and patients.  The net goal of both is keeping physician payment artificially low, while maximizing insurance company profits.  For physicians, Roaring Fork should be a wake up call to accelerate their efforts to decrease their dependence on third party payers and their adoption of technologies and services that can even the playing field.

Today we are witnessing a Kafka-esque sequence of events.  Teddy Roosevelt, the original trust buster, would literally bust out laughing if he could see the incumbent political party pinning their hopes for their highest profile political effort on repeal of an anti-trust exemption, while the government chases after……..doctors, for ostensibly violating this same law.  Only in America.

Daniel Palestrant is the CEO of Sermo, the social networking site for physicians. He is a regular contributor to THCB.

Wellpoint: just incompetent?

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By MATTHEW HOLT

I’m viewing the latest rumblings in the US health care debate from the confines of a clear but cold Britain, where the big news is that the country is joining the PIGS in entering economic meltdown—or at least being a lot more broke than it thought it was. (PIGS are Portugal, Greece, Ireland & Spain, not farm animals). And yet it appears that health reform is making if not a comeback then at least vigorous palpitations. The reason for this seems to be the strength that the Anthem Blue Cross/Wellpoint premium rises have imbued into the Administration.

Those of you reading THCB over the years will know that I think the individual insurance market is doomed to fail and should be replaced. It has its apologists; for example Cato’s Michael Cannon here criticizes Paul Krugman who explained last Friday why the individual market goes into a death spiral. Michael claims that Mark Pauly’s research shows that the individual market works. What Pauly’s work (and I despair at having to read it again, so this is from memory) tends to show is that insurers are incompetent at charging sick people to the full extent that they cost them, but do charge them roughly three times what they charge healthy people. Pauly also said in Health Affairs that the individual market works pretty well for 80% of the people in it, but he seems to think that screwing the remaining 20% is OK. Coming from a tenured Ivy league professor who’s probably never had to buy health insurance in his life, that was pretty rich. But apparently Wellpoint’s latest performance shows that it’s not OK for much of the other 80% either—hence their dropping out, leading to Krugman’s death spiral.Continue reading…

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