Defined contributions future for health care

Posted by on Wednesday, Dec 7, 2011

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.

Orszag: Defined Contributions Define Health-Care Future

By Peter Orszag
Bloomberg, December 6, 2011

Over the next decade, we are likely to see a shift in health insurance in the U.S.: So-called defined-contribution plans will gradually take over the market, shifting the residual risk of incurring high health-care costs from employers to workers.

The market today is dominated by “defined-benefit” plans, under which companies determine a set of health-insurance benefits that are provided for employees. These will gradually be replaced by defined-contribution plans, under which companies pay a fixed amount, and employees use the money to buy or help pay for insurance they choose themselves.

The fundamental driver of this shift is the effort by American businesses to reduce their exposure to health-care costs. But the recent health-care-reform law may accelerate the shift.

The change in health insurance is already well under way in coverage for retirees. In the early 1990s, in response to accounting changes and rising costs, companies began to re- evaluate retiree health plans, and some capped the amount they were willing to pay at a multiple of existing costs. Over time, as those limits were reached, most companies declined to raise them, thereby effectively creating defined-contribution retiree health-insurance plans, with the company’s contribution set by the cap. Exchanges have been created to allow retirees to use these employer contributions to purchase their own health insurance.

For current workers, the precursor to a defined- contribution approach is the “consumer-driven” health plan. This typically has higher deductibles and co-payments than a traditional plan has, and it is often tied to a health savings account. It typically still provides generous insurance for catastrophic cases.

Some insurers are already anticipating the shift. Bloom Health Corp. will begin offering defined-contribution exchanges in 2012. Bloom, based in Minneapolis describes itself as “a leader in the defined-contribution health benefits marketplace,” and says it is “committed to assisting employers of all sizes move toward an employer-sponsored system that has effective cost predictability for employers and increased choice and personalization for employees.” In September, the company announced that Health Care Service Corp., Blue Cross Blue Shield of Michigan and WellPoint (WLP) Inc. had purchased a majority of its equity.

The inevitable transition to defined-contribution health insurance may get a little push from the new health-care-reform law. Indeed, the legislation may have a larger impact on the type of health-insurance plan that employers offer than on their decision about whether to drop health-care benefits altogether.

If most employers do retain their health plans, the state insurance exchanges created under the new federal health-care law will make the basic idea of a defined-contribution health plan more prevalent, and thus may speed its adoption. The regulations written to carry out the new law will determine how things play out. If defined-contribution plans that are sufficiently generous count as employer-based coverage – as is generally expected – the trend toward such plans will probably accelerate.

In any case, the bottom line is that a shift toward defined-contribution plans seems likely. I’d be willing to bet $1 that most large U.S. employer health-care offerings in 2020 will be defined-contribution plans. Any takers?

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

One of the more important tools to enable the transfer wealth up the income ladder is to shift from defined benefit programs to defined contributions. With a defined contribution, a set dollar amount is contributed to the program regardless of what the future benefits may cost, whereas with a defined benefit program, the projected costs of the program must be fully funded so the benefits will always be there when needed.

In the case of pension plans, a defined contribution allows the employer to shift the risk of wage inflation and the risk of living longer from the employer to the employee. The latter is particularly a problem since many individuals will outlive the funds accumulated in their defined contribution pension plan. It is true that they could use those funds to buy an annuity, but fewer funds would be available because it is not a defined benefit plan, and converting to an annuity burns up even more of the retirement funds to pay for sales and administrative costs plus the costs of insuring against the risk of living longer.

How does this move wealth up the income ladder? Defined benefit pension plans were considered to be a standard part of the well-earned employee benefit package. These defined benefit plans were actually paid for by foregone wage increases. In the last couple of decades, contributions to the pension plans were limited by changing to defined contribution, yet wages remained flat. The foregone wages never came back. Workers suffered a net loss, while employer/owners kept the difference, thus an upward transfer of wealth.

Now we are seeing this same inequitable concept being applied to employer-sponsored health plans. Traditional health plans provided generous benefits and often had an actuarial value of 90 percent (the plan paid 90 percent of health care costs and the worker paid 10 percent). We are now seeing a decline in actuarial value. The most obvious contributing factor is the relatively abrupt increase in the adoption of high-deductibles for employer-sponsored plans, but also benefits covered are diminishing, often through less transparent, innovative changes to the plans. Once again, benefits are being reduced but without a commensurate return of forgone wages.

Particularly alarming in Peter Orszag’s article is the investment of WellPoint and Blue Cross Blue Shield of Michigan in Bloom Health Corporation. Bloom Health is “a leader in the defined-contribution health benefits marketplace.” They are committed to a system that has “effective cost predictability for employers,” but exposes employees to the ever higher costs and risks of health care.

This ongoing shift to defined contribution in health care is not limited to businesses. In a recent message, we reported that the Institute of Medicine is recommending that the essential health benefits for the state insurance exchanges under the Affordable Care Act “should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost.” “Predefined cost target” is a defined contribution.

Even Medicare is vulnerable. The New York Times, in a recent editorial, stated that for Medicare, “serious analysis and testing of premium support are clearly worth pursuing.” Premium support is a defined contribution that would be used to purchase a private Medicare plan. Medicare beneficiaries would be responsible for paying for the balance of the premium for whatever coverage they could get. Further, with tight control of the defined contribution, an increasing percentage of health care costs would be shifted to Medicare patients in the form of higher out-of-pocket spending.

What do all of these have in common? They are all methods of perpetuating the private insurance industry, while shifting risks from the insurers to the insured individuals. They reduce the financial commitment of employers and the government, but increase the financial burden for workers, their families, and retirees – most of us. However, it is a jobs program – for personal bankruptcy attorneys, as if our health care system didn’t give them enough work already.

Defined contribution is a nefarious conspiracy directed at the masses to benefit the well off. We can counter by demanding an end to a system dominated by private insurers and replacing it with a single, publicly-financed and publicly-administered national health program – an improved Medicare for everyone.

(After we fix Medicare, we may want to think about greatly reinforcing our publicly-financed, publicly-administered, defined benefit Social Security program so we wouldn’t have to put up with the abuses of our private, defined contribution pension plans. Really.)

Shocking growth of premiums – in a single interactive visualization

Posted by on Tuesday, Dec 6, 2011

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.

State Trends in Premiums and Deductibles, 2003–2010: The Need for Action to Address Rising Costs

By Cathy Schoen, M.S., Ashley-Kay Fryer, Sara R. Collins, Ph.D., and David C. Radley, Ph.D., M.P.H.
The Commonwealth Fund, November 17, 2011


Click on this link:

You will see an interactive map of “Employer Premiums as Percentage of Median Household Income for Under-65 Population, 2003 and 2010”

Near the top of the page, slowly drag the slider from 2003 to 2010.

In dark blue you now see the states in which employer health insurance premiums average over 20% of median household income. Over 20%! In 2010, 62% of the population lived in states where total premiums amounted to 20% or more of middle incomes!

A static slide of this change, showing the U.S. side by side in 2003 and 2010, can be downloaded at this link (slide number 2):


In slide 4 at the same link, you will see that, in 2010, average deductibles for employer sponsored plans are $1,025 for a single-person plan and $1,975 for a family plan, nearly double that of 2003.

For the full Commonwealth Fund report, “State Trends in Premiums and Deductibles, 2003–2010: The Need for Action to Address Rising Costs”:

More people receive their health insurance through their work than from any other source. The costs of employer-sponsored plans have been skyrocketing, as demonstrated by the increase in premiums. The coverage has eroded, as demonstrated by the increase in deductibles. The Office of the Actuary has predicted that “private insurance spending per person will increase faster than public programs over the next decade.” Yet the Affordable Care Act failed to provide measures which would have any significant impact on these trends in employer-sponsored plans.

Let’s restart the reform process, but this time let’s do it right. Let’s have only single payer at the table.

Michael Dukakis on ACOs: “We tried that, folks. It didn’t work.”

Posted by on Monday, Dec 5, 2011

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.

Michael Dukakis on ACOs: “We tried that, folks. It didn’t work.”

By Chelsea Conaboy
The Boston Globe, November 28, 2011

The creation of accountable care organizations or a global payment structure won’t fix the health care system in Massachusetts and make it more affordable, former governor Michael Dukakis told an audience at Harvard last week.

Speaking during the Harvard School of Public Health Voices from the Field series, Dukakis said urging the health care market to fix itself is “a colossal waste of time.”

Here’s an excerpt from the event:

“If we paid a little attention, it might be a good idea, to the experience of other countries around the world who are doing this and who, for some reason, seem to be able to provide rather good health care to their people at half the cost we do — whatever the siltstone, whether it’s Australian medicare or a multi-payer system in Germany or an essentially privatized system in Switzerland — every one of them regulates cost, without exception.

“What do we do? Come up with this ACO, global payment thing… We’ve done it. ACOs and global payments. What did we used to call them? HMOs and capitation. We tried that, folks. It didn’t work. Why are we doing it again?

“Now don’t get me wrong. Nobody loves having to regulate. We had something called the rate-setting commission when I was governor… We treated hospitals as public utilities. They couldn’t raise their rates a nickel unless they went to the rate-setting commission. We certainly didn’t have these huge disparities between what Partners gets and what the BI gets. Wouldn’t allow it. So, we’ve got to get on with the business of regulating costs. And I think the least bureaucratic way to do it, rather than getting into setting elaborate fee schedules and so forth, is essentially to use the authority we have in this state under the state insurance statutes to regulate the rate of increase and the cost of premiums… You’ve got to involve the key players – providers, consumers, legislators, and so forth – in the process of developing how we’re going to regulate and then carefully monitoring it so that, in point of fact, it works and works effectively and at the same time make sure that we provide people with excellent health care, which we do in this state.

“What I’m worried about is that we’re futzing around with new institutional arrangements, accountable care organizations.”

Michael Dukakis certainly recognizes accountable care organizations as being merely a new variant of HMOs with capitation. He worries about us “futzing around” with ACOS, but we need to go him one better. Let’s quit “futzing around” with private insurers and establish an improved Medicare for everyone.

The PROMETHEUS Bundled Payment Experiment

Posted by on Friday, Dec 2, 2011

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.

The PROMETHEUS Bundled Payment Experiment: Slow Start Shows Problems In Implementing New Payment Models

By Peter S. Hussey, M. Susan Ridgely and Meredith B. Rosenthal
Health Affairs, November 2011

As mandated by the Affordable Care Act of 2010, the Centers for Medicare and Medicaid Services recently announced a national Medicare bundled payment initiative. There is strong support for bundled payment on conceptual grounds. However, there is only limited empirical evidence to support the use of bundled payment, and concerns have been raised about the feasibility of its implementation.

This paper presents findings from an evaluation of the initial “road test” of PROMETHEUS Payment. PROMETHEUS (an acronym for Provider Payment Reform for Outcomes, Margins, Evidence, Transparency, Hassle Reduction, Excellence, Understandability, and Sustainability) is a bundled payment model managed and implemented by the Health Care Incentives Improvement Institute, a nonprofit organization.

After three years of implementing systems and processes to support a bundled payment model, pilot participants have yet to make bundled payments or execute new payment contracts.

PROMETHEUS was designed to pay for all of the care required to treat a defined clinical episode, particularly those services recommended by clinical guidelines or experts. The multiple services that are anticipated to be required under a particular episode of care are referred to as “bundles.”

PROMETHEUS has defined twenty-one bundles that include chronic medical conditions such as diabetes, acute medical conditions such as acute myocardial infarction, and procedures such as hip replacement.

Our data collection occurred over the years 2009–11.

Progress of the pilots

As of May 2011, none of the pilot sites had achieved the goal of using PROMETHEUS as a payment method or had executed bundled payment contracts between payers and providers. The participants expressed disappointment at the slow progress, which for some lagged months or years behind their planned milestones.

Bundled payment is complex and must build on existing complex health care systems. As implemented, PROMETHEUS builds on fee-for-service claims infrastructure and thus adds to the complexity of existing payment systems. Services that are part of a clinical episode, and thus subject to bundled payment, are identified using the information about the patient’s diagnoses and services that providers report on fee-for-service insurance claims. The same information is also used to classify each service as either typical care or a potentially avoidable complication.

The decision rules that determine whether specific services are part of a bundle and, if so, whether they constitute typical care or potentially avoidable complications are complex and depend on the quality of the information that providers include on claims, which are not designed with the needs of a bundled payment system in mind.

Identifying bundles during claims processing is important not only so that payments can be processed appropriately by insurers, but also so that providers can rapidly receive information on their patients who had initiated clinical episodes subject to bundled payment. No site succeeded in modifying its claims processing methods to identify bundled services using the PROMETHEUS Engine or an alternative.

Executing contracts is difficult because of the number and complexity of considerations involved, including the market power – or lack thereof – of individual payers and providers in their own health care markets.

Shared savings has turned out to be more difficult to implement than expected. Interviewees at two sites reported that neither payers nor providers were eager to set aside funds from which to make the bonus payments. In addition, some payers did not accept the idea that they should share any savings.

All three sites are using electronic health records as a crucial component of their strategies for care redesign. However, the sites have found that their record systems lack key capabilities that would enable more effective care redesign.

Providers in all three sites have begun planning and implementing care delivery before payment methods actually change. However, they recognize that without new payment incentives in place, these efforts will be limited because they may decrease provider revenues.

We found that the PROMETHEUS road test encountered major challenges, and none of the pilot sites had made bundled payments as of May 2011. The pilot has taken longer than expected to implement primarily because of the complexity of the model and the fact that it builds on existing complex health care systems. Despite efforts by the institute and the pilot sites, some of the most prominent issues that have been raised with respect to bundled payment remained obstacles to implementation.

The debate we observed about how payers and providers should share risk around episodes of care mirrors the current debate about the final form of accountable care organization risk-sharing regulations.

The PROMETHEUS Bundled Payment Experiment held the promise of improving the quality of care while controlling costs simply by bundling together services of multiple health care providers into a single package covering a specific acute or chronic disorder. After three years of implementation, the payers and providers have not been able to make bundled payments or execute new payment contracts. The experiment is an abject failure.

The authors of this report suggest that the experiment has been of value because the participants have learned lessons, and they understand the complex obstacles to implementation, even if they were unable to surmount them. They conclude, “Payment and delivery reform models may yet yield desired improvements in health care quality and spending, but notable gains may not come quickly or easily.”

It is so clear that the health reform efforts to date have been a fiasco, and yet what do we do? We diddle around playing the PROMETHEUS board game, trying to get past “Go” so we can collect $200, but without going to jail (though perhaps some players should).

It is long past time to get serious about reform. We have more than enough money to finance a premier health care delivery system for everyone. We simply need to start spending our health care dollars more wisely, by enacting a financing system that places patients first – a single payer national health program (Improved Medicare for All).

Does ACA’s “Basic Health Program” stabilize coverage?

Posted by on Thursday, Dec 1, 2011

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.

Balancing Coverage Affordability and Continuity under a Basic Health Program Option

By John A. Graves, Ph.D., Rick Curtis, M.P.P., and Jonathan Gruber, Ph.D.
The New England Journal of Medicine, November 30, 2011

According to the Congressional Budget Office, the Affordable Care Act (ACA) will bring health insurance coverage to an estimated 32 million currently uninsured people. It does so through various mechanisms, including an expansion of Medicaid to Americans with incomes up to 138% of the federal poverty level (133% plus a 5% “income disregard”), premium and cost-sharing subsidies for coverage purchased through a new insurance exchange, small-employer tax credits, and an individual mandate to obtain health insurance.

The ACA’s incremental approach to near-universal coverage has raised concerns that changes in income, employment, and family composition will shift people into and out of different coverage arrangements over time – a phenomenon referred to as “churning.” Avoiding disruptions in coverage is an important goal because it can reduce unnecessary administrative costs and improve health plans’ incentives to invest in achieving longer-term health outcomes. Continuity of coverage can also help maintain clinician–patient relationships, especially in places where there are substantial differences between the clinicians participating in Medicaid and those participating only in private plans.

To address concerns about churning, some states are considering adopting a Basic Health Program (BHP) – an ACA-created option modeled after Washington State’s Basic Health Plan. Under this option, a state would receive an annual lump-sum payment equal to 95% of the projected cost of the subsidies for coverage through an insurance exchange for households with incomes between 139 and 200% of the federal poverty level. The state would then assume responsibility for financing a BHP for adults in that income range that met or exceeded the generosity and scope of benefits available in the exchange. A number of states are considering this option, including California, where BHP legislation has already passed the senate and final consideration is planned for 2012.

The eligibility range for a BHP is narrow – and there’s no guarantee that there will be continuity of access for people moving from Medicaid to a BHP, or vice versa. A BHP could theoretically extend access to the same plans and providers as Medicaid does, but in practice, states may find that providers willing to accept reimbursement that is often below their costs for their most indigent patients will be unable or unwilling to do so for an additional population. Moreover, introducing a BHP may create a new point of disruption: although patients might retain their coverage when moving above or below 138% of the poverty level ($30,843 for a family of four in 2011), they would be more likely to have coverage disruptions when moving above or below 200% of the poverty level ($44,700 for a family of four). Such disruptions could occur if the mainstream plans and providers used by people with incomes above 200% of the poverty level do not participate in the BHP. Finally, introducing a BHP would reduce the subsidized population in the insurance exchange by about half, which could compromise its efficiency and market role and reduce the proportion of uninsured people who gain access to mainstream coverage.

To investigate BHPs’ potential for reducing churning between Medicaid and an exchange by acting as a bridge between them, we used data from a dynamic income microsimulation model of the ACA. Since we follow an initially eligible cohort over a 2-year period, we can more easily model relative changes in churning in varied policy environments.

For our analysis, we used a national sample of adults 18 to 61 years of age who were initially uninsured or enrolled in nongroup coverage and who were eligible for subsidized coverage (had an income below 400% of the poverty level). We then simulated eligibility for Medicaid, a BHP, and an exchange in three policy environments: the baseline ACA structure, under which people with incomes up to 138% of the poverty level are eligible for Medicaid and those with higher incomes are eligible for the exchange; an integrated BHP, under which Medicaid and the BHP are run as a single program, with identical plans and providers; and three separate programs, with Medicaid, the BHP, and the exchange all operating independently, with different reimbursement rates, cost-sharing structures, and provider networks. Both Washington State’s original BHP and California’s pending BHP legislation would fit in the third category.

Our main findings are summarized in the Kaplan–Meier curves (see graph, available at link below), which show the overall proportion of subsidized adults who would remain continuously eligible for their initial program over a 24-month period.

As the graph shows, operating separate BHP, Medicaid, and exchange programs substantially increases churning. Under that policy, just 44% of adults remain eligible for their initial program after 1 year and less than one third remain so after 2 years; under the baseline ACA structure, the proportions are 63% and 49%, respectively. Given the dynamic nature of the wages and incomes of adults with moderate incomes, this finding is not entirely surprising: a separate BHP coverage category based on a narrow income range increases the likelihood of eligibility shifts between programs.

Perhaps more striking, however, is our finding that a BHP operating within Medicaid would result in slightly more eligibility losses than would the baseline ACA structure. Although we find that a BHP would reduce churning (i.e., increase retention) at the 138%-of-poverty threshold, there would be a more-than-offsetting increase in churning between the exchange and the Medicaid–BHP at 200% of the poverty level. The net result would be slightly more overall churning than with the baseline ACA structure. Moreover, these program-eligibility shifts would now happen around a “notch” created at 200% of the poverty level, where there are much larger implications for enrollees, in terms of premiums and cost sharing, of moving from Medicaid–BHP to private coverage. For example, a family moving from a Medicaid-like BHP program to the exchange tax-credit structure at 200% of the poverty level could suddenly see the value of its benefits fall by as much as 25% (depending on state decisions about patient cost sharing under the BHP). The ACA’s sliding-scale subsidies were designed to avoid such notches, which create major inequities between people with marginally different incomes and penalize them for additional work and earnings.

Ensuring access to stable and affordable coverage is an important ACA goal. Whether by design or through attrition of willing plans and providers, however, operating a BHP with provider networks different from those of both Medicaid and the exchange could further stratify the low-income and moderate-income population into three separate classes of coverage. As our modeling shows, such stratification would exacerbate the concerns about churning that BHPs were designed to address. Moreover, even a BHP integrated with Medicaid would slightly increase churning overall, with the increased churning around the 200%-of-poverty point more than offsetting the reduced churning around the 138%-of-poverty point. Although various policy considerations should enter into decisions about adopting a BHP, the need to achieve coverage and provider stability is an argument against doing so.

Section 1331 of the Patient Protection and Affordable Care Act (ACA) authorizes states to establish “basic health programs” to cover individuals with incomes between 133% and 200% of the federal poverty level, who are not otherwise eligible for Medicaid. The primary thrust of ACA is to cover many of the currently uninsured by expanding Medicaid and by establishing new state health exchanges offering private health plans. This NEJM article evaluates whether adding a third option – a basic health program – would improve stability and continuity of coverage for this low-income sector.

This is an important question since setting up an additional program adds considerable administrative costs and complexity to our health care financing system. The brief answer is “no.” After two years with three separate programs, less than one-third would still be in the programs in which they were originally enrolled.

Suppose the states decided against establishing basic health programs, what would happen under the baseline ACA structure with just Medicaid and the private exchange plans? Half of individuals would no longer be in their initial programs. This is only over a period of two years. Because of continual fluctuations in eligibility (changing income levels, etc.), stability over a decade or two would be virtually nonexistent.

This instability can be quite disruptive. Between Medicaid, basic health programs, and private exchange plans, there may be little or no overlap in provider networks. A change in coverage could also have a major impact on out-of-pocket expenses required of the insured individuals.

One intent of the basic health programs would be to save the government money by paying providers at levels close to those of Medicaid. Many physicians already reject Medicaid because of these low rates. Adding many more new patients to the Medicaid program, plus introducing an entirely new, under-funded, basic health program, would surely cause providers to flee both Medicaid and the basic health programs. The patients might have a basic health ticket, but nowhere to use it.

The entire ACA infrastructure is irreparably fragmented and dysfunctional. It needs to be replaced with… yes, an improved Medicare for all.

Scorpion antivenin: $100 in Mexico, $12,000 in U.S.

Posted by on Tuesday, Nov 29, 2011

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.

Treating A Scorpion Sting: $ 100 In Mexico Or $ 12,000 In U.S.

By Jenny Gold
Kaiser Health News, November 28, 2011

Say you’re trekking through the desert in Mexico, minding your own business, when all of a sudden a scorpion scrambles up your boot and stings your leg. You hobble over to a nearby clinic, where you’re given a dose of anti-venom that brings you fast relief. The charge for the serum is about $100.

Now imagine instead that you happen to be hiking in Arizona, and the same type of scorpion stings you. You make it to the emergency room, where the charge for a dose of the same anti-venom costs can cost as much as $12,000, according to a survey by The Arizona Republic.  Since patients need three to five doses, the cost can reach about $50,000.

The drug, called Anascorp, has been available for years in Mexico, but was just given FDA approval in August  for the U.S. market. Anascorp is designed to treat the sting of the Bark Scorpion, a particularly poisonous species.

Milton Ellis, president of Rare Disease Therapeutics, a Tennessee-based company that has the rights to Anascorp in the U.S., told The Arizona Republic that the cost of the drug is based on a number of factors, including the expensive clinical trial the company sponsored to get FDA approval and the expected demand for the serum. The company sells the drug for $3,500 to another firm that provides it to Arizona hospitals for about $3,780, The Republic found.

Hospitals mark up the drug to cover other costs, including the expenses of patients who are uninsured and the heavy discounts it gives to insurers.

Dr. Leslie Boyer, director of the Venom Immunochemistry, Pharmacology and Emergency Response (VIPER) Institute and the principal investigator of the Anascorp study published in the New England Journal of Medicine,  says she was surprised and “a little saddened” by the high cost of the drug. “It’s priced at a level where we can only use it for the very sickest patients, when I know that people with more moderate symptom would also benefit but might not be able to afford it,” she explains.

If the drug were “priced for the walking miserable,” instead of only those patients with the most severe symptoms, more of the drug would be sold and the price could be lower, she explains. As it is, she worries that rural Arizona hospitals, which tend to be the least wealthy, will not be able to stock the anti-venom and will still have to send critically-ill patients on a long helicopter or ambulance ride instead.

The high prices, she says, are “a public health problem.”



Don McCanne says:
(Comment is awaiting moderation as of this posting.)
November 29, 2011 at 12:38 PM

Results of a quick Internet search:

Study posted yesterday at

Sponsor: Instituto Bioclon S.A. de C.V. (Mexico
Collaborator: University of Arizona

R&D at Instituto Bioclon:

“The Bioclon Institute’s technology plan has been implemented through a financing strategy that combines the Institute’s own investments with resources from governmental institutions through agreements with: The National Science and Technology Board (El Consejo Nacional de Ciencia y Tecnologia) (Mexico), The Commerce Secretary (La Secretaria de Economía) (Mexico), and The Food and Drug Administration (United States).”

The fact that government-supported research (United States and Mexico) can result in a product that sells for $100 in Mexico and $12,000 in the United States, says much more about how health care is financed in the United States than it does about government and private roles in research.

All other wealthy nations have controlled health care spending much more effectively, while covering everyone, by using financing systems that require considerable government oversight. We rely on a fragmented system of private plans, public programs (and no programs at all for far too many), that has allowed runaway spending without a commensurate improvement in quality and outcomes.

It really is time to dump the administratively wasteful but expensive private insurers which have been ineffective in slowing cost escalation. We should improve Medicare, and then provide it for everyone. We might not be able to get the price of Anascorp down to $100, but negotiations through our own public Medicare administrators would set pricing based on legitimate costs and fair profits – a price that would undoubtedly be a small fraction of the $12,000 being charged.


Antivenom for Critically Ill Children with Neurotoxicity from Scorpion Stings

By Leslie V. Boyer, M.D., et al
The New England Journal of Medicine, May 14, 2009

Among critically ill children with neurotoxic effects of scorpion envenomation, intravenous administration of scorpion-specific F(ab′)2 antivenom resolved the clinical syndrome within 4 hours, reduced the need for concomitant sedation with midazolam, and reduced the levels of circulating unbound venom. ( number, NCT00685230.)

Supported by grants from the Food and Drug Administration (FD-R-002385-01) and the Arizona Biomedical Research Commission (0001).

Instead of administered pricing, our government depends more heavily on the market for the pricing of our health care when payments are made through private insurers. Only the magic of the marketplace can price a $100 vial of antivenin at $12,000! Obviously we do not have nor ever will have a functioning free market in health care. It’s time to abandon this myth and move on with an effective method of controlling costs through fair pricing – a single payer national health program.

Hospital consolidation and the Affordable Care Act

Posted by on Monday, Nov 28, 2011

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.

New Evidence of the Association between Hospital Market Concentration and Higher Prices and Profits

By James C. Robinson, PhD, University of California, Berkeley
National Institute for Health Care Management, November 2011

After a swell of hospital mergers and acquisitions in the 1990s, the industry has again been experiencing significant consolidation as large hospital systems have bought up smaller systems and stand-alone hospitals left vulnerable by the recession. The local and regional chains resulting from consolidation typically wield greater bargaining leverage than do stand-alone facilities. The evidence from several decades of research on this topic shows higher hospital prices following consolidation and recent work documents how large hospital systems serving multiple markets are able to extract higher prices for all facilities in their chain, not just in markets where they are dominant.

Two provisions of the 2010 Affordable Care Act (ACA) have brought new attention to the issue of hospital market power. First, because the ACA coverage expansions will be financed in part by slowing the rate of increase in Medicare payment updates, there is concern that hospitals with as yet unexploited pricing leverage will attempt to recoup some of the lost Medicare revenue by raising prices to private insurers. Second, the integration of hospitals and physicians into the accountable care organizations (ACOs) encouraged by the health reform legislation is expected to accelerate provider consolidation in local markets. Indeed, hospitals are already consolidating with physicians at a fast clip, and many observers are asking whether this integration will give hospitals (and physicians) additional pricing power vis-à-vis private payers.

In this essay I present findings from a new study that adds another piece of evidence to support concerns over hospital consolidation and market power. Specifically, using individual level data from 61 hospitals for patients treated during 2008 for any of six high-cost inpatient cardiac or orthopedic procedures, I show that hospitals in concentrated markets charge significantly higher prices to private payers than do their peers in more competitive markets. Furthermore, these prices are significantly above their direct costs of providing care.

The work reported here confirms earlier studies showing that hospitals are able to extract higher private payments when they hold more market power. Public policy has been ambivalent with respect to the ongoing consolidation within hospital markets. While antitrust regulatory agencies have challenged a number of hospital mergers in the past few decades, these challenges rarely culminated in decisions to disallow a merger. Now provisions of the ACA are encouraging further consolidation of hospitals and physicians, and the final antitrust review regulations from the Department of Justice and the Federal Trade Commission have eliminated the proposed mandatory review of certain prospective ACOs.

It will take some time to see what types of ACOs are allowed to form and how they will affect the competitive structure within their markets. It is clear, however, that the ongoing consolidation of local hospital markets is already frustrating the efforts of employers and private insurers to moderate the growth of health care costs. While the use of administered pricing systems largely insulates public payers from the effects of provider market power, the higher reimbursement rates that dominant providers can extract from private payers during rate negotiations put significant upward pressure on private premiums. In response, employers and other purchasers of private coverage have begun demonstrating a new willingness to accept limits on their health plan’s provider network, and private insurers are developing new products using tiered networks that exclude or disadvantage providers judged to not deliver value commensurate with their higher prices.

The increase in hospital market concentration has resulted in higher prices with enormous profits, simply due to the boost in leverage that consolidation of hospitals has had in price negotiations with private insurers. How will the Affordable Care Act impact this?

The Federal Trade Commission will be relaxing antitrust review of provider consolidation in order to allow greater freedom for accountable care organizations to experiment with delivery system reform. Consolidation will likely increase.

To counter this, private insurers are already developing new products such as those with tiered networks which will penalize patients financially if they use the dominant providers in their communities.

So the intent is to improve quality and the cost effectiveness of health care by encouraging integration of the health care providers, as through accountable care organizations, yet we will be seeing higher costs and higher profits as a result. That inevitably means that premiums for the private health plans will be higher – a problem that the Affordable Care Act was supposed to address.

What is the link that causes this unintended perversity? It is the insistence of our policymakers that the private insurers be included as the financial intermediaries. Plenty of studies have now shown that the private insurers do not have negotiating clout in markets with provider consolidation. So why should we continue to include them, especially when they waste so much in imposing a huge administration burden, while taking away patients’ choices of health care providers?

The government does have the leverage to get the pricing right. We should have it representing all of us in obtaining the best value for our national health expenditures. An improved Medicare for everyone is the vehicle that we need.

Social consequences of segregation of the affluent

Posted by on Friday, Nov 25, 2011

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.

Growth in the Residential Segregation of Families by Income, 1970-2009

By Sean F. Reardon and Kendra Bischoff, Stanford University
US2010 Project, November 2011

Report Abstract

As overall income inequality grew in the last four decades, high- and low-income families have become increasingly less likely to live near one another. Mixed income neighborhoods have grown rarer, while affluent and poor neighborhoods have grown much more common. In fact, the share of the population in large and moderate-sized metropolitan areas who live in the poorest and most affluent neighborhoods has more than doubled since 1970, while the share of families living in middle-income neighborhoods dropped from 65 percent to 44 percent. The residential isolation of the both poor and affluent families has grown over the last four decades, though affluent families have been generally more residentially isolated than poor families during this period. Income segregation among African Americans and Hispanics grew more rapidly than among non-Hispanic whites, especially since 2000. These trends are consequential because people are affected by the character of the local areas in which they live. The increasing concentration of income and wealth (and therefore of resources such as schools, parks, and public services) in a small number of neighborhoods results in greater disadvantages for the remaining neighborhoods where low- and middle-income families live.

From the Conclusion

During the last four decades, the isolation of the rich has been consistently greater than the isolation of the poor. Although much of the scholarly and policy discussion about the effects of segregation and neighborhood conditions focuses on the isolation of poor families in neighborhoods of concentrated disadvantage, it is perhaps equally important to consider the implications of the substantial, and growing, isolation of high-income families. Given that in 2008 the top 10 percent of earners controlled approximately 48 percent of all income in the United States (Piketty & Saez, 2010), the increasing isolation of the affluent from low- and moderate-income families means that a significant proportion of society’s resources are concentrated in a smaller and smaller proportion of neighborhoods. As we argued above, this has significant consequences for low- and middle-income families, because the isolation of the rich may lead to lower public and private investments in resources, services, and amenities that benefit large shares of the population, such as schools, parks, and public services.

As the more affluent members of our society continue to concentrate themselves in their upscale neighborhoods, they take our resources with them, including some of the best of our health care services. Not only do they leave behind fewer resources for low- and moderate-income families, they also leave behind the political will to do something about it.

Can we convince those in the affluent communities that most of them are still a part of the 99 percent? Or will their guileless but infelicitous complacency perpetuate inertia?

OECD Health at a Glance 2011

Posted by on Wednesday, Nov 23, 2011

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.

Health at a Glance 2011: OECD Indicators

Organization for Economic Cooperation and Development (OECD)
November 23,2011

Why is health spending in the United States so high?

The United States spends two-and-a-half times more than the OECD average health expenditure per person.

Rich countries spend more than poor countries. Chart 3 (at link below) shows that for nearly every country, if you know how rich they are, you can predict their health spending per person per year to within a few hundred dollars. The United States is an exception – Americans spend nearly $3000 per person per year more than Swiss people, even though Swiss people have about the same level of income.

Where does the money go?

Hospital spending is higher than in the five other OECD countries, by over 60%.

Spending on Ambulatory care providers – that is, physicians and specialists as well as dentists, is much higher than in the other OECD countries – almost two-and-a-half times the average of the other five countries.

Spending on Pharmaceuticals and medical goods is higher in the US than in any other country, but overall accounts for a smaller share of total health spending than in the other countries.

Spending on Public Health and Administration is particularly high – more than two-and-a-half times the average.

Are U.S. health prices high?

Overall, the evidence suggests that prices for health services and goods are substantially higher in the United States than elsewhere. This is an important cause of higher health spending in the United States.

Does the U.S. provide too much health care?

(The United States) does not have many physicians relative to its population; it does not have a lot of doctor consultations; it does not have a lot of hospital beds, or hospitals stays, when compared with other countries, and when people go to hospital, they do not stay for long. All these data on health care activities suggest that US health spending should be low compared with other countries.

On the other hand, the US health system does do a lot of interventions. Table 3 (at link below) shows that it has a lot of expensive diagnostic equipment, which it uses a lot. And it does a lot of elective surgery – the sort of activities where it is not always clearcut about whether a particular intervention is necessary or not.

Why is health spending in the United States so high?

Health at a Glance 2011: OECD Indicators
(The entire publication can be accessed for free at this website.)

The Organization for Economic Cooperation and Development (OECD) has just released “Health at a Glance 2011: OECD Indicators.” It “provides the latest comparable data on different aspects of the performance of health systems in OECD countries.” You should save the link above that provides free access to this publication since the data are frequently used by the policy community to compare the United States with other nations.

When examining the tables, charts, graphs and text, keep in mind that the data are sometimes presented in a manner that does not always correlate with highly credible data from other sources.

For instance, the category of public health and administration does not include the same administrative costs as measured by Woolhandler and colleagues in their landmark NEJM articles. Nevertheless, the OECD still reports that public health and administrative costs in the United States are more than two-and-a-half times the OECD average.

Also, the OECD estimates of public spending for health care in the United States leave out two important categories. The tax deductibility of employer-sponsored plans amounts to a subsidy of taxpayer funds, plus taxpayers also pay for the employer component of health insurance premiums for employees of federal, state and local government agencies. Although the OECD reports the percent of government spending on health care in the United States as being one of the lowest, on a per capita basis our public spending on health care is actually higher than the public and private spending combined in almost all other nations.

So when you hear others cite the OECD data, it would be helpful if you have a heads up on the actual data and how it compares to that of other reliable sources. Save the link above for future reference.

Recoverable administrative waste is much greater than most realize

Posted by on Tuesday, Nov 22, 2011

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.

Billions Wasted on Billing

By Ezekiel J. Emanuel
The New York Times, November 12, 2011

The range of expert opinions on how much of (administrative costs) could be saved goes as high as $180 billion, or half of current expenditures. But a more conservative and reasonable estimate comes from David Cutler, an economist at Harvard, who calculates that for the whole system – for insurers as well as doctors and hospitals – electronic billing and credentialing could save $32 billion a year. And United Health comes to a similar estimate, with 20 percent of savings going to the government, 50 percent to physicians and hospitals and 30 percent to insurers.


Cutting Health Costs by Reducing the Bureaucracy

Letters, The New York Times
November 20, 2011

To the Editor:

Ezekiel J. Emanuel lowballs estimates of the current costs and potential savings on medical bureaucracy, and raises vain hope that health reforms short of a single-payer system will realize substantial savings (“Billions Wasted on Billing,” Sunday Review, Nov. 13).

Peer-reviewed studies in The New England Journal of Medicine by two colleagues and me document that administrative costs account for 31 percent of health spending in the United States versus 17 percent in Canada. The 14 percentage-point difference translates to $380 billion in potential savings in 2011. Other researchers have reached similar conclusions.

A single-payer reform could realize these savings by eliminating insurance middlemen and radically simplifying payments to doctors and hospitals. The lesser measures that Dr. Emanuel champions – computerized and standardized billing – won’t do the job.

Hospital billing has been computerized for decades, and bureaucratic costs have skyrocketed since the adoption of the standard hospital billing form in 1982.

Combat over who pays and who profits underlies health administration’s overgrowth. A nonprofit single-payer system makes those issues moot.

Steffie Woolhandler
New York, Nov. 14, 2011

The writer, an internist, is a professor of public health at the City University of New York.

NEJM – Costs of Health Care Administration in the United States and Canada

The landmark 1991 and 2003 New England Journal of Medicine articles comparing health care administrative costs in the fragmented, multi-payer financing system in the United States with the single payer system in Canada were meticulous, peer-reviewed studies that confirmed that a massive amount of administrative spending in the United States is potentially recoverable – an estimated $380 billion for 2011 alone.

Politicians and academics who believe that we need to support politically feasible models of reform, such as the Affordable Care Act, have attempted to ignore or discredit these numbers. Even the most noted attack on these numbers, by Brookings economist Henry Aaron, was based on a back-of-an-envelope calculation arbitrarily assuming health care wages to be one-tenth of what they actually are in the United States. There is some irony in this attack by the highly-respected and otherwise highly-credible Aaron when in the same article he states, “I look at the U.S. health care system and see an administrative monstrosity, a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird.”

During the reform process, administrative inefficiencies were frequently brought up as a problem that needed to be addressed, but the perception of the extent of the problem always fell far short, at least by those who controlled the process. This led to grossly deficient suggestions such as merely streamlining insurance billing functions through computer systems (which already exist) and through a simplified universal billing form (which is already in use). This myopic thinking has led to grossly deficient estimates of potential savings, such as that of Ezekiel Emmanuel who suggests a savings less than one-tenth of the true potential.

It is true that not much of the current administrative waste can be recovered as long as politically influential individuals, such as Ezekiel Emmanuel, insist the the private insurers must remain as an intermediary in our health care financing. Their business product is administration.

As you watch the development of new innovations by the insurance industry, you will see that they all involve even more administrative products. As long as they are in charge, they will always try to capture a larger portion of our national health expenditures. However, since administrative costs will now be limited to 15 to 20 percent of their premiums, you will see these new administrative services being introduced as “health care.” Only the label has changed.

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