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Income Inequality and Rising Health-Care Costs

By Mark J. Warshawsky and Andrew G. Biggs
The Wall Street Journal, October 6, 2014

A new Kaiser Family Foundation survey reports that health-insurance premiums rose by a “modest” 3% in 2013. Even more modest, however, was the 2.3% growth of workers’ earnings last year. These figures merely illustrate a long-term trend of rising health costs eating away at wages. The real story is even more dramatic: Government data show that health costs are the biggest driver of income inequality in America today.

Most employers pay workers a combination of wages and benefits, the most important of which is health coverage. Economic theory says that when employers’ costs for benefits like health coverage rise, they will hold back on salary increases to keep total compensation costs in check. That’s exactly what seems to have happened: Bureau of Labor Statistics data show that from June 2004 to June 2014 compensation increased by 28% while employer health-insurance costs rose by 51%. Consequently, average wages grew by just 24%.

But here’s what the news headlines miss: Rising health costs don’t affect every employee the same. An average family health policy today costs employers nearly $12,000 per year, up from only $4,200 in 1999. Had employer premiums not risen, average salaries today would be around $7,800 higher. For a lower-income worker who today makes $30,000, that could have meant a 26% salary increase. By contrast, a “one percenter” making $250,000 today would have seen his earnings rise only by 3.1%. Health costs are a bigger share of total compensation for lower-wage workers, and so rising health costs hit their salaries the most. The result is higher income inequality.

These data give us a different perspective on the inequality debate. Most people think of income inequality as money “redistributed” from the poor to the rich. In reality, much of what we’re seeing is more of low-income workers’ compensation going toward their health benefits and less ending up in their pockets. That’s a different problem and points toward different solutions.

http://online.wsj.com/articles/mark-warshawsky-and-andrew-biggs-income-inequality-and-rising-health-care-costs-1412568847

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Comment:

By Don McCanne, MD

This WSJ opinion article is from the conservative American Enterprise Institute (AEI). When they say that “health costs are the biggest driver of income inequality in America today,” this should provide us with common ground to simultaneously address both income inequality and the health care crisis.

Unfortunately, in this article the authors further define the problem as over-insurance and a need for high-deductible health plans. Reducing benefits and increasing cost sharing would make the problems even worse for low- and moderate-income individuals and families.

Nevertheless we can agree that the current inequities in health care financing – which were inadequately addressed through the Affordable Care Act – are a significant contributor to income inequality. The most effective solution to address both would be to enact a progressively-financed single payer national health program (though further public policies would be required to temper the extremes of income and wealth inequality).

There is a glimmer of hope when the opponents of single payer recognize the problems, but that hope is dashed when they revert to ideological approaches that place an even greater burden on those more vulnerable.

Providing Quality Health Benefits for Our Associates

By Sally Welborn, Sr. Vice President, Global Benefits, Walmart
Walmart, October 7, 2014

In the U.S., the 1.3 million people who work at our stores, clubs and distribution centers are vital to a great experience for the 140 million customers shopping with us each week. We’re in business because our associates bring us their unique skills and talents – and so we do our absolute best to offer all the benefits that come with a great job, particularly affordable health insurance.

Like every company, Walmart continues to face rising health care costs. This year, the expenses were significant and led us to make some tough decisions as we begin our annual enrollment. As a result, today we announced that our associates will see an increase in premiums for 2015.

We’re also changing eligibility for some part-time associates. We will continue to provide affordable health care to all eligible associates, including part-time, who work more than 30 hours. However, similar to other retailers like Target, Home Depot, Walgreens and Trader Joe’s, we will no longer be providing health benefits to part-time associates who work less than 30 hours. This will impact about 2% of our total U.S. workforce. 

We don’t make these decisions lightly, and the fact remains that our plans exceed those of our peers in the retail industry. Our premiums remain well below the industry average compiled by expert Aon Hewitt.  We also continue to pay the majority of health care costs for associates covered under our medical plans. For example, on average we cover more than 60% of our associates’ total health care costs and more than 75% of their premium costs. In contrast, the retail industry pays, on average, about 54% of total health care costs and 68% of employee premiums.

http://blog.walmart.com/providing-quality-health-benefits-for-our-associates

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Walmart to End Health Coverage for 30,000 Part-Time Workers

By Hiroko Tabuchi
The New York Times, October 7, 2014

Walmart Stores, the world’s largest retailer and the nation’s largest private employer, said on Tuesday that it would terminate health insurance coverage for about 30,000 part-time workers, joining a string of retailers that have rolled back benefits in response to the Affordable Care Act.

Starting on Jan. 1, Walmart will no longer offer insurance to employees working less than an average of 30 hours a week, a move the retailer said was in response to an unexpected rise in health care costs.

The workers losing their coverage make up about 5 percent of the company’s part-time work force of about 600,000, including in-store, logistics and corporate workers, said Brooke Buchanan, a company spokeswoman. Walmart did not disclose what percentage of the part-time work force would be left without coverage. Many part-time employees were never covered for a variety of reasons.

Walmart said that it would work with a health coverage specialist to guide workers through the process of finding alternative coverage.

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Comment:

By Don McCanne, MD

Large retailers are infamous for low wages and limited benefits. Walmart has been a special target of critics, no doubt in part because a few members of the Walton family are amongst the very wealthiest people in the world – not just in the top 1 percent, but at the very top of the 0.01 percent. Providing more generous health benefits for all of their employees would cost only a small fraction of the annual net gain in wealth of the Walton family.

It is not as if Walmart’s health plans are comparable to those traditionally offered by most other large employers. According to their release, they cover only 60 percent of their employees’ health care costs – a level equivalent to the bronze plans in the very bottom tier of the insurance exchanges created by the implementation of the Affordable Care Act (ACA).

As ACA was being crafted it was decided that employers would not have to provide health care coverage for employees working under 30 hours per week. To no surprise, many employers adjusted the hours of their part-time employees to avoid having to include them in their health plans. Walmart previously had less than 24 hours a week as the cut-off for providing health coverage, but they changed that to under 30 hours since ACA allowed them to get more hours out of their employees without having to provide health benefits.

Walmart intends to provide guidance to the 30,000 employees who will lose their insurance. Those with poverty level incomes will no doubt be directed to Medicaid in those states in which they are eligible. Those just above poverty wages will likely be sent to the exchanges where they may be eligible for generous taxpayer supported subsidies. Why should the Walton billionaires provide coverage for these workers when the taxpayers will do it for them?

This should provide a good test of the principle that almost all economists preach: that employer-sponsored health plans are paid for by the employee in the form of forgone wage increases. Now that 30,000 employees working 30 hours or less will lose their insurance, surely Walmart will provide them with wage increases equivalent to perhaps three-fourths of the the employer contribution to the health plan premiums (since they work three-fourths of the full time hours). Walmart takes every opportunity to publicize how well they are taking care of their employees, yet they remain silent on wage increases for those losing their insurance. Economists need to take another look at the slight of hand revealing the deception of the forgone wage increases. Wage increases are forgone when health care costs increase for the employer, but just try to get the employers to restore alleged forgone wages when the health benefits are terminated.

When we change to a single payer national health program – and we will – employers will be relieved of their responsibility under ACA to provide health insurance for their employees. At that time efforts can be concentrated on ensuring that employees then receive living wages. That could be another great spin-off benefit of an improved Medicare for all.

An Interview With George Halvorson: The Kaiser Permanente Renaissance, And Health Reform’s Unfinished Business

By Jeff Goldsmith
Health Affairs Blog, September 30, 2014

Kaiser (Permanente) surprised the health plan community by announcing in March 2002 the selection of a non-physician, George Halvorson, as its new CEO. 

During his twelve year tenure as CEO, Halvorson not only guided the plan to solid profitability, but added a million members in California, its largest market, despite a devastating recession and a national retreat of commercial HMO membership.

The Growth Of High-Deductible Health Plans

Jeff Goldsmith: If you look at the Kaiser/HRET survey, which focuses on the employer segment, the HMO wedge shrinks while the high deductible health plan wedge seem to grow in proportion. In 2013, High Deductible Health Plans (HDHPs) represented around 30 million lives.  Are HDHPs “managed care” in your view?

George Halvorson: Yes. I think they are a form of managed care.  HDHPs get involved to some degree in delivery of care.  They require care/data reporting.  They have some care protocols or some care-related elements they don’t allow. So I would classify all those plans and products under the broad category of managed care. If employers buy a $500 dollar deductible plan from Kaiser Permanente — and about 10 percent of Kaiser members are now in plans that have deductibles that are high or higher — the employees still get their care at KP.  When they pay the fee for the office visit, they pay KP as opposed to paying it outside, so that the cash flow for KP is basically the same.  It just comes down two separate channels, copays and premiums, instead of coming down one prepaid premium channel.

Goldsmith: How hard was it for your colleagues, particularly the Permanente physicians, to accept the philosophical change that required?  In the legacy Kaiser model, there was no cost to the patient.

Halvorson: Everyone at KP, including myself, strongly preferred the model where there was no cost for the patient.  However if 10 percent of our employer customers want to buy a high deductible product and we don’t sell it to them, then they leave. Kaiser has hospitals, clinics, pharmacies, lots of care-related infrastructure that would not do as well if 10 percent of the patients were gone.  It is important to point out that we made a very conscious decision to not change care in any way for those patients. That was a critical issue. It is easier to maintain the old approach for all patients because 90 percent of the KP’s members are still in the older benefit model.

Goldsmith: Of the million people that were added to Kaiser in California during your time as CEO in California, how many of them came because of this change in your benefits strategy?

Halvorson: Now about 10 percent of Kaiser’s members are in plans with deductibles of some kind. I personally went to California’s managed care regulators and worked to persuade them to allow us to offer the product.  I had to give them assurances that we would not be changing the delivery of care for those members in any way. Those members would not be there if we had not offered a product with personal financial exposure in it.

Goldsmith: Did the high deductibles make your job as a care system easier or harder?

Halvorson: Harder.

Goldsmith: Why?

Halvorson: Because we had to bill the patient.

Goldsmith: What else besides the billing?

Halvorson: The billing was the major issue.

Goldsmith: It didn’t make it more difficult for you to get them to do things that were in their own health interest, even if it cost them money?

Halvorson: Because we are who we are and because we ask people to do what we ask them to do in a very consistent and reasonable way, members tend to follow. We didn’t see a lot of people refusing to get needed care based on the fact that they had deductibles. That was largely because we are so committed to a particular set of care concepts and protocols that the credibility of the individual caregiver for the patient triumphed over the financial exposure.

http://healthaffairs.org/blog/2014/09/30/an-interview-with-george-halvorson-the-kaiser-permanente-renaissance-and-health-reforms-unfinished-business/

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Comment:

By Don McCanne, MD

Former Kaiser Permanente CEO George Halvorson said, “Everyone at KP, including myself, strongly preferred the model where there was no cost for the patient.” So why did they start selling plans with deductibles?

Simply stated, it was because many employers demanded deductibles and other forms of cost sharing. Deductibles have become a standard throughout the insurance industry, and most employers like them because the premiums paid are lower since up front costs of health care are being shifted to their employees’ pockets.

Yet Halvorson said that deductibles made their job as a health care system harder, mainly because of the administrative inefficiencies of having to bill each patient for these charges. Kaiser received the same total amount but they had to establish “two separate channels, copays and premiums, instead of coming down one prepaid premium channel.”

Either way, the employees were paying the costs – through forgone wage increases that paid the premiums, or through direct out-of-pocket payment of the deductibles. The only reason for making this change was the pigheadedness of the employers who insisted, based primarily on misguided ideology, that they wanted to join the high deductible, consumer-directed bandwagon.

It is well known that deductibles frequently cause individuals to forgo appropriate care which can then result in adverse health outcomes. Halvorson said that they “didn’t see a lot of people refusing to get needed care.” Without the data it is hard to know, but since most of Kaiser’s patients have decent jobs with employer-sponsored plans, these are patients from a relatively healthy sector of the population, mostly with reasonable incomes, so they may be less likely to forgo appropriate care. But even amongst Kaiser’s patient population, there will be some who will find deductibles to be significant barriers to care.

There is nothing good about Kaiser’s deductibles, but there are several things that are bad. And this is in the best of circumstances.

With a single payer system there would be no deductibles, just as there were not in Kaiser’s legacy system. Perhaps the most revealing comment Halvorson made is that before and after instituting deductibles, “the cash flow for KP is basically the same.” It didn’t make a difference; it just mucked things up!

Medicaid Demonstrations: HHS’s Approval Process for Arkansas’s Medicaid Expansion Waiver Raises Cost Concerns

GAO, Released September 8, 2014

What GAO Found

In approving Arkansas’s Medicaid Section 1115 demonstration, the Department of Health and Human Services (HHS) gave the state the authority to test whether providing premium assistance to purchase private coverage offered on the health insurance exchange will improve access to care for individuals newly eligible for Medicaid as a result of the Patient Protection and Affordable Care Act (PPACA).

In approving the demonstration, HHS did not ensure that the demonstration would be budget- neutral — that is, that the federal government would spend no more under the state’s demonstration than it would have spent without the demonstration. Specifically, HHS approved a spending limit for the demonstration that was based, in part, on hypothetical costs — significantly higher payment amounts the state assumed it would have to make to providers if it expanded coverage under the traditional Medicaid program — without requesting any data from the state to support the state’s assumptions. GAO estimated that, by including these costs, the 3-year, nearly $4.0 billion spending limit that HHS approved for the state’s demonstration was approximately $778 million more than what the spending limit would have been if it was based on the state’s actual payment rates for services under the traditional Medicaid program. Furthermore, HHS gave Arkansas the flexibility to adjust the spending limit if actual costs under the demonstration proved higher than expected, and HHS officials told us that the Department granted the same flexibility to 11 other states implementing demonstrations that affect services for newly eligible beneficiaries. Finally, HHS, in effect, waived its cost-effectiveness requirement that providing premium assistance to purchase individual coverage prove comparable to the cost of providing direct coverage under the state’s Medicaid plan, further increasing the risk that the demonstration would not be budget-neutral.

As of June 2014, HHS has approved one additional state’s — Iowa’s — demonstration to use premium assistance to purchase exchange coverage. Iowa’s demonstration is more limited in scope in that it covers a portion of the expansion population, those with incomes of 101 percent to 133 percent of the federal poverty level. As with its approval of the Arkansas demonstration, HHS gave Iowa the flexibility to adjust its spending limit and waived the cost-effectiveness requirement. According to HHS officials, three other states as of June 2014 had indicated an interest in implementing a similar approach.

In commenting on a draft of this report, HHS disagreed with GAO’s findings that HHS’s approval process did not ensure that the Arkansas demonstration will be budget-neutral. GAO maintains the validity of these findings.

What GAO Recommends

GAO is not making recommendations in this report. GAO has had long-standing concerns with HHS’s policy, process, and criteria for reviewing and approving section 1115 demonstrations, including the lack of transparency in the basis for approved spending limits. GAO has previously reported that HHS’s budget neutrality policy and process did not provide assurances that demonstrations would be budget-neutral to the federal government. Among other concerns, GAO reported that HHS allows methods for establishing the spending limit that GAO believes are inappropriate, such as allowing states to include hypothetical costs — expenditures that the state could have made under its Medicaid program but did not — in establishing the baseline for the spending limits. As a result, GAO has made a number of recommendations in the past to improve the budget neutrality process for Medicaid demonstrations. In 2008, because HHS disagreed that changes to the budget neutrality policy and review process were needed, we suggested that Congress require the Secretary of HHS to improve the demonstration review process by, for example, better ensuring that valid methods are used to demonstrate budget neutrality.

http://www.gao.gov/products/GAO-14-689R

From the full GAO report:

HHS’s approval of $778 million dollars of hypothetical costs in the Arkansas demonstration spending limit and the department’s waiver of its cost-effectiveness requirement is further evidence of our long-standing concerns that HHS is approving demonstrations that may not be budget-neutral. HHS’s approval of the Arkansas demonstration suggests that the Secretary may continue to approve section 1115 Medicaid demonstrations that raise federal costs, inconsistent with the Department’s policy of budget neutrality. Moreover, the additional flexibility granted to Arkansas and 11 other states to increase the spending limit if costs prove higher than expected sets another precedent, further eroding the integrity of HHS’s process. If, as it did with Arkansas, HHS allows states to use an approach to expanding Medicaid that is expected to cost more than expansion under the existing Medicaid program with fewer cost controls in place, there could be significant cost implications for the federal government. Efforts to ensure cost- effectiveness and budget neutrality in Medicaid expansion demonstrations have even greater fiscal implications given that states that choose to do so will receive enhanced federal funding for the newly eligible population.

http://www.gao.gov/assets/670/665265.pdf

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Comment:

By Don McCanne, MD

Our two major public programs for health care financing – Medicare and Medicaid – continue down the path of privatization, with the complicity of the Department of Health and Human Services (HHS).

We’ve reported many times that the private Medicare Advantage plans that are displacing the traditional Medicare program have been deliberately funded well in excess of that allotted for traditional Medicare, both by acts of Congress and by administrative chicanery at HHS.

Now the GAO reveals that HHS has also used the section 1115 Medicaid waiver process to allow states to not only transfer their Medicaid patients to private health plans, but to also allow them to meet the higher costs of private plans, through innovative chicanery such as “allowing states to include hypothetical costs — expenditures that the state could have made under its Medicaid program but did not — in establishing the baseline for the spending limits.”

Although privatization of Medicare and Medicaid has long been a Republican goal, since the neo-liberals have dominated the Democratic leadership, they have aided and abetted this effort. We are supposed to be a democracy, yet no matter how we vote, we are electing politicians who spend more of our tax and premium dollars on the administrative waste and mediocre performance of the private insurers. Any suggestions?

Reforming Medicare: What does the public think?

AEI and the Brookings Institution, September 19, 2014

Panelists: Joseph Antos (AEI), Marge Ginsburg (CHCD), Robert Moffit (Heritage), Kavita Patel (Brookings) and John Rother (NCHC)

On Friday at AEI, Marge Ginsburg of the Center for Healthcare Decisions (CHCD) opened a discussion on redesigning Medicare by presenting new findings from the CHCD’s MedCHAT study, which engaged diverse participant groups in reviewing current Medicare benefits and addressing the potential for budget reallocation.

http://www.aei.org/events/2014/09/19/reforming-medicare-what-does-the-public-think/

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How To Fix Medicare? Ask The Public

By Mary Agnes Carey
Kaiser Health News, September 23, 2014

While participants did not eliminate benefits, they accepted stricter criteria or new limitations on current coverage. For example, 82 percent supported the use of defined networks of providers, but allowed the use of a provider outside the set network if approved by a primary care provider. 

http://capsules.kaiserhealthnews.org/index.php/2014/09/how-to-fix-medicare-ask-the-people/

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OK to Limit Medicare Provider Choices, but Don’t Cut Benefits

American Academy of Family Physicians (AAFP), September 26, 2014

Overall, participants did not choose to cut benefits but opted instead for increased restrictions regarding how and when those benefits would be provided, said Ginsburg. Of those who participated, 82 percent said they would require Medicare enrollees to choose a provider network rather than continue the current carte blanche approach to seeing health care professionals. Most stipulated that referrals outside the network should be covered with consent from a patient’s primary care physician.

http://www.aafp.org/news/practice-professional-issues/20140926medchat.html

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Re-Designing Medicare

Findings from the California Medicare CHAT Collaborative
Center for Healthcare Decisions, September 2014

The Center for Healthcare Decisions (CHCD) in partnership with LeadingAge California developed the California Medicare CHAT Collaborative (“MedCHAT”) to encourage public input on Medicare.

MedCHAT is an interactive, computer-based simulation, in which participants create a benefits package when potential coverage options exceed current Medicare funding.

82% of participants accepted a network model when it was presented as a trade-off for new Medicare benefits.

Participants were presented with several categories where coverage could be improved or new benefits added to Original Medicare. The majority of participants opted to include all of them. (Long term care; dental, vision and hearing; mental health; transportation)

Of the 82% of participants that agreed to the network model, most included the flexibility of allowing the primary care provider to authorize out-of-network use. The remaining 17% chose to retain Medicare’s current provider model.

Participants’ views were also captured via the pre/post survey questions regarding the actions they could support to reduce the impact of Medicare on the federal budget. Before the MedCHAT discussion, “requiring Medicare users to choose a specific provider network” was an option supported by 23% of participants. After MedCHAT, 34% supported this requirement. However, 82% of participants accepted a network model when it was presented as a trade-off for new Medicare benefits. Thus it appears that requiring use of provider networks was not as acceptable when the purpose was to reduce the federal cost burden.

(As a way of reducing the federal budget, lowering the amount Medicare pays doctors was supported by 14%, the lowest of any recommendation.)

http://chcd.org/wp-content/uploads/2014/09/MedCHAT-full-report.pdf

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Comment:

By Don McCanne, MD

Citing this study from the Center for Healthcare Decisions, it is being widely reported that 82 percent of the public would be willing to accept provider networks for Medicare. Conservatives particularly are touting the fact that the public is no longer demanding unlimited choice of physicians and hospitals under Medicare. Is this what the study really showed?

A few specifics:

• In the study, 82 percent accepted a network model when it was presented as a trade-off for a significant level of new Medicare benefits: long term care, dental, vision, hearing, mental health, and transportation.
• Most approved a network model if their primary care provider were to have the freedom to authorize out-of-network care. This basically defeats the control imposed by the closed network since it allows the primary care gatekeeper to open the gate at any time.
• 86 percent did not approve of reducing Medicare payments to physicians. The purpose of limited networks is to extract provider agreements to accept lower payments. If there is no reduction in payment rates, then in-network providers would still receive the same established Medicare rates as the out-of-network providers, defeating the primary purpose of networks.

So the public can accept provider networks in exchange for more generous benefits as long as the networks do not limit provider choice and do not fulfill their function of reducing payments to physicians.

This study will be used to claim that Medicare beneficiaries prefer limited provider networks. They do not. The majority of seniors are still enrolled in the traditional Medicare program. Those who select the private Medicare Advantage plans (MA) do not do so in order to decrease their choices in health care providers. They do so because they pay less for premiums and cost sharing while receiving additional benefits such as the Part D drug benefits – benefits made possible by federal legislation authorizing overpayments to the MA plans, much of which is retained by the insurers.

The claim that patients do not mind losing their choice of physicians and hospitals as long as the insurance product is a better deal has almost become a meme. But patients supporting networks did not intend that that limitation be applied to their own doctors and hospitals. As that reality is now hitting home, we’re beginning to hear the rumblings.

Doctors Hit a Snag In the Rush to Connect

By Julie Creswell
The New York Times, September 30, 2014

Regardless of who is at fault, doctors and hospital executives across the country say they are distressed that the expensive electronic health record systems they installed in the hopes of reducing costs and improving the coordination of patient care — a major goal of the Affordable Care Act — simply do not share information with competing systems.

While most providers have installed some kind of electronic record system, two recent studies have found that fewer than half of the nation’s hospitals can transmit a patient care document, while only 14 percent of physicians can exchange patient data with outside hospitals or other providers.

Epic and its enigmatic founder, Judith R. Faulkner, are being denounced by those who say its empire has been built with towering walls, deliberately built not to share patient information with competing systems.

Where interconnectivity between systems does occur, it often happens with steep upfront connecting charges or recurring fees, creating what some see as a digital divide between large hospital systems that have the money and technical personnel and small, rural hospitals or physician practices that are overwhelmed, financially and technologically.

A research report from the RAND Corporation described Epic as a “closed” platform that made it “challenging and costly for hospitals” to interconnect with the clinical or billing software of other companies.

A sort of Microsoft of the Midwest, built on a sprawling campus on nearly 1,000 acres of farmland near Madison, Wis., the privately held Epic has emerged as a leader in the race to digitize patient medical records. Its systems hold the health records of nearly half the country.

In 2005, when it became clear to her that the government was not prepared to create a set of rules around interoperability, Ms. Faulkner said, her team began writing the code for Care Everywhere. Initially seen as a health information exchange for its own customers, Care Everywhere today connects hospitals all over the country as well as to various public health agencies and registries.

Careful in her choice of words, Ms. Faulkner offered muted criticism of regulators for, essentially, failing to create what she did — a contract to help providers connect to one another and a way to authenticate that only the correct person could view the patient information.

“I’m not sure why the government doesn’t want to do some of the things that would be required for everybody to march together,” she said.

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The Decade of Health Information Technology: Delivering Consumer-centric and Information-rich Health Care

By David J. Brailer, MD, PhD, National Coordinator for Health Information Technology
PNHP Quote of the Day (excerpts), July 21, 2004

While the federal government plays an important role in HIT adoption, the effective use of, and value creation from, this technology lies predominantly with the private sector. The federal government will provide a vision and a strategic direction for a national interoperable health care system, but will rely on a competitive technology industry, privately operated support services, and shared investments in HIT adoption. The private sector must develop the market institutions to deliver the products and services that can transform the paper-based health care system into an electronic, consumer-centered, and quality-based system. The private sector can best ensure that HIT products are successfully implemented in ways that meet the varying needs of American health care across settings, cultures, and geographies. The private sector can also continue constant innovation in HIT and ensure that products are delivered on an affordable basis.

Comment by Don McCanne (July 21, 2004)

What has the magic of the competitive marketplace produced in the way of an integrated IT system to this date? High costs, very poor penetration, and system failures! Competitive market theory dictates that we should be leading the world with a high quality health care IT system at a low cost. What went wrong?

First of all, a fragmented system of multiple private plans, public programs and uninsurance does not provide an infrastructure that is very conducive to an integrated IT system. A single payer system, or, at minimum, a highly regulated system of universal coverage through multiple plans, would provide a framework that would ensure adaptability of an integrated IT system. Of course, a single, publicly administered system would be much preferred for an integrated IT system.

But the greatest difficulty with private IT solutions lies in the very nature of these marketplace models. Their goals are, above all, to maximize profits and to maximize the market price of their shares.

What might the private sector do that doesn’t serve our interests well? They will produce products that command the highest prices that the market will bear. They will design the products to provide a continuing revenue stream. Once gaining a significant share of the market, they will design incompatibility with other systems in an attempt to garner the entire market. They will design obsolescence into their systems to ensure future markets for their new innovative products. They will partner with and perhaps acquire other related entities that can expand profit potentials through greater control of components of the health care system which their products can influence. Although these are good business practices, they are terrible policies for our health care system.

The health information technology report released today (July 21, 2004) should alarm us all. Although we all agree on the importance of an integrated IT system, the Bush administration is limiting the role of the government to being an enabler that encourages the private sector to develop a successful business model. Rather than higher quality at a lower cost, we’ll end up with mediocrity at a much higher cost, wasting even more of our health care dollars.

https://www.pnhp.org/news/2004/july/a_private_health_car.php

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Comment:

By Don McCanne, MD

A decade ago we already had a very successful, publicly-owned health information technology system (HIT) with interconnectivity – VistA – the system in use by the Veterans Health Administration. Under the leadership of President George W. Bush, it was decided that we should move forward with interconnecting our entire health care system through HIT, but that the system should be developed in the private sector instead. What has happened since?

President Bush appointed David Brailer as his National Coordinator for Health Information Technology. On July 21, 2004 he released a 178 page report describing the framework of his proposal – The Decade of Health Information Technology (a decade just completed). Although the link to their report is no longer active, perhaps the most informative sentence in the report is the following: “The private sector must develop the market institutions to deliver the products and services that can transform the paper-based health care system into an electronic, consumer-centered, and quality-based system.” Although the federal government would provide “a vision” for HIT, it would be developed and operated exclusively in the private market.

In my Quote of the Day comment on the day the report was released 10 years ago, I wrote: “What might the private sector do that doesn’t serve our interests well? They will produce products that command the highest prices that the market will bear. They will design the products to provide a continuing revenue stream. Once gaining a significant share of the market, they will design incompatibility with other systems in an attempt to garner the entire market. They will design obsolescence into their systems to ensure future markets for their new innovative products. They will partner with and perhaps acquire other related entities that can expand profit potentials through greater control of components of the health care system which their products can influence. Although these are good business practices, they are terrible policies for our health care system.”

So what did they do? The New York Times article reveals that Epic, a privately held company, “holds the health records of nearly half the country.” Epic is “a ‘closed’ platform that made it ‘challenging and costly for hospitals’ to interconnect with the clinical or billing software of other companies.” “Where interconnectivity between systems does occur, it often happens with steep upfront connecting charges or recurring fees.” Recognizing the need for interoperability, Judith Faulkner, the founder of Epic, established “Care Everywhere” which performs well as a new profit center for Epic but performs poorly in establishing universal connectivity. How could anyone know ten years ago that this might happen? Well, it was known.

This is analogous to the decision made to rely heavily on private health insurance in our efforts to expand health care coverage to everyone, based on the idea that the market can do it better than the government. We have been predicting the adverse consequences of this, and every day we see more evidence that our predictions, based on solid health policy science, are all coming true. In health care we are facing excess costs and poor performance, just as we are with our private HIT systems.

Under a single payer system we would have a cost-effective, publicly-owned, integrated HIT system that is designed to serve patients and their health care professionals, rather than a system that is designed to serve, well, Judith Faulkner (#261 on Forbes 400, Net worth $2.3 billion).