Is it time to nationalize the drug industry?

Posted by on Thursday, Jul 2, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Novartis to test new pricing model with heart failure drug

By Ben Hirschler
Reuters, June 30, 2015

Novartis plans to test a novel pricing model with some customers when it launches its keenly awaited new heart failure drug Entresto, the Swiss company’s head of pharmaceuticals said on Tuesday.

Entresto, also known as LCZ696, is the first new drug in decades for helping patients whose lives are in danger because their hearts cannot pump blood efficiently. As a result, it is widely expected to generate billions of dollars in annual sales.

How the product should be priced, however, is a dilemma for Novartis, since the company wants to reach as many patients as possible and it knows it will be competing with very cheap – though less effective – older medicines.

David Epstein said he was talking to several healthcare customers about a system under which they would get the drug at a discount but then pay Novartis more if, as expected, it successfully reduces the need for costly hospital visits.

“We are beginning to share the risk,” he said in an interview.

The idea of moving from a simple pay-per-pill model to one based on clinical outcomes is being considered by several drugmakers, and Novartis already has such a system in place for one customer using its multiple sclerosis drug Gilenya.

But Entresto could be an important test case because the drug will push up immediate drug costs markedly for a large number of patients, while having the potential to reduce their long-term medical bills.

The issue of drug pricing has come to a head recently, thanks to the launch of extremely expensive new medicines for cancer and hepatitis C, which are straining healthcare systems and adding to co-payment costs for patients.

Epstein, whose team is in the final stages of deciding the price for Entresto, declined to detail a likely cost per pill. But he said it would take into account “cost offsets”, such as fewer hospitalizations, as well as the value added from improving patients’ lives.

“We going to try and be fair and reasonable,” he said.…


Cost-Offsets of Prescription Drug Expenditures: Data Analysis Via a Copula-Based Bivariate Dynamic Hurdle Model

By Partha Deb, Pravin K. Trivedi and David M. Zimmer
Health Economics, October 2014


In this paper, we estimate a copula-based bivariate dynamic hurdle model of prescription drug and nondrug expenditures to test the cost-offset hypothesis, which posits that increased expenditures on prescription drugs are offset by reductions in other nondrug expenditures. We apply the proposed methodology to data from the Medical Expenditure Panel Survey, which have the following features: (i) the observed bivariate outcomes are a mixture of zeros and continuously measured positives; (ii) both the zero and positive outcomes show state dependence and inter-temporal interdependence; and (iii) the zeros and the positives display contemporaneous association. The point mass at zero is accommodated using a hurdle or a two-part approach. The copula-based approach to generating joint distributions is appealing because the contemporaneous association involves asymmetric dependence. The paper studies samples categorized by four health conditions: arthritis, diabetes, heart disease, and mental illness. There is evidence of greater than dollar-for-dollar cost-offsets of expenditures on prescribed drugs for relatively low levels of spending on drugs and less than dollar-for-dollar cost-offsets at higher levels of drug expenditures.

With the marketing success of outrageously priced drugs, the pharmaceutical industry is now devising schemes to be sure that their new products that are protected by patents will continue to be introduced with similar outrageous prices. This concept of adding “cost offsets” to the pricing is not new, but it now has a label that supposedly legitimizes its inclusion in pricing decisions.

In the past, pharmaceutical firms have cited the high costs of drug research as an excuse for high prices of new products (though the high prices of the past were nothing compared to the five and six digit prices of today’s new products). As the public discovers that the drug industry’s advertising budgets are typically three times their research budgets, and much of the research is funded through government programs such as those of the NIH, the firms apparently have decided that this argument is no longer as persuasive, and so they have to find another reason to justify outrageous pricing.

“Cost offsets” is a convenient label for adding to the the research, marketing, administration and profit costs of the products. These “cost offsets” include such concepts as money saved by fewer hospitalizations, fewer expensive interventions for progression of disease processes, and for the added value of prolonged lives or the added value of higher quality lives.

Think about that. What gall it takes for these pooh-bahs of the pharmaceutical world to suggest that they are entitled to capture, for themselves, not just the costs and legitimate profits, but the value of the benefits of their products, through higher consumer prices, whether paid individually or through some form of public or private insurance.

This perverse type of thinking is not limited to Novartis’ David Epstein. Bayer’s Marijn Dekkers 18 months ago said, about their expensive cancer drug, Nexavar, “we did not develop this product for the Indian market – let’s be honest – we developed this product for Western patients who can afford this product, quite honestly.”

Perhaps more despicable is this entry from a draft of the infamous Trans-Pacific Partnership Agreement, which contains the following in its statement of principles: “(d) the need to recognize the value of pharmaceutical products and medical devices through the operation of competitive markets or by adopting or maintaining procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical product or medical device.”

Not only did the pharmaceutical industry buy off Congress when they went the route of the market-based Affordable Care Act instead of an efficient single payer Medicare for all, they have demonstrated to us that their primary goal is to achieve the greatest returns for their executives and shareholders no matter the cost to the ultimate consumers – the patients.

There could not be an industry that cries out more for government intervention to protect consumers than the pharmaceutical industry (oh wait, the private insurance industry, of course, but that’s another topic). Many suggest that it is time to demand negotiation of drug prices, or even to dictate fair prices. But should that be our opening position? How about calling for nationalization of the industry, at least their U.S. subsidiaries. That should get their attention. They have to know that we’re serious about wanting relief from their greed.

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Sound the alarm: The private insurance exchanges are coming!

Posted by on Wednesday, Jul 1, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Towers Watson merges with London-based consulting firm in $18 billion deal

By Aaron Gregg
The Washington Post, June 30, 2015

Towers Watson, the Arlington-based professional services company that operates a private health insurance exchange covering about 1.2 million people, announced an $18 billion all-stock merger with Willis Group Holdings, a London-based insurance and benefits firm.

The merger is the latest in a series of what Willis chief executive Dominic Casserley called “carefully targeted mergers and acquisitions” to expand his company’s international footprint. Last month, Willis Group acquired Evolution Benefits Consulting, a Pennsylvania health and welfare benefits advisory firm, and in late April it announced it would fully acquire Gras Savoye, one of France’s largest insurance brokerage firms.

Casserley said in a news release that the new company “will advise 80 percent of the world’s top-1,000 companies,” operating as a one-stop shop for large employers managing complex aspects of their human resources mix, benefits such as employer-provided health insurance and a range of other costs that affect companies’ bottom lines.

Because the new company will be based in Ireland, Towers Watson’s corporate tax rate will drop from 34 percent to a projected 25 percent.

This merger “is driven by business purpose, not from a tax planning standpoint but from serving customers,” said John Greene, chief financial officer of Willis. “The tax benefits that are derived just happen to be a nice consequence of the transaction.”

Towers Watson Chairman John Haley will lead the new company as chief executive, and Casserley will serve as president and deputy chief executive of the new company, which will operate under the name Willis Towers Watson.

Casserley said in a conference call that the merger was first conceived while Willis worked in partnership with Towers Watson on a health exchange.

The exchange “has rapidly grown to serve more than 1 million members in the United States,” Casserley said. “Many independent analysts believe that this is just the start, and that the business is at an inflection point, with the total market likely to grow significantly within five to seven years.”…

This mega-merger of benefits consulting firms is designed to capture the rapidly expanding market in private health insurance exchanges. Why should we be concerned?

The Affordable Care Act (ACA) was designed to protect the sectors of health care coverage that allegedly were functioning well – especially employer-sponsored health care plans. The greater changes enacted in ACA were aimed at the much smaller sector of dysfunctional individual and small group plans, plus expanding Medicaid for low-income individuals and families.

So how has it gone for the stable, well functioning employer-sponsored plans? Not so well. Even though there has been some slowing in the increase in health care costs, the increases have been in excess of inflation, and there appears to be a return to an accelerating pace of cost increases. Most employers are very concerned about the costs of their employee benefit packages, and they are already taking action to slow their nominal portion of the increases (though most economists contend that the employers’ portion is actually paid by the employees in forgone wage increases).

The most important measure already taken by many employers is to increase cost sharing, especially by requiring high deductibles that must be paid before most benefits kick in. This reduces the insurance premiums (or the contributions to the self-insured health trust) for the employer-sponsored plans since a significant portion of actual health care spending is shifted to the employees and their families. Other innovations such as tiering of drugs also shift more costs away from the employer. Plan beneficiaries also are reducing their utilization of beneficial health care services when they are exposed to high deductibles – a perverse disincentive that reduces spending.

The use of narrower provider networks also helps to reduce the employers’ contribution to health care payments. The employers’ representatives are able to contract for lower provider rates in exchange for a promise of oligopolistic exclusivity. Also the responsibility for payment of costs for care obtained outside of the networks is shifted almost entirely to the employees. In addition, providers known for managing expensive chronic disorders can be excluded from the networks, impairing the ability of patient beneficiaries to obtain the care that they need.

The employers are still not satisfied. Some are now beginning to implement the use of private insurance exchanges. In this model, the employer no longer offers an employer-sponsored health plan but instead provides the employee with a voucher or voucher-equivalent to purchase from a selection of plans in the private insurance exchanges. Since the value of the voucher is fixed, the employee must bear the additional costs of plans that have greater benefits. Thus this is a shift from a defined benefit program to a defined contribution program; by controlling the value of the voucher, the employer is able to shift much of the future health care cost increases onto the employees.

If you look at the insurance exchanges set up by ACA, you will see that the standard plans are low actuarial value plans. The benchmark silver plan has an actuarial value of 70 percent – the patient is responsible for paying an average of 30 percent of the costs (though many qualify for subsidies). The bronze plans have an actuarial value of only 60 percent. Employer-sponsored plans formerly had an actuarial value closer to 90 percent, but with the plans offered in the private exchanges, employees usually will select plans that the voucher will cover. This is a great opportunity for employers to gradually shift the value of the voucher so that it would cover 60 or 70 percent actuarial value plans, just like in the ACA exchanges (except that no government subsidies would be available for the private exchange plans).

This move to private insurance exchanges represents a tremendous business opportunity for benefits consulting terms, as today’s article indicates (not to mention offshoring to Ireland!) That’s just what we need: more administrative complexity and costs in our system already tremendously overburdened with administrative excesses. These benefits consulting firms are selling health insurance products without bearing any of the insurance risk of those products. The private insurers, with all of their administrative waste and insurance product perversions, remain prominent players in the system.

These benefits consulting firms tout choice. The employees are free to upgrade to a high actuarial value Cadillac health plan if they so desire. Little does it matter that most of them have hardly enough funds to be able to purchase a low actuarial value roller-skate health plan.

As if the deterioration in employer-sponsored plans has not already been enough, this switch to using a defined contribution voucher in private insurance exchanges will be a disaster for affordable health care for employees and their families.

Rather than accelerating the move toward private health insurance exchanges, we need to accelerate the transition to a single-payer improved Medicare for all program. Or do we just sit back and watch people go broke and suffer?

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Did you miss the important PNHP statement on the King v. Burwell decision?

Posted by on Tuesday, Jun 30, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

‘Subsidies upheld, but health needs still unmet’: doctors group

Physicians for a National Health Program, June 25, 2015

Although the Supreme Court has upheld the premium subsidies under the Affordable Care Act, the law remains incapable of remedying the U.S. health crisis, physician group says

Physicians for a National Health Program, an organization of 19,000 doctors who support single-payer national health insurance, released the following statement today:

Today’s decision by the Supreme Court in King v. Burwell to uphold the Affordable Care Act’s premium subsidies in about three dozen states will spare more than 6 million Americans the health and financial harms associated with the sudden loss of health insurance coverage.

For that reason alone the decision must be welcomed: Having health insurance is better than not having coverage, as several research studies have shown.

That said, the suffering that many Americans are experiencing today under our current health care arrangements is intolerable, with approximately 35 million people remaining uninsured, a comparable number underinsured, and rapidly growing barriers to medical care in the form of rising premiums, copayments, coinsurance and deductibles, and narrowing networks.

The unfortunate reality is that the ACA, despite its modest benefits, is not a remedy to our health care crisis: (1) it will not achieve universal coverage, as it will still leave at least 27 million uninsured in 2025, (2) it will not make health care affordable to Americans with insurance, because of high copays, deductibles and gaps in coverage that leave patients vulnerable to financial ruin in the event of serious illness, and (3) it will not control costs.

Why is this so? Because the ACA perpetuates a dominant role for the private insurance industry. Each year, that industry siphons off hundreds of billions of health care dollars for overhead, profit and the paperwork it demands from doctors and hospitals; denies care in order to increase insurers’ bottom line; and obstructs any serious effort to control costs.

In contrast, a single-payer system – an improved Medicare for All – would achieve truly universal care, affordability, and effective cost control. It would put the interests of our patients – and our nation’s health – first.

Single payer is simple: everyone in the U.S. would be covered for all medically necessary care in a single program financed by equitable taxes.

By replacing multiple private insurers with a single, nonprofit agency like Medicare that pays all medical bills, we would save approximately $400 billion annually by slashing the administrative bloat in our current private-insurance-based system. That money would be redirected to clinical care. Copays, coinsurance and deductibles would be eliminated.

Further, such a single, streamlined system would be able to rein in costs for medications and other supplies through the system’s strong bargaining clout – again, to our patients’ benefit.

A single-payer system would also be legally robust.

Because of the ACA’s administrative complexity and flaws – largely reflecting its accommodation to the private health insurance industry and other corporate, profit-oriented interests in U.S. health care – it is particularly vulnerable to the kind of legal challenge we saw today.

Our patients, our people and our national economy cannot wait any longer for an effective remedy to our health care woes. The stakes are too high. We need to move beyond the administratively wasteful, complex and inadequate ACA to a more fundamental, rational single-payer national health program.

Contrary to the claims of those who say we are “unrealistic,” a single-payer system is within practical reach. The most rapid way to achieve universal coverage would be to improve upon the existing Medicare program – which is celebrating its 50th anniversary this year, showing it has stood the test of time – and expand it to cover people of all ages. There is legislation before Congress, notably H.R. 676, the “Expanded and Improved Medicare for All Act,” which would do precisely that.

What is truly unrealistic is believing that we can provide universal and affordable health care in a system dominated by private insurers and Big Pharma.

The American people desperately need a universal health system that delivers comprehensive, equitable, compassionate and high-quality care, with free choice of provider and no financial barriers to access. Polls have repeatedly shown an improved Medicare for all, which meets these criteria, is the remedy preferred by two-thirds of the population. A solid majority of the medical profession now favors such an approach, as well.

We pledge to step up our work for the only equitable, financially responsible and humane cure for our health care ills: single-payer national health insurance, an expanded and improved Medicare for all.…

Before the release of the Supreme Court decision on King v. Burwell, there was extensive speculation on the relatively narrow topic of what would happen if some individuals lost their subsidies for purchasing plans in the insurance exchanges. Following the decision supporting the subsidies, much of the reporting has shifted to the view that the Affordable Care Act (ACA) is here to stay; the inherent infrastructure of ACA will guide further reform. Unfortunately, this framing of the issues has diverted us from the conversation that we need to be having.

When considering what needed to be done, ACA fixed very little of our health care financing system. This victory being celebrated now upheld premium subsidies that will allow less than two percent of the population to keep their ACA exchange plans – mostly low-actuarial-value underinsurance plans. To characterize this as the make-or-break Supreme Court decision for health care reform is entirely missing the essence of an equitable health care financing system.

On the day that the Supreme Court decision was announced, a link to the PNHP statement was included in the Quote of the Day message. That was not enough. The PNHP statement does catch the essence of the problem and thus is being distributed in full as today’s message. It should be shared widely with others since true health care equity is what the nation now needs to be talking about.

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The long-awaited ruling by the U. S. Supreme Court (SCOTUS) supporting subsidies/tax credits for the Affordable Care Act (ACA) has been hailed by the mainstream media (even including MSNBC) as a landmark event showing the success of health care reform. Granted, the ACA after five years has brought new coverage to 16 million people through the exchanges and expanded Medicaid, and has established some limited insurance reforms, such as banning insurers from denying coverage based on pre-existing conditions. But as the media celebrate and hype this event, we need to ask some hard questions about where we now find ourselves in reforming our dysfunctional system.

First, as to numbers, there were 50 million uninsured Americans in 2010, when the ACA was enacted; that number today is still 35 million. (1) Tens of millions more are underinsured, and we will never achieve universal coverage under the ACA. Even with insurance, one in three Americans cannot afford necessary health care, with many foregoing care and being forced into debt or bankruptcy. The ACA does not address underlying causes of medical debt, including high cost-sharing in many plans, little or no coverage for out-of-network care, and limits on essential health benefits. (2) Despite the original intent of the ACA to provide new insurance protections, insurers can still discriminate against the sick through inadequate provider networks, high deductibles, restrictive drug formularies, deceptive marketing practices, and other means. (3)

Uncontrolled inflation of health care costs continues unimpeded as insurers, hospitals, drug companies, and others in the medical-industrial complex embrace expanded and subsidized new markets with minimal oversight. This problem is growing worse as insurers and hospitals consolidate, gain near-monopoly market shares, and raise their prices to what the traffic will bear. Meanwhile, the bureaucracy and cost of the ACA’s infrastructure continues to grow.

This SCOTUS decision is yet another bailout of a dying private health insurance industry that would be gone without federal subsidies—from us, the taxpayers. In describing the rationale for the Court’s ruling, Chief Justice John Roberts said: “Congress passed the Act to improve health insurance markets, not to destroy them.”  America’s Health Insurance Plans (AHIP), the industry’s trade group, had previously filed an amicus brief with the court in King v. Burwell that described a calamitous outcome for the industry unless subsidies were continued. (4)

This makes me ask: who was the patient that SCOTUS was trying to help—the insurance industry or everyday American real patients? This latest ruling props up a dying industry for another period of time. Despite the ACA’s successes to date, we are still left with uncontrolled inflation of health care costs that are unaffordable for much of the shrinking middle class, continued erosion of employer-sponsored insurance (ESI) as many employers shift employees to the exchanges or defined benefit plans, and increasing cost-shifting to patients.

We need to recognize the failures of the insurance industry even as they receive their second bailout from SCOTUS. These examples illustrate how inadequate the industry is in handling health care financing in this country:

  • Almost one-half of physician networks for plans sold on the exchanges include less than 25 percent of physicians in their region; patients receiving out-of-network care are subject to high costs without coverage. (5)
  • There are inadequate price controls in the ACA, thereby giving insurers, hospitals, pharmaceutical companies, and other corporate stakeholders in the medical-industrial complex expanded subsidized markets with minimal oversight.
  • More than 20 states rejected Medicaid expansion under the ACA leaving about 8 million people uninsured; as a result of their foregoing necessary care, it is estimated that the number of deaths in opt-out states will range between 7,115 and 17,104. (6)
  • There are still about 18 million Americans who are eligible for coverage under the ACA but have not purchased coverage, in many cases because of its high costs. (7)
  • According to the Centers for Medicare and Medicaid Services (CMS), the expanding bureaucracy under the ACA will take up one quarter of federal spending and add almost $274 billion in new administrative costs heading into 2022. (8)

We can expect this next stage of the ongoing debate over health care reform to be heated as both political parties adapt their messages to this latest development in the 2016 election cycle. But we need to keep in mind who the patient is as the debate goes forward—it should be real patients, not the self-interest of giant corporate stakeholders in our medical-industrial complex.

SCOTUS has bailed out the private insurance market once again, as it previously did in 2012. The government continues to subsidize a bloated and failing market. We can expect to see increasing premiums and less value of coverage in the next few years as insurers maximize profits over service. What will we do about the next dire call by the health insurance industry about the “death spiral? We have already tolerated too many years of its false arguments for its central role in health care financing. We can no longer afford its inefficiencies, profiteering, and disingenuous statements of its necessity. It is time to move on to real health care reform, with single-payer, not-for-profit financing of the U. S. health care system.


1. Radofsky, L. Meet the health-law holdouts. Wall Street Journal, June 25, 2015.

2. Pollitz, K, Cox, c, Lucia, K et al. Medical debt among people with health insurance. Kaiser Family Foundation, January 2014.

3. Patient advocacy groups. Letter to Sylvia Burwell, Secretary of Health and Human Services, July 28, 2014.

4. Potter, W. Insurers’ arguments key to Supreme Court decision. Commentary: upholding Obamacare only way to avoid ‘death spiral’. Center for Public Integrity, June 25, 2015.

5. Andrews, M. Study finds almost half of health law plans offer very limited physician networks. Kaiser Health News, June 26, 2015.

6. Dickman, S, Himmelstein, DU, McCormick, D et al. Opting out of Medicaid expansion: The health and financial impacts. Health Affairs Blog, January 30, 2014.

7. Rau, J. Having survived Court ruling, insurance markets still face economic threats. Kaiser Health News, June 25, 2015.

8. Himmelstein, DU. Woolhandler, S. The post-launch problem: the Affordable Care Act’s persistently high administrative costs. Health Affairs Blog, May 27, 2015.

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Does Justice Scalia’s dissent help us understand political polarization in the U.S.?

Posted by on Monday, Jun 29, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Justice Scalia, dissenting

Supreme Court of the United States, No. 14-114, King v. Burwell

(The following paragraphs are not in continuity in the dissent.)

Faced with overwhelming confirmation that “Exchange established by the State” means what it looks like it means, the Court comes up with argument after feeble argument to support its contrary interpretation. None of its tries comes close to establishing the implausible conclusion that Congress used “by the State” to mean “by the State or not by the State.”

The Court’s next bit of interpretive jiggery-pokery involves other parts of the Act that purportedly presuppose the availability of tax credits on both federal and state Exchanges.

The Court persists that these provisions “would make little sense” if no tax credits were available on federal Exchanges. Ante, at 14. Even if that observation were true, it would show only oddity, not ambiguity.

The Court claims that the Act must equate federal and state establishment of Exchanges when it defines a qualified individual as someone who (among other things) lives in the “State that established the Exchange,” 42 U. S. C. §18032(f)(1)(A). Otherwise, the Court says, there would be no qualified individuals on federal Exchanges, contradicting (for example) the provision requiring every Exchange to take the “‘interests of qualified individuals’” into account when selecting health plans. Ante, at 11 (quoting §18031(e)(1)(b)). Pure applesauce.

The Court has not come close to presenting the compelling contextual case necessary to justify departing from the ordinary meaning of the terms of the law. Quite the contrary, context only underscores the outlandishness of the Court’s interpretation. Reading the Act as a whole leaves no doubt about the matter: “Exchange established by the State” means what it looks like it means.

On the other side of the ledger, the Court has come up with nothing more than a general provision that turns out to be controlled by a specific one, a handful of clauses that are consistent with either understanding of establishment by the State, and a resemblance between the tax-credit provision and the rest of the Tax Code. If that is all it takes to make something ambiguous, everything is ambiguous.

The Court protests that without the tax credits, the number of people covered by the individual mandate shrinks, and without a broadly applicable individual mandate the guaranteed-issue and community-rating requirements “would destabilize the individual insurance market.” Ante, at 15. If true, these projections would show only that the statutory scheme contains a flaw; they would not show that the statute means the opposite of what it says.

So even if making credits available on all Exchanges advances the goal of improving healthcare markets, it frustrates the goal of encouraging state involvement in the implementation of the Act. This is what justifies going out of our way to read “established by the State” to mean “established by the State or not established by the State”?

Worst of all for the repute of today’s decision, the Court’s reasoning is largely self-defeating. The Court predicts that making tax credits unavailable in States that do not set up their own Exchanges would cause disastrous economic consequences there. If that is so, however, wouldn’t one expect States to react by setting up their own Exchanges? And wouldn’t that outcome satisfy two of the Act’s goals rather than just one: enabling the Act’s reforms to work and promoting state involvement in the Act’s implementation? The Court protests that the very existence of a federal fallback shows that Congress expected that some States might fail to set up their own Exchanges. Ante, at 19. So it does. It does not show, however, that Congress expected the number of recalcitrant States to be particularly large. The more accurate the Court’s dire economic predictions, the smaller that number is likely to be. That reality destroys the Court’s pretense that applying the law as written would imperil “the viability of the entire Affordable Care Act.”

Perhaps sensing the dismal failure of its efforts to show that “established by the State” means “established by the State or the Federal Government,” the Court tries to palm off the pertinent statutory phrase as “inartful drafting.” Ante, at 14. This Court, however, has no free-floating power “to rescue Congress from its drafting errors.”

It is entirely plausible that tax credits were restricted to state Exchanges deliberately—for example, in order to encourage States to establish their own Exchanges. We therefore have no authority to dismiss the terms of the law as a drafting fumble.

Our only evidence of what Congress meant comes from the terms of the law, and those terms show beyond all question that tax credits are available only on state Exchanges. More importantly, the Court forgets that ours is a government of laws and not of men. That means we are governed by the terms of our laws, not by the unenacted will of our lawmakers.

Much less is it our place to make everything come out right when Congress does not do its job properly. It is up to Congress to design its laws with care, and it is up to the people to hold them to account if they fail to carry out that responsibility.

Congress could also do something else altogether, entirely abandoning the structure of the Affordable Care Act. The Court’s insistence on making a choice that should be made by Congress both aggrandizes judicial power and encourages congressional lassitude.

The Act that Congress passed makes tax credits available only on an “Exchange established by the State.” This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere. We should start calling this law SCOTUScare.

And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.

I dissent.


Justice Scalia is the Supreme Court’s real loser in Obamacare ruling

By William Yeomans
Reuters, June 26, 2015

It is reasonable to suspect that Scalia’s distaste for the Affordable Care Act, which likely inclined him to bring it down rather than save it, made his textual argument easier for him to make here.

William Yeomans served as Senator Edward M. Kennedy’s chief counsel on the Senate Judiciary Committee and as a Justice Department official.


Political Polarization in the American Public

Pew Research Center, June 12, 2014

Overall, the public is divided over how far the government should go in providing health care. About half (47%) say the government has a responsibility to make sure all Americans have health care coverage, while 50% say that is not the responsibility of the federal government.

While half say it isn’t the government’s responsibility to make sure all have health care coverage, relatively few want the government to get out of the health care system entirely. Rather, 43% say it’s not the government’s responsibility to ensure health care coverage for all, but believe the government should “continue programs like Medicare and Medicaid for seniors and the very poor.” Only 6% of Americans go so far as to say the government “should not be involved in providing health insurance at all.”

Even among consistent conservatives, there is minimal support for the government having absolutely no role in providing health care. Three-quarters of consistent conservatives (75%) say the government should continue Medicare and Medicaid while just 20% think the government should not be involved in providing health insurance.…

In his dissent, Justice Antonin Scalia placed the importance of a negligible textual drafting error over the importance of the clear intent of the Affordable Care Act (ACA) to expand health care coverage to more people while trying to keep insurance affordable. With a full reading of both the majority opinion and Scalia’s dissent, it is clear that Justice Scalia’s opposition was based on ideology, with only token references to law. That is likely true with Justices Thomas and Alito as well, although they did not explain the basis of their votes.

When the same set of justices review the same laws in arriving at their decisions, yet quite consistently align themselves in two different camps, it is difficult to draw any conclusion other than that the decisions are being based primarily on ideology.

This divide also permeates not only Congress but the entire nation as revealed last year by the Pew Research Center in their comprehensive study of political polarization.

It is difficult for those of us who are ideologically inclined to support social justice goals, such as health care for everyone, to understand those who are opposed. Many try to give both views equal credibility, yet when standing for a principle such as universal health care, it is difficult to assign the same cogency to a view in opposition.

The Pew study suggests that there is greater agreement on the fundamental moral principles  such as ensuring health care coverage. Three-fourths of conservatives say that the government should continue Medicare and Medicaid. Yet half of the nation continues to support politicians who campaign using conservative and libertarian rhetoric.

We have been traveling the last ten days and have engaged in many conversations with individuals holding widely varying political views. Specifically on health care, those opposed to reform seemed to explain their positions through empty rhetorical memes such as those that are frequently present in the selected Fox News programs that are ideologically biased. In attempting to ferret out the reasoning behind these statements, it seemed to me that these individuals were not well informed on actual facts and policy implications, often admitting that they didn’t understand the details. This in no way is meant to criticize them but rather is an observation that many important principles of reform have not been widely distributed to the public.

But can we assume that Justice Scalia did not understand the adverse consequences that his warped interpretation of the intent of ACA would potentially have on the health of millions of Americans? Does it not represent an uncaring view when he ridicules the majority decision with terms such as “jiggery-pokery,” “pure applesauce” and “SCOTUScare”? It is very difficult to assume that there is no fundamental ethical transgression here.

Politicians frequently bury their advocacy for harmful public policies under rhetorical memes, thereby hiding their support for the rich and powerful. But the public at large? When they understand the issues, they do seem to support doing the right thing. But all too often it seems too easy for them to accept and spread the rhetoric assuming that there is not much more behind the memes which represent “the truth,” and thus it is not worth their time to learn more.

Living in Orange County, many of our friends are conservative. Most of them do support health care for everyone, just as, nationally, three-fourths of conservatives support Medicare and Medicaid. Wouldn’t it be nice if, after some introspection, caring conservatives selected candidates who do share their values on health care for all? Maybe some of the politicians already do and would gladly change their rhetoric if they thought their constituents agreed.

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Health insurers’ warped approach to competition

Posted by on Friday, Jun 26, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

How Insurers Competed in the Affordable Care Act’s First Year

By Katherine Swartz, Mark Hall, Timothy S. Jost
The Commonwealth Fund, June 24, 2015


Prior to the Affordable Care Act (ACA), most states’ individual health insurance markets were dominated by one or two insurance carriers that had little incentive to compete by providing efficient services. Instead, they competed mainly by screening and selecting people based on their risk of incurring high medical costs. One of the ACA’s goals is to encourage carriers to participate in the health insurance marketplaces and to shift the focus from competing based on risk selection to processes that increase consumer value, like improving efficiency of services and quality of care. Focusing on six states — Arkansas, California, Connecticut, Maryland, Montana, and Texas — this brief looks at how carriers are competing in the new marketplaces, namely through cost-sharing and composition of provider networks.

From the Conclusions

The ACA reforms will surely stimulate continuing adaptations by carriers, providers, and policymakers, and we expect the competitive strategies in the marketplaces to evolve as consumers and carriers gain more experience with marketplace competition.…

What should the consumer expect from marketplace competition? Business experts tell us that competition is the key to higher quality at lower cost. So what has competition between private health insurance plans brought us?

Based on international comparisons, our health care quality is mediocre and our health care costs are by far the highest of all nations. The insurers have been ineffective in improving either of those. Okay, but what about the health plans themselves? Are we receiving high quality insurance products at low prices?

Before the Affordable Care Act (ACA), insurers competed primarily on the prices of their insurance premiums, and they still do. Before ACA, the most effective method of keeping their premiums from increasing more than they did was to exclude people from coverage who actually needed health care. The most important purpose of insurance is to make health care access affordable by diluting risk through insurance risk pools. Yet the insurers instead excluded risk by attempting to insure only those who could pass underwriting standards in the individual market, or by pricing group plans out of the market if they experienced high health care utilization.

A quality risk pooling program would be designed to ensure that everyone receives essential health care, yet by excluding those who have the greatest needs for care, the insurers abandoned any effort to ensure quality in their insurance products.

As far as costs are concerned, health care costs continued to escalate out of control, demonstrating that the insurers could not deliver on the promise of lower costs either.

What has happened since ACA was implemented?

Although the act prohibits medical underwriting, the insurers are still using devious methods to discourage individuals with greater heath care needs from enrolling. As an example, drugs used for certain chronic conditions are placed in upper tiers of drug coverage which require greater coinsurance payments, pricing these products out of reach for the patients, which deters them from joining the plan in the first place. Plans also are still selectively marketed to healthier populations. Professionals and institutions noted for providing care to high needs patents are frequently left out of the insurers’ networks, chasing away patients who use these providers. Again, these efforts to exclude those with needs confirm that the insurers are still marketing low quality insurance products that fall short of the health care needs of the community.

This new report from The Commonwealth Fund shows that the insurers are using two innovations to improve their competitive positions in the marketplace: cost sharing and narrow provider networks.

Cost sharing through deductibles, co-payments, coinsurance, and exclusion of coverage erects financial barriers to care, reducing the use of beneficial services and thus allowing the insurers’ premiums to be priced more competitively. An insurance product that is designed to keep people away from care that they need is a low quality product.

Narrow provider networks reduce health care utilization by preventing coverage of health care professionals and institutions that may be the most appropriate for the patients’ conditions, requiring them to turn to lesser care or no care at all. Also, care may be made less accessible simply by increasing the distances needed to travel to network providers while excluding nearby providers from the networks. Again, insurance products designed to impair access to appropriate health care providers are low quality products.

Thus, with ACA, insurers are impairing quality through the use of the barriers of cost sharing and narrow networks. And regarding costs, it appears that they are again on an upward trajectory. Health care prices have not been controlled. The only slowing has been due to a modest reduction in the use of beneficial health care services caused by these barriers that the insurers have erected. The insurers have failed again on their promise of higher quality at lower cost.

What about the future? The Commonwealth Fund report states, “we expect the competitive strategies in the marketplaces to evolve as consumers and carriers gain more experience with marketplace competition.” We know what this means. The insurers will not be looking for ways to pay for more beneficial health care services. They will be introducing more innovations that prevent patients from getting the care that they need. That’s the way that the marketplace for health insurance products works.

Medicare doesn’t work that way. Instead, efforts are made to include everyone who is qualified and to include all health care professionals and institutions. At the same time, payments are based on legitimate costs and fair margins – a system that is less costly because of administrative efficiencies.

If we really want higher quality at a lower cost, we need to improve Medicare and expand it to cover everyone. The private insurance industry certainly is never going deliver on quality and cost since they will do better for themselves with their warped approach to competition.

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Next step: Establishing health care as a right through single payer

Posted by on Thursday, Jun 25, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.



No. 14–114. Argued March 4, 2015—Decided June 25, 2015

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

The judgment of the United States Court of Appeals for the Fourth Circuit is Affirmed.


The Elusive Right to Health Care under U.S. Law

By Jennifer Prah Ruger, Ph.D., M.S.L., Theodore W. Ruger, J.D., and George J. Annas, J.D., M.P.H.
The New England Journal of Medicine, June 25, 2015

Is there a right to health care in the United States? No U.S. Supreme Court decision has ever interpreted the Constitution as guaranteeing a right to health care for all Americans. The Constitution does not contain the words “health,” “health care,” “medical care,” or “medicine.” But if we look deeper, a more nuanced picture emerges. The Court has found rights to privacy, to bodily integrity, and to refuse medical care within the vague right to “due process” contained in the Constitution. The Court has also constructed a right to decide to terminate a pregnancy, although it has also ruled that the government has no obligation to subsidize the exercise of this right. When this line of cases is considered together, it would appear that the U.S. Constitution provides scant affirmative obligation to provide health care.

Despite the absence of a universal right to health care in the Constitution, Congress and the Supreme Court have incrementally crafted an incomplete web of health care rights during the past 50 years. In prisons and emergency rooms across the country, physicians and medical institutions have for decades been required to provide medical care. In a 1976 landmark decision in Estelle v. Gamble, for example, the Supreme Court found a right to adequate medical care for prisoners grounded in the Eighth Amendment of the Constitution.


It is notable that all three of these litigation efforts against the ACA — the 2012 ruling on the individual mandate, the 2014 ruling in Hobby Lobby, and the forthcoming ruling on subsidies for exchange participants — arise from the devolved structures of American health governance; none of the three issues would be valid constitutional or statutory objections to a taxpayer-financed single-payer system. As the Court ruled in Hobby Lobby, religious objections to general taxation used to finance national imperatives are not protected as strongly as the specific claim of Hobby Lobby against the regulatory mandate of the ACA. Perhaps paradoxically, under the Court framework, a completely single-payer system is more constitutionally sound than the ACA statutory design, which aims to preserve a private institutional role in the health care system.

According to the Supreme Court, Congress’s plan was “to improve health insurance markets, not to destroy them,” and thus they upheld the subsidies for the plans offered through the state insurance exchanges. But Congress has failed to establish a process through which absolutely everyone is assured of health care when needed. That is, Congress has established health care as a right only in selected circumstances, but not for everyone. In contrast, as the authors of the NEJM article state, “…under the Court framework, a completely single-payer system is more constitutionally sound than the ACA statutory design…” Enacting a single payer system would finally establish health care as a right throughout the United States.

Physicians for a National Health Program release on the King v. Burwell decision by the Supreme Court:

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Unauthorized immigrants reinforce Medicare trust funds

Posted by on Wednesday, Jun 24, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Unauthorized Immigrants Prolong the Life of Medicare’s Trust Fund

By Leah Zallman MD, MPH, Fernando A. Wilson PhD, James P. Stimpson PhD, Adriana Bearse MS, Lisa Arsenault PhD, Blessing Dube MPH, David Himmelstein MD, Steffie Woolhandler MD, MPH
Journal of General Internal Medicine, June 18, 2015


Background and Objective

Unauthorized immigrants seldom have access to public health insurance programs such as Medicare Part A, which pays hospitals and other health facilities and is funded through the Medicare Trust Fund.

Design and Main Measures

We tabulated annual and total Trust Fund contributions and withdrawals by unauthorized immigrants (i.e., outlays on their behalf) from 2000 to 2011 using the Current Population Survey and Medical Expenditure Panel Surveys. We estimated when the Trust Fund would be depleted if unauthorized immigrants had neither contributed to it nor withdrawn from it. We estimated Trust Fund surpluses by unauthorized immigrants if 10 % were to become authorized annually over the subsequent 7 years.

Key Results

From 2000 to 2011, unauthorized immigrants contributed $2.2 to $3.8 billion more than they withdrew annually (a total surplus of $35.1 billion). Had unauthorized immigrants neither contributed to nor withdrawn from the Trust Fund during those 11 years, it would become insolvent in 2029—1 year earlier than currently predicted. If 10 % of unauthorized immigrants became authorized annually for the subsequent 7 years, Trust Fund surpluses contributed by unauthorized immigrants would total $45.7 billion.


Unauthorized immigrants have prolonged the life of the Medicare Trust Fund. Policies that curtail the influx of unauthorized immigrants may accelerate the Trust Fund’s depletion.…


Unauthorized immigrants prolong the life of Medicare Trust Fund: JGIM study

PNHP, June 23, 2015

Unauthorized immigrants pay billions more into Medicare’s Hospital Insurance Trust Fund each year than they withdraw in health benefits, according to research from Harvard Medical School, the Institute for Community Health and the City University of New York School of Public Health at Hunter College.

In 2011 alone, unauthorized immigrants paid in $3.5 billion more than they utilized in care.  Unauthorized immigrants generated an average surplus of $316 per capita to the Trust Fund, while other Americans generated a deficit of $106 per capita. The authors conclude that reducing unauthorized immigration would worsen Medicare’s financial health.

Payroll taxes are the major revenue source for the Trust Fund, which mostly pays hospital bills. Unauthorized immigrants often pay these taxes, usually under a borrowed or invalid Social Security number. Unauthorized immigrants are mostly working age, have high rates of labor force participation, and hence contribute substantial payroll taxes. Medicare outlays for unauthorized immigrants are low because they are ineligible for Medicare benefits.

Senior author Dr. Steffie Woolhandler, professor of public health at City University of New York and lecturer in medicine at Harvard, said: “The numbers contradict the myth that unauthorized immigrants are a drain on the health system. Reducing immigration would worsen Medicare’s financial woes.”…

Discussions of expanding health care coverage to everyone frequently result in expressions of concern about immigration policy. That unauthorized immigrants place a burden on our public resources has become a meme that is not substantiated in fact. This study adds to the evidence that unauthorized immigrants contribute more toward our public resources than they consume in benefits. Their contributions have reinforced our Medicare trust funds.

Under a single payer system, everyone is included. Studies such as this should allay fears that the nation cannot afford the costs of including unauthorized immigrants. Acknowledging that they are here and are important contributors to our economy should ease concerns about the need to move them from non-compliant use of Social Security numbers to a transparent system of accurate identification. Under single payer, they would openly contribute their equitable share to our pooled health care funds.

Everyone should have health care whenever needed. Let’s fix our system.

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Robert Reich supports Medicare for all, but…

Posted by on Tuesday, Jun 23, 2015

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Making the Economy Work for the Many and Not the Few

#11: Medicare Isn’t the Problem; It’s the Solution

By Robert Reich
HuffPost Politics, June 22, 2015

Again and again the upcoming election you’ll hear conservatives claim that Medicare — the health insurance program for America’s seniors — is running out of money and must be pared back.

Baloney. Medicare isn’t the problem. In fact, Medicare is more efficient than private health insurance.The real problem is that the costs of health care are expected to rise steeply.

Medicare could be the solution — the logical next step after the Affordable Care Act toward a single-payer system.

Please see the accompanying video — #11 in our series on ideas to make the economy work for the many rather than for the few. And please share.

Some background: Medicare faces financial problems in future years because of two underlying trends that will affect all health care in coming years, regardless of what happens to Medicare:

The first is that healthcare costs are rising overall — not as fast as they were rising before the Affordable Care Act went into effect, but still rising too quickly.

The second is that the giant post­war baby boom is heading toward retirement and older age. Which means more elderly people will need more health care, adding to the rising costs.

So how should we deal with these two costly trends? By making Medicare available to all Americans, not just the elderly.

Remember, Medicare is more efficient than private health insurers ­­ whose administrative costs and advertising and marketing expenses are eating up billions of dollars each year.

If more Americans were allowed to join Medicare, it could become more efficient by using its growing bargaining power to get lower drug prices, lower hospital bills, and healthier people.

Allowing all Americans to join Medicare is the best way to control future healthcare costs while also meeting the needs of the baby boomer and other Americans.

Everyone should be able to sign up for Medicare on the healthcare exchanges set up under the Affordable Care Act. This would begin to move America away from its reliance on expensive private health insurance, and toward Medicare for all – a single­ payer system.

Medicare isn’t a problem. It’s part of the solution.…



Public Plan Option in a Market of Private Plans

By David Himmelstein, M.D. and Steffie Woolhandler, M.D., M.P.H.
Physicians for a National Health Program, March 26, 2009

The “public plan option” won’t work to fix the health care system for two reasons.

1. It forgoes at least 84 percent of the administrative savings available through single payer. The public plan option would do nothing to streamline the administrative tasks (and costs) of hospitals, physicians offices, and nursing homes, which would still contend with multiple payers, and hence still need the complex cost tracking and billing apparatus that drives administrative costs. These unnecessary provider administrative costs account for the vast majority of bureaucratic waste. Hence, even if 95 percent of Americans who are currently privately insured were to join the public plan (and it had overhead costs at current Medicare levels), the savings on insurance overhead would amount to only 16 percent of the roughly $400 billion annually achievable through single payer — not enough to make reform affordable.

2. A quarter century of experience with public/private competition in the Medicare program demonstrates that the private plans will not allow a level playing field. Despite strict regulation, private insurers have successfully cherry picked healthier seniors, and have exploited regional health spending differences to their advantage. They have progressively undermined the public plan — which started as the single payer for seniors and has now become a funding mechanism for HMOs — and a place to dump the unprofitably ill. A public plan option does not lead toward single payer, but toward the segregation of patients, with profitable ones in private plans and unprofitable ones in the public plan.

In his enthusiastic endorsement of single payer Medicare for all, Robert Reich also renews the call for the “public option” of allowing people to purchase Medicare through the exchanges established by the Affordable Care Act. During the health care reform process, the public option had wide support, but was first weakened considerably and then eventually rejected by Congress in a power play by Sen. Joseph Lieberman.

In spite of the modest benefits of the Affordable Care Act, nothing has changed that would alter the concerns about the public option expressed by David Himmelstein and Steffie Woolhandler and others of us at PNHP.

At the time the public option was being considered, I wrote the following: “The option to purchase a public plan within a market of private health insurance plans would merely provide one more player in our inefficient, dysfunctional, fragmented, multi-payer system of financing health care, that is if the public option even survives the political process. It would leave in place the deficiencies that have resulted in very high costs with the poorest health care value of all nations (i.e., overpriced mediocrity in health care).”

Even if Medicare were offered for purchase in the exchanges, the premiums would not be competitive with the low-actuarial-value silver and bronze plans with their very high deductibles, especially since the Medicare risk pool includes higher cost elderly and disabled individuals. If Medicare were revised to make it competitive, benefits would have to be reduced when what we need instead is an improved Medicare with expanded benefits.

One possibility would be to provide subsidies for those electing the Medicare option, but either the beneficiaries’ share would still be too great, certainly making the plan non-competitive, or the public subsidies would have to be greater than those for the private low-actuarial-value insurance plans – an approach that would be vigorously opposed by the all-powerful private insurers.

Besides, it is unlikely that Congress would support higher subsidies for a public option Medicare when their agenda has been the opposite – providing higher subsidies for the private Medicare Advantage plans, sending us in the direction of a privatized Medicare.

Although Robert Reich proposes a public option version of Medicare as a way to begin moving us toward a single payer Medicare for all, it is difficult to perceive how the transition would take place. Offering an option to purchase Medicare is a very small step that leaves everything else in place. As Medicare Advantage demonstrates, one-third of beneficiaries have moved in the opposite direction – from traditional Medicare to private insurance options. That would continue as long as Congress continues to advance policies that cater to the insurers more than they do to the public.

Reich seems to be recommending a two step path to reform – one step offering the Medicare option and a second step of converting to single payer Medicare for all. Quentin Young has compared that to taking two steps to cross a chasm. That first step can lead to a serious misadventure, but it should not be a surprise.

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Pioneer ACO Evaluation Findings from Performance Years One and Two

L&M Policy Research,  March 10, 2015

The providers affiliated with Pioneer ACOs may change between performance years. … Because beneficiaries are aligned to the ACO based on a plurality of E&M [evaluation and management] services from ACO-participating providers, changes in ACO provider composition can impact which beneficiaries are aligned to the ACO in a given year. … Table 23 shows the number of these providers affiliated with [23 Pioneer] ACOs in 2012; the number of providers lost through attrition after 2012; the number of newly affiliated providers in 2013; the percent of continuously affiliated providers from 2012 to 2013; and the percent of beneficiaries aligned with an ACO in 2013 who were also aligned in 2012. [pp. 93-94] … The proportion of 2013 participating providers who participated with the same ACO in 2012 ranged from 0.47 to 0.92, with an average of 0.73. [p. 96]

pioneer aco turnover table

The annual “churn” rate among Medicare accountable care organization (ACO) doctors and assigned patients is enormous: It averages around one-third for both doctors and patients. Because of this constant doctor and patient turnover, ACOs lose the majority of their assigned patients over a five-year period. How is an ACO supposed to be held “accountable” for services given to such a rapidly changing panel of patients by such a rapidly changing roster of physicians?

This question was totally ignored by ACO proponents before the concept was invented at a November 2006 meeting of the Medicare Payment Advisory Commission. It has been almost totally ignored since by ACO proponents and health policy researchers. We have only a few reliable reports on churn rates among Medicare recipients assigned to Medicare ACOs by CMS, and virtually no research on churn rates among those under 65 in commercial or Medicaid ACOs.

The two most credible reports on the problem appeared in evaluations of ACO Medicare programs for CMS: the evaluation of the first two years of the Pioneer ACO program by L&M Policy Research released by CMS last May, and the final report on the Physician Group Practice (PGP) Demonstration published by CMS in 2012. The PGP demo is widely regarded as a test of the ACO concept.[1]

L&M reported doctor and patient retention rates for the second performance year (2013) of the Pioneer ACO program. The average retention rate for doctors was 73 percent, and for patients 62 percent (see Table 23 presented above).[2]  In other words, of the doctors listed by the ACOs at the beginning of 2012 as participating ACO doctors, only 73 percent were listed as participating at the beginning of 2013. Similarly, of the Medicare recipients assigned by CMS to ACOs as of January 2012, only 62 percent remained assigned in January 2013. This means the churn rate (the opposite of the retention rate) was 27 percent for doctors and 38 percent for patients.

Data from the PGP demo suggests that the churn rate for Pioneer ACOs will not change substantially in future years. The patient attribution algorithm for the PGP demo was almost identical to the algorithm CMS is using for the Pioneer program: Medicare beneficiaries were assigned to PGPs based upon the plurality-of-primary-care-visits method – if the primary care doctor who saw the patient the most often during a baseline period was in a PGP, CMS assigned that patient to that PGP.[3]

The final evaluation of the PGP demo reported that annual patient churn rates for the 10 PGPs stayed at approximately 30 percent over a five-year period (see Table 11-2b here, p. 222). (The report did not reveal churn rates for doctors.) Here is how the report summarized the data: “PGPs generally retained approximately 70 percent of their assigned beneficiaries from one year to the next; and … PGPs generally retained approximately 40 percent of their assigned beneficiaries after five years.” (p. 221)

If an average annual patient churn rate of 30 percent results in a loss of 60 percent of the original patient pool over five years, a churn rate of 38 percent (the churn rate for the Pioneer ACOs over the first two years) should produce an even higher loss over five years.

For any ACO program in which patient attribution is determined by the plurality-of-primary-care-visits method, patient churn rates will be largely determined by patient “leakage” rates. Leakage rates are the rates at which patients in a given ACO visit primary care doctors outside the ACO during the previous year (or whatever period the administrator of the ACO has chosen to measure plurality of services).[4]  If the estimates of patient churn rates we have just reviewed – 38 percent for the Pioneer ACOs and 30 percent for the PGPs – are in the ballpark, we should expect to find patient leakage rates of roughly the same magnitude. In fact we do.

Valerie Lewis et al. reported a 31 percent patient leakage rate for simulated Medicare ACOs. For their simulation, Lewis et al. used the same assignment method CMS used in the Pioneer and PGP experiments – the plurality of E&M visits during a baseline period. Lewis et al. reported that 31 percent of the patients assigned to ACOs did not visit a primary care doctor within the ACO.[5]

What little data we have for the non-elderly population indicates the churn rate is higher for that population. A paper by HealthPartners, the third largest insurance company in Minnesota, analyzed 2010 claims data to determine what would happen if HealthPartners were to allocate all the patients seen by its 52 clinics to an ACO using several formulas, including the plurality-of-E&M-visits method. The authors reported an annual patient churn rate of 47 percent using the plurality method. This rate is much higher than the rates reported for the Pioneer program (38 percent), the ACOs simulated by Lewis et al. (31 percent), and the PGP demo (30 percent).[6]

In a 2011 article on the ACO fad, Kaiser Health News characterized the ACO as a notion that hadn’t been thought through. Paraphrasing a scholar at the Brookings Institution, the article stated, “The health industry tends to operate with a ‘kind of a herd behavior,’ rushing to implement an idea ‘without working through the detailed business questions of how they’ll work.’” The problem of high churn rates is the premier example of a fundamental issue “the herd” failed to think through before stampeding off to implement ACOs.

The supreme irony of high churn rates is that they make “accountability” impossible at all levels – the doctor, ACO, regulator, legislative, and policy entrepreneur levels. This is most obvious with respect to assigned patients ACO providers never see – let’s call them “phantom patients.” But it’s true as well for patients assigned to ACOs for only a short period of time – let’s call them the “short-term patients.” Finally, it’s even true to some degree for patients who churn in and out of the ACO over a period of years – let’s call these patients “revolving-door patients.’

If ACOs should not and cannot hold doctors accountable for patients they never or rarely see, and if a substantial portion of “attributed” patients in fact are phantom, short-term, or revolving-door patients, then ACOs cannot and should not be held accountable by CMS, members of Congress, and other policy makers for the cost and quality of care provided to their assigned patients. And if ACOs cannot be held accountable, then ACO proponents cannot be held accountable for their role in fooling “the herd” into rushing off to promote ACOs. ACO proponents can go on making their claims for ACOs year after year and no one can prove them right or wrong.

The unfairness and irrationality of attempting to hold ACOs accountable for their treatment of so many phantom, short-term and revolving-door patients is aggravated by the fact that CMS’s patient-attribution method appears to guarantee that ACOs have healthier patients to work with.[7]  Healthier patients tend to have more stable sources of care than sicker patients. It doesn’t matter which way the causality runs (from healthy patients to greater continuity of care, or from continuity of care to healthier patients). Whichever way it runs, the result of assigning to ACOs those patients who are more loyal to a particular clinic is to guarantee that ACOs get a healthier pool of patients to work with.

Those who argue that accurate risk adjustment can solve at least the biased selection problem are deluding themselves. The best risk-adjustment methods available today predict very little of the variation in cost and quality outcomes among patients.

Sooner or later ACO proponents must recognize that high churn rates make ACO accountability impossible. When they do, they will have two choices. They can either call off the ACO experiment, or they can change the definition of ACO to include a requirement that patients enroll in an ACO for at least a one-year period and suffer penalties if they seek care outside the ACO’s network. If ACO proponents make the latter choice, they will in effect admit that what they have wanted all along was a re-run of the failed HMO experiment.


1. Even ACO proponents viewed the PGP demo that way. Like the Pioneer ACO program, the groups selected by CMS to participate in the PGP demo were large organizations that had years of experience using managed care tactics. Seven of the 10 groups owned or previously owned an HMO.

2. These churn rates were for the 23 ACOs that were still in the program as of the end of 2013. Nine ACOs, out of 32 that began the program in January 2012, dropped out during 2013. (A total of 13 have dropped out to date.) L&M calculated the average retention rate for doctors based on the data for each of the 23 ACOs reported in Table 23. I calculated the average for patients using the same method.

3. The PGP demo used what is called “retrospective” assignment while the Pioneer ACO program uses “prospective” assignment. For purposes of determining churn rates, this distinction does not matter. What matters is that both experiments assigned patients based on the plurality-of-E&M-visits method.

4. Consultants who advertise their ability to reduce “leakage” are usually referring to the rates at which patients in a given ACO visit any doctor or hospital outside the ACO In this comment, I define leakage more precisely as the rate at which patients visit primary care doctors outside their ACO.

5. Lewis et al. did not use the word “leakage” to describe this phenomenon, and they did not indicate whether the entire 31 percent who failed to seek care from an ACO-affiliated primary care doctor visited doctors outside the ACO. But given that only 6 percent of those 65 and older visit no doctor in the course of a year (see Table 78 here), we may deduce that a large majority of that 31 percent sought care from primary care doctors outside their ACO.

6. The higher rate is probably due to the fact that the non-elderly see primary care doctors less often than the elderly do, and a large portion of the non-elderly visit no doctors at all in any given year. According to the 2011 report to the Vermont legislature by William Hsiao et al. (in which the authors recommended a multiple-ACO system), “approximately 40 percent of covered individuals do not have any contact with a primary care physician in a one-year period.” (p. 159)

7. According to the final evaluation of the PGP demo, the plurality-of-E&M-visit method guaranteed the PGPs healthier populations in Year One of the demo. The average risk score for the Medicare recipients assigned to the PGPs that year was 0.921 (1.0 equaled average risk). Interestingly, the report demonstrated that these risk scores would have risen to approximately average if the method of assignment had been merely “one or more visits,” and would have fallen to 0.898 if “a majority of visits” had been used (see tables at page 222 of the final report). L&M Policy took note of this issue as well. They suggested, but did not demonstrate, that CMS’s assignment method may assign healthier patients to ACOs.

Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.

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