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By Jaime A. Rosenthal; Xin Lu, MS; Peter Cram, MD, MBA
JAMA Internal Medicine, February 11, 2013

Objective – To examine whether we could obtain pricing data for a common elective surgical procedure, total hip arthroplasty (THA).

We found it difficult to obtain price information for THA and observed wide variation in the prices that were quoted. Many health care providers cannot provide reasonable price estimates.

Comment (excerpts):

The results of this study provide insight into the availability of pricing information for a common elective medical procedure, THA. We found that only 16% of a randomly selected group of US hospitals were able to provide a complete bundled price, though an additional 47% of hospitals could provide a complete price when hospitals and health care providers were contacted separately.

First and foremost, understanding our results requires an understanding of the rationale behind calls for greater pricing transparency. The desire for pricing transparency is based in fundamental principles of economics; the assumption that if patients know the prices of medical services, they will make rational decisions by avoiding high-cost health care providers ceteris paribus.

Our results are somewhat remarkable considering the support expressed by virtually all stakeholders for pricing transparency.

Irrespective of the reason for the variation we encountered, we would actually view our results with a modicum of optimism. The nearly $100 000 range in pricing that we encountered suggests that a savvy and determined customer may find opportunities for significant savings with comparison shopping. Alternatively, it is equally possible to argue that our results suggest that less-educated or less-savvy patients could pay exorbitantly high prices.

http://archinte.jamanetwork.com/article.aspx?articleid=1569848

And…

What Does a Hip Replacement Cost?

Comment on “Availability of Consumer Prices From US Hospitals for a Common Surgical Procedure”
By Andrew Steinmetz, BA; Ezekiel J. Emanuel, MD, PhD
JAMA Internal Medicine, February 11, 2013

As Rosenthal and colleagues write, there are many potential solutions for reining in costs and improving quality in American health care, but they require access to reliable information on price and quality for patients to make informed decisions. Free markets need price and quality transparency to function properly.

The history of the automobile industry shows that information asymmetry is treatable. Health care will need to travel down a similar path. It is time we stop forcing people to buy health care services blindfolded — and then blame them for not seeing. The transparency imperative is here, and one way or another the public will soon be empowered to choose their health care based on reliable data on price and quality.

http://archinte.jamanetwork.com/article.aspx?articleid=1569849

Comment:

By Don McCanne, M.D.

There is a terrible epidemic of a mental derangement that has befouled the minds of not only those in the political, policy and academic communities, but also the minds of the public at large. This mass hysteria is exemplified by this statement extracted from the Rosenthal et al article: “Our results are somewhat remarkable considering the support expressed by virtually all stakeholders for pricing transparency.”

Almost everyone seems to be fixated on the concept that if we make health care pricing transparent, we will be able to place every individual in charge of getting the health care that they need while eliminating excessive prices and unnecessary care. The massive shift taking place to higher deductibles and other consumer-driven cost sharing is based on this principle.

Implementation of the Affordable Care Act is pushing us towards innovative changes in the way we pay for health care, such as this article which implicitly supports “bundling” as a means of obtaining a single price for complex services – to be used to shop around for cheaper providers.

With our current budgetary problems on the state and local levels, let’s look how this might play out if we expand the concept from health care to other social services.

Imagine creating price sensitivity for community fire services. Suppose we bundle the payment for putting out a house fire. Not only would we need competing fire services, but we would also need access, through a 911 call, for the various bundled prices. Or a car fire? You can be transferred to the 911 car fire operator who has the car fire bundled prices. Or a preventive fire safety inspection of your home – mandated by the Affordable Fire Act? Instead of 911, you can access eFireInspection providers for competitive fire inspection bundles, which provide basic inspection services, with options such as purchasing a place at the front of the queue in the event of multiple fires.

The police? Easy. Competing bundled prices on home invasion robberies. Murder? No problem – bundled packages with or without conviction and imprisonment of the murderer. Maintaining the peace? Are you kidding? With price transparency who would waste their money on that unnecessary service?

Education bundles? Park and recreation bundles? Public street and highway bundles? City sanitation bundles? How about bundles for politicians? You could buy only the politicians that you need.

Of course all of this is totally ridiculous. So why have we separated out our health care social services to be placed under the control of price shoppers? Isn’t there a better way?

Everyone recognizes the silliness of the examples above because we all understand that such social services are financed through global budgets established by the stewards of our taxes. With minor exceptions, the services are provided automatically without the necessity of establishing price sensitivity on accessing those services. Any additional funding requirements are addressed through the budget process.

Likewise, as in Canada, our hospitals should be globally budgeted. To do so would introduce administrative simplicity and lower costs due to greater efficiency. Physicians’ rates can be kept fair and reasonable through negotiation with the single public payer. Most other nations have shown that you can provide comprehensive care at much lower costs without requiring price transparency for health care shoppers.

Look again at the authors’ statement: “Our results are somewhat remarkable considering the support expressed by virtually all stakeholders for pricing transparency.” Price transparency as a solution for our outrageous health care costs? It’s time to bury this terribly unsound idea and move on with a system that works – a single payer national health program.

By Sue Ter Maat
American Medical News, February 11, 2013

For the sixth year in a row, Moody’s Investors Service is issuing a “negative outlook” to nonprofit hospital finances. Yet the bond-rating agency notes that the facilities have collectively improved their bottom lines in recent years.

In part, Moody’s said, the unexpected gains have come because of physicians. Closer relationships with physician practices, including outright acquisitions, have helped hospitals stabilize their market shares and find ways to cut costs, Moody’s said. “The theme is for tighter and closer alignment and integration [of doctors] with hospitals,” said Lisa Martin, senior vice president of Moody’s Healthcare Team.

Nonprofit hospitals’ three-year compound annual growth rate of revenue fell from 7.3% in 2008 to 5.4% in 2011, Moody’s said. The measure looks at changes over the previous three years and assigns an average annual value to them.

But hospitals have taken positive steps that have prevented an even greater negative impact, Martin said. Among them are mergers and acquisitions of other hospitals, long-term care facilities and physician practices. These forces have meant that doctors are being drawn more closely into hospital operations and decision-making through joint ventures and hospital board memberships, especially as more doctors are employed instead of working in their own practices, she said.

Mergers and acquisitions are expected to continue through 2013 and 2014, as hospitals prepare for full implementation of the ACA. Moody’s analysts consider this activity positive, because it has led to consolidation of services and reduced expenses.

But Moody’s warned that mergers and acquisitions could be difficult in the short term because of turnaround challenges at takeover targets, merging cultures and difficulty closing services after mergers.

http://www.ama-assn.org/amednews/2013/02/11/bisc0211.htm?utm_source=nwltr&utm_medium=heds-htm&utm_campaign=20130211

Comment:

By Don McCanne, M.D.

Consolidation. Mergers. Acquisitions. Between hospitals. Between physicians. Between hospitals and physicians. Between physicians and insurers. Within a framework of integrated affordable care organizations.

Our political leaders’ decision to choose a market model of health care reform led by private insurers is resulting in the shutting down of whatever minimal semblance there was of a free market between competing health plans, as we convert to health care delivery oligopolies and monopolies.

Does anyone really believe that the private insurers are going to be able to drive costs lower and quality higher by their market skills in leveraging the forces of competition between health care delivery systems? The insurers already understand that this model is fading rapidly. That is why they are involved in designing managed care products that shift the insurance risk to others while greatly expanding their market in administrative services. Plus they are gaining control of sectors of the actual health care delivery system.

Our policy experts say, “Yes, but by establishing accountable care organizations, this is the way that we can start to pay for quality instead of volume.” Accountable to whom? Not the patients nor the taxpayers.

By Alex Brill, research fellow, American Enterprise Institute
The Hill, February 7, 2013

One of the next ACA taxes scheduled to take effect is a health insurance tax that will hit small businesses and their employees particularly hard. The tax is officially imposed on health insurance companies, but the greatest effect will be felt by their customers because the insurance companies will pass most of the burden on through higher premiums. An analysis by the nonpartisan Joint Committee on Taxation found that the tax will raise insurance premiums on average by $350–$400 per affected family in 2016.

The higher premiums caused by the new tax will also prompt some employers to self-insure rather than purchase true insurance for their workers. The tax exempts employers who self-insure, as well as certain nonprofit insurers who provide more than 80 percent of their services to Medicare, Medicaid, CHIP, or dual-eligible plans.

Normally, when some taxpayers change their behavior and avoid a tax, the tax raises less revenue than might otherwise be expected. Oddly, the insurance tax is designed in a way that prevents any revenue decline. The ACA presets the insurance tax’s total revenue yield at $8 billion next year, rising to $14.3 billion by 2018. To make this possible, each year’s tax is calculated in the following year, with the preset total tax burden allocated among insurance companies based on each company’s share of the market.

If insurance companies raise premiums to cover the tax and some employers respond by self-insuring, the result will be a bigger tax on the employers that remain in the insurance market. Of course, the bigger tax would fuel another round of premium hikes, causing more employers to self-insure, further premium increases, and so on.

According to the Kaiser Family Foundation’s 2012 Survey of Employer Health Benefits, 15 percent of the smallest employers self-insure, roughly half of employers with 200–999 workers self-insure, and 93 percent of firms with more than 5,000 workers do so. Because the smallest employers almost never self-insure, they will end up bearing the brunt of the tax. Midsized firms will be most likely to shift to self-insuring their workers.

Congress and the public may not view insurance companies as sympathetic figures. But it’s the insurance companies’ customers who will be most penalized by this new tax, whether through $400 premium increases or by being forced to run the risks of self-insuring.

http://thehill.com/blogs/congress-blog/economy-a-budget/281749-tax-hikes-you-may-have-forgotten-about

Comment:

By Don McCanne, M.D.

When we are talking about financing our health care system – 17 percent of our GDP – we have to get tax policy right. One tax being imposed by the Affordable Care Act – a tax on health insurers – will surely be passed on to purchasers of health plans in the form of higher premiums. When health health insurance premiums are already unbearable for many, it doesn’t seem wise to adopt a tax policy that pushes premiums even higher.

Another peculiarity about this tax is that self-insured employers are exempt. We have already written about the serious problems with the current trend of small businesses self-insuring – less regulatory oversight, exemption from some of the provisions of the Affordable Care Act, and the vagaries of stop-loss insurance for the self-insured. Yet the insurance tax will increase this unfortunate trend.

Since the global amount of the tax is set in law and it is assessed proportionately amongst the insurers, as many employers convert to self-insurance, the tax payment required of those continuing to be insured through private plans will rise disproportionately. Although this might not reach the level of a death spiral, the distribution would certainly be inequitable.

One of the most important features of a single payer national health program is that it would be funded through equitable tax policies. Everyone pays their fair share, based on ability. Not only could we fix our health care system through single payer reform, but we would have the additional advantage of moving us much closer to an equitable system of taxation.

By Robert Lowes
Medscape Medical News, February 6, 2013

Two members of Congress today reintroduced an ambitious bill that would repeal Medicare’s sustainable growth rate (SGR) formula for setting physician pay and gradually phase out fee-for-service (FFS) reimbursement.

One major difference this time around for the bipartisan bill, originally introduced in May 2012, is that its price tag appears considerably lower, making passage more likely.

When Reps. Allyson Schwartz (D-PA) and Joe Heck, MD (R-NV), proposed this legislation last year, the Congressional Budget Office (CBO) had estimated that repealing the SGR and merely freezing current Medicare rates for 10 years would cost roughly $320 billion.

Since then, the CBO has reduced that 10-year estimate on the basis of lower than projected Medicare spending on physician services for the past 3 years. In a budget forecast released yesterday, the agency put the cost of a 10-year rate freeze at $138 billion.

The immediate effect of the bill from Schwartz and Heck, titled the Medicare Physician Payment Innovation Act, would be to avert a Medicare pay cut of roughly 25% on January 1, 2014, that is mandated by the SGR formula. Instead, the bill maintains 2013 rates through the end of 2014.

After 2014, Medicare would begin to shift from FFS to a methodology that rewards physicians for the quality and efficiency of patient care. From 2015 through 2018, the rates for primary care, preventive, and care coordination services would increase annually by 2.5% for physicians for whom 60% of Medicare allowables fall into these categories. Medicare rates for all other physician services would rise annually by 0.5%.

Meanwhile, the bill calls on the Centers for Medicare & Medicaid Services (CMS) to step up its efforts to test and evaluate new models of delivering and paying for healthcare (experiments with medical homes, accountable care organizations, and bundled payments are already underway). By October 2017, CMS must give physicians its best menu of new models to choose from. Two menu options would allow some physicians unable to fully revolutionize to participate in a modified FFS scheme.

The year to transition from FFS to “high quality, high value care” will be 2019 under the legislation. Physicians will either operate in a new, CMS-approved delivery and payment model of their choosing or traditional FFS Medicare. The government would keep FFS rates in 2019 at 2018 levels.

After 2019, physicians still embracing traditional FFS Medicare would see their rates reduced until 2024, when they would be permanently frozen at 2023 levels. Physicians operating in the new models, in contrast, would have the opportunity to earn raises for high-quality, low-cost care.

http://www.medscape.com/viewarticle/778879

A summary of the MEDICARE PHYSICIAN PAYMENT INNOVATION ACT OF 2013 can be downloaded by clicking on the link at the bottom of Rep. Allyson Schwartz’s press release:
http://schwartz.house.gov/press-release/schwartz-and-heck-introduce-bipartisan-legislation-repeal-sgr-and-reform-medicare-1

Comment:

By Don McCanne, M.D.

The Medicare sustainable growth rate (SGR) formula seemed to be an equitable method of slowing the non-sustainable increases in Medicare spending. What happened?

Health care spending continued to increase at very high rates, and these increases were funded by private commercial insurance plans. The funds paid pumped up the supply side in health care while having very little ameliorating impact on the demand side. As our health care system continued to be richly funded (too richly, when compared to other wealthy nations), the Medicare SGR formula fell further behind each year in meeting this ever-increasing demand for more funds.

It soon became apparent that if the SGR rates were imposed, physicians would likely restrict their participation in the Medicare program, first by not accepting new patients, and eventually many of them would drop out of the program altogether. For that reason the SGR reductions were deferred most years, and now they have grown to a deficit of about 26 percent.

When physicians are already dissatisfied with Medicare payment rates (cumulative increases have been less than the medical inflation rate), a further abrupt reduction of 26 percent would surely cause many physicians to bail – either limiting their practices to privately insured patients, or retiring early if the reductions wipe out net income.

Members of Congress do support Medicare, even if some would want to shift costs from the federal budget to the beneficiaries themselves. They do understand that the guillotine effect of imposing these reductions would likely severely impair access for patients due to a lack of willing providers. They know that they have to do something.

In defining this problem, members off Congress think in terms of the federal budget. By postponing the reductions, the money has already been spent, yet it is carried on the books as a deficit. What can Congress do to remove this deficit from the budget without having to increase federal revenues?

Quite simply, they need to find other ways to reduce the projected increases in spending. If you download the summary of the Medicare Physician Payment Innovation Act of 2013 (link above), you will see some of the schemes proposed. Most are already familiar, though many are unproven, and some ideas are innovative. Regardless, they are all methods of slowing the growth in Medicare spending while doing very little that would control spending in the private sector. We will still be faced with the same problem that we have now under SGR. In comparison with private insurance payments, Medicare will continue to trail, and the physicians will grow evermore restless.

Rather than taking one program – Medicare – and trying to make it comply with budget austerity, we need to have a financing system in which the entire health care delivery system complies with a single, universal global budget – a single payer national health program. Yes, there would continue to be turf issues between the factions competing for the funds and the public stewards of the funds, but at least the distribution would be equitable and adequate, which was the intent of SGR in the first place.

There are those who contend that we could never adhere to a budget, that it is impossible to fund all of the care that we need if we are limited by a budget. We need only to look at other nations to see that they, with their publicly supervised global or quasi-global budgets, have been able to provide quality care for everyone at an average of half of what we are spending. We can do it, and with a very rich budget at that.

Roseanna Sommers, Susan Dorr Goold, Elizabeth A. McGlynn, Steven D. Pearson and Marion Danis
Health Affairs, February 2013

Abstract

Having patients weigh costs when making medical decisions has been proposed as a way to rein in health care spending. We convened twenty-two focus groups of people with insurance to examine their willingness to discuss health care costs with clinicians and consider costs when deciding among nearly comparable clinical options. We identified the following four barriers to patients’ taking cost into account: a preference for what they perceive as the best care, regardless of expense; inexperience with making trade-offs between health and money; a lack of interest in costs borne by insurers and society as a whole; and noncooperative behavior characteristic of a “commons dilemma,” in which people act in their own self-interest although they recognize that by doing so, they are depleting limited resources. Surmounting these barriers will require new research in patient education, comprehensive efforts to shift public attitudes about health care costs, and training to prepare clinicians to discuss costs with their patients.

From a discussion of Implications

The focus-group discussions revealed the following barriers to participants’ choosing less expensive care: the salience of unlikely but highly upsetting possibilities; a desire for zero risk, rather than for reasonable risk reduction; an assumption that price always signals quality; the misperception that health care sustainability can be achieved by eliminating wasteful spending alone, without needing to forgo some marginally beneficial care; and the belief that choosing more expensive care constitutes a kind of victory for patients over the insurance companies.

Conclusion

If patients and clinicians do not discuss and consider costs during the clinical encounter, the alternatives are problematic. Clinicians might make cost-conscious decisions—for example, judging when high-priced resources such as operating room times, hospital beds, imaging, and specialty referrals are warranted—without informing patients that cost considerations influenced their decisions. Evidence from other countries indicates that clinicians do occasionally limit the use of medical interventions on the basis of concerns about cost. Yet another alternative would be to make cost-conscious allocation decisions at the organizational level, with minimal clinician involvement.

Given the long-term projections about health care costs in the United States, it is inevitable that physicians will face increasing pressures to deliver cost-effective care to their patients. Doing so openly, in a way that allows patients an opportunity to hear the justification for cost-conscious decisions and to be active agents in thinking through treatment choices when feasible, is consistent with physicians’ ethical duties to be transparent with patients and to provide patient-centered care.

But this study’s findings suggest that for cost to be an explicitly recognized and discussed factor in clinical decisions, public attitudes about health care costs must first undergo a significant shift.

http://content.healthaffairs.org/content/32/2/338.abstract

Comment:

By Don McCanne, M.D.

Much attention is being directed today toward the very high costs that plague the U.S. health care system. That attention has not equated with effectiveness in controlling costs, as we witness continued increases in spending in spite of introduction of policies that may be well-meaning but not very effective, that may add to the administrative excesses of our system, and that sometimes are detrimental such as when we erect financial barriers to beneficial health care services.

Some of the emphasis has been directed toward increasing the engagement of the “medical consumer” in the decision process, often through the policies of consumer-directed health care. These policies are designed to make patients “better health care shoppers” by forcing them to recognize costs as they spend some of their own money on health care. The most common measure is to increase the deductibles and other forms of cost sharing that the patient must face when accessing care.

This important study used focus groups to determine the attitudes of potential patients toward injecting cost considerations into the delivery of health care. Patients don’t like it. They feel that they should receive the care that they should have without insurers or public programs making decisions on covering care based on cost considerations. Even if it is their own money, they do not want to compromise their care based on cost.

Other high-quality systems that are much less expensive than ours are able to provide care with first dollar coverage, eliminating the requirement that the patient be involved or even concerned about the costs of the care that they receive. We do not need to create an environment of distrust by the patient that would be engendered by thoughts of health care services being withheld for reasons of cost.

We can make far better clinical decisions based on studies generating guidelines such as those by the British National Institute for Health and Clinical Guidance (NICE). An example of how this works is in their guidance for “Cetuximab, bevacizumab and panitumumab for the treatment of metastatic colorectal cancer after first-line chemotherapy,” available at this link: http://guidance.nice.org.uk/TA242/Guidance/pdf/

If we replaced our fragmented, dysfunctional financing system with an efficient single payer system, and then applied rational decision making processes for diagnostic and therapeutic interventions, we would not have to have the patient involved in spending decisions. Those decisions could be made on a macro-system basis by better planning of system capacity and distribution, and then incorporating a greater element of evidence-based decision making.

We really don’t need angry, me-first patients provoked by having cost decisions forced upon them, particularly when the cost transparency demanded by the advocates of consumer-directed health care creates hostility towards health care professionals and third party payers whom they believe are withholding care that they should have, whether it is true or not.