The Dangers of Undermining Patient Choice: Lessons for Europe and Canada

A joint project with Galen Institute, and International Policy Network October 2006
Institute for Policy Innovation

The U.S. is once again embarking on a national debate over health care reform, and many people want the country to embrace a system similar to those of Europe or Canada. This study includes nine papers from a number of economists and health policy experts from those countries. What these experts expose are governments micromanaging the health care system: imposing price controls, limiting access to prescription drugs, hindering research and innovation, and cutting government health care budgets. As a result, patients face long waiting lines, often go untreated, or treated with old and outdated technologies.

Swiss Health Care: A Clockwork Model that Fails to Keep Promises

By Alphonse Crespo, M.D.

Switzerland’s pluralist social health care system stems from constitutional articles voted in 1890 guaranteeing access to adequate health care for all.

This goal was achieved by a delicate blend of social insurance, private enterprise, oligopoly and competition in which the government played a subsidiary role and where wide autonomy was left to the cantons. Limited government intrusion, strong and innovative health industries, reputable medical schools and a market economy spared by two world wars gave quality care to all levels of society for many decades.

The Promise Denied.

But efforts for health care reform that began in 1960, pushed for an increased regulatory and redistributive function of the state.

Social-democratic reformers finally got their way in 1994 with the creation of the Federal Law of Insurance against Sickness (LAMal), which established compulsory insurance and appointed insurance providers with wide regulatory powers.

Possibilities for Reform.

A constitutional initiative launched in 2004 by trade unions and the socialist party called for a single national insurance provider and for insurance premiums pegged to personal income. This proposal that would abolish some 90 existing sickness funds was rejected by Parliament, but the issue will be taken to referendum vote in 2007. Deep public dissatisfaction with sickness funds and current polls reflect a readiness to accept a single insurance provider as a lesser evil.

http://www.ipi.org/ipi/IPIPublications.nsf/PublicationLookupFullTextPDF/BED00643F2807FC18625720B003DEB12/$File/LessonsfromEuropeCanada.pdf?OpenElement

Comment:

By Don McCanne, MD

The producers of this report are supporters of the free market in health care, with its current incarnation as consumer-directed health care.

As expected, the report is saturated with anti-government rhetoric, containing their requisite criticisms of universal systems. Still it is a report worth reading since it is important to understand the rhetoric of the opponents of national health insurance, and it also does identify some genuine weaknesses of other systems, even if biased, distorted and sometimes false.

Only the United States spends more on health care than does Switzerland.
With an individual mandate to purchase insurance, choosing from 90 different sickness funds, the Swiss are looking for relief. It is a sign of the times that these free market advocates acknowledge that the Swiss seem ready to “accept an (equitably funded) single insurance provider as a lesser evil.”

Private equity infusion: A question of balance of growth vs. control for doctors

By Katherine VogtAmerican Medical News
Oct. 23/30, 2006

For the last few years, a growing pool of private equity investment money has been pouring into health care firms, swelling these enterprises until they are big enough to crest in rewards for investors.

The dollars have streamed into biotech, pharmaceutical, device and equipment companies as well as into hospitals, ambulatory surgery centers and even physician networks, providing relief for businesses that were thirsty for capital to grow and expand.

But implications for physicians are murky. Certainly some physician-led enterprises have benefited from the financial infusions. Yet those physicians may also be losing some control of their businesses as the private equity investors gain a stake. And, the increased leveraging of those enterprises may spell more risk for the physicians who have to make the businesses financially successful.

The money also is flowing into health care services such as integrated health care delivery systems, said Craig Frances, MD, a principal with the Palo Alto, Calif.-based private equity firm Summit Partners. “You’re seeing the resurrection of people believing after all there is a lot of value to some of these physician networks that are built differently, … as long as you are able to appropriately align incentives with doctors,” said Dr.
Frances, who was trained as an internist but no longer practices medicine.

“The difference with private equity is that although it’s a good source of capital, it also comes with owners and investors. And they will want results,” said (Richard Gundling, vice president of the Healthcare Financial Management Assn., a Westchester, Ill.-based association of health care financial executives). “Those private equity investors may want a seat at the table to govern changes. And you may have to give up some control.”

http://www.ama-assn.org/amednews/2006/10/23/bisa1023.htm

Comment:

By Don McCanne, MD

Res ipsa loquitur

Covering California’s Uninsured: Three Practical Options

By Rick Curtis and Ed Neuschler
California HealthCare Foundation
October 2006

The alternative mandatory coverage models analyzed in this report include:

* An individual mandate with no required contribution by employers.

* An individual mandate with a “pay-or-pay-plus” requirement on employers, including a modest employer-contribution floor for full-time permanent workers and a required employer fee for other workers and their dependents.

* An All-Consumer Choice Exchange (ACE) funded by payroll fees on all employers and workers (an insurance exchange of competing health plans).

All of the alternative mandatory-coverage approaches estimated in this project would, to the extent that they were sustainable, both preclude people from becoming uninsured and ensure that modest- and low-income people could afford coverage. We have no research basis for estimating different growth rates for health care spending under the different alternatives we analyzed. But unless the disproportionate increases in health care costs are curtailed, a growing number of people with higher incomes will not be able to afford coverage without subsidies, and government’s ability to finance adequate subsidies for even the initial low-income population will falter.

http://www.chcf.org/topics/healthinsurance/index.cfm?itemID=125690

Executive Summary:
http://www.chcf.org/documents/insurance/CoveringCaliforniasUninsuredExecSummary.pdf

Full Report:
http://www.chcf.org/documents/insurance/CoveringCaliforniasUninsuredFull%20Report.pdf

Comment:

By Don McCanne, MD

California HealthCare Foundation (CHCF) was established to serve the citizens of California by helping to improve California’s health care financing and delivery systems. It was funded with a largely-coerced contribution from Blue Cross of California which represented accrual of tax benefits rightly reverting to the citizens once Blue Cross was converted to a for-profit, investor owned company. Mark Smith, MD, MBA (Wharton) has been its president and CEO since its founding in 1996. He has been a strong supporter of managed care and private insurance, while also having expressed his opposition to single payer reform.

California is ripe for comprehensive reform. There is strong support for the single payer model with a bill having recently been passed by the state legislature, only to be vetoed by Gov. Schwarzenegger. The governor has promised to introduce his plan for reform in January.

This background makes it easier to understand why CHCF is presenting three models of reform, each of which dramatically expands the private insurance market in California, as if these were the only feasible options available.
These options, as described in the report, fail to achieve the efficiencies, comprehensiveness, cost containment, and equity of the single payer model.

The gold standard of single payer needs to be included in every dialogue on reform, not only in California, but throughout the nation. Please continue to do your part to be sure that it is.

Understanding The American Public’s Health Priorities: A 2006 Perspective

By Robert J. Blendon, Kelly Hunt, John M. Benson, Channtal Fleischfresser, Tami Buhr
Health Affairs
October 17, 2006

Views on national health spending and health care costs.

Multiple survey results show that the public favors increased health spending in the years ahead but is concerned about the impact of rising health care costs on the financial situation of American families. In 2004,
78 percent of the public thought that national spending to improve health was too low; only 4 percent said that it was too high. Similarly, in 2006 a survey asked specifically about overall national spending on health care and national health care spending by government. The majority of respondents (57
percent) thought that the United States as a country was spending too little on health care in the aggregate, and 70 percent said that government health care spending was too low. Only 26 percent thought that the country as a whole was spending too much, and 11 percent thought that the government was spending too much. Around one-tenth of Americans thought that these spending levels were “about right” (9 percent, nation as a whole; 11 percent, government).

What concerns Americans is not aggregate spending, but the perceived negative impact on American families of their direct health care outlays (insurance premiums, copayments, deductibles, and direct payments for services and products). When asked about spending for health care by average Americans in 2006, 65 percent of respondents said that the average American spends too much, while only 17 percent said too little. (Twelve percent felt that the level of spending was “about right.”) This is what Americans mean when they list health care costs as the top health care priority for government action.

Discussion And Conclusions (excerpt)

Most U.S. news coverage about medical care issues during the past year has concentrated on Medicare’s new prescription drug benefit, while many in the research and professional community have focused on the nation’s quality-of-care problems. What is important to recognize is that these are not the American public’s top health care priorities today. Americans want their government to do something about their rising health care costs and the problems of the uninsured. When Americans talk about health care costs, however, their concern is not for the share of the nation’s gross domestic product (GDP) going toward health care, but rather the financial impact on their own families.

http://content.healthaffairs.org/cgi/content/abstract/hlthaff.25.w508

Comment:

By Don McCanne, MD

This is an important distinction. Americans believe that aggregate health care spending should be increased, especially the contribution by the government. This is in sharp contrast to the concerns that Americans have about their own individual out-of-pocket spending for health care, including the cost of health insurance.

In evaluating reform options, the individual’s first concern is, “Does it work for me?” If individuals understand that it does, and then they see that it also works for everyone else with a negligible additional burden to the individual, then they can be supportive of that reform.

The single payer option is the reform model that would work the best for individuals. But another finding indicates that the public probably does not understand this. When asked which are the two most important problems with the nation’s health care system that the government should address, the top two responses were health care costs (43 percent spontaneous response), and uninsured/access to care (34 percent). Only one percent volunteered that organization of the system was one of the two most important problems, behind many other less pressing health care issues.

It is reassuring that our citizens understand that health care costs, and lack of insurance and access are the most important issues. But they still need to understand that reorganization of the financing of health care will be required to successfully address these issues. It’s our job to see that they do.

Chief Executive at Health Insurer Is Forced Out in Options Inquiry

By Eric Dash and Milt Freudenheim
The New York Times
October 16, 2006

Dr. William W. McGuire, a medical entrepreneur who built the UnitedHealth Group into a colossus in its field, was forced to resign from the company yesterday and to give up a portion of the $1.1 billion he holds in harshly criticized stock options.

At UnitedHealth, even the man named to replace Dr. McGuire as chief executive has been a beneficiary of backdated options: Stephen J. Hemsley, who has been Dr. McGuire’s top lieutenant, will lose a sizable portion of his options, the company said.

http://www.nytimes.com/2006/10/16/business/16united.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1161018912-8+gxj7+G8oF5ouY7SlJAGQ&pagewanted=all

And…

Hospital Sues Blue Cross for Payments

By Lisa Girion
Los Angeles Times
October 14, 2006

A class-action lawsuit filed Friday on behalf of all California hospitals accused Blue Cross of California of routinely violating state law by refusing to pay hundreds of hospitals statewide for patient care it authorized.

“Hospitals provided care to those Blue Cross patients in good faith,” said (Jan Emerson, a spokeswoman for the California Hospital Assn.). “In many cases that care is pre-authorized by Blue Cross. When they cancel coverage after that care has been provided, that causes a problem for the hospital.”

The suit alleges that, in many cases, such revocations are themselves illegal, triggered by a purported corporate policy to avoid expensive claims.

http://www.latimes.com/business/la-fi-hospitals14oct14,1,3867891.story?coll=la-headlines-business

Comment:

By Don McCanne, M.D.

Three questions:

(1) How many stock options would be granted to the trustees of a publicly funded and publicly administered program of national health insurance?
(Hint: No stock shares exist in a program owned by the citizens of the nation rather than by passive investors on Wall street.)

(2) Under what circumstances would a publicly funded and publicly administered program of national health insurance retroactively deny payment for legitimate health services already provided?
(Hint: The mission of a publicly owned national health insurance program is to prevent financial hardship for individuals requiring health care, whereas the mission of a for-profit health insurance corporation requires the adoption of policies that would maximize investor return.)

(3) Must the moral high ground remain elusive?
(Hint: As long as we leave the private insurance industry in charge… )

HEALTH REFORM: Reinventing The Wheel

by Alan Maynard
Health Affairs Blog
October 12th, 2006

The American health care systems perform impressively, producing what they are designed to deliver: cost inflation, inefficiency, and inequity. At regular intervals, local pundits declare that the outcomes of the incentive structures in the constituent parts of the systems are unacceptable, usually emphasising that “the nation cannot afford to spend 16 percent of GDP on health care.” Such “insights” ignore the fact that inflation is a consequence of the systems’ perverse incentives and that improved control of expenditure inflation would oblige physicians, nurses, hospitals, and the pharmaceutical industry to moderate their lifestyles.

Michael Porter, a management guru at Harvard, along with colleague Elizabeth Olmstead Teisberg, has now decided to switch his attention to the health care industry, no doubt in part because he has recognised that it is big and remunerative. The extent to which the lessons of Enron and the “successes” of other capitalist enterprises can inform health care policy can and should be debated carefully.

Any cure for the malaise of U.S. health care, or the British NHS to which Porter has also offered his vision of a New Jerusalem, is dependent on diagnostic skills and the evidence base for the treatments offered. Like many gurus before him, Porter makes an adequate job of the diagnostics, offering insights very reminiscent of the Jackson Hole proposals over a decade ago.

However when he gets to cures, there is nothing new to break the logjam of inertia and self-interest that stabilizes the inefficiency of the health care system, be it public or private. He rightly indicates that the industry needs a measure of value added and that instead of focusing on cost and activity, it is necessary to measure patient-reported outcomes – i.e., measures of whether patients feel better. Such a conclusion is welcome but ignores the forces that have prevented the use of outcome measures in health care for centuries. Another Bostonian, Ernest Codman, suggested systematic management for Massachusetts General Hospital – in particular, plans for evaluating the competence of surgeons in the early twentieth century – and, as a consequence of the unpopularity of his proposals, he lost his staff privileges in 1914.

Insurers and Governments Fixated on Failure

The RAND Insurance Experiment produced a generic health profile, Short Form 36. Work in Europe has produced a generic health index, EQ5D. These have been translated into dozens of languages and used in thousands of clinical trials. But with physicians and policy makers fixated with the measurement and management of failure (e.g. mortality), these measures of success have been ignored by insurers and governments alike as a means of measuring success and of bringing to account those providers failing to make their customers “better,” in terms of physical and mental functioning.

Porter’s lack of specificity about the outcome measures needed to improve the performance of the U.S. health care systems, and his glib reliance on “competition” to institute change, flies in the face of international evidence: Nowhere has any public or private institution managed to curb the excesses of powerful providers more interested in their wallets than demonstrably improving patients’ health. Porter adds little new to the debate, but he is a welcome and potentially powerful addition to the chorus advocating change.

A. Maynard, HEALTH REFORM: Reinventing The Wheel, Health Affairs Blog, October 12th, 2006, http://healthaffairs.org/blog/2006/10/12/health-reform-reinventing-the-wheel/,
Copyright ©2006 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

Comment:

By Don McCanne, MD

Health Affairs has initiated a blog and has begun with comments on Michael Porter and Elizabeth Teisberg’s “Redefining Health Care.” Comments by James Robinson, Uwe Reinhardt, Alain Enthoven, and Alan Maynard have been posted, along with responses from readers.

Besides Alan Maynard’s comments above, I would also recommend reading Uwe Reinhardt’s take. An excerpt: “Unfortunately, (Porter and Teisberg’s) book offers few practical hints on how the U.S. health system would transit from its current, allegedly negative-sum game to the allegedly positive-sum utopia (Porter and Teisberg) envision. That transition would vastly rearrange the distribution of economic power and clinical autonomy in our health system. It is naive to assume that the potential losers in that transition would simply roll over and accept their fate.”
http://healthaffairs.org/blog/2006/10/10/health-reform-porter-and-teisbergs-utopian-vision/#more-63

Regular readers of the Quote of the Day will know that I am not a fan of Porter and Teisberg’s concepts. An excerpt from an earlier comment of mine: “Imagine a system in which care is delivered based on teams, without geographical limitations, organized around medical conditions, competing with other teams organized around the same conditions. Imagine your community hospital and its specialists providing care for a very limited list of medical conditions selected on the basis of providing better outcomes and lower prices. Your community hospital may very well lack a team that is dedicated to your particular problem, requiring you to travel to the next county, or maybe the next state, for care. Then allegedly to create transparency in pricing, you receive a single bill that totally obscures any understanding as to where your payment goes. You really have to read the book to understand the extent to which this line of reasoning is carried.” https://pnhp.org/news/2006/june/porter_and_teisberg.php

“The American health care systems perform impressively, producing what they are designed to deliver: cost inflation, inefficiency, and inequity.” This first line in Alan Maynard’s comment leads us to our bottom line. The United States needs a new design that would address cost inflation, inefficiency, and inequity. The first step would be to establish an equitable, efficient national health insurance program that could begin to tackle the rapidly rising costs of health care. That won’t be easy, but it’s impossible under the status quo.

Health Savings Accounts and High Deductible Health Plans: Are They An Option for Low-Income Families?

By Catherine Hoffman and Jennifer Tolbert
Kaiser Commission on Medicaid and the Uninsured
October 2006

Key Findings:

* Premiums for HSA-qualified health plans may be lower than for traditional insurance, but these plans shift more of the financial risk to individuals and families through higher deductibles.

* Premiums and out-of-pocket costs for HSA-qualified health plans would consume a substantial portion of a low-income family’s budget.

* Most low-income individuals and families do not face high enough tax liability to benefit in a significant way from tax deductions associated with HSAs.

* People with chronic conditions, disabilities, and others with high-cost medical needs may face even greater out-of-pocket costs under HSA-qualified health plans.

* Cost-sharing reduces the use of health care, especially primary and preventive services, and low-income individuals and those who are sicker are particularly sensitive to cost-sharing increases.

* Health savings accounts and high deductible plans are unlikely to substantially increase health insurance coverage among the uninsured.

For low-income families in particular, HSAs and HDHPs may exacerbate, rather than alleviate, the problems they currently face in affording and accessing needed health care.

http://www.kff.org/uninsured/upload/7568.pdf

Comment:

By Don McCanne, MD

Any student of health policy already fully understands the message in this report: Health savings accounts and high-deductible health plans do not work for lower-income individuals with significant health problems. So why belabor this point? Why shouldn’t we support current legislation that would expand the HSA/HDHP benefits for healthy, higher-income individuals, for whom they work well, and find other solutions for those with lower incomes and greater needs?

The problem is that HSAs remove funds from the risk pools that pay for health care, and convert them into tax-subsidized retirement funds for wealthier individuals. Social insurance programs depend on the healthy to help fund the care of the sick, and the wealthy to help fund the care of the poor. HSAs allow the healthy and wealthy to avoid sharing risk with the sick and poor who are already facing affordability issues. Not very egalitarian, but that seems to be the American way.