Community health centers stuck with unpaid bills for insured patients

Posted by on Friday, Sep 26, 2014

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.

Underinsured ACA Enrollees Strain Community Health Centers

Kaiser Health News, Daily Health Policy Report, September 26, 2014

Obamacare enrollees are straining the finances of community health centers around the country, some health center leaders say. The issue is that many lower-income patients with insurance coverage through the federal and state exchanges bought bronze-tier plans with lower premiums but high deductibles, coinsurance and copayments and no federal cost-sharing subsidies. When these patients face high out-of-pocket costs for care that falls below the deductible, they can’t afford it.  So the centers are subsidizing that care by offering them means-tested sliding-scale fees. When the centers, which are not allowed to turn away patients for inability to pay, try to get the insurers to pay, the claims are usually denied, and the centers have to write it off as uncompensated care (Modern Healthcare, Dickson, 9/25).

One of the advantages of reform that ensures that everyone would have health care coverage is that safety-net institutions, such as community health centers (CHCs), could be assured that payments would be made for the services they provide, ending the continual struggle of funding these institutions. As it turned out, reform will still leave 31 million uninsured, perpetuating this problem. But at least those now insured will no longer stress the budgets of the CHCs. Or will they?

Those purchasing the cheapest plans on the exchanges – the bronze plans – have an average of only 60 percent of their health care costs covered. This requires very high deductibles which are not affordable for many of the low-income individuals purchasing these plans. Because of high deductibles which are difficult to collect after services are rendered, many health care providers are requiring payment upfront. Many would-be patients end up walking away because of the lack of funds.

Where are these people to turn? The CHCs of course. They cannot turn patients away, so they see them. When the CHCs then bill the bronze plan insurers, the charges are below the deductibles and so the claims are denied. They can then turn to the patients to try to collect means-tested fees that would apply to the deductibles, but such efforts are often futile, and so the CHCs end up writing off the charges as uncompensated care.

This is the plight of the underinsured and of the providers who care for them. With low actuarial value plans and often-inaccessible narrow networks, underinsurance has become ubiquitous. It is one of the most serious flaws in health care financing today, not only for the exchange plans but now also for a rapidly growing percentage of employer-sponsored plans.

This is just one of thousands of major flaws in our financing system. It just isn’t right. We can fix this by changing to a single payer national health program. Let’s do it. Now.

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The Economist has advice for fixing Obamacare

Posted by on Thursday, Sep 25, 2014

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 to fix Obamacare

The Economist, September 20, 2014

It is now nearly a year since the roll-out of Obamacare.

Ironically the “socialist” Mr Obama did not do the one thing that might have cut taxpayers’ costs dramatically: introduce a European “single payer” health-care system. Instead he tried to tweak America’s system in two ways – to expand coverage and to reduce costs.

The results are mixed. Practically every competent health-industry lobbyist managed to insert a line protecting the services his paymasters provide – so Obamacare is too costly and too complicated.

So what would make American health care better now? Since its failings lie more within the system than with the president’s attempt to reform it, health reformers should concentrate on three areas that could make its flawed market work better: directing handouts towards the poor rather than the affluent, nudging individuals to take charge of their own health care, and making sure that prices are transparent.

If America wants to stick to the idea that it has a health-care market, then it should focus on trying to make it more like a market – with prices, competitors and some form of choice.…

After telling us that it is ironic that President Obama did not introduce a single payer system, The Economist tells us that we should use prices, competitors and choice if we want to make our health care system more like a market. That seems odd advice since their system is not only single payer, it is socialized medicine – a national health service.

The Economist is not naive. They certainly know of the work of Nobel laureate Kenneth Arrow showing us that markets do not work in health care. Maybe their recommendation for market reform of U.S. health care stems from their reputation as excelling in understated wit, but what the market approach has done to drive up costs and impair the functioning of our health care delivery system isn’t really very funny.

Let’s just take them at their word that a single payer system would have been a much more effective choice. And we can still make that choice.

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HCA’s dishonest IPO

Posted by on Wednesday, Sep 24, 2014

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.

U.S. hospital chain HCA must face class action over 2011 IPO

By Jonathan Stempel
Reuters, September 23, 2014

HCA Holdings Inc, one of the largest U.S. hospital chains, must face a shareholder class-action lawsuit accusing it of concealing revenue declines and its routine performance of unnecessary cardiac procedures prior to its $4.35 billion initial public offering in March 2011.

U.S. District Judge Kevin Sharp in Nashville, Tennessee, rejected HCA’s claim that the plaintiffs had missed “multiple opportunities” to learn more about the company before buying their shares, including from media reports, conference calls, and disclosures during the IPO road show.

Shareholders alleged that HCA, its directors, its former private equity owners and its investment banks concealed how the company was seeing adverse trends in Medicare revenue including cardiology, and Medicaid revenue per admission; and accounted improperly for a 2006 reorganization and a 2010 restructuring.

“Given defendants’ alleged violation of the federal securities law and its impact on a large number of geographically dispersed investor(s), a class action is the superior vehicle for adjudication of the claims,” Sharp wrote. “The alternative would be to have (potentially) thousands of individual actions, which is likely impractical for most investors, and which would risk burdening the judicial system.”

The IPO had been the largest by a company owned by private equity firms. HCA had been taken private in 2006 by a group led by Bain Capital, Kohlberg Kravis Roberts and Merrill Lynch’s private equity arm.

The case is Schuh et al v. HCA Holdings Inc et al, U.S. District Court, Middle District of Tennessee, No. 11-01033.…

The private insurers are not the only villains that are driving high health care costs in the United States. The private, investor-owned segment of the health care delivery system is also bringing us higher costs, often with inferior quality. A case in point is HCA – one of the nation’s largest investor-owned hospital chains.

HCA is already infamous for having set a record in paying a $1.7 billion settlement for Medicare fraud. This new allegation of fraud does not directly involve patients or taxpayers, rather it involves potential shareholders at the time of their 2011 initial public offering (IPO). The private owners at that time included the Frist family and some private equity firms, including Bain Capital.

The reason that this is important to those of us concerned about health care reform is that these people are so dishonest that they not only cheat patients and taxpayers, they also cheat their own shareholders!

When we expel the private insurers from our health care system, we need to expel the passive investors as well. HR 676 – the Expanded & Improved Medicare For All Act, sponsored by John Conyers (now with 62 cosponsors) does both. It converts the health care delivery system to non-profit status, and it replaces private insurers with a single payer national health program.

HCA was founded by the family of Bill Frist, former leader of the U.S. Senate. The Medicare fraud case was initiated when Florida Governor Rick Scott was head of HCA. Bain Capital was co-founded by presidential candidate Mitt Romney. If we are going to achieve health care justice for all, the voters do have some responsibility here.

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How much is wasted on defensive medicine?

Posted by on Tuesday, Sep 23, 2014

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 Cost of Defensive Medicine on 3 Hospital Medicine Services

By Michael B. Rothberg, MD, MPH; Joshua Class, BS; Tara F. Bishop, MD, MPH; Jennifer Friderici, MS; Reva Kleppel, MPH, MSW; Peter K. Lindenauer, MD, MSS
JAMA Internal Medicine, September 15, 2014

The overuse of tests and procedures because of fear of malpractice litigation, known as defensive medicine, is estimated to cost $46 billion annually in the United States, but these costs have been measured only indirectly. We estimated the cost of defensive medicine on 3 hospital medicine services in a health system by having physicians assess the defensiveness of their own orders. We hypothesized that physicians who were concerned about being targeted by litigation would practice more defensively and have higher overall costs.


In this study of hospital medicine services at 3 institutions in a health system, 28% of orders and 13% of costs were judged to be at least partially defensive, but only 2.9% of costs were completely defensive. Most costs were due to potentially unnecessary hospitalization. Defensive medicine practices varied substantially, but physicians who wrote the most defensive orders spent less than those who wrote fewer such orders, highlighting the disconnect between physician beliefs about defensive medicine and their contribution to costs.

In 2008, Massachusetts internists reported that 27% of computed tomographic scans, 16% of laboratory tests, and 14% of hospital admissions were ordered owing to concerns about liability. We allowed our physicians to offer a graded response, which revealed that defensiveness is not absolute. Compared with the previous study, our respondents reported higher percentages of defensive medicine but lower percentages of completely defensive medicine (2% of radiology, 6% of laboratory testing, and 2% of hospital days).

In conclusion, although a large portion of hospital orders had some defensive component, our study found that few orders were completely defensive and that physicians’ attitudes about defensive medicine did not correlate with cost. Our findings suggest that only a small portion of medical costs might be reduced by tort reform.


The cost of defensive medicine

By Aaron Carroll
AcademyHealth Blog, September 15, 2014

I was so pleased to see a new study published in the journal JAMA Internal Medicine, “The Cost of Defensive Medicine on 3 Hospital Medicine Services“.

As the researchers note, past studies have found that “27% of computed tomographic scans, 16% of laboratory tests, and 14% of hospital admissions were ordered owing to concerns about liability.” But such studies would include any level of defensiveness in the orders at all. We can realistically expect, however, that only completely defensive orders would be eliminated by tort reform. After all, if there are other reasons to order tests above our fears of being sued if we don’t, those reasons will still exist even after comprehensive malpractice reform became law.

If we assume that overall health care spending is about $2.7 trillion, then 2.9% of that would be about $78 billion. That’s not chump change, mind you, but it’s still a very small component of overall health care spending. Given that there’s little evidence that tort reform would lead to a significant reduction in this already small percentage of spending, there seems little reason to pursue it as a means to dramatically reduce health care spending in the United States.

From response by Uwe Reinhardt:

It is also ironic that the very folks who constantly bring up the refrain that “one size does not fit all” in health policy (and that in the land of McDonalds!) always clamor for a one-size-fits-all solution to malpractice: an upper limit on payments for pain and suffering.

At forums discussing the high costs of health care and what can be done about it, inevitably the subject of malpractice comes up. People hold very strong views on the topic. Such discussions generate much heat, often blaming frivolous lawsuits, excessive defensive medicine, outrageous jury awards, and attorney greed, but we need to step back and see if we can generate a little more light and a little less heat.

We do need medical liability reform, but not for the reasons often given. The system simply does not work well for achieving its primary goal: compensating individuals who are victims of medical injury. Most individuals who experience medical injury are never compensated; the majority do not even file lawsuits. When lawsuits are filed, much of the costs are consumed by legal processes, including paying the fees for plaintiff and defense attorneys.

The reform that we do need, assuming that we agree that individuals should be compensated for medical injuries, is to end the emotionally painful, expensive tort process and replace it with a process of alternate dispute resolution – a process not unlike workers compensation wherein the injuries are acknowledged and appropriate compensation is made.

What about some of the issues that generate so much heat?

Frivolous lawsuits are not a problem. An attorney will not accept a case in which a medical injury has not occurred. The attorney will not invest time and the expenses of an investigation if there is no possibility for an award. It may be that the medical injury might have occurred because of factors not related to medical error, but that is the point of discovery and of the followup trial, if necessary. These are not frivolous actions.

What about the costs of defensive medicine – ordering tests or procedures that are totally unnecessary but ordered only to provide defense in the event of a future lawsuit. The study by Michael Rothberg and his colleagues really helps us understand better the extent of this problem. Most tests and procedures ordered that were thought to provide some insulation against potential lawsuits were actually tests that were medically indicated and would assist in providing the best care for the patient. That is, most medicine that has been labeled as defensive medicine is simply appropriate health care. Considering this, very little could be saved by clamping down on defensive medicine.

This study supposedly does show that almost 3 percent of care was completely defensive, not an insignificant amount. But think about this. What test would a physician ever order that had a 100 percent chance that the result would provide absolutely no benefit in management of the patient? If such a test were omitted then there is no possibility of a lawsuit for having failed to obtain that test. Low yield tests may be considered to be defensive, but as long as there is a real possibility that the results could change the patient’s outcome favorably, then clinical judgement should be used to determine if the test should be ordered. If the test cannot possibly change the outcome – a no yield test – then that test should not be ordered. But that has to be a very rare occurrence, far less than the 3 percent reported in this study.

What about excessive jury awards, which are coupled with attorney “greed”? Awards that compensate for specific losses such as medical bills and loss of income are not excessive; they are simply compensating losses. General damages, often considered pain and suffering awards, along with punitive damages, are where juries may be particularly generous with rewards. However, even there judges tend to reduce the awards to levels that most people would consider appropriate.

The award for general damages – non-economic damages – has received much attention, especially from conservatives, since placing a cap on such awards seems to be a simple way of limiting “outrageous” awards. Indirectly it would also limit payments to “greedy” attorneys since their fees usually come out of this portion of the award. It has been suggested that general damages should be limited to $250,000 as in California, though California now has a ballot measure to increase the cap to $1,000,000 and index it for inflation. The problem is that this does nothing to correct the fundamental structural deficiencies in our system of compensating for medical injury – a system that fails most individuals experiencing medical injury. Instead of fine tuning our system, we should be replacing it with a system that works.

One more very important point. Why does the United States have such a great problem with medical malpractice lawsuits when most other nations that have universal systems and much lower health care costs have much less of a problem? Think about that. In other nations everyone receives health care. They do not have intrusive intermediaries who tell you where you can go or what care you can have. They do not expose you to financial hardship simply because you have a medical need. Our dysfunctional system breeds animosity which is a setup for litigation. Their systems are egalitarian – health care is a given. Why would they want to sue their doctor?

Under a single payer national health program physicians are free to obtain the most appropriate care for their patients. An egalitarian, high-performance health care system would do more than anything else to reduce the scourge of medical malpractice lawsuits.

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Outrageous out-of-network billings

Posted by on Monday, Sep 22, 2014

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.

After Surgery, Surprise $117,000 Medical Bill From Doctor He Didn’t Know

By Elisabeth Rosenthal
The New York Times, September 20, 2014

Before his three-hour neck surgery for herniated disks in December, Peter Drier, 37, signed a pile of consent forms. A bank technology manager who had researched his insurance coverage, Mr. Drier was prepared when the bills started arriving: $56,000 from Lenox Hill Hospital in Manhattan, $4,300 from the anesthesiologist and even $133,000 from his orthopedist, who he knew would accept a fraction of that fee.

He was blindsided, though, by a bill of about $117,000 from an “assistant surgeon,” a Queens-based neurosurgeon whom Mr. Drier did not recall meeting.

In Mr. Drier’s case, the primary surgeon, Dr. Nathaniel L. Tindel, had said he would accept a negotiated fee determined through Mr. Drier’s insurance company, which ended up being about $6,200. (Mr. Drier had to pay $3,000 of that to meet his deductible.) But the assistant, Dr. Harrison T. Mu, was out of network and sent the $117,000 bill.

When Mr. Drier complained to his insurer, Anthem Blue Cross Blue Shield, that he should not have to pay the out-of-network assistant surgeon, Anthem agreed it was not his responsibility. Instead, the company cut a check to Dr. Mu for $116,862, the full amount.

For months, Mr. Drier stewed over what to do with the $117,000 check Anthem Blue Cross had sent him to pass on to Dr. Mu, refusing to sign over a payment he considered “outrageous and immoral.”

Mr. Drier tried to negotiate with the surgeons to divvy up the $117,000 payment in a way he believed was more fair; he liked Dr. Tindel and felt he was being underpaid. Mr. Drier’s idea, he wrote in an email, was to settle on “a reasonable fee for both the surgeon and assistant and return the rest of the check to the insurance company/employees” of his company.

But in July, he received a threatening letter from Dr. Mu’s lawyer noting that he had failed to forward the $117,000 check. So he sent it along, with regret.

If the surgery had been for a Medicare patient, the assistant would have been permitted to bill only 16 percent of the primary surgeon’s fee. With current Medicare rates, that would have been about $800, less than 1 percent of what Dr. Mu was paid.

In recent years, unexpected out-of-network charges have become the top complaint to the New York State agency that regulates insurance companies.…

Although this is an outrageous example of the perversities of private insurers using provider networks to manipulate health care spending, it nevertheless helps us understand why we should reject the private insurers and their patient-unfriendly, investor- or board-pleasing business tools of health care.

Depending on which state regulations, which insurer, and which specific insurance plan, this out-of-network billing for Mr. Drier’s assistant surgeon could have had different outcomes. The worst is that he could have been responsible for the entire $117,000 fee and that it would not have applied to his deductible nor to his maximum out-of-pocket benefit cap. In this case, Mr. Drier did not experience a major financial loss, but those who pay insurance premiums will have to pay more when considering the cumulative effect of all such benefit overpayments.

It just doesn’t seem right when you try to buy the best insurance that you can afford, and the insurers then tell you which physicians and hospitals you can use if you want full coverage. Plus they frequently expose you to high out-of-pocket costs – costs that you would think insurance should cover – when you end up under the care of an out-of-network provider, often through no fault of your own as in this instance with Mr. Drier.

Had the procedure been provided under Medicare, the assistant surgeon’s fee would have been determined automatically, and at a fraction of the billed price. An improved Medicare for all not only would have set the fee at a fair level, it also would not have had network issues to deal with since the entire health care system would be one single “network” (integrated systems such as Kaiser Permanente merely being additional providers of one’s personal choice within the universal health care delivery system).

The full New York Times article by Elisabeth Rosenthal describes many other instances of surprises and misunderstandings that stem from the complexities of various plans and their networks – surprises that would not occur in a well designed, single payer national health program. Under single payer, you get the health care that you need, wherever it’s needed, and it’s simply paid for by our own public insurer.

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Fortune 500 companies shift more costs to employees

Posted by on Friday, Sep 19, 2014

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.

Survey: Fortune 500 employees can expect to pay more for health insurance

By Peggy Binette
University of South Carolina, September 18, 2014

Employees working for Fortune 500 companies can expect to pay higher employee contributions for their health insurance, according to a survey of chief human resource officers about the impact of the Patient Protection and Affordable Care Act (also known as PPACA or Obamacare) conducted by the Darla Moore School of Business at the University of South Carolina this past May/June.

Patrick Wright, a professor in strategic human resource management, directs the annual the HR@Moore Survey of Chief HR Officers.

Key findings from the survey include:

• 78 percent report a rise in health insurance costs (average of 7.73 percent);
• 73 percent report having moved or will move employees to Consumer Directed Health Plans;
• 71 percent report raising or plans to raise employee contributions to health insurance;
• 30 percent report moving or plans to move pre-65 retirees to ACA health exchanges;
• 27 percent report cutting back health insurance coverage eligibility;
• 24 percent report ensuring that part-time employees work less than 30 hours weekly to avoid penalty;
• 12 percent report increasing or plan to increase part-time workers; and
• 10 percent report limiting or plan to limit the full-time employee hires.

87 percent of chief HR officers reported taking or planning to take last least one action to reduce costs. And, most of those actions are being shouldered by employees.

The most common strategy is moving employees into Consumer Directed Health Plans. CDHPs provide employees with a set amount of money for regular (not catastrophic) healthcare that they manage, which shifts responsibility from employer to worker. Firms also are defraying the rising cost of health insurance to employees by raising the premiums they pay for their health insurance and limiting dependent coverage.

PPACA requires employers to provide health insurance to employees who work 30 hours or more weekly. While small businesses are more likely to hire part-time workers, Wright says, larger firms are enforcing the cap to avoid increased costs.

One CHRO told Wright “When we put the limit at 30 hours, we frequently had people that worked 32-34 hours, and if enough of them did so, it would put us at legal risk for fines. Therefore we now limit workers to 27 hours to ensure that we minimize the number that might exceed 30 hours.”

The recent U.S. jobs report in June reported an increase of 799,000 part-time jobs compared to an increase of 288,000 full-time jobs, which may reflect the employment strategies being reported in the HR@Moore survey.

Wright says what continues to be unclear is whether the quality of employee healthcare has improved or suffered as a result of Obamacare.…

This academic survey of human resource officers at Fortune 500 companies shows that they plan to address rising costs of their health benefit programs by increasing the financial burden on their employees. Check the key findings from the survey listed above. Each one is bad news for the employees.

The most important reason given for choosing the model of reform that became the Affordable Care Act (ACA) was that the majority of Americans were receiving their health care coverage through their employment, and that these plans provided the best coverage available. The best of the best were the plans offered by the very large employers – the Fortune 500 companies.

So what is their response? As if there were not enough problems already with excess deductibles, narrower provider networks, tiering of health care services and drugs, limiting dependent coverage, and other innovations that impair access and reduce costs, in the face of ever more increasing costs the employers are now raising employee contributions to the plans, shifting to consumer directed plans that place a greater financial burden on the employees, reducing eligibility for their employees, shifting retirees out of their plans, reducing hours for part-time employees in order to avoid ACA penalties, and limiting full-time employee hires while increasing part-time workers. And this is the best of the best!

The diagnosis is obvious. ACA was the wrong model for reform. We need a single payer national health program. Delaying that change will only cause the deficiencies to get worse, especially when we leave the private insurers in charge. It’s too bad that the Fortune 500 executives don’t have a little more empathy for their employees. After all, it’s their employees who have been responsible for the increases in productivity – the gains of which the executives are scooping off the top.

If empathy doesn’t cut it, the executives need to be reminded of Nick Hanauer’s “The Pitchforks Are Coming … For Us Plutocrats”:…

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Is health care consolidation for efficiency, or for market control? Check our prices

Posted by on Thursday, Sep 18, 2014

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.

F.T.C. Wary of Mergers by Hospitals

By Robert Pear
The New York Times, September 17, 2014

As hospitals merge and buy up physician practices, creating new behemoths, one federal agency is raising a lonely but powerful voice, suggesting that consumers may be victimized by the trend toward consolidation.

Hospitals often say they acquire other hospitals and physician groups so they can coordinate care, in keeping with the goals of the Affordable Care Act. But the agency, the Federal Trade Commission, says that mergers tend to reduce competition, and that doctors and hospitals can usually achieve the benefits of coordinated care without a full merger.

The commission is using a 100-year-old law, the Clayton Antitrust Act of 1914, to challenge some of the mergers and acquisitions, and it has had remarkable success in recent cases.

“Hospitals that face less competition charge substantially higher prices,” said Martin S. Gaynor, director of the F.T.C.’s bureau of economics, adding that the price increases could be “as high as 40 percent to 50 percent.”

Doctors and hospitals say they must collaborate to survive and thrive under the Affordable Care Act.

But Deborah L. Feinstein, director of the bureau of competition at the Federal Trade Commission, said the health care law did not repeal the antitrust laws.

Often, Ms. Feinstein said, when hospitals and doctors join forces, their goal is not just to control costs or improve care, but to “get increased leverage” in negotiations with health insurance companies and employers.

“They say they need better rates so they will have more money to invest in their facilities,” Ms. Feinstein said. “When you strip that down, it’s basically just saying, ‘We want a price increase.’ Even if the price increase is motivated by a desire to invest more in the business, that’s problematic. That incentive to invest may not be there if you don’t have competition as a spur to innovation — if you’re not worried about losing business to the hospital down the street.”

The F.T.C. has long argued that mergers can cause higher prices by reducing competition among hospitals in the same market. New research suggests that another dynamic, rarely considered by antitrust officials, can also lead to significant price increases.

The research shows that hospitals gain bargaining power when they are acquired and become part of a big hospital system that has no other presence in the local market.

“Acquisitions of hospitals by large national chains such as Hospital Corporation of America, Ascension Health or Tenet Healthcare may not increase hospital concentration in the affected local markets, but could nevertheless generate higher prices,” said Matthew S. Lewis, an associate professor of economics at Clemson University.…

Integrating health care delivery services with the goal of improving the quality and price efficiency of health care services for the community at large is an admirable goal of the Affordable Care Act (ACA). The merger mania taking place is being marketed as a means of achieving that integration. Yet the monkey wrench in the model is the supposed dependency on market competition instead of government oversight as a means of providing higher quality at a lower cost.

Yet merging health care services with the claim that quality improves as costs go down is proving to be a fraud. For the last century we have had to enforce antitrust laws and regulations simply because market consolidation results in oligopolistic control and higher prices instead. We are now seeing this throughout our health care system as providers recognize the business opportunities of greater clout in rate negotiations made possible by anti-competitive consolidation. The FTC has challenged less than one percent of these deals, indicating the conflict within our government of supporting implementation of ACA as opposed to protecting the public from unfair antitrust activities.

The flaw is to be found in the ACA model of reform. Excessive power has been granted to private insurance intermediaries that negotiate in the private sector with the providers. The tool they cite repeatedly is competition. Yet not only do we have the seminal work of Nobel laureate Kenneth Arrow, we also have decades of experience that confirms that this fiction of a market has brought us an outrageously expensive system with only mediocre outcomes on average.

All other wealthy nations cover everyone at an average cost of half of what we spend per person. Their success is based on the role of relatively rigorous government regulation or direct management. Even if the FTC stepped up its antitrust functions, our private insurers would continue to use a wide variety of business practices that advance their own interests at our cost. The vested interests in the privately owned sectors of the health care delivery system would also continue to position themselves favorably.

If we had a single payer national health program with a not-for-profit health care delivery system, our stewards would be left with the task of trying to get the system to work best for the benefit of patients – all patients. Would that be so terrible?

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The nefarious plot of generic drug tiers

Posted by on Wednesday, Sep 17, 2014

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.

Is All “Skin in the Game” Fair Game? The Problem With “Non-Preferred” Generics

By Gerry Oster, PhD, and A. Mark Fendrick, MD, September 17, 2014

The new blockbuster drug sofosbuvir (Sovaldi) is offering hope to many patients with hepatitis C, but treatment is expensive and many insurers are demanding that patients shoulder a large portion of the cost. The demand that patients pay a larger share of their drug costs, however, is not limited to expensive new medicines. In fact, many patients are now facing substantially higher co-pays for various generic drugs that their insurers have designated “non-preferred,” often including those recommended as first-line treatment in evidence-based guidelines for hypertension, diabetes, epilepsy, schizophrenia, migraine headache, osteoporosis, Parkinson’s disease, and human immunodeficiency virus (HIV). We are concerned about this relatively recent development.

For many years, most insurers had formularies that consisted of only 3 tiers: Tier 1 was for generic drugs (lowest co-pay), Tier 2 was for branded drugs that were designated “preferred” (higher co- pay), and Tier 3 was for “nonpreferred” branded drugs (highest co-pay). Generic drugs were automatically placed in Tier 1, thereby ensuring that patients had access to medically appropriate therapies at the lowest possible cost. In these 3-tier plans, all generic drugs were de facto “preferred.” Now, however, a number of insurers have split their all-generics tier into a bottom tier consisting of “preferred” generics, and a second tier consisting of “non-preferred” generics, paralleling the similar split that one typically finds with branded products. Co-pays for generic drugs in the “non-preferred” tier are characteristically much higher than those for drugs in the first tier.

To better understand coverage policies in plans with 2 tiers for generic drugs, we identified several such offerings, including both commercial plans and those under the Medicare Part D program, via an informal search of the Internet. For 6 such plans, we examined coverage policies for 10 widely used drugs—all generically available—that are recommended as first-line treatment in current evidence-based guidelines.

While 2 of the plans provide access on a “preferred” basis to all of the medicines we considered, 1 or more of the drugs are “non-preferred” in all of the remaining plans. Metformin, for example, is a “non-preferred” drug in 1 plan, despite being a first-line treatment for type 2 diabetes mellitus. Two plans have no “preferred” generic anticonvulsant drugs; 3 plans have no “preferred” generic antipsychotic medicines; levodopa is designated a “non-preferred” agent in 3 plans; 4 plans have no “preferred” generic triptans (for migraine headache); and all generic antiretrovirals are Tier 2 agents in 4 plans. When there are no “preferred” generics from which clinicians and patients with particular diseases can choose, it may be argued that the diseases themselves effectively are “non-preferred.”

It is sometimes argued that patients should have “skin in the game” to motivate them to become more prudent consumers. One must ask, however, what sort of consumer behavior is encouraged when all generic medicines for particular diseases are “non-preferred” and subject to higher co-pays. The answer is informed, we believe, by a 2007 JAMA study of cost sharing by researchers at RAND, which was based on a review of 132 published studies. The authors report that “(i)ncreased cost sharing is associated with lower rates of drug treatment, worse adherence among existing users, and more frequent discontinuation of therapy” and that “for certain conditions, the evidence clearly indicates that more cost sharing is associated with increased use of other medical services, such as hospitalizations and emergency department visits.

When insurers designate clinically important generic medicines “nonpreferred” and there are no therapeutically equivalent “preferred” alternatives from which to choose, it cannot be argued that patients are thereby motivated to become more prudent consumers. The existence of clinically sound therapeutic choices is a precondition for any meaningful effort intended to make patients put “skin in the game.” Without choice, such policies are simply punitive and run counter to established principles of formulary design and management.…

Charles Ornstein of ProPublica provides an excellent discussion of this in today’s New York Times:…

Why are the insurers establishing tiers of generic drugs with different levels of cost sharing? Cost sharing does shift some of the responsibility of paying for care from the insurer to the patient, but this goes far beyond that.

Establishing tiers of drugs with different levels of cost sharing originally was to encourage patients to select generic drugs which were much less expensive for the insurer to cover. Unfortunately, with our let-the-market-work policies, drugs are being priced in the stratosphere. Even generics have seen skyrocketing price increases. You might think that this is why the private insurers have decided to place generics in tiers, but you would be missing their nefarious strategy.

What we are seeing is the placement of generic drugs used to treat serious chronic diseases into the non-preferred tier which then exposes the patient to greater cost sharing. The shopping behavior that the insurer is encouraging is to have patients with chronic disorders leave their plans and enroll in their competitors’ plans instead. Thus the tier of non-preferred generic drugs has been established to chase away patients who have “non-preferred” chronic diseases – non-preferred by the insurer, that is.

This really does demonstrate how much more evil the private insurers have become. They will continue to find new ways to swindle us. What is insane is that we continue to tolerate them when we know that there is a far better solution – a single payer national health program. Why is the nation not outrage?

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Dartmouth studies sending us in the wrong direction?

Posted by on Tuesday, Sep 16, 2014

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 the Geographic Variation in Health Care Spending Can’t Tell Us Much about the Efficiency or Quality of our Health Care System

By Louise Sheiner
Brookings Institution, September 2014


This paper examines the geographic variation in Medicare and non-Medicare health spending and finds little support for the view that most of the variation is likely attributable to differences in practice styles. Instead, I find that socioeconomic factors that affect the need for medical care, as well as interactions between the Medicare system and other parts of the health system, can account, in an econometric sense, for most of the variation in Medicare health spending.

The paper also explores the econometric differences between controlling for health attributes at the state level (the method used in this paper) and controlling for them at the individual level (the approach used by the Dartmouth group.) I show that a state-level approach can explain more of the state-level variation associated with omitted health attributes than the individual-level approach, and argue that this econometric difference likely explains much of the difference between my results and those of the Dartmouth group.

More broadly, the paper shows that the geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high are very different in multiple dimensions from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. I show, for example, that previous findings about the relationships between health spending, the share of physicians who are general practitioners, and quality, are likely the result of omitted factors rather than the result of causal relationships.

I. Introduction

It is well known that Medicare spending per beneficiary varies widely across geographic areas. The conventional wisdom from the leaders in this research area, the Dartmouth group, is that little of this variation is accounted for by variation in income, prices, demographics, and health status, and, instead, most of the variation represents differences in “practice styles.” Further, the Dartmouth research suggests that the additional health spending of the high-spending areas does not improve the quality of health care, and, indeed, might even diminish it.

One of the implications of the Dartmouth work is that health care spending can be reduced without significant effects on health outcomes. For example, Sutherland, Fisher, and Skinner (2009) argue “Evidence regarding regional variations in spending and growth points to a more hopeful alternative: we should be able to reorganize and improve care to eliminate wasteful and unnecessary service.” This view was promoted by the Obama Administration as part of the effort to reform health care. In a Wall Street Journal op-ed, then OMB-director Peter Orszag, referring to the Dartmouth work, noted “If we can move our nation toward the proven and successful practices adopted by lower-cost areas and hospitals, some economists believe health-care costs could be reduced by 30% — or about $700 billion a year — without compromising the quality of care.

The Dartmouth group has also argued that this geographic variation holds the key to reducing excess cost growth in health care. According to Fisher, Bynum, and Skinner (2009), “By learning from regions that have attained sustainable growth rates and building on successful models of delivery-system and payment system reform, we might… manage to “bend the cost curve.” ……. Reducing annual growth in per capita spending from 3.5% (the national average) to 2.4% (the rate in San Francisco) would leave Medicare with a healthy estimated balance of $758 billion, a cumulative savings of $1.42 trillion.”

In this paper, I reexamine the geographic variation in health spending at the state level and find little support for the Dartmouth views. I find that most of the geographic variation in Medicare spending is explainable, at least in an econometric sense, by differences in socioeconomic factors that affect the need for medical care and the resources available in the nonelderly population to finance it. Although it is not possible to rule out the Dartmouth view that the differences in spending reflect differences in practice styles, I show that there are other explanations for the variation in spending that seem to be better supported by the data. Furthermore, I show that the relationships between health spending (both Medicare and non-Medicare), physician composition, and quality are likely the result of omitted factors rather than the result of causal relationships.

More broadly, the paper shows that the geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high are very different from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. Insights into the relationship between health spending and outcomes are more likely to be provided by natural experiments such as that analyzed by Doyle (2007), who showed that among visitors to Florida who had heart attacks, outcomes were better at hospitals with higher spending, the true experiment run in Oregon in which a group of uninsured low-income adults was selected by lottery to be given the chance to apply for Medicaid (Finkelstein et al, 2011), or the recent paper by Finkelstein et al which focuses on Medicare beneficiaries who move (Finkelstein, 2013).

It is important to note at the outset that nothing in this paper suggests that improvements in our health system are unattainable. Rather, the paper suggests that comparisons of spending between high cost states and low costs states are unlikely to provide a measure of how much we can hope to gain by efforts to improve health system efficiency.

The paper is organized as follows. I first give a brief overview of the literature on geographic variation. Then I present the basic results from the Medicare regressions, and show that the cross-state variation in average Medicare spending is well explained by differences in population characteristics across states. I compare my results to those of the Dartmouth group and suggest a number of reasons why my results differ. I show that, econometrically, there is a difference between controlling for attributes at the individual level (the Dartmouth approach) and controlling for them at the state level (the approach used here), and that this difference is likely to be empirically important when it comes to health care. I argue that my state-level approach better controls for the variation in health and other socioeconomic variables that affect health demand. In addition, to the extent that there are area differences in practice styles, I show that these too likely reflect systemic differences across states, and thus would likely be difficult to alter.

I then explore the relationships between Medicare and non-Medicare spending across the states, and show that the two appear to be somewhat negatively correlated. This correlation is quite important in thinking about the relationship between provider workforce characteristics, quality, and health spending. In particular, I show that taking into consideration some of the demographics and health insurance variables by state changes the conclusions one gets from previous studies. Finally, I show that the growth rates of Medicare spending are negatively related to the level of health spending—that is, low spending states tend to have higher growth rates than high-spending states. The conclusion assesses the implications of this work for Medicare policy.

VIII. Conclusions

The evidence presented in this paper shows that most of the variation in Medicare spending across states is attributable to factors that affect health and health behaviors, rather than to random variation in practice styles. Isolating the exact channels through which differences in health affect Medicare spending is difficult, however, because both the need for health spending and provider practice styles will likely be affected by variations in population health and variables that are correlated with it.

But the paper has several findings that suggest that the variation in Medicare spending does not represent wasteful spending that could be easily eliminated without significant effects on the health system. First, population characteristics have more explanatory power for Medicare spending than measures of social capital, indicating that the variation in patient characteristics is more important than variation in provider characteristics. Second, health measures are significantly more correlated at the state level than at the individual level, making it likely that state level regressions do a better job of controlling for unobserved variation in population health. Third, there does not seem to be a significant relationship between the use of “preference- sensitive procedures” and the level Medicare spending. Fourth, states with high levels of Medicare spending tend to have lower levels of non-Medicare spending. Providers in these states may face greater financial difficulties, and may “volume shift” to Medicare patients in order to cover costs.

The paper also shows that conclusions about the relationships between health spending, physician composition, and quality are sensitive to the inclusion of variables like the share of the population uninsured, black, or diabetic. What this sensitivity demonstrates is the difficulty of using the geographic variation in spending for hypothesis testing. It is not surprising that states in the South spend more on Medicare and have worse outcomes. These states perform significantly worse in numerous areas, including high school graduation rates, test scores, unemployment, violent crime, and teenage pregnancy. There are many ways that such differences can affect health utilization and outcomes, including differences in underlying health, social supports and social stressors, patient self-care and advocacy, ease of access to services, capabilities of hospital and physician nurses and technicians, and cultural differences in attitudes toward care. A comparison of health spending in Mississippi with health spending in Minnesota is not likely to provide a useful metric of the “inefficiencies” of the health system in isolation; rather, the difference in spending likely mirrors broader societal problems unrelated to the health system per se.

Finally, the evidence also suggests that low-cost states are not low-growth states. Thus, the geographic variation in Medicare spending is probably not the key to finding ways to slow spending growth while continuing to improve quality over time.…

Did this paper really say what it seems like it said? Wow! It is important because it seems to be a highly credible challenge to the principle that much of the waste in health care spending is due to variation in practice styles, as allegedly demonstrated by the Dartmouth group.

According to this Brookings paper by Louise Sheiner, “The evidence presented in this paper shows that most of the variation in Medicare spending across states is attributable to factors that affect health and health behaviors, rather than to random variation in practice styles.” Further, “But the paper has several findings that suggest that the variation in Medicare spending does not represent wasteful spending that could be easily eliminated without significant effects on the health system.”

Double wow! This suggests that the efforts of reducing waste through accountable care organizations (ACO) that are designed based on the Dartmouth studies of waste are mostly for naught. It also explains why to date the experiments with ACO models have had very little impact on either efficiency or quality.

Of particular concern is the finding that areas in the South with high Medicare spending have worse outcomes, and they also “perform significantly worse in numerous areas, including high school graduation rates, test scores, unemployment, violent crime, and teenage pregnancy.” You cannot help but think that more resources need to be directed toward these societal ills. It is not just health care that needs our attention.

For us, the important take-home point of this paper is that we should turn our attention away from puff programs such as ACOs that hold little promise of delivering on higher quality and lower costs, and turn instead to policies that have been proven in other nations to be effective. Of course we’re referring to a single payer national health program. We already know that it works.

Private insurers using “virtual credit cards” to loot physician payments

Posted by on Monday, Sep 15, 2014

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.

Footing bill for insurers’ pay methods shouldn’t fall on doctors

AMA Wire, September 12, 2014

An increasingly common payment method among health insurers offers these companies significant financial rewards while sticking physicians with all the associated fees and extra work. But physicians are fighting back as the AMA and other health care associations take the issue to the federal government.

Many insurers are choosing to use virtual credit cards for claims payments to physicians, instead of sending paper checks or paying via the electronic funds transfer (EFT) standard transaction. When paying via virtual credit card, insurers send single-use credit card payment information and instructions to physicians via mail, fax or email. The physician’s office staff then processes the payment as they would a patient’s credit card.

For each of these payments, physicians are charged fees that typically amount to 3-5 percent of the total payment, the AMA explained in recent testimony (log in) to the National Committee on Vital and Health Statistics, an advisory board to the secretary of the U.S. Department of Health and Human Services (HHS).

That adds up. If a physician contractually is owed $5,000, for instance, he or she could have to shell out up to $250 in fees.

In a letter (log in) sent last week to HHS Secretary Sylvia Burwell, the AMA and three other leading organizations called on the agency to prohibit insurers from forcing physicians to accept this payment method.…


Letter , August 25, 2014

To:  The Honorable Sylvia Mathews Burwell, Secretary, Department of Health and Human Services

We, the undersigned organizations, are writing to you to convey our views and recommendations in response to recommendations made to you by the National Committee on Vital and Health Statistics (NCVHS) on May 15, 2014.

At issue is a type of non-standard electronic funds transfer (EFT) transaction known as a “virtual card” payment. In a virtual card payment, a health plan or its vendor sends a single-use credit card number to a provider by mail, fax or email. This is known as a virtual card because a physical card is never created or presented to the provider. The provider must then manually enter the virtual card number into its Point-of-Sale (POS) processing terminal, and the card processing network provides an authorization for the payment. The provider then receives funds in the same way as for other card payments – via an Automated Clearing House (ACH) funds transfer from the POS merchant acquiring vendor to the provider’s bank account. For these virtual card payment authorizations, providers pay interchange fees of approximately 3 percent of the value of the payment (though anecdotally some providers have reported paying as much as 5 percent). Providers are unexpectedly losing income through these card fees, which essentially reduce the contracted fee rate that has been negotiated with the health plan for a particular service or services. Many providers are understandably opposed to incurring these fees, especially when they did not choose to use this payment method and when they are faced with a manual, burdensome opt-out process that further delays payment. In many cases, decision- makers in the provider’s office only become aware of the incurred fees after receiving monthly statements from credit card merchants, as the virtual cards are processed by billing office staff without any strategic decision in the practice to accept this form of payment.

American Hospital Association (AHA)
American Medical Association (AMA)
Medical Group Management Association (MGMA)
NACHA, The Electronic Payments Association

(Requires login):…

It’s in their blood. Private insurers will always find a way to cheat others under the guise of good business practices. Now private insurers are using the scam of “virtual credit cards” in order to keep 3 to 5 percent of agreed upon payments made to physicians under their network contracts, while loading more administrative work onto the backs of the physicians’ staff members.

Thieves. That’s all they are. Thieves.


Some readers commented that the insurers do not receive the transaction fees.

It is true that the insurers do not get the full 3-5% processing fee, but, like reward credit cards, the insurers receive a rebate of up to 1.75% cash.

Private insurers are infamous for their administrative waste. With these virtual credit cards, the insurers are dumping on the providers the administrative fees associated with these virtual cards, plus keeping the card rebates. So the insurers are costing the providers 3-5% even though they are pocketing only a portion. When you think about it, the insurers are receiving roughly a 35 percent return on the administrative investment made by the physicians, and that return is being paid by the physicians. It’s not even the insurers’ own money!

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