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: https://theconversation.com/health-care-cost-sharing-prompts-consumers-to-make-big-cuts-in-medical-spending-41657

“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): http://eml.berkeley.edu/~bhandel/wp/BCHK.pdf

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Comment:

By Don McCanne, MD

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.

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

Abstract

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.

http://content.healthaffairs.org/content/34/6/1019.abstract

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Comment:

By Don McCanne, MD

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.

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.

http://www.nejm.org/doi/full/10.1056/NEJMp1506158

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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.

GOP, Obama on cusp of fast-track trade victory

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Comment:

By Don McCanne, MD

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.

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.

http://thehill.com/homenews/house/244472-gop-huddles-on-trade-vote-timing

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Transparency Chapter Annex on Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices

Trans-Pacific Partnership Agreement
WikiLeaks, June 10, 2015

Description

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.

TRANSPARENCY CHAPTER (Excerpts)

PARAGRAPH X.1: PRINCIPLES

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.

PARAGRAPH X.2: PROCEDURAL FAIRNESS

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.

PARAGRAPH X.4: CONSULTATION

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.

PARAGRAPH X.6: DEFINITIONS

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.

SCHEDULE TO 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;]

https://wikileaks.org/tpp/healthcare/WikiLeaks-TPP-Transparency-Healthcare-Annex.pdf

WikiLeaks press release
https://wikileaks.org/tpp/healthcare/press.html

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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.

http://www.citizen.org/documents/memo-burning-questions.pdf

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Comment:

By Don McCanne, M.D.

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.

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

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

Abstract

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.

http://content.healthaffairs.org/content/34/6/922.abstract

List Of The 50 Hospitals With The Highest Charge-To-Cost Ratios, 2012: http://content.healthaffairs.org/content/suppl/2015/06/03/34.6.922.DC1/2014-1414_Bai_Appendix.pdf

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Comment:

By Don McCanne, MD

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.

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.

http://www.miamiherald.com/news/politics-government/state-politics/article23147979.html

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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.

http://www.tampabay.com/news/politics/stateroundup/florida-legislators-benefit-from-deeply-subsidized-health-insurance/2232608

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Comment:

By Don McCanne, MD

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?

The Expanding Role of Managed Care in the Medicaid Program

By Kyle J. Caswell, PhD, Sharon K. Long, PhD, The Urban Institute, Washington, DC
Inquiry, April 16, 2015

Abstract

States increasingly use managed care for Medicaid enrollees, yet evidence of its impact on health care outcomes is mixed. This research studies county-level Medicaid managed care (MMC) penetration and health care outcomes among nonelderly disabled and nondisabled enrollees. Results for nondisabled adults show that increased penetration is associated with increased probability of an emergency department visit, difficulty seeing a specialist, and unmet need for prescription drugs, and is not associated with reduced expenditures. We find no association between penetration and health care outcomes for disabled adults. This suggests that the primary gains from MMC may be administrative simplicity and budget predictability for states rather than reduced expenditures or improved access for individuals.

From the Discussion

This study finds that increased MMC penetration in a county is associated with an increase in the probability of an ED visit, and reported difficulty seeing a specialist and unmet need for prescription drugs among nonelderly non-SSI Medicaid adults. Furthermore, we find no evidence of reduced expenditures associated with increased MMC penetration for the non-SSI population. For nonelderly SSI Medicaid adults, we observe no consistent evidence that MMC penetration influences medical care access, use, or expenditures. We do not, however, interpret this as evidence that MMC has no impact on the outcomes examined. Our SSI sample is small, raising concerns about the precision of our estimates for this subpopulation, a limitation of the MEPS sample size.

Overall these results, especially among non-SSI Medicaid enrollees, seemingly contradict conventional theories on the expenditures and benefits of managed care. That is, managed care is generally intended to provide access to appropriate care in a timely, efficient, and cost-effective way by shifting the locus of care from higher cost settings to primary care. If successful, one would expect higher levels of primary care use, lower levels of specialist use that could be provided in primary care settings, lower levels of unmet need for care, and lower levels of inpatient stays and ED visits for ambulatory care sensitive conditions, and, as a result, reduced expenditures associated with those changes. Nonetheless, incentive structures created by managed care organizations may not always result in intended/desired outcomes.

There are characteristics of states’ Medicaid programs that may lead to outcomes that are inconsistent with conventional managed care theory. The largest factor, perhaps, is the programs’ low reimbursement rates. Low rates, combined with incentives to reduce expenditures within managed care organizations, could lead to reductions in appropriate access to care and/or quality of care should it limit the number and/or quality of providers available (e.g., narrow limits on number or type of prescription drugs or specialist care). Furthermore, reductions in appropriate care could eventually lead to more high-cost care (e.g., inpatient and/or ED care).

Our findings for the non-SSI population will help to inform the trend toward medical homes and accountable care organizations (ACOs). That is, to the extent that medical homes and ACOs in Medicaid are based on the MMC model, the benefits generated from these alternatives may also be limited. Silow-Carroll et al., however, highlight that the ACO model with its focus on greater integration and coordination of care, and greater emphasis on high-risk individuals, could offer greater improvements in care than have been generated by the traditional MMC model to date. These authors also note that many managed care organizations, including MMC organizations, are shifting toward the ACO model. Consequently, if the ACO model is more successful in achieving its intended benefits than the current MMC model, such a move could improve MMC. Going forward, it will be important to study whether ACOs and medical homes, whether stand-alone models or models developed as part of MMC plans, can produce the improvements over fee-for-service Medicaid that to date have largely proven elusive with MMC.

http://inq.sagepub.com/content/52/0046958015575524.full

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Comment:

By Don McCanne, M.D.

Most states are moving most of their Medicaid patients into Medicaid managed care programs. As of 2011, 74% of Medicaid patients were in Medicaid managed care organizations (CMS data). The states contend that this shift will improve care coordination while reducing costs. What does this report from The Urban Institute show us?

The study was limited to nonelderly Medicaid beneficiaries. The study was not powered to determine the impact on the disabled, but conclusions can be drawn for the nonelderly nondisabled. For this group, increased Medicaid managed care penetration is “associated with increased probability of an emergency department visit, difficulty seeing a specialist, and unmet need for prescription drugs, and is not associated with reduced expenditures.” Based on these criteria, care was less coordinated and costs were not reduced. Some would consider this massive experiment to be a failure.

Although conclusions from this study cannot be applied to the elderly nor to the disabled, it seems intuitive that a program that is not working for younger, healthier individuals would not work any better for the elderly and disabled. However, the authors do suggest that greater attention to integration and coordination through medical home or ACO models could improve care for high-risk patients. Integration and coordination theoretically should be beneficial.

The management of care has been turned over to 267 mostly for-profit Medicaid managed care organizations (2014). These organizations are driven by the bottom line so the additional costs of improving integration and coordination remain targets for reducing overhead. They are businesses first, providing a market product – health care.

How could a single payer system improve on this? Imagine federally qualified health centers functioning as medical homes or ACOs. Integrating and coordinating care is part of their mission. Other private primary care groups in the community also serve as coordinators of care, ensuring access to specialists, hospitals, and other facilities and services. These are service organizations first, providing a crucial community service – health care.

These entities would be providing care for everyone on the same basis; the Medicaid designation would disappear. That is, payments would be going directly to the health care delivery system rather than to the wasteful tangled mess of intermediary money managers.

Kip Sullivan provides an excellent discussion of this topic at the PNHP Blog:

https://pnhp.org/blog/2015/05/05/managed-care-should-focus-on-the-very-sick-but-that-could-mean-the-end-of-managed-care/