PNHP

How much is wasted on defensive medicine?

How much is wasted on defensive medicine?

The Cost of Defensive Medicine on 3 Hospital Medicine Services

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

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

Discussion

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

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

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

http://archinte.jamanetwork.com/article.aspx?articleid=1904758

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The cost of defensive medicine

By Aaron Carroll
AcademyHealth Blog, September 15, 2014

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

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

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

From response by Uwe Reinhardt:

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

http://blog.academyhealth.org/the-cost-of-defensive-medicine/

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Comment:

By Don McCanne, MD

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

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

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

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

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

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

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

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

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

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

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

‘Climate change is a health crisis’

“Democracy Now,” Sept. 21, 2014

Philip Swift

The following is an unofficial transcript of an interview that Dr. Oliver Fein, chair of the New York Metro chapter of Physicians for a National Health Program, and Katie Robbins, executive director of the chapter, gave to Amy Goodman of “Democracy Now” at the huge Climate Justice March in New York City on Sept. 21, 2014. The video of this interview begins at the 54-minute mark at this link. Other PNHP activists, including Dr. Steffie Woolhandler and Dr. Steve Auerbach, were also interviewed at the march.

Amy Goodman: You can see people from all over the world are here. I see right now that Dr. Oliver Fein is in the crowd. Let’s see if he can join us as well as Katie Robbins. They are with Physicians for a National Health Program. So, is our doctor worried?

Oliver Fein: Very worried about the effect of climate change on my patients, on their families, on you and me, frankly. You know, there’s going to be a major health impact.

AG: What is this impact?

OF: Well, there are a variety of examples. For instance, when the temperature rises, the ozone level at the ground level actually goes up and that stimulates asthma in children, in adults, in the elderly. When temperatures go up, more people in fact will suffer heat stroke. It is estimated that by 2050, we will have 70 percent more deaths from heat-related events than we have today. And the rainfall, when temperatures go up, becomes in fact much heavier, leading to flooding, and flooding frequently leads to the contamination of drinking water, so there will be water-borne salmonella infections. So all these things are going to impact us, but, interestingly, most profoundly, probably people with low resources – poor people, African Americans, Latinos. So that’s why I think that climate change justice goes along with health care justice.

AG:  Katie Robbins, how did you get involved with this issue? You’re a health care professional?

Katie Robbins: Yes, I have a master’s in public health and I think it’s so important that people realize how personal this issue really is. It’s not just about polar bears, but the health impacts of climate change are going to affect future generations if we don’t do things now, when we have the opportunity. This is very personal to me. I am expecting my first kid in a few months and …

AG: Congratulations.

KR: Thank you. Reports from UNICEF show that children are going to be most heavily impacted by climate change, and that has to do with the kind of health issues that Dr. Fein raised – asthma, and so on – but also food insecurity in many parts of the world and the effects of extreme weather, which lead to floods and displacement. So now is the time to act before these problems [get much worse]

AG: What does your sign say?

KR: It says “Climate change is a health crisis.”

AG: Interesting. You have many organizations at the bottom of this sign. Name them.

KR: We’ve been working on building the health contingent for this march. So we have National Nurses United, the New York City Nurses Association, Physicians for Social Responsibility, ACT-UP, Climate 911, and many unions as well.

AG: It’s interesting that you mention unions. Thousands of union members are rallying at 58th Street and are going to join this march. Now Dr. Fein, what kind of doctor are you?

OF: I’m an internal medicine/general medicine physician.

AG: How common is it for doctors to see climate change as a health issue?

OF: I think it’s not that common these days, but it’s increasingly an issue that I think more and more physicians are going to rally behind. But, it requires major system change, just as, for instance, single-payer national health insurance, what I advocate for, requires major system change.

AG: How are they connected, single payer and climate change?

OF: Well, because I think we need a mass movement to deal with climate change, and I think we also probably need a mass movement in terms of single-payer national health insurance.

AG: I want to thank you both for being with us, Dr. Oliver Fein and Katie Robbins, who are holding a sign that says, “Climate change is a health crisis.” I know you want to rejoin your contingent.

http://www.democracynow.org/live/peoples_climate_march

Outrageous out-of-network billings

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

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

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

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

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

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

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

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

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

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

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

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Comment:

By Don McCanne, MD

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

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

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

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

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

Why the single-payer resistance?

By Jack Bernard
The Ledger-Inquirer (Columbus, Ga.), Sept. 19, 2014

Ever since Medicare (universal health insurance for old people and the disabled) came out in 1965, congressional efforts to expand it to cover the rest of us have been thwarted.

Why has this occurred? There are two basic reasons:

  • Extensive lobbying by health care providers (hospitals and MDs), big Pharma, and (most importantly) the insurance industry, and
  • Much of the American public has been brainwashed into incorrectly believing higher costs and lower quality will result if we have “socialized medicine” (i.e. single payer).

Even market-based reforms, much less ones involving more government, are very hard to get through Congress. In 2008, Sen. Johnny Isakson of Georgia (a more moderate GOP senator) was asked whether or not he would support the Affordable Care Act.

He declined, citing the usual canards about “socialized medicine,” even though the ACA is based on expansion of private insurance. Through 2008, his campaign was paid $600,000 by providers, big pharma and insurance firms. Lobbying money he has received from these groups is much greater now.

The lobbying payoff was also significantly higher for Sen. Max Baucus, who famously refused to let single-payer advocates speak before his committee when they were constructing what eventually became the ACA.

Until we enact true national campaign finance reform — and get a few resignations from the radically right-wing SCOTUS — we are fighting an uphill battle in Congress in regard to health insurance reform.

Of course, if enough voters become angry about the situation, single-payer legislation could possibly be enacted some day. Which brings me to part two of the equation: getting the public to understand how they are being manipulated by these politicians and interest groups via the media (Fox and talk radio).

The basic problem is communications, which is why I have been so active, writing 87 health reform op-eds and letters to the editor since the enactment of the ACA in 2009. The facts are clear, but the mainstream national media are too busy worrying about which starlet has been hacked to report them. And that should concern all of us.

Where should we look for data to prove the case for Medicare expansion? There are numerous sources, but I will cite only one for the purposes of this article.

A report came out in Health Affairs this week which compared hospital administrative overhead between the USA and six European nations and Canada. Incredibly, this study found that our hospitals, with a multitude of insurance payers, spent 25 percent of their revenue on administrative expenses. Even worse, that percentage is actually increasing!

But how are we in comparison to others? Canada, which has universal Medicare, runs 12 percent. Other nations range a bit higher, but none approach 25 percent.

We look even worse when we examine GNP. The USA spends 18 percent of its GNP on health care, whereas Canada is at only 11 percent. Other nations, like England with 10 percent, are even lower.

Plus, the proportion of health care expenditures to GNP is growing. When I was director of health planning for Georgia in the 1970s, it was just 8 percent.

Why does this matter? Because our nation is slowly falling behind other developed countries in areas such as infrastructure and education. And one primary cause is the drain that health care has on our budgets, publicly and privately. Per the report, we would have saved $74 billion if our admin costs were still at the year 2000 level. If we spent the same as Canada per capita on health care, we would have saved $154 billion.

The report further documents that many of the alternative ways put forth for “reforming” the system have unforeseen consequences. Or, at least, purposely ignored consequences.

For instance, pay-for-performance schemes become a game of who can best work the system via manipulation of coding. And they entail excessive paperwork, as any provider can attest.

What can be done about this state of affairs? Surveys have shown that Americans like Medicare, although they want adjustments to part D (pharmacy) to expand governmental negotiation of prices.

Therefore, given that the report states that our excessive costs are “driven by the complexity of the reimbursement system,” single payer via Medicare for All would be a good start toward making progress. From my viewpoint, based on facts and not “free market” theory, that strategy is the only viable way of controlling costs, assuring access and improving quality.

Jack Bernard, a retired senior executive for several national health care corporations, is also the former Director of Health Planning for the state of Georgia and former chairman of the Jasper County Republican Party; Bernard_Jack@hotmail.com.

http://www.ledger-enquirer.com/2014/09/19/3310097_jack-bernard-why-the-single-payer.html?rh=1

Single-payer system would reduce costs over time

By Elmore F. Rigamer, M.D.
The Times-Picayune (New Orleans), Letters, Sept. 19, 2014

Re: “Hospital administration costs consuming greater portion of the U.S. economy,” NOLA.com, Sept. 16:

The article on the high administrative costs in U.S. hospitals, while startling, is not surprising. The health care system is perfectly designed to give high costs and uneven quality. Each year the system becomes more complicated and expensive with dollars for administering it competing with dollars for patient care. Physician burnout is high, according to an August article in The Wall Street Journal, and people cannot figure out what health care costs are when they try to buy health insurance.

This is worth noting in New Orleans, as we build a billion-dollar hospital complex whose administrative expenses will compete with dollars for patient care.

There is a solution to the mess: a single-payer system. Medicare is an example, with 5 to 7 percent administrative costs and universal coverage. Other industrialized Western countries have a version of single payer, and Massachusetts and Vermont are experimenting with models that offer universal coverage. It is complicated and initially expensive, but a better alternative to what we have now.

Physicians for a National Health Program (PNHP), an organization that promotes single-payer health care reform, will hold its annual meeting in New Orleans in November.

Dr. Elmore F. Rigamer resides in New Orleans.

www.nola.com

Fortune 500 companies shift more costs to employees

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

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

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

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

Key findings from the survey include:

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

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

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

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

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

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

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

http://www.sc.edu/uofsc/newsreleases/2014/09_mooreschool_hr_chro_survey_ppaca.php#.VBx3sUur_-B

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Comment

By Don McCanne, M.D.

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

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

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

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

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

http://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014_full.html

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

F.T.C. Wary of Mergers by Hospitals

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

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

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

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

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

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

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

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

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

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

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

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

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Comment:

By Don McCanne, MD

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

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

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

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

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

The troubling way we pay hospitals in Maine and throughout the US

By Philip Caper, M.D.
Bangor (Maine) Daily News, Sept. 18, 2014

A study published in the current issue of Health Affairs found that hospitals in the U.S. spend about twice as much per capita on administration as the seven other countries studied. If spending on administrative costs were reduced to the average level of spending in the other countries, we could reduce by about $150 billion the $750 billion a year we waste in health care.

These findings reminded me of my recent trip to Nova Scotia. While there, I visited a small hospital on Cape Breton. I asked the hospital’s director what they charge for a CT scan. “We don’t charge for every test,” she replied, “but simply bill the provincial health fund for each day in the hospital. The cost of the CT scan is bundled in. The only time we charge individually for CT scans is if we treat a visiting American and think it is worth the trouble to bill their insurance company.”

“May I speak to somebody in your billing department about CT scan prices?” I asked.

“Sure, but you’ll have to come back another day,” the hospital’s director replied. “She (meaning the billing ‘department’) only works part-time.”

Compare that to the gargantuan billing departments in U.S. hospitals.

In talking to the long-serving doctors at that Canadian hospital about their experience practicing medicine, I was struck by how much their focus is on patient care, not money. Money is almost all I hear about when I talk to American doctors and hospital directors.

In Canada there is only one insurance company: the provincial government. A bill for each patient is sent to the province and is paid (no questions asked) within several weeks.

Like most other wealthy countries, they have simplified a lot of costs out of their health care system. In contrast, U.S. hospitals must deal with scores of insurance plans (each playing by their own rules); submit detailed bills for every test, procedure, drug or other supply; and then be prepared to justify them as hospitals try to maximize their revenues and insurance companies try to minimize their “medical losses.” Unfortunately, the Affordable Care Act is complicating things even more.

All of this fighting about money costs plenty of it and contributes to the unconscionable amount of waste documented by the Health Affairs study while actually interfering with patient care. The effects of this money-driven system on the quality of care may be even more damaging than the financial costs.

In the U.S., hospital managers spend huge amounts of time, effort and money chasing and maximizing profitable revenue. They do this in two ways. The most obvious is fighting directly with insurance companies over payment — when and whether to pay and if so, how much.

But less well-known and understood are the powerful ways our insurance-based system affects the types of services hospitals offer and promote, and the ways doctors practice. Caregivers are strongly encouraged by hospital managers to promote services that are profitable and discouraged from recommending those that are not, often without much regard to the actual needs of patients.

A physician employed by a large Maine hospital recently complained to me about her resentment at being pressured by hospital management to order completely unnecessary tests and procedures in order to meet the hospital’s revenue goals. Doctors throughout Maine, and the U.S., can relate to that.

That’s why we have hospitals with too many scanners and other fancy and expensive gadgets and too few primary care physicians. That’s why physicians are forced to see too many patients and spend too little time with each of them. That’s why more and more physicians are burning out and retiring. This will not change until we change the ways we pay hospitals and our “healthcare is a business” culture.

Canada and most other wealthy countries have shown that there are better ways to do things. Hospitals there are on a lump-sum budget or something very similar. The pursuit of revenue that is so consuming in U.S. hospitals is mostly eliminated.

If we were to adopt a similar system here, doctors and hospital managers in the U.S. would be able to focus on how to best provide care to their communities. Most would likely jump at the chance if they believed the corporate interests and their political enablers who are blocking real reform would allow it to happen.

That would save money and improve the quality of care at the same time. What’s not to like about that?

Physician Philip Caper of Brooklin is a founding board member of Maine AllCare, a nonpartisan, nonprofit group committed to making health care in Maine universal, accessible and affordable for all. He can be reached at pcpcaper21@gmail.com or through his website at philcaper.net.

http://bangordailynews.com/2014/09/18/health/the-troubling-way-we-pay-hospitals-in-maine-and-throughout-the-us/?ref=moreInhealth

The nefarious plot of generic drug tiers

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

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

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

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

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

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

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

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

http://www.ajmc.com/publications/issue/2014/2014-vol20-n9/Is-All-Skin-in-the-Game-Fair-Game-The-Problem-With-Non-Preferred-Generics

Charles Ornstein of ProPublica provides an excellent discussion of this in today’s New York Times: http://www.nytimes.com/2014/09/18/upshot/how-insurers-are-finding-ways-to-shift-costs-to-the-sick.html

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Comment:

By Don McCanne, MD

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

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

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

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

Single-payer savings

By Jonathan B. Kotch, M.D.
The Herald-Sun (Durham, N.C.), Letters, Sept. 18, 2014

Early indications are that the Affordable Care Act may be slowing down medical cost increases, but the potential for significant cost savings is nil as long as we tolerate outrageous administrative costs.

In a study that appeared this week in the prestigious journal Health Affairs, researchers found that hospital bureaucracy consumed 25.3 percent of hospital budgets in the United States in 2011, far more than in other nations. Administrative costs were lowest (about 12 percent) in Scotland and Canada, whose single-payer health care systems fund hospitals through global, lump-sum budgets, much as a fire department is funded in the U.S.

The authors attribute the high administrative costs in the U.S. to two factors: (1) the complexity of billing a multiplicity of insurers with varying payment rates, and (2) the entrepreneurial imperative for hospitals to amass profits (or, in the case of nonprofit hospitals, surpluses) in order to fund the modernization and upgrades essential to institutional survival.

The authors state that single-payer reform could save $150 billion annually on hospital overhead. Unless we reshaped health care financing under a single, public payer, we can’t hope to get a handle on runaway health care costs.

Dr. Jonathan Kotch resides in Durham.

http://www.heraldsun.com/opinion/letters/x711469017/Letters-to-the-Editor-Sept-18

The Fight for Single-Payer Health Insurance, 2014

By Paul Song, M.D.
Labor Campaign for Single Payer Healthcare, Sept. 15, 2014

The Labor Campaign for Single Payer held its largest ever strategy conference August 22-24 in Oakland, CA. Over 300 attendees packed the joint session at the historic ILWU Local 6 Hall, which was co-sponsored by Healthcare-NOW! and One-Payer States. Dr. Paul Song gave the keynote address for the workshop on “One-Payer States.” The following are his notes from his talk.

I am so honored to be here and speak to you, both as the head of the Courage Campaign and also as a co-chair of the Campaign for a Healthy California and a board member of Physicians for a National Health Program – California.

I believe that we as a society are judged by how we care for the least amongst us. And I love everyone in this room because you all get this!

When I hear people on the right say that America is under attack and heading in the wrong direction, I absolutely agree. I find our nation’s declining care and concern for the least among us and the overall waning progressive influence in our country as well as the declining overall share of America’s workforce that is unionized to be no coincidence.

It is labor organizations and progressives working together who stick up for the middle class, our sick, our elderly, and our uninsured. No one else does!

When times are hard, it is always our most vulnerable who bare the biggest brunt, but when times are good, it is always corporations who reap all the benefits.

It is corporations who use huge profits at the expense of laying off workers, cutting healthcare benefits for their employees, or actually denying care for patients to buy and elect their corporatist legislators who then give them more corporate tax breaks and more deregulation. It is corporations who bought off our elected corporate whores like Max Baucus, who in turn wrote the ACA and continue to stand in the way of real progress and Medicare for all.

Because the inconvenient truth is that while the ACA is a good start:

Health care costs as a proportion of GDP will continue to rise while tens of millions remain uninsured. Family premiums are currently $15,000 per year and rising, with employees having to contribute more every year. Premiums, copays, and out-of-pocket costs will continue to increase as insurance companies continue to maximize their profits under the ACA. Provider networks will continue to be very limited and patients enrolled in Medicaid will have an even tougher time finding a provider who will see them, Our undocumented brothers and sisters are left out and over 30 million people will still be uninsured by 2025.

Now, we all know the facts about single payer and why it is the only solution, but unfortunately most of our general public remains ignorant as to its benefits and instead continues to believe that private insurance is the best.

So we need to be careful not to bash the ACA too much. It is very fair game to point out the limitations of the ACA, but if we spend too much time tearing it down, between this and the VA debacle, the American public will begin to believe that the government is incapable of healthcare.

What we need to do is take back the overall narrative. We need to make the moral argument for single payer or rather point out how immoral our current healthcare system is and we need to make the economic argument by sharing Gerald Friedman’s great economic research on the benefits of single payer.

At the same time, it is very important that we point out the facts about our current single-payer system (Medicare) and how despite it constantly being trashed and financially undermined by Congress, the fact is that it is run far more efficiently and with greater patient satisfaction than the private sector.

Remember that Medicare was established when 44 percent of adults over 65 years of age were uninsured and one-third of all seniors were living in poverty. Sadly in 2012, close to 50 million people were living in poverty in the U.S., the largest number since the great depression and 50 million were uninsured.

In the run up to the vote on Medicare, the AMA hired an actor by the name of Ronald Reagan to record an album to disparage it. He said “If you don’t stop Medicare and I don’t do it, one of These Days, you and I are going to spend our sunset years telling our children, and our children’s children what it once was like In America when men were free.” Despite his pleas and what many conservatives still say, Medicare has been a huge success and clearly demonstrates that a single-payer system is indeed superior and possible.

Seniors and practicing physicians have much more freedom than patients in the private insurance system. Patients have greater choice and do not need pre-authorizations. The government does not tell doctors how to practice, what tests to order, which hospitals to go to, or what medications to prescribe.

A study by the Commonwealth Fund reveals that Medicare patients continue to have much greater satisfaction, better access to care, and fewer billing problems than those with employer sponsored plans.

A Kaiser Family Foundation study showed greater overall satisfaction and much more cost efficiency than private insurance companies.

But in spite of how successful Medicare has been, it does face significant future challenges. Each year it takes up more and more of the federal budget, patients in Medicare tend to be older and have more chronic conditions, and this population is only expected to get larger and larger in the coming years.

While many worried that Medicare would lead to a government takeover of healthcare, it is the private healthcare industry that has been quietly increasing its influence and control over government. In fact, while Congress continues to publicly criticize growth of Medicare costs it privately restrains it from getting a better deal for Medicare patients and U.S. taxpayers, through corporate welfare disguised as privatization.

Kip Sullivan, in an excellent study, showed that the real administrative costs of Medicare are 1.4 percent and could be lower if not for the administrative excesses of the private Medicare Advantage and Medicare Part D drug programs.

In 1995, The GOP pledged that by placing at least 20 percent of Medicare beneficiaries in HMOs would save $270 billion over seven years. In reality, since 1985 Medicare has overpaid private insurers by $282.6 billion, or 24.4 percent of all Medicare payments.

In 2012 alone, we find that Medicare Advantage plans are being overpaid by $34.1 billion, or 6.2 percent of total Medicare spending.

The Affordable Care Act called for cuts to the Medicare Advantage program, but the politics of cutting Medicare have been getting in the way.

Just this past April, the Obama administration turned a proposed 1.9 percent cut to 2015 Medicare Advantage health plans into a .4 percent increase after heavy lobbying from insurers and the Hill. It was the second-straight year that the Medicare agency transformed a proposed rate cut into a raise.

Congress should really question whether the higher administrative costs associated with the growing privatization of Medicare are justified!

As for drugs, per capita spending on drugs in the U.S. is 40 percent higher than in Canada and 75 percent greater than in Japan and 300 percent higher than the amount spent in Denmark. And Medicare Part D is a huge part of this.

When I hear the GOP talk about trying to protect Americans from a huge government run healthcare program, they must not remember Medicare part D for prescription drugs.

Rep. Billy Tauzin (R-La.) and the GOP-controlled House and Senate crafted Medicare Part D, which was then signed into law by President Bush. Soon after, Tauzin left congress to head PhRMA for an annual salary of $2 million.

In 2006, the first year of Medicare Part D, the combined profits of the largest drug companies soared 34 percent to $76.3 billion.

Medicare Part D made it illegal for Medicare, the nation’s biggest health plan, to use its market power to negotiate for lower prescription drugs prices. It is also banned importation of cheaper drugs and gave drug companies stronger protections against their generic competitors.

And the administrative costs for administering it are almost 10 percent.

How come when WellPoint negotiates lower prices, it is good business and the free market at work, but when Medicare tries it, it is government interference?!

It is clear that removing these pork spending constraints on Medicare would not only lead to lower prices at the drugstore, hospital, and doctor’s office, it could spark a new era of healthcare innovation.

So whenever anyone criticizes Medicare or says it is a failure or that it should be privatized, I hope you will hit them over the head with these facts.

I think we can learn a lot from the marriage equality fight. There was no federal appetite to pass legislation in the dysfunctional highly partisan Congress. Instead it started state by state and within 10 years we now we have 19 states with full marriage equality and another 14 states where judges have issued rulings in favor or freedom to marry. I think one of the biggest reasons for the incredibly fast shift in opinion was due to more and more gay individuals coming out to their friends, family, co-workers in a way that made this an issue that the general public could individually relate to. We need to find a way to come out to our greater communities at large (especially those of color and those who have continually left behind) and not just continue to preach to the choir.

So that in 2017 when the federal waiver sets in, it is finally time for at least one state to pass single payer, and this can begin to spread state by state.

But this can only be done if all Americans wake up and say enough to the stranglehold of the private health insurance industry along with their excessive rate increases and to the continued privatization of Medicare!

Finally, I want to say that we need to stop fighting with one another and eating our own. As a Korean American, I am always being asked how come there are so many Korean churches. I wish it was because our hearts are so on fire for God, which for many it is. But, the fact is that Koreans can also be pig-headed and always want to be in charge, and as a result when the elders of a church cannot put their God before their own agenda, they often split and go form their own church.

Sadly, this also happens in the single-payer movement. We have those who rail against the ACA and anyone who shows any support for it and we have those who believe we must embrace the ACA as a good start. We have those that believe a national federal program is what we should fight for and others who feel it should be state by state. We have those who believe we can achieve single payer legislatively and those who think it will be via ballot initiative. Whatever you believe, we all should be able to respectfully share our thoughts and opinions constructively while remembering that we are all on the same team. It is the corporatists and the private healthcare industry that are our enemy, not one another. We need to save our energy and our bullets for them and not on friendly fire.

It is time for us to come together with one voice to hold our elected officials accountable and fight back against this corporate bull, and to make sure corporations do not continue to get their way.

And while we rid ourselves of this corporatist evil, all of us need to continue to work very hard to educate everyone about the true merits of single payer and continue to build the broadest coalition possible to make this a reality.

Enough is enough!!

Thank you!!

http://singlepayer2014.wikidot.com/ops-keynote-paul-song
http://www.laborforsinglepayer.org/2014-national-strategy-conference-outcomes/
http://www.healthcare-now.org/2014-strategy-conference-wiki

Dartmouth studies sending us in the wrong direction?

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

By Louise Sheiner
Brookings Institution, September 2014

Abstract

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

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

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

I. Introduction

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

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

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

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

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

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

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

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

VIII. Conclusions

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

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

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

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

http://www.brookings.edu/~/media/projects/bpea/fall%202014/fall2014bpea_sheiner.pdf

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Comment:

By Don McCanne, MD

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

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

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

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

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