PNHP

Stanford Business Professor Jeffrey Pfeffer on Administrative Waste

Stanford Business Professor Jeffrey Pfeffer on Administrative Waste

The Reason Health Care Is So Expensive: Insurance Companies

By Jeffrey Pfeffer
Bloomberg Businessweek, April 10, 2013

As Congressional budget battles heat up—or roll along, depending on your time perspective—the cost of health care in America receives a lot of attention. Unfortunately most of the discussion is largely off the mark about where the preventable, unnecessary costs really are.

The thing that few people talk about, and that no serious policy proposal attempts to fix—the arrangement that accounts for much of the difference between health spending in the U.S. and other places—is the enormous administrative overhead costs that come from lodging health-care reimbursement in the hands of insurance companies that have no incentive to perform their role efficiently as payment intermediaries.

More than 20 years ago, two Harvard professors published an article in the prestigious New England Journal of Medicine showing that health-care administration cost somewhere between 19 percent and 24 percent of total spending on health care and that this administrative burden helped explain why health care costs so much in the U.S. compared, for instance, with Canada or the United Kingdom. An update of that analysis more than a decade later, after the diffusion of managed care and the widespread adoption of computerization, found that administration constituted some 30 percent of U.S. health-care costs and that the share of the health-care labor force comprising administrative (as opposed to care delivery) workers had grown 50 percent to constitute more than one of every four health-sector employees.

What remains missing even in the discussion of the enormous administrative burden is not just how large, both in absolute dollars and as a percentage of health costs, it is, but also how few incentives there are for insurance companies to stop wasting their and everyone else’s time.

Unless and until we as a society pay attention to the enormous costs and the time wasted by the current administrative arrangements, we will continue to pay much too much for health care.

(Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University’s Graduate School of Business.)

http://www.businessweek.com/articles/2013-04-10/the-reason-health-care-is-so-expensive-insurance-companies

Comment:

By Don McCanne, M.D.

Individuals who understand the single payer model will find nothing new here from a policy perspective. What is important about this article is that it is a precise statement about administrative waste, coming from a professor at Stanford University’s Graduate School of Business, and published in Bloomberg Businessweek.

There is hope that others may finally understand how we can control spending while improving value in health care, and then join together to act on it. The Harvard/CUNY professors cited by Pfeffer – PNHP’s David Himmelstein and Steffie Woolhandler – stand ready to provide guidance on the reform that we so desperately need.

Medicare for all long overdue

By Tom Reed
Chico Enterprise-Record, Letters, April 10, 2013

The Enterprise-Record has recently published a number of news articles and letters to the editor blaming Obamacare for projected increases in health care costs. These articles and letters really miss the point.

Health care costs have, over the past quarter century, increased at more than twice the rate of overall inflation without any help whatsoever from Obamacare. The real culprit is a fragmented, irrational health care financing and delivery system more dedicated to corporate profits than public health. Anyone who doubts this should read Steven Brill’s devastating article, “Bitter Pill,” published in the March 4 edition of Time magazine.

While Obamacare is not culpable for causing increases in health care costs, it is culpable for not preventing them. Conservatives are right when they say Obamacare lacks effective cost controls. However, their proposed solutions involve a deluded reliance on “market forces,” which will not work, and will in fact only serve to make an already bad situation even worse.

The real solution, hinted at in Brill’s article, is a single-payer system of “improved Medicare for all,” which would provide universal, comprehensive coverage for all Americans, with effective cost controls. Legislation to establish such a system (HR 676), has been introduced in the House of Representatives by John Conyers (D-Mich.). Efforts to establish a system of improved Medicare for all deserves the support of all Americans genuinely concerned with controlling health care costs, and not simply perpetuating fantasies about the “free market” as a rationale for corporate greed.

Tom Reed resides in Chico.

http://www.orovillemr.com/opinion/ci_22992883/letter-medicare-all-long-overdue

The Reason Health Care Is So Expensive: Insurance Companies

By Jeffrey Pfeffer
Bloomberg Businessweek, April 10, 2013

As Congressional budget battles heat up—or roll along, depending on your time perspective—the cost of health care in America receives a lot of attention. Unfortunately most of the discussion is largely off the mark about where the preventable, unnecessary costs really are. Yes, there is certainly over treatment, particularly of people in their last days of life. Yes, doctors under a fee-for-service arrangement do have financial incentives to do too much, and the fear of malpractice can lead to overtesting and overtreatment. As the recent article in Time by Steven Brill illustrated, pricing of medical care is neither invariably transparent nor sensible. And it would certainly be nice if care were better coordinated across functional specialties.

But the thing that few people talk about, and that no serious policy proposal attempts to fix—the arrangement that accounts for much of the difference between health spending in the U.S. and other places—is the enormous administrative overhead costs that come from lodging health-care reimbursement in the hands of insurance companies that have no incentive to perform their role efficiently as payment intermediaries.

More than 20 years ago, two Harvard professors published an article in the prestigious New England Journal of Medicine showing that health-care administration cost somewhere between 19 percent and 24 percent of total spending on health care and that this administrative burden helped explain why health care costs so much in the U.S. compared, for instance, with Canada or the United Kingdom. An update of that analysis more than a decade later, after the diffusion of managed care and the widespread adoption of computerization, found that administration constituted some 30 percent of U.S. health-care costs and that the share of the health-care labor force comprising administrative (as opposed to care delivery) workers had grown 50 percent to constitute more than one of every four health-sector employees.

What remains missing even in the discussion of the enormous administrative burden is not just how large, both in absolute dollars and as a percentage of health costs, it is, but also how few incentives there are for insurance companies to stop wasting their and everyone else’s time. Most large employers, including mine, Stanford University, are self-insured, which means they pay for their own medical claims. These large employers invariably hire health insurance companies to “administer” their health-care dollars, doing things such as paying claims. Employers typically reimburse the insurers the amount of money they pay out to health-care providers plus a percentage of these costs. In Stanford’s case, we pay Blue Shield 3 percent of the amount, about $3 million a year. (Note that the overhead costs of Medicare are less than one-third as much at slightly less than 1 percent.)

Because insurers are paid a fixed percentage of the claims they administer, they have no incentive to hold down costs. Worse than that, they have no incentives to do their jobs with even a modicum of competence. To take one small personal example, I have reached the age of Medicare eligibility but, because I continue to work full time, have primary health insurance coverage through my employer. Blue Shield, of course, wants to be sure it doesn’t pay for any claim it doesn’t have to, so I was asked to attest to the fact that I have no other insurance. No problem there, except such attestations seem to be required on almost a monthly basis—requiring my time on the phone (and on hold) with Blue Shield’s customer service, an oxymoronic term if there ever was one, and also requiring my doctor and laboratory to call me, call Blue Shield, or both, and thus also waste their time and resources.

This story and the many others of the same sort but even worse, magnified across the millions of people subjected to private health insurance companies, is why American health care costs so much and delivers so little. Unless and until we as a society pay attention to the enormous costs and the time wasted by the current administrative arrangements, we will continue to pay much too much for health care.

http://www.businessweek.com/articles/2013-04-10/the-reason-health-care-is-so-expensive-insurance-companies

Physician awarded damages for being excluded from insurer's network

L.A. jury sides with doctor in Anthem Blue Cross case

By Chad Terhune
Los Angeles Times, April 10, 2013

In a rare case, a Los Angeles jury awarded $3.8 million in compensatory damages to a Porter Ranch doctor who contended insurance giant Anthem Blue Cross retaliated against him for being a strong patient advocate.

The jury ruled late Monday in favor of Jeffrey Nordella, 58, an urgent-care and family-practice doctor who alleged that Anthem barred him from its network in 2010, when he applied to be a preferred provider. The damages could climb higher Friday, when the 12-person panel reconvenes and considers punitive damages against Anthem, a unit of insurance giant WellPoint Inc.

The jury found that Anthem, the state’s largest for-profit health insurer, violated Nordella’s right to “fair procedure,” and the company did so with “malice, oppression or fraud.” That latter finding prompted the hearing Friday in Los Angeles County Superior Court to determine punitive damages.

This case comes as health insurers, in a bid to hold down costs, are increasingly dropping doctors and hospitals and promoting smaller networks. Insurers typically try to negotiate lower rates with the fewer providers left in the network, who get higher patient volume in return.

Theresa Barta, a Newport Beach attorney who represents Nordella, said the insurance company contended it had 137 primary-care physicians in its network within 10 miles of Porter Ranch. At trial, Anthem could name only seven of those doctors, Barta said.

Because of frequent changes in its list of physicians since 2010, Anthem said, it could not retrieve all of the requested information. The company maintains that its doctor network was adequate when Nordella applied.

During closing arguments at trial, Barta said Anthem intentionally limits its physician roster to make it more difficult for PPO patients to get care, which reduces Anthem’s medical costs and boosts its profits.

http://www.latimes.com/business/la-fi-anthem-doctor-verdict-20130410,0,2796259.story

Comment:

By Don McCanne, M.D.

The intent of today’s message is not so much to use this opportunity to once again bash one of the nation’s largest private insurers (even if appropriate), but rather it is to demonstrate the perversity of one more example of placing the business interests of the insurer over the interests of patients.

Even though this court decision was in favor of a physician barred from Anthem Blue Cross’s network of physician providers, it confirms the principle that private insurers should be improving patient access to health care rather than impairing it, as in this now all too common instance of limiting access by narrowing their networks of health care professionals and institutions.

Once again, this demonstrates the irrationality of imposing expensive, intrusive, private third party administrators between patients and their health care professionals.

In a universal, publicly financed and publicly administered health care system, such as a single payer national health program, the third party – the government – covers all reasonable health care services and products provided by any legitimate health care professional or institution, with enough oversight to prevent deviancies such as fraud or price gouging.

It is so obvious, yet…

Online brokers want a cut of the action

In Obamacare, online insurance brokers see potential windfall

By Sarah Kliff
The Washington Post, April 8, 2013

Online insurance brokers see a potential windfall when the federal government doles out billions in subsidies to buy help Americans buy health insurance. And they are asking state governments to help them score it.

The online brokers want millions of new insurance customers to be able to use those subsidies to buy health coverage through their Web sites, rather than shop exclusively on the new exchanges being set up by states and the federal government.

“We have the expertise and already generate a tremendous amount of volume of sales,” says Gary Lauer, CEO of EHealth, the country’s largest online insurance broker. “The exchanges are spending a lot of money to enroll people, which is all fine, but we could do the same thing at no charge to the federal government.”

EHealth CEO Lauer does acknowledge that the site has financial motivations when it sells a health insurance plan. But he also contends that the federal regulations are strong enough to ensure that consumers get the same experience, no matter where they purchase coverage.

“We’re a profit-making company,” he said. “Our revenue source is the commission paid to brokers. It’s not an additional charge, it’s built into the premium, the same premium on the exchange. The only difference is the carrier will pay us a commission.”

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/08/in-obamacare-online-insurance-brokers-see-potential-windfall/

Comment:

By Don McCanne, M.D.

As Gary Lauer, CEO of EHealth states, “We’re a profit-making company.” Yes, they are a company that draws dollars (over 150 million of them in 2012) away from our heath care funds, and yet provides absolutely no services or products directly related to actual health care.

It is particularly irritating when he states that his firm can provide health insurance brokerage services for the exchanges being established under the Affordable Care Act “at no charge to the federal government,” because the charges are “built into the premium.”

Who pays those charges? The insurance companies certainly do not deduct these expenses directly from their profits. They weren’t born yesterday. As Lauer states, the charges are built into the premiums. Thus they are paid jointly by plan enrollees and by the federal government in the form of premium subsidies.

The expenses of these brokerages or of the state insurance exchanges wouldn’t even exist if we had one universal program instead of a multitude of private insurers, which in themselves generate tremendous administrative waste while imposing greater administrative burdens and costs on the actual providers of health care.

By insurance industry standards, maybe Gary Lauer’s compensation is modest ($1.67 million in 2012), but if he is providing us nothing of value, then any amount is too much.

Haven’t we had enough? Isn’t it time for an improved Medicare that covers everyone? Then Gary Lauer would have to get a real job.

The great health care sinkhole

By Robert S. Kiefner, M.D.
Concord Monitor (N.H.), April 3, 2013

The bizarre and tragic loss of a Florida man a few weeks ago, slipping to his death from his bedroom into a sinkhole, offers up a fitting metaphor for the great abyss between cost and value in health care and how it has the potential to swallow us up without warning.

The periphery of that huge health care sinkhole is occupied by guys in suits – insurance companies, Big Pharma, and overpaid hospital executives and their legions of lawyers and lobbyists. In Steven Brill’s recent Time magazine expose, “Bitter Pill,” he shows how the elite of a separate health care economy are all doing quite well, while middle-class folks with serious illness are going bankrupt as a consequence of being under insured or just plain priced out of the market.

Equipped with shovels on the edge of the great sinkhole, health care executives contend that they are filling up the hole. In reality they are digging it deeper to everyone’s peril.

In the world of for-profit medicine, doctors also need to be held accountable, particularly among sub-specialties, as the gap between the pay of primary-care physicians and specialists continues to grow.

The five minutes during which an orthopedic surgeon applies a cast to a broken wrist, a dermatologist freezes a couple of barnacles on someone’s face, or a radiologist interprets an MRI are still reimbursed vastly more than a family physician might charge for an hour of managing a patient with multisystem disease, sorting through the pharmacy the patient has brought into the office in a brown paper bag, and making referrals where necessary, all while being trying to enact evidence-based medicine and maintaining an awareness of cost/benefit ratios.

The much-reported deficiencies relating to the care of the mentally ill would certainly be better addressed if we applied a fraction of the reimbursement for a broken foot to the care of a broken mind.

While the Affordable Care Act attempts to improve the lot of primary-care physicians by marginally enhancing reimbursement and recognition of the effort going into a “Patient Centered Medical Home,” the attendant costs, regulations and overall bureaucracy effectively erode the gains. Indeed, the sheer number and complexity of rules and regulations generated by the Affordable Care Act and Accountable Care Organizations have made it well nigh impossible for solo physicians, lacking in resources, to venture into private practice.

And so we witness the ascent of great and powerful hospital executives, modern-day health overlords charged with developing local networks of care, financed by the now famous “Chargemaster” system described by Brill. Two-dollar Tylenols, $70 gauze pads – it’s enough to make you cry into your $50 “mucus recovery system,” aka Kleenex. But it all adds up to million-dollar CEO salaries, even in community hospitals. No doubt that these are bright, clever and caring people, but no hospital CEO deserves to make a multiple of the salary of the president of the United States.

The perversity is ratcheted up another notch when one contemplates the multimillion-dollar salaries of CEOs of health insurance companies. But instead of making money on gauze pads and Tylenol, they prey upon individuals and businesses. A family of four may expect to pay over $25,000 for a year of coverage, complete with an $8,000 deductible in some markets, given the lack of major cost controls in the ACA.

While Obamacare may have expanded the safety net by encouraging the expansion of Medicaid, coverage of kids up to the age of 26, enhanced coverage of preventive services, coverage in the presence of pre-existing conditions, and lack of lifetime limits, plenty of folks are still going to fall through the net and into bankruptcy or worse.

There will be those in the great medical-industrial complex who would dispute the notion that U.S. health care is in desperate shape, who would offer their own numerical analysis to support the status quo. These are the people who use statistics the way a drunk uses a lamppost, for support rather than illumination.

While acknowledging and promoting the gains of the ACA, we need to resume the journey toward a single payer, where everyone enjoys the security and dignity of being covered by insurance. We’re not talking “free” care, just quality care at a truly affordable price. Where there are excessive profits, there cannot be compassionate and accessible care for all. Let’s fill in this enormous sinkhole, so that everyone gets a good and safe night’s sleep.

Dr. Robert S. Kiefner is a family physician in Concord.

http://www.concordmonitor.com/home/5359278-95/my-turn-the-great-health-care-sinkhole

Other nations' lessons on cost containment

Health Care Cost Containment Strategies Used In Four Other High-Income Countries Hold Lessons For The United States

By Mark Stabile, Sarah Thomson, Sara Allin, Seán Boyle, Reinhard Busse, Karine Chevreul, Greg Marchildon and Elias Mossialos
Health Affairs, April 2013

The past decade has been one of relative affluence for the countries we reviewed (Canada, England, France, and Germany), particularly when compared to the budget scenarios they face over the next few years. It may not be surprising, therefore, that health care costs grew relatively quickly during 2000–10 and that there is limited evidence of the success of recent cost containment strategies.

That said, the four countries discussed here continue to make use of public budgeting and price-setting mechanisms to contain costs in the health care sector, as they have in previous decades. The greater use of public budgeting and price-setting mechanisms, along with the much higher public shares of health care financing in these countries, remain the greatest contrasts between them and the United States.

Our review also revealed that in 2000–10 the four European countries moved away from strategies that simply shifted costs to households through across-the-board budget cuts, rationing of services, and increases in user charges. We found a growing focus on the cost-benefit ratio through the greater use of health technology assessment, activity-based funding with centrally set prices, and value-based approaches to paying for drugs. Although these policies may not drive down costs, they are likely to produce more efficient use of health care resources in the future.

Our review suggests that the four countries have had some success in using a variety of public policy tools and that the United States may wish to emulate their policies to reduce the growth rate in drug spending. The policies include relatively simple levers such as large-scale negotiations with pharmaceutical manufacturers and sellers as well as budget caps. Our review also suggests that the United States may wish to use more challenging tools, such as cost-effectiveness analysis that sets prices for new technologies based on the technologies’ relative value and value-based user charges.

It seems unlikely, however, that the US system will move toward the types of volume and price controls used in the countries examined here. Thus, although the United States is also moving toward policies aimed at changing the cost-benefit ratio and promoting economic efficiency, it is likely that the large gap in health care spending between the four countries in our study and the United States will remain.

http://content.healthaffairs.org/content/32/4/643.abstract?etoc

Comment:

By Don McCanne, M.D.

Cost containment strategies in the four nations studied – Canada, England, France, and Germany – depend largely on the government, especially through public budgeting and price setting. The authors point out that it is unlikely that the United States will move toward such policies, thus the large gap between our health care spending and that of these four countries will remain.

Also of note is the fact that other more recent cost containment innovations in these four countries have shown only limited evidence of success. It is still the government engagement that perpetuates their success.

Of great significance for the United States is the fact that these nations have moved away from strategies that simply shifted costs to households. Our emphasis on consumer-directed approaches that increase cost sharing through high deductibles, coinsurance, more restrictive provider networks, and our government efforts to reduce “entitlement” spending, are all moving in the wrong direction. Costs can be controlled without impairing access by erecting financial barriers.

The lesson is simple. We need beneficial public policies, designed to serve patients, to displace private sector policies (enabled by government complicity) that currently prioritize the interests of business stakeholders over those of patients.

For-profit insurers again flex lobbying muscle

By Sandra Fox
Pittsburgh Post-Gazette, April 7, 2013

Thanks to Steve Twedt and the Post-Gazette for the front-page coverage of the Medicare Advantage reversal by the Centers for Medicare and Medicaid Services (“Medicare Payment Cut Reversed,” April 3).

It is a story of the influence of the private for-profit insurance industry and its well-paid lobbyists in Washington who were able to reverse the government’s decision to reduce subsidies of private so-called “Medicare Advantage” plans. Now, instead of a planned 2.2 percent reduction, subsidies will increase by 3.3 percent. The U.S. government has been spending an average of 13 percent more per patient for Medicare recipients who chose one of the private Medicare Advantage options, as compared to those who opt for traditional Medicare. Now, the difference will be 16.3 percent more. So, how is this cutting waste out of Medicare?

If the government decides to make smart decisions on removing waste from Medicare, we can stop subsidizing the insurance industry altogether. Not only would we save billions of dollars a year, but we also would eliminate the restrictions on choice of doctors and hospitals imposed by health insurers.

Another way we can remove waste from Medicare is to negotiate lower drug prices with the pharmaceutical companies, as Medicaid and the VA already do.

Finally, we can pass “Expanded and Improved Medicare for All,” HR 676, which would implement these reforms, and use the savings to improve coverage, eliminate co-pays and deductibles, and cover all of us — cradle to grave.

Sandra Fox is co-chair, Western PA Coalition for Single-Payer Healthcare (www.WPaSinglePayer.org). She resides in Squirrel Hill, Pa.

http://www.post-gazette.com/stories/opinion/letters/for-profit-insurers-again-flex-lobbying-muscle-682393/

Obama administration intervenes to give $71.5 billion to overpaid, for-profit Medicare Advantage plans

Physicians group decries ‘backroom Medicare giveaway’

FOR IMMEDIATE RELEASE, April 9, 2013

Contact: Mark Almberg, (312) 782-6006, mark@pnhp.org

Medicare’s costs will jump by $7.43 billion next year – the equivalent of $149 for each of the nearly 50 million beneficiaries in the program – due to an unprecedented intervention last week by the Obama administration in the way privately run, for-profit Medicare Advantage (MA) plans, which are also known as Medicare HMOs, are paid by the government, a national physicians group reported today.

The total cost to U.S. taxpayers will be $71.5 billion to $104.5 billion over the next decade, depending on the number of Medicare beneficiaries who enroll in the private plans, researchers at Physicians for a National Health Program said. That’s money that could keep traditional Medicare’s hospital trust fund safely in the black over the same period, eliminating any need for greater cost-sharing by beneficiaries, they said.

Enrollment in MA plans, currently at 13.1 million beneficiaries, was expected to dip sharply over the next few years in the wake of a reduction in government overpayments to the plans under the Affordable Care Act (ACA), but the researchers said enrollment may not decrease, due to this windfall and last year’s “quality bonus” payments: hence the variation in the estimated cost.

“Medicare Advantage plans have been overpaid by the federal government for years, wasting tens of billions of taxpayer dollars,” said Dr. David Himmelstein, professor at the City University of New York School of Public Health and co-founder of the physicians group. “Studies by the Government Accountability Office, MedPAC and many private groups have drawn attention to this overpayment. The Obama administration’s ACA acknowledged the overpayments by calling for cuts to these payments starting in 2014.

“But last week’s extraordinary rate-setting directive from Health and Human Services Secretary Kathleen Sebelius to the Centers for Medicare and Medicaid Services, in which she spurned historical practice and the advice of the CMS Office of the Actuary, will result in an obscene windfall to the private, for-profit insurers,” he said. “Simultaneously, this backroom Medicare giveaway is a heavy blow to taxpayers and the traditional, public Medicare program.”

In response to the CMS announcement, which was leaked shortly before 4 p.m. last Monday, stock prices for the nation’s five largest for-profit health insurers surged last week, yielding a $13.2 billion bonanza for investors. Stock prices increased from open of trading Monday, April 1, to close of trading Friday, April 5, by the following amounts: Cigna, $15.93; Humana, $8.93; UnitedHealth Group, $4.94; Aetna, $4.62; and WellPoint, $1.70. Aetna’s Coventry share prices jumped by $1.19.

UnitedHealth and Humana reaped the largest windfalls. (See Table 1.) Based on its share of the MA market (20 percent, including its purchase of XL Health Corp.), UnitedHealth will receive an extra $1.49 billion from Medicare for its Medicare Advantage plans in 2014, and $14.3 billion to $20.9 billion over the next decade, triggering a $5.04 billion surge in the value of UnitedHealth’s stock last week.

Humana (17 percent market share) will receive an extra $1.26 billion from Medicare for its Medicare Advantage plans in 2014, and $12.2 billion to $17.8 billion over the next decade. Humana’s stock surged $1.41 billion last week.

Other insurers will also reap huge rewards. WellPoint (4 percent market share) will receive an extra $297 million in payments from Medicare for its Medicare Advantage plans in 2014, and between $2.86 billion and $4.18 billion over the next decade. Former CEO Angela Braly received compensation and stock options of $20.6 million in 2012.

Aetna will receive at least an extra $223 million from Medicare for its Medicare Advantage plans in 2014 (excluding its 75 newly acquired Coventry plans), and $2.14 billion to $3.14 billion over the next decade. Coventry will receive extra payments of $149 million in 2014 and between $1.43 billion and $2.09 billion between 2014 and 2022.

Finally, Cigna, which almost entirely exited the MA market in 2010, re-entered the market with the purchase of HealthSpring’s 40-plus plans in 2011. Cigna will garner an additional $223 million in federal payments in 2014 and between $2.14 billion and $3.14 billion over the next decade as a result of the Obama administration’s action.

Dr. Ida Hellander, director of policy and programs at PNHP, said that in 2012 alone, privately run Medicare Advantage plans were overpaid $34.1 billion, or $2,526 per enrollee. She and Himmelstein were among the authors of a study last year showing that having Medicare Advantage plans compete with traditional Medicare does not save money, but costs taxpayers billions of dollars more each year.

For the present analysis, Hellander and Himmelstein used publicly available data from the New York Stock Exchange and Medicare’s Board of Trustees to calculate the impact of a 5.5 percent hike in Medicare Advantage payments on insurers’ stock valuation and future government spending.

Hellander said, “Medicare Advantage plans are siphoning off valuable health care dollars into private, for-profit hands and producing no better outcomes to show for it. It is time to stop putting profits over patient care and adopt an improved Medicare for All, a national single-payer system. Single payer would save enough on wasteful private insurance-related bureaucracy and profits to provide high-quality care for everyone.”

Dr. Andrew Coates, president of PNHP and an internist in upstate New York, commented on the findings. “Instead of making a cut to the overpayments, the administration has bent over backwards to take good care of the private Medicare Advantage insurers,” he said. “This behind-the-scenes maneuvering will not only swell the already unconscionable profits of the insurance companies, but will further impair the traditional, public Medicare program.”

Table 1.


Sources

Kaiser Family Foundation Medicare Advantage Enrollment Update 2013; Google Finance April 1 to April 5, 2013; Medicare Trustees Report 2012; Washington Post, April 2, 2013; 10-year total based on 2013-2022 total Medicare spending of $1.3 to $1.9 trillion on MA plans.

Notes

1. As a result of HHS Secretary Sebelius’ unprecedented intervention, and over the objection of the Actuary, MA spending in 2014 will increase 5.5 percent. Instead of a 2.2 percent reduction in payments as announced in February 2013, there will now be a 3.3 percent increase. MA spending for 2014 after the passage of the ACA but before the intervention was an estimated $135.2 billion; $67.1 billion on Part A and $68.1 billion on Part B. A 5.5 percent increase amounts to $7.43 billion in 2014.

2. As a result of $156 billion in MA cuts included in the ACA, the Medicare Trustees’ latest report (2012, Table IV, c1) projected an MA enrollment decline from 26.7 percent of beneficiaries in 2012 to a low of 16.2 percent of beneficiaries in 2018, resulting in MA spending of about $1.3 trillion between 2013 and 2022. But enrollment may not fall that much, and could increase, especially if the Obama administration keeps backpedaling on its commitment to stop the overpayments to Medicare Advantage plans (e.g. with over $8 billion in offsetting “quality” bonuses and now an unprecedented intervention into payment rate
-setting).  As a result, MA payments over the next decade could rise one-third or more, topping $1.9 trillion. A 5.5 percent increase on estimated MA spending of $1.3 trillion to $1.9 trillion equals $71.5 billion to $104.5 billion.

3. The estimate of $156 billion in MA cuts in the ACA is from the Congressional Budget Office’s letter of July 24, 2012, Table 2. www.cbo.gov/publication/43471

4. Historical stock prices and number of shares are from Google Finance accessed April 7, 2013.

5.  Market-share data is from the Kaiser Family Foundation’s Medicare Advantage Data Spotlight: Enrollment Update (2013), www.kff.org/medicare/upload/8323.pdf. Market share for Aetna’s Coventry, UnitedHealth’s XL Health Corp., and Cigna’s HealthSpring is based on enrollment at the time of acquisition.

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Physicians for a National Health Program (www.pnhp.org) is a research and education organization of more than 18,000 doctors who advocate for single-payer national health insurance. To speak with a physician/spokesperson in your area, visit www.pnhp.org/stateactions or call (312) 622-0996.

Dependent verification programs. What a crime!

Fraud in the Workplace? Evidence from a Dependent Verification Program

By Michael Geruso, Harvey S. Rosen
The National Bureau of Economic Research (NBER), April 2013

Many employers have implemented dependent verification (DV) programs, which aim to reduce employee benefits costs by ensuring that ineligible persons are not enrolled in their health plan as dependents. We evaluate a DV program using a panel of health plan enrollment data from a large, single-site employer. We find that dependents were 2.7 percentage points less likely to be reenrolled in the year that DV was introduced, indicating that this fraction of dependents was ineligibly enrolled prior to the program’s introduction. We show that these dependents were actually ineligible, rather than merely discouraged from re-enrollment by compliance costs.

http://papers.nber.org/papers/w18947?utm_campaign=ntw&utm_medium=email&utm_source=ntw

And…

Help Prevent Health Plan Enrollment Fraud

Blue Cross Blue Shield of Hawaii
Hawaii Medical Service Association

Health plan enrollment fraud occurs when a person or company intentionally misrepresents facts to improperly receive health care products and services. This includes adding a person who is not eligible for health plan coverage as a dependent on a health plan.

It is a criminal offense under state and federal laws to fraudulently enroll someone onto a health plan. Enrolling ineligible dependents can lead to increased health care costs for employers. Penalties include fines, immediate loss of health plan coverage, or imprisonment.

http://www.hmsa.com/community/awareness/fraud/employers.aspx

And…

Dependent Eligibility Verification Project

CalPERS

The initial phase of the DEV project includes an amnesty period that runs from now through June 30, 2013. If you have one or more dependents on your health plan, you will receive a letter with further details on the DEV project, including dependent eligibility criteria and an Amnesty Disenrollment Document. During the amnesty period, we encourage you to carefully review the definition on an eligible dependent and identify on the Amnesty Disenrollment Document all ineligible dependents who should be removed from your health plan.

http://www.calpers.ca.gov/index.jsp?bc=/member/health/dev.xml&pst=ACT&pca=ST

Comment:

By Don McCanne, M.D.

There are many circumstances in which a de facto dependent is not technically a dependent when it comes to enrollment in a health plan. Enrolling such individuals is considered a criminal offense. Many employers have instituted dependent verification programs in order to ferret out this fraud. Is this really what we want to be doing?

It seems ironic that at a time in our history when theoretically we are attempting to enroll as many individuals as possible in health insurance programs, we are pushing a program designed to disenroll individuals currently covered as dependents when they are not technically entitled to such coverage.

We are expanding yet more administrative excesses which are resulting in the opposite of our policy goals. That is, we are increasing the numbers of uninsured through application of these dependent verification programs.

Wouldn’t it be far simpler to have a system that automatically covers everyone, regardless of dependency status or any other criteria? Instead of advancing policies that make health care coverage a crime, shouldn’t we make health care a right for all?

'Bitter Pill' misses the target on solutions to the U.S. medical crisis

Brill glosses over the real solution to the cost of medical bills: a single-payer system which forces hospitals to be more efficient

By Jack Bernard
Time magazine, Letters, Feb. 23, 2013

As someone who has worked on all sides of the health care field (regulator, non-profit, for-profit) for 30 years, I was intrigued by the Steven Brill piece, “Bitter Pill: Why Medical Bills Are Killing Us.” On the analysis of the problem, Brill was mainly on target, but he missed the mark on most of his proposed solutions.

For example, hospital competition is not the answer to getting lower prices and never has been. For instance, coordination of services among hospitals within a region is a far more cost-effective way to minimize duplicative purchases of expensive technology. Furthermore, group purchases of supplies, pharmaceuticals and capital equipment by large hospital systems has been shown to drive down vendor prices by up to 20 percent versus pricing given to small independent hospitals.

Brill glosses over the real solution to the cost of medical bills: a single-payer system which forces hospitals to be more efficient. Medicare For All, incorporating quality measures, would eliminate all the “chargemaster” game-playing. The inefficient providers would be paid the same as the effective ones. With higher costs, they would be driven out. Likewise for the ones with poor quality. Plus, the 20+ percent administrative marketing costs currently charged by private insurance companies — versus just 3 percent with Medicare — could be put back into direct care where it belongs.

Jack Bernard resides in Monticello, Ga.

http://ideas.time.com/letters/bitter-pill-misses-the-target-on-solutions-to-the-u-s-medical-crisis/#ixzz2PqAs58zY

Consumer-directed enrollees do not shop prices

Price Shopping in Consumer-Directed Health Plans

By Neeraj Sood, Zachary Wagner, Peter Huckfeldt, Amelia M. Haviland
Forum for Health Economics and Policy, Published online March 20, 2013

Abstract

We use health insurance claims data from 63 large employers to estimate the extent of price shopping for nine common outpatient services in consumer-directed health plans (CDHPs) compared to traditional health plans. The main measures of price shopping include (1) the total price paid on the claim, (2) the share of claims from low- and high-cost providers, and (3) the savings from price shopping relative to choosing prices randomly. All analyses control for individual and zip code level demographics and plan characteristics. We also estimate differences in price shopping within CDHPs depending on expected health care costs and whether the service was bought before or after reaching the deductible. For eight out of nine services analyzed, prices paid by CDHP and traditional plan enrollees did not differ significantly; CDHP enrollees paid 2.3% less for office visits. Similarly, office visits was the only service where CDHP enrollment resulted in a significantly larger share of claims from low-cost providers and greater savings from price shopping relative to traditional plans. There was also no evidence that, within CDHP plans, consumers with lower expected medical expenses exhibited more price shopping or that consumers exhibited more price shopping before reaching the deductible.

The full article can be downloaded at this link (19 pages):
http://www.degruyter.com/view/j/fhep.ahead-of-print/fhep-2012-0028/fhep-2012-0028.xml

Comment:

By Don McCanne, M.D.

High-deductible consumer-directed health plans are designed to make health care consumers better price shoppers, especially when they are spending their own money below the deductible. Guess what. Health care consumers do not shop prices to any measurable extent.

We should quite wasting our time looking for magical solutions to controlling health care costs and move on with health care reform that has been proven to work – a single payer national health program, an improved Medicare for all.