by John Geyman, M.D.

You might think that we learned the lesson of discredited managed care in the 1990s. The term “managed care” is confusing to many, but really amounts to managed reimbursement rather than managed care, whereby a set prospective annual payment is made by federal/state governments, as in the case of Medicaid managed care (MMC), to cover whatever services patients will receive over the coming year. There is therefore a built-in incentive for managed care organizations to skimp on care and pocket more profits. Predictably, by the end of the 1990s, there was widespread discontent across the country over denial of services by for-profit managed care organizations.

Today, this same problem is back in the form of privatized Medicaid managed care, facilitated further by the Affordable Care Act (ACA). More than one-half of Medicaid beneficiaries are now in privatized plans, which have been catching on in many states based on the unproven theory that private plans can enable access to better coordinated care and still save money. That theory is not just unproven, it is patently wrong. Privatized programs have high administrative costs, built-in profits, and do not save money or improve care. Their route to financial success is by finding more ways to limit care and deny services.

It is undeniable, of course, that millions of people have been helped by becoming newly insured, either through the exchanges or expanded Medicaid. In fact, a recent study by the Urban Institute found that the uninsured rate among adults between age 18 and 64 fell from 17.8 percent to 12.8 percent between December 2013 and December 2014. (1) But even as the Obama administration touts the ACA as a great success, with up to 16 million newly insured under the program, the Medicaid story isn’t as positive as it might appear.

For Medicaid overall, the federal government pays an average of 57 percent of the total costs of the program borne by the states. For states that expanded Medicaid under the ACA, federal funding has covered the costs of expansion at the 100 percent level for the first three years, then phasing down to 90 percent by 2020. Twenty-two states, mostly in the South under Republican leadership, rejected Medicaid expansion money. But many states, including those in the South, still welcome federal money for Medicaid, which they then often outsource to private insurers under MMC, with the supposed goal to be more efficient and save money.

These are some of the less publicized downsides of how the ACA actually works within privatized Medicaid programs:

• There were 267 mostly for-profit MMC organizations across the country in 2014; an Urban Institute study of nonelderly non-SSI adults (those not on Social Security incomes for disabilities) recently found that the higher the MMC penetration in counties, the more likely patients were to have an emergency department visit, the more difficult it was for them to see a specialist, and the higher the unmet need of getting prescription drugs; for nonelderly SSI adults, there was no evidence for improved access, use of services, or cost savings. (2)

•  According to a 2015 study by HealthPocket, only one-third of health care providers are accepting Medicaid patients; typical Medicaid reimbursement is only 61 percent of what Medicare pays for the same service. The ACA made a temporary attempt to increase reimbursement for primary care, but that has had little impact on access to primary care. (3)

• A recent study by the Commonwealth Fund found that more than 40 percent of residents in Texas and Florida reported not going tot he doctor when they were sick, fill a prescription, see a needed specialist, or skipped a recommended test or treatment in the previous year; the same proportion said they could not afford to pay a medical bill, had been contacted by a collection agency, or had medical debt requiring a change in their way of life. The authors of that study conclude that state decisions about not expanding Medicaid may actually be widening health care disparities in the United States. (4)

•  Subcontracting of Medicaid coverage has almost doubled Medicaid’s administrative overhead, increasing from 5.1 percent of total Medicaid expenditures in 1980 to 9.2 percent today. (5)

•  Some states have received federal waivers to impose premiums and/or copays to Medicaid patients; this cost-sharing has been shown to result in disenrollment and decreased access to care. (6)

•  Tennessee Medicaid plans, operated by BlueCross BlueShield of Tennessee, UnitedHealthcare, and Anthem, are a poster child for the inadequacies of MMC plans, with inadequate physician networks, long waits for care, and denials of many treatments, even as the insurers pocket new profits (7)

•  There are about 5 million people falling into the “Medicaid coverage gap” in the states that opted out of Medicaid expansion; theyhave incomes below the federal poverty level (FPL) but above Medicaid eligibility levels. (8)

•  Most non-expanding states require parents to earn less than the FPL to be eligible for Medicaid. (9)

Given all of the above problems, why do we still worship at the altar of privatization in U. S. health care, especially for the poor and most vulnerable among us? The answers are obvious, interrelated and disappointing after our experience with managed care in the 1990s. These stand out: (1) there is a lot of money to be made by insurers operating health programs subsidized by the government; (2) exploitive privatized programs are perpetuated by well-funded “free market” think tanks, their followers in Big Business, and compliant politicians responding to industry lobbyists; (3) regulations are inadequate to prevent gaming by insurers at patients’ expense; and (4) as a society, we still don’t seem to care when people have bad health outcomes and die because of failed health care policies. Yogi Berra would call this state of affairs “deja vu all over again.”

We are told that government regulators will soon initiate the biggest overhaul of Medicaid managed care rules in more than 10 years, intended to limit profits and set more rigorous requirements for quality of care and physician networks. The MMC industry lobby group, Medicaid Health Plans of America, will fight against such rules, of course, as “terrible policy”. (10) But given our track record, the power and influence of the insurance industry, don’t hold your breath. As long as health care remains so lucrative for private insurers, patients’ needs and the public interest don’t carry much weight.

It doesn’t have to be this way, as noted in earlier postings and my current book, How Obamacare Is Unsustainable, Why We Need a Single-Payer Solution for All Americans. (11) Not-for-profit single-payer financing of a one-tier system of universal coverage, based on medical need, not ability to pay, would resolve these persistent problems of failed market policies.

1. Andrews, M. Medicaid expansion helps to cut rate of older, uninsured adults from 12 to 8 percent. Kaiser Health News, May 22, 2015.

2. Tavernise, S, Gebeloff, R. Millions of poor are left uncovered by health law. New York Times, October 2, 2013.

3. Glied, S, Ma, S. How states stand to gain or lose by opting in or out of the Medicaid expansion. Commonwealth Fund, December 2013.

4. Caswell, KJ, Long, SK, The expanding role of managed care in the Medicaid program. Inquiry, April 16, 2015.

5. Coleman, K. Medicaid acceptance by healthcare providers drops to 1-out-of-3. HealthPocket, February 26, 2015.

6. Levey, N, Four largest states have sharp disparities in access to health care. Los Angeles Times, April 10, 2015.

7. Himmelstein, DU, Woolhandler, S. The post-launch problem: the Affordable Care Act’s persistently high administrative costs. Health Affairs Blog, May 27, 2015.

8. Dickson, V. Medicaid cost-sharing could reduce enrollment, experts warn. Modern Healthcare, September 16, 2014.

9. Hancock, J. Medicaid’s tension: getting corporate giants to do right by the needy. Kaiser Health News, April 28, 2015.

10. Ibid # 9.

11. Geyman, JP. How Obamacare Is Unsustainable: Why We Need a Single Payer Solution for All Americans. Friday Harbor, WA. Copernicus Healthcare. 2015.

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Deductibles do not foster price shopping

Posted by on Monday, Jun 15, 2015

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.

Health care cost-sharing prompts consumers to make big cuts in medical spending

By Ben Handel
The Conversation, June 15, 2015

Is that surgery really worth it? Do I really value that cancer screening? Is that extra imaging service necessary?

These are the kinds of questions consumers ask themselves when their insurance plans require higher cost-sharing for medical services. This is a new reality in the US health care system as large employers offering coverage have moved aggressively toward less generous, high-deductible insurance offerings.

This shift was accelerated by the “Cadillac Tax” provision contained in the Affordable Care Act (ACA), which, starting in 2018, places an excise tax on employers offering insurance plans that cover very high levels of medical spending. Further, many of the consumers enrolling in the public state exchanges created under the ACA have enrolled in lower- coverage financial plans that cover an average of 60% (bronze) or 70% (silver) of medical expenditures, similar to typical high-deductible coverage.

Though these policies are in part motivated by the government’s need to reduce its share of total health care spending, they are also driven by the expectation that they will lead consumers to use higher-value, lower-cost medical services.

In my recent research with Zarek Brot-Goldberg, Amitabh Chandra, and Jon Kolstad, we dug into the mechanisms for how and why consumers reduce medical spending when faced with higher cost-sharing.

To do this, we studied the medical claims and medical spending of more than 150,000 employees and dependents from one large firm that moved everyone from an insurance plan that provided completely free health care to a high-deductible plan covering 78% of medical spending on average.

During the switch, the in-network providers that consumers could access and the services covered remained the same. As a result, this switch presented an excellent opportunity to assess in detail how consumers respond to markedly increased cost-sharing.

Primarily, we wanted to know whether employees would reduce their medical spending as a result of the change and, if so, by how much. Further, we hoped to learn where specifically they’d cut back. Would they spend less on nonessential services or reduce spending across the board? Would they try to find cheaper sources of health care? Do some employees cut more than others? Do employees correctly perceive the true marginal price of care in a complex insurance contract?

Health care spending plunges

We first established that increased cost-sharing does reduce medical spending at the firm. Age- and inflation-adjusted medical spending dropped by 19% – from a base of approximately US$750 million in spending – when employees switched to high-deductible coverage.

Strikingly, many of the spending reductions come from the sickest employees. The sickest 25% (based on prior diagnoses each year) reduced spending by one-quarter after shifting coverage. This is especially notable, and somewhat surprising, since these employees earn relatively high incomes and their maximum out-of-pocket payment in high-deductible coverage for the calendar year was approximately $6,500 for a family.

How did consumers reduce spending? A detailed data analysis reveals that medical prices did not go down. Further, we show that consumers did not price-shop after the switch – that is, they did not move toward cheaper providers, for example, when they were going to undergo a specific procedure.

It turns out that all spending reductions were directly linked to quantity reductions: consumers just consumed less medical care.

Cuts across the board

Importantly, it didn’t seem like consumers were particularly choosy about what kind of health care they cut: consumers appeared to reduce consumption across a range of medical services, from low to high value.

For example, quantity reductions led to a 22% drop in spending on imaging services (such as MRIs or CT Scans), some of which are likely unnecessary. However, consumers also reduced how many preventive health services they used – which policymakers typically believe are underutilized – by 16%.

The cuts were across the board. Spending on mental health care fell 8%, inpatient and outpatient hospital services declined 14% and 17%, respectively, drug purchases dropped 20%, and emergency room services plunged 27%. Of the top 30 medical procedures (by revenue) that we investigated, we found that consumers reduced spending for 23 of them.

Simply put, consumers did not look for cheaper services but consumed less medical care, and did so across almost the entire range of medical services.

Insurance price misperceptions

One possible reason for why these sick, relatively high-income consumers reduced potentially valuable medical spending is that they perceived the marginal price of their medical care to be higher than it actually is.

Take the example of a consumer who knows he/she is quite sick entering the year and expects to spend a lot on health care. That consumer should not worry about the deductible and cost-sharing when making medical decisions early in the year because he/she knows that by the following January, all medical care used after passing the plan’s out-of-pocket limit will be free. Thus, the true marginal price of health care for this predictably sick consumer is close to $0, no matter how high the deductible is, so care consumed early in the year is essentially free as well.

But we found that these consumers substantially reduced spending early in the year when under the deductible, but once they passed it spent more. In other words, many consumers whose true marginal price for care throughout the year is essentially zero because of their impending high spending don’t treat incremental care as free when under the deductible. Instead, they respond as if the price of care under the deductible is the relevant price, despite the fact that they will spend that money during the year regardless.

This suggests that they misperceive their own health risks, misperceive how much medical care costs or don’t understand how the high-deductible insurance contract actually works. Similar consumer price misperceptions are also documented in Medicare Part D, electricity markets and broadband markets.

What this means for reform efforts

Giving consumers direct incentives to think about their health care spending is a cornerstone of health reform in the US and plays a large role in several national health systems around the world, such as in France.

An important prerequisite for these reforms to be successful is that consumers, who may or may not be making medical decisions in conjunction with physicians, understand the costs and benefits of different health care services. Our evidence suggests that consumers don’t seem to be responding to increased cost-sharing with nuanced expertise and instead reduce consumption across the range of medical services, some valuable and some likely wasteful.

Additionally, they reduce care heavily when sick and under the deductible, even when their true marginal price of care is very low.

Thus, while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.

As health reform pushes forward, policymakers will need to recognize the limits of consumer cost-sharing policies and focus more on how to appropriately incentivize providers to deliver high-value, low-cost care.

This article:…

“What Does a Deductible Do? The Impact of Cost-Sharing on Health Care Prices, Quantities, and Spending Dynamics” by Zarek Brot-Goldberg, Amitabh Chandra, Benjamin Handel and Jonathan Kolstad (43 slides):

A cursory glance at this article suggests that it is simply one more study that confirms that high deductible plans decrease health care spending, and since you already know that you might be tempted to pass on reading today’s message. But don’t skip this one if you wish to better understand just what impact high deductibles really do have.

What is unique about this study is that it evaluated the patterns of the change in health care spending when a large firm switched about 85 percent of its employees from a PPO plan that provided first dollar coverage (no deductibles, no coinsurance, and $0 out-of-pocket maximum) to a HDHP (high deductible health plan with $3,750 deductible, 10% coinsurance, and $6,250 out-of-pocket maximum). The health care providers were the same both before and after the change was made. This is about as pure of a study as you could devise on this topic – the same employees, the same health care providers, but with a change to a high deductible with coinsurance and a new patient responsibility for up to $6,250 in cost-sharing.

As expected, spending abruptly declined – by about 19%. So was this a result of better price shopping, as the advocates of these consumer-directed HDHPs tout? No. Medical prices did not go down after the switch was made. These health care consumers did not shop prices.

What went down was the quantity of health care provided. In fact, the sickest employees reduced their use of health care services even more – by about 25%. The reductions in utilization were across the board – inpatient services, outpatient services, emergency room services, mental health care, drug purchases, imaging, and preventive health services. Most of these are beneficial services.

Another interesting finding is that those individuals with significant disorders who knew that they would reach their maximum out-of-pocket spending nevertheless reduced their utilization of health care services while they were still under the deductible. They did not need to reduce their use of these services since after the out-of-pocket maximum is reached, their marginal cost of additional health care is essentially zero. Their net costs are the same regardless of their utilization. It is likely that these sick individuals were needlessly forgoing beneficial health care services.

The author states, “consumers appeared to reduce consumption across a range of medical services, from low to high value.” Clearly policies that reduce the consumption of high value care are undesirable, and, for this reason alone, deductibles and coinsurance should be eliminated. But what about low value care? What is low value care? Is that the MRI that, in retrospect, turned out to be normal? Wasn’t there some benefit in excluding potential pathology? Attempting to ferret out low value care can be detrimental if it consequentially results in the blunt elimination of high value care as well.

Besides, how much spending reduction would we really see with the reduction in beneficial health care services that results from deductibles? Remember that the 20 percent of individuals with greater health care needs consume 80 percent of our health care services. Most of this spending is well above the maximum out-of-pocket costs and thus cost-sharing has very little impact on this spending. The deductibles might influence utilization for the other 80 percent of us, but that would reduce spending by only a fraction of the 20 percent of health care that we use. Anyway, is the amount of health care used by us low-utilizers really an egregiously excessive amount of care? We usually have a legitimate reason for going to the doctor.

In this article, Ben Handel states, “while increased consumer cost-sharing can be an effective instrument for reducing health care spending, it may be a blunt instrument for encouraging higher value medical spending, especially relative to supply-side interventions that target physician incentives or interventions that reduce the use of high-cost low-value medical technologies.”

Instead of using detrimental demand-side patient cost-sharing instruments to reduce spending, just think of what could be accomplished on the supply-side using a well designed single-payer monopsony for financing health care: global budgeting of institutions such as hospitals, dramatic reduction of administrative waste, negotiation of rates for services and products, bulk purchasing of pharmaceuticals, avoiding excess capacity through planning and separate budgeting of capital improvements, and establishing a global budget for the entire health care delivery system.

There is no need to assess financial penalties (deductibles and coinsurance) merely for accessing beneficial health care services. With a single payer system, patients simply obtain the health care that they need, when they need it. That’s the way it should be.

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CMS’s latest ACO report is inscrutable

Posted by on Monday, Jun 15, 2015

Successful Pioneer ACO journey leaves faint trail for followers

By Melanie Evans
Modern Healthcare, May 7, 2015

Touting $380 million in savings from the Affordable Care Act’s first test of accountable care, Medicare says the [Pioneer ACO] pilot did well enough to expand. But it’s unclear how the participants got the savings and to what extent others can replicate the success.

Dr. Patrick Conway, head of the CMS Innovation Center, and his colleagues announced the savings this week in JAMA. They detailed medical spending for Medicare patients who received care from 32 accountable care organizations during the first two years of the Innovation Center’s Pioneer ACO program.

“It’s very hard to take apart the findings of a study like this,” said Stuart Guterman, vice president for Medicare and cost control for the Commonwealth Fund. “It’s hard to tell what the aggregate numbers mean.”

One perplexing result from the CMS analysis was a drop in spending for primary care office visits. Accountable care emphasizes care in lower-cost settings, chronic disease management and prevention, all of which is typically the work of primary care providers.

“I am not sure how to explain it,” Guterman said.

Stuart Guterman’s characterization of CMS’s latest report on the Pioneer ACO program is accurate. It is impossible to explain the report’s findings.

The report in question was a paper published in the Journal of the American Medical Association by David Nyweide and six other CMS employees. That paper was in turn based on an “evaluation” of the Pioneer ACO program by L&M Policy Research. The JAMA paper and the L&M study purported to evaluate the performance of the 32 ACOs in the Pioneer ACO program during the program’s first two years (2012 and 2013). (Nine of the 32 ACOs dropped out by the end of 2013.)

In a recent comment I criticized the JAMA and the L&M studies on two grounds: They failed to subtract from the alleged savings the amount CMS paid out in bonuses to the ACOs; and they analyzed a simulated version of the program rather than the actual program.

In this comment I address the question Dr. Guterman and the Modern Healthcare reporter raise in the excerpt quoted above: Why is it so difficult to make heads or tails of the findings? I’ll examine the L&M report because it is by far the longer and more complex of the two documents.

Let us begin by asking what accounts for two of the report’s most significant findings:

•  Only 10 of the 32 Pioneer ACOs saved money in both 2012 and 2013, and

•  nearly every one of the 32 ACOs cut spending on primary care doctors in both 2012 and 2013.

L&M’s report offers not a single fact to help us answer that question. That is not L&M’s fault. The problem is the failure of ACO proponents, including CMS, to define “ACO.” L&M summarized the problem on page 1 of their report:

The ACO “treatment” under investigation is not a prescribed set of activities or interventions. Rather, it is a financial arrangement in which provider organizations attempt to reduce expenditures below a set target while maintaining high quality metrics in exchange for bearing risk for reducing expenditures.

It’s hard to imagine a definition more devoid of meaning. Let’s begin with the lead noun, “arrangement.” Is it possible to choose a more abstract word? What does it mean to say “provider organizations” are “in an arrangement” and, once in, they “attempt to reduce expenditures while maintaining high quality metrics”? How do they “attempt”? We don’t know. We don’t know because ACO proponents have never set forth a “prescribed set of activities or interventions,” as L&M put it so precisely.

The refusal of ACO proponents to state clearly what it is ACOs are supposed to do means ACOs are under no obligation to employ any particular intervention, to hire any particular type of staff, to follow any particular protocol, or to focus on any particular type of patient. And that in turn means contractors such as L&M, researchers such as Dr. Guterman, and reporters such as Melanie Evans (the author of the Modern Healthcare article) can’t make any sense of the outcomes of the Pioneer program.

L&M makes a gallant attempt to describe what goes on inside some of the 32 Pioneer ACOs, but the language is so abstract and the examples so anecdotal we learn little. Given the highly abstract “definition” of ACO, how could it be otherwise? Here are some illustrative quotes from pages 41 and 42 of L&M’s evaluation:

•  One ACO “has encouraged each component entity of the ACO to select and pilot its own care management approach … such as disease-focused [and] high-risk patient focused [approaches]”;

•  “[a]nother Pioneer ACO … is providing transition management in the acute care setting,” and

•  a third ACO “has a dedicated staff that use claims data and timely hospital admission information to determine when a patient is in need of care management services and then deploy community-based care managers throughout the organization in response.”

“Approaches,” “disease-focused,” “high-risk patient focused,” care management,” “transition management,” “community-based care”? What do those phrases mean? L&M either doesn’t elaborate, or elaborates and adds little information. In explaining the phrase “transition management,” for example, L&M says it may or may not include home visits (p. 42).

Later we read about another ACO that stations “nurse care coordinators … at two of the three area hospitals responsible for admitting the largest volume of ACO patients, and nurses comb through hospital census records daily to identify all ACO-assigned patients with recent admissions. … [T]he ACO provides care transition services to any admitted ACO patient, regardless of risk status” (p. 60).

These quotes suggest ACOs provide “management” services, whatever they are, to only a portion of their assigned members, notably those who are acutely or chronically ill. But L&M also presents the responses to a “satisfaction” survey of a “random sample” of Medicare beneficiaries assigned to ACOs, which suggests L&M and CMS define ACOs as “accountable” for services provided to all Medicare beneficiaries assigned to them, not just a subset of the sick.

Let’s stop and ask what we’ve learned from the information I just presented. We’ve learned that ACOs administer services with vague labels (“care management,” “care coordination,” etc.) to

•  only “high-risk” patients,
•  only patients with specific diseases,
•  only patients currently in, or recently discharged from, some but not all hospitals,
•  all of the above, or
•  all of the above plus all other Medicare beneficiaries assigned to the ACOs.

How is a CMS contractor supposed to “evaluate” such vaguely characterized services administered to such vaguely defined pools of Medicare recipients?

L&M’s solution was to hypothesize, without reference to any research, that the following vaguely defined “features” of ACOs might correlate with Medicare expenditures on the ACOs:

•  “hospital relationships,”
•  “capacity to follow and monitor beneficiaries through the care continuum,”
•  “engaged leadership,”
•  “provider engagement,” and
•  “market pressures.”

With the exception of “hospital relationships,” L&M offered no useful definition of these “features.”[1]  Not surprisingly, L&M found no correlation between any of these five “features” and ACO spending, nor between patent satisfaction scores and spending.

And if they had, so what? Let’s say L&M found a correlation between “leadership engagement” and spending. We still wouldn’t know who did what to lower spending.

And so it is that the reader arrives at the last page of L&M’s 117-page report with no idea how to explain any of L&M’s findings, including the two findings I reported at the outset. I’ll close by speculating on the causes of those two findings.

What did the 10 ACOs that allegedly saved money in both 2012 and 2013 do that the other 22 ACOs were not doing? And how did they accomplish those savings so quickly? The 10 highly sophisticated corporations that participated in the Physician Group Practice (PGP) Demonstration, an experiment widely seen as a test of the ACO concept, were unable to do that. Those entities were well versed in managed care methods (seven of the 10 owned or previously owned an HMO (p. ES-3). But over the five-year period of the PGP demo, the 10 PGPs cut Medicare spending by only 1.7 percent, and by only .3 percent after taking into account CMS’s bonus payments.[2]  And much of those savings were an illusion created by upcoding.

I offer three hypotheses that might explain why ten of the Pioneer ACOs cut costs overnight.

First, the money-saving ACOs might be focusing on the very small fraction of their patients for whom their return on investment is likely to be positive. Research on disease management indicates there are only a few diseases for which the return on investment (a) is usually positive and (b) turns positive almost overnight as opposed to a decade or two down the road (disease management of congestive heart failure is an example).

Second, the ACOs that appear to be saving Medicare money may be attracting healthier Medicare enrollees, and L&M’s crude risk-adjustment method is failing to adjust spending accordingly. The high “churn rate” among ACO doctors and patients from year to year, and the small savings we’re trying to explain, makes accurate risk adjustment essential.

L&M hints that my favorable-selection hypothesis could be correct. In their discussion of the results of the patient satisfaction survey, they state, “[I]t is possible that these CAHPS [Consumer Assessment of Healthcare Providers and Systems] results are confounded, given that beneficiaries are aligned or assigned to an ACO because they receive regular care from ACO providers” (pp. 31-32). Some ACOs may benefit more from this algorithm-induced favorable selection than others.

Third, the money-saving ACOs may benefit not just from algorithm-induced cherry-picking but ACO-generated rationing and lemon-dropping – driving sicker patients away. L&M reported that ACO patients were more likely to complain about having a hard time getting access to doctors, especially specialists.[3]

Finally, let us ask how all but one ACO in 2012, and all by three in 2013, cut spending on primary care doctors? These cuts were statistically significant for 29 ACOs in 2012 and 28 in 2013 (see Figure 5, p. 20). The cuts ranged from approximately 1 to 4 percent. By contrast, over the five years of the PGP demonstration, the PGPs achieved no savings in outpatient care.[4]

I hope the explanation is that the ACOs substituted non-billable services provided by nurses and other non-physician primary care professionals for billable services previously provided by doctors. That would be consistent with ACO lore: ACOs allegedly hire more “care managers” who provide services that keep patients away from doctors and out of hospitals. But it’s lore only. If we had data on what ACOs spend their money on, we might be able to confirm that the lore is reality. But ACO proponents and analysts have completely ignored the subject of how much money ACOs spend to do whatever it is ACOs do and what that money buys.

But the substitution of nurses and other professionals for doctors might not be the explanation. An alternative and less pleasant explanation might be the two I mentioned above – algorithm-induced cherry-picking, lemon-dropping, and denial of services to the sicker patients who could not be avoided by cherry-picking or lemon-dropping.

We shouldn’t be guessing about such important issues. But as long as ACOs are black boxes, reports about them will be inscrutable, and readers will be reduced to guessing about the reports’ findings. I have no doubt L&M’s report on the Pioneer program’s third year will be equally inscrutable.


1. “Engaged leadership” isn’t defined at all, for example, while “provider engagement” is defined as “use of provider incentives or referral stream management activities” (p. 8).

2. See Table 5-13 p. 65, Evaluation of the Medicare Physician Group Practice Demonstration, Final Report: “Expressed as a percentage, the [PGP] demonstration saved Medicare .3% of the claims amounts” (p. 64).

3. L&M stated, “Pioneer ACOs were rated statistically significantly lower on access to specialists and ease of getting care” (p. 31).

4. “Across all 10 PGPs, Demonstration savings were achieved totally from the inpatient setting (savings = $228). In fact, the estimated Demonstration impact on total outpatient expenditures indicates slight dis-savings (dis-savings = $25), possibly indicating some degree of substitution of outpatient for inpatient services among the Demonstration PGPs.” (Evaluation of the Medicare Physician Group Practice Demonstration, Final Report, p. 195).

Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.

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Zero-premium Medicare Advantage plans have higher cost sharing

Posted by on Friday, Jun 12, 2015

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.

Medicare Advantage Members’ Expected Out-Of-Pocket Spending For Inpatient And Skilled Nursing Facility Services

By Laura M. Keohane, Regina C. Grebla, Vincent Mor and Amal N. Trivedi
Health Affairs, June 2015


Inpatient and skilled nursing facility (SNF) cost sharing in Medicare Advantage (MA) plans may reduce unnecessary use of these services. However, large out-of-pocket expenses potentially limit access to care and encourage beneficiaries at high risk of needing inpatient and postacute care to avoid or leave MA plans. In 2011 new federal regulations restricted inpatient and skilled nursing facility cost sharing and mandated limits on out-of-pocket spending in MA plans. After these regulations, MA members in plans with low premiums averaged $1,758 in expected out-of-pocket spending for an episode of seven hospital days and twenty skilled nursing facility days. Among members with the same low-premium plan in 2010 and 2011, 36 percent of members belonged to plans that added an out-of-pocket spending limit in 2011. However, these members also had a $293 increase in average cost sharing for an inpatient and skilled nursing facility episode, possibly to offset plans’ expenses in financing out-of-pocket limits. Some MA beneficiaries may still have difficulty affording acute and postacute care despite greater regulation of cost sharing.

From the Discussion

MA beneficiaries still pay a great deal for inpatient and SNF services even after new regulations have gone into effect. We found that these expenses often exceed what traditional Medicare beneficiaries without supplemental coverage would pay under the Part A deductible, which covers hospitalizations and SNF services. The majority of MA beneficiaries are enrolled in zero-premium plans with higher cost-sharing expectations. This pattern could reflect other studies’ findings that Medicare beneficiaries are strongly influenced by premium levels and have trouble selecting plans that will minimize their out-of-pocket exposure.

The growth in enrollment in private Medicare Advantage (MA) plans has been largely due to the attraction of not having to pay a premium for the plans. The trade-off is that the patient is exposed to higher out-of-pocket expenses.

Many studies have shown that selection of health plans is most heavily influenced by the premium, since plan purchasers are averse to higher premiums. For insurers to be able to offer plans with low premiums they must reduce the coverage, primarily by requiring higher deductibles and other cost sharing. This study shows that the cost sharing for inpatient and SNF services may be unaffordable and thereby impair access for those enrolled in zero-premium MA plans – the plans that the majority select.

In a single payer system, there is no premium. Equitable taxes, based on ability to pay, fund the universal risk pool. Individuals are not faced with the temptation of being allowed to keep more money in exchange for accepting less than adequate coverage. With single payer, everyone would have adequate coverage, while progressive taxes would would make it affordable for all of us.

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URGENT: NEJM on TPP; One Day Left!

Posted by on Thursday, Jun 11, 2015

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 Trans-Pacific Partnership — Is It Bad for Your Health?

By Amy Kapczynski, J.D.
The New England Journal of Medicine, June 10, 2015

International trade deals once focused primarily on tariffs. As a result, they had little direct effect on health, and health experts could reasonably leave their details to trade professionals. Not so today. Modern trade pacts have implications for a wide range of health policy issues, from medicine prices to tobacco regulation, not only in the developing world but also in the United States.

The Trans-Pacific Partnership Agreement (TPP) is a case in point. A massive trade deal now reportedly on the verge of completion, the TPP has nearly 30 chapters. A draft chapter on intellectual property (IP) alone runs 77 single-spaced pages.

The full health implications of the TPP are hard to judge, not only because its provisions are complex but also because the draft text is a closely held secret. Even members of the U.S. Congress can see it only if they agree not to talk publicly about it and if they leave their pens and phones (and, until recently, their expert staffers) at the door. But several key chapters have recently been leaked and reveal that the TPP could have a substantial impact on health.

Groups including Médecins sans Frontières and Oxfam warn, for example, that the agreement could threaten the lives of millions of people in developing countries. Their concerns stem primarily from the leaked IP chapter and the effect that patents have on the prices of medicines. In the context of human immunodeficiency virus, for example, patents increase the annual cost of antiretroviral therapy from around $100 per person to $10,000 per person.

The TPP could impose obligations on developing countries that go far beyond any existing trade agreement. Indeed, some proposals in the leaked IP chapter seem directly targeted against innovative measures that developing countries have used to maximize the use of low-cost generic medicines.

For example, India allows patents on new drugs but not on new uses of old drugs or new forms of known drugs that do not increase therapeutic efficacy. These provisions have paved the way for generic versions of lifesaving drugs such as the cancer treatment imatinib mesylate (Gleevec) in that country. But such limits on patent eligibility could be outlawed by the TPP. Reports suggest that there may be some kind of phase-in period for developing-country members, but only for some parts of the agreement. And at best, a phase-in period would merely postpone some of the TPP’s effects for a few years.

India is not a party to the TPP negotiations, which have been conducted by 12 Pacific Rim countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Why, then, would India’s laws — sometimes word for word — be targeted in the TPP negotiations? For one thing, other developing countries have started to follow India’s lead. For another, the TPP is a platform agreement designed for other countries to join, and it will establish a new baseline for future international negotiations. The risk regarding access to medicines in developing countries is real.

Though it is less widely recognized, the TPP could also have a direct effect on health in developed countries. For example, the leaked IP chapter contemplates major extensions of “data exclusivity” provisions. These laws prevent drug regulatory agencies like the Food and Drug Administration from registering a generic version of a drug for a certain number of years — and as a result can substantially affect the prices of medicines.

In recognition of this fact, President Barack Obama’s fiscal year 2016 budget proposes rolling back the data-exclusivity period for biologic drugs in the United States to 7 years from 12 years, yielding a projected savings of more than $4 billion over the next decade. In the TPP negotiations, however, the United States is proposing a 12-year term of exclusivity. Such a requirement would lock the United States into a policy that many observers, including, apparently, the President himself, believe inflates the cost of medicines unjustifiably. Even if the number of years required by the TPP is negotiated downward, the lock-in effect remains a concern, because trade agreements can be extremely difficult to amend.

The cost of medicines is no small concern in the United States today: spending on prescription drugs in the United States jumped 13% in 2014 alone. The recent experience with new hepatitis C treatments shows that even lifesaving cures may be rationed in the United States — whether implicitly or explicitly — if we fail to contain drug costs and promote more efficient innovation. The TPP, however, could make moves toward more rational drug pricing in the United States difficult and even imperil existing provisions that help to contain costs for government programs.

A 2011 “annex” to the TPP, apparently proposed by the United States, would have mandated that all countries use “competitive market-derived prices” or benchmarks that “appropriately recognize the value” of the drug in question when establishing drug prices. A just-leaked December 2014 draft omits these provisions but still contemplates substantial procedural obligations for governments and makes clear that these rules apply to the Centers for Medicare and Medicaid Services (CMS). The text is difficult to decipher and still in flux. But consumer groups argue that the annex could create opportunities for interference in the decisions of CMS and render health programs in all TPP countries more vulnerable to drug-company influence and more difficult to reform.

In March 2015, a third bombshell dropped: a draft chapter on “investor-state dispute settlement” (ISDS). It would empower foreign companies to sue member countries for hundreds of millions of dollars in damages in a wide range of cases in which they argue that their expected future profits have been undermined. These challenges would be heard by “arbiters” — typically private lawyers, many of whom cycle in and out of industry — with no prospect of independent review by a national court. Such provisions have been included in trade agreements before. But the scale of the TPP would substantially increase the number of companies that could bring such challenges. Firms have already used provisions like these to challenge an astonishing range of laws, from minimum-wage laws in Egypt, to tobacco regulations in Uruguay and Australia, to core aspects of patent law as they apply to medicines in Canada. The ISDS provisions alone could interfere with domestic health policy for decades to come. Under their auspices, policies covering a wide range of issues, from food and tobacco labeling, to patent law, to drug-pricing rules, to environmental protection could be challenged in participating countries — including, of course, the United States.

The course that the TPP takes is not yet set in stone. Negotiations continue, and the Obama administration could work toward an agreement that excludes provisions such as ISDS and the health care “annex” or that incorporates robust safeguards to protect health. Congress has an important role, too. As of early June, it was in the midst of a fierce legislative battle over whether the TPP and deals like it should be “fast-tracked.” If Congress takes this route, its ability to influence the treaty will be much diminished: fast tracking allows passage of a trade treaty with only a simple majority vote in Congress and also denies Congress any opportunity to make changes to the agreement’s text.

Much hangs in the balance in the coming weeks and months. If the TPP includes robust ISDS provisions and the expansive provisions proposed in the IP chapter and the health care annex, the United States could be signing away its authority to regulate critical aspects of health policy for years to come.


GOP, Obama on cusp of fast-track trade victory

By Scott Wong and Peter Schroeder
The Hill, June 10, 2015

House Republicans have set the stage for a high-stakes vote Friday to grant President Obama fast-track trade authority.

While objections from some Democrats on a last-minute deal related to the trade package raised some doubts about the outcome, Obama and the GOP appear poised to earn a significant victory.

“We’re moving because we feel comfortable moving,” said Ways and Means Committee Chairman Paul Ryan (R-Wis.), who has led efforts to secure GOP votes for the measure.

If the vote on Friday is successful, the trade bill would head to Obama’s desk, weeks before many thought possible. Fast-track powers would greatly enhance the president’s ability to conclude negotiations on a sweeping trade deal with Pacific Rim nations that is a key part of his economic and foreign policy agenda. They would prevent Congress from amending the trade deal, and stop the Senate from filibustering it.…

Every member of the House of Representatives needs to read this NEJM article before the crucial vote tomorrow on fast-track authority. If Congress grants the President fast-track authority and eventually provides nonnegotiable blanket approval of TPP, “the United States could be signing away its authority to regulate critical aspects of health policy for years to come.”

We cannot let that happen. Contact members of the House of Representatives immediately.

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Two days away from a perilous blow to health care justice

Posted by on Wednesday, Jun 10, 2015

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.

GOP to hold trade vote Friday

By Scott Wong
The Hill, June 10, 2015

The House will vote Friday on giving President Obama fast-track trade authority, which would allow him to send a major trade deal with 11 other Pacific Rim nations to Congress for an up-or-down vote.

As part of the agreement, Republicans agreed to scrap the Medicare sequester offset, which Democrats objected to.


Trans-Pacific Partnership Agreement
Transparency Chapter Annex on Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices

WikiLeaks, June 10, 2015


This is the secret December 2014 draft (with country negotiating positions) of an annex to the Trans- Pacific Partnership Agreement (TPP) “Transparency Chapter”. The TPP is an attempt to create a transnational treaty regime encompassing 40 per cent of global GDP and one-third of world trade.

The draft Annex places requirements and restrictions on national healthcare access programs in how they allocate public subsidies for medicines and medical devices.



The Parties are committed to facilitating high-quality healthcare and continued improvements in public health for their nationals including patients and the public. In pursuing these objectives, the Parties acknowledge the importance of the following principles:

(a) the importance of protecting and promoting public health and the important role played by pharmaceutical products and medical devices2 in delivering high quality health care;
(b) the importance of research and development, including associated innovation, related to pharmaceutical products and medical devices;
(c) the need to promote timely and affordable access to pharmaceutical products and medical devices, through transparent, [xx oppose: impartial,] expeditious, and accountable procedures, without prejudice to a Party’s right to apply appropriate standards of quality, safety, and efficacy; and
(d) the need to recognize the value of pharmaceutical products and medical devices through the operation of competitive markets or by adopting or maintaining procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical product or medical device.


To the extent that a Party’s national health care authorities operate or maintain procedures for listing new pharmaceutical products or medical devices for reimbursement purposes, or setting the amount of such reimbursement, under national health care programs operated by the national health care authorities,34 the Party shall:

(b) disclose procedural rules, [xx propose; xx considering: methodologies, principles, and [xx oppose; xx propose: where relevant,] guidelines used to assess such proposals6;

(e) provide applicants with [xx propose: detailed] written information [xx propose: sufficient to comprehend] [xx oppose: regarding] the basis for recommendations or determinations regarding the listing of new pharmaceutical products or medical devices for reimbursement by national healthcare authorities;
(f) make available [xx propose: xx considering: an independent] review process [xx propose; xx oppose:8] that may be invoked at the request of an applicant directly affected by such a recommendation or determination by a Party’s national healthcare authorities not to list a pharmaceutical or medical device for reimbursement [xx propose: xx considering: or as an alternative, an internal review process, such as by the same expert or group of experts that made the recommendation or determination, provided that such a review process includes, at a minimum, a substantive reconsideration of the application and may be invoked at the request of an applicant directly affected by such recommendation or determination]9; and
(g) provide written information to the public regarding such recommendations or determinations, while protecting information considered to be confidential under the Party’s law.


1. To facilitate dialogue and mutual understanding of issues relating to this Annex, each Party shall give sympathetic consideration to [xx propose: and shall afford adequate opportunity for consultation regarding] a written request by another Party [xx oppose: to consult] on any matter related to this Annex.


national health care authority means, with respect to a Party listed in the schedule to this Annex, the relevant entity or entities specified therein, and with respect to any other Party, an entity that is part of or has been established by a Party’s central level of government to operate a national health care program;

national health care program means a health care program in which a national health care authority makes the [xx propose: determinations or recommendations] [xx oppose: decisions] regarding the listing of pharmaceutical products or medical devices for reimbursement, or regarding the setting the amount of such reimbursement.

PARAGRAPH X.7: Disputes

The dispute settlement procedures provided for in Chapter BBB (Dispute Settlement) shall not apply to this Annex.


Further to the definition of national healthcare authorities in Paragraph X.6, national healthcare authorities shall mean:

(c) [xx propose: For the United States: The Centers for Medicare & Medicaid Services (CMS), with respect to CMS’s role in making Medicare national coverage determinations;]…

WikiLeaks press release


MEMO: Three Burning Questions about the Leaked TPP Transparency Annex and Its Implications for U.S. Health Care

Public Citizen, June 10, 2015

Contact: Peter Maybarduk

Today, WikiLeaks published the draft Trans-Pacific Partnership (TPP) “Annex on Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices.” This Annex sets rules that TPP country health authorities would be required to follow regarding pharmaceutical and medical device procurement and reimbursement. The draft is dated December 17, 2014. An earlier version leaked in 2011. Unlike that document, the new leak expressly names the Centers for Medicare & Medicaid Services (CMS) as covered by the text, “with respect to CMS’s role in making Medicare national coverage determinations.” Under the TPP, then, these determinations would be subject to a series of procedural rules and principles, the precise meaning of which are not clear and perhaps not knowable.

Pharmaceutical companies could attempt to exploit the general language of the annex to mount challenges to Medicare and health programs in many TPP negotiating countries. The Annex would constrain future policy reforms, including the ability of the U.S. government to curb rising and unsustainable drug prices.

What guarantees are there that the TPP’s requirements would not override existing procedures for Medicare?

The Office of the United States Trade Representative (USTR) claims that Medicare today is fully compliant with the proposed provisions of the TPP. Yet the ambiguous language of the TPP leaves our domestic healthcare policies vulnerable to attack by drug and device manufacturers. For example:

* Could companies use the Annex to compel Medicare to cover expensive products without a corresponding benefit to public health? Medicare reimbursement is limited to products that are “reasonable and necessary” for treatment. But the TPP “recognize[s] the value” of pharmaceutical products or medical devices through the “operation of competitive markets” or their “objectively demonstrated therapeutic significance,” regardless of whether there are effective, affordable alternatives.

* The TPP also requires countries to “make available a review process” for healthcare reimbursement decisions. Medicare national coverage determinations allow for appeals, but only in a limited set of circumstances.2 Might this conditional appeal process be construed as insufficient, if companies argue the TPP grants them an unconditioned right to review?

* Similarly, the TPP mandates that parties provide opportunities for applicants to comment on reimbursement considerations “at relevant points in the decision-making process.” Though Medicare national coverage determinations allow for comments in certain stages of the process, these determinations may be vulnerable to legal challenge depending on the construction of “relevant points.”

Would the TPP constrain pharmaceutical reform efforts in the U.S.?

In addition to its application to Medicare Part A and B, the Annex would apply to any future efforts related to national coverage determinations by the CMS, including potential Medicare Part D reforms.

In response to soaring drug costs, advocates have increasingly called on the government to enable the Secretary of Health and Human Services to negotiate the price of prescription drugs on behalf of Medicare beneficiaries. Vital to this reform would be the establishment of a national formulary, which would provide the government with substantial leverage to obtain discounts.

The development of such a national formulary would be subject to the requirements of the TPP. These procedural requirements would pose significant administrative costs, enshrine greater pharmaceutical company influence in government reimbursement decision-making and reduce the capability of the government to negotiate lower prices.

The Senate has already approved fast-track trade authority, and the House will vote on it in just two days. If it passes, it will allow President Obama to send Congress the Trans-Pacific Partnership trade agreement (TPP) for an up-or-down vote, with no amendments allowed.

There are many issues with forcing blanket approval of this trade agreement, but one that should be of great concern to advocates of health care justice is the extraordinary power granted to the pharmaceutical and medical device industries to control markets and prices at home and abroad.

WikiLeaks has released a working copy of the TPP Transparency chapter for “procedural fairness” for pharmaceutical products and medical devices. Simply reading the “Principles” reveals that the fairness sought is for the pharmaceutical and medical device industries to be able to use “procedural fairness” to control markets and prices, threatening affordability of their products for patients and for national health systems.

Just one phrase of their principles, “by adopting or maintaining procedures that appropriately value the objectively demonstrated therapeutic significance of a pharmaceutical product or medical device,” repeats the rhetoric that is being used by the industry now when they say that it is not their costs that should determine prices but rather it is the value of the benefit received. A recent campaign used this reasoning to justify egregious pricing for hepatitis C drugs since they would prevent expensive liver transplants and premature death. The industry contends that they are entitled to capture the dollar value of extended, higher quality lives and the value of potential future medical care that was aborted by their products.

If for no other reason, everyone in the United States should be concerned that our own Medicare program is potentially threatened by the processes in the TPP.

The vote is scheduled for Friday, June 12 – just two days away. We need to “fast track” ending TPP fast-track authorization. Contact members of the House of Representatives immediately.

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For-profit hospitals lead the way in price gouging

Posted by on Tuesday, Jun 9, 2015

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.

Extreme Markup: The Fifty US Hospitals With The Highest Charge-To-Cost Ratios

By Ge Bai and Gerard F. Anderson
Health Affairs, June 2015


Using Medicare cost reports, we examined the fifty US hospitals with the highest charge-to-cost ratios in 2012. These hospitals have markups (ratios of charges over Medicare-allowable costs) approximately ten times their Medicare-allowable costs compared to a national average of 3.4 and a mode of 2.4. Analysis of the fifty hospitals showed that forty-nine are for profit (98 percent), forty-six are owned by for-profit hospital systems (92 percent), and twenty (40 percent) operate in Florida. One for-profit hospital system owns half of these fifty hospitals. While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges. Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges. Federal and state governments may want to consider limitations on the charge-to-cost ratio, some form of all-payer rate setting, or mandated price disclosure to regulate hospital markups.

From the Discussion

Markups of the fifty hospitals with the highest charge-to-cost ratios are 9.2–12.6 times the Medicare-allowable costs. While publicly insured patients typically pay comparatively close to actual cost, uninsured patients, out-of-network patients, and casualty and workers’ compensation insurers do not have comparable bargaining or regulatory power and thus are charged either the full amount or a high percentage of the full amount, unless the hospitals voluntarily offer discounts. Hospitals’ high markups, therefore, subject many vulnerable patients to exceptionally high medical bills, which often leads to personal bankruptcy or the avoidance of needed medical services. Furthermore, privately insured patients may also pay a greater premium because high markups give hospitals greater bargaining power with private insurers in price negotiations. As a result, high markups play a role in the rise of overall health care spending.

Simply speaking, a patient wanting to compare hospital prices faces a substantial information asymmetry for an elective procedure, and the time necessary to conduct price and quality comparisons is certainly not available in most medical emergencies. The result is a market failure that forces uninsured patients, out-of-network patients, and casualty and workers’ compensation insurers to pay charges that are marked up multiple times above costs and are much higher than what publicly insured and privately insured in-network patients pay. The current regulatory environment, unfortunately, does little to correct this market failure. The extent of this market failure is especially salient in these fifty hospitals.

From the Policy Implications

There are several possible solutions to this market failure.

First, federal and state policy makers could require hospitals to post their overall charge-to-cost ratios on their website, or the Medicare program could post them.

A second option is to legislate a maximum markup over cost that a hospital can charge to any patient.

The third solution is for legislatures to require all insurers to use the same payment system but not necessarily pay the same rates.

One variant is to have the fee schedule negotiated periodically between representatives of health insurers and representatives of health care providers. Several countries, such as Germany, Japan, and Switzerland, use this type of system. Another variant is to have the government determine the rate — a system that the State of Maryland has been using for four decades. To implement these two variants, admittedly, would require fundamental changes to the current payment system and would be subject to considerable political challenges. While the larger political challenge is to get all insurers to pay the same rates, an easier political challenge might be to get all insurers to use the same payment system.

List Of The 50 Hospitals With The Highest Charge-To-Cost Ratios, 2012:…

The single payer model of health care reform supported by Physicians for a National Health Program (PNHP) requires that the for-profit elements of the health care delivery system be converted to nonprofit status. This report provides a prime example of the rationale of that proposed policy.

Of the fifty hospitals with the highest charge-to-cost ratios in the nation, forty-nine of them are for-profit. This article explains how these high charges create financial hardships for far too many individuals with health care needs while driving up private insurance premiums and driving up total health care costs for the nation.

Although this report is receiving wide coverage in the media, there are a couple of points buried in the text which warrant special attention.

The article states, “Public disclosure of hospital markup information is useful only if patients have a real option to choose among competing hospitals. This is clearly not the case when patients are in medical emergencies. Even for elective services, the ability to comparison shop is severely limited by imperfect information about what specific services will be ordered by the physicians, what physicians will be providing the services, and how the services will be billed (for example, bundled or unbundled).”

One of the most common recommendations today is to improve price transparency to assist patients in becoming better health care shoppers. Even the recommendations in this article do not do much to inject price considerations into the health care shopping experience. Other nations use the government or a quasi-public process to establish appropriate pricing. The patient is relieved of the price shopping task since their stewards have already fulfilled that role in advance of need.

The article also states, “…the Medicare program requires hospitals to limit their charges to Medicare Advantage plans to the Medicare fee-for-service (FFS) levels. This protection greatly strengthens Medicare Advantage plans’ negotiating position.”

Although private insurers, such as those offering the private Medicare Advantage plans, sell us expensive, intrusive administrative services which we really don’t want, their most important role for us is to negotiate lower payment rates with the providers in the health care delivery system. But the Medicare program has already done this for the Medicare Advantage plans, according to this report. So we are paying extra funds to these mostly for-profit Medicare Advantage intermediaries for doing not much more than restricting choice to their provider networks and wasting resources on excessive administrative services. The only reason they are popular is that they sucker patients in with their lower premiums.

Also from the article, “California’s Hospital Fair Pricing Act, for example, requires all California hospitals to charge uninsured patients with an annual household income below 350 percent of the federal poverty level no more than what Medicare would pay. In most hospitals, the Medicare rate is within 90 percent of costs, not 200 percent or, in the case of these fifty hospitals, 1,000 percent of costs. This approach is likely to benefit not only uninsured patients, out-of-network patients, and casualty and workers’ compensation insurers, but also in-network patients.”

The point is, the government can ensure that charges are fair by limiting them to Medicare rates (adjusted to cover legitimate costs). But why should these controls apply only to those with incomes below 350% FPL, as California does? Under a single payer model, they would apply to everyone, thus eliminating price gouging.

At any rate, the PNHP single payer model of reform is incorporated into Rep. John Conyers’ HR 676, “The Expanded and Improved Medicare for All Act.” Amongst its many other provisions, it “prohibits an institution from participating unless it is a public or nonprofit institution.” If it were enacted, these forty-nine for-profit hospitals (with one black sheep nonprofit) would no longer be the source of headlines expressing outrage at our unique health care injustices.

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Association of Pioneer Accountable Care Organizations vs traditional Medicare fee for service with spending, utilization, and patient experience

By David J. Nyweide et al.
JAMA, May 4, 2015

During Pioneer ACOs’ first 2 performance years, total spending … increased approximately $385 million ($280 million in year 1; $105 million in year 2) less than spending of similar FFS [fee-for-service] beneficiaries.


Accountable Care Organizations and evidence-based payment reform

By Mark McClellan
JAMA, May 4, 2015

The study by Nyweide et al in this issue of JAMA is the most comprehensive to date on … Medicare’s Pioneer ACO program. … Compared with other Medicare plans, Pioneer ACOs were associated with lower expenditure trends of approximately $427 in total Medicare Part A and Part B spending per beneficiary per year in the first year and about $134 per beneficiary in the second year. … These early results may be viewed as modest. The smaller increase in spending amounted to 4% in year 1 and less than 1.5% in year 2. … The estimates do not account for the shared-savings payments to the ACOs, which totaled $77 million in 2012. Nor do they account for the investments of time and money made by the health care organizations.

The Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) are violating a fundamental rule of science: They are soft-pedaling the disappointing financial results of the Pioneer ACO program and trumpeting the results of a simulation of the program. If a drug company or device manufacturer did this – if it buried the disappointing results of an experiment testing a drug or device, and reported the rosier results of a simulated experiment – it would be universally condemned for its unethical behavior.

I realize this is a harsh judgment. But I’m sure reasonable people will agree with me once they know the basic facts. The basic facts do not require expertise or much time to comprehend.

On May 4, HHS published a press release that trumpeted the favorable financial results of a study of a simulated version of the Pioneer ACO program without mentioning the much less impressive results of the actual ACO program. According to the analysis of the simulation, the Pioneer ACO program cut Medicare’s costs by 4 percent in 2012 and at most 1.5 percent in 2013. But the latest CMS data show that the actual Pioneer program cut Medicare’s costs by a grand total of two-tenths of 1 percent in 2012 and five-tenths of 1 percent in 2013. In other words, the study of the simulated version reported savings 20 times greater than actual program savings in 2012 and three times greater than actual program savings in 2013.

The study of the simulated version trumpeted by HHS appeared in the Journal of the American Medical Association. It was written by Nyweide and six other CMS employees. That paper was in turn based upon a study published by a CMS contractor, L&M Policy Research.

The latest results for the real-world program are buried at page 4 of a paper prepared by CMS’s actuaries.[1]

A large portion of the difference between the JAMA/L&M simulation, which I will hereafter refer to as CMS’s simulation, and CMS’s evaluation of the real-world program can be explained by the fact that the simulation did not take into account the bonuses (or “shared savings” payments) CMS paid out to ACOs. That omission would also generate widespread scoffing if it had been committed by a drug company, device manufacturer, or physician group. Imagine the uproar if, for example, a drug company published an “evaluation” of its hypertension drug that claimed the drug would cut U.S. health care costs by $10 billion if all 70 million Americans with hypertension took the drug, but which failed to account for the $8 billion cost of prescribing the drug to those 70 million Americans.

Oddly, CMS neglected to simulate what bonus payments would have been. They did not even warn their readers they failed to do that.

However, Mark McClellan did take note of this strange omission in his editorial accompanying the paper by Nyweide et al. In the excerpt quoted above, McClellan states that real-world bonus payments totaled $77 million in 2012 (data for 2013 were not available, apparently). McClellan didn’t subtract $77 million from the simulated 2012 gross savings of $280 million to determine a net figure for the obvious reason that the $77 million is real and the $280 million gross savings is not – it is based on a simulated version of the Pioneer program.

In the real-world program, bonus payments equaled 83 percent of the gross savings in 2012 (see the figures in footnote 1 to make this calculation for yourself). If we reduce the 4 percent gross savings rate reported by McClellan by 83 percent, we are left with a net savings of seven-tenths of 1 percent. It appears, in short, that the failure by Nyweide et al. and L&M to calculate simulated bonus payments and subtract that total from their simulated gross savings explains the majority of the difference between their simulated savings and real-world savings.

But .7 percent is still larger than the .2 percent reported by CMS for the real-world program. The difference must be due to the differences between the assumptions CMS made in constructing its simulated Pioneer program and the actual program. Below I quote an excerpt from L&M’s report summarizing those differences. Note that L&M refers to the real-world Pioneer program as the “payment approach” and its simulation as the “evaluation approach.”

The primary variances between the payment and evaluation approaches include different (1) baseline populations (refreshed each performance year versus fixed); (2) comparison populations (national versus local); (3) approaches in trending methods (blended nominal and growth rate versus nominal); and (4) risk-adjustment methods. As such, findings between the financial payment calculations and the evaluation necessarily differ, both at an aggregate level and for individual Pioneer ACOs. [p. 2]

This is not a helpful summary but it’s the best we have (neither CMS nor L&M have published a document more detailed than this).

Let us consider just three of the differences between CMS’s simulation and the actual program – differences in the algorithms used to assign patients to ACOs, to create control groups for ACOs, and to determine spending on these two sets of patients. These differences meant that the Medicare beneficiaries assigned to ACOs and to control groups in the simulated program were not the same as the beneficiaries who were assigned to ACOs and control groups in the real-world program. These differences also meant the calculation of the savings, and therefore of the rewards and penalties (the all-important financial incentives), was not the same for the simulated and real-world programs.

Here are the gory details on the differences I’m talking about. For both the simulated and actual programs, CMS had to make the following calculations:

(1) It had to assign Medicare beneficiaries to ACOs. This assignment is based on beneficiaries’ visits to primary care doctors during a multi-year baseline period – a period that occurred prior to 2012, the first year of the Pioneer program. (Patients are assigned to primary care doctors based on a plurality of their visits, and if those doctors are affiliated with an ACO, those patients are assigned to their doctor’s ACO.)

(2) For both the simulated and actual programs, CMS then had to select from the pool of FFS beneficiaries who did not get assigned to an ACO a control group of Medicare enrollees that existed during the same baseline period.

(3) CMS then had to calculate per capita spending on the control group during the baseline period to determine the standard (“benchmark” is CMS’s favorite word to describe this standard) that CMS could use to determine the impact on costs (good or bad) that the ACOs had during each of the subsequent three years of the Pioneer ACO experiment – 2012, 2013, and 2014.

For the real-world program, CMS chose as its control group all Medicare recipients enrolled in the FFS Medicare program during the three years prior to the first year of the ACO program – the years 2009-2011 – who were not later assigned by CMS to the ACO or ACOs in that region. For its simulated model, CMS used for its control group only Medicare FFS recipients who lived in the ACO’s market areas during the two-year period 2010-2011 who were not later assigned to an ACO. (CMS had to execute a very complex calculation to determine what “an ACO market area” is. That calculation was not done for the real-world program.)

Perhaps most importantly, for the real-world program, CMS assigned Medicare beneficiaries to ACOs based on which doctors they saw during the three-year period 2009-2011, not the period 2010-2011 which CMS used for the simulation, and CMS did not calculate ACO market areas and exclude Medicare beneficiaries who lived outside those markets from assignment to ACOs.

In short, the roster of patients in both the experimental and control arms of the ACO experiment were different from the roster in the experimental and control arms of the real-world Pioneer program.

How did CMS justify altering the patients it studied, and the method of determining per capita spending (using local versus average national spending figures), and pretending the results represented the real world? It didn’t.

CMS merely presented arguments suggesting that CMS could improve the accuracy of its method of rewarding and penalizing ACOs in the future. CMS presented these arguments as if they justified misrepresenting the simulation results as results of the real world program.

Here are the arguments CMS presented. CMS said that using expenditures on local control groups as opposed to expenditures on a national pool of beneficiaries permits CMS to take into account regional differences in Medicare’s payment rates, something CMS obviously cannot do if it uses expenditures averaged over a national pool of Medicare enrollees. And CMS argued that selecting from the local groups only those who were eligible for assignment in 2010-2011 rather than 2009-2011 was necessary because data identifying doctors was not as good in 2009 as it was after 2009.

Both of these arguments may be valid. I won’t attempt to dispute here CMS’s implied claim that using these assumptions would, if imported into the real program, improve the accuracy of CMS’s method of rewarding and penalizing ACOs. What I will dispute is that these arguments warrant portraying an analysis of a simulation as an analysis of an actual program.

If you have any doubt about that, consider this problem. By changing the roster of Medicare enrollees assigned to each of the 32 ACOs for its simulation, CMS effectively said, “We’re going to study the effect ACOs had on a pool of patients that did not match the actual pool of patients the ACOs were assigned.” If you’re now experiencing a charley horse in your brain trying to follow the logic of that statement, it’s not you. There is no logic to that statement.

If CMS had merely presented its simulation as an attempt to determine a fairer and more accurate method of paying ACOs in a future iteration of the program, that would have been a logical and unobjectionable claim. But CMS did not do that. CMS presented the simulated savings as if they were the achievement of the actual program when in fact they were not, and when in fact the paltry savings of the real program were readily available and could have been presented along with the simulated savings.

CMS compounded this error by refusing to warn readers that its simulated savings did not take into account the cost of the payments to ACOs nor the cost to the clinics and hospitals participating in the Pioneer program. According to undocumented statements by the staff of the Medicare Payment Advisory Commission, ACOs are spending 1 to 2 percent of their expenditures on ACO-related costs (new administrative costs and more health care professionals). In view of the anecdotal evidence that “medical homes” are spending 15 to 25 percent of their expenditures to qualify as “homes,” 1 to 2 percent seems low for ACOs.

But even at 1 to 2 percent, these costs exceed the real-world savings – .2 percent in 2012 and .5 percent in 2013. And we still haven’t discussed one other type of cost generated by the ACO program – the costs CMS incurs administering the incredibly complex ACO program.

CMS cannot be blamed for conducting dubious ACO experiments. It is under orders to do so by Congress and the White House (the instructions appear in the Affordable Care Act). And no one would blame CMS for running simulations to figure out how to improve the ACO programs after they were begun. But CMS deserves harsh criticism for creating a new version of the program on a computer, running a simulation of it, and announcing to the public that the simulated version saves far more money than the actual program saves.


1. Here is how CMS presented this data: “Total Pioneer aligned FFS Part A and Part B claims costs were approximately 1.2 percent below the combined expenditure benchmark in 2012 and 1.3 percent below benchmark in 2013; these results exceeded the combined shared savings payments (net of shared losses) of approximately 1.0 percent of benchmark in 2012 and 0.8 percent in 2013.” (p. 4)

Kip Sullivan, J.D., is a member of the board of Minnesota Physicians for a National Health Program. His articles have appeared in The New York Times, The Nation, The New England Journal of Medicine, Health Affairs, the Journal of Health Politics, Policy and Law, and the Los Angeles Times.

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Where is Hillary On Health Care?

Posted by on Monday, Jun 8, 2015

by John Geyman, M.D.

Twenty-one years ago, Hillary Clinton, then leading the presidential committee proposing a health care reform plan, made these statements in speaking to a group at Lehman Brothers Health Corporation on June 15, 1994, as revealed by a transcript made public through the Clinton Presidential Library:

. . . if there is not health care reform this year, and if, for whatever reason, the Congress doesn’t pass health care reform . . . I believe that by the year 2000 we will have a single payer system. . . I don’t even think it’s a close call politically.

I think that the momentum for a single payer system will sweep the country. . . it will be such a huge popular issue. . . that even if it’s not successful the first time, it will eventually be.

. . . there are only three ways [to get to universal coverage]. You either have a general tax – the single payer approach that replaces existing private investment—or you have an employer mandate, or you have an individual mandate. (1)

Now, two decades later, it is helpful to recall what happened to the Clinton Health Plan (CHP). After heated battles among competing stakeholders and their lobbyists, the CHP became more complex, expensive and confusing (1,342 pages), and died in committee without getting to a floor vote in the House. Colin Gordon, historian at the University of Iowa, described what happened to the bill this way:

The CHP’s fatal flaw, at least in these terms, lay in its attempt to combine employer mandates (which attracted health interests and repelled many employers) and cost control (which attracted employers and repelled health interests). This pairing made for a slowdance to the right, as reaction set in from all quarters against employer mandates, against spending controls, against any increased  federal presence in health care. (2)

The unfortunate end of the CHP could have been predicted by how the Clinton Health Care Task Force was selected—it brought together the key stakeholders in the medical-industrial complex, including the insurance and pharmaceutical industries, that themselves were responsible for health care system problems of access, costs, and quality. Though they might agree to a  concept of “managed competition”, there were deep divisions and separate agendas within and among stakeholders—as examples, big insurers were at odds with small insurers, while Big Business could support employer mandates as small business opposed them. (3)

The status of the Affordable Care Act (ACA), or Obamacare, enacted in 2010, is more familiar to us, but has striking similarities to the CHP. President Obama again chose to primarily involve corporate stakeholders in the medical-industrial complex in the planning and development of Obamacare, with its (water-downed) employer and individual mandates. The interests of insurers, the drug and medical device industries, hospitals and organized medicine took precedence over the needs of patients for broad access to affordable quality health care. In fact, five years later, it is clear that these stakeholders have received a bonanza of expanded markets without real cost controls and still with many millions of Americans uninsured and tens of millions underinsured. Wall Street tells that story, as illustrated by health care stocks increasing by 40 percent in 2013, the highest of any sector in the S & P 500 (4) and venture capital funding for health technology firms soaring by 176 percent in the first eight months of 2014 compared to the previous year. (5)

It is still completely unclear where Hillary stands on health care reform. Her recent comments suggest she supports the ACA as the best that can be done. Much of the public is concerned about her close ties to Wall Street and questions her trustworthiness on today’s issues. Can she learn from the failure of the CHP and the problems of the ACA? She claims to want to champion the interests of the middle class, but will that include taking on corporate interests in our deregulated marketplace? How can we trust her punditry as a health care “expert” based on her apparent resistance to even bringing up single payer after her predictions twenty-plus years ago?

The upcoming debates among Democratic presidential candidates, followed by those between the two parties’ candidates, will be a test of Hillary Clinton’s credibility on health care reform as well as the integrity of the “mainstream” media covering them. Let’s hope that substance prevails over misleading and disingenuous rhetoric.

What if Hillary took a bold position in support of single payer health care financing reform? If she did, she would follow in the steps of Teddy Roosevelt as a presidential candidate in 1910 and Harry Truman in 1948. She would have broad support of a majority of the American people, as shown by national polls over many years, and dating back to the 1940s, when 74 percent of the public supported a proposal for national health insurance. (6) She would also have the support of a majority of physicians and other health care professionals, who would find a single payer system far less bureaucratic than what we now have, with more time for more satisfying direct patient care. As one example of that support, 59 percent of U. S. physicians in 13 specialties support single payer national health insurance, according to a large national study in 2008. (7)

The time has come for real leadership on health care, not continuing misguided and ill informed rhetoric. We have 35 years’ experience with marketplace-based “attempts” to make health care accessible and affordable—all have failed as the business “ethic” prevails over a service ethic in the public interest. Will Hillary step up to the challenge? If so, she can take charge of the health care debate, expose the lack of effective Republican plans for health care, win in 2016, and govern for two terms while setting a landmark legacy in this country.


1. Clinton, H, speaking to a group at Lehman Brothers Health Corporation, June 15, 1994, as reported by Health Care for All-WA Newsletter, Winter 2015, p. 9.

2. Gordon, C. The Clinton Health Care Plan: Dead on Arrival. Westfield, NJ. Open Magazine Pamphlet Series, 1995.

3. Geyman, JP. Health Care in America: Can Our Ailing System Be Healed? Butterworth-Heinemann, Boston, MA, 2002, p. 318

4. Soltas, E. Nobody should get rich off Obamacare. Bloomberg View, December 3, 2013.

5. Randall, D, Farr, C. In quest for next windfall, tech funds look to healthcare. Reuters, September 3, 2014.

6. Steinmo, S, Watts, J. It’s the institutions, stupid! Why comprehensive national health insurance always fails in America. J Health Politics, Policy and Law 20: 329, 1995.

7. Carroll, AE, Ackermann, RT. Support for national health insurance among U.

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Florida legislators support taxpayer-funded insurance – for themselves

Posted by on Monday, Jun 8, 2015

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.

Florida House rejects Senate health insurance expansion plan

By Mary Ellen Klas
Miami Herald, June 4, 2015

The Florida House rejected a Senate bill to expand health insurance coverage to thousands of Floridians on Friday, putting a temporary end to a bitter and divisive legislative fight that saw no winners.

Aided by the threatened veto of Gov. Rick Scott, the GOP-majority House voted 72-41 to kill a long-shot attempt by Senate Republicans to find a way to draw down federal Medicaid money to augment health insurance for as many as 600,000 low-income working Floridians.

“Medicaid is socialized health care insurance,” said Rep. Jason Brodeur, R-Sanford, saying the Senate plan creates “permanent dependency” on handouts for “able-bodied childless adults” and props up a broken health care system.…


Florida legislators benefit from heavily subsidized health insurance

By Mary Ellen Klas

Tampa Bay Times, June 6, 2015

One of the chief arguments Florida House Republicans made Friday when they rejected the Senate plan to help 600,000 working poor get health insurance is that it would create a taxpayer-funded entitlement and would be hard to repeal.

What they didn’t mention during the debate is that they are entitled to a very generous health insurance package that costs $22,000 a year — with premiums mostly covered by Florida taxpayers.

According to financial disclosure statements, 54 legislators are millionaires.…

Who does not believe that absolutely all of us should have the health care that we need when we need it? Well, one obvious group is our elected legislators. Otherwise we would have had a universal national health program many decades ago. What can Florida add to our understanding of this resistance to ensuring universal care?

Florida legislators, many of whom are millionaires, provide themselves with very generous health insurance, paid mostly by the taxpayers. Yet these same legislators refuse to expand Medicaid to cover 600,000 working poor Floridians even though most of the costs would be covered by taxpayers in other states.

Why is this? Is it because they think each individual should be responsible for purchasing their own coverage (even though it is an “entitlement’ for the legislators)? Surely most understand that these low-income workers cannot afford to pay for health insurance. Since the legislators are opposed to mandating employers to provide the insurance, it cannot be that they believe these individuals should purchase their own insurance as that is an impossibility.

Do they really believe that these low-income workers would develop a “permanent dependency” on taxpayer-funded health insurance coverage, while they themselves are immune to a permanent dependency mindset regarding their own taxpayer-funded coverage?

They object to socialized health insurance, yet do they really believe that it is socialized only when it is provided to low-income workers, yet it is not socialized when the government provides them with their own insurance and eventually provides then with Medicare in their retirement years? What is there about social insurance being evil when it is provided to low-income workers, yet being a virtue when it is provided to millionaire legislators?

So what is it about not only Florida legislators but all legislators throughout the nation who have ensured their own health security at taxpayer expense but refuse to ensure comparable health security for each of their own constituents? (The labels that come to mind are too inflammatory to honestly answer that here.)

Does the electorate really approve of this double standard? Or is it time for citizen action?

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