WellPoint walks away from sick patients

Posted by on Thursday, Apr 26, 2012

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.

WellPoint’s Profit, Membership Shrinks

By Anjali Athavaley
The Wall Street Journal, April 25, 2012

WellPoint Inc. reported a 7.6% decline in first-quarter earnings and a decrease in members, but the health insurer also gave indications that the problems affecting its Northern California business are easing.

While health insurers, in general, have benefited from the sluggish pace of patient visits to operating rooms and doctors’ offices, WellPoint’s gains have been muted by unexpectedly high costs for seniors in Northern California, where the company picked up thousands of members with expensive health issues.

The company has said it has fixed the problem by walking away from the difficult market, which is part of some planned membership losses for the new year aimed at boosting profit margins.


What is a private commercial insurer to do when when one or more of their plans has thousands of members with expensive health issues? Walk away, of course. That’s exactly what WellPoint did with its expensive plan membership in Northern California.

What else can you expect from a private, for-profit health insurer? It is first and foremost a business, which must never allow its role of patient service to interfere with its profit mission.

Insurers providing Medicare Advantage plans are prohibited from exercising favorable selection – cherry picking, cream skimming, or whatever – but what do you call it when they dump an entire plan population of sicker than average patients? That’s worse than cherry picking individuals because that involves an entire plan population.

The plans have figured out how to cheat on the Medicare adjustments for adverse selection when their patients are actually healthier and less expensive than average. They just haven’t figured out how to cheat when their patients are less healthy. They certainly don’t want to make them look healthier which would then adjust downward their payment rates. No, walking away from their sicker populations seems to be their only answer.

And what is the Obama administration doing about this? Not only do they let them walk away from high-cost populations, they also are rewarding these overpaid plans with extra “quality award” money – a phony guise since these awards are going to almost all plans regardless of how mediocre their quality scoring. This is really a money allocation scheme designed to enable plans to offer extra benefits in order to entice patients away from the traditional Medicare program. Numerous releases from HHS have bragged about the increased enrollment in these private Medicare Advantage plans. Why are they promoting and awarding such a despicable industry?

President Eisenhower warned us about the military-industrial complex. Arnold Relman warned us about the medical-industrial complex. But what about the government-private insurer industry complex. That one is killing us… literally.

NOTE TO READERS: There are now almost 3000 of these Quote of the Day messages posted at www.pnhp.org/news/quote-of-the-day. I don’t recall any suggesting that it was wise for the government to continue to provide both financial and policy support for the private insurance industry. Quite the opposite. This despicable, wasteful, expensive, intrusive, uncaring industry merits only our scorn. The question is, with all of the evidence before us, what will it take to reach a threshold at which we are finally willing to do something about it?

Richard Gottfried’s response to insurers cheating on out-of-network payments

Posted by on Wednesday, Apr 25, 2012

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.

Let New York Health help pay the bills

By Richard N. Gottfried
timesunion.com, April 1, 2012

You buy a health insurance policy that covers care by “in-network” doctors and other providers, but also promises that if you go to an “out of network” provider, it will pay based on “usual and customary charges.” Your family doctor refers you to an out-of-network specialist, and it turns out the insurance company offers to pay about half the bill you get.

A few years ago, then-Attorney General Andrew Cuomo and a group of physicians brought a massive lawsuit against the top insurance companies. The charge was that those insurers were promising to pay based on “usual and customary” rates for out-of-network services, but those rates were bogus — and outrageously low.

The insurance companies agreed to settle the case. They agreed that the attorney general would set up an independent nonprofit organization, called Fair Health, to publish legitimate data the insurance companies would use for determining “usual and customary” charges.

Now, insurers are getting around the settlement by no longer promising to pay based on usual and customary; they will pay whatever they choose to pay.

So I have introduced a bill in the Assembly, carried in the Senate by Senate Health Committee chairman Kemp Hannon. It says that your health insurer company must disclose how it calculates out-of-network payments, and state them as a percentage of the Fair Health usual-and-customary rate. And it says the state Department of Financial Services — the new name of what used to be the Insurance Department — may not approve an out-of-network insurance policy unless it actually provides “significant coverage” of the Fair Health usual-and-customary rate.

In other words, insurers have to be open with their customers, and they can’t claim a policy covers out-of-network services if it doesn’t really pay reasonable amounts for them.

The Fair Health court settlement was hailed as a landmark. But the health insurance companies quickly found a way around it. If our bill becomes law, they may find a way around that, too. The problem is, whatever reforms we enact, our health coverage still relies on insurance companies.

Instead, New York should establish a universal publicly funded single-payer system, funded by broad-based revenue based on ability to pay. I sponsor an Assembly bill, carried in the Senate by Tom Duane, to set up such a system, called “New York Health.”

You and your doctor would work on keeping you healthy, and New York Health would pay the bill.

(Richard N. Gottfried of Manhattan is chairman of the state Assembly Committee on Health.)


Yesterday’s Quote of the Day message explained how, in a legal settlement, private insurers were required to develop a new program – FAIR Health – to be used to determine what were fair “usual and customary” fees after they had been caught cheating patients through the Ingenix program they had been using. We were rightfully outraged when the insurers bypassed this new program on the basis that the legal settlement did not require them to actually use FAIR Health.

Chairman Richard Gottfried of the New York State Assembly Committee on Health has introduced a bill – A. 7489-B – which would require private insurers to disclose how they calculate usual and customary fees plus require that they disclose them as a percentage of what the FAIR Health fees would be. There is nothing like requiring transparency of entities that are trying to cheat you.

But what will this accomplish? As Gottfried states, “The Fair Health court settlement was hailed as a landmark. But the health insurance companies quickly found a way around it. If our bill becomes law, they may find a way around that, too. The problem is, whatever reforms we enact, our health coverage still relies on insurance companies.”

The private insurers will never change. Gottfried certainly understands this. That is why he has introduced another Assembly bill – A. 7860. As he states, instead of relying on insurance companies, “New York should establish a universal publicly funded single-payer system, funded by broad-based revenue based on ability to pay.”

Come to think of it, we should do that for the entire nation.

Insurers dodge intent of Ingenix settlement

Posted by on Tuesday, Apr 24, 2012

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.

Insurers Alter Cost Formula, and Patients Pay More

By Nina Bernstein
The New York Times, April 23, 2012

Despite a landmark settlement that was expected to increase coverage for out-of-network care, the nation’s largest health insurers have been switching to a new payment method that in most cases significantly increases the cost to the patient.

The settlement, reached in 2009, followed New York State’s accusation that the companies  manipulated data they used to price such care, shortchanging the nation’s patients by hundreds of millions of dollars.

The agreement required the companies to finance an objective database of doctors’ fees that patients and insurers nationally could rely on. Gov. Andrew M. Cuomo, then the attorney general, said it would increase reimbursements by as much as 28 percent.

It has not turned out that way. Though the settlement required the companies to underwrite the new database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.

In the 2009 settlement, the insurers did not admit wrongdoing. But they paid to set up FAIR Health as a replacement for Ingenix, a database owned by the insurance giant United Healthcare. Mr. Cuomo said Ingenix had consistently understated local “usual and customary” rates — so-called U.C.R.’s — that were used nationally to determine how much of a bill was paid when a patient used an out-of-network doctor.

FAIR Health collects billions of bills from insurers to calculate a usual fee for each medical procedure in a given locality. But increasingly, reimbursement is not based on such prevailing rates.

“This shift is mirrored across the country, and the implications in terms of declines in reimbursement are similar,” said Rob Parke, a benefits expert at Milliman, an international actuarial and consulting firm.

The level of reimbursement varies by plan, pegged to benchmarks unknown or misunderstood by many consumers. The traditional benchmark was 80 percent of the U.C.R., while newer ones mostly range from 140 percent to 250 percent of Medicare rates. That sounds like more, but typically amounts to less, and is drastically below charges in large, emergency out-of-network bills.

Depending on the plan, insurers may cover 60 percent to 80 percent of the benchmark sum; the patient is not only responsible for the rest but also for any outstanding balance, to which out-of-pocket maximums do not apply. The average emergency bill that insurers reported to state investigators, for example, totaled $7,006, or 1,421 percent of the Medicare rate, and left patients owing an average of $3,778.


One of the many reasons that private insurers lost their credibility as being a fair arbiter of our health care dollars is the story of Ingenix.

An acquired subsidiary of health insurance giant UnitedHealth but used by other major insurers, Ingenix established an elaborate method of calculating “usual and customary” fees that would be paid by the insurers for out-of-network care. As it turned out, they cheated. They used innovative calculations that resulted in lower payments than fees that were truly usual and customary. In many instances, the patients were responsible not only for the deductibles, coinsurance and co-payments, but also for the higher balances resulting from these dishonest calculations.

In a settlement, the insurers agreed to set up a new program called FAIR Health as a replacement for Ingenix. We now learn that the settlement did not require the insurers to use this program. Instead many switched to Medicare as the benchmark for usual and customary fees, though the Medicare rates are usually lower, especially for specialized services.

Under Medicare, physicians and hospitals are not allowed to bill the patients for more than the Medicare-allowed balances, but in many states there is no such limitation for privately insured patients. Thus privately-insured patients may face much larger out-of-pocket costs than they would if they were covered by Medicare.

In those instances where balance billing for privately insured patients is prohibited, as is often the case with emergency care, then the providers are forced to accept less than usual and customary fees even though they have no contract with the private insurers requiring them to do so. In these instances, the state is enforcing contract provisions that do not even exist – placing the state in a position of siding with the private insurers and against the providers.

There are two sides to this story. One is that private commercial insurers cannot be relied upon to play fair. They will always game the system to protect their products and benefit their investors. The other is that insured patients must be protected from excessive out-of-pocket costs, which Medicare theoretically does by prohibiting health care providers from billing more then the Medicare-authorized amounts. The private insurers are merely following Medicare’s lead. The obvious problem is that private insurers do not have the ability to enforce prohibition of balance billing, thus patients are heavily penalized.

For many patients, even the more modest Medicare-allowed balances are an excessive burden that can impair access to care because of lack of affordability. An improved Medicare would prohibit any cost sharing for essential health care services. Yet the private insurers would never be able to produce a product that covered all essential services while eliminating patient cost sharing. Especially when adding in the costs of their administrative excesses, the premiums that would have to be charged would have a market only for the 1 percent – obviously not a viable product.

The conclusion is obvious. We need an improved Medicare that covers everyone, reduces administrative waste, eliminates the financial barriers of cost sharing, and is equitably funded. We certainly don’t need an industry forced on us that is required to establish “FAIR Health” but then uses loopholes to skirt fairness.

GAO denounces giveaway to private Medicare Advantage plans

Posted by on Monday, Apr 23, 2012

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.

G.A.O. Calls Test Project by Medicare Costly Waste

By Robert Pear
The New York Times, April 22, 2012

Medicare is wasting more than $8 billion on an experimental program that rewards providers of mediocre health care and is unlikely to produce useful results, federal investigators say in a new report.

The report, to be issued Monday by the Government Accountability Office, a nonpartisan investigative arm of Congress, urges the Obama administration to cancel the program, which pays bonuses to health insurance companies caring for millions of Medicare beneficiaries.

Administration officials, however, defended the project and said they would not cancel it because it could improve the quality of care for older Americans.

In the 2010 health care law, Congress cut Medicare payments to managed care plans, known as Medicare Advantage, and authorized bonus payments to those that provide high-quality care. Investigators found that most of the money paid under the demonstration program went to “average-performing plans” rated lower than the benchmarks set by Congress.

A separate federal panel, the independent Medicare Payment Advisory Commission, also criticized the project, saying it increases “spending at a time when Medicare already faces serious problems with cost control and long-term financing.”

The panel denounced Medicare’s “overly broad use of demonstration authority” and said “limited Medicare dollars should go to truly high-performing plans.” It said “the extension of quality bonuses to the vast majority of plans is likely to result in far greater program costs than the reward system enacted” by Congress, and that by spreading the rewards so broadly, “the demonstration lessens the incentive to achieve the highest level of performance.”

The commission said payments to private plans, including the bonuses, were still about 7 percent higher than what the government would pay for similar beneficiaries in the traditional Medicare program.

The G.A.O. said the project “dwarfs all other Medicare demonstrations” in its impact on the budget, but is so poorly designed that researchers could not tell whether the bonus payments led to improved care. As a result, it said, it is unlikely to “produce meaningful results.”



Medicare Advantage: Quality Bonus Payment Demonstration Undermined by High Estimated Costs and Design Shortcomings

Government Accountability Office (GAO)
March 21, 2012 (Released April 23, 2012)


Estimated to cost more than $8 billion, the MA Quality Bonus Payment Demonstration offsets a significant portion of PPACA’s MA payment reductions during its 3-year time frame. At the same time, the design shortcomings of the demonstration may undermine its ability to achieve CMS’s stated research goal — to test whether a scaled bonus structure leads to larger and faster annual quality improvement compared with what would have occurred under PPACA. Rather than rewarding only high performing plans, most of the additional payments made under the demonstration will accrue to average performing plans. In addition, the demonstration’s ability to test an alternative quality improvement incentive structure is compromised by its design. The reliance on predemonstration performance data, the absence of an appropriate comparison group of MA plans, and design features that are inconsistent with its research goal make it unlikely that the demonstration will produce meaningful results.



By Don McCanne
Quote of the Day, September 16, 2011

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!


When we need to reinforce the traditional Medicare program and provide it for everyone, the Obama administration has given more of our tax money to already-overpaid private Medicare Advantage plans in an effort to reinforce them instead.

The Affordable Care Act was designed by and for the private insurance industry in spite of overwhelming evidence that costs were higher and administration much less efficient than with the Medicare program. A concession was made to reduce the overpayments to the private Medicare Advantage plans to help balance the costs of the legislation. But when it came time for the reductions, the insurance industry prevailed on the administration to intervene since they would lose their competitive edge of being able to offer greater benefits and lower out-of-pocket costs because of these overpayments they were receiving.

The payment reductions were part of the legislation, so not much could be done about them. Instead, these phony quality bonuses were given to 90 percent of the plans, permitting them to sustain their competitive edge over Medicare. As the GAO report indicates, there is no way that these could be considered legitimate awards for higher quality. The only reasonable interpretation is that the Obama administration is supporting the private insurance industry by using extra tax dollars to give it a distinct edge over our public Medicare program.

This does not bode well for the next presidential term. If Barack Obama is reelected, he is already in bed with the insurers, and we can forget about any further move beyond ACA towards a public financing program for our health care. If Mitt Romney is elected, at least he wouldn’t be giving as much of our tax dollars to private insurers, but then he would abandon federal responsibility and turn the financing problems over to cash-starved state governments. The choice seems to be between bad and worse.

This should be a call for us to intensify our efforts to educate, to build coalitions, and to enlist the grassroots in support of health care justice for all. Not all of us will see the fruition of these efforts, but nothing will happen if we don’t step up the effort now. Some of us will have to be satisfied with seeing a good start, but that’s better than watching our elected officials continue to bow in obsequious servitude to the insurance oligarchy.

For-profit health care in Alberta a dud

Posted by on Friday, Apr 20, 2012

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.

Delivery Matters: the high costs of for-profit health services in Alberta

By Diana Gibson
Parkland Institute, April 2012

In Alberta and across Canada, the private for-profit healthcare sector is being positioned as a solution to wait times and the financial challenges facing the health care system. Consequently, for-profit delivery of healthcare is increasing.

(T)his report explores the delivery of clinical services, specifically arthroplasty or total hip and knee replacements, through private, for-profit clinics. It includes a case study of Calgary’s Health Resource Centre (HRC) that specifically examines the cost, quality, access and other implications of expanding this form of provision and places it in the context of national and international research. (The Health Resource Centre, based in Calgary and owned by Networc Health Inc., was Alberta’s flagship private surgical facility until it went bankrupt in 2010.) It also examines a wait-list reduction pilot project, the Alberta Hip and Knee Replacement Project, which includes for-profit and not-for-profit providers, allowing for a comparison of the two models.

The Alberta Hip and Knee Replacement Project

In 2004 the provincial government initiated a pilot project to address a myriad of challenges within the arthroplasty field. One of the key elements of this pilot project was to address wait times as directed by the Premier’s Advisory Council on Health and its Framework for Reform. A partnership was carved out between Alberta Health – which contributed $20 million in funding – three regional health authorities (and their clinical partners including HRC), the Alberta Orthopedic Society, the Alberta Bone and Joint Institute and physicians from across the province.

The trial illustrated that with improved management practices (such as centralized intake and assessment), realignment of resources, and collaboration and cooperation across the delivery path, costs can be reduced, wait times can be decreased and benefits to patients enhanced within the public, not-for-profit system. Specifically, the trial reduced overall wait times from family doctor through to surgery by 90 per cent (from 19 months to approximately 11 weeks).

Risks and Opportunities of HRC

The surgeries were more expensive, but came with significant risk in other areas as well: the dependency between the parties became detrimental to both; the relationship created expensive duplication of capital and lack of control over infrastructure planning; and the private contract meant a serious lack of accountability and transparency. Additional risks identified in international studies include lower quality of services and poorer articulation with the broader health community.

Comparing For-Profit to Non-Profit

The Alberta government acknowledged that the for-profit surgeries would cost more but justified this with the wait-time reductions were worth the cost. The examination of the performance of HRC in contrast with the public non-profit elements of the pilot project helps to illuminate the wait-list issue. The analysis above reveals that the public partners in the Alberta Hip and Knee pilot are still working well, with wait-time advances at lower cost than the HRC and without the risks.

The wait-list reduction achievements of this project were attained despite, not because of, for-profit involvement in the trial. It was the specialized or focused nature of the clinic, not the investor-owned nature, which increased patient access and enabled innovation. This is consistent with international evidence from Canada and abroad demonstrating that wait lists are actually lengthened as a result of the existence of for-profit entities delivering clinical health care services.

What advocates of for-profit delivery suggest is that the removal of patients from the public queue will shorten the queue. What they fail to note is that the removal of health professionals from the public delivery system will slow down the system and result in the queue growing even longer.

The Alberta Hip and Knee pilot project demonstrates the capacity of the public health system to evolve and innovate in such a way that costs are maximized, wait lists are reduced, and patient outcomes are improved. The pilot set the stage for province-wide learning and provided a platform for a revolution in hip and knee surgical practices. Gains from the pilot continue to be made through the Transformational Improvement Program (TIP), which specifically addresses wait lists. Results to date show improvements in length of stay at almost every site, as well as gains in other key indicators of quality such as patient satisfaction and early mobilization after surgery. The rewards are substantial. They include higher volumes of surgeries as more bed days become available, greater satisfaction as patients move more quickly from referral to surgery, and reinvestment of the efficiency savings in ways that can further improve care quality and safety. Our public health system is more than able to meet the needs of our citizens when the political will exists and resources are allocated.


It matters who delivers clinical services. The spectacular fall from grace of HRC is a fascinating study in the ills of health care privatization, the risks to patient care, and the need to reiterate the importance of our publicly financed and delivered health care system. The case study of HRC is very consistent with international studies, validating the conclusion that for-profit incursions into the health care system are risky, costly and lack the accountability Canadians expect, demand and deserve.

The success of the public partners in the pilot project on wait-time reductions in Alberta clearly shows that public solutions can achieve the same wait-list targets at less cost and much less risk to the public.



Neat, Plausible, and Wrong: The Myth of Health Care Unsustainability

Canadian Doctors for Medicare
February 2011

Which Costs Are Rising?

While the cost of Medicare has not grown as a percent of GDP over the last 35 years, there have been significant increases in total health care system costs over the same period, and those increases have accelerated in the last decade. Overall health spending in Canada has risen from about 7% of GDP in 1975 to about 10.7% in 2008. In 2010, heath care spending was estimated to be about 12% of GDP.

If Medicare costs are stable, and public sector costs are rising slowly, why are total health care costs increasing rapidly? The real cost driver is precisely the thing that critics of Medicare tout as the solution: private health care.

Currently 30% of all health care spending is in the private sector, up from 24% in 1975. That growth is the result of significant increases in costs in the private health care sector, including out-of-pocket spending and the costs of private insurance.


In spite of the overwhelming body of evidence to the contrary we still hear over and over again that the private sector always produces higher quality at lower costs – whether in health care financing through private insurers, or in health care delivery through investor-owned facilities. Canada has provided us with yet another real-life experiment that confirms, once again, that the opposite is true.

The Alberta government understood that private care would cost more than in the public sector, but they agreed to it in an effort to reduce wait times. However, not only did the private sector provide care at higher costs, they had intruded into the loosely-integrated public system, creating the potential of increasing wait times in the public sector (explained above).

Fortunately, with a coordinated effort to attack this problem – coordination that only happens in the public sector – Alberta was able to reduce its wait times for orthopedic procedures from 19 months down to 11 weeks – in spite of, rather than due to, involvement of the private sector.

Also, quite ironic but very instructive, not only did care cost more when delivered by the private, for-profit Health Resource Centre, the extra costs were not enough and the business model failed – ending in bankruptcy.

In health care financing and delivery, public and non-profit institutions can always provide greater value and efficiency than the for-profit private sector, but it requires a government that is supportive of their public financing system.

In 2005, Conservative Premier Ralph Klein of Alberta wrote in the Calgary Herald, “Let me be blunt. We have unacceptable waiting lists in our publicly funded, rationed health-care system, and all the money in the world is not going to eliminate them… In simple terms it means that if you are in pain or suffering and cannot wait in line, you should be able to buy the health care you need.”

The Calgary Herald published my response which stated, “Ralph Klein states that ‘all the money in the world’ is not going to eliminate waiting lists, unless the source of the funds is private instead of public. What nonsense. Excessive queues are eliminated by making minor, selective adjustments in the system’s capacity. Responsible stewards of any health-care system, public or private, will make these adjustments. The difference is the public system would be adapted to accommodate everyone, whereas private systems accommodate only those who can pay.”

Of course, Alberta didn’t listen to me and continued on with its efforts to privatize. However, they did involve the public sector in queue reduction, with considerable success. But by including the private sector, the experiment was much more expensive, and resulted in further losses through the HRC bankruptcy.

Although these reports are about Canada’s Medicare system, the conclusions could apply to our Medicare as well, if we expanded it into a single payer national health program. It would be less expensive and more effective than what we have, provided we also elect stewards who believe in and support public systems.

Is the Basic Health Program option a good idea?

Posted by on Thursday, Apr 19, 2012

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 Role of the Basic Health Program in the Coverage Continuum: Opportunities, Risks and Considerations for States

By Deborah Bachrach, Melinda Dutton, Jennifer Tolbert and Julia Harris
Kaiser Family Foundation, March 2012

The Basic Health Program (BHP) is an optional coverage program under the Patient Protection and Affordable Care Act (ACA) that allows states to use federal tax subsidy dollars to offer subsidized coverage for individuals with incomes between 139-200% of the federal poverty level (FPL) who would otherwise be eligible to purchase coverage through state Health Insurance Exchanges. States can use the BHP to reduce the cost of health insurance coverage for these low-income consumers, a highly price-sensitive population with high rates of uninsurance. Depending on how it is designed, the BHP also can help consumers to maintain continuity among plans and providers as their income fluctuates above and below Medicaid levels.

As states weigh whether to implement a BHP, they face significant questions and challenges. Critical among these are how to design the BHP to enhance continuity of coverage as people move among Medicaid, the BHP, and coverage through qualified health plans (QHPs) in the Exchange; how to assess the BHP’s impact on the viability and effectiveness of state Exchanges; and how to estimate revenues and costs to evaluate the financial feasibility of the BHP.


Federal officials have yet to provide details about how the program will be financed, administered and certified, and states are struggling to evaluate the BHP’s impact on the viability and effectiveness of state Exchanges. Federal regulations will inform state deliberations, but are unlikely to fully resolve the complexity or eliminate the risk. Ultimately, states that opt for a BHP will want to design BHP programs so as to minimize the state’s financial exposure and address any negative impacts on the Exchange. States in which a BHP is not a viable option may want to consider alternative strategies to advance affordability and continuity goals.


The Basic Health Program is designed for individuals with incomes between 139-200% of the federal poverty level – a population that otherwise would be very vulnerable to cost sharing provisions of purchasing and using plans in the state insurance exchanges.

This report explains the moving levers that are required to construct such plans while being sure that benefits are adequate while costs are controlled for both the beneficiaries and the state and federal governments. With eligibility frequently shifting between Medicaid, the Basic Health Program, and the state exchange plans, it is clear that stability cannot be achieved. It is highly unlikely that plans can even be constructed that would meet the various goals for the patients, providers and state and federal governments, and, regardless, they would create an administrative nightmare.

Since the purpose of the Basic Health Program is to remove financial barriers to care for this vulnerable group, it only seems logical that this highly flawed plan should be discarded and replaced with an administratively simplified plan that removes access barriers not just for them, but for everyone – an improved Medicare for all.

Insurer and hospital fight while children suffer

Posted by on Wednesday, Apr 18, 2012

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.

CT Children’s, Anthem provider pact expires

By Greg Bordonaro
Hartford Business Journal Online, April 16, 2012

Anthem Blue Cross and Blue Shield in Connecticut confirmed Monday morning that its provider contract with the Connecticut Children’s Medical Center has expired.

The two sides have been in contract talks for more than a year but failed to come to an agreement on new terms.

Children’s Medical Center is asking for higher reimbursement rates than Anthem is willing to offer. As a result, Anthem customers will be forced to pay higher, out of network rates or be forced to choose a different hospital.


Anthem Blue Cross and Blue Shield and Connecticut Children’s Medical Center have a hissy fit, Anthem walks away, and the children suffer.

What is the policy flaw that led to this? Simply that we allow a private, administratively wasteful, intrusive intermediary to create an artificial  product that serves its own business interests by taking away our choices of health care professionals and institutions. We have granted them the right to selectively contract with the health care delivery system as providers of health care, and with the patients as consumers of health care.

Wouldn’t it be far better for us to dump the wasteful, intrusive private insurers and fund Children’s with a global budget administered by a single payer national health program? We can still do that.

Entering the new age of for-profit medical schools

Posted by on Tuesday, Apr 17, 2012

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.

First for-profit med school nears approval

By Myrle Croasdale
American Medical News, October 1, 2007

With Rocky Vista University College of Osteopathic Medicine in Parker, Colo., one step closer to becoming the only for-profit, accredited medical school in the United States, it is generating controversy in the medical community.

Critics say a for-profit school will be beholden to investors and will scrimp on educational mission. Supporters assert that Rocky Vista must meet the same accreditation standards of other osteopathic schools. They also say the school’s educational outcomes will be the same as nonprofit schools.

“People are paying a lot of attention to this. There’s been a lot of discussion, and there are some very vocal people against it,” said Stephen C. Shannon, DO, MPH, president and CEO of the American Assn. of Colleges of Osteopathic Medicine.

The phrase “for-profit school” triggers a negative picture of a business making money from tuition while skimping on education, he said. Medical educators from DO and MD schools alike are watching to see if Rocky Vista transcends that image.

George Mychaskiw II, DO, chief of anesthesia at the Blair E. Batson Children’s Hospital in Jackson, Miss. said he believes a for-profit school within the osteopathic profession’s ranks erodes creditability. “This is a very unsavory situation,” said Dr. Mychaskiw.


About Rocky Vista University


For-profit medical school moves ahead

By Kathy Robertson
Sacramento Business Journal, January 6, 2012

A group of local doctors and investors have raised money, purchased a building and are aggressively preparing to start classes next year in Elk Grove at what could be the nation’s first for-profit medical school.

They say California Northstate University College of Medicine will offer an integrated approach that focuses on basic science and an understanding of how body systems work, what goes wrong and how to keep patients healthy. There will be two years of classroom study, followed by clinical rotations at area hospitals, doctor offices and clinics.

Chief executive officer Alvin Cheung declined to provide financial details about what he calls a private, proprietary institution, but backers have assembled a group of investors, including local doctors and pharmacists, to launch the new school.

“The scarcity of public funding compels folks with great interest in education to think differently,” Cheung said. “The alternative is a private funding source. We don’t call it ‘for profit’ because that does not characterize our motivation. We are here to be part of the solution to a large problem.”

Virtually every medical school in America is either public or nonprofit. Palm Beach Medical College in Florida, also a for-profit venture, is waiting for accreditation like Northstate. The only existing for-profit medical school is a college of osteopathic medicine in Colorado.


About California Northstate University College of Medicine

About Palm Beach Medical College


R.I. House committee passes bill allowing for-profit medical school

By Gina Macris
Providence Journal, April 11, 2012

A bill enabling a new profit-making medical school to begin seeking approval necessary to open a campus and grant degrees in Rhode Island passed the House Committee on Health Education and Welfare Wednesday.

The proposed Rhode Island School of Osteopathic Medicine — as yet just a name — would create an estimated 300 jobs, pay taxes, and provide a medical education at roughly half the cost of a typical medical school said the Committee Chairman, State Rep. Joseph N. McNamara, D-Warwick.

The private colleges in Rhode Island oppose the proposal, with spokesman Daniel Egan saying for-profit higher education is a “predatory and troubled sector” that puts students second to shareholders’ interests.


PNHP’s model of a single payer national health program would eliminate the role of passive investors in health care since the interests of private investors must always prevail over the interests of patients – an untenable situation which makes health care expensive, inefficient and inequitable. Rather than shunning the for-profit model, we are now bringing the profit motive to our medical schools.

Since the schools will be able to push tuition rates up only so high they will inevitably look for other potential sources to increase profits.  Purchasing for-profit hospitals? Purchasing clinics? Marketing health care services? If there’s money in it we’ll see it. With the consolidation that we are seeing throughout the health care system today, why shouldn’t we expect the for-profit medical schools to want to be included in that package? What a cozy place for the investors. But what about the patients?

Kaplan and Porter’s misguided microanalysis of costs

Posted by on Monday, Apr 16, 2012

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.

Why Medical Bills Are a Mystery

By Robert S. Kaplan and Michael E. Porter
The New York Times, April 14, 2012

Rising health care costs are busting the federal budget as well as those of states, counties and municipalities. Policy makers and health care leaders have spent decades trying to figure out what to do about this.

Yet their solutions are failing because of a fundamental and largely unrecognized problem: We don’t know what it costs to deliver health care to individual patients, much less how those costs compare to the outcomes achieved.

Because health care charges and reimbursements have become disconnected from actual costs, some procedures are reimbursed very generously, while others are priced below their actual cost or not reimbursed at all. This leads many providers to expand into well-reimbursed procedures, like knee and hip replacements or high-end imaging, producing huge excess capacity for these at the same time that shortages persist in poorly reimbursed but critical services like primary and preventive care.

We are currently working with several health care organizations, including MD Anderson Cancer Center in Houston, Children’s Hospital Boston, Partners Healthcare in Boston and Schön Klinik in Germany, that are beginning to figure out how to measure costs. They use teams of clinicians and administrators to identify all the processes involved in care, from a patient’s first contact with a health care provider through his or her inpatient stay and outpatient follow-up care. The teams then identify the quantity and unit cost of each resource — clinical staff, equipment, supplies, devices and administrative support — used in each process and add these together to learn the total cost of a patient’s care.

Understanding costs could be the single most powerful lever to transform the value of health care.  This would give payers and providers the data they need to improve patient care, and to stop arbitrary cuts and counterproductive cost shifting.



The Big Idea: How to Solve the Cost Crisis in Health Care

By Robert S. Kaplan and Michael E. Porter
Harvard Business Review, September 2011

The Cost Measurement Process

1. Select the medical condition (including the associated complications and comorbidities).

2. Define the care delivery value chain (charts the principal activities involved in a patient’s care for a medical condition along with their locations).

3. Develop process maps of each activity in patient care delivery (include all the capacity-supplying resources – personnel, facilities, and equipment – involved at each process along the path; identify the consumable supplies such as medications, syringes, catheters, and bandages).

4. Obtain time estimates for each process (in the future, we expect providers will use electronic handheld, bar-code, and RFID devices to capture actual times).

5. Estimate the cost of supplying patient care resources (compensation for employees; depreciation or leasing of equipment, supplies, or other operating expenses; deducting time for teaching and research; identify support resources necessary to supply the primary resources providing patient care; allocate the costs of departments and activities that support the patient-facing work).

6. Estimate the capacity of each resource, and calculate the capacity cost rate (number of days that each employee actually works each year, number of hours per day that the employee is available for work, number of hours per workday used for nonpatient-related work, such as breaks, training, education, and administrative meetings; for equipment resources measure capacity by estimating the number of days per month and the number of hours per day that each piece of equipment can be used; factors such as peak load demands, surge capacity, and capacity acquired for future growth should be accounted for).

7. Calculate the total cost of patient care. (In the final step, the project team estimates the total cost of treating a patient by simply multiplying the capacity cost rates – including associated support costs – for each resource used in each patient process by the amounts of time the patient spent with the resource. Sum up all the costs across all the processes used during the patient’s complete cycle of care to produce the total cost of care for the patient.)

Reinventing Reimbursement

If we are to stop the escalation of total health care costs, the level of reimbursement must be reduced. But how this is done will have profound implications for the quality and supply of health care. Across-the-board cuts in reimbursement will jeopardize the quality of care and likely lead to severe rationing. Reductions that enable the quality of care to be maintained or improved need to be informed by accurate knowledge of the total costs required to achieve the desired outcomes when treating individual patients with a given medical condition.

The current system of reimbursement is disconnected from actual costs and outcomes and discourages providers and payors from introducing more cost-effective processes for treating patients. With today’s inadequate costing systems, reimbursement rates have often been based on historical charges. That approach has introduced massive cross subsidies that reimburse some services generously and pay far below costs for others, leading to excess supply for well-reimbursed services and inadequate delivery and innovation for poorly reimbursed ones.

Adjusting only the level of reimbursement, however, will not be enough. Any true health care reform will require abandoning the current complex fee-for-service payment schedule altogether. Instead, payors should introduce value-based reimbursement, such as bundled payments, that covers the full care cycle and includes care for complications and common comorbidities. Value-based reimbursement rewards providers who deliver the best overall care at the lowest cost and who minimize complications rather than create them. The lack of accurate cost data covering the full cycle of care for a patient has been the major barrier to adopting alternative reimbursement approaches, such as bundled reimbursement, that are more aligned with value.

We believe that our proposed improvements in cost measurement, coupled with better outcome measurement, will give third-party payors the confidence to introduce reimbursement methods that better reward value, reduce perverse incentives, and encourage provider innovation. As providers start to understand the total costs of treating patients over their complete cycle of care, they will also be able to contemplate innovative reimbursement approaches without fear of sacrificing their financial sustainability. Those that deliver desired health outcomes faster and more efficiently, without unnecessary services, and with proven, simpler treatment models will not be penalized by lower revenues.

(Robert S. Kaplan is a Baker Foundation Professor at Harvard Business School.)

(Michael E. Porter is the Bishop William Lawrence University Professor at Harvard. He is based at Harvard Business School.)


Robert Kaplan and Michael Porter are correct when they say that we need to understand costs rather than prices if we are to improve value in our health care spending. But is their approach on analyzing our costs an efficient method that can be applied throughout our health care system?

Kaplan and Porter propose that we abandon billing based largely on historical prices for itemized services and products. Instead they propose that we continue to focus on the patient as the unit of analysis, but that we should do it around the patient’s medical condition. As an example, they would ask how much does each cost factor contribute to the total cost, but not the price, of a total knee replacement?

When a hospital bills for services what we see are the prices, not the costs. Kaplan and Porter recommend a meticulous microanalysis to break the charges down to the hospital’s actual costs. However, when a hospital purchases supplies and services, the hospital’s costs are the prices they pay for those supplies and services which are certainly higher than the costs for those supplying those resources. Thus this distinction between price and cost can be quite blurred, in spite of their efforts to tease them out.

From the cost measurement process that they describe above, you can see that it requires an inordinate amount of microanalysis, using teams of clinicians and administrators. It is very labor intensive, yet would those costs be applied to the total cost of the given condition in a given patient? Would the total cost include the patient’s fraction of the liability insurance for the hospital? Or the patient’s fraction of the amortized building costs for the facility? Or the costs of the visitor parking lot for their families and friends to use? Or the costs of marketing to the community? You can see that fixed costs can be difficult to assign to specific patients, and marginal costs may be quite variable.

Further, how many medical conditions would need a separate analysis? Would a total knee replacement in a younger, healthy individual have the same itemized costs as the same procedure in a patient with multiple chronic disorders that would have to be monitored or managed during the admission? How many sub-classifications would you need for total knee replacement because of the varying status of each patient? Can patients really be categorized accurately enough to assign a specific package fee based on actual costs? Or would each patient have to undergo the laborious microanalysis of their use of supplies and services?

If you do not do such a microanalysis on each patient, then you still end up with an inequitable assignment of costs because of the variability of patients within the same clinical presentation category. By the time you define enough clinical presentations that take into consideration all of the variables, you have almost an encyclopedic list to choose from. Then would the total charge still represent the hospital’s actual costs plus margin in each and every case? Certainly the hospital’s various costs are not fixed in time but represent an ongoing dynamic. How often would you have to repeat these labor intensive studies to make sure that they were current and accurate?

The flaw in this approach is that we are trying to pay for health care by using market principles rather than approaching patients from a public service perspective. We are trying to assign specific complex costs and prices to single individuals with specific given medical conditions, like commodities in markets. This typifies our profoundly wasteful system of financing health care – especially the administrative waste.

There is a far better way. Pay hospitals based on global budgets, much like we do with police, fire, libraries and other public or quasi-public institutions. All reasonable costs are budgeted with appropriate adjustments for needs such as surge capacity and the provision of extraordinary services. Individuals receive appropriate services without regard to the actual costs of the specific services consumed by teach individual. Patients simply get what they need. Efficiencies are attained through the budgeting process. A large hospital in the United States requires hundreds of billing clerks and other personnel, whereas a globally budgeted hospital, as they have in Canada, requires very few billing personnel simply because the costs have been paid through a global budget.

Instead of using market principles with package prices for individuals based on meticulous cost analysis, we should dump the market nonsense and take advantage of the efficiency and equity of global budgeting of hospitals. That is really only possible if we get rid of our fragmented financing system and establish our own single payer national health program.

Why we need an improved Medicare

Posted by on Friday, Apr 13, 2012

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

How does the benefit value of Medicare compare to the benefit value of typical large employer plans?  A 2012 update

Prepared by Frank McArdle, Ian Stark, Zachary Levinson, and Tricia Neuman
Kaiser Family Foundation, April 2012

Key findings from this report include:

* For individuals ages 65 and older, Medicare is less generous on average than the comparison large  employer plans. The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value.

* Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option, Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate-cost individuals and somewhat less generous for high-cost individuals.

* Medicare’s average benefit value relative to the comparison employer plans has improved since we last conducted this analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).

From the Discussion

Medicare’s benefit value has nonetheless begun to approach the value of the comparison large employer plans, due in large part to the 50 percent discount on brand name drugs in Medicare brought about by health reform, as well as the contraction of the comparison employer plans’ benefit designs. The gap between Medicare and large employer plans could continue to narrow in the future as the health reform law phases in coverage in the “doughnut hole” or if employer coverage continues to erode.

Adding a limit on out-of-pocket spending for inpatient and outpatient services and reducing deductibles would help to bring the Medicare benefit design in line with private large employer plans. The reverse is also true: increasing Medicare beneficiaries’ out-of-pocket costs – an idea floated during recent discussions about the national debt as a way achieve federal savings – could further widen the gap between Medicare and large employer plans and contribute to beneficiaries’ out-of-pocket spending burden.


Supporters of a single payer national health program often refer to the model as “Improved Medicare for All.” This report demonstrates one of the more important reasons why we say that it needs to be improved. Medicare provides less value than the typical large employer PPO plan or the FEHBP Standard Option (the federal employees’ plan).

The largest difference is in the out-of-pocket spending. That difference is diminishing partly because of the increase in out-of-pocket costs for large employer and FEHBP plans (plus an improvement in the Medicare drug benefit). From a policy perspective, we are moving in the wrong direction. Deductibles and coinsurance should be eliminated from Medicare, and private plans, including FEHBP, should be eliminated altogether.

There are other reasons that Medicare needs to be improved. For example, it should be administered on a regional or state basis (with the support of federal funds) rather than by the federal government so that it is more responsive to local needs. The private Medicare Advantage plans should be eliminated because they reduce choice and waste funds. The Private Part D drug plans should be eliminated for the same reasons, folding the benefits into the publicly-administered program.

Incrementalists would suggest reducing deductibles and putting a limit on maximum out-of-pocket spending under Medicare, but if we’re going to fix Medicare, why not go for broke – an improved Medicare for everyone.

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