Recoverable administrative waste is much greater than most realize

Posted by on Tuesday, Nov 22, 2011

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

Billions Wasted on Billing

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

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


Cutting Health Costs by Reducing the Bureaucracy

Letters, The New York Times
November 20, 2011

To the Editor:

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

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

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

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

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

Steffie Woolhandler
New York, Nov. 14, 2011

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

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

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

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

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

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

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

Experts try to define affordable health insurance

Posted by on Monday, Nov 21, 2011

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

We All Want It, but We Don’t Know What It Is: Toward a Standard of Affordability for Health Insurance Premiums

By Peter Muennig, Bhaven Sampat, Nicholas Tilipman, Lawrence D. Brown and Sherry A. Glied
Journal of Health Politics, Policy and Law, October 2011


The 2010 Patient Protection and Affordable Care Act (P.L. 111-148), or ACA, requires that U.S. citizens either purchase health insurance or pay a fine. To offset the financial burden for lower-income households, it also provides subsidies to ensure that health insurance premiums are affordable. However, relatively little work has been done on how such affordability standards should be set. The existing literature on affordability is not grounded in social norms and has methodological and theoretical flaws. To address these issues, we developed a series of hypothetical vignettes in which individual and household sociodemographic characteristics were varied. We then convened a panel of eighteen experts with extensive experience in affordability standards to evaluate the extent to which each vignette character could afford to pay for one of two health insurance plans. The panel varied with respect to political ideology and discipline. We find that there was considerable disagreement about how affordability is defined. There was also disagreement about what might be included in an affordability standard, with substantive debate surrounding whether savings, debt, education, or single parenthood is relevant. There was also substantial variation in experts’ assessed affordability scores. Nevertheless, median expert affordability assessments were not far from those of ACA.

In-Person Discussion

The discussion started in earnest with a review of the vignettes, beginning with Sarah (age 25, single, no children, college graduate, working for a non-profit), a vignette character who earns $1,610 per month, just under 200 percent of the FPL. In the case of characters with very low earnings, such as Sarah, there was considerable agreement among the panelists. All but one of the experts thought that she should pay something for health insurance, and all agreed that it should be very little.

The discussion heated up when participants considered Jessica, who earns $2,210 per month (age 25, single, no children, lives in Chicago, and pays rent of $1160 monthly). Here it was revealed that some participants interpreted affordability as what the person should pay and others as what they could pay. This provided a jumping-off point to a broader discussion of what affordability means.

One participant suggested that Jessica could “literally” afford $800 per month, and denounced affordability as “a lousy policy where you impoverish people so they can buy a minimal set of other goods after they end up paying for health insurance.” Another respondent who also gave a very high affordability threshold noted, “I’m not saying it would be worth it for her to pay this much, but she could still manage reasonably well if she [did] . . . so.” Many others disagreed with this literal interpretation, noting, “I don’t think literal affordability is an interesting policy.” One respondent described affordability as “asking really, ‘How much could one reasonably pay for health insurance.'” Several others argued that a policy would be affordable for beneficiaries if there would “be no adverse consequences by pushing them to that limit.”

One participant, who argued that the standard should be $100 to $150, said, “I’m a low-ball guy because [I take into account] the real costs of living, the fact that the poverty line is too low, etc.”


There is not a natural, objective standard of affordable health insurance coverage. Of course this is true for most (if not all) policies that require government subsidies. Reasonable people disagree about how much a given household can be expected to put aside to spend on health insurance and health care. That there is considerable disagreement even among distinguished experts in social policy on this issue suggests that the concept is mainly a subjective one and that any specific affordability threshold or subsidy structure is likely to be contentious and contested. In this area, as with many others, even highly qualified experts are unlikely to provide scientific answers to guide policy.

This study was designed to demonstrate what well qualified policy experts, from across the political and academic spectra, would conclude should be the standard for determining affordability of health insurance premiums. So what is that standard?

After analyzing a great many vignettes, each expert then devised their own rules of thumb for determining appropriate premium contributions. Although the rules were quite varied, the mean calculations for premium contributions were close to those specified in the Affordable Care Act (ACA). Does this mean that members of Congress and their staffs were quite astute in their calculations of premium subsidies for the exchange plans?

Although the mean calculations were close to those of ACA, there was a very wide variation in the experts’ assessed affordability scores. In the vignette for “Jessica” ($2210 per month income with a Chicago rent of $1160, leaving $1050 for all of her expenses other than rent), expert estimates of affordable health insurance premiums ranged from $100 or $150 per month up to $800 per month. At $800 per month, that leaves $250 for all expenses other than rent and health insurance (e.g., food, clothing, utilities, transportation, education expenses, retirement fund, and “luxuries” such as a cellphone, TV, vacations, holiday gifts, etc.). That $250 must also cover out-of-pocket medical expenses such as deductibles, copayments, and out-of-network services. Even the “low-ball” estimate leaves only $900 to $950 per month for everything beyond rent and health insurance.

The fundamental defect here is that we keep trying to match payment for a specified package of medical benefits to the incomes of specific individuals. Since a reasonable package is no longer affordable by median-income individuals, some form of subsidization is required for the majority of us. Yet recognized experts in the policy community have very different concepts as to how much and in what form the subsidies should be.

Averaging these wide ranges of opinions on how much each person should pay is not a satisfactory solution since the averages or medians place too much of the burden of health care costs on those with modest incomes. These averages also would not satisfy those dispassionate experts who believe that individuals should pay dearly for their health insurance and health care, so they won’t waste their money on things like flat-screen TVs (or really, “wasting” it on healthier foods, transportation to their employment, 401k plans, and so forth).

Financing health care and providing health benefits need to be totally separated. The correlation between ability to pay and medical need is negative, not positive. Payments based on ability to pay should be made into a common risk pool covering everyone, most easily accomplished through the tax system. Health care benefits should be provided to everyone out of that risk pool based on medical need. That is sort of the way Medicare works now for selected populations, but it could be improved.

That sounds like a good idea. Let’s improve Medicare and then provide it for everyone.

CDHP-induced death spiral in Indiana

Posted by on Friday, Nov 18, 2011

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

Indiana places a big bet on consumer-driven health insurance

By Christine Vestal
Stateline, November 17, 2011

One thing Mitch Daniels believes with absolute conviction is that consumers need to pay more of the cost of their health care.

“The prevalent model of health plans in this country,” the Republican Daniels argued recently in a Wall Street Journal commentary, “signals individuals they can buy health care on someone else’s credit card.” He called today’s health care system “a machine perfectly designed to overconsume and overspend.”

No one can say Daniels isn’t practicing what he preaches. Indiana has been using a version of consumer-driven health care for state employees since 2006. Starting next year, 90 percent of Indiana state workers will be covered by a consumer-driven plan with low premiums and high out-of-pocket expenses for actual care.

Indiana has attracted customers to its consumer-driven system by adding quite a few sweeteners. Starting in 2006, Indiana state employees were given the option to sign up for a consumer-driven plan with no monthly premiums. The plan paid 80 percent of all doctor bills, but only after a $5,000 deductible was met. The maximum out-of-pocket exposure was $8,000.

The traditional plan — with a $1,500 deductible and $2,000 total exposure — remained available at a cost of $3,500 in annual premiums for family coverage.

To make the consumer-directed plan even more attractive, Indiana did other things that most states haven’t done. It paid 60 percent of the $5,000 deductible through a contribution to an employee-owned health savings account. The entire $3,000 contribution was deposited on January 1, reducing much of the risk that a catastrophic event early in the year would leave an employee with a huge medical bill and not enough money set aside to pay for it.

At first, state employees were slow to adopt the scheme; only 4 percent signed up the first year. But it gradually caught on — partly through word-of-mouth and partly through an intensive education program. By the third year, 30 percent of the state’s 28,000 civil servants had signed up, and the numbers have steadily increased.

As more of the state workers opted for a consumer-driven plan, premium costs in the traditional plan started rising. An employee’s annual premium for family coverage in the traditional system started out at $3,500 in 2006, rose to nearly $5,000 within three years, and next year will exceed $9,000. The consumer option generated something of a snowball effect.

The reason for the premium increase in the traditional plan is what is known as “adverse selection.” When an insurance pool shrinks, fewer healthy people remain to cover the costs for those who have high medical bills. At this point, the math on the traditional plan no longer makes sense for anyone. “It defies logic that anyone would continue to stay in the traditional plan,” says Indiana’s personnel director, Daniel Hackler.

In Indiana’s case, the state contribution for health insurance is about $15,000 per employee for both consumer-driven and traditional plans. The savings come from reduced use of the health care system and from cheaper prescription drugs.

In part, it is Indiana’s intensive education and outreach program that has overcome the barriers to acceptance that most states face.

But Indiana’s generous health savings account contribution is likely the biggest reason for the plan’s extraordinary growth.

So is it time to declare Mitch Daniels’ experiment a success? Possibly. Experts say that the state’s traditional plan is close to what they call a “death spiral,” in which the cost of covering a small pool of subscribers exceeds the price any given employee is able to pay. Once the remaining traditional plan subscribers are added to the consumer-driven pool, the price tag is likely to go up, and customer dissatisfaction is likely to go up with it.

For now, though, it seems to be working. In addition to other advantages, each of Indiana’s current consumer-driven subscribers has a sizeable health savings nest egg to fall back on. Overall, the savings account fund exceeds $49 million, and many individual subscribers have more than $10,000 in their accounts.

Although there has been continued slow growth in consumer-driven health plans (CDHP) – high-deductible health insurance plans (HDHP) paired with health savings accounts (HSA) – the take-up by public employees in Indiana has been phenomenal – 90 percent of state workers. What drove this success? Or is it a success?

It is easy to understand why CDHPs would appeal to healthy, wealthy individuals. The high-deductible plans have significantly lower premiums than traditional plans. The money saved by purchasing these lower cost plans can be placed in an HSA, using pre-tax income. If the person remains healthy, the funds that accumulate in the savings account, including any tax-deferred earnings, can be drawn out in retirement without paying a penalty. It’s a great plan for those who stay healthy and have the extra funds to deposit into these accounts.

But what about those who rapidly deplete their savings accounts because of significant medical problems? They must then rely on a high-deductible plan that potentially subjects them to financial hardship because of high out-of-pocket expenses. Thus CDHPs are a poor choice for those who need more health care. This defeats the purpose of pooling risk in which the many who are healthy pay the bills for the few with greater needs.

The funds from the HSAs that are drawn out in the retirement years of the many who are healthy have been omitted from the collective pooling of funds that are needed to take care of the sick (i.e., the lower premiums of the high-deductible plans underfund the collective need of everyone, and the difference is made up by shifting the responsibility for payment directly to the patients who need more health care). It is not only the HSA money that has been diverted from the pools, but also the money that was saved by paying lower premiums yet was never deposited into the HSAs (the most common circumstance).

It is interesting what Indiana Gov. Mitch Daniels did with the state employees’ health benefit program. Most employers that switch to a CDHP do so to save money by paying the lower premium of the HDHP. Some employers will even use a portion of the savings, but not all, to provide seed money for the HSAs. Gov. Daniels decided to put all of the savings in the HSAs so that the cost of the CDHP (HDHP plus HSA contribution) was about the same as the traditional health plan. His ideological drive to make employees sensitive to health care costs was greater than his desire to save the state money.

Imagine the response of the healthy employees, which is most of them. In exchange for agreeing to change to a high-deductible plan – a plan that they probably wouldn’t use much anyway because they are healthy – they are given a cash contribution of $3,000 each year for their own savings accounts, which can be used for health care now or for their retirement later on. If they were to stay healthy and didn’t draw on these accounts, they could have perhaps another $100,000 for retirement!

The healthy employees were sold on the concept, and made the transition. Employees with medical problems in their families were more reluctant to change. They did not want to give up their established health care relationships, plus they didn’t want to be exposed to high-deductibles with depleted HSAs. They stayed in the traditional plan.

Most who have been following health policy recognize that this is “adverse selection.” The healthy leave the insurance pool and the sick stay in. That can only drive premiums up. The employees share of the premium for a family plan went from $3,500 to $9,000. Ouch!

Many of you recognize this as the “death spiral” of premiums. With higher premiums, more leave the plan, and then it eventually has to shut down because nobody could pay the even higher premiums that would have to be charged.

So now this concentration of employees and their families with higher health care needs moves into the CDHPs. What will the insurers do when they have a large influx of expensive patients signing up with the high-deductible plans? Obviously, they’ll have to jack up the premiums to levels that will displease everyone.

Those hurt the most will be those with health care needs, who have depleted HSAs, who will have higher premiums, and who will have greater out-of-pocket costs because of the high deductibles – the very people who have the greatest need for insurance protection. This is hardly a “success.”

By now, you can write your own closing lines about how we can do it right.

Jonathan Gruber: “best… you know, short of single payer”

Posted by on Thursday, Nov 17, 2011

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

Architect of Obama’s health care plan fears a ‘political’ decision by the Supreme Court, says Romney’s lying

By Reid Pillifant
Capital, November 16, 2011

Jonathan Gruber, an M.I.T. professor and a key intellectual architect of President Obama’s overhaul of the American health care system, said, “You know, I think basically, what they’ve constructed, the Affordable Health Act, is the best possible private-sector solution to our problem of the uninsured that we have available, you know, short of single-payer.”

“Basically, this is the last hope for a free-market solution for covering the uninsured. If this fails, then you either give up on the uninsured or you go to single-payer. Those are the only two options left. And the Republicans, if they’re willing to stand up and say, ‘We give up on the uninsured,’ then great, let them say that and let the voters come to the polls and decide, but they won’t say that.”

“Best possible solution… you know, short of single payer.” If the Affordable Care Act fails (which it clearly will because it’s only more of the same), then either we “give up,” or we “go to single payer.” It’s too bad that Jonathan Gruber was distracted by concerns about feasibility when he was assisting with the design of the Romney and Obama plans. The only plan that’s really feasible is one that works – single payer.

The Tufts/Blue Cross Blue Shield contract dispute that didn’t have to be

Posted by on Wednesday, Nov 16, 2011

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

Tufts, Blue Cross contract row threatens members

By Robert Weisman and Liz Kowalczyk
The Boston Globe, November 16, 2011

Tufts Medical Center and its doctors group say they will stop doing business with Blue Cross Blue Shield of Massachusetts on Jan. 17 because the two sides can’t agree on a new contract. The move could force tens of thousands of Blue Cross members to change doctors and compel employers across Massachusetts to consider switching to another insurer.

Blue Cross disclosed the termination notice yesterday as it prepared to send letters to about 55,000 employers and other customers alerting them to the Tufts threat, which came as increasingly tense contract negotiations stalled Monday night.

“This is confusing and disruptive,” said Amy Whitcomb Slemmer, executive director of Health Care for All, a Boston advocacy group. “We have essentially a train wreck that has nothing to do with the quality of health care, but is all about escalating costs. In their failure to reach agreement, Tufts and Blue Cross are affecting people’s care.”

Nancy Turnbull, associate dean at the Harvard School of Public Health, said Tufts’ request for 3 percent increases seems “very much in line” with what other providers such as Partners HealthCare System and Children’s Hospital have received in recent contracts. And she noted that those providers already were getting higher reimbursements than Tufts.

Turnbull said the dispute underscores why the government needs to get more involved in setting payment rates.


Blue Cross, Fallon post big earnings

By Robert Weisman
The Boston Globe, November 16, 2011

The state’s largest commercial health insurance companies, citing seasonal improvements in their business and a decline in medical claims tied to the sluggish economy, yesterday posted robust financial results for the three months ending Sept. 30.

Blue Cross Blue Shield of Massachusetts, the state’s largest health plan, led the pack in the most recent quarter, ringing up net income of $78.9 million compared with the $75.8 million it earned a year ago.

By reading the first article in full (available at the link), you can learn some of the details behind the contract dispute between Tufts Medical Center and Blue Cross Blue Shield of Massachusetts. But that isn’t the important issue. What is important is that a very profitable, “non-profit” private insurer, that is able to restrict patient choices in health care providers, is using the threat of disrupting patients’ care as leverage in negotiations over health care payment rates.

Tufts Medical Center is also a party in this dispute. They are also in a position to make a decision that can be very disruptive to the care of their patients.

The problem is in the way we finance health care. We continue to perpetuate a system in which we grant the power to control health care dollars to private financial intermediaries that must consider their own interests first. Health care providers are then placed in a position that a decision must be made on whether or not to participate in the proposed contract with the intermediary.

Contrast that with a single payer system in which the government sets payment rates based on legitimate costs of providing health care. The government pays enough to maintain the operations of the providers, along with separate disbursements for appropriate capital improvements. The providers are not faced with a decision on whether or not to accept the government contract. The only decision they might consider would be whether or not they would want to shut down operations. The government single payer would not allow that to happen merely because of an actual shortage of funds for necessary expenses, as long as essential services were being provided.

It really is time to get the private intermediaries out of our health care. They cost too much, and they take away our choices. An improved version of our own Medicare program would provide the necessary administrative services for us far more efficiently and at a considerably lower cost.

Anthem Blue Cross uses bait and switch tactics

Posted by on Tuesday, Nov 15, 2011

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

Anthem Blue Cross sued over higher medical insurance deductibles

By Duke Helfand
Los Angeles Times, November 15, 2011

For the second time in eight months, California health insurer Anthem Blue Cross is being sued over allegations that it has breached contracts with individual policyholders for hiking annual insurance deductibles in the middle of the year.

The latest lawsuit, filed Monday by the group Consumer Watchdog, says that California’s largest for-profit health insurance company used “bait and switch” tactics to raise deductibles and other out-of-pocket costs for some customers May 1.

The lawsuit says the Woodland Hills insurer improperly changed policy renewal periods Aug. 1 from one year to one month, allowing the company to alter its benefits, co-pays and other costs repeatedly throughout the year.

Some of those Anthem customers have seen their annual deductibles rise in the middle of the year to $550 from $500, according to the consumer lawsuit. Other deductibles have gone to $1,750 from $1,500 and to $2,950 from $2,500.,0,7684974.story

WellPoint’s Anthem Blue Cross has found yet another way to shift insurance risk from itself to its beneficiaries. Individuals who purchased or renewed their health plans did so while assuming in good faith that their costs and risk exposure would be set for another year. No. Anthem Blue Cross included in the fine print the condition that these were only one month renewals, allowing them to change the terms of the insurance contract repeatedly throughout the year.

“Bait and switch” is a despicable business practice, and the nation’s largest insurer, WellPoint, is not above it. At the current rate of insurer consolidation, WellPoint’s plans will likely be amongst only a few choices, if that, in the state health insurance exchanges to be established under the Affordable Care Act. And surely the other insurers will adopt the same despicable practices in order to remain competitive.

Now the nation is awaiting a Supreme Court decision on the individual mandate that will tell us whether we will be required to purchase a plan from a selection of these despicable private programs or if we will have the right to remain uninsured – a right that many will exercise simply because these plans will be unaffordable, even with the proposed subsidies.

We wouldn’t have to tolerate the despicable behavior of the private insurers if only Congress would improve and expand Medicare. Medicare belongs to the people. We should all be able to benefit from it.


Despicable: “So worthless or obnoxious as to rouse moral indignation.”
(It’s the right word, so we should use it.)

UK Health Minister Lansley on patient accountability for costs

Posted by on Monday, Nov 14, 2011

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

Perspectives on Health Care Reform in the U.K.: A dialogue with UK Secretary of State for Health Andrew Lansley

Brookings, Engelberg Center for Health Care Reform
November 9, 2011


Mark McClellan, Director of the Engelberg Center:  Another point (that you mentioned) was the availability of care at a low or at really no cost to patients, to consumers. That is a big difference from the United States, obviously, where not just the more conservative members of our legislatures, but others as well believe that patients should have some accountability, some responsibility for some of the costs, and, conversely, if they make decisions to stay healthier, if they make decisions to use care more effectively, that they should get some of the savings. You put a big emphasis on how these reforms are going to lead to more patient choice in terms of GPs, in terms of hospital care, in terms of specialist teams, and so on. As you said, money following the patient. Is that going to be enough? There are a lot of people here who believe that you really need even more consumer involvement, consumer stake in care to drive real reforms in care.

UK Health Minister Andrew Lansley:  Well, I understand the view that says if people pay directly for something, they value it more. I actually think, in the British context, where health care is concerned, people understand the value of the health care that is provided to them. They don’t need to have it itemized in a bill sent to them and pay for it out of their own pocket to realize that the National Health Service provides them something that they should attach enormous value to. I think, generally speaking, it isn’t the case that people in Britain consume large amounts of health care, that they don’t need to, because it’s free. And in particular, I think through the intermediation process with general practitioners the relationship that is built up between the British public and their general practitioners is instrumental to the process of managing demand in a way that is responsible and effective. Now I think it’s not perfect, and I think that’s one of the central reasons why I think we need to give patients a greater say in decision making. I don’t think, in a free system, as a consequence of that we are going to see irresponsible or excessive demand. I think patients themselves, given good information and opportunities to make choices, on balance, will make decisions that are probably less costly, less invasive, less interventionist because they want to have care that supports them at home and very often they don’t want to be in the hospital. So issues like avoiding admissions to hospitals, I think patients are with us on this. They’re not conflicting with us. See, the one thing I would say is important in terms of access, that we don’t necessarily achieve, where we do need to act is to ensure that patients do have access to the latest and most effective treatments and medicines. And there, particularly, we acted, since the election, in the creation of the Cancer Drug Fund because we knew that, in Britain for example, there was a very low take-up of cancer medicines within five years of their being introduced. And I think that is absolutely an area where the public have an expectation and a right to expect that they should have access to whatever their clinicians regard as the most effective treatment available. Some of it’s cost effective but, you know, on that basis, with clinical judgement, they should be able to get access to it. I have to say, when you look at the cost, literally the transaction cost alone, of moving away from a taxpayer funded service as the NHS is, in the way in which we’re organized, at the moment we have something like five percent of NHS costs consumed in administration. I’m planning to bring that down to about three to three and a half percent over the course of the next four years. That alone will save us about one and one-half billion pounds a year. But that is very modest administration costs relative to the costs of administration of insurance systems in the United States. So on that basis alone I think there is, in a constrained financial bound, there’s no intrinsic merit in moving away from the structure of the system we have.

Health Minister Andrew Lansley of the United Kingdom is currently at the center of a storm of controversy over his efforts to further privatize their health care on the theory that expanding market competition for the National Health Service will improve quality and reduce costs. So it is instructive to ask if his views extend to include the U.S. concept of empowering consumers by requiring an even greater financial stake “to drive real reforms in care,” as former CMS Secretary Mark McClellan phrases it.

Although holding very conservative political views, Lansley almost scoffs at the suggestion that British citizens would consume large amounts of care merely because it is free. When you think about it, the suggestion that patients need price sensitivity to prevent over-consumption of health care  is almost an insult. Patients want to consult with their physicians to obtain the most appropriate care for their medical circumstance, in an environment removed from financial considerations. They are not looking for bargain basement deals.

This is about health care, for Pete’s sake. It’s not like deciding whether you are going to purchase a garment at Walmart or at Nordstrom. The assumption in the United Kingdom and in all other wealthier nations, except the United States, is that public stewards will ensure that health care will always be there for you when you need it. It is not a commodity that wise shoppers will follow and then purchase only after it goes on sale.

The advocates of consumer-directed health care are going to have to do a better job of explaining how requiring patients to pay out of their pockets or savings accounts when they access care is an answer to a problem, when that problem doesn’t seem to even exist. As Minister Lansley states, “it isn’t the case that people in Britain consume large amounts of health care… because it’s free.” Further, “the relationship that is built up between the British public and their general practitioners is instrumental to the process of managing demand in a way that is responsible and effective.”

How about that! The traditional physician-patient relationship works!

The per capita health care spending in the United Kingdom is less than half that of the United States. The British did not have to use consumer empowerment through price sensitivity to control their health care spending.

It appears that the only significant impact of increasing the financial stake of the health care consumer has been to erect financial barriers to beneficial health care services. So this detrimental intervention is being offered as a solution to the problem of high health care costs that other nations effectively manage using a responsible relationship between patients and their physicians? Talk about a disconnect between a problem and a solution!

McClellan says, “There are a lot of people here who believe that you really need even more consumer involvement, consumer stake in care to drive real reforms in care.” We could scoff at those people, but they’re in charge now. That’s tragic!

Dr. Jacqueline Davis on the fight to save Britain’s NHS

Posted by on Friday, Nov 11, 2011

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

The Fight to Save Britain’s NHS: Luncheon address by Jacqueline Davis, M.D.

Physicians for a National Health Program
National Meeting, Washington, D.C., October 29, 2011


First I want to thank you for inviting me here. I bring greetings from the land of socialized medicine and death panels, to the land of “islands of excellence in a sea of misery.”

I’ve never been to this city before and when I told family and friends about my invitation to Washington they assumed I was off to meet the president. I told them it was much more important than that. But just in case he’s listening – I could be free for tea tomorrow….


Of course the NHS faces the challenges that all health systems do, i.e. changing demographics, increased range and cost of treatments, rising patient expectation and the global financial crisis. But in the face of all these the NHS still manages to be one of the most cost-efficient and equitable health services in the world. And the public love it. At the end of the Labour government’s 13 years in power it had the highest satisfaction ratings ever, and it still is the most popular institution in the UK bar none, and that includes the royal family.

So if it’s so good, why are we having to fight for it? Because there’s another big challenge which all public services face and that is the neoliberal agenda which still has the upper hand despite its current manifest failures on a global scale.


A successful public service is an affront to the free marketeers. They simply won’t let the facts get in their way. Despite all evidence to the contrary they continue to insist anything the public sector can do the private sector can do better and more cheaply, and no evidence to the contrary will persuade them otherwise.

So the politicians for ideological reasons, and the private sector for financial reasons, have had the NHS – traditionally publicly funded, publicly delivered and publicly accountable – in their sights for some time. They have acted together, beneath the radar, to turn the NHS from a cost-effective integrated public service into a kite mark attached to a ragbag of competing private providers.


Up till now you trusted your GP to give advice on clinical grounds. But now – if your GP says no to treatment and/or referral is it because they want to pocket the money that is saved – which the bill allows them to do? Or if they refer you to Hips R Us down the road, is it because their wife has a financial interest in it? 25 percent of GPs already have a direct interest in the private sector. This suspicion will be very corrupting, and most GPs are worried about it.


We fear NHS services being reduced to a core of poor services for poor people, with those who can afford it topping up their personal health budgets with insurance or out-of-pocket payments and those who can’t afford it going without.

And we really fear the arrival of the private companies, many of them from the U.S., whose behavior leaves much to be desired. They want to “cherry pick.” leaving the NHS to pick up the complex expensive patients as well as providing the expensive emergency care and the training that is not attractive to the private sector. We fear they will behave in a fraudulent way as they do already in the USA.


Our organization was vociferous from day one, saying that the bill spelled the end of the NHS, and of course we were accused of shroud waving and gross exaggeration. But we stuck in there and joined together with other campaigning organizations and the pressure has built up over the last year. How did we do it?

We produced analyses and simple 10-point critiques of the bill in our regular campaign newspaper as well as special pamphlets and postcards. We wrote doggedly – all of us would take it in turns – to national and local papers and had a lot of articles and letters published.

We offered to do public talks, to our own groups and also to anyone from medical students to pensioners, and in fact those two groups turned into some of our most outspoken supporters. We helped organize online petitions. We put a lot of energy into lobbying politicians.

We have helped expose the scandals of the revolving door between government and the private sector and the infiltration of government by corporate interests. We have questioned the neutrality of so called think tanks and helped expose the strength of the health lobbying industry in Westminster.

We marched, we used social media to spread our message and some of us even got elected to the Council of the British Medical Association so that we could begin to change our union from within.


The problem we have come to realize is that we aren’t just fighting the Tory government; we are fighting the global medical industrial complex with all its power, influence and money. And its cozy relationship with today’s politicians.

It’s easy to lose hope but we mustn’t. We have to take on this cozy configuration of politicians and giant corporations which have come to a “comfortable accommodation” at our expense. We must change the tone of the debate with these people who know the price of everything and the value of nothing.

We must say that the market should serve society rather than society serving the market, that there are public goods and goals for which the market is not suited and that what matters is not how affluent a country is but how unequal it is. We must collect evidence and use it to criticize and expose. We must create the strong voice of civil society and we doctors have a particular duty to be that voice and we must organize and use it.

Firstly because – and we must never lose sight of the fact – we are right. Secondly, we are the patients’ true advocates and our patients are depending on us. And finally Aneurin Bevan, the great founder of the NHS, said, “The NHS will last as long as there are folk left with the faith to fight for it.”

We must be those folk because, personally, I am not prepared to let him down.

(Dr. Jacqueline Davis is a consultant radiologist working in a hospital in London. She is co-chair of the NHS Consultants’ Association, a nationwide group of distinguished physicians representing all specialties, and a member of the Keep Our NHS Public campaign.)

(You may have to cut and paste this link for it to work.)’s-nhs

We share with the British concerns about the neoliberal attack on our health care services. In their case it is an attack on their public National Health Service, whereas in our case it is an attack on Medicare and other public programs and, even greater, a virtual blockade – a dysfunctional private financing construct that often uses public money – that prevents us from bringing comprehensive health care services to all of our people.

This luncheon address by Dr. Jacqueline Davis was a highlight of PNHP’s recent annual meeting in Washington, DC. You may want to take a moment this weekend to read the entire address, available at the link above, and then savor it. You’ll then understand clearly why we gave her a standing ovation, not to mention that it will reinforce your dedication to the cause of health care justice for all.

Reinhardt: Placing “All-Payer” in the reform dialogue

Posted by on Thursday, Nov 10, 2011

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

The Many Different Prices Paid To Providers And The Flawed Theory Of Cost Shifting: Is It Time For A More Rational All-Payer System?

By Uwe E. Reinhardt
Health Affairs, November 2011


In developed nations that rely on multiple, competing health insurers — for example, Switzerland and Germany — the prices for health care services and products are subject to uniform price schedules that are either set by government or negotiated on a regional basis between associations of health insurers and associations of providers of health care. In the United States, some states — notably Maryland — have used such all-payer systems for hospitals only. Elsewhere in the United States, prices are negotiated between individual payers and providers. This situation has resulted in an opaque system in which payers with market power force weaker payers to cover disproportionate shares of providers’ fixed costs — a phenomenon sometimes termed cost shifting — or providers simply succeed in charging higher prices when they can. In this article I propose that this price-discriminatory system be replaced over time by an all-payer system as a means to better control costs and ensure equitable payment.

This is an important contribution to the health policy literature. It is intended to be a seminal paper designed to displace the useless discussion of cost shifting between public programs and private insurers with a discussion of reducing price discrimination (charging individuals, private insurers or government programs different prices for the same services) by shifting to an all-payer system that would better control costs and ensure equitable payment.

An all-payer system simply establishes “uniform price schedules that are either set by government or negotiated on a regional basis between associations of health insurers and associations of providers of health care.”(1) Why is this important?

Although there is considerable variation in prices throughout the health care system, high prices, on average, have been a major contributor to our very high per capita spending on health care.(2) As Uwe Reinhardt explains, much of this excessive pricing has resulted from private insurers, with a weak market presence, negotiating with health care providers, especially hospitals, that dominate their respective markets. The health care provider consolidation that is taking place can only compound the impact of this market distortion.

Although private insurers also are consolidating, competing plans are still not in a position to extract major price concessions from dominant health care providers. All-payer price setting through government or association negotiation is designed to displace the ineffectual private insurers as price negotiators while establishing both better cost control and more equitable payments for health care.

(In some areas, private insurers have been able to hold prices down at Medicare rates for physicians where the physicians have a very weak negotiating clout. This is less true of hospitals that have a weaker clout.)

Price discrimination – charging different prices for the same services – hits especially hard those who have the weakest bargaining power: individual patients who are now bearing more of the costs of health care. Contrary to widely held ideological beliefs, here it is price discrimination in the private insurance market and not the government that has created the perversity of rationing based on the ability to pay.

In his article, Reinhardt explains, “It should be recognized that the higher the fraction of health care spending that individuals and families must bear out of their own resources, the more heavily the model relies on rationing health care by price and the patient’s ability to pay — that is, rationing by income level. It may surprise some readers that anyone would associate markets with rationing. But as economists tell their students, free markets represent just one of many styles of rationing. Relying on price and ability to pay is precisely how markets in general manage to ration scarce resources among unlimited ends.”(1)

One of the reasons that this article on all-payer systems is so important is that we are at a crossroads in the reform process. He writes, “At this time, the US health system appears to stand at a clearly delineated crossroads. On one road, Americans would seek better control over national health spending through an all-payer system, such as the one operated by Maryland for the hospital sector. On the other road, Americans would seek better control of health care prices and national health spending through greater reliance on market forces for most of the health system. Depending on how that road is traveled, it could entail more pronounced rationing of health care by income class, meaning less health care for those who cannot afford it. The battle over US health policy in the coming decades is likely to be over which road to take.”(1)

Since an all-payer system would correct only a portion of the flaws in our health care financing, why shouldn’t we go full bore and enact a single payer system? Reinhardt brings up the political feasibility argument, as follows, “In any event, an all-payer system with multiple private insurers would be likely to be more broadly politically feasible than a government-run single-payer system, such as Canada’s provincial, government-run single-payer insurance systems. A single-payer system, of course, would be another alternative that would eliminate price discrimination and any cost shifting.”

Reinhardt discusses the effectiveness of all-payer for hospitals in the state of Maryland. In a previous response to the Maryland all-payer system, I stated, “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.”(3)

So what about Switzerland? Reinhardt mentions it as having successfully applied an all-payer system. In another previous message on the OECD/WHO report on Switzerland, I stated, “It is not clear why so many in the U.S. are enamored of the Swiss health insurance system when this OECD/WHO report confirms that it is highly inefficient and fragmented, with profound administrative waste, inequitably funded, with regressive financing and with wide variations in premiums, has the highest out-of-pocket costs, has an increasing prevalence of managed care intrusions, and is controlled by a private insurance industry that has learned how to game risk selection at significant cost to those on the losing end.”(4)

Uwe Reinhardt is to be highly commended for moving us in the right direction, but…

We’ve said it before and we’ll say it again. If political feasibility is the barrier to enacting a single payer system, let’s not simply jettison single payer; let’s change the political feasibility instead! All-payer might be a modest incremental improvement (modest when compared to what needs to be done), but why settle for that when we can have it all through an improved and expanded Medicare for all?





Healthcare Reform 2.0 – Woolhandler and Himmelstein

Posted by on Wednesday, Nov 9, 2011

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

Healthcare Reform 2.0

By Steffie Woolhandler, MD, MPH and David Himmelstein, MD
CUNY School of Public Health, Social Research, Fall 2011

So while the American people want an expanded and improved Medicare for All — that is, a single-payer system — corporations dead-set against single-payer reform have come to dictate the agendas of both political parties. Hence, the only way to win national health insurance is to build a popular movement to counter corporate power.“healthcare-reform-2-0″-in-the-fall-2011-issue-of-social-research/

Healthcare Reform 2.0 (12 pages):

This brief primer (9 short pages plus references) on Healthcare Reform 2.0 will provide little new information for those who have followed the research and educational efforts of the leadership of Physicians for a National Health Program. Nevertheless, it should be downloaded to be used as an advocacy piece to explain to others why Healthcare Reform 1.0 (Affordable Care Act) will remain a failure, and why we have to move on to Healthcare Reform 2.0 (expanded and improved Medicare for All). By distributing this, electronically or in hard copy, you can become a part of the popular movement to counter corporate power.

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