Under the theory of moral hazard, it is postulated that insured people overuse health care services and that patients themselves are a leading cause of health care inflation. If they would just have more “skin in the game” through enough cost-sharing (co-payments, deductibles and other restrictions), it is assumed that costs could be reined in.
But as I discussed in a lengthy article four years ago, this theory has been fully discredited over the years as a cost-containment tool in U.S. health care. (1) (Geyman, JP. Moral hazard and consumer-driven health care: A fundamentally flawed concept. Intl J Health Services 37 (2): 333-51, 2007) Instead of cutting health care spending, cost-sharing leads many patients to delay or forego necessary health care, resulting in later diagnosis of illness and higher costs down the road, together with decreased quality and outcomes of care.
Overall health care costs are not reduced. Cost-sharing just shifts more costs to patients and families at a time when these costs are already unbearable for many. Meanwhile, the real drivers of health care costs continue unimpeded— perverse incentives within the medical marketplace that encourage physicians, other providers, hospitals and other facilities to deliver more services, whether appropriate or necessary or not; lack of price controls; blatant profiteering by Big PhRMA, investor-owned hospitals and medical supply companies; introduction of new technologies with lax requirements to document their effectiveness; and excess bureaucracy of our 1,300 private insurers.
Although it is now clear that cost-sharing will not fix our cost problems, and will just make patients sicker and increase the numbers of preventable hospitalizations and deaths, the policy-making community continues to bark up this tree. In fact, all the present trends indicate that increased cost-sharing, promoted especially by the GOP and many willing Democrats, will be imposed across the board in both private and public programs.
These examples illustrate the extent of this continuing trend:
• High-deductible plans with increased co-payments for visits and drug prescriptions and greater restrictions on network providers.
• Efforts to increase cost-sharing in private Medicare plans, including Medigap and Medicare Advantage programs.
• The Obama Administration’s “surrender in advance” proposal to introduce new co-payments for home health services for new Medicare beneficiaries (4) (Office of Management and Budget. Living Within Our Means and Investing in the Future. The President’s Plan for Economic Growth and Deficit Reduction. September 2011).
• Draconian Medicaid cutting services and increasing cost-sharing (e.g. Arizonans below the federal poverty level must make co-payments to gain access to care, causing many to forego care, a practice recently rejected by a the 9th U.S. Circuit Court of Appeals. (5) (Reinhart, MK. Copays break law. The Arizona Republic, August 25, 2011) But conservatives and many Democrats conveniently ignore these inconvenient facts about cost-sharing as a failed mechanism to cut health care costs:
• Despite the widespread and increasing use of cost-sharing over many years, health care inflation remains completely out of control.
• Physicians push the buttons for health care services much more than patients.
• The enormous costs of the multi-payer financing system are wasteful and unsustainable, and could readily be controlled by shifting to a single-payer financing system. The hypocrisy of the right on this issue boggles the mind. Consider these contradictory policies and assertions on the right:
• Blind ideological support of “market competition” as the answer to our cost problems when that is the main part of the cost problem, since real competition does not exist in health care markets (e.g. more consolidation all the time, wide latitude to set prices, little transparency, etc).
• Intent to dismantle Medicare and convert it into a voucher-based welfare program while at the same time opposing cost controls of private Medicare programs and negotiated drug prices that are so effective in the VA.
• Forcing increasing cuts of an already underfunded Medicaid program while promoting for-profit privatized Medicaid programs that offer worse medical care (6) (McCue, MJ, Bailit, MH. Assessing the financial health of managed Medicaid managed care plans and the quality of patient care they provide. The Commonwealth Fund, June 15, 2011) and further gouge the most vulnerable among us.
• Opposition to reforms of Wall Street abuses, where moral hazard of high-risk and exploitive investment practices continue unchecked. (7) (Browning, ES. Fed faces old foe as hazard returns. Wall Street Journal, August 29,2011: C1)
• Failure to even consider a single-payer, not-for-profit Medicare for all program that would assure universal coverage for our whole population with increased choice, more efficiency, fewer disparities and improved quality of care, all at less cost than employers, patients and families are now paying.
• Calling for a more limited role of government until big banks and other privateinstitutions face bankruptcy, then begging for bailouts and minimal follow-up regulation.
• Calling the Obama Administration’s recent proposal for minimal tax rules for those making more than $1 million a year “class warfare” as if the GOP hasn’t been waging such a war for many years. (8) (Knowlton, B. Republican lawmakers equate Obama tax plan with ‘class warfare’. New York Times, September 19, 2011: A 19)
Adding up all these examples of GOP duplicity and hypocrisy (to which many Democrats unfortunately yield), we have to ask when logic, common sense, evidence and fairness will take center stage for health policy makers and legislators? The way things are going could well be called legislative malpractice.
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.
Competitive Pricing and the Challenge of Cost Control in Medicare
By Robert F. Coulam, Roger D. Feldman and Bryan E. Dowd
Journal of Health Politics, Policy and Law, August 2011
The Medicare program faces a serious challenge: it must find ways to control costs but must do so through a system of congressional oversight that necessarily limits its choices. We look at one approach to prudent purchasing – competitive pricing – that Medicare has attempted many times and in various ways since the beginning of the program, and in all but one case unsuccessfully due to the politics of provider opposition working through Congress and the courts. We look at some related efforts to change Medicare pricing to explore when the program has been successful in making dramatic changes in how it pays for health care. A set of recommendations emerges for ways to respond to the impediments of law and politics that have obstructed change to more efficient payment methods. Except in unusual cases, competitive pricing threatens too many stakeholders in too many ways for key political actors to support it. But an unusual case may arise in the coming Medicare fiscal crisis related in part to the prices Medicare pays. At that point, competitive pricing may look less like a problem and more like a solution coming at a time when the system badly needs one.
What is to be done?
* Recognize that competitive pricing is one part of fixing Medicare’s urgent fiscal problems
* Consider ways to divide provider opposition or buy it off
* Be aware that some bidding models might face fewer legal and political problems than others
* Cultivate political leaders to support competitive bidding as policy
* Compensate losers, at least through a transition period
* Give beneficiaries and providers time to adjust
* Strengthen the administrative and legal resources available to CMS in competitive bidding struggles
* Revise the legal framework to narrow the grounds for challenges
* Combine competitive pricing with mechanisms to increase quality
The authors of this article supporting competitive pricing for Medicare were funded by a grant from the American Enterprise Institute, an organization “committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise.” It is interesting to read why they believe that previous efforts to introduce competitive pricing failed, but what is even more interesting is their list of proposals for action that might accomplish their elusive goal.
Medicare uses administrative pricing to determine payments. Prices are set by performing analytic calculations, using historical claims data. The goal of conservatives has been to use competitive pricing instead, a competitive bidding process to obtain the lowest prices. Although conservatives contend that competition will always provide the lowest prices, in fact, the top-down administered pricing by Medicare has been much more effective in controlling health care prices than has competition of private insurance plans in the private sector.
Regardless of the evidence, the conservatives have a ideological belief that competition must be more effective, and we can prove that by displacing administrative pricing with competitive pricing – showing that it really works. So let’s look at their proposals for introducing competition as a means of expanding liberty and strengthening free enterprise. In examining their proposals listed above, the concepts are the same, only the rhetoric is changed:
* The first and most important point (according to the authors) is that we must accept without question the ideology of competition as the means to fix Medicare’s urgent fiscal problems, while implicitly totally rejecting government administrative pricing. The political process is to be driven by ideology rather than policy science.
* Using the finest principles of market competition, we must use devious methods to divide the opposition of health care providers, or, failing that, simply buy them off. Just don’t call it a bribe since that term is offensive to free market purists.
* Make sure the bidding models are rigged to circumvent legal and political barriers.
* Cultivating political leaders to support competitive pricing is now much easier since the Supreme Court decided that the transfer of massive amounts of cash is a protected form of free speech.
* Compensating losers through a transition period is a euphemism for the “so-sorry-but-that’s-the-way-competition-works” gratuitous comment to the losers who face financial ruin. Market purists would never give cash rewards to the competition that they just beat out.
* Giving beneficiaries and providers time to adjust need not be a separate policy since it is automatic – the time between when they are informed that they lost their insurance or their provider contract and the date of the actual termination.
* Strengthening the administrative and legal resources available to CMS in competitive bidding struggles is just what markets are all about – swindle the patients and providers by diverting more health care dollars to yet more administrative waste.
* Revising the legal framework to narrow the grounds for challenges will be a cinch since they already have a Supreme Court that will protect their marketplace excesses.
* Combining competitive pricing with mechanisms to increase quality – the old measuring-and-monitoring-quality trick wherein they pretend that it is the middleman insurer that creates quality rather than the dedicated health care professionals.
In reading this long article, I could understand why these AEI-funded authors were making excuses for the previous failed experiments in competitive pricing, but I have to admit that I was astonished when they gave us this list of reasons why we should never even remotely consider adopting competitive pricing in the Medicare program. That was very thoughtful of them.
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.
Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction
Office of Management and Budget
Increase income-related premiums under Medicare Parts B and D.
Under Medicare Parts B and D, certain beneficiaries pay higher premiums as a result of their higher levels of income. Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D by 15 percent and maintain the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them.
Modify Part B deductible for new beneficiaries.
Beneficiaries who are enrolled in Medicare Part B are required to pay an annual deductible. This deductible helps to share responsibility for payment of Medicare services between Medicare and beneficiaries. To strengthen program financing and encourage beneficiaries to seek high-value health care services, the Administration proposes to apply a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries. Current beneficiaries or near retirees would not be subject to the revised deductible.
Introduce home health co-payments for new beneficiaries.
Medicare beneficiaries currently do not make co-payments for Medicare home health services. This proposal would create a home health copayment of $100 per home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay. This would apply to new beneficiaries beginning in 2017.
Introduce a Part B premium surcharge for new beneficiaries that purchase near first-dollar Medigap coverage.
Medigap policies sold by private insurance companies provide beneficiaries additional support for covering healthcare costs by covering most or all of the cost sharing Medicare requires. This protection, however, gives individuals less incentive to consider the costs of health care services and thus raises Medicare costs and Part B premiums. Of particular concern are Medigap plans that cover substantially all Medicare copayments, including even the modest co-payments for routine care that most beneficiaries can afford to pay out of pocket. To encourage more efficient health care choices, the Administration proposes a Part B premium surcharge equivalent to about 15 percent of the average Medigap premium (or about 30 percent of the Part B premium) for new beneficiaries that purchase Medigap policies with particularly low cost-sharing requirements, starting in 2017. Current beneficiaries and near-retirees would not be subject to the surcharge.
Having been burned repeatedly in negotiations with the Republicans, and fully aware of that the election season has already begun, President Obama stepped away from conducting negotiations over in their territory and has now released his own list of policies not tainted by compromise. Since there is no hope of passing this intact in the current Congress, releasing this proposal obviously was a political maneuver. Nevertheless, it is important to see where he stands on Medicare, if only he could have his way.
Although he had been in discussions on raising the Medicare eligibility age to 67, it is a relief to see that this is absent from his wish list. Also there is not even a hint that he might consider a privatization scheme such as the Republican premium support/voucher program. So what is in his proposal?
He would increase both Medicare Part B (physician) and Part D (drug) premiums for higher-income individuals and expand the number of beneficiaries who would be subject to these higher premiums. It is entirely appropriate for higher-income individuals to contribute more in taxes to the funding of Medicare, but once individuals are in the program they should all be treated the same. Requiring higher payments for higher-income individuals reduces their support for the traditional program and increases the political pressure to privatize. If more money is needed from higher-income Medicare beneficiaries then it should be collected through progressive income taxes and not through income-indexed premiums.
He would increase Part B deductibles for younger Medicare beneficiaries, but not for those already in the program. Just as assigning different premiums based on income decreases solidarity, the assignment of different deductibles based on age also takes a toll on solidarity.
Introducing co-payments for Medicare home health services shifts costs from the government to Medicare beneficiaries. In fact, new co-payments, higher premiums, and larger deductibles all expand the cost burden for beneficiaries, which can have the detrimental impact of impairing access.
Medicare already is a program with inadequate coverage that leaves patients with excessive out-of-pocket costs. The costs can be high enough such that Medicare beneficiaries have not been immune to personal bankruptcy associated with medical debt. Several previous Quote of the Day messages have shown that cost sharing has only a negligible impact in reducing our national health expenditures, yet it often does cause financial hardship and can impair access.
The proposal to introduce a Part B surcharge for individuals purchasing Medigap plans is yet another means of shifting more costs to the patient. It is designed to discourage patients from buying Medigap plans that would significantly reduce the burden of cost sharing. Instead of increasing cost sharing, the financial burden should be reduced by folding Medigap benefits into the traditional Medicare program.
Even though President Obama and his handlers are trying to create an image that he is standing firm for middle-income Americans and against the right wing anti-government extremists, on Medicare he is actually moving to the right! He has violated the first rule of negotiation. You never compromise any of your basic policy positions before you begin.
Where should he have begun? He should have eliminated all cost sharing in Medicare, converted the financing infrastructure into a single payer system, and then moved the eligibility age to birth. But no. Free of the bonds of the right wing extortion, he drifted to the right anyway.
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.
Census Numbers: The Trend Toward Government Coverage Continues
By Nina Owcharenko
Health Affairs Blog, September 14, 2011
In its yearly survey of health insurance coverage, the U.S. Census Bureau published figures that underscore the trend toward greater dependence on government for coverage.
Most analysts, regardless of political views, generally agree that to make the system work better, there needs to be greater portability and continuity in health care coverage.
This, however, is where the philosophical divide occurs. Those on the left generally see a larger role for government-based coverage, while those on the right see a greater role for individuals. One only needs to look at the Patient Protection and Affordable Care Act (PPACA) to see this take shape. The PPACA puts the trend toward government-based coverage on the fast track. The law will add an estimated 26 million people to Medicaid alone.
Even without PPACA, existing government-based coverage (Medicare and Medicaid) is fiscally unsustainable.
Those on the right (including myself) who oppose the government-based model see an alternative path toward portability and continuity based on individual ownership and market-based competition. The Heritage Foundation’s Saving the American Dream plan empowers individuals and families to own and control their health insurance. It establishes individual tax relief for people to buy coverage in a marketplace where insurers and providers are accountable to meeting consumers’ needs of higher quality at lower costs. It also reforms Medicare and Medicaid, putting them on a sustainable path forward.
While discussion of the Census numbers typically focuses on changes affecting the uninsured, the real story is the slow but steady trend away from private coverage and toward government coverage. Recent estimates by the CMS actuaries project that by 2020, government will control 50 percent of all health care spending in the country. Americans should take note that the health care system is moving to the tipping point where it will be more government-run than private.
Response: Don McCanne
September 18th, 2011
Why would health care be fiscally unsustainable when it is paid for through a government program, yet sustainable when it is paid for privately?
The fiscally unsustainable argument is based on the assumptions that the government would not introduce adequate cost containment measures, and that the government would not impose adequate taxes or tax equivalents to pay for the system. Based on the experience of other nations, both assumptions should be challenged.
Other nations use either government ownership or robust government regulation to slow the growth in health care costs. They also use government taxing authority or regulatory mandates to ensure that the health system is fiscally sustainable. Directly or indirectly, they function as a public monopsony. Although they may complain about their own rising costs, they certainly spend less money than we do, yet they are able to include essentially everyone in their comprehensive programs.
How would private control of health spending produce a fiscally sustainable system? The answer is that it would be fiscally sustainable only for the government. With a median household income of $49,000 and average health care expenditures of an insured family at $18,000 (Milliman Medical Index), health care costs for individuals and families are already unsustainable. (Median households and families with employer-sponsored plans are not the same, but these numbers still illustrate the enormity of the problem.)
Health consumer empowerment is being achieved by shifting more of the responsibility for payment directly to patients, especially through increased deductibles and other cost sharing. At today’s high heath care costs that means that many more patients would be foregoing beneficial health care services, simply because they can’t pay for them.
Now Medicare and Medicaid are being threatened with proposed reforms that allegedly would put them on the path of sustainability. Again, that might be sustainable for the government, but the proposed changes would shift more costs to patients, further impairing access because of increasing financial barriers to care.
Many of us were shocked recently during the Republican candidates’ debate when the moderator asked if a thirty year old, critically ill man should be allowed to die because he was uninsured, and members of the audience shouted, “Yes.” But that was only a very few voices from an anti-government Tea Party audience. Not only would citizens of other nations emphatically reject this view, it also decidedly violates American values.
Nina Owcharenko offers us the choice between consumer empowerment in which we can reject the health care we need but can’t pay for, or our own beneficent government monopsony that would ensure value in our health care purchasing so that all of us could have the health care that we need.
Although her blog entry and this response may appear to be merely a rhetorical game, the choice really is a matter of our nation’s health.
Medicare Advantage Premiums To Fall 4% Next Year
By Phil Galewitz
Kaiser Health News, September 15, 2011
The Obama administration on Thursday said the nearly 12 million senior citizens enrolled in Medicare health plans will see their monthly premiums drop by an average of 4 percent while benefits remain stable next year.
Enrollment in the plans, which now have about a quarter of all Medicare beneficiaries, is expected to grow by 10 percent in 2012, said Jonathan Blum, deputy administrator for the Centers for Medicare and Medicaid Services.
He attributed the premium drop to the agency’s strong negotiations with plans as well as the companies’ continuing desire to serve the market.
Dan Mendelson, the chief executive of consulting firm Avalere Health, said plans are lowering premiums because their costs have fallen as their members have used fewer services in the midst of the economic downturn.
The plans were targeted by Democrats who complained that the government pays more per capita for beneficiaries in the private plans than it spends on those in traditional Medicare.
Federal payments were frozen to Medicare Advantage plans this year and are dropping by less than 1 percent in 2012.
The health care law softens the impact of Medicare Advantage cuts in 2012 by providing billions of dollars for quality bonuses for highly rated plans that received four or five stars in a government grading system.
In a policy shift last fall, HHS decided to lower the bar for bonuses. Average-quality plans garnering just three or three-and-a-half stars would also get bonuses, although at a lower percentage than top-tier plans.
The HHS decision means that nearly 90 percent of Medicare Advantage enrollees are in plans now eligible for a bonus. Under the tougher approach Congress took in the health law, only about 33 percent would have been in plans getting the extra payments.
The Obama administration is countering Republican claims that the Affordable Care Act stole money from Medicare. They are trumpeting the facts that Medicare Advantage premiums are 4 percent lower, and enrollment is expected to be up by 10 percent. We really need to get past the deceptive rhetoric on both sides to understand what really is going on.
The Medicare Advantage program began as a fraud. These private plans were paid 113 percent of the costs of the traditional Medicare program so that they could offer extra benefits to entice individuals away from the public program. Once a sufficient number of individuals joined the private plans, funding for the public program would be slashed and patients would flee into the private plans. Only then would the public learn that the next planned step would be to shift to a Ryan-type voucher (premium support), which would dump much more of the costs onto patients.
The Affordable Care Act included a provision to gradually reduce these Medicare Advantage overpayments. The scheduled reduction for 2012 will be less than 1 percent. But members of the Obama administration have been listening to the insurers and the Republicans. They decided that this very modest reduction might make them more vulnerable to Republican attacks as we enter an election year. So what did they do?
They replenished the reductions with billions of dollars in quality bonuses designed for top tier 4 and 5 star plans, but they expanded the program to include 3 star plans. That way, plans covering 90 percent of Medicare Advantage enrollees would receive additional payments. A quality bonus for almost every plan is nothing more than a blanket payment increase. They have preserved this gift to the private insurers and then have the gall to claim that the programs are stronger and more popular as a result of their “strong negotiations” with the plans! Strength in politics seems to be proportional to the size of the gifts of cash, especially appalling when you realize that this is our tax money.
By the way, how much is that 4 percent reduction in premiums that the Medicare Advantage enrollees will be paying? It averages about $1.48 monthly per enrollee. That tough negotiating sure hit the insurers hard. $1.48! I can picture the insurers leaving the negotiations saying that they sure were hit hard this year, but they hope to do better in next year’s negotiations, as they collapse in hysterics right after the door closes.
One more important fact to keep in mind is that these extra insurance company bonuses are paid partly by our Part B premiums in the traditional Medicare program. Those of us who refuse to join the Medicare Advantage plans are paying higher premiums to buy more patient benefits, more insurer profits and more administrative services for those who have enrolled in the private plans. We now have an official government policy that requires us to pay more and get less if we don’t privatize ourselves!
Dishonesty is so prevalent in politics today that I think I almost understand the graffiti that we saw yesterday while hiking on our ridge trail: “The truth is a lie!”
Maryland’s Hospital Cost Review Commission at 40
By John A. Kastor, MD; Eli Y. Adashi, MD, MS
JAMA, September 14, 2011
In 1971, the state of Maryland established the Health Services Cost Review Commission (HSCRC) to regulate the rates that hospitals in the state could receive from Medicare, Medicaid, and private insurers. Although other states once regulated hospital rates, only in Maryland does the practice continue. In this Commentary, we describe the Maryland system, discuss why regulation in other states failed, and suggest that other states should consider regulating hospital rates.
In 1976, when the system began full operation, the adjusted costs per admission in Maryland hospitals were approximately 26% higher than the national average. Between 1977 and 2009, Maryland hospitals experienced the lowest cumulative increase in cost per adjusted admission of any state in the nation. For fiscal year 2009, the average cost per admission at Maryland hospitals increased by only 2% compared with an estimated 4.5% increase for the rest of the nation. Because the HSCRC regulates the amount hospitals can increase (“mark up”) their charges, Maryland also has the lowest absolute charges of any state.
Why has regulation succeeded in Maryland? First and foremost, there is the HSCRC’s enlightened design with its legislated independence, broad enforcement powers, and discretion to chart its own course. Accordingly, changes the HSCRC sees as advantageous can be instituted without additional legislative action. Most stakeholders—hospitals, payers, and patients—favor the system. Hospitals appreciate the transparency and equity of the rate-setting process, the enhanced compensation by public payers, and the elimination of protracted rate negotiations with each payer. Payers value the clarity and parity of the HSCRC-approved hospital rates, the absence of hospital-driven cost-shifting, and the containment of continually increasing costs. Patients welcome the unfettered access to care.
Although as many as 30 states once regulated hospital costs, by 1991, only Maryland continues to use an all-payer rate-setting system. While the reasons varied state by state, fundamental to the decrease in the rate-setting system was federal policy, beginning in the 1980s, that replaced the regulatory model with deregulatory market-driven schemes. Managed care, capitation, and diagnosis related groups, not rate regulation, became the mantra to control increases in health spending.
The Maryland experience demonstrates that an enlightened independent public utility can be empowered to successfully stem inflationary growth in hospital spending. Is this the time for other states to consider or reconsider using rate regulation to control hospital costs?
A National Health Program for the United States: A Physicians’ Proposal
By The Writing Committee (PNHP’s proposal)
The New England Journal of Medicine, January 12, 1989
Payment for Hospital Services
Each hospital would receive an annual lump-sum payment to cover all operating expenses – a “global” budget. The amount of this payment would be negotiated with the state national health program payment board and would be based on past expenditures, previous financial and clinical performance, projected changes in levels of services, wages and other costs, and proposed new and innovative programs. Hospitals would not bill for services covered by the national health program. No part of the operating budget could be used for hospital expansion, profit, marketing, or major capital purchases or leases. These expenditures would also come from the national health program fund, but monies for them would be appropriated separately.
Global prospective budgeting would simplify hospital administration and virtually eliminate billing, thus freeing up substantial resources for increased clinical care. Before the nationwide implementation of the national health program, hospitals in the states with demonstration programs could bill out-of-state patients on a simple per diem basis. Prohibiting the use of operating funds for capital purchases or profit would eliminate the main financial incentive for both excessive intervention (under fee-for-service payment) and skimping on care (under DRG-type prospective-payment systems), since neither inflating revenues nor limiting care could result in gain for the institution. The separate appropriation of funds explicitly designated for capital expenditures would facilitate rational health planning. In Canada, this method of hospital payment has been successful in containing costs, minimizing bureaucracy, improving the distribution of health resources, and maintaining the quality of care. It shifts the focus of hospital administration away from the bottom line and toward the provision of optimal clinical services.
Hospital Payment Policy in Canada: Options for the future
By Jason Sutherland
Canadian Health Services Research Foundation, March 15, 2011
Canada’s publicly funded healthcare system is facing increasing cost control pressures. Hospitals alone represent a substantial burden on provincial health budgets, accounting for 28% of total costs. Presently, in the Canadian system, the primary source of funding for hospitals is through a global budget. Under this model, a fixed (global) amount of funding is distributed to each hospital to pay for all hospital-based services for a fixed period of time (commonly one year). Global budgets:
* Are based on historical spending, inflation, negotiations and politics in many provinces, rather than on the type and volume of services provided.
* Constrain hospital spending growth and create budgetary predictability; however, its consequences may be decreased services and increases in waiting times.
* Do not provide incentives to improve access, quality or efficiency of hospital care.
Funding hospitals on the basis of the type and volume of services they provide has become the international norm. Known as activity-based funding (ABF), these systems have been systematically supplementing global budgets in public and private insurance-based health systems around the world. ABF:
* Provides powerful financial incentives to stimulate productivity and efficiency: efficient hospitals retain the difference between the payment amount and the hospital’s actual cost of production.
* Is associated with higher volumes of hospital care, shorter lengths of stay, and yet has not been linked to poorer quality of care.
* Is linked to higher overall spending, due to higher volumes of patients being treated, and evidence of lower cost per admission is mixed.
Combining properties of ABF and global budgets may optimize the strengths of both global budgets and ABF. Many countries that have ABF to fund their hospital systems utilize a blend of global budgets to control spending, while instituting an ABF mechanism to create incentives for hospitals to provide timely and equitable access, appropriate volume of care, and efficient care.
Much attention is being directed to Maryland’s all-payer system of rate setting for hospitals since it has been effective in shifting Maryland from a state with amongst the highest hospital costs to a state with the lowest absolute charges. Should we ignore these findings and merely proceed with the relatively ineffectual tweaks of the Affordable Care Act? Or should we adopt an all-payer system for all hospitals? Or should we change to a system of global budgeting for hospitals?
Unfortunately, the Affordable Care Act provides only illusions of cost control for hospitals. As an example, the early experiences with accountable care organizations have failed to demonstrate any significant cost savings. If we really do want to improve value in our hospital spending, we are going to have to look beyond the Affordable Care Act.
What makes Maryland’s approach unique is that hospital rates are set by a commission that has the power to regulate the rates paid by all private and public payers, including Medicare and Medicaid. They have been able to get the pricing right, to the satisfaction of hospitals, payers and patients.
So why hasn’t their all-payer approach been adopted by more states or by the federal government? It is because those that support deregulated, market-driven schemes are in control of the political process. We are being guided by the philosophy that government is always bad, even when it’s good!
In contrast to all-payer, a single payer approach establishes global budgets for hospitals, much like global budgets for police and fire departments, schools, public libraries, and other institutions serving the public interest. Negotiated global budgets are the most effective model of ensuring adequate hospital services and resources while preventing waste on superfluous services such as the large bureaucratic monoliths within their institutions. Global budgets provide the best value in hospital care purchasing.
If we can succeed in reestablishing a public service role for government, then wouldn’t it be reasonable to simply enact an all-payer system for hospitals? The problem is that it only makes one change in our fragmented, dysfunctional system of financing care, and not a complete change at that. Under all-payer, only the rates are controlled, but each service still must be accounted for and paid for independently, and the hospitals would still have multiple public and private payers with which they would have to interact.
Canada has had tremendous success with its program of global budgeting for hospitals. As the article from the Canadian Health Services Research Foundation indicates, even the best of processes can benefit from refinement, though decisions will have to be made as to whether “activity-based funding” is a beneficial refinement.
We can applaud the efforts of Maryland which has proven for us that the health care system works better when the government is involved. Now we can go Maryland one better by establishing global budgeting for hospitals as part of a single payer national health program. Then we would have it all.
The following is the prepared text of the testimony given by Dr. Garrett Adams, president of Physicians for a National Health Program, at a Capitol Hill hearing on the topic of “Is poverty a death sentence?” The hearing was conducted by Sen. Bernie Sanders, chair of the Subcommittee on Primary Health and Aging of the U.S. Senate Committee on Health, Education, Labor and Pensions, on Sept. 13 in Washington.
To watch a video of Dr. Adams delivering his testimony, visit the subcommittee’s website and drag the time marker to 49:00. The relevant segment is 7 minutes long.
Others testifying at the two-part hearing included Dr. Sarah Kemble of Massachusetts and Dr. Paula Braveman of California. Their testimony can also be found at the same link.
Sen. Sanders’ report on poverty is available in PDF format here. It was issued on the same day that the U.S. Census Bureau reported that the number of people living in poverty in the United States had increased to 46.2 million, the highest number in the 52 years the bureau has been tracking it. The same report showed that the number of uninsured had climbed to 49.9 million people, which is the highest figure since the passage of Medicare and Medicaid.
Senator Sanders, Senator Paul, members of the Committee,
I am very grateful to Senator Sanders for his sensitivity to the grave health threats that a large portion of the American population currently suffers because of poverty. He does a wonderful service to these people by giving them a voice to our leaders, so that you can better understand the perilous health care situation so many Americans find themselves in because of their poverty.
I dedicate this testimony to all those Americans for whom poverty is, has been, or will be a death sentence. And also to those Americans for whom illness is a poverty sentence.
According to a recent Harvard study, 45,000 Americans die every year because of lack of health insurance, a stark figure. The late Surgeon General Julius Richmond, however, reminds us that “Statistics are people with the tears wiped dry.”
Today I will tell you about some of those people whom I know or have known, all of whom failed or are failing to get necessary life-saving health care because of financial constraints – most impoverished; others not yet impoverished, but who died waiting for approval by a health insurance company of an expensive life-saving procedure that never came or came too late. The first cases I describe are Kentuckians.
David Velten, Louisville. 32 years old. School bus driver. Wife, two young sons. Chronic liver failure. I met David in June 2006. He was initially denied a liver transplant by his insurance company, but due to public pressure, the company relented and allowed it. But it was too late. He died in 2007 several months after the transplant.
Cheryl Brawner, Louisville. 50 years old. Legal secretary, avid bicyclist, friend. Acute leukemia. Advised at Fred Hutchinson Hospital in Seattle to have a bone marrow transplant. Was in remission awaiting approval from the insurance company for the transplant. She waited and waited and waited. Cheryl relapsed and died of her leukemia while waiting for approval.
Clay Morgan, Henry County. Automobile mechanic, owned his own business. Malignant melanoma. Received treatment, improved, thought to be cured, but now was bankrupted. His cancer returned. Depressed and unwilling to bring more medical debt on his family, Clay went into the back yard and took his own life.
Velinda Anderson, Louisville. She was employed. Velinda had had endarterectomy (removal of artery blockage) in her legs, but could not afford the expensive medicine, Plavix, prescribed to keep her arteries open. She had left her usual neighborhood to beg, so that she would not be seen begging by friends. She had not told her daughter that she was doing it.
Grundy County, Tennessee
Grundy County is the poorest county in Tennessee, 95th out of 95. The median household income is $25,619. Sixty-six per cent of school children qualify for free lunch. Nineteen percent of the population is illiterate. Correspondingly, it has the lowest county rank in overall health. The ratio of population to primary care provider is 7,122 to 1, compared to the national ratio of 631 to 1.
Beersheba Springs is on the Cumberland Plateau in Grundy County – Appalachia. We have a vacation home there. In the early winter of 2008, Josephine, an 87-year-old friend, stopped by. She was holding her red, swollen face and was bent over in pain. She had an acute sinusitis that required quick, aggressive treatment. I urged her to get to a doctor immediately. She bounced around several places, but eventually got treated. However, her bill was over $2,000, money she didn’t have, and she did not have Medicare. I decided to establish a free medical clinic for my mountain friends in Beersheba Springs. The Beersheba Springs Medical Clinic, an all-volunteer, not-for-profit clinic opened in November 2010 (www.beershebaclinic.org).
Charlotte Dykes. 64 years old, works odd jobs when able; husband is a carpenter. Peripheral vascular disease. Past history of obstructed mesenteric artery (main artery to intestines) with stent placement in Chattanooga. This spring we diagnosed severe blockage of her right subclavian artery and a 70 percent carotid artery blockage. Surgeon refuses to operate unless she pays up front, because she still has not paid her bill from her previous surgery. Charlotte is a walking time bomb. She will be 65 in December, when she will be eligible for Medicare, if she lives that long. In giving permission for me to tell her story, Charlotte said to me, “You speak out for me.”
Charlene. 54 years old. We saw her in May. She had not seen a doctor in over 20 years. We diagnosed an acute myocardial infarction (heart attack). She was air-lifted to Nashville, treated and discharged, but did not fill her discharge prescriptions (including Plavix – see Velinda Anderson) and did not go to cardiac rehab as directed, because she could not afford either. She is doing very poorly and has a recent dementia, probably due to small strokes.
Doris. 58 years old. She and her husband operated a small local restaurant before her illness forced them to close the restaurant. Estimated annual income: $12,948. Came to our clinic because of a lump in her breast. She had heard we offered mammograms. We diagnosed breast cancer. Because she had breast cancer, she was able to get TennCare to pay for her mastectomy and treatment, but the coverage is only for the cancer treatment.
Billy Campbell. 54 years old. Work: Tree farming and carpentry. Estimated income in 2009: $12,000; 2010: $17,000. No health insurance. Colon cancer, Stage 3. Oncologist recommends PET scan. Hospital refuses to allow it because he cannot pay the $1,500 fee. TennCare denied payment. Disability denied three times. Barbecue benefit to raise money for Billy’s PET scan was last Friday night, Sept. 10, 2011.
Paula. 32 years old. Cervical cancer surgery two years ago. No follow-up, because of no insurance and no money. We arranged for specialist care at no charge.
Bob. Double hernias. Surgeon agreed to fix for $500, but hospital charge will be $8,000. He can’t afford it. His hernias will not be fixed.
Woman with broken arm. 64 years old. No insurance. I saw this woman about three weeks ago. She had a crooked left forearm and limped. She had fallen in March, breaking her left arm and her left leg. She went to a hospital emergency room where she was seen by an orthopedic surgeon, who recommended surgery to properly fix her arm. The surgeon agreed to do it in spite of the lack of insurance, but the hospital refused to allow use of the operating room since she couldn’t pay.
Woman with blood sugar >500 mg percent. The normal value is around 100 mg percent. Hers was a life-threatening level of hyperglycemia. We sent her to a hospital emergency room. She knew she had diabetes. She owned a glucometer, but could not afford the strips to test her blood sugar.
Thank you for this opportunity to speak for those without a voice, who have died or will die as a result of our country’s unwillingness to acknowledge that health care is a human right and to provide affordable, high-quality health care to every resident.
Confidentiality note. All patients with first and last names have given me permission to tell their story. Charlene, Doris, Paula, and Bob are fictitious names. All Grundy County patients, except for Billy Campbell, were seen in the Beersheba Springs Medical Clinic.
Garrett Adams, M.D., M.P.H.
A PDF of Dr. Adams’ testimony is available from the Senate subcommittee.
Medicare eligibility age should go up, hospitals say
By Susan Jaffe
Politico, September 8, 2011
The American Hospital Association has a strategy for heading off any more Medicare payment cuts: Tell Congress to get the money from Medicare beneficiaries instead.
The association is urging its nearly 5,000 members to lobby Congress to raise the Medicare eligibility age from 65 to 67, in addition to other money-saving alternatives.
The health industry case for raising Medicare’s eligibility age
By Sarah Kliff
The Washington Post, September 14, 2011
The Health Leadership Council, a consortium of 47 health industry leaders including Aetna, Pfizer and the Cleveland Clinic, will vote Wednesday on whether to endorse raising Medicare’s eligibility age. It’s “very likely” that the group will throw its weight behind the proposal, says HLC vice president Michael Freeman.
States, employers and seniors would all suffer if the Medicare eligibility rules were changed. It would shift about $11.4 billion in new costs to those parties while saving the federal government only $5.7 billion, according to the Center on Budget Priorities and Policy.
“This policy does nothing to control costs,” Sen. Bernie Sanders, an independent from Vermont, wrote in a memo obtained by the New York Times. “It simply shifts substantial costs from Medicare to other parts of government and to private and public employers.”
The Budget and Policy center estimates that if the Medicare eligibility age were raised, seniors under age 67 would have to spend $3.7 billion more in out-of-pocket cost. For many in the political system, that’s enough to reject the idea out of hand. But for some in the health-care system, that’s a profit waiting to be made.
Most of us who believe that the health care system should be designed to serve patients are enraged by America’s health industry leaders who believe that the system should be designed to serve the industry. Yet who has red carpet access to Congress and President Obama? Aren’t we going to do anything about that?
Income, Poverty, and Health Insurance Coverage in the United States: 2010
U.S. Census Bureau
Real median household income was $49,445 in 2010, a 2.3 percent decline from 2009.
Comparing changes in household income at selected percentiles shows that income inequality is increasing.
The official poverty rate in 2010 was 15.1 percent — up from 14.3 percent in 2009.
In 2010, 46.2 million people were in poverty, up from 43.6 million in 2009.
The number of people in poverty in 2010 is the largest number in the 52 years for which poverty estimates have been published.
Health Insurance Coverage
The number of uninsured people increased to 49.9 million in 2010 from 49.0 million in 2009. In 2010, the percentage of people without health insurance, 16.3 percent, was not statistically different from the rate in 2009 (16.1 percent).
The percentage of people covered by private health insurance decreased in 2010 to 64.0 percent (195.9 million). The percentage and number of people covered by government health insurance increased to 31.0 percent and 95.0 million in 2010.
The percentage of people covered by employment-based health insurance decreased to 55.3 percent in 2010 from 56.1 percent in 2009 (decreased to 169.3 million from 170.8 million).
The percentage and number of people covered by Medicaid in 2010, 15.9 percent and 48.6 million, were not statistically different from 2009 estimates.
The percentage and number of people with Medicare coverage in 2010 increased to 14.5 percent and 44.3 million.
In 2010, the uninsured rates decreased as household income increased — 21.8 percent of people in households with incomes ranging from $25,000 to $49,999 were uninsured; 15.4 percent of people in households with incomes ranging from $50,000 to $74,999 were uninsured; and 8.0 percent of people in households with incomes of $75,000 or more were uninsured.
U.S. Census release:
Full report (95 pages):
This Census report for 2010 shows that 919,000 more people were uninsured this past year than in 2009. This may be considered a ho-hum statistic by those who seem to be reassured by the provisions of the Affordable Care Act since the Act would expand coverage. However, there are other reasons to be very concerned, not the least of which are the statistics on income and poverty from this same report.
Of significance is the fact that this report counts anyone who was insured for any part of the year as being insured. It leaves out from the count of the uninsured those who have gaps in their coverage even if they were uninsured for most of the year. This results in a serious undercount of of those impacted by not being insured.
Another important deficiency is that this study makes no effort to quantify the rates of under-insurance. Employers and insurers have been redesigning their insurance products to shift more health care costs to the patient. Many studies have shown that this has impaired access to care and has caused significant financial hardship. The Census report is silent on this problem.
What is the shocker in this report is that these unfavorable insurance statistics are imposed on a background of declining income and expanding poverty. Median household income has dropped to $49,445 while income inequality is increasing. Further, the number of people in poverty (46.2 million) is the largest number in the 52 years for which poverty estimates have been published!
Anyone who has studied the Affordable Care Act realizes that health insurance policies will be very expensive even though they have relatively low actuarial values (leaving the patient responsible for 30 to 40 percent of health care costs). The new national standard in health insurance is “unaffordable under-insurance.” The subsidies for the premiums and for out-of-pocket spending have been shown to be inadequate for far too many people, again impairing access, creating financial hardship, and even leaving tens of millions with no insurance at all.
Had we enacted a single payer national health program, we could have included everyone, while eliminating under-insurance by providing first dollar coverage. We could have paid for it by eliminating the profound administrative waste that uniquely characterizes our system, and by introducing the other efficiencies of a single payer system. Wouldn’t it have been nice to be rid of the problem of the uninsured and under-insured so that we could intensify our efforts to improve income and reduce poverty? Or are those just not our national priorities?
VA Experience Shows Patient ‘Rebound’ Hard To Counter
By Jordan Rau
Kaiser Health News, September 12, 2011
The Veterans Health Administration, the largest integrated health care system in the country, has long employed many of the approaches Medicare is pushing on all hospitals to cut unnecessary readmissions. But new data show VA hospital patients are just as likely to end up back in a hospital bed as are patients at private hospitals.
Studies have found the VA does better than most hospitals in following appropriate guidelines for the best care to give patients.
The new statistics underscore how hard it may be for hospitals to stop patients from rebounding back through their doors, a major goal of Medicare as it seeks to curtail the nation’s ballooning health costs.
Obviously, when a patient is discharged from a hospital, every effort should be made to avoid slip-ups that might result in an unnecessary readmission soon after discharge. Yet many patients have serious, unstable conditions that can require readmissions that are unavoidable.
Differentiating avoidable from unavoidable readmissions can be very difficult. This report on VA hospital readmissions reveals that it may be nearly impossible, or that the numbers may be negligible. The VA already has in place guidelines and systems that should prevent unnecessary readmissions, yet their readmission rates are the same as private hospitals.
This brings into question the current efforts by Medicare to save costs by penalizing hospitals for readmitting patients. This policy could be particularly harmful if it resulted in the refusal to readmit patients who really needed to be back in (e.g., manage them in the emergency room and then send them back home).
Although quality improvement should be a continuing effort, this is simply another example of the totally inadequate cost containment measures of the Affordable Care Act – measures that only pretend that we are going to control costs. We need a massive overhaul of the financing system if we ever expect to bring costs under control – yes, a single payer national health program.
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.