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The Best Health Care Idea All Year

• 23

By ROBERT LASZEWSKI

Out of almost nowhere has come momentum for a proposal to create a bipartisan entitlement and tax commission to draft proposals to control the long-term costs of Social Security, Medicare, and Medicaid. The idea would require the Congress to quickly vote the recommendations up or down via a super majority vote.

The idea isn’t new–proposals for a such a commission have been around for a longtime.

What is new is the bipartisan enthusiasm that is growing–particularly in the Senate. Coming out of the Budget Committee, and Chairman Kent Conrad and Ranking Republican Judd Gregg, the idea is picking up bipartisan steam with, among others, Republican Senate Minority Leader Mitch McConnell expressing general support for the idea.

A number of Senators have threatened to tie their votes to raise the deficit ceiling to establishing such a commission.

If the recent Democratic health care bills have made one thing crystal clear it is that the Congress is wholly incapable of dealing with cost containment under present circumstances.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria,
Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

Good News for Uninsured Children Should Jumpstart Health Reform

• 3

By JOCELYN GUYER

In 2008, the number of uninsured children in the United States hit the lowest level in two decades.  If Congress weren’t in the middle of a fierce debate on health reform, there would be time for everyone to celebrate a remarkable achievement and maybe even pause to reflect on how it was accomplished.  To paraphrase David Byrne of the Talking Heads: “We might ask ourselves, how did we get here?” We got here with federal fiscal support, leadership, state ingenuity and a willingness to make a sustained effort to address the issue of uninsured children.  The states deserve a lot of credit.  It’s been impressive to see how state policymakers from across the political spectrum have rallied to support children’s coverage, despite facing tough economic obstacles in recent years.   Even in the midst of terrible fiscal problems, the vast majority of states have maintained children’s coverage in Medicaid and CHIP.  This year so far, a whopping twenty-three states found a way to expand or improve children’s coverage, proving what can be accomplished when the federal government is a strong fiscal partner.

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The Chairman’s Mark – Good Ideas, Potentially Fatal Flaws

• 4

By Roger Collier

Roger Collier

So, at long last, Senator Max Baucus has released his Chairman’s Mark draft health care reform bill for discussion by the full Senate Finance Committee. The 223-page draft bill is generally consistent with the “Framework for a Plan” document that Senator Baucus issued last week. So, no big surprises. But can it make coverage more accessible and affordable? Can it put the brakes on skyrocketing health care costs? Is it likely to help or hurt the economic recovery?

Accessibility and affordability are the main thrusts of the draft. As with the other Senate and House bills, an individual mandate would be imposed and the insurance market would be reformed to assure coverage on a guaranteed issue basis. Also as with the other bills, Medicaid would be expanded to cover anyone below 133 percent of FPL (but with the federal government picking up more of the tab), while subsidies would be available to other lower-income individuals who buy coverage through an insurance exchange. Additionally, benefit standards would be set for the individual and small group markets, with limits on cost-sharing.

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Time for a Closer Look (and Lower Costs)

• 3

By ROGER COLLIER

Democrats-cap-and-trade-bill-house-renewable

One of the effects of the exaggerations, misinterpretations, distortions, and downright lies about Congressional health care reform proposals—mostly from far-right politicians and their hangers-on—has been to deter more objective analysis.

In fact, two key features of the current Senate and House bills—the insurance exchange structure, and the controversial public plan option—need much closer examination, and possibly considerable revision.

FIRST, the insurance exchange structure. It’s a reasonable concept: if insurers were to compete via an exchange for individual and small group business, they would offer highly competitive rates to attract as much business as possible.

Unfortunately, as a Health Affairs blog piece by the former managers of the PacAdvantage exchange makes clear, it isn’t as simple as that. PacAdvantage, which served some 150,000 California small business employees, ultimately collapsed and closed its doors in 2006, a victim of adverse selection. As the PacAdvantage managers explain, having insurers also marketing directly to small groups allowed them to cherry pick the best risks, leaving the less-good risks in the exchange. As adverse selection continued its work, the exchange went into a death spiral with worsening exchange risk leading to higher rates, leading to the least-bad risks leaving the exchange, leading to even higher exchange rates, and so on.

The obvious way to avoid this problem in national reform is to require that ALL individuals and ALL small group employees be included in each regional exchange. Unfortunately, health reforming politicians have adopted “you’ll be able to retain your existing coverage” as part of their reform pitch. It’s understandable, since forcing groups to switch to an exchange is not going to help the prospects of legislation that’s already in trouble, but it instantly opens the door to cherry-picking by insurers, with the prospect of failure of every exchange.

Is there a solution? Rather than imposing an additional mandate on businesses, current bills could be modified to require that all insurers participate in the exchange, and that their exchange rates be no higher than those offered directly to any insured group, thereby forcing insurers to treat exchange and non-exchange insureds as part of the same pool and avoiding the adverse selection effect.

SECOND, the public plan option. So far, the political controversy has focused on the obvious arguments for and against the public plan: it would force insurers to offer better rates, but it could push millions of Americans out of private coverage into a government program.

A close look at data from Medicare Advantage, in which private plans compete with the traditional government option, indicates that both arguments are questionable.

MA’s private coverage alternative is indeed more costly than traditional Medicare, by some 13 percent—more than $11 billion in 2009. However, most of the difference is due to the additional benefits offered. The private plans’ 2009 base bids to CMS—excluding the cost of additional benefits—averaged 102 percent of FFS rates, with HMO and PPO bids averaging just 99 percent of FFS.

These base bid rates include profit and administrative costs, in contrast to the FFS rates which exclude both administration and financing costs. Even the most conservative estimate of these additional costs would put fully-loaded FFS rates above those of the average private plan.

The comparison of Medicare FFS and MA plans is further skewed by the MA bid process. Not only do the ridiculously high “county benchmarks” used in payment setting favor high bids, but the payment formula (which discounts the difference between the base bid and the benchmark, but not the base bid itself) encourages excessive loading of profit and administration into the base bid. In other words, in a more rationally designed competitive environment, average private plan costs should be significantly below those of traditional Medicare.

In terms of the current Senate Health and House bills, with proposed payment rates higher than Medicare, the public plan looks even less competitive.  While there would undoubtedly be some who would opt for a government program over a private plan, the vast majority are likely to choose the lower cost option, with the public plan more likely to increase health care costs than decrease them.

Are there compromises that might satisfy liberal politicians’ desires for a public plan? One possibility is to build a “trigger” into the bills that would allow creation of public plans only where private plans fail to meet cost control benchmarks.

Another possibility is to build on the existing public plan for the non-elderly: Medicaid. Congressional committees are already proposing Medicaid expansions, while simultaneously proposing subsidies to make exchange participation more affordable for non-Medicaid eligibles, leading to an anomalous situation in which one family may receive free Medicaid coverage, while a second family whose income is only a few dollars greater is forced to pay a significant part of the exchange premium in order to comply with an individual coverage mandate.

A less costly and unfair approach might be to allow individuals to buy-in to Medicaid. Since average per capita Medicaid costs are approximately $2000, compared with estimated subsidy costs of close to $4000 (based on CBO estimates, in 2009 dollars), this would eliminate both the anomaly and the need for subsidies, with a potential dramatic reduction in the ten-year cost of reform of some $770 billion.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies. He is editor of Health Care Reform Update.

More on health care reform by this author:

The Health Care Cost Shifting Myth

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By AUSTIN FRAKT

Picture 12 There is a pervasive notion that providers of health care can make up for lower payments received from one set of payers (e.g. Medicare, Medicaid, uncompensated care) by increasing prices charged to other payers (e.g. private insurance companies). To the extent it occurs cost shifting offsets attempts to control overall health care costs through reduced fees paid by public insurers. It makes “bending the cost curve” harder.

However, it is a myth that providers can fully shift costs. That they could do so violates, in most cases, principles of economics. Moreover, empirical evidence suggests cost shifting, where it occurs, is done so a minimal level: only a small fraction of decreased payments by public payers shows up as an increase in charges to private payers. Losses associated with one payer are largely not recouped from another.

Some take price discrimination as evidence of cost shifting. However, price differentials are not necessarily the recouping of losses from one payer by overcharging another. As described in the 2001 Health Affairs paper by Richard Frank “Prescription Drug Prices: Why Do Some Pay More Than Others Do?” price discrimination can be due to unequal bargaining power across classes of purchasers. In other words, in maximizing profits, providers charge different prices to different market segments. In such cases, by definition, profits cannot be further increased by cost shifting.

It’s true that cost shifting could theoretically occur under specific conditions. One case is when a provider has monopoly power that it has not fully exploited, for instance charging private insurers less than it could. More fully exploiting its monopoly power with respect to those payers, such a provider can recoup losses. Still, there is a limit to how much of the lost revenue can be recouped. The monopoly profit-maximizing price level imposes a ceiling.

Another instance in which cost shifting could occur is in a more competitive market in which all providers have roughly the same level of undercompensated care. All competitors in such a market might choose to increase charges to private insurers by the same amount, maintaining their relative competitive positions. However, if one competitor elects to reduce costs or reduce its burden of undercompensated care, it might be able to charge private insurers less then others, thereby increasing its market share. So, cost shifting may not be a stable equilibrium.

The literature provides estimates of the extent of cost shifting in cases where it is theoretically possible. The March 2009 MedPAC Report to Congress: Medicare Payment Policy (Chapter 2A) includes a summary of such evidence. It concludes that the dominant dynamic in the market is that hospitals with strong market power have abundant financial resources. In turn they have a high cost structure (perhaps due to provision of relatively higher quality care) that causes lower or negative Medicare margins. In contrast, hospitals that are forced to run efficiently are adequately funded by Medicare payments. That is, Medicare payments are sufficient to cover costs but some hospitals run inefficiently and make it appear otherwise. Therefore, MedPAC has concluded that increased Medicare payments to hospitals would not reduce rates charged to private insurers. The primary effect would be to induce lower cost operations.

The MedPAC report cites mixed evidence from the literature on the level of cost shifting, as does the December 2008 CBO report Key Issues in Analyzing Major Health Insurance Proposals. A few studies from the 1980s found evidence of cost shifting at a rate of up to fifty cents on the dollar. However, conditions in the 1990s were less conducive to cost shifting and the rates were found to be on the order of a 0.4 to 1.7 percent increase in private payments in response to a 10 percent reduction in Medicare and Medicaid fees. In a 2005 study of geographic variation in health costs of the Federal Employees Health Benefits Program, the GAO concluded that the considerable variation it found was not due to variations in payments from other payers.

In conclusion, cost shifting is not as large and widespread a phenomenon as some would believe. Under some market conditions it is inconsistent with economic theory. And, while it can occur under other market conditions it is far from a dollar-for-dollar shift in costs. The most recent studies of the phenomenon find little evidence of cost shifting or very low levels of it. Claims that reductions in public payments for health care will necessarily show up as commensurate increases in private payments are unfounded.

Austin Frakt blogs at The Incidental Economist and is a health economist and principal investigator with the Department of Veterans Affairs’ Health Services Research and Development Service and assistant professor with the Boston University School of Public Health, Department of Health Policy and Management. The views expressed in this post are his alone and do not necessarily reflect the positions of Boston University or the Department of Veterans Affairs.

Will Hospital Stocks’ Rally Continue?

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By DON JOHNSON

Since early July, most hospital companies’ stocks have been rallying in anticipation of relief from uncompensated care costs under proposed health insurance reform bills. On Wednesday, however, profit taking hit the stocks in a small way.

The rally got an added boost in the last week from positive earnings reports and guidance by Community Health Systems (CYH) and Universal Health Services (UHS).

Tenet Health Care (THC) Tuesday reported a small loss on increased revenues. Lifepoint Hospitals (LPNT) reported Friday. (After this post was originally published.)

In its conference call with securities analysts, Tenet said the health care reform bills before Congress would relieve it of the cost of uncompensated care of the uninsured and of the cost of charity care. Tenet didn’t say any more about the health insurance reform debate and how the legislation would affect the company.

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Kids Can’t Vote but Health Reformers Should Still Listen

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By ALAN L. GOLDBLOOM, MD

Alan_L._Goldbloom

Depending on who you listen to, health care reform in Washington is either closer to reality than it has ever been, or it’s on life support.   Competing ideas are all over the map in terms of how health care should be delivered in America, and how we should pay the tab.  About the only thing everyone seems to agree on is that the current system doesn’t work, and that we need to get something – anything – done.

But with all the energy and effort going into reform, getting “anything done” isn’t good enough.  This is a chance to change the core values of our health care system to deliver access to high quality, low cost care.  It’s time to “invest” in the health of our nation.  We can’t settle for anything less.

As president and CEO of Children’s Hospitals and Clinics of Minnesota, my number one concern is the health of children, and I feel a responsibility to be a voice for children in this debate.  The simple fact is, children don’t vote.  They don’t have political action committees and they don’t make campaign contributions.  But the decisions that elected officials will make about health care will have a huge impact on the health and well being of our children.

If we want to provide the best quality care for children, a few key principals must guide any and all health care reform decisions.

First, we need to address issues around Medicaid reimbursement.  Medicaid is the single largest insurer of children in the country. In Minnesota Medicaid reimburses only around 80 percent of the cost of care, and in many other states, it’s less.  In fact, for all the talk about poor Medicare reimbursement levels, Medicaid pays providers at rates 20 to 30 percent lower than Medicare.  That’s why more and more doctors and clinics are declining to treat Medicaid patients, leaving families without access to proper care.

The current House bill recognizes this inequity and proposes to increase primary care physician payments under Medicaid to 100 percent of Medicare by 2012.  However, it does not address inequities for other key providers such as pediatric hospitals and specialists.

At Children’s of Minnesota, we served more than 42 thousand children on Medicaid in 2008.  We treat all children regardless of insurance status, but Medicaid reimbursement rates do threaten our ability to provide the kind of high quality, specialized services we believe children in our community deserve.

The second key element to reform involves a simple philosophy: we need to reward quality rather than quantity.   My state, Minnesota, has a well-deserved reputation for delivering high quality, low cost health care. Because of this, our reimbursement rates are among the lowest in the country.

We are very concerned about any reform proposals that would apply across-the-board cuts to existing reimbursement rates, without taking into account the value of care already being delivered.

We need reform that provides incentives to caregivers to be innovative around efficiency.  We should be rewarding providers who develop unique care models that eliminate waste while delivering excellent results.  Only then will we see the cost savings that health care reform advocates are promoting.

Finally, we need to change the way we think about health care for children.  Providing health coverage for all children should not be a luxury in this country.  We have already acknowledged that every child has a right to an education, and as a society, we pay for it.  Children’s health care deserves the same support.  After all, the money we spend on children’s health is an investment that pays off for 70 or 80 years, not only in productive lives, but in avoidance of long term health costs. No other health care expenditure has that kind of return on investment.  The needs of children must be front and center in this debate.

There are no easy answers for health care reform.  Honest and thoughtful people can disagree on how we should go about changing the system.  But by sticking to these core principals around Medicaid reimbursement, encouraging efficiency, and investing in children, we will have a good foundation to build on.

Alan L. Goldbloom, MD, is president and CEO of Children’s Hospitals and Clinics of Minnesota, the 7th largest pediatric health system in the United States.  Previously, Dr. Goldbloom was executive vice president and chief operating officer at The Hospital for Sick Children in Toronto, Canada’s largest children’s hospital.  After graduating in medicine at McMaster University in Hamilton, Canada, and training in pediatrics at Boston Children’s Hospital, Dr. Goldbloom practiced General Pediatrics and served as Director of Residency Training at both Dalhousie University in Halifax and at the University of Toronto, before becoming involved in hospital management.

Live from Aspen: the moderates’ view on Obama health reform

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By Matthew Holt

6a00d8341c909d53ef0105371fd47b970b-320wi Paul Krugman’s article today excoriates the Blue Dogs and a former dog Billy Tauzin in particular. He also (as I did a week or so back) wonders where the Dogs were when the Bush tax cuts were bumping the deficit more than the proposed health reform bill will and redistributing wealth from future poorer taxpayers to the very rich in the process.

Funnily enough I’ve been at the Aspen Health Forum where the self-same Billy Tauzin used his not inconsiderable Cajun charm and a dollop of PhRMA’s money to buy me (and a bunch of others) a whisky and a s’more on Saturday night, and took part in a couple of panels I watched on Sunday. We had a couple of brief chats, one about his cancer treatment and another about getting big Pharma to behave better. He claims some progress there (voluntary restrictions on DTC, better posting of clinical trial data, reductions in marketing excess to docs). I suggested that there was more progress required both in pricing policy and PR. He said it was hard, I told him that was why they paid him the big bucks.

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The Tri-Committee Health Reform Bill: Implications for Children

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By JOCELYN GUYER

A little more than two weeks ago the three major committees in the
House with jurisdiction over health reform put out a draft legislative
proposal, known as "The Tri-Committee bill."  We've now read the 852-page document
a few times, and think it would make giant strides in providing access
to coverage to millions more people and transforming the country's
health care delivery system.  Of particular note for kids, it includes:

  • Major expansions in access to affordable coverage for their parents and other adults.  (Click here for just a few of the articles showing a clear link between how children fare and the health and stability of their parents.);
  • Continued coverage of children through Medicaid with its strong, child-specific benefit package;
  • Increases in Medicaid reimbursement rates; and
  • A
    guarantee that no child born in a U.S. hospital leaves without
    insurance.  (For more details on these and other provisions, see our Fact Sheet on the Tri-Committee bill.)

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Careful What You Wish For

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By THE INCIDENTAL ECONOMIST

On the left are those who would like health reform to include a strong public plan, one that could negotiate large provider discounts, driving down the cost of medical care. On the right are those who think health insurance should be provided only privately. I’m neither left nor right. I consider myself a realist and an empiricist.

A reasonable reading of the political tea leaves suggests that health insurance for the non-elderly will remain largely a private affair. (See the Debating the Public Option in The American Prospect by Paul Starr, Robert Reich, and Robert Kuttner.) Therefore, I’d like the private insurance market to work well. I’m also very familiar with the Medicare experience (and its problems) with both public and private provision of insurance.

So is Kerry Weems, the former acting administrator of the Centers for Medicare and Medicaid Services (CMS), the agency that oversees Medicare and Medicaid. Weems was interviewed recently by John Iglehart, the founding editor of Health Affairs, a respected journal of health policy (Doing More With Less: A Conversation With Kerry Weems, Health Affairs, 18 June 2009). Based on his experience managing Medicare and Medicaid, Weems had some interesting things to say, some of which I summarize below.

In general he paints an ugly picture of a public plan. If you’re hoping health reform includes a strong public plan you should be careful what you wish for, and you should read the interview to see what problems a public plan might have. This is not to say a public plan is better or worse than private plans. It is just to say that one should expect that a public plan will likely experience certain types of problems. Now on to the summary of the Weems-Iglehart interview.

On Congress. Congress has not treated CMS well because funding it is not as sexy as funding other agencies overseen by the same appropriation subcommittees: the National Institutes of Health and the Centers for Disease Control and Prevention. A consequence is that CMS has insufficient resources to fight waste, fraud, and abuse. For example, according to Weems,

“CMS’ annual expenditures [are]…more than the economies of all but twelve nations, and CMS carries out its responsibilities with a staff of 4,600 people. Social Security is of comparable budget size and handles its dollars with about 66,000 people…”

On Medicare Advantage. Weems feels that private plans under Medicare advantage can offer “better care at lower or the same costs” as traditional fee-for-service Medicare.

On Payment Errors. Medicaid has a payment error rate of 24 percent, meaning that the payments paid to providers are either incorrect or unverifiable 24 percent of the time.

On Waste, Fraud, and Abuse. Investigations of waste, fraud, and abuse under Medicare and Medicaid have yielded a return of $17 for every $1 spent. However, far too little is spent in the fight. Therefore, a considerable amount of waste, fraud, and abuse exist under Medicare and Medicaid. (See the recent stories on fraud in Miami, Detroit, and Denver.)

On a Public Plan under Health Reform. Weems thinks a public plan is “a bad idea because the government has a difficult time selecting only those providers who deliver high-quality care. There is a risk that a lot of resources will be wasted on poor care.

On Political Pressure. CMS administrators get a lot of pressure from Congress to treat certain providers more favorably than they might deserve. Such political meddling is a handicap in properly administering a public insurance plan.

On Physician Payments. The American Medical Association (AMA) has considerable influence on physician payments through its Resource Based Relative Value Scale (RBRVS) Update Committee (RUC). Weems thinks the resulting payments have “contributed to the poor state of primary care in the United States.” (Weems’ anti-RUC statements sparked a blogosphere debate (hat tip: Kate Steadman of Kaiser Health News). Rebecca Patchin, Chair of the Board of Trustees for the American Medical Association wrote on the Health Affairs blog that CMS is under no obligation to follow the RUC’s recommendations and she cites examples where it has not done so. On the Health Care Renewal blog, physician and Brown University professor Roy Poses asks “why does CMS rely exclusively on the RUC to update the RBRVS system, apparently making the RUC de facto a government agency, yet without any accountability to CMS, or the government at large?”)

On balance, it is clear that Weems is not impressed with the public provision of health insurance under Medicare and Medicaid. Some of the sources of problems could in principle be remedied. However, if Congress were to implement a public plan under health reform there is no assurance it would not suffer from at least some of the problems that plague traditional Medicare and Medicaid. I think the most challenging are political pressures, including rent seeking on the part of providers, and a potential inability for a public entity to selectively contract based on quality.

The Incidental Economist holds a joint appointment at a major research
university and a federal government agency.  In his current position,
he studies economic issues pertaining to U.S. health care policy with a
focus on Medicare. His writings can be found at www.theincidentaleconomist.com

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