Tag: Policy/Politics

POLICY: Bush signs Medicare bill, declares victory, goes home

Well he went back to the White House anyway….

So the Medicare bill is signed into law, and Bush used the occasion to point out that a poor diabetic who couldn’t afford $6,000 in drugs and needles will now only need to be unable to afford $3,000. OK that’s a little cynical of me. If you click here and got to Chart 7, you’ll see that 43% of the Medicare population have incomes below $15,000 a year and this bill will help most of them….but it doesn’t give them everything for free. Click through to chart 9 in the same file, and you’ll see that 15% already have Medicaid and most of the rest have some variety of either employer or individual drug insurance.  While this bill is good news for the 15% without any drug insurance, it’s neutral to bad for everyone else. That will be the political impact but probably not until people understand the bill in late 2005, which amazingly enough is after the next election.

And as usual when this White House announces financial data and gives human examples (and no I won’t give you a Krugman-esque diatribe here), the numbers Bush gave anticipated a best case scenario in the negotiations between the as yet unformed Medicare PBMs and the drug companies, expecting them to get a 20% price discount.  We’ll see, but few serious observers are anticipating the PBMs to turn into Wal-mart any time soon.

Medicare Rx & ePrescribing

Even though everyone’s back from the summer break, and even though both the Senate and the House have passed a version of the bill, it’s looking less and less likely to me that we’ll get a final Medicare prescription drug bill at all. The Democrats who agreed with Republicans in early July now see a President weakened by dropping public approval numbers, primarily about the economy, but also about the Iraq situation. So they’ve little incentive to allow Republicans to take credit for a domestic issue when most polls show that they are the party the people have most faith in on the home front.  Added to that the middle to upper income retirees who forced the repeal of the last major reform, Medicare Catastrophic in 1989, are agitating again. Retirees with decent employer provided coverage are likely to see their employers drop it when Medicare provides it (and why wouldn’t they?).  And the bill as currently written is OK if you use few drugs, OK if you have catastrophic Rx needs, but not much good if you are in the middle of the "donut".  The NY Times has noticed that this is making many seniors very upset. As 2/3 of seniors have some drug coverage already, suggestions that it be replaced with something not as good will not make them happy–especially if it’s run by the government. (You may remember the famous quote from the senior in 1994 who told Senator John Breaux to "keep the government out of my Medicare"). Never forget that seniors vote in greater proportions than any other age group, and health care is their number one concern–oh and quite a few of them live in a place called Florida that seems to have had quite an impact in recent elections.

Meanwhile, if we don’t get Medicare Rx we will miss out on something in the House bill that would be a "good thing".  Pushed heavily by ex-speaker Newt Gingrich, who told a Congressional committee in June that "the evidence that written prescriptions kill people is overwhelming", the House version makes electronic prescribing mandatory for the Medicare Rx program.  The Senate version doesn’t. The AMA of course supports "the concept but not the mandate" (Yes, that’s the actual headline in the AMA news article!)

So if ePrescribing is on the verge of becoming a significant activity, albeit for a small minority of docs (as I described in a post last week), inclusion of a mandate for it in the Medicare bill would certainly push it over the top.  But that of course depends on forces more powerful than those brought to bear by the e-Rx lobby, Newt or no Newt.

Jeanne Scott (of course!) has far more about the difference between the House and Senate Bills here, and informed comment on her odds of what’s going to come in her newsletter (sign up by asking Jeanne nicely here)

Pay or Play passes

Much to my amazement SB2, the California "play or pay" bill passed the legislature on Friday and will probably be signed by Gray Davis before the recall. However it doesn’t come into effect fully until 2007, giving plenty of time for repeals, other bill creating loopholes, or alternative proposals.  However, it’s remarkable how a bill with such big implications sneaked by with such little fuss.  I guess we can blame Arnold!

California SB 2: Socialized medicine? Hardly.

In the course of some other work, I’ve been catching up on Pacifica Fund VC and IFTF affiliate Tim Oren’s Due Diligence column.  It’s a fascinating grab-bag of information about new technologies and the process of innovation, and also occassionally into the mind of how a deep water business technologist thinks about the wider world. And if you care about technology it should be required reading.  However, at the start of a fascinating post about how outsourcing and other phenonema are slowly killing the intellectual learning process of Silicon valley, Tim lets his politics out of the bag about SB 2, the pay or play mandate being pushed by Senate President Pro Tem John Burton (D-San Francisco) (reg reqd). Tim says he’s not prepared to"compromise my investors’ interests" so that "Senator John Bloody Burton can retire having socialized medicine in California".

Well let’s hang on a minute here. The bill demands that companies with more than 20 workers provide (80% of the cost of) health insurance for them or pay into a state fund that will provide insurance for the workers. It also says that companies with 20-49 employees will get tax credits to compensate for the cost of the insurance. VCs like Pacifica tend to invest in high-tech companies that offer their high-paid workers health insurance. The only "employees" not offered these benefits tend to be the office temps or the janitors who actually work for someone else. And these companies tend to have less than 50 employees, especially while they are getting going.  So the companies Tim wants to protect are either not affected by this legislation because they are too small, or more likely going to get a tax credit for providing a employee benefit that they already give!

In fact the play or pay issue is designed to lower the uninsurance rate among the working poor, who constitute 75% of the uninsured.  These are the people who clean your house or serve your fries at McDonalds, and not surprisingly the fast foods chains are in the vanguard of opposition to these types of bills. So unless VCs start investing in cleaning companies, lanscapers or fast food I don’t see how this affects Tim’s investors directly.

It did, however, get my hackles up when he glibly trots out the phrase socialized medicine. It’s incredible to me when sensible business people vigorously defend their right to be gouged by the current health care system and call anything else socialized medicine–although I do like Tim’s phrase "simple payer".  The reason American companies get to pay double what European and Japanese competitors do in health care taxes (whether public taxes or private ones called insurance premiums) is to do with the lack of social insurance and the consequent lack of anyone with responsibility to keep the costs of that insurance down. Very few places in the world outside the UK, Canada and Scandanavia have genuine socialized medicine where all the doctors and hospitals work for the government. SB 2 doesn’t suggest that and doesn’t even put in place a single-payer fee schedule (as discussed in my recent post on single payer).  In fact if it were to become law, which isn’t exactly likely, it would be a bonanza for private health insurance companies, and eventually a (much less) modest bonaza for those companies that are paying taxes and higher health insurance premiums already to make up what the health care system loses when it provides uncompensated care for those uninsured employees of companies that don’t provide benefits.

I’m not actually a fan of "pay or play", or of employment-based insurance at all for that matter. That also goes for workers comp too, (which is also in a hell of a mess) where again there is no real reason for hte medical care part ot be connected to employment..  But given the social costs of uninsurance, not to mention that added burden on those employers who "do the right thing" and provide health benefits, it’s not illogical to look at those employers who don’t as a place to start changing the system. It has nothing to do with socializing medicine. And its implementation would have zero impact on an entrepreneur’s ability to start the high-tech business of tommorow.

Jeanne Scott looks at Single payer, MSAs and what employees want: I editorialize back

I’m a little late in getting to this because I didn’t get my email over labor day weekend while my site was down.  Enough excuses.  If you haven’t been getting theJeanneScottletter, which I’ve told you to sign up for before, then you are missing out on the best analysis of health care politics in America at a very, very reasonable price (i.e. free). In her pre-labor day issue (PDF is here) Jeanne has three fascinating articles that are revealing a little more editorial comment than usual (and it makes her newsletter all the better for it).

She argues against single-payer Canadian style, which has reared its head as the Democratic primary process approaches, and then convincingly explains why Medical Savings Accounts (MSAs) would destroy conventional health insurance if they were allowed to flourish. And she ends with an amazing piece of analysis about employees’ attitudes to health insurance, from a survey from Stony Brook University’s Health Pulse of America .

I’m gong to editorialize myself a little here. Before I do that let me tell you what I think the likelihood is of single payer passing in the next decade in the USA.


My work for clients is about what’s likely to happen (read: if you’re a health plan who wants help you’ll be getting a rational analyst telling you what’s likely to happen not a foaming-at-the-mouth socialist if you hire me!). However, there are some times when something approaching the truth needs to be told about American health care and this is one of them.

Jeanne opposes single-payer Canadian style because the Canadian system is relatively expensive compared to most other of what she calls multi-payer universal health-care systems, and because Canadians wait relatively long times for access to specialty care and hi-tech machines.  She argues that more competition amongst insurers and hospitals would produce higher administrative costs for Canada but a better outcome for Canadians, in terms of improving that access. But, there are lots of problems with this cursory argument.  For example the British system is very like the Canadian system and spends much much less money (6% of GDP versus 11%). So you can do single payer very cheaply (albeit with even less access).  More importantly in the US context, those multi-payer systems (e.g. Germany and Japan) do not have competing insurers as we’d understand them here–you join the one from your employer or city–and more importantly the providers only deal with one insurance system, which (surprise, surprise) has a fee schedule set by the government.  That looks essentially the same as "single-payer" to me,  Yet those two countries (Germany and Japan) manage to have much greater access to specialist care and hi-technology even than the US.  And of course in none of these countries are there any "uninsured".

Jeanne’s argument about MSA’s underscores why "universal insurance" by definition means "universal compulsory insurance" means "essentially single payer".  If you allow people to withdraw money from an insurance pool it eventually only insures the sick and therefore collapses under its own weight.  That’s more or less what’s happened to the individual insurance system in this country over the last 20 years and is what the Democrats are afraid will happen to Medicare if the "healthy" seniors are allowed to leave. (I’m not sure they are right to be that concerned about that happening given the record of Medicare Risk HMOs, but that’s another discussion.) So lets connect that back to health insurance as we know it in America. As Jeanne says 10% of patients account for 50% of the costs, and 50% account for 10%. So if you allow insurers to choose risks via medical underwriting based on what they know about their potential insurees, they are bound by the laws of economics to try to figure out a way to insure the healthy (the 50%) and reject the sick (the 10%). 

So if you sincerely want sustainable universal coverage you must make insurance coverage mandatory, and put everyone in the same pool (community or nationally rated) or else you will end up with an insurance market that cannot function for the sick.  Oh, and this risk-selection all gets turbo-charged by genetic testing, of course!  Japan Germany, Canada and the UK all do this in their slightly different ways. But the key difference between their systems (and where most of the guff that’s talked about single-payers misses the point) is not about single payer but about single provider.  In Canada and the UK the providers (more or less) all work for one provider organization–the government.  In the Japan and Germany they are  (more or less) independent and private.  The Ladas and Skodas that Jeanne is worried are the result of single payer actually come from nationalized single providers (and anyway those are the worst examples–want to compare and contrast, say, the BBC and Fox News on quality of journalism?). 

No one is seriously suggesting that we make all health care providers in the US work as employees of the government; the true analogy is how the defense industry works.  We have one payer (the DOD) and several private contractors, all of whom bid to build the best tank/bomb/plane. So (suspend disbelief here for a second if you know anything about Defense procurement) the Defense Department gets a better cheaper tank/bomb/plane because of the competition between the contractors than if it made the tank/bomb/plane itself. Well if that’s a good enough system for the US military why wouldn’t it work for the US health care system? No real reason that I can see (and it will get there anyway as Medicare bears the weight of the baby boomers over the next 25 years, but I digress).

And there’s one other point.  If you already had a single payer system, you could use that payer and regulatory leverage to encourage competition amongst providers and even insurers by setting the rules of the game the way you wanted.  This is the theory behind Alain Enthoven’s Managed Competition.  It is no coincidence that the only country where it has come anywhere close to being implemented is in the UK. Although the Brits clearly didn’t get it right (but yet may with their "primary care groups") it’s easier to introduce competition once you’ve set the universal single-payer ground rules, than to get "there" from the American "here" of a mess of insurers and providers competing over the wrong things — like avoiding risk and looking for the best insured patient.

End of editorial . Back to why we won’t get there from here and all of our private sector jobs are safe, or safe from nationalization at any rate. Jeanne points out that when offered the choice in the Stony Brook survey 71% of employees wanted a combination of "health coverage & lower salary" compared to only 24% wanting a "higher salary & no health coverage". On the employer side Kucinich, Gephart, Kerry and others are talking about a payroll tax on employers to fund health care.  Now rationally all employees know that some of their salary is being diverted to pay for health insurance, and employers (or at least the ones who do offer insurance) know that they might end up paying less in tax than they are currently paying for insurance, and at least it might not go up 15% a year

So why the objections? 50% of those asked thought that they couldn’t afford private insurance if they lost their benefits.  In other words they either understand how bad the deals are in the individual health insurance market, or they don’t trust their employers to actually fork over the money that the employer is currently using to buy them insurance (in wonk terms, they prefer defined benefit to defined contribution).  Presumably the average employer is concerned that they’ll end up having to pay more in tax and still top up the health insurance benefits for their employees, and they would rather retain full control of that process.  In any event, Americans are scared of moving away from what they’ve got in health insurance, and as more have got something and less than 20% have got nothing, we’re not going anywhere far from the present system soon.

Medicare bill: not any time soon

So the NYT reports today that the Medicare bill compromise discussions between the teams from the house and the senate are being held up by a dispute on payments to rural hospitals.  A dispute between different republicans! (Bill Thomas in the House and Chuck Grassley in the Senate). This bill is supposed to be about getting prescription drugs to seniors, but instead is getting bogged down in electoral politics. So don’t expect any news any time soon, because the Democrats haven’t even put their oar in yet concerning the ‘ "privatization" of Medicare’ part of the House bill. And they certainly don’t want the Republicans to be able to run on "we gave seniors drug coverage" for 2004.

Performance-based pay in health care?

Given some off-this-stage politicking I’ve been involved in, the Medicare drug coverage argument, and the recent "Physicians" plan in JAMA proposing single-payer, this Forbes article caught my attention. I subscribed to Forbes for a while and they never ceased to amaze me with how captured they were by new Internet business models while they decried any attempt to reform old-world fee-for-service medicine. Now even Forbes is coming out in limited favor of some type of pay for performance linked to basic quality guidelines. Back in 1997 my IFTF colleagues (especially Greg Schmidt) and I forecast that insurers paying some type of reward for performance would account for a sizable minority of the health care system by 2010.  In the RWJ-sponsored "Health & Health Care in America: A Ten year Forecast" we wrote:

"…a separate type of payment system will develop. Plans and intermediaries will devise reimbursement programmes that give providers incentives to deliver care in a manner that improves quality, customer satisfaction, patient tenure in the plan, and outcomes, as well as productivity and cost-effectiveness. We dub this system ‘performance-based reimbursement’, as payments will depend on the providers’ performance on a strung of relevant algorithms. By the latter part of the next decade this system will be the single most important way of paying provider organizations, although the old methods will still be a part of the system."

Well on re-reading this section I note that the accompanying chart had Performance-based pay at only 15% of all dollars by 2010, with the rest evenly split between prospective payment (DRGs and capitation) and FFS land.  So when you’re busting to get out a big report not every word will be internally consistent.  And this change (should it happen) would certainly seem revolutionary compared to what has happened in the first five years of our 13 year forecast. At the time the report was written there were already HMOs paying some limited amount to medical groups based on quality metrics.  Since then the quality movement seems to have somewhat been the baby thrown out with the bathwater of the managed care backlash.  But I think that as the initial foregin policy concerns of the first Bush administration fade, and even if it doesn’t pass Drug Coverage this year, Congress will return to the future of Medicare as a whole.  And if the political right (as represented by Forbes) is starting to think about the possiblity of performance based-pay, then the mainstream private health payers will start to introduce it too. When that happens, we’ll be on for another round of changes in care delivery and provider organization.

A few quickies 1: Single payer rears its head, again!

Well Steffie and David are back on the single payer war-path, with an article in August 13 JAMA. While most of us in the real world agree with Ian Morrison that single-payer is "culturally unavailable" to Americans, Woolhandler and Himmelstein have been arguing for it officially since 1989.  The AMA continues to claim that it is in favor of universal coverage, but remembering back to 1994, they were among the first to help torpedo the Clinton plan —  not that Hillarycare was single payer as Canadians, Brits or even Germans know it. However, I remember doing focus groups of doctors in the mid-1990s when you could not get them to shut up about MSAs as the solution to all their problems — ‘Just let the patients pay cash and we’ll be fine’. Both the doctors and the pharma companies are starting to reap what they ideolgoically sowed back then, because as we  all know consumers think health care should be free. And, as the health care industry discovered after 1965 you’re better off having third parties paying. (More to come on this when I finally unload on Medicare drug coveage…)

The first post: What’s wrong with Medicare?

For the first post, don’t expect a big essay despite that subject line. It came up because while I was away from the US for the first part of this year, yet another incarnation of NME or HCA — the two original for profit hospital chains of the 1970s that amalgamated into Columbia (now calling itself HCA again!) and Tenet — got caught with its hand in the cookie jar.  You’ll remember NME getting bad press and worse in the 1980s for imposing unwanted inpatient stays on “psychiatric patients”. After that NME morphed into Tenet. Columbia of course said that “health care had never worked like this before” and they were right — to the extent of the upcoding and fraudulent billing going on in its hospitals in the mid 1990s.  I remember one cover of Modern Healthcare in which Tenet’s strategy was encapsulated as “We’re not Columbia”.  Apparently only slogan deep. Last week they settled with the state and feds in California due to massive amounts of upcoding and worse at Redding Medical Center. Several other settlements are pending.

The New York Times’ description (registration req’d) of the level of unnecessary surgery at the Redding Medical Center is quite shocking. But I do recall Alain Enthoven at Stanford telling me in 1991 that one third of carotid andarterectomies in California were found to be counter-indicated after chart review.  Why were they done?  Well everyone — surgeons, hospitals, supplier– made money by doing them. Given the imbalance in knowledge between a patient and a doctor, it’s not too surprising that a very aggressive surgeon can do way more than he or she should.  Medicare is still basically a fee-for-service program with very little oversight, and so this type of thing is going to go on and on. And it has been going on for a while, as this partial list of whistlebower suits shows. Enthoven’s view was that everyone should be put into competing managed care plans which would act as patient (and payer) sponsors, and look after the money better than the government could.  It didn’t happen that way, and the backlash against managed care’s ham-fisted attempts to do so ensured that most health plans gave up on trying to control what providers did.  Medicare never really ever tried, as all its internal review cases were co-opted by providers.  Its only weapons were inquisitions and indictments from the FBI and others well after the fact. Eventually Medicare will have to have more controls, but that will need reform as well as more money. I’ll talk more about this when I get to drug coverage later this week.  Suffice it to say, don’t hold your breath.

Meanwhile, Uwe Reinhardt says in the NY Times article that (despite Wall Street’s desires) hospitals “can’t be a growth industry like some Internet company”. Well maybe not a “growth” sector, Uwe, but look at Yahoo’s stock price in 2000, Tenet’s this year, and tell me that you’re not getting some of that Internet fever coming back!

more on Medicare and drugs later this week….


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