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.
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).
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.
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 ClinicalTrials.gov:
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. (ClinicalTrials.gov 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.
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.
Growth in the Residential Segregation of Families by Income, 1970-2009
By Sean F. Reardon and Kendra Bischoff, Stanford University
US2010 Project, November 2011
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?
Health at a Glance 2011: OECD Indicators
Organization for Economic Cooperation and Development (OECD)
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.
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.
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.
We All Want It, but We Don’t Know What It Is: Toward a Standard of Affordability for Health Insurance Premiums
By Peter Muennig, Bhaven Sampat, Nicholas Tilipman, Lawrence D. Brown and Sherry A. Glied
Journal of Health Politics, Policy and Law, October 2011
The 2010 Patient Protection and Affordable Care Act (P.L. 111-148), or ACA, requires that U.S. citizens either purchase health insurance or pay a fine. To offset the financial burden for lower-income households, it also provides subsidies to ensure that health insurance premiums are affordable. However, relatively little work has been done on how such affordability standards should be set. The existing literature on affordability is not grounded in social norms and has methodological and theoretical flaws. To address these issues, we developed a series of hypothetical vignettes in which individual and household sociodemographic characteristics were varied. We then convened a panel of eighteen experts with extensive experience in affordability standards to evaluate the extent to which each vignette character could afford to pay for one of two health insurance plans. The panel varied with respect to political ideology and discipline. We find that there was considerable disagreement about how affordability is defined. There was also disagreement about what might be included in an affordability standard, with substantive debate surrounding whether savings, debt, education, or single parenthood is relevant. There was also substantial variation in experts’ assessed affordability scores. Nevertheless, median expert affordability assessments were not far from those of ACA.
The discussion started in earnest with a review of the vignettes, beginning with Sarah (age 25, single, no children, college graduate, working for a non-profit), a vignette character who earns $1,610 per month, just under 200 percent of the FPL. In the case of characters with very low earnings, such as Sarah, there was considerable agreement among the panelists. All but one of the experts thought that she should pay something for health insurance, and all agreed that it should be very little.
The discussion heated up when participants considered Jessica, who earns $2,210 per month (age 25, single, no children, lives in Chicago, and pays rent of $1160 monthly). Here it was revealed that some participants interpreted affordability as what the person should pay and others as what they could pay. This provided a jumping-off point to a broader discussion of what affordability means.
One participant suggested that Jessica could “literally” afford $800 per month, and denounced affordability as “a lousy policy where you impoverish people so they can buy a minimal set of other goods after they end up paying for health insurance.” Another respondent who also gave a very high affordability threshold noted, “I’m not saying it would be worth it for her to pay this much, but she could still manage reasonably well if she [did] . . . so.” Many others disagreed with this literal interpretation, noting, “I don’t think literal affordability is an interesting policy.” One respondent described affordability as “asking really, ‘How much could one reasonably pay for health insurance.'” Several others argued that a policy would be affordable for beneficiaries if there would “be no adverse consequences by pushing them to that limit.”
One participant, who argued that the standard should be $100 to $150, said, “I’m a low-ball guy because [I take into account] the real costs of living, the fact that the poverty line is too low, etc.”
There is not a natural, objective standard of affordable health insurance coverage. Of course this is true for most (if not all) policies that require government subsidies. Reasonable people disagree about how much a given household can be expected to put aside to spend on health insurance and health care. That there is considerable disagreement even among distinguished experts in social policy on this issue suggests that the concept is mainly a subjective one and that any specific affordability threshold or subsidy structure is likely to be contentious and contested. In this area, as with many others, even highly qualified experts are unlikely to provide scientific answers to guide policy.
This study was designed to demonstrate what well qualified policy experts, from across the political and academic spectra, would conclude should be the standard for determining affordability of health insurance premiums. So what is that standard?
After analyzing a great many vignettes, each expert then devised their own rules of thumb for determining appropriate premium contributions. Although the rules were quite varied, the mean calculations for premium contributions were close to those specified in the Affordable Care Act (ACA). Does this mean that members of Congress and their staffs were quite astute in their calculations of premium subsidies for the exchange plans?
Although the mean calculations were close to those of ACA, there was a very wide variation in the experts’ assessed affordability scores. In the vignette for “Jessica” ($2210 per month income with a Chicago rent of $1160, leaving $1050 for all of her expenses other than rent), expert estimates of affordable health insurance premiums ranged from $100 or $150 per month up to $800 per month. At $800 per month, that leaves $250 for all expenses other than rent and health insurance (e.g., food, clothing, utilities, transportation, education expenses, retirement fund, and “luxuries” such as a cellphone, TV, vacations, holiday gifts, etc.). That $250 must also cover out-of-pocket medical expenses such as deductibles, copayments, and out-of-network services. Even the “low-ball” estimate leaves only $900 to $950 per month for everything beyond rent and health insurance.
The fundamental defect here is that we keep trying to match payment for a specified package of medical benefits to the incomes of specific individuals. Since a reasonable package is no longer affordable by median-income individuals, some form of subsidization is required for the majority of us. Yet recognized experts in the policy community have very different concepts as to how much and in what form the subsidies should be.
Averaging these wide ranges of opinions on how much each person should pay is not a satisfactory solution since the averages or medians place too much of the burden of health care costs on those with modest incomes. These averages also would not satisfy those dispassionate experts who believe that individuals should pay dearly for their health insurance and health care, so they won’t waste their money on things like flat-screen TVs (or really, “wasting” it on healthier foods, transportation to their employment, 401k plans, and so forth).
Financing health care and providing health benefits need to be totally separated. The correlation between ability to pay and medical need is negative, not positive. Payments based on ability to pay should be made into a common risk pool covering everyone, most easily accomplished through the tax system. Health care benefits should be provided to everyone out of that risk pool based on medical need. That is sort of the way Medicare works now for selected populations, but it could be improved.
That sounds like a good idea. Let’s improve Medicare and then provide it for everyone.
Indiana places a big bet on consumer-driven health insurance
By Christine Vestal
Stateline, November 17, 2011
One thing Mitch Daniels believes with absolute conviction is that consumers need to pay more of the cost of their health care.
“The prevalent model of health plans in this country,” the Republican Daniels argued recently in a Wall Street Journal commentary, “signals individuals they can buy health care on someone else’s credit card.” He called today’s health care system “a machine perfectly designed to overconsume and overspend.”
No one can say Daniels isn’t practicing what he preaches. Indiana has been using a version of consumer-driven health care for state employees since 2006. Starting next year, 90 percent of Indiana state workers will be covered by a consumer-driven plan with low premiums and high out-of-pocket expenses for actual care.
Indiana has attracted customers to its consumer-driven system by adding quite a few sweeteners. Starting in 2006, Indiana state employees were given the option to sign up for a consumer-driven plan with no monthly premiums. The plan paid 80 percent of all doctor bills, but only after a $5,000 deductible was met. The maximum out-of-pocket exposure was $8,000.
The traditional plan — with a $1,500 deductible and $2,000 total exposure — remained available at a cost of $3,500 in annual premiums for family coverage.
To make the consumer-directed plan even more attractive, Indiana did other things that most states haven’t done. It paid 60 percent of the $5,000 deductible through a contribution to an employee-owned health savings account. The entire $3,000 contribution was deposited on January 1, reducing much of the risk that a catastrophic event early in the year would leave an employee with a huge medical bill and not enough money set aside to pay for it.
At first, state employees were slow to adopt the scheme; only 4 percent signed up the first year. But it gradually caught on — partly through word-of-mouth and partly through an intensive education program. By the third year, 30 percent of the state’s 28,000 civil servants had signed up, and the numbers have steadily increased.
As more of the state workers opted for a consumer-driven plan, premium costs in the traditional plan started rising. An employee’s annual premium for family coverage in the traditional system started out at $3,500 in 2006, rose to nearly $5,000 within three years, and next year will exceed $9,000. The consumer option generated something of a snowball effect.
The reason for the premium increase in the traditional plan is what is known as “adverse selection.” When an insurance pool shrinks, fewer healthy people remain to cover the costs for those who have high medical bills. At this point, the math on the traditional plan no longer makes sense for anyone. “It defies logic that anyone would continue to stay in the traditional plan,” says Indiana’s personnel director, Daniel Hackler.
In Indiana’s case, the state contribution for health insurance is about $15,000 per employee for both consumer-driven and traditional plans. The savings come from reduced use of the health care system and from cheaper prescription drugs.
In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face.
But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth.
So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.
For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.
Although there has been continued slow growth in consumer-driven health plans (CDHP) – high-deductible health insurance plans (HDHP) paired with health savings accounts (HSA) – the take-up by public employees in Indiana has been phenomenal – 90 percent of state workers. What drove this success? Or is it a success?
It is easy to understand why CDHPs would appeal to healthy, wealthy individuals. The high-deductible plans have significantly lower premiums than traditional plans. The money saved by purchasing these lower cost plans can be placed in an HSA, using pre-tax income. If the person remains healthy, the funds that accumulate in the savings account, including any tax-deferred earnings, can be drawn out in retirement without paying a penalty. It’s a great plan for those who stay healthy and have the extra funds to deposit into these accounts.
But what about those who rapidly deplete their savings accounts because of significant medical problems? They must then rely on a high-deductible plan that potentially subjects them to financial hardship because of high out-of-pocket expenses. Thus CDHPs are a poor choice for those who need more health care. This defeats the purpose of pooling risk in which the many who are healthy pay the bills for the few with greater needs.
The funds from the HSAs that are drawn out in the retirement years of the many who are healthy have been omitted from the collective pooling of funds that are needed to take care of the sick (i.e., the lower premiums of the high-deductible plans underfund the collective need of everyone, and the difference is made up by shifting the responsibility for payment directly to the patients who need more health care). It is not only the HSA money that has been diverted from the pools, but also the money that was saved by paying lower premiums yet was never deposited into the HSAs (the most common circumstance).
It is interesting what Indiana Gov. Mitch Daniels did with the state employees’ health benefit program. Most employers that switch to a CDHP do so to save money by paying the lower premium of the HDHP. Some employers will even use a portion of the savings, but not all, to provide seed money for the HSAs. Gov. Daniels decided to put all of the savings in the HSAs so that the cost of the CDHP (HDHP plus HSA contribution) was about the same as the traditional health plan. His ideological drive to make employees sensitive to health care costs was greater than his desire to save the state money.
Imagine the response of the healthy employees, which is most of them. In exchange for agreeing to change to a high-deductible plan – a plan that they probably wouldn’t use much anyway because they are healthy – they are given a cash contribution of $3,000 each year for their own savings accounts, which can be used for health care now or for their retirement later on. If they were to stay healthy and didn’t draw on these accounts, they could have perhaps another $100,000 for retirement!
The healthy employees were sold on the concept, and made the transition. Employees with medical problems in their families were more reluctant to change. They did not want to give up their established health care relationships, plus they didn’t want to be exposed to high-deductibles with depleted HSAs. They stayed in the traditional plan.
Most who have been following health policy recognize that this is “adverse selection.” The healthy leave the insurance pool and the sick stay in. That can only drive premiums up. The employees share of the premium for a family plan went from $3,500 to $9,000. Ouch!
Many of you recognize this as the “death spiral” of premiums. With higher premiums, more leave the plan, and then it eventually has to shut down because nobody could pay the even higher premiums that would have to be charged.
So now this concentration of employees and their families with higher health care needs moves into the CDHPs. What will the insurers do when they have a large influx of expensive patients signing up with the high-deductible plans? Obviously, they’ll have to jack up the premiums to levels that will displease everyone.
Those hurt the most will be those with health care needs, who have depleted HSAs, who will have higher premiums, and who will have greater out-of-pocket costs because of the high deductibles – the very people who have the greatest need for insurance protection. This is hardly a “success.”
By now, you can write your own closing lines about how we can do it right.
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.
PNHP Chapters and Activists are invited to post news of their recent speaking engagements, events, Congressional visits and other activities on PNHP’s blog in the “News from Activists” section.