Tag: Health Care Reform

Commentology

Jul 2, 2009• 9

Futurist Jeff Goldsmith’s analysis of issues that could cause problems for any health reform effort that eventually emerges from the foodfight in Washington this summer provoked a wide range of reader replies. (“No Country For Old Men“) Goldsmith wrote in response:

“The fun part of this blog is how much you learn about an issue when you post something. Several learning points: 1) How big a deal this is. $1.6 trillion sounds like a lot of money, but over ten years, it’s less than 1% of the cumulative GDP over those ten years (which I grew to $16.8 trillion from its present $14t in 2019). In other words, it’s peanuts. Cumulative health spending over this time looks like over $40 trillion, so even $600 billion in Medicare cuts looks like peanuts. These are small numbers made to look big because of the ten years. Plus ten year numbers are BS anyway because you never get a linear increase over that type of time span. $1.6 trillion actually sounds like Dr. Evil’s ransom demands in Austin Powers. . .”

THCB Reader Margalit offered this response to Dr. Rick Weinhaus’s open letter to former Harvard professor Dr. David Blumenthal, the man charged with masterminding the Obama administration’s ambitious health IT push (“An Open Letter to Dr. David Blumenthal“), urging the administration to rethink support for the current EMR certification process …

“Maybe Dr. Blumenthal should come up with two separate “certification” suggestions similar to the auto industry.

1) A minimal set of standard security and safety items. Nothing too fancy and complicated. Something like car emissions and inspection that products have to pass every year in order to “stay on the road”. Once the criteria are set, the inspection and certification body should be distributed, just like the inspection centers for cars, and multiple private bodies should be able to apply for the status of “Certification Center”.

2) This should be in the form of funding a Consumer Reports like entity, that is completely and totally unbiased, for evaluating EMRs and other health care applications. The Healthcare Consumer Reports should have very strict regulations regarding who it can receive funding from. Maybe the folks at the real Consumer Reports would like to take this one on. I would be inclined to trust them more than anything else that comes to my mind right now.”

Reader Candida also chimed in on the thread on usability prompted by Weinhaus’s proposed EMR design (“The EHR TimeBar: A New Visual Interface Design“), but posed a slightly more provocative question.

“The HIT and CPOE devices out there are an ergonomic failures and that alone renders them unsafe and not efficacious. But that is not the only defect harbored in these CCHIT “cerified” devices that causes injury and death to patients. There are many that are worse and they are covered up. The magnitude of patient injury and endagerment is hidden. The fact is that these are medical devices and as such, none have been assessed for safety and efficacy. CCHIT leadership, when asked about what it does if they get a report that a “cerified” device malfunctions in the after market and results in death, stated that they do not consider after market surveillance in their domain. One can take this a step further. How is it that medical devices are being sold without FDA approval?”

Dr. Evan Dossia wrote in to challenge critics who blame rising malpractice rates on physician attitudes and – in some cases – their ties to the insurance industry, in the thread on Dr. Rahul Parikh’s post looking at how the American American Medical Association is viewed one hundred and fifty years after the organization’s founding. (“How Relevant is the American Medical Association?“),

“Physicians began to be abandoned by big name insurance companies in the mid-1970’s so instead of “going bare” we started our own companies. As we continued to have ups and downs in the malpractice insurance market, more physician oriented companies appeared. Doctors now prefer companies started by other doctors and run by other doctors because these companies fight for their share holders rather than settle with plantiffs attorneys in order to avoid court room battles.”

Fellow reader Tcoyote agreed with industry analyst Robert Laszewki’s criticism of the rumored exemption that the Obama administration may give to labor unions, exempting them from any tax on health benefits for a period of five years. (“Unions May Get a Pass on Health Benefits Tax.”)

“Of course, this is politics, and the Democrats must throw the unions, whom they are stiffing on the “Employee Free Choice Act”, some kind of bone to get health reform financed. True enough, unionized workers’ after tax income isn’t protected by collective bargaining, but if unions knew it could fall by 5-7% because of a benefits tax, they would have asked for more in wages to cover the cost. I completely agree with the Chrysler/GM analogy. Those gold plated benefits are a major reason why our manufacturing sector is in trouble …”

Sarah Greene of the Group Health Center for Health Studies had this to say in response to Weinhaus’s take on a new and more usable electronic medical record design …

“It’s curious to me that human-computer interaction does not seem to have much traction in the EHR world, and yet in the consumer-centered Personal Health Record community, it is a guiding principle. While some might wonder if this suggests that doctors are super-human compared with patients (grin), it strikes me that the EHR developers of the world could take their cues from patient-focused efforts such as Project Health Design (www.projecthealthdesign.org)”

A Costly Wrinkle in the Merged Market

Jun 26, 2009• 24

By CHARLIE BAKER

One of the more controversial elements of health care reform in Massachusetts is the so-called “merged market.” In most states, individual health insurance is bought and sold under one set of rules, and small group insurance (for firms with either 1-50 employees or 2-50 employees) is sold under another set of rules.

It used to be that way in Massachusetts, too, before health care reform.

Individual insurance was guaranteed at the point of sale and the point of renewal, but the products were limited by state law, the price was based on the total medical expenses of the individual enrollees who bought individual coverage, and individual purchasers either couldn’t purchase coverage for pre-existing conditions or had to wait six months once they purchased insurance to access coverage.

The final rule was designed to make sure that people who had open access to health coverage wouldn’t simply buy it when they knew they were going to need it, and then drop it after their procedure was completed and paid for. Insurance is, after all, insurance. It’s all about shared risk. When it works, the healthy subsidize the sick. If there’s no incentive to buy health insurance when one is healthy, that reduces the size of the population that’s willing to pay premiums without requiring services, and increases the total cost of the coverage.

Under health care reform, the Commonwealth of Massachusetts merged the individual market with the small group market – creating what is commonly referred to as the “merged market.” I’ve written about this before. As a result of the merger, the premiums paid by small businesses went up, and individual prices went down – because the medical expenses of small employers, on average, were much lower than the medical expenses of individuals. That’s due – in large part – to the fact that in Massachusetts, small businesses, their employees and their families had much lower medical expenses than individuals and their families. It’s as simple as that. Estimates vary, but my cut is that individual premiums went down by about 25%, and small group premiums went up by 2-3% to pay for the merger.

The outcome of a merged market would be different in different states, depending on the rules for individual policies and small group policies prior to and after reform. ‘Nuff said about that.

Now here’s the costly wrinkle. When the merger occurred, the state told the health plans in Massachusetts that we could no longer apply a pre-ex exclusion or waiting period to individual purchasers unless we applied it to all purchasers in the merged market (including all small businesses). No one was willing to impose such a condition across the entire merged market – primarily because it would be unfair to small businesses to impose such a requirement. In the end, we all hoped that the new state requirement on individuals to have health insurance – or pay a tax penalty – would encourage healthy individuals to purchase insurance every year, and offset this now wide open front door for individual coverage.

Long story short, I don’t think it’s working. A few months ago, brokers started posting comments on this blog site that implied that people – and some brokers and employers – were gaming that wide open front door – purchasing health insurance for a few months at a time, using a lot of services, and then dropping their coverage. The penalty for not having coverage isn’t all that steep – about $900 – and while a few months of coverage might cost $2-3,000 in premiums – that’s peanuts compared to the cost of many medical services, which can run into thousands of dollars in a matter of days.

After about the fifth broker comment, I asked our finance people to check and see if individuals purchasing insurance from us either directly or through the state’s Connector web site were buying for a few months at a time, and using a lot of services. The results were astonishing. Between April of 2008 and March of 2009, about 40% of the people who purchased individual insurance from Harvard Pilgrim stayed covered by us for less than 5 months. Even more amazing, they incurred, on average, about $2,400 per person in monthly medical expenses – roughly 600% higher than what we would have expected. It wouldn’t surprise me if other health plans have the same problem.

This is a problem. It is raising the prices paid by individuals and small businesses who are doing the right thing by purchasing twelve months of health insurance, and it’s turning the whole notion of shared responsibility on its ear. It’s also created a new way for people who don’t want to play by the rules to avoid them. The state needs to reconsider its policy to eliminate waiting periods and/or pre-ex exemptions for individuals purchasing health insurance in the merged market. That would be the simplest and easiest way to protect individuals and small businesses who are playing by the rules – and limit the very costly impact of this wrinkle in health care reform.

In which I play Obama, answering Michael Cannon

Jun 25, 2009• 24

By Matthew Holt

Last night I was busy spending two hours of my and my business partner’s time buying health insurance for our massive 4 person company. That means doing a multi-factorial equation between premiums, co-pays, deductibles, out of pocket maximums, & in & out of network costs. It’s no wonder that no one understands their health insurance, especially when eHealthinsurance.com still doesn’t bother putting half of the important variables on its front page. But no matter, it will be my pleasure to make Wellpoint or Aetna better off—they’re not having such great years and they can use the money.

But then I noticed from the tweets that Obama was doing a primetime townhall about health care. So having failed to find it on my TV (cos I’m on the west coast and we’re not alive at the same time as you east coasters), I looked on the ABC web site. There I didn’t find the TV version , but I did find what I thought was a most amusing article….and as I went all the way through I noticed that it was by my buddy Michael Cannon…the thinking man’s health care libertarian from Cato.

Obama’s too busy talking mush with the townhall to answer…but I thought I might.

So here’s Michael’s questions, and in italics are my answers

Health Care Reform: Questions for the President

Will Health Care Reform Improve Our Health?

OPINION by MICHAEL CANNON

June 24, 2009—

“Health care reform is on life support,” says Rep. Jim Cooper of Tennessee. And he’s a Democrat.

MH: Not really! Or at least not in a sane country unless he has the word “Christian” in front of his party label

President Obama has spent months building momentum for health care reform. But when the Congressional Budget Office put the price tag near $2 trillion, it stopped reform dead in its tracks.

What Senate Finance Committee chairman Max Baucus, D-Mont., once called “nearly inevitable” now seems much less so — and that’s before supporters have confronted the really tough questions.

Before this debate is over, Obama should answer a few questions about his plans for reform, including:

Mr. President, in your inaugural address and elsewhere, you said you are not interested in ideology, only what works. Economists Helen Levy of the University of Michigan and David Meltzer of the University of Chicago, where you used to teach, have researched what works. They conclude there is “no evidence” that universal health insurance coverage is the best way to improve public health. Before enacting universal coverage, shouldn’t you spend at least some of the $1 billion you dedicated to comparative-effectiveness research to determine whether universal coverage is comparatively effective? Absent such evidence, isn’t pursuing universal coverage by definition an ideological crusade?

MH: Sadly Michael, universal coverage is not about improving public health. If you want to do that, go teach some kids age 1–5 and build some sewage systems. Universal care is about making sure that the costs of health care are fairly distributed. Under the systems you prefer and the one we now have they’re distributed to the poor and sick from the healthy and wealthy—many of whom we both know work in the health care system. But apparently there was NOT ONE MENTION from a questioner of the uninsured or sick people bankrupted by the system in the whole hour. (Update Fri: and the only time the moderator Charlie Gibson mentioned it was when he wondered how rich people like him would get access to a doctor with all these newly insured people wanting care–he spent the whole evening appearing to be a selfish git)

A draft congressional report said that comparative-effectiveness research would “yield significant payoffs” because some treatments “will no longer be prescribed.” Who will decide which treatments will get the axe? Since government pays for half of all treatments, is it plausible to suggest that government will not insert itself into medical decisions? Or is it reasonable for patients to fear that government will deny them care?

MH: Why should patients fear it? We know that less intensive care is better, and cheaper primary care is better than more extensive specialty care. As the taxpayer pays for training doctors and funds most medical facilities why shouldn’t they demand that the resources are better spent?

You recently said the United States spends “almost 50 percent more per person than the next most costly nation. And yet … the quality of our care is often lower, and we aren’t any healthier.” Achieving universal coverage could require us to spend an additional $2 trillion over the next 10 years. If America already spends too much on health care, why are you asking Americans to spend even more?

MH: Ah we agree. All the money should come from the current system, even if it means reducing the incomes of pundits, bloggers and those who sponsor them, and a few people in the system. Sadly the politics of the US means that apparently Obama can’t say that

You have said, “Making health care affordable for all Americans will cost somewhere on the order of $1 trillion.” Precise dollar figures aside, isn’t that a contradiction in terms?

MH: Well for a start it’s not $1 trillion, it’s $100 billion a year which these days will barely buy you 6 months invasion of a small country. Which we do without debate on a regular basis it seems. And if we take the money from somewhere else we’re spending the money in health care, it shouldn’t cost more. Ah ha, cant be done because well see last answer

Last year, you told a competitiveness summit that rising health care costs are “a major anchor on the ability of American business to compete.” In May, you wrote, “Getting spiraling health care costs under control is essential to … making our businesses more competitive.” The head of your Council of Economic Advisors says such claims are “schlocky.” Who is right: you or your top economist?

MH: Obama is. I just spent 2 hours figuring out a mess of health insurance decisions that not one of my international competitors has to do. Multiply that out by every business in America, and don’t bother adding the fact that what we actually pay for health care is more than double per head what everyone else does. We’re both political scientists so we know that economists don’t know squat.

You recently told an audience, “No matter how we reform health care, we will keep this promise to the American people. … If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.” The Associated Press subsequently reported, “White House officials suggest the president’s rhetoric shouldn’t be taken literally.” You then clarified, “What I’m saying is the government is not going to make you change plans under health reform.” Would your reforms encourage employers to drop their health plans?

MH: So? If employers do drop coverage as there are only 3 or 4 health plans in most markets, it would still be the same plan that the citizen would get to buy if they wanted to keep it and the costs would be subsidized for the poor. But don’t worry too much Michael. Americans hate their health plans. For some strange reason though they apparently like their doctors. Of course the AMA tells them they do

You found $600 billion worth of inefficiencies that you want to cut from Medicare and Medicaid. If government health programs generate that much waste, why do you want to create another?

MH: You’re saying all government programs are the same? That means the US Marine Corps and the Iraqi volunteer EDF (or whatever it’s called) are the same. I could start a government program that saved $600b very easily in Medicare & Medicaid. I might make a few enemies

You and your advisors argue that Medicare creates misaligned financial incentives that discourage preventive care, comparative-effectiveness research, electronic medical records, and efforts to reduce medical errors. Medicare’s payment system is the product of the political process. What gives you faith that the political process can devise less-perverse financial incentives this time?

MH: See my above answer, oh and abolish the Senate

You claim a new government program would create “a better range of choices, make the health care market more competitive, and keep insurance companies honest.” Since when is having the government enter a market the remedy for insufficient competition? Should the government have launched its own software company to compete with Microsoft? Are there better ways to create more choices and more competition?

MH: Hmm…the government did launch its own software “company”, which was way better & cheaper than the private sector competition, and made the government agency that used it provide the “best care anywhere”—demonstrably superior to privately provided care. And it was so good that the monopolists at Microsoft stole its name and never paid compensation! Or did you miss Vista in your health care system and software market analysis?

When government entered the markets for workers compensation insurance, crop and flood insurance, and disaster insurance, it often completely crowded out private options. Do you expect a new government health insurance program would do the same?

MH: I hope so because the current private options are lousy at keeping down health care costs, or satisfying their customers. Oops, Obama can’t say that, can he.

You have said there are “legitimate concerns” that the government might give its new health plan an unfair advantage through taxpayer subsidies or by “printing money.” How do you propose to prevent this Congress and future Congresses from creating any unfair advantages?

MH: I don’t know but I’ll make a deal. I’ll promise my health plan wont have use an unfair advantage if you promise that AHIP’s members will stop lobbying Congress to rip-off the taxpayer. This wonderful chart shows that the likelihood of being against the public plan is directly proportional to the bribes paid to Senators by insurance companies.

President Obama needs to address questions these directly. The health of millions depends on his answers.

MH: No it doesn’t. The health of Americans depends on a bunch of stuff. The wealth of a few millions who get royally screwed by the current system does depend on reform. The current system is aided and abetted by its defenders like Cato and others who advocate “solutions” that are not only unworkable but also politically un-feasible. Their only role is to be spoilers to keep the status quo in place.

Michael F. Cannon is director of health policy studies at the libertarian Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.

Matthew Holt is a vicious blogger who wouldn’t mind being President for a day or two but not without the ability to break Congress to his will in the first ten minutes.

How Relevant is the American Medical Association?

Jun 20, 2009• 23

By RAHUL PARIKH, MD

Like most doctors, I was busy seeing a full schedule of patients when President Obama addressed members of the American Medical Association at their annual meeting in Chicago. The speech was billed as a crucial confrontation over health reform, and anticipation had been building for quite some time. So I was too busy to learn anything about his remarks and the response until I got home.

Then again, I’m not a member of the AMA. I never have been. Neither are very many of my physician friends and colleagues. In fact, the odds are that your doctor isn’t a member of the AMA, because at best, only between 25-30% of the approximately 800,000 doctors in country belong to it. And a good percentage (up to half of members according to one report) of those include residents and medical students, who get big discounts on membership and a free subscription to a journal when they join.Continue reading…

We Need Southwest Airlines!

Jun 18, 2009• 11

By Roger Collier

Can price competition cut health care costs? There are lessons to be learned from the airline industry.

Over thirty years, per capita health care costs, adjusted for inflation, have increased two and a half times. In the same period, despite a doubling of fuel prices, airline fares have fallen by more than half.

Why the five-fold disparity?

It’s obvious the two industries have followed very different paths. While airline travel has become an experience of packed planes, crowded airports, and peanuts (or less) meal service, health care has seen dramatic advances. Treatments that a few years ago seemed unimaginable are now commonplace: heart transplants, anti-depression drugs, artificial joints, laparoscopic surgery using miniature television cameras, and—of course—Viagra.

That’s only part of the story, though. While air travel is now safer and more convenient, with more frequent flights to more destinations, health care in some communities is so inadequate that morbidity and mortality rates are comparable to those of third world countries.

Why have airlines been apparently so much more successful in giving value for money?

Led by Southwest, the airlines that sprung up after deregulation recognized that individual flyers were price-sensitive, and cut their costs accordingly. They faced barriers, though, many of them analogous to those in today’s health care system. Business travelers flying on their employers’ nickel resisted efforts to move them to crowded peanut-only flights, frequent flyers resisted having to switch from their favorite mileage plan to that of another airline network, and travel agents much preferred to send their customers on airlines paying higher commissions.

Southwest and its peers succeeded by marketing directly to the public, through relentless emphasis on lower fares, and by maintaining standards that were, if not luxurious, acceptable to travelers. Few businesses are now sympathetic to employees’ preferences for more comfortable higher-cost flights, frequent travelers have adapted to low-cost airlines’ mileage programs, and travel agents and their commissions are almost a thing of the past.

And now, just as Southwest Airlines travelers found that they reached their destinations as reliably—if not quite as comfortably—as before, so recent studies have shown that there is little or no relationship, within the range of acceptable medical standards, between health care costs and quality.

So, what must health care reform do to emulate Southwest Airlines’ effect on fares?

First, just as deregulation ended most legacy airlines’ government subsidies, the tax exemption for employer-paid insurance should be reduced or eliminated. Not only is the $300 billion a year tax subsidy needed to help pay for reform, but cutting the exemption will discourage overly-generous coverage and remove the inequity between employer-paid and individual-paid insurance.

Second, just as travelers can compare airlines’ fares for the same itinerary using Orbitz or Expedia, insurers should be required to price the same basic benefits, perhaps through insurance exchanges. Supplemental benefits could be offered and separately priced, but being able to compare prices for the same basic coverage is essential.

Third, just as individuals purchase most airline tickets, so individuals should be responsible for choosing insurance to meet their own needs. In practice, this implies subsidies for the lower-income, and perhaps also some form of voucher model to facilitate the process. It may be appropriate, however, to allow self-insuring companies to continue to provide employee coverage since, with no insurer risk or profit involved, they typically provide better value.

Fourth, just as airlines’ pay is negotiated only with their own unions—not with every airline union in each airport—so there should be more effective constraints on provider monopolies in which specialists in an area group together to control prices.

Emulating Southwest Airlines won’t result in the cost of health care falling by half, but it offers a far more promising approach to cost control than the expensive band-aid solutions, superimposed on the worst features of our present system, apparently preferred by congressional committees.

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 [reformupdate.blogspot.com].

Beyond the Beltway – How Most of America Sees Health Reform

Jun 17, 2009• 10

By BILL KRAMER

What are people saying about health reform beyond the beltway and outside the health wonk debates? I’ve been meeting with Rotary Clubs and local Chambers of Commerce during the last several months, and they’re talking about different issues than the ones being debated in Washington, DC. When I talk with these groups about the prospects for national health reform, what are the top three questions they ask?

Is this going to lead to a single-payer system with rationing, just like they have in Canada?
Why isn’t the malpractice problem being addressed?
Will this include illegal immigrants?

These are not the top issues being debated on Capitol Hill. If you just read Politico.com, the Washington Post, and the pundits’ blogs, you would think that the big issues are the public plan option, the employer mandate, and the cap on the tax exclusion of employer-paid benefits. There are important, but they aren’t the issues that most small employers and consumers are worried about.Continue reading…

MedPac on Steroids

Jun 5, 2009• 15

By MAGGIE MAHAR

I’ve long argued that Medicare reform will pave the way for healthcare reform, and that the Medicare Payment Advisory Commission’s (MedPac’s) recommendations could serve as a brilliant blue print for overhauling Medicare. (Also see our Century Foundation report on Getting More Value From Medicare).

Now President Obama appears to be backing a proposal that would empower MedPac to realize its vision for reform. Earlier this week, in a White House meeting with Senate Democrats, the president reportedly “went out of his way” to mention a bill, introduced by Senator Jay Rockefeller ( D-W.Va) that would move decisions about Medicare benefits away from Congress, by turning MedPAC into an independent executive agency. Currently, MedPac is an independent panel that advises Congress. It has no formal power. But under Rockefeller’s bill it would be able to implement its recommendations and fund policy initiatives.

Wednesday afternoon, the White House announced that the President has gone a step further by releasing a letter from President Obama to Senators Max Baucus and Ted Kennedy. The letter extends the remarks that the president made yesterday, which came close to endorsing Rockefeller’s bill. Writing to Kennedy and Baucus, the President indicated that the administration could find another $200 to $300 billion for health care reform, linking that proposal to “giving special consideration to the recommendations of the Medicare Payment Advisory Commission” (MedPAC), “a commission,” he noted, “created by a Republican Congress . . . Under this approach,” the president continued, “MedPAC’s recommendations on cost reductions would be adopted unless opposed by a joint resolution of the Congress. This is similar to a process that has been used effectively by a commission charged with closing military bases, and could be a valuable tool to help achieve health care reform in a fiscally responsible way.”

These savings, he added, “will come not only by adopting new technologies and addressing the vastly different costs of care [in different parts of the country], but from going after the key drivers of skyrocketing health care costs, including unmanaged chronic diseases, duplicated tests, and unnecessary hospital readmissions.”

Giving MedPac the Authority to Take the Politics Out of Fees for Doctors & Hospitals

Under Senator Rockefeller’s bill, MedPac would have the authority to set reimbursements for doctors and hospitals. As Rockefeller explained in a recent Senate Finace Committee meeting: “I think that [this is] the best way to take politics out of all of this is to take Congress out of the setting of reimbursements for doctors under Medicare and Medicaid and for hospitals, because there is a group of 17 . . . completely dispassionate people,” who could do this, Rockefeller explained, referring to MedPac.

“And I think one of the [reasons] you have your $700 billion of wasted money every year,” Rockefeller added, “is the fact that there are too many political judgments made because there’s too much lobbying and Congress can — you know, unless they’re all health care experts, can fall victim to that. So the idea of MedPAC having the power to set those fees, reimbursement fees, to me is enormously attractive, takes politics right out of it and takes Congress right out of it.”

At the hearing, White House budget director Peter Orszag indicated circumspect support for Rockefeller’s bill: “Your idea of — I think we’ve referred to it as MedPac on steroids, or a much more powerful role for a body that is widely respected– is one approach.”

What Exactly Does MedPac Recommend?

Until now, most reform advocates have ignored MedPac. The reports that the independent advisory panel issues in March and June of each year are long. They are dense with detail. And they are very, very smart. The commissioners understand that health care quality could be higher if we spent less on care.

They have digested the Dartmouth research revealing that when patients in some parts of the country receive more aggressive and more expensive care, outcomes often are worse. They realize that doctors and hospitals should be rewarded for the quality of the care they provide, not the quantity. As HealthBeat has reported, they know that the fee schedule that Medicare now follows favors specialists while underpaying primary care physicians, and they have suggested re-distributing Medicare’s dollars “in a budget neutral way”– hiking fees for primary care while lowering fees for some specialists’ services. They have pointed out that some very lucrative procedures appear to be done too often, in part because they pay so well. The Commission has advised targeting these procedures and comp ring them to alternative treatments—just in case a less expensive approach might turn out to be more effective (and not as risky for the patient), as pricier, more aggressive treatments.

Finally, MedPac notes that some hospitals actually make a profit on Medicare’s payments. This is because these hospitals are more efficient: patients typically spend fewer days in the hospital and see fewer specialists. There are fewer readmissions, And generally, outcomes are better. MedPac suggests that when private insurers pay hospitals more, they may simply be rewarding less efficient hospitals for lower quality care. (And of course, private insurers pass those higher payments along to their customers in the form of higher premiums.)

MedPac goes beyond looking at how we pay providers. Investigating Medicare Advantage, it has described the care that private insurers are providing as somewhere between “disappointing” and “depressing.” Taking a look at the boom in hospital construction, MedPac noted, in its March 2008 report that “much of the added capacity is located in suburban areas and in particular specialties, raising the possibility that health care costs will increase without significantly improving access to services in lower income areas”. (Here, I can’t help but think about the current controversy over whether Hackensack University Medical Center should be building a new for-profit facility in a nearby suburb.)

As for the drug industry, in its June 2008 report to Congress MedPac observed that “researchers have shown that bias in industry-sponsored trials is common.” Because we lack disinterested, “evidence-based” information about new products, MedPac noted “we do not know which treatments are necessary for which types of patients. Guidelines do not exist . . . to delineate how much care is typically needed . . . and when patients are unlikely to improve with additional treatment.” In the same report, MedPac cast a cold eye on just how quickly we adopt bleeding-edge medical product and procedures to treat “most common clinical conditions” without “credible, empirically based information” to tell us “whether they outperform existing treatments and to what extent.” In other words, we need unbiased comparative effectiveness research. Those who make a profit on new products and procedures should not be involved.

These are exactly the radical but truthful recommendations that would make any well-paid health care lobbyist shudder. No wonder the Bush administration ignored MedPac’s advice for eight years.

Now, a new White House is taking MedPac’s recommendations to heart. And Congressional leaders also seem to recognize the link between Medicare reform and national healthcare reform. In April, HealthBeat reported that Senate Finance Chairman Max Baucus had declared that Medicare would become “the big driver” behind national health reform. Now, it’s becoming clear what Baucus meant.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in Barron’s and Institutional Investor. She is the author of “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the healthcare system, and the increasingly influential HealthBeat blog, one of our favorite health care reads and where this piece first appeared.

How to Waste a Boatload of ARRA Money

May 22, 2009• 70

By CINDY THROOP

Cindy on Bus I want to take a moment to make sure we are all on the same page here with the business of health care reform. This is inanely simple. When it comes to health care, keep doing things the same way. It’s a proven business model. Here are a few specific pointers.1) Don’t Involve ConsumersThis is really critical. Do *not* ask consumers what they want. Whatever you do, don’t ask consumers to define “meaningful use.” These kinds of rhetorical debates are best left to academics and bureaucrats inside the beltway. Every time a consumer mentions anything resembling meaningful use or a “personal” health record, change the subject immediately.2) Act Like Privacy Issues are InsurmountableThe possibilities here are endless. The more you can distract consumers with potential privacy issues, the less they will pay attention to the ways in which they would benefit from having true ownership of their health care data.

3) Don’t Learn from Other IndustriesDon’t bother reading that book by Clay Christenson. He has spent a decade studying the inefficiencies of the health care system. Inefficient by whose standards? Let the academics put their two cents in when it comes to meaningful use, but don’t listen to any of that Harvard B-school innovation nonsense.4) Act Like Open Source Doesn’t ExistFortunately, most people have long forgotten that once upon a time, software was free and/or inexpensive. They continue to blindly support proprietary software, even during a prolonged recession. They even purchase new computers to run this bulky, expensive software!This ties into the next point. 5) Think Short TermThe time to think through any major conceptual problems is not now. Come up with brilliant, yet strangely expensive health care solutions (remember, they must be proprietary). Don’t worry about long term sustainability or stupid things like sharing your source code. Having proprietary solutions is exactly the leverage you need to maintain your involvement in perpetuating, I mean solving, the problem. This is advice you can (both literally and figuratively) take to the bank.Oh, yeah, speaking of the bank, by the time tax payers realize what you’ve done, you will have already deposited your bonus check and had a fabulous spa treatment.

Cindy Throop is a University of Michigan-trained social science researcher specializing in social policy and evaluation. She is one of the few social workers who can program in SAS, SPSS, SQL, VBA, and Perl. She provides research, data, and project management expertise to projects on various topics, including social welfare, education, and health. www.cindythroop.com

The Path of Five Fallacies

Apr 13, 2009• 26

By ROGER COLLIER

No, it’s not one of those Chinese operas from the Chairman Mao years, but rather my reaction to a recent report from the prestigious Commonwealth Fund. “The Path to a High Performance US Health System,” and its accompanying technical documentation, forecast savings for a “comprehensive set of insurance, payment, and system reforms that could guarantee affordable coverage for all by 2012, improve health outcomes, and slow health spending growth by $3 trillion by 2020.”

On a positive note, both the report and the technical documentation are well worth reading. The report assembles in a single “system” most of the proposals currently being talked about by HHS Secretary-nominee Kathleen Sebelius and senior staff in the White House Office of Health Reform, while the technical documentation provides a comprehensive analysis of costs and savings that might result from these changes.

So, should we have confidence that the proposed “system” can get us close to universal coverage and make a $3 trillion dent in health care costs? Unfortunately not.

While the Commonwealth Fund report contains many sensible ideas, the conclusions are undermined by five major fallacies.

Fallacy Number One: Small businesses will accept a “play-or-pay” proposal that forces them to pay a minimum of seven percent of payroll for health care.

There are practical reasons why play-or-pay won’t be effective, but the biggest obstacle is political feasibility. While a seven-percent levy might seem modest to businesses that currently pay much more for coverage, it’s inconceivable that such a proposal in the middle of a recession would produce other than fierce opposition from NFIB and its allies. Unless health care reform is incorporated in a budget reconciliation bill—unlikely since it would upend the Senate tradition of compromise—it will require sixty yea votes, something that small businesses can pretty much guarantee to prevent. (The Commonwealth Fund seems to have forgotten that business lobbyists helped defeat California’s reform bill that called for just a four percent levy.)

Fallacy Number Two: The insurance industry will allow the creation of a “public plan” to compete with their own offerings—a plan that the Commonwealth Fund estimates will drive provider payments down by as much as thirty percent compared to traditional FFS insurance, and attract up to two-thirds of the individual and group markets.

Oh, s-u-r-e! Given that for most insurers this is a bigger threat even than the 1993 Clinton bill (where at least insurers had the possibility of turning themselves into managed competition entities), the reality is that the public plan proposal is even less likely to succeed than play-or-pay. The assumption that it would be the only FFS plan sold through the proposed insurance exchange is especially likely to leave AHIP leaders foaming at the mouth. Providers are unlikely to be too eager to go along with a proposal that slashes payment rates by thirty percent, either. (And, as I’ve noted previously it’s not that certain that public programs are superior to private coverage.)

Fallacy Number Three: Government spending on IT of $120 billion over ten years will yield savings of almost $200 billion.

A huge coup for IT lobbyists! There are certainly strong arguments for electronic medical records (no one wants to be on the receiving end of one of those nasty drug-drug interactions), but the forecast savings are unlikely to be anything but illusory. Integrated health care systems like Kaiser may be able to achieve savings (hopefully, given the $4 billion that Kaiser has sunk into its own IT project), but the great majority of US providers have neither the same level of integration nor the same incentives. A more realistic view is found in last year’s Congressional Budget Office report on health care issues, “By itself, the adoption of more health IT offers many benefits, but it is generally not sufficient to produce substantial cost savings because the incentives for many providers to use that technology to control costs is not strong.” (By the way, did anyone in the White House think to ask their own Budget Director, Peter Orszag, who oversaw the preparation of the CBO report, before deciding to spend $19 billion on health care IT?)

Fallacy Number Four: Establishment of a “Center for Comparative Effectiveness and Health Care Decision-Making” will cut expenditures by more than $600 billion over the next decade.

H-m-m-m. While it’s hard to argue against something that seems so sensible (we’d all prefer our docs to know what works best), the savings projection seems wildly optimistic. The $600 billion estimate assumes that more intrusive (but unfunded) public program claims processing procedures will dramatically change provider behavior. We all know from the Dartmouth Atlas reports that there’s lots of room for improvement, but without the control over resources that the UK’s NICE enjoys, it’s hard to believe that those high-cost providers in Miami (and elsewhere) will go along with slashing their incomes (see Fallacy Number Five). And as the CBO report notes: “it would probably take several years before new research on comparative effectiveness could reduce health spending substantially.”

Fallacy Number Five (perhaps the biggest fallacy of all): Providers and patients will behave the way the Commonwealth Fund (and most of the rest of us) would like them to.

Unfortunately, this piece of wishful thinking is at odds with the incentives in our current supply-driven health care system. Outside of entities like Geisinger, Kaiser, and the Mayo Clinic, improvements in provider efficiency are likely to cut incomes, not increase them. It’s no coincidence that areas with the greatest physician and hospital densities have the highest health care costs. In a health care version of Parkinson’s Law (“Work expands so as to fill the time available for its completion”), availability of resources—whether high-tech imaging equipment or physician time—means that the resources will be utilized in patient care. Unless we can change the incentives—or control the introduction or distribution of new resources—we will never solve the health care cost problem.

Imagining the Possible

Mar 31, 2009• 18

By Bruce Pyenson, Sara Goldberg and Kate Fitch

The emperor we call American healthcare is wearing no clothes—or perhaps too many clothes. The United States spends too much on healthcare. More than 25% of our healthcare dollars are wasted on unnecessary utilization. With this in mind, we recently completed research that identifies where that waste resides. Our analysis offers a target for how far the country might go in weeding out waste. We used the top-performing health systems as a basis, employing actuarial models to extrapolate results for the entire country. Our “16 to 12” model is a standard you can use to measure healthcare reform proposals. It can help you quickly identify defenders of different pieces of the status quo—and defenders of the absurd. In the few weeks since “16 to 12” came out, we’ve heard an almost universal reaction: “Of course you’re right, but [fill in special interests] won’t let it happen.” That’s amazingly positive—maybe we can actually reach consensus on fixing the system.

Framing the vision

In 2006, approximately 16% of the gross domestic product was spent on healthcare. Even if the United States were to reduce its healthcare expenditures to 12% of GDP, we would still spend far more than any other country. Is this possible? Our reduction is less than many estimates of healthcare waste. It’s also more than the annual spending on motor vehicles—4% of GDP could power a new American century.

Numbers for a growing consensus

Opposition to waste seems universal, from President Obama to Senator Max Baucus. They join a chorus of other voices, from CEOs and medical trade organizations to employer groups. Let’s take them all up on this point by quantifying opportunities for reductions in waste.

The table below offers a detailed inventory of efficiencies by service category, for one year’s costs. For example, inpatient services in 2008 cost an estimated $500 billion. Our working efficiency model reduced that by 38% to $311 billion.

These reductions are based on evidence-based best practices, including reducing unnecessary imaging and surgeries, better managing inpatient admissions, increased reliance on generic drugs, embracing primary care and certain electronic transactions, and other 20th-century (not even 21st-century!) management practices.

We’re proposing that healthcare payers (governments, employers, and individuals) could reallocate more than half a trillion dollars each year to other priorities.

The saved money could be used in other sectors, such as increased wages and infrastructure investment initiatives, and possibly even toward deficit reduction, reduced taxes, funding Medicare, etc.

The money saved could also stimulate the economy. And even though we’re working with 12% as the target model, we think it can get even lower than that.

Economic stimulus programs will likely increase healthcare spending, especially by federal and state governments. The 12% target may have to fight that surge, but we’re not talking about speculative long-terms gains, such as getting all Americans to exercise and reach a healthy weight.

What will the new system look like?

Although the healthcare system is typically divided into three categories—physicians/healthcare professionals, hospitals, and prescription drugs—our vision directly benefits patients.

We point to patients consistently receiving attention and care, according to treatment plans based on evidence-based medicine. All patients’ interactions will be streamlined through administrative systems, along with expanded hours via e-mail and phone access. We also suggest that the average patient will be more informed about choosing the appropriate care due to the reduction in costs; in turn, fewer medical errors should occur.

Another big change in the desired model is the re-engineering of hospital care.

Hospitals would operate on a 12/7 (12 hours a day, seven days a week) or 24/7 basis. While many hospitals currently don’t provide diagnostic treatment services on weekends or after standard business hours, that would change under this vision.

We believe hospitals can do a much better job lowering their readmissions. A separate report estimates that 18% of Medicare hospitalizations result in readmission within 30 days. A majority of those are potentially avoidable.

Our report didn’t delve deep into prescription drugs, but we suggest that there are efficiencies to be found in improvements to the FDA approval process and in a more widespread embrace of generic drugs.

It’s important to point out that we can become even more efficient than this vision. For example, we can dramatically improve end-of-life care, fix medical malpractice, and reduce administrative costs on better than a pro-rata-with-claims basis—all things that could push healthcare spending below 12% and improve the patient experience.

Winners and losers

Given this demanding vision, hospitals and other providers who don’t adapt to an efficiency- and quality-driven system will lose out.

For the nation, this vision offers more winners than losers. Patients and consumers would be the biggest winner and the U.S. economy overall would benefit. Employers would minimize the yoke of expensive benefits that has made it difficult to compete with leaner companies in other countries.

Proposals for healthcare reform now have the glamour of springtime fashions. Our 16% to 12% vision measures what’s under these emperors’ new clothes.

Pyenson, Fitch, Goldberg, Imagining 16% to 12%. 2009. Available online at http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/imagining-16-12-RR02-01-09.pdf

Lead author Bruce Pyenson, FSA MAAA, is a Principal and Consulting Actuary with Milliman, an actuarial and consulting firm with offices worldwide. Kate Finch RN serves as a Principal and Management Consultant with Milliman. Sara Goldberg, FSA, MAAA serves as Consulting Actuary with the firm.

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Everything you always wanted to know about the Health Care system. But were afraid to ask.