By Frederick S. Mayer, R.Ph., MPH
Aug 7, 2006

The United States will spend more than $2 trillion on health care this year, which is more than enough to pay for comprehensive health care for everyone. That includes $200 billion (10%) on prescription drugs. Yet we will continue to see adverse health outcomes, including death, because millions are finding that health care is simply unaffordable. It is a national disgrace that people will die merely because they could not afford to purchase their prescriptions and other essential care, even though we are spending enough to provide for them.

The problem is not the affordability of drugs; the problem is the highly flawed and fragmented system with which we fund all health care, including drugs. We depend not only on public programs such as Medicare and Medicaid, but also on private plans, both employer-sponsored and individually purchased. Charity, intended or not, and public clinics and hospitals represent other major sources of funding.

Rather than the affordability of health care, much attention has been directed to the affordability of insurance plans. For tens of millions of Americans, insurance is simply unaffordable, and they go without coverage. For those who do have insurance, more costs are being shifted to the individual to control the prices of premiums. Some of this is in the form of reduced benefits, such as more restrictive formularies, but a greater portion of the shift is in the form of increased cost-sharing. Typical of these user fees that are applied at the time of accessing services are the high co-pays, out-of-pocket expenses, and step formularies required with upper-tier drugs.

The problem with these trends is that health care has become unaffordable for precisely those individuals with the greatest healthcare needs. Medical bills are a major cause of half of all bankruptcies in this country, and two-thirds of those individuals had insurance. Health plan innovation has slowed the rate of premium escalation, but it has done so at the expense of greatly diminishing the financial security that insurance should be providing.

Since we are spending enough to provide comprehensive care for everyone, and yet so many fail to receive the care they need, it is obvious that much of our health spending is not providing value. Where is the waste? One major source of waste is that our fragmented system of funding care is administratively complex for the payers, and it places an even greater administrative burden on the healthcare delivery system. Hundreds of formularies administered by innumerable PBMs are obviously much more burdensome than a single, comprehensive, national formulary for evidence-based Medicare (EBM), which would automatically include everyone and would use a single automated billing system.

Healthcare systems with a strong primary care infrastructure have been demonstrated to provide higher quality care at a lower cost. Yet primary care is in dramatic decline in the United States. A unified system of funding care would establish incentives to encourage expansion of the primary care infrastructure.

Many studies have confirmed that allocation of our healthcare resources is flawed. Some geographical regions are underserved, but others have excess capacity in high-tech services. It has been shown that this excess capacity results in a significant increase in the delivery of high-tech services without any commensurate improvement in health outcomes—and frequently with lower quality and patient-satisfaction ratings. A single funding system would provide data that would identify these wasteful deviations, enabling the application of appropriate adjustments in resource allocation.

We spend more for health care here than in other countries. A single monopsonistic purchaser for the healthcare system could negotiate fair prices. For pharmaceuticals, negotiations would cover costs, fair profits, innovation, and research expenses but would exclude waste such as excessive marketing expenses. Physicians would be able to negotiate appropriate rates, and hospitals would negotiate global budgets. Americans want a first-class healthcare system, so they’d support the funding of legitimate costs and fair profits, just as they support the funding of schools, highways, and police and fire protection.

Several decades of reform efforts have demonstrated that building on our flawed system of funding health care has only increased costs while leaving too many without access to affordable care. We have enough money to pay for health care for everyone. We need only the political will to dismiss the incompetent insurance middlemen running the system and replace them with a single national health insurance program. With our own public system, we would finally be in a position to demand high-quality healthcare products and services for everyone.

THE AUTHOR is past president of the California Public Health Association and president of Pharmacists Planning Service Inc. (PPSI), San Rafael, Calif., ppsi@aol.com

Coverage & Access | [Aug 09, 2006]

San Francisco Mayor Gavin Newsom (D) on Monday signed into law a program to expand health care access to the estimated 82,000 uninsured city residents, the San Francisco Chronicle reports (Vega, San Francisco Chronicle, 8/8). The San Francisco Health Access Program, proposed on June 20, would not provide health insurance but would give uninsured adults access to the same network of doctors and hospitals, as well as surgeries and drug benefits that other workers in the city have. The goal is to reduce health care costs by emphasizing primary and preventive care, according to Newsom. San Francisco’s Board of Supervisors will vote on the plan later this month, though Newsom said he does not need the board’s approval to proceed with the program’s implementation. The program would cost the city an estimated $200 million in the first year, much of which would be redistributed from existing city programs serving the uninsured and low-income residents. Newsom said he “assume[s] costs will increase” but hopes that the city will not “need to do this in five or six years” because the program will be “replaced by some rational national strategy” (Kaiser Daily Health Policy Report, 7/7). Newsom said implementing the program will be “the most complex” aspect of the plan (San Francisco Chronicle, 8/8).

Problems with Medicare payments to physicians, rising health-care costs, and the increasing number of Americans without insurance show the need for reforms.

By Jeff Atkinson Published July/August 2006

The United States seems to be adept at alleviating the pain caused by the health-care system–taking just enough action to forestall a system-wide crisis, but not enough to provide long-term solutions. Two recent examples of this are the changes to the Medicare payment structure for physicians and proposed solutions for the growing number of Americans without health insurance.

Congress halts Medicare cuts

At the beginning of the year, Medicare reduced payments to physicians by 4.4 percent, part of a cost-cutting plan that the Medicare trustees said would reduce payments to physicians by approximately 26 percent over six years. The American Medical Association (AMA) and others protested, citing an AMA survey that indicated payment cuts for 2006 would cause 38 percent of physicians to accept fewer new Medicare patients.

In February, Congress passed the Deficit Reduction Act (S. 1932), which delayed implementation of payment reductions and froze payments at the 2005 level, subject to adjustments announced earlier. Medicare carriers were instructed to repay physicians for the fees that were lost in the first month of the year.

AMA President J. Edward Hill, MD, said, “The current payment formula is tied to the ups and downs of the U.S. economy–not the growing health-care needs of America’s seniors. We must build on the momentum and awareness in 2005 to make 2006 the year Congress permanently repeals the broken Medicare physician payment formula.”

Without further action by Congress, Medicare payments to physicians for 2007 will be cut by 4.6 percent.

Uninsureds increase to 45.8 million

The bad news is that the number of people without health insurance in the United States has increased to 45.8 million–15.7 percent of the population and about 800,000 more people than the previous year. The good news is that the number of people with health insurance has increased as well to 245.3 million (84.3 percent of the population). These figures are from 2004, the most recent year for which the U.S. Census Bureau has reported data. The report is available on line at www.census.gov/prod/2005pubs/p60-229.pdf

For many people without health insurance, lack of health insurance is a crisis, but those who do have health insurance may not perceive such a need for major changes in the system. The government has worked on the issue of lack of health insurance through incremental changes, such as making health insurance more easily available for children through the State Children’s Health Insurance Program (SCHIP), which has insured more than 5 million children nationwide.

In addition, the Bush administration backs expansion of Health Savings Accounts (HSAs) by which Americans buy high-deductible insurance polices and place tax-free dollars in accounts to pay for health-care expenses. The deductible for an individual is at least $1,000 per year, and the deductible for a family is at least $2,000 per year. So far, about 3 million people have enrolled in HSAs. People with high incomes are most likely to benefit from and enroll in HSAs.

Although the incremental changes help certain segments of the population, the broader issues of a large number Americans without health insurance and the need for a stable, predictable reimbursement system remain.

Health spending up 7.9 percent

Meanwhile, health-care spending continues to grow faster than the general rate of inflation, although the growth of health-care spending is slower than in earlier years. According to figures released by the Centers for Medicare and Medicaid Services (CMS), national health expenditures rose 7.9 in 2004, which is lower than the 8.2 percent growth in 2003 and the 9.1 percent growth in 2002. (The 2004 figures were released in 2006.)

The 7.9 percent increase in 2004 is more than twice the general rate of inflation (3.3 percent) for the year. When health-care spending outstrips the general rate of inflation, the proportion of gross domestic product (GDP) devoted to health care rises. In 2004, health-care spending reached 16 percent of GDP. By comparison, the average industrialized country devotes about 8.6 percent of its GDP to health care. The CMS expects the proportion of GDP in the U.S. devoted to health care to grow to 20 percent by 2015.

Physicians’ piece of the pie

The total national health spending for 2004 was $1.878 trillion, which is $6,280 per person. Physicians received a slightly larger portion of the health-care spending pie in 2004 with total payment for physician services increasing by 9 percent. Spending for hospitals and for prescription drugs rose by slightly less amounts (8.6 percent and 8.2 percent, respectively).

The rate of increased spending for prescription drugs is down from double-digit increases of a few years ago. Reasons for the slower rate of increases in drug spending include more use of lower price generics, increased availability of over-the-counter (OTC) drugs, including anti-ulcerants and antihistamines, and more mail-order dispensing of drugs. For a comparison of health-care spending between 2000 and 2004, see the chart on page 11.

Conditions for reform

In a book review in Health Affairs, Professor Mark Peterson of UCLA comments, “None of the current policy alternatives seems to offer much hope of success, unless the health care system unravels so dramatically that it clears the political slate.” (Vol. 24, No. 6, Nov./Dec. 2005, p. 1682).

What could dramatically unravel the health-care system? A flu pandemic that wipes out a significant portion of the population and cripples the economy is one possibility. Another could be that enemies of the United States set off a few nuclear devices on U.S. soil. In such circumstances, with many of the country’s institutions crippled, the federal government would need to step in to maintain order and provide essential services, including health care.
Less dramatic, but also possible, would be steady erosion of the U.S. economy in which businesses, in larger numbers than is occurring already, conclude that they can no longer afford to provide health insurance to their workers. If that happens, political pressure from the business community and consumers could result in establishment of universal health care.

Another path to universal coverage (with or without a crisis) could be new leadership in the United States that would effectively convey a message of “We are in this together” and “There are certain essentials that all Americans should have, including health insurance.” Such leadership would move America away from an attitude of “Each person for himself” and more toward a Canadian view that universal health care is, in the words of Roy Romanow, former premier of Saskatchewan, an “expression of social cohesion.”

Models for universal health care

The simplest model for universal coverage would be to expand the Medicare system, dropping the age limit for eligibility, either all at once or gradually. Instead of covering the 42 million of the population over age 65, Medicare would cover all Americans. Increased funding would be required, obviously, either from a higher Medicare tax or from other taxes. However, this would in large part be merely a transfer of private-sector expenditures into the public system.

Another option is to mandate that all employers (or individuals) acquire health insurance and to provide subsidies to poor persons for insurance coverage. Most aspects of the current health-care system, including its administrative inefficiencies, would be maintained.

Alternatively, a system of vouchers for purchasing insurance could be adopted. The private insurance delivery system would still be in place, although there likely would be fewer insurance companies. Payment of the vouchers would come from the government and would be funded from general revenue or perhaps a value-added tax. The value of the vouchers would be risk-adjusted, and patients would have freedom to choose among health plans. For further discussion of different models of health-care reform, see the Nov./Dec. 2005 issue of Health Affairs (Vol. 24, No. 6), on line at www.healthaffairs.org/

Need for long-term solution

In the 1990s, Congress adopted a complex formula to set payments to physicians. The formula applies multiple variables, including the amount of utilization of services and the condition of the economy, as well as the Resource-Based Relative Value Scale. The goal of the formula is to ensure adequate payment to physicians and to promote high quality, efficient health care. For the last several years, the formula has not worked out well, and Congress has stepped in to provide a fix for the coming year, but without altering the underlying formula.

Similarly, some government leaders have lamented the growing number of Americans without health insurance. A solution–or a solution that is better than the current system–will require sustained, focused effort. Less harm will come to the country if solutions can be developed without waiting for a crisis.

Jeff Atkinson teaches courses in health-care law and policy at DePaul University College of Law in Chicago, where he graduated summa cum laude. He writes on legal, medical, and ethical issues.