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.
An Analysis of Health Insurance Premiums Under the Patient Protection and Affordable Care Act
Congressional Budget Office
November 30, 2009
The analysis looks separately at the effects on premiums for coverage purchased individually, coverage purchased by small employers, and coverage provided by large employers.
Average premiums per policy in the nongroup market in 2016 would be roughly $5,800 for single policies and $15,200 for family policies under the proposal, compared with roughly $5,500 for single policies and $13,100 for family policies under current law.
The majority of nongroup enrollees (about 57 percent) would receive subsidies via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium, CBO and JCT estimate.
By CBO and JCT’s estimate, the average premium per policy in the small group market would be in the vicinity of $7,800 for single policies and $19,200 for family policies under the proposal, compared with about $7,800 and $19,300 under current law. In the large group market, average premiums would be roughly $7,300 for single policies and $20,100 for family policies under the proposal, compared with about $7,400 and $20,300 under current law.
Those figures do not include the effects of the small business tax credit on the cost of purchasing insurance. A relatively small share (about 12 percent) of people with coverage in the small group market would benefit from that credit in 2016. For those people, the cost of insurance under the proposal would be about 8 percent to 11 percent lower, on average, compared with that cost under current law.
For most individuals and families, the Senate health care reform bill will have very little impact on the premiums to be paid for health plans. There are three important exceptions:
* Premiums in the individual market will increase significantly because the plans will be required to provide an actuarial value of 60 percent, higher than the average value in the current individual market.
* About 57 percent of individuals eligible for coverage in the exchange will receive subsidies which will more than offset the premium increases. Note that most individuals are not eligible for coverage in the exchange and would not receive these subsidies.
* Although there will be little change in premiums for small group plans, about 12 percent of people in the small group market will benefit from a small business tax credit designed to encourage small business owners to offer coverage to their employees.
The really bad news in this report is that, on average, premiums for group plans will continue to increase at the same intolerable rates that they would have if we did nothing. This CBO analysis demonstrates that, in 2016, the family premium alone for employer-sponsored coverage, not including deductibles and other out-of-pocket costs, would be over $20,000 for a large group plan, whether or not the proposed legislation is enacted. That is quite a hit for a hard-working family with a $60,000 income.
The only hope for premium relief is for innovative insurance products that would reduce costs for those who don’t need health care, but would increase even more the costs for those who do. This demonstrates why focusing on premium relief has been a misguided endeavor. We have been diverted from the the much more important goal of relieving the financial burden of those who actually need health care.
We can achieve that goal by improving Medicare, funding it equitably, and using its monopsonistic powers to provide us with greater value in our health care purchasing. Had we done that when the Clintons were proposing their flawed model of reform, our national health expenditures would be about 20 percent less than they currently are.
It’s tragic that we would be starting from an inflated baseline, but we can still achieve that level of efficiency in the future if we dumped the highly flawed proposal before Congress and adopted the much more humane system of an improved Medicare for all.
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.
Aetna prepares for loss of 600,000 members as it raises 2010 prices
By Emily Berry
American Medical News
November 30, 2009
Back when it was the largest private health plan in the country, Aetna downsized its membership by millions but boosted profits during an overhaul of its business several years ago.
Now it looks to be making a similar — but smaller — move with a planned price increase for many of its customers in 2010.
The company figures it will lose between 600,000 and 650,000 members next year because of the price hikes.
In a conference call with investment analysts to discuss the company’s third-quarter earnings, Chair and CEO Ron Williams told analysts, “The pricing we put in place for 2009 turned out to not really be what we needed to achieve the results and margins that we had historically been delivering.”
Aetna President Mark Bertolini laid out how the company planned to raise prices to improve the company’s profit margin. He said the firm had “implemented a combination of underwriting enhancements, pricing actions and plan design changes, intended to ensure that each customer is priced to an appropriate margin.”
Laying out specific expected membership losses is “pretty candid,” said David Gibbs, a retired health insurance industry consultant from San Luis Obispo, Calif. He worked for and consulted with health insurers, including Aetna, for 25 years.
He said Aetna’s decision comes from a system that encourages insurers to drive away sicker members — a strategy not unique to one insurer. “They’re running a business, and their obligation is a very singular one: to increase shareholder profits.”
Gibbs said simply raising prices probably would not get Aetna what it wants. That actually tends to result in sick people who are more “desperate” for coverage to keep it, and healthier groups to drop it. Instead, Aetna might change benefit designs, scaling back prescription drug coverage, for example, which sicker populations tend to value but healthier ones don’t notice as much.
This act by Aetna indicates the level of sincerity the insurance industry has in its alleged new effort to cooperate in ensuring that everyone has the health care coverage that they need. Aetna is redesigning and repricing its products in order to dump over 600,000 of its less profitable members. They need to be sure that “each customer is priced to an appropriate margin.” And, above all, they owe it to their shareholders “to drive away sicker members.”
But that’s one of the ways that markets work – improve profits by cutting losses. We keep hearing that markets improve quality while reducing costs, yet in a bit of irony, for those healthier populations that remain with the Aetna, the insurer is reducing quality through product redesign, and increasing costs through higher premiums.
Once Aetna dumps these members, what private insurer is going to jump in to capture this higher cost population? None you say? And under reform? The higher cost individuals buy into the weak public option driving premiums up through adverse selection to even more unaffordable levels?
Try to imagine Medicare dumping over 600,000 patients because they need more medical care. That is unthinkable and would be reprehensible in a public social insurance program such as Medicare. Yet for the private insurance industry, it’s business as usual. And President Obama and Congress want to keep these marketeers in charge? Talk about reprehensible!
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.
White House says health-care bills contain cost-cutting remedies
By Shailagh Murray
The Washington Post
November 26, 2009
Critics of the Democratic bills point to cost control as a chief deficiency. Karen Ignagni, president of America’s Health Insurance Plans, said the Senate bill includes only “pilot programs and timid steps” to reform the health-care delivery system, “given the scope of the cost challenge the nation faces.”
Unless lawmakers institute changes across the entire system, Ignagni said in a statement Wednesday, “Health costs will continue to weigh down the economy and place a crushing burden on employers and families.”
AHIP president Karen Ignagni says that unless lawmakers institute changes across the entire system, health care costs will continue to weigh down the economy, placing a crushing burden on employers and families. There could not be a more explicit admission that the private insurance industry is not and never has been capable of controlling our very high health care costs. Yet their administrative excesses along with the administrative burden they place on the delivery system are major sources of waste in our health care system.
We need everyone covered, and we need costs controlled in a system designed to provide us greater value. Neither will occur under the proposal before Congress. Although the private insurance industry can’t do it, an improved Medicare program would be designed specifically to accomplish those goals, and at a much lower administrative cost.
Karen Ignagni says that the lawmakers must institute the necessary changes across the entire system (because the insurers can’t). Let’s join her in demanding that Congress take the actions necessary, and then thank her for her efforts, as we dismiss her superfluous industry from any further obligations to manage our health care dollars.
In the Hans Christian Anderson fairy tale, The Emperor’s New Clothes, two weavers promise an Emperor a new suit of clothes invisible to those unfit for their positions or incompetent. When the Emperor parades before his subjects in his new clothes, they all pretend they see the new finery, fearing exposure as the incompetents that they are. It takes a child to cry out, “But he isn’t wearing anything at all!”
As the Democratic Party races to claim a “health insurance reform” victory before the Christmas recess, I am reminded of this cautionary tale.
In place of the invisible clothes, we have the invisible reforms. In place of the weavers, we have the lobbyists. In place of the loyal subjects, we have the members of the Progressive Caucus. And in place of the child, we have all the Single Payer Advocates.
Please, President Obama, DON’T be that Emperor.
Dr. Paris is a member of Physicians for a National Health Program
Big Bad Wolf: “… and I’ll huff and I’ll puff… ”
Pig with the feasible compromise: “Oops!”
By Clay Bennett
Chattanooga Times Free Press
Thursday, Nov. 19, 2009
For Public, Affordability A Key Issue In Health Bill
By Julie Rovner
November 24, 2009
Lawmakers debating health care on Capitol Hill have spent months worrying about the potential cost. But mostly it’s been the total cost of the bill, not how much individual families who could soon be required to buy insurance for the first time might have to pay.
That could be a costly miscalculation, says health economist Jonathan Gruber of the Massachusetts Institute of Technology. “Let’s put it this way: It is 10 times as important as the public option and has received one one-hundredth of the coverage,” he says.
Gruber says economists have different ways of defining exactly what is and is not affordable for people. One way is by looking at disposable income, or whether people have money left over after paying for other necessities. “We think no one should have to go without food or shelter to have health insurance,” he says.
Another test is whether people would buy something voluntarily. “And if they would then clearly it’s affordable,” Gruber says.
But there’s also a third test — and it’s that affordability is in the eye of the beholder. And for a lot of beholders in the real world, health insurance costs are quickly becoming unaffordable.
(Under the proposed legislation) no family would have to spend more than 10 percent of its income on health insurance premiums; poor families wouldn’t have to spend more than 2 percent on premiums.
But premiums are only the start of what people spend on health insurance. There are also deductibles, copayments and other out-of-pocket costs. And Gruber says that when it comes to that sort of spending, the House bill is far more generous than the Senate bill.
For example, someone making two times the poverty level, or about $22,000 a year, in the House bill would get “something like a $500 deductible plan,” he says. “On the other hand in that same range in the Senate … now we’re talking a $2,500 deductible plan.”
Gruber says he’s a “big believer” in the concept that people should pay more for their health care so they’ll know what it really costs and have an incentive to save money. “I’m a believer in consumer skin in the game,” he says. “But a $2,500 deductible is a lot to ask for someone making $22,000 a year.”
And it brings Gruber to the ultimate test of affordability, which he says is a political test — “which is, do people revolt if you say, ‘I’m going to mandate you to pay this much’?”
A Milestone in the Health Care Journey
By Ronald Brownstein
November 21, 2009
When I reached Jonathan Gruber on Thursday, he was working his way, page by laborious page, through the mammoth health care bill Senate Majority Leader Harry Reid had unveiled just a few hours earlier. Gruber is a leading health economist at the Massachusetts Institute of Technology who is consulted by politicians in both parties. He was one of almost two dozen top economists who sent President Obama a letter earlier this month insisting that reform won’t succeed unless it “bends the curve” in the long-term growth of health care costs. And, on that front, Gruber likes what he sees in the Reid proposal. Actually he likes it a lot.
“I’m sort of a known skeptic on this stuff,” Gruber told me. “My summary is it’s really hard to figure out how to bend the cost curve, but I can’t think of a thing to try that they didn’t try. They really make the best effort anyone has ever made. Everything is in here….I can’t think of anything I’d do that they are not doing in the bill. You couldn’t have done better than they are doing.”
Regular readers of these messages are no doubt saturated with the concerns expressed about affordability of health care for individuals and families. For those who have or will have health care needs, even with subsidies, the premiums, deductibles, other cost sharing, out-of-network costs, and the costs of services that are not a benefit of the plans will be unaffordable for all but the relatively wealthy.
Today’s message is significant because MIT economist Jonathan Gruber, one of the most influential proponents of the current legislation, also understands that the issue of affordability has not received the attention it deserves. As he points out, a $2,500 deductible is a lot to ask of an individual making $22,000 a year. He wants them to have “skin in the game,” but even he understands that you can’t ask for their entire hide.
So how would he suggest that we reduce out-of-pocket costs so that health care is affordable? It appears that he would use the measures in the Senate bill to bend the cost curve so excessive costs allegedly aren’t passed on to patients. It seems to matter little to him that the CBO was unable to project a bend in the curve when it did its analysis.
Of course, Gruber is also an advocate of “let’s pass this bill now and then we can fix it later on” – a tacit acknowledgment that affordability will remain a crucial issue.
Gruber says that he can’t think of anything more to do that isn’t in the Senate bill. But you readers know better. We need to dump this plan and immediately go to work on one that will make health care affordable for everyone – an equitably-financed, single payer, improved Medicare for all. Do really we need to wait for Gruber’s ultimate test for affordability – a revolt?
November 23, 2009
The Quote of the Day for November 18 (www.pnhp.org) was a letter to President Obama from twenty-three prominent economists urging that four specified elements to control costs be included in the health reform legislation. Following is my original response to the letter, discussing each of the four elements. Princeton economist Uwe Reinhardt, one of the signers of the letter, has responded to my comments.
Comment on economists’ letter by Don McCanne, MD with response by Uwe E. Reinhardt, PhD (highlighted in red):
For socially conscious health care reform advocates, the primary goal of reform is to see that every individual receives the health care that he or she needs. But what has really driven the reform process has been the concern over the very high costs of health care that have challenged individuals, employers and the stewards of our government health programs.
In this late phase of the reform process many have expressed doubts over the adequacy of the various policies in the reform proposal that allegedly are designed to control health care costs well into the future. In response, twenty-three of the nation’s most distinguished economists have signed on to this letter addressed to President Obama expressing support for four elements that they believe are of critical importance and should be included in the reform legislation. Let’s look closer at these four elements.
The economists call for budget neutrality initially, to be followed by deficit reduction. Of course they are referring only to the federal government budget and not to private sector spending. The great risk of limiting consideration to public spending is that, in the absence of effectively controlling actual health care costs, the government budget can be controlled only by shifting the costs to the private sector. Individuals and businesses certainly do not want to see an increase in their health care spending, especially while the government is reducing its spending in the later phase, that of deficit reduction.
UER responds: Economists have trouble with the cost-shift argument. It assumes, implicitly, that health care costs are dictated by God and not subject to management by humans. If that were so, then, yes, whatever God-given cost is not paid by government will have to be paid by the private sector.
Economists do not share that religion. We believe that health-care costs are not God-given, but determined by the behavior of humans. There is no law in either the Bible or in economics according to which the private sector must pick up whatever health-care costs government does not pay. If the private sector were able and willing to say no to the alleged cost shift, then the providers of health care would have no choice but to manage their costs against whatever revenue they manage to extract from the rest of society.
Of course, if the private insurance sector tells us that it is powerless to resist the cost shift, then they are telling us that they cannot resist any cost increase shoved their way by providers for whatever reason. In that case, costs will keep going up in the private sector until it collapses of its own weight.
The next decade will tell.
Isolating health care spending for budget neutrality while continuing with deficits in other government programs (war, financial institution bailouts, interest on the debt, expanding our prison population, etc.) does not seem just. Appropriate use of debt is fundamental to any business, and there is no reason that reasonable debt should not be a part of the government’s management of its financial obligations to health care.
Current operations should be financed out of tax revenues. Longer-term investments (e.g., in infrastructure) can and should be debt financed. A part of health care, especially if rendered to young people, can be viewed as an investment. Conducting war may or may not be investment. WWII certainly was a highly productive investment. One has to debate fiscal policy along these lines.
That said, our total government debt is the result of prior devious efforts to reduce revenues (i.e., taxes) in order to force the reduction in funding of government programs. With inadequate revenues and with exploding debt, deficit hawks in Congress can be relied upon to underfund crucial programs such as health care, but theirs is a pathological process since they only look at spending and refuse to consider revenues.
Agreed. Republicans collectively have lost the moral ground on deficit financing. They have been promiscuous and utterly shameless on this score, starting, alas, with Ronald Reagan.
Those who argue that taxes collected for government health care spending remove money from the economy are flat out wrong. Health care is one of the most important and beneficial components of our economy, constituting over 17 percent of our GDP (Gross Domestic Product). Those taxes are moved back into our economy.
That, too, is a valid point. I have written a NYT blog post on it. It is ludicrous to say that producing another SUV is good job creation but giving health care to the hitherto uninsured is not.
Those who scream that we are being taxed to death need another dose of reality. The average total tax revenues of OECD nations (Organization for Economic Cooperation and Development) was 35.9 percent of GDP in 2006. For the United States, the total tax revenue was 28.0 percent of GDP, placing us near the bottom of OECD nations. (OECD Tax Database)
Suppose we increased our tax revenues to the average of OECD nations, which would still be far, far short of those nations with more highly socialized systems. At 7.9 percent (35.9 average minus 28.0 U.S.) of our GDP of about $13.8 trillion, that would increase government revenues by about $1.1 trillion in a single year, ten times the amount they are considering for health care reform. Our entire federal spending is about $3 trillion. We could eliminate entirely the deficits and provide surpluses while keeping tax revenues at well below the OECD average, if only the deficit hawks would look at the revenue side of the ledger.
Excise tax on high-cost insurance plans
Why would any health insurance plans have very high premiums? One reason is that insurers use medical underwriting to assess high premiums for individuals with preexisting disorders. It would be unfair to tax those premiums for an individual with other burdens, but with adequate regulatory reform medical underwriting should be eliminated anyway.
The more common reason for high premiums is that the plan covers other services and products such as dental care, eye care, maternity benefits, mental health services, and pharmaceuticals. Applying an excise tax to these premiums would result in eliminating such benefits from the plans and shifting these expenses to the individual in the form of greater out-of-pocket spending. The proposals under consideration place a cap on out-of-pocket expenses for covered services, but that cap is unaffordable for many, and these expenses would not apply to the cap. Thus they would impose an even greater financial burden.
Since the excise tax would discourage access to these important health care services, it should be rejected as the flawed policy concept that it is.
Valid points. A better approach would have been to say: Up until an income of $75,000 we do not add employer-paid health insurance to your W-2. From $75,000 to $150,000, we add 50% to your W-2, etc. But that is not in the cards. Besides, in implementation, the actuarial adjustments Don calls for most probably will be made.
Although the Medicare Commission purportedly would be to improve quality and value, its primary purpose would be to limit spending within the Medicare program. Medicare has already served as a leader in innovations to reduce health care spending, with the private insurance industry following. In fact, many providers believe that Medicare has been too aggressive, often resulting in lower reimbursement rates than in the private sector. Granting the Commission more power to use newer innovations to further reduce spending will inevitably increase the animosity held towards Medicare by the providers. A decline in willingness to accept Medicare beneficiaries could further impair access.
This is not to say that the concept of a commission is a bad idea. If the commission worked with the entire health care delivery system in applying potentially beneficial innovations, higher quality and greater value are possible. If the commission became too aggressive, the push-back by providers and their patients would moderate their excesses.
If the power of the Medicare Commission were limited only to Medicare, then there is a potential that cost-cutting aggressiveness might threaten to convert Medicare into a quasi-welfare program not unlike Medicaid, a transformation that would not please our Medicare beneficiaries. It is more likely that the Commission simply would be enmeshed in studies of relatively ineffectual measures that would have little net impact on costs.
We would need a universal Medicare for all program for the Commission to have a real impact that would be both beneficial and cost saving.
The idea here is not to shoot for the unattainable best, but for the attainable second best. If the choice is between letting Congress be in charge of Medicare spending or a Commission, I’d opt for the latter.
Delivery system reforms
These economists recommend that we reward health professionals for providing better care. The problem is that we don’t know how to do that. They recommend funding research into what tests and treatments work and which ones do not, as if that isn’t what research has been all about anyway. Maybe it would be helpful to directly compare expensive patent drugs to generics, but the overall spending impact will be modest since this year’s patented drugs are next year’s generics.
They also recommend bundled payments, accountable care organizations, plus penalties for re-admissions, hospital acquired infections and other PACs (potentially avoidable costs). In my message two days ago (November 16) I already discussed the reasons why these measures cannot be relied upon to reduce health care costs.
Is this really the best that these noted economists can come up with? They have made the same mistake as the politicians. Their perception of reform is to build on our existing dysfunctional financing system (an egregiously flawed concept that you would think our leading economists would understand).
If we had an improved Medicare for all we could have 1) deficit neutrality through global budgeting, 2) rational tax policies that are equitable, 3) public administration using the guidance of commissions as appropriate, and 4) our own beneficent monopsony that can realign incentives to promote the delivery system reform that we need. And, oh yes, every single person would be included. It doesn’t take an economist to understand that.
Economists do understand this: Until yesterday (November 20), three Democrats in the Senate have been able to toy shamelessly with the prestige of their President and of the Senate leadership on the decision whether or not even to allow an admittedly limited health-reform bill to be debated on the Senate floor. That is the reality of America.
And in the great wisdom Americans claim uniquely for themselves, they are likely to punish the legislators who gave them at least this much—the previous Administration and Congress having given them nothing.
Don is a Mensch, but a dreamer. Let’s face it, this very limited bill, should it pass into law, is the very best Americans can hope for. This country will never have a sensible, efficient health-care system, and perhaps not even a totally humane one. For better or for worse, we must get used to it.
The trouble with economists is that we understand America – one reason, perhaps, why they call ours a “dismal science.”
Are we going to accept this… proud to be Menschen while supporting only a dream?
We can have a sensible, efficient, and humane health care system for all, but the current process is not going to bring it to us. We need to change the process, but we’re not going to do that by sitting around and dreaming of what could be.
Dear colleagues at Physicians for a National Health Program:
As you may know, the Federation of Associations for the Defense of Public Health (FADSP) is an organization of Spanish health professionals which for more than 25 years has sought to protect and improve our national health system, of which we have reason to be proud.
Through educational programs and other activities, the FADSP strives to strengthen and safeguard our integral and comprehensive public health system. We advocate sound public health policy and the effective practice of primary care, specialist care and hospital care; the use of all kinds of modern diagnostic, therapeutic and surgical procedures; and the provision of rehabilitation services for the benefit of all of our citizens, regardless of their level of income, their profession, cultural level or regional origin.
This does not mean that our system is perfect, of course, or that it lacks important areas for improvement. But its achievements are many and it is highly cost-effective: our country dedicates only 6 percent of our GDP to keep the system running.
Our health system is basically free at the time of use, except for a prescription co-payment of 40 percent. The co-payment is waived for seniors.
The funds for financing the system come from taxes, particularly income taxes, so the burden on each individual depends on their income level. This allows the wealthy to show solidarity with the weak, those who have jobs to express solidarity with those who are unemployed, the younger to help the older, and those who enjoy good health to assist the sick.
Doctors, nurses and other health professionals are public employees, although they can practice privately in the afternoons. They perform their work in primary care centers in towns, villages and cities all over the country or in modern hospitals that possess the latest medical technology and that meet the highest world standards.
The impact of all this on the health of the Spanish people is positive and rewarding. Among other indices, Spain has one of the highest life expectancy rates in the world and is among the lowest in infant mortality.
Despite these achievements, our national health system, like others around the world, is subject to pressure of all kinds by institutions, individuals and sometimes even governments who, under the mantle of pro-market ideology, want to erode, weaken and eventually destroy our system and replace it with a private, for-profit health care market.
They push forward their policies in many different ways, claiming the public system is intrusive, expensive and inefficient. They charge our system is manipulative, limiting the individual freedom of doctors and patients, and that it undermines the doctor-patient relationship.
They also advance their agenda by working to cut the funding to the system, thereby hindering its activities, and by splitting or fragmenting its programs, fostering problematic gaps between the funding mechanism and providers.
The fact is, dear colleagues, that the adversaries of our national health system in Spain represent the same social forces in the U.S. opposing the fundamental reform that your organization advocates, single payer.
We in Spain are struggling to protect a national health system, while you are struggling to establish one. We both are fighting hard in the belief that citizen involvement is vital to success.
A public health care system is efficient and cheaper to run. It gives health professionals and patients a better life and removes the worries of economic problems in the event of illness. It makes a major contribution to social and individual happiness.
We can be confident in the prospects for our success, because all sensible ideas that are fair and beneficial to the vast majority of the people eventually end up winning.
You have a long road before you, but we wish you every success as a sister organization. We extend our best wishes to all of our professional colleagues in your country and to the American people, the main protagonists and ultimate beneficiaries of your goal.
Federation of Associations for the Defense of Public Health
The Federation of Associations for the Defense of Public Health hosted the annual session of the International Association of Health Policy in conjunction with its own meeting this September in Madrid and Toledo, Spain. FADSP invited Physicians for a National Health Program to the meeting to participate in a discussion of how physician advocacy can intervene in our time of global crisis. In the past FADSP has participated in PNHP events. We look forward to continuing this vital dialogue within our common struggle. We have so much to learn from years of effective advocacy by FADSP.
Thank you, FADSP, for the indispensable insight and essential confidence expressed in this wonderful letter of solidarity. Together we shall overcome! ~ Andy Coates
Hospital Computing and the Costs and Quality of Care: A National Study
By David U. Himmelstein, MD, Adam Wright, PhD, Steffie Woolhandler, MD, MPH
The American Journal of Medicine
November 20, 2009
Many believe that computerization will improve health care quality, reduce costs, and increase administrative efficiency. However, no previous studies have examined computerization’s cost and quality impacts at a diverse national sample of hospitals.
We used a variety of analytic strategies to search for evidence that computerization might be cost-saving. In cross-sectional analyses, we examined whether more computerized hospitals had lower costs or more efficient administration in any of the 5 years. We also looked for lagged effects, that is, whether cost-savings might emerge after the implementation of computerized systems. We looked for subgroups of computer applications, as well as individual applications, that might result in savings. None of these hypotheses were borne out. Even the select group of hospitals at the cutting edge of computerization showed neither cost nor efficiency advantages. Our longitudinal analysis suggests that computerization may actually increase administrative costs, at least in the near term.
The modest quality advantages associated with computerization are difficult to interpret. The quality scores reflect processes of care rather than outcomes; more information technology may merely improve scores without actually improving care, for example, by facilitating documentation of allowable exceptions.
Why has information technology failed to decrease administrative or total costs? Three interpretations of our findings seem plausible. First, perhaps computerization cannot decrease costs because savings are offset by the expense of purchasing and maintaining the computer system itself. Although information technology has improved efficiency in some industries (eg, telecommunications ), it has actually increased costs in others, such as retail banking.
Second, computerization may eventually yield cost and efficiency gains, but only at a more advanced stage than achieved by even the 100 “Most Wired” hospitals.
Finally, we believe that the computer’s potential to improve efficiency is unrealized because the commercial marketplace does not favor optimal products. Coding and other reimbursement-driven documentation might take precedence over efficiency and the encouragement of clinical parsimony. The largest computer success story has occurred at Veterans Administration hospitals where global budgets obviate the need for most billing and internal cost accounting, and minimize commercial pressures.
Whatever the explanation, as currently implemented, health information technology has a modest impact on process measures of quality, but no impact on administrative efficiency or overall costs. Predictions of cost-savings and efficiency improvements from the widespread adoption of computers are premature at best.
As currently implemented, health information technology (HIT) has no significant impact on administrative efficiency or overall costs, even in the “100 Most Wired” hospitals. Members of Congress should quit pretending that expanding HIT will produce savings that will help pay for the increased spending called for in their legislation.
This should not be interpreted as a blanket condemnation of HIT. The system used by the Veterans Administration hospitals has improved quality, though their system was designed specifically to enhance patient care. Profitable, proprietary, commercial HIT systems are usually designed to improve billing and cost accounting (and to make money for the vendors), whereas patient care information management in these proprietary systems is designed to mesh with these business functions that are given a higher priority.
We should really think about whether we want to continue to use our public funds to promote private, entrepreneurial HIT systems that have a business orientation, or if we should use those funds for further development of less expensive, open-source HIT systems designed specifically to enhance the quality of patient care, just as the VA health system has done. Their award-winning system, VistA, is available for use in the private sector (VA’s VistA – link above). Isn’t it more logical to look at a system that actually works, and one that that’s already paid for and that we own?
The following is from the PNHP release (link above):
Dr. Steffie Woolhandler, professor of medicine at Harvard and study co-author, said several factors may explain why health IT has failed to reduce administrative costs.
“Any savings may have been offset by the costs of purchasing and running new computer systems,” she said. “In addition, most software is designed around the accounting and billing needs of hospitals, not the clinical side.”
She noted that a computer success story in recent years has been at the Veterans Administration, where global budgets eliminate most billing and internal cost accounting, allowing physicians to focus instead on delivering care.
“The VA system now has our nation’s highest quality and patient approval ratings,” Woolhandler said. “Congress should take note: to get the most benefit from our health care dollars and from health IT, we should adopt a single-payer, Medicare-for-all program. Nothing short of that will allow us to reap the full potential of computerization or to provide comprehensive, quality and affordable care to all.”
Physicians for a National Health Program's blog serves to facilitate communication among physicians and the public. The views presented on this blog are those of the individual authors and do not necessarily represent the views of PNHP.
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