Summary: The man who as a federal policy official drove the privatization of Medicare then jumped to the private sector and profited massively from the changes. Others follow the same pattern. Clever investors make billions of dollars. The rest of us suffer the consequences in higher costs and lower access to care.

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Patient Zero, Tom Scully is as responsible as anyone for the way health care in America works today, The American Prospect, August 1, 2023, by David Dayen

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It was late 2002, and Tom Scully, administrator of the Centers for Medicare & Medicaid Services (CMS), was at a U.S. News and World Report forum, relating a tale of hospital skullduggery. Under CMS rules, Medicare reserved 5.1 percent of its budget to compensate hospitals that treated “outlier” high-cost patients. Scully, a youthful-looking man with a pile of slightly graying hair who talked a mile a minute, explained that Tenet and several other hospital systems, without the regulators knowing, had for years randomly jacked up prices on individual patients to access the set-aside. This deprived other hospitals that actually had sick patients from getting a higher share of the funds; the dishonest actors were costing the honest ones money.

Scully didn’t blame hospital deception, but the policy framework he was hired to manage. “I love Medicare, it’s a great program, but as an insurance model, it’s a joke,” he said, explaining that his regulators were outgunned and slow to react. The hospitals falsified patient costs and that was unethical, he conceded, but they were just responding to incentives. “People follow the money,” Scully said, “and they’ll find the little niches in the program and they’ll game it, and that’s what happened here.”

One reading of the history of health care over the past half-century, as the profit motive was gradually introduced into insurance and delivery systems, is that little niches have sprung up, and people with capital have taken advantage. That would include Tom Scully.

At the Office of Management and Budget (OMB) in the first Bush administration and CMS under Bush II, Scully played a major role in many of the defining features of health care today, from Medicare Advantage and the privatized Part D prescription drug benefit to risk adjustment and the physician payment schedule. He wasn’t responsible for Obamacare, but the program closely follows his desire to solve problems through the private sector.

When Scully left CMS in late 2003, he joined Welsh, Carson, Anderson & Stowe, perhaps the leading health care–focused private equity firm, where he used his knowledge and contacts to invest in companies that were poised to capitalize on the incentives the government offered. Welsh Carson helped pave the way for what is now an investor gold rush into the medical system.

The 1992 Bush health plan at least rhymes with what passed 18 years later as Obamacare.

I’ve watched and listened to virtually every scrap of tape of Scully over the last 35 years, and I conducted a long interview with him in June. I think his beliefs are sincere. He thinks government price-setting doesn’t work, and that empowering private insurers that put their own money at risk leads to better and more efficient care. He believes poor people should be covered generously, but all other patients exposed to cost to reduce overutilization. And he wants the best hospitals and nursing homes and clinics to be paid more than the worst, to force advances in quality.

In practice, this set of philosophies has created the monster that is America’s health care system, where most of the money is public, but most of the entities dishing out and getting that money are private. Commercialization has crowded out what was a thriving nonprofit impulse; intensifying mergers and acquisitions have concentrated every aspect of the system; and a plague of middlemen each take their cut. Scully’s fear of big-government price-fixers has led to the triumph of big private profit-takers, at the cost of doctors, nurses, and patient care.

More than anything, the system has become maddeningly complex, with armies of functionaries working every angle, straddling every ethical line, to unlock a big safe full of money. Scully is America’s safecracker-in-chief. He designed so many aspects of this system, with its intricate nooks and crannies, that he’s practically the only person who understands it. That makes him an extremely valuable commodity. It’s almost as if he invented his career outside of government when he was transforming it on the inside.

… [read on for details on the misguided history of privatization of Medicare through Part D and Medicare Advantage, fostering a private equity explosion, and how this financially benefited Scully and other investors]

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Comment:

By Jim Kahn, M.D., M.P.H.

Again, The American Prospect series on health care displays for depressing scrutiny the utter failure of our 21^st century health insurance morass to work for patients, instead favoring inside-game investors like Tom Scully and legions of others. Medicare Advantage plans game the CMS-created system to overcharge by more than $75 billion per year, and private equity companies reap many billions more.

How can this unsavory reality not lead us to complete disgust with decades of rising privatization of health coverage, especially publicly funded? Our fragmented and exploited system utterly fails, driving up costs and profits while depriving patients of access and financial protection.

That Scully fostered and then prospered from ill-conceived free market theories is galling.

The solution? Place our faith in a universal public health insurance system. Remove profit incentives and opportunities from the task of paying for health care, and rein it in for care provision. As do dozens of other wealthy countries. Single payer.

http://healthjusticemonitor.org…

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Summary: This summer The American Prospect ran 8 terrific health policy articles, which HJM covers starting today. First up: a blow-by-blow account of the rise of the enormous, enormously diversified, and enormously profitable UnitedHealth Group (and on the origins of corporate managed care).

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Health Care’s Intertwined Colossus: How decades of policy failures led to the ever-powerful UnitedHealth Group, The American Prospect, August 2, 2023, by Krista Brown and Sara Sirota

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Today, United is the fifth-largest public company in the U.S., bigger than JPMorgan Chase. Its insurance products serve 50 million members, more than the population of Spain, and its $186 billion health services division, Optum, has 103 million patients, more than Vietnam’s population. Earnings came to $28.4 billion last year, putting it in the top 30 of companies worldwide.

We think of United as an insurance company, but it has never really been exactly that. It began as a health management company, and it is now also the largest employer of physicians in the country, with 70,000 doctors across 2,200 locations. Underneath its corporate umbrella are pharmacies, primary care clinics, surgical centers, urgent care centers, home health agencies, hospice agencies, mental health agencies, a pharmacy benefit manager, an IT division, and plenty more. United has so many subsidiaries that 25 percent of its total revenues come from itself. …

[Founder Richard] Burke epitomized “the shift in the HMO movement away from its modest origins as a fledgling alternative to conventional insurance, and into an era of big-budget marketing, Wall Street financing and hefty rewards for professional managers in a field once dominated by doctors.” …

In 2003, Congress established what today is known as Medicare Advantage, reversing the lower payments from 1997 and creating a strong foothold for managed-care plans in Medicare. Today, UnitedHealth is the largest supplier of Medicare Advantage plans in the country, with 26 percent market share as of 2020, when the government spent $317 billion on the program.

In the same law, McGuire saw another opportunity. Congress green-lit tax-advantaged “health savings accounts” (HSAs), so patients could use pre-tax money to pay medical expenses in high-deductible health plans. United created an internal bank to offer HSAs. The idea was that patients would be incentivized to shop around for the cheapest care, if not avoid doctors altogether. But United and other insurers also used managed-care techniques like limited physician networks in these plans to keep their own costs down once deductibles were hit. Today, United’s bank is the second-biggest provider of health savings accounts, with $20 billion under management and millions of users. …

By the time Obamacare passed, a wave of mergers proliferated among providers. They were trying to get leverage over negotiations with insurers, using the new rules to maximize billing for services. But United’s simultaneous motivation to game the MLR by scooping up physician practices was facilitated by this provider consolidation, giving the company easy targets to choose from. …

Doctors may find kinship with independent pharmacists, who are being forced out of business thanks to the practices of United and other insurers that have copied it. PBMs like United’s OptumRx consistently under-reimburse stand-alone drugstores and dictate which medications their patients can take. ….

[During COVID, the US] Health and Human Services Department enlisted Optum Bank to distribute $150 billion to hospitals and doctors to help cover expenses. This massive role in delivering money to providers likely helped pave the way for Optum Pay Advance, the company’s payday loan “service” for doctors. The initial offer came with a 35 percent interest rate attached. … Payday lenders are viewed as immoral because of the high interest and fees they take from vulnerable customers. In United’s case, they’re not only doing that, but they’re generating the need among physician practices in the first place. …

Along the way, United has internalized a critical fact about health care: If you sit on every side of the transaction, from doctors to insurers, drug payers to drug prescribers, lifesavers to end-of-life carers, you not only grow as the system grows, but you have the ability to steer the entire system inside your gaping maw. Conflict of interest is really the business model.

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Comment:

By Jim Kahn, M.D., M.P.H.

UnitedHealth Group is the leading example of an industry run amok. Profits over patients (and doctors and pharmacists). This is a sad story, well told.

The excerpts above focus on UHG’s aggressive if legal business strategies. Most notable are wide-ranging acquisitions that facilitate gaming of regulations, e.g., starting PBMs and hiring doctors to circumvent limits on medical loss ratios by shifting profits to subsidiaries. And providing high interest “payday loans” while being the cause of delayed and denied payments.

Also described in the article are equally aggressive and often illegal non-business strategies. These include fraudulent behaviors incurring hundreds of millions in fines, e.g., backdated executive stock options, grossly understated physician payment benchmarks to suppress out-of-network provider reimbursements, and diagnostic code manipulation. Add to that hardline control of the political environment: purchase of The Lewin Group (policy analysts) to fight off a public option in the ACA, and massive Congressional lobbying.

The article is wrong in saying that “United is essentially running a private single-payer system” that can be regulated like a public utility. Because that’s not what single payer is.

Here’s a reminder: single payer is a public funder of health care, covering everybody (not just UHG members) with the same comprehensive insurance for all necessary medical care, with little or no cost-sharing, and paying all providers the same fairly negotiated amount for that care. With public accountability. And without shareholders.

The contrast with UnitedHealth Group couldn’t be clearer. With for-profit insurers, it’s impossible to regulate your way to single payer. Remove them. Unify the system under public leadership.

http://healthjusticemonitor.org…

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Stay informed! Subscribe to the McCanne Health Justice Monitor to receive regular policy updates via email, and be sure to follow them on Twitter @HealthJustMon.