PNHP

Health Care Cost Containment or Consumer Rip-Off? 

Health Care Cost Containment or Consumer Rip-Off? 

Pharmacy Benefit Managers: Health Care Cost Containment or Consumer Rip-Off? 
Corporate Truth Squad Alert #12 – August 13, 2004

Prescription drug prices are the fastest growing segment of runaway health care costs – increasing at double-digit rates over the last seven years, according to the Kaiser Family Foundation.  Consumers, especially older Americans, are paying ever-higher prices with no end in sight.  And a July 2004 study concluded that the cost of prescription drugs has risen so sharply that the average share of income (or the drug cost burden) spent by individuals on prescription drugs has increased from .8% in 1990 to 1.2% in 1998, accelerating to 1.8% in 2002.

Pharmacy Benefit Managers (PBMs), greatly impact access to and the costs of prescription drugs. They are an outgrowth of the managed care industry intended to keep drug costs down and to ensure quality of care, use their buying power to negotiate rebates from drug manufacturers and discounts from retail pharmacies.  But there are new and troubling questions about what PBMs do with those savings.  Are the savings being passed on to consumers or used to ensure the highest quality of drugs?  Or are they being used to enrich PBMs?

What’s At Stake?
The stakes are enormous. PBMs administer and manage prescription drug benefit programs for a wide range of clients – HMOs, employers, preferred provider organizations, Medicaid and other state programs, and other health plans. PBMs play a major role in the purchasing and distribution of drugs.  They purchase drugs in huge volumes through a large network, negotiating rebates from the drug manufacturers and discounts from retail pharmacies, and process hundreds-of-millions of pharmaceutical claims a year.  At the same time, however, they also run their own mail-order service centers.

State governments have a particular interest in the practices of PBMs as they increasingly use the bulk purchasing power of Medicaid beneficiaries, the uninsured or other groups in their state to negotiate lower drug prices. But since PBMs administer these programs, states may not be reaping the full savings of their market power.

And, PBMs will play a major role as administrators of the new prescription drug provisions in the 2003 Medicare Modernization and Improvement Act. A September 2003 study concluded that PBM self-dealing could cost the Medicare program and beneficiaries as much as $30 billion from 2004 to 2013.
 
According to the Centers for Medicare and Medicaid Services, spending for prescription drugs in America totaled $162.4 billion in 2002.  That’s four times higher than total spending since 1990.  PBMs have enormous power in this lucrative arrangement.  The New York Times reported on January 5, 2002 that there are 60 PBMs in America administering drug plans for about 200 million consumers – equaling 84% of individuals who have health insurance. 
 
Case Study:  Do PBMs Profit at Expense of Their Clients and Consumers?
Recent state investigations and several lawsuits have begun to raise the question of who benefits the most from PBMs.  Do PBMs keep the savings they negotiate for their own profits rather than passing them on to consumers?  Do they pad their profits by steering consumers to more costly drugs instead of the highest quality drugs at the lowest cost? 

Although 60 PBMs administer drug plans nationwide, three companies (Caremark, Express Scripts, and Medco) control close to half of the business.  According to financial data submitted by these three companies, they enjoyed billion dollar earnings in 2003.  Caremark had revenues of $9.1 billion managing more than 114 million prescriptions.  Advance PCS recently merged with Caremark, but before the merger rolled up $14 billion in annual revenues and managed 502 million prescriptions.  Express Scripts had $13 billion in revenues and processed more than 410 million pharmacy claims.  Medco had revenues of $34 billion and administered 532 million prescriptions. 
 
A pilot study conducted for the Journal of the American Pharmacists Association found wide gaps between what a PBM pays a pharmacy for a drug and what it bills the end user.  While the study concluded that PBMs average a $5 to $10 markup on generic and brand name drug transactions, it also found some much larger gaps, including one case in which a PBM billed an employer $215 for a generic stomach medicine, Ranitidine, but only paid the pharmacy $15 for the drug. 

In addition, PBMs may be using financial incentives to choose which drugs they offer.  One study found that drug companies pay rebates to PBMs for placing their products on special usage lists called formularies.  PBMs typically retain up to 30% of the manufacturers’ rebates, so they have an incentive to swap for drugs that pay higher rebates even if the drug costs the end user more. 
 
State Investigations Raise Questions about PBM Business Practices

The business practices of all three major PBMs are being investigated by a number of states around the country. On July 28, 2004, the St. Louis Post-Dispatch reported that twenty states are investigating Express Scripts, one of the nation’s largest PBMs.  The article also indicated that 19 other states are seeking documents related to a wide range of its business practices.  Since then, New York has also filed suit against them, alleging the company breached its contract with the state and broke other civil laws. The New York state litigation is centered on the practice of switching patients from one drug to another in order to boost its own profits.  In April, Medco, another large PBM, agreed to a $29 million settlement with 20 states, including New York, from litigation alleging the same abuses.  According to an August 5, 2004 article in the Kaiser Daily Health Policy Report, “Caremark Rx announced last month that it is being investigated by attorneys general from 19 states . . . .” On August 12, the Wall Street Journal reported that an additional four states had requested information about how Caremark Rx (which subsumed Advance PCS on March 24, 2004) is meeting requirements of their consumer protection laws.

State Attorneys General are stepping in to investigate PBM abuses even though PBMs are not comprehensively regulated by state or federal agencies.  Unlike pharmacies, no states require licensing for PBMs – except when they dispense medication directly through mail-order activities.  Also, states don’t regulate PBMs through their insurance regulations as they do the managed care industry. 

As questions have arisen regarding possible conflict of interests in the dual roles PBMs play, the National Legislative Association (NLA) on Prescription Drug Prices – currently comprised of 10 states – has decided to work towards the formation of an independent non-partisan Pharmacy Benefit Administer that will “facilitate aggregating the purchasing power of states, businesses, and individuals.”

Consumer Advocates Join the Fight to Reduce Rx Drug Prices

The Prescription Access Litigation (PAL) Project has joined forces with the American Federation of State, County and Municipal Employees (AFSCME) to sue the four largest PBMs in the nation, charging they are responsible for higher prescription drug costs.  The four PBMs named in the lawsuit are Advance PCS; Caremark Rx, Inc.; Express Scripts; and Medco Health.  The April 2003 complaint alleges that these four companies pocket savings on their drug purchases instead of passing them on to health plans and their members. According to the lawsuit, the PBMs have “willfully contributed to escalating drug costs, and have failed in their fiduciary duty to those client health plans.”

In addition, PAL has joined with the AARP Foundation Litigation and the Legal Counsel for the Elderly in a friend of the court (amicus) brief supporting the District of Columbia’s efforts to regulate PBMs and make them more accountable.  The amicus brief describes the enormous power that PBMs have:
PBMs do not manufacture, distribute, prescribe, or ultimately even pay for prescription drugs, yet they often determine what drug a patient will receive and at what price.

PBMs have consistently refused to disclose their pricing structures and the deals they negotiate with drug companies.  According to AARP and the Legal Counsel for the Elderly, studies have shown more transparency would save consumers money:
What seems clear from this navigation of the PBM maze is that prescription benefit plan sponsors (either private employers or government entities) should insist on full disclosure of cash flows to and through the PBM that is administering their drug benefit.  Without this level of scrutiny, the plan sponsor cannot be sure if its PBM is providing good service for a fair price or is acting primarily in its own interest.

The PBM industry successfully fought back efforts to include strong transparency provisions in the new Medicare law, according to the Corporate Research Project of Good Jobs First. (See “Cost Cutters or Con Artists? Pharmacy Benefit Managers Under Fire,” Corporate Research E-Letter No. 42, December 2003) Instead, Congress adopted a weaker provision, requiring that the Federal Trade Commission study whether PBMs will have a conflict of interest in providing the new Medicare prescription drug benefit through their own mail order pharmacies, thereby resulting in increased Medicare spending. 

For more information about this alert, the Corporate Truth Squad Campaign, or for a PDF version of this document, please call Helen Gonzales, USAction Policy Director, at 202-624-1730.

Highlights of the Health Care for All Ohioans Act

Highlights of the Health Care for All Ohioans Act

1. The Health Care for All Ohioans Act, referred to here as “the Plan,” provides coverage for the full range of inpatient and outpatient hospital care, preventive care, mental health, vision, hearing, prescription drugs, dental, emergency services, rehabilitation services, hospice care, home care, health maintenance care, medical supplies, and all other necessary medical services as determined by any state licensed, certified, or registered health care practitioner. It provides timely emergency health care services in each county, including hospital care and triage, and necessary transportation in each county to access covered health care services.

2. Coverage will be provided regardless of income or employment status and there will be no exclusions for pre-existing conditions.

3. There will be no copayments or deductibles.

4. Patients will have free choice of health care providers and hospitals. People who today lack coverage will be able to see doctors and other providers when needed, and will benefit from preventive care and early intervention.

5. Payments to health care providers for all covered services will be made from a single public fund, called the Ohio Health Care Fund. The Plan will be funded by payroll taxes paid by employers, a gross receipts tax on businesses, personal tax increases limited ONLY to those earning more than $87,900 annually, $11.6 billion in administrative cost savings, and funds from government sources.

6. Since health care bills will be paid from a single public fund, insurance companies will no longer have a role in the system and the billions of dollars in profits they take from it will go instead for patient care.

7. Workers under collective bargaining agreements will enjoy the same benefits as everyone else. If benefits under these agreements are less than what the Plan provides, employers must pay the cost of increasing benefits to the level of the Plan, with the employers paying all the premiums, co-payments and deductibles; or the employer and the union may renegotiate and begin coverage under the Plan immediately. The Plan will automatically cover workers when their collective bargaining agreements expire.

8. Public employers — on a state, county, school district and municipal level — will pay much less for employees’ health care coverage than they do today, since their payroll tax for health care will not exceed 3.85% of the total payroll. Private employers who today provide benefits will also save because the combination of the payroll tax and the gross receipts tax on businesses, which is not to exceed 3%, is much less than what many of these employers and businesses pay today for health care coverage for their employees.

9. Workers employed by health insurance companies and others who lose jobs as a result of the changes brought about by the Health Care for All Ohioans Act will receive, at public expense, retraining and financial assistance for up to two years. Many of these workers will be able to find employment in the public sector implementing the new Plan.

10. There will be a marked reduction in physicians’ costs for billing since payment for services rendered will come from one public fund, not 1500 private insurers. And payment will be guaranteed from that public fund. Malpractice insurance will also be less expensive since medical bills will no longer be part of jury awards.

Issued by Single-Payer Action Network Ohio (SPAN Ohio)

Click here to see the table based on annual incomes

View Initiative Petition

Click to view list of endorsers

Canadian health care better than we think

Canadian health care better than we think
By Dave Zweifel
August 16, 2004

Thanks to years of propaganda from the giant corporations with a vested interest in the U.S. health system, Americans have a somewhat jaundiced view of Canada’s national health insurance program.

We’re told that Canadians have to wait for simple procedures and that there are huge waiting lines for surgery. Doctors aren’t compensated adequately. We’ve been told that so often that we think it’s true. Almost all of it, however, is false.

The Canadian plan sometimes is short of money as government there, like here, is constantly under pressure to make cuts. But Canada’s single-payer program functions much better than our system. We spend an incredible $1.6 trillion for health care every year under our convoluted system, but still have 45 million citizens without any coverage. At a minimum in Canada everyone has health care and at a much lesser cost.

Pat Cornwell, one of this column’s regular readers, sent me an article written by a Canadian doctor after he and a group of colleagues spent some time working in our U.S. health system. Suffice it to say that America’s health insurers and drug companies aren’t passing the article around.

It was printed recently in Public Citizen’s health letter to underscore how messed up our health system has become.

“I just don’t get it,” the Canadian doc began. “Health care in America and the present debate regarding its reform don’t make any sense to me – no way. Even now, with a year’s stateside experience under my belt, I am still utterly baffled by what seems to be incompatibility between apparent fundamentals of the U.S. health care system and its professed goal of improving American health.

“Many Americans have tried diligently to explain their system to us but we’re still perplexed. And to compound perplexity, even while we were struggling to understand the American system of health care delivery, we were challenged from every side to defend the Canadian one. This was not totally unexpected, but the overload of misinformation among Americans about Canadian health care definitely was.”

He goes on to question why Americans have this compulsion to link health care and employment.

“What does being employed have to do with need for health care? Don’t the jobless also get sick?” he asked. “It seems to me that if you are so unlucky as to become ill enough to require health care, this may limit your opportunities for current or future employment.”

The doctor also wonders why the U.S. system has separate health programs for different groups: “gold-plated plans for the affluent, more meager plans for the less well-off, Medicaid for the poor (some of the poor, to be strictly accurate), Medicare for the elderly and disabled?”

But what perplexes him most about the U.S. system is why Americans don’t demand that adequate health care be defined as a universal human right.

“America has led the world in establishing ‘rights’ to many things … is it not time for a ‘right’ to adequate health care, extended to and enjoyed by all?” he wrote.

Dave Zweifel is editor of The Capital Times. E-mail: dzweifel@madison.com.

About Dave

Dave Zweifel has been editor of The Capital Times since 1983. A native of New Glarus, Wis. and a graduate of the University of Wisconsin-Madison, his life-long goal was to be the editor of this newspaper. He has had more luck achieving that than his other fondest hope — watching the Chicago Cubs win the World Series. He served for many years as president of the Wisconsin Freedom of Information Council and served two years as a juror for the Pulitzer Prizes.

Investor ownership in hospitals signals "the triumph of greed"

Last February in City Council chambers, the Bloomington community came together behind Bloomington Hospital and against the concept of a private for-profit competing hospital in our community. The idea was defeated, but it has not died. Dr. Tiwari and unnamed other backers now threaten to build their new hospital in the county where there are no zoning restrictions to stop them. What was a bad idea in the winter is still a bad idea this summer.

In Canada, where their medical system is privately run but financed by the government like our Medicare, there has been talk of trying to improve efficiency and reduce cost by building some for-profit hospitals, and so a group of researchers from McMaster University in Ontario, along with other investigators from throughout Canada, recently published a thorough review of all the printed literature from the U.S. experience where for-profit and not-for-profit hospitals were concerned. Their study, published in the Canadian Medical Journal June 8, showed that patients at for-profit hospitals had higher mortality and higher costs than at not-for-profit hospitals. An editorial accompanied it, written by renowned Harvard researchers Drs. Steffie Woolhandler and David Himmelstein, and it applies to our local situation.

Woolhandler and Himmelstein start by pointing out that “some aspects of life are too precious, intimate or corruptible to entrust to the market. We prohibit selling kidneys and buying wives or judges.” But private investment in health care has been expanding. “In the United States, investor-owned firms have come to dominate renal dialysis, nursing home care, inpatient psychiatric and rehabilitation facilities and health maintenance organizations (HMOs). They have made significant inroads among acute care hospitals (now owning about 13 percent of such facilities), as well as outpatient surgical centers, home care agencies and even hospices. The for-profit barbarians are at the gates.”
It seems so intuitively obvious that if hospitals compete, then prices should come down. Statistics from the Indiana Hospital Association don’t bear that out, with hospital charges in Bedford and Terre Haute, towns with two competing hospitals, considerably higher than those at Bloomington Hospital. The Harvard doctors point out that those who favor for-profit health care argue that the profit motive optimizes care and minimizes costs. But the findings of the study didn’t bear that out. “Why does investor ownership increase costs?” they ask. “Investor-owned hospitals are profit maximizers, not cost minimizers. Strategies that bolster profitability often worsen efficiency and drive up costs. Columbia/HCA, the largest hospital firm in the United States, has paid the U.S. government $1.7 billion in settlements for fraud, the payment of kickbacks to physicians and overbilling of Medicare. … When Columbia/HCA’s CEO resigned in the face of fraud investigations, he left with a $10 million severance package and $324 million in company stock.”

Himmelstein and Woolhandler go on to ask: “Why do for-profit firms that offer inferior products at inflated prices survive in the market? Several prerequisites for the competitive free market described in textbooks are absent in health care. First, it is absurd to think that frail elderly and seriously ill patients, who consume the most care, can act as informed consumers (i.e., comparison-shop, reduce demand when suppliers raise prices or accurately appraise quality). Even less vulnerable patients can have difficulty gauging whether a hospital’s luxurious appurtenances bespeak good care. Second, the ‘product’ of health care is notoriously difficult to evaluate, even for sophisticated buyers like government.”
I cannot say it any better than Drs. Himmelstein and Woolhandler. Their article ends with a message that could have been written specifically for Bloomington:
“For-profit specialty hospitals have blossomed across the United States. Most of these new hospitals duplicate services available at nearby not-for-profit general hospitals, but the newcomers avoid money-losing programs such as geriatric care and emergency departments (a common entry point for uninsured patients). The profits accrue to the investors, the losses to the not-for-profit hospitals, and the total costs to society rise through the unnecessary duplication of expensive facilities. Behind false claims of efficiency lies a much uglier truth. Investor-owned care embodies a new value system that severs the community roots and Samaritan traditions of hospitals, makes physicians and nurses into instruments of investors, and views patients as commodities. Investor ownership marks the triumph of greed.”

Investor ownership in hospitals signals “the triumph of greed”

Last February in City Council chambers, the Bloomington community came together behind Bloomington Hospital and against the concept of a private for-profit competing hospital in our community. The idea was defeated, but it has not died. Dr. Tiwari and unnamed other backers now threaten to build their new hospital in the county where there are no zoning restrictions to stop them. What was a bad idea in the winter is still a bad idea this summer.

In Canada, where their medical system is privately run but financed by the government like our Medicare, there has been talk of trying to improve efficiency and reduce cost by building some for-profit hospitals, and so a group of researchers from McMaster University in Ontario, along with other investigators from throughout Canada, recently published a thorough review of all the printed literature from the U.S. experience where for-profit and not-for-profit hospitals were concerned. Their study, published in the Canadian Medical Journal June 8, showed that patients at for-profit hospitals had higher mortality and higher costs than at not-for-profit hospitals. An editorial accompanied it, written by renowned Harvard researchers Drs. Steffie Woolhandler and David Himmelstein, and it applies to our local situation.

Woolhandler and Himmelstein start by pointing out that “some aspects of life are too precious, intimate or corruptible to entrust to the market. We prohibit selling kidneys and buying wives or judges.” But private investment in health care has been expanding. “In the United States, investor-owned firms have come to dominate renal dialysis, nursing home care, inpatient psychiatric and rehabilitation facilities and health maintenance organizations (HMOs). They have made significant inroads among acute care hospitals (now owning about 13 percent of such facilities), as well as outpatient surgical centers, home care agencies and even hospices. The for-profit barbarians are at the gates.”
It seems so intuitively obvious that if hospitals compete, then prices should come down. Statistics from the Indiana Hospital Association don’t bear that out, with hospital charges in Bedford and Terre Haute, towns with two competing hospitals, considerably higher than those at Bloomington Hospital. The Harvard doctors point out that those who favor for-profit health care argue that the profit motive optimizes care and minimizes costs. But the findings of the study didn’t bear that out. “Why does investor ownership increase costs?” they ask. “Investor-owned hospitals are profit maximizers, not cost minimizers. Strategies that bolster profitability often worsen efficiency and drive up costs. Columbia/HCA, the largest hospital firm in the United States, has paid the U.S. government $1.7 billion in settlements for fraud, the payment of kickbacks to physicians and overbilling of Medicare. … When Columbia/HCA’s CEO resigned in the face of fraud investigations, he left with a $10 million severance package and $324 million in company stock.”

Himmelstein and Woolhandler go on to ask: “Why do for-profit firms that offer inferior products at inflated prices survive in the market? Several prerequisites for the competitive free market described in textbooks are absent in health care. First, it is absurd to think that frail elderly and seriously ill patients, who consume the most care, can act as informed consumers (i.e., comparison-shop, reduce demand when suppliers raise prices or accurately appraise quality). Even less vulnerable patients can have difficulty gauging whether a hospital’s luxurious appurtenances bespeak good care. Second, the ‘product’ of health care is notoriously difficult to evaluate, even for sophisticated buyers like government.”
I cannot say it any better than Drs. Himmelstein and Woolhandler. Their article ends with a message that could have been written specifically for Bloomington:
“For-profit specialty hospitals have blossomed across the United States. Most of these new hospitals duplicate services available at nearby not-for-profit general hospitals, but the newcomers avoid money-losing programs such as geriatric care and emergency departments (a common entry point for uninsured patients). The profits accrue to the investors, the losses to the not-for-profit hospitals, and the total costs to society rise through the unnecessary duplication of expensive facilities. Behind false claims of efficiency lies a much uglier truth. Investor-owned care embodies a new value system that severs the community roots and Samaritan traditions of hospitals, makes physicians and nurses into instruments of investors, and views patients as commodities. Investor ownership marks the triumph of greed.”

Is Switzerland's health care consumer-driven?

Is Switzerland’s health care consumer-driven?
JAMA
September 8, 2004
Consumer-Driven Health Care
Lessons From Switzerland
By Regina E. Herzlinger, DBA; Ramin Parsa-Parsi, MD, MPH

Conclusion

Switzerland’s universal-coverage health care system consumes a larger fraction of gross domestic product than most other countries, likely reflecting its citizens’ preferences and resources. Health care expenditures are closely linked to income. Yet, in contrast with the United States, whose health care expenditures are the highest percentage of gross domestic product in the world and where more than 40 million citizens are uninsured, the consumer-driven Swiss health care system achieves 30% lower per capita health care costs and universal coverage while providing reasonable quality of care. These results can be attributed primarily to the control exercised by Swiss consumers and the relatively high cost transparency of the system, requirement for universal coverage, and risk adjustment of insurers. Additional savings would likely be ttained with liberalization of provider coverage and reimbursement policies.
http://jama.ama-assn.org/cgi/content/full/292/10/1213
And…

JAMA
September 8, 2004
The Swiss Health System
Regulated Competition Without Managed Care
By Uwe E. Reinhardt, PhD

Conclusion

Health services research seeking to test hypotheses on the basis of
nonexperimental data frequently faces the problem that a given database
can
support 2 or more rival hypotheses. The Swiss health system is a case in point.
In the view of Herzlinger and Parsa-Parsi, the Swiss health system provides
empirical support for what is now known in the United States as consumer-directed health care. That approach expects insurance policies with high deductibles and coinsurance to convert hitherto excessively insured, passive recipients of health care into vigilant shoppers for health care, motivated to control both its cost and its quality and capable of doing so. Because Swiss households do bear relatively high out-of-pocket costs for both health insurance and health care, one can appreciate how this interpretation might be reached.
However, others might not be persuaded by this argument, for several reasons. First, across nations there appears to be no correlation between cost sharing and per capita health spending. Relative to Switzerland, Germany, the Netherlands, and Canada, for example, have much lower levels of cost sharing by patients but also much lower per capita spending on health care. Second, cost sharing by patients in Switzerland is unlikely to have begotten the allegedly superior quality of Swiss health care because, as Herzlinger and Parsa-Parsi point out, Swiss patients have virtually no information on the quality of the care they receive.

Finally, what is most impressive about the Swiss health system is the role tight government regulation plays throughout the entire system. One can plausibly rgue that this regulation is chiefly responsible for both the high quality and (relative to the United States) low cost of Swiss health care. Absent that regulation, the Swiss health system probably would metamorphose into something resembling the much less regulated, high-cost US system, which is both more inefficient and more inequitable than the Swiss system, as Herzlinger and Parsa-Parsi take pains to point out.

http://jama.ama-assn.org/cgi/content/full/292/10/1227

Comment: The rhetoric of reform has shifted from managed care to consumer-driven health care (CDHC). The health care system in Switzerland has several features of the CDHC model supported by Regina Herzlinger and others here in the United States. Supporters of CDHC will cite the Swiss experience as proof that CDHC is highly successful in improving health care value by placing the consumer in control. As Herzlinger and Parsa-Parsi state in their article, it would be even more successful if additional features of the model were adopted.

Uwe Reinhardt, in his commentary, concedes that the given database on the
Swiss health system can support rival hypotheses. However the wish-it-were-true comments that provide support for the CDHC hypothesis is countered by the fact that (1) there is no correlation between consumer-sensitive cost sharing and per capita health spending, and (2) superior quality could not have been achieved by Swiss health care shoppers because they have no reliable source on health care quality. CDHC has not been the source of the market ideal of higher quality at lower cost. Before our nation dives into a transformed CDHC system, we should look at some of Herzlinger and Parsa-Parsi’s “Lessons for the United States” wherein the Swiss CDHC model falls short:”To attain cost control and consumer responsiveness, it is necessary to permit considerable experimentation in insurance policies’ coverage, benefits, and terms…”
“To reward efficient, effective providers, it is necessary to permit health care providers to innovate freely in the delivery of health care and its pricing… Providers will thus be motivated to innovate in health care services for the sick and to earn revenues by responding to consumer demand rather than relying on guaranteed budgets or clients.”

“Over time, the growth in compulsory benefits has absorbed an increasing fraction of the consumers’ payment, thus compromising the consumer-driven
aspects of the Swiss system. To avoid growth in compulsory benefits, it is necessary to require coverage in terms of dollars, not benefits; for example, require insurance for all health care expenses exceeding a certain amount, rather than specific benefits.”

This is not code language. Any health policy analyst understands precisely the policy implications of these concepts. Not realizing that these articles would be released today, in yesterday’s Quote of the Day message I discussed mandatory purchase of insurance by individuals (individual mandate) in a highly regulated insurance environment. This seems to describe the Swiss system fairly accurately. Loosening regulatory controls and depending more on marketplace choice, as Herzlinger and Parsa-Parsi suggest, would threaten rather than enhance the value that the Swiss are currently receiving in health care.

Moving in the other direction, merging all insurers into a single payer would provide the opportunity to ensure maximal value by corralling costs and by rewarding providers for quality. Consumers understand that they will never have enough knowledge to fully orchestrate their own care. They just want to have confidence in a system that is designed to provide maximal value. And single payer is specifically designed to do just that.

Lessons from Three Countries with Single Payer

FOR IMMEDIATE RELEASE
Contact: Dr. Elinor Christensen
August 8, 2004
EChris7@aol.com
(312) 782-6006

Statement by Dr. Elinor Christensen on Lessons from Single Payer Health Systems in Scotland, Norway, and Finland

Available for media interviews and lectures on health care reform and the flawed Bush and Kerry health plans

I am a family medicine physician whose medical career of 40 plus years has included private practice, inner city maternal and child health clinics, twenty years of college health, including medical administration, and rural health care in two underserved communities. I learned so much from each of these experiences, serving patients to the best of my ability with a variety of encumberances.

My most satisfying experience was working for twenty years as staff physician and later as medical director at a private university with a mandatory, low cost, comprehensive single payer universal health plan covering all students enrolled in the university. We were able to deliver high quality comprehensive health care at a very reasonable cost because everyone was in a single risk pool. Also the administration of the plan was simple and cost effective.

Since retirement I have spent a week each of three countries with single payer universal health programs which are successful and enthusiastically used and appreciated by their citizens. The countries I have visited are Norway, Finland, and Scotland to study their successful programs including services provided, how it is funded, how it is administered, maximum out of pocket expenditure per person per year, and any problems. These countries are spending half as much per capita as we are spending and having better outcomes because everyone is covered from birth to death and everyone is included in a single risk pool (single payer) and everyone has easy access to the personal physician of their choice. Health education and prevention, as well as early intervention, play an integral part in the success of their universal health care plans and excellent outcomes.

I am available for media interviews and lectures to discuss the successful models of health care that exist in other countries, and to share my personal experience of the savings and administrative simplicity possible under single payer. I am also available to advise public officials and political candidates at all levels of government.

Americans deserve a better health care system that serves everyone. We can design and implement an optimal universal health care plan which meets the needs of our people, lifts the burden from business, and controls skyrocketing health care costs at the same time.

It is time for leaders in medicine and government to have vision and courage and to do the right thing.

####

Dr. Christensen is a former President of the American Medical Women’s Association* and is the co-chair of the Colorado chapter of Physicians for a National Health Program, a national organization with over 12,000 members with headquarters in Chicago.

· Affiliation for identification purposes only.

Is Switzerland’s health care consumer-driven?

Is Switzerland’s health care consumer-driven?
JAMA
September 8, 2004
Consumer-Driven Health Care
Lessons From Switzerland
By Regina E. Herzlinger, DBA; Ramin Parsa-Parsi, MD, MPH

Conclusion

Switzerland’s universal-coverage health care system consumes a larger fraction of gross domestic product than most other countries, likely reflecting its citizens’ preferences and resources. Health care expenditures are closely linked to income. Yet, in contrast with the United States, whose health care expenditures are the highest percentage of gross domestic product in the world and where more than 40 million citizens are uninsured, the consumer-driven Swiss health care system achieves 30% lower per capita health care costs and universal coverage while providing reasonable quality of care. These results can be attributed primarily to the control exercised by Swiss consumers and the relatively high cost transparency of the system, requirement for universal coverage, and risk adjustment of insurers. Additional savings would likely be ttained with liberalization of provider coverage and reimbursement policies.
http://jama.ama-assn.org/cgi/content/full/292/10/1213
And…

JAMA
September 8, 2004
The Swiss Health System
Regulated Competition Without Managed Care
By Uwe E. Reinhardt, PhD

Conclusion

Health services research seeking to test hypotheses on the basis of
nonexperimental data frequently faces the problem that a given database
can
support 2 or more rival hypotheses. The Swiss health system is a case in point.
In the view of Herzlinger and Parsa-Parsi, the Swiss health system provides
empirical support for what is now known in the United States as consumer-directed health care. That approach expects insurance policies with high deductibles and coinsurance to convert hitherto excessively insured, passive recipients of health care into vigilant shoppers for health care, motivated to control both its cost and its quality and capable of doing so. Because Swiss households do bear relatively high out-of-pocket costs for both health insurance and health care, one can appreciate how this interpretation might be reached.
However, others might not be persuaded by this argument, for several reasons. First, across nations there appears to be no correlation between cost sharing and per capita health spending. Relative to Switzerland, Germany, the Netherlands, and Canada, for example, have much lower levels of cost sharing by patients but also much lower per capita spending on health care. Second, cost sharing by patients in Switzerland is unlikely to have begotten the allegedly superior quality of Swiss health care because, as Herzlinger and Parsa-Parsi point out, Swiss patients have virtually no information on the quality of the care they receive.

Finally, what is most impressive about the Swiss health system is the role tight government regulation plays throughout the entire system. One can plausibly rgue that this regulation is chiefly responsible for both the high quality and (relative to the United States) low cost of Swiss health care. Absent that regulation, the Swiss health system probably would metamorphose into something resembling the much less regulated, high-cost US system, which is both more inefficient and more inequitable than the Swiss system, as Herzlinger and Parsa-Parsi take pains to point out.

http://jama.ama-assn.org/cgi/content/full/292/10/1227

Comment: The rhetoric of reform has shifted from managed care to consumer-driven health care (CDHC). The health care system in Switzerland has several features of the CDHC model supported by Regina Herzlinger and others here in the United States. Supporters of CDHC will cite the Swiss experience as proof that CDHC is highly successful in improving health care value by placing the consumer in control. As Herzlinger and Parsa-Parsi state in their article, it would be even more successful if additional features of the model were adopted.

Uwe Reinhardt, in his commentary, concedes that the given database on the
Swiss health system can support rival hypotheses. However the wish-it-were-true comments that provide support for the CDHC hypothesis is countered by the fact that (1) there is no correlation between consumer-sensitive cost sharing and per capita health spending, and (2) superior quality could not have been achieved by Swiss health care shoppers because they have no reliable source on health care quality. CDHC has not been the source of the market ideal of higher quality at lower cost. Before our nation dives into a transformed CDHC system, we should look at some of Herzlinger and Parsa-Parsi’s “Lessons for the United States” wherein the Swiss CDHC model falls short:”To attain cost control and consumer responsiveness, it is necessary to permit considerable experimentation in insurance policies’ coverage, benefits, and terms…”
“To reward efficient, effective providers, it is necessary to permit health care providers to innovate freely in the delivery of health care and its pricing… Providers will thus be motivated to innovate in health care services for the sick and to earn revenues by responding to consumer demand rather than relying on guaranteed budgets or clients.”

“Over time, the growth in compulsory benefits has absorbed an increasing fraction of the consumers’ payment, thus compromising the consumer-driven
aspects of the Swiss system. To avoid growth in compulsory benefits, it is necessary to require coverage in terms of dollars, not benefits; for example, require insurance for all health care expenses exceeding a certain amount, rather than specific benefits.”

This is not code language. Any health policy analyst understands precisely the policy implications of these concepts. Not realizing that these articles would be released today, in yesterday’s Quote of the Day message I discussed mandatory purchase of insurance by individuals (individual mandate) in a highly regulated insurance environment. This seems to describe the Swiss system fairly accurately. Loosening regulatory controls and depending more on marketplace choice, as Herzlinger and Parsa-Parsi suggest, would threaten rather than enhance the value that the Swiss are currently receiving in health care.

Moving in the other direction, merging all insurers into a single payer would provide the opportunity to ensure maximal value by corralling costs and by rewarding providers for quality. Consumers understand that they will never have enough knowledge to fully orchestrate their own care. They just want to have confidence in a system that is designed to provide maximal value. And single payer is specifically designed to do just that.

Labor and the Health Crisis

Labor and the Health Crisis
by Kip Sullivan
August 04, 2004
 
Workers in every Industry from trucking to telecommunications, know that there’s a health care crisis in the United States. Yet the AFL- CIO refuses to endorse the only proposal that can rein in health care inflation without damaging quality of care: a single-payer system.

In a single-payer system, one insurer or payer (typically a government agency) reimburses doctors and hospitals. Oddly, though it refuses to endorse universal single-payer, the AFL-CIO has endorsed Medicare, a single-payer health care system for the elderly.

The AFL-CIO’s illogical position – single-payer for the elderly but not for the rest – has contributed to labor’s feeble influence on the national health care debate.

THE CASE FOR SINGLE-PAYER

Two features are essential to an ideal single-payer system. First, one payer (or insurer), rather than hundreds of insurers, reimburses providers (doctors and hospitals) and drug manufacturers.

This cuts administrative costs for insurers because a public insurer devotes a much lower proportion of revenues to overhead (marketing, supervising doctors, underwriting, lobbying, obscene salaries for management, and profits) than private-sector insurers do. It also cuts administrative costs for providers because providers have to bill only one payer, not hundreds.

This feature, by itself, would cut the U.S. health care bill by 10-15 percent if it were extended to all Americans.

Second, the one payer in a single-payer system must have the authority to set limits on what doctors, hospitals, and drug companies charge. This feature could easily cut another 10-15 percent.

Medicare is not an ideal single-payer system, but it does contain both of these essential features. It is the sole payer for Medicare’s 41 million beneficiaries for the services it covers, and it has the authority to set limits on what doctors and hospitals charge. (Unfortunately, thanks to legislation passed last year, Medicare will have no authority to set limits on drug company prices once Medicare drug coverage commences in January 2006.)

MEDICARE FOR ALL

Because Medicare resembles a single-payer system, it is far and away the most efficient health insurance program in the nation, public or private. Medicare’s overhead costs eat up only two to three percent of its revenues, while private-sector plans divert roughly 20 percent of their revenues to overhead.

For this reason, and because Medicare pays providers slightly less than private insurers pay them, Medicare’s per capita costs rose at an average rate of 9.6 percent annually between 1970 and 2000, versus 11.1 percent for private sector insurers. And, perhaps most importantly, traditional Medicare has achieved greater efficiency without resorting to the private sector’s favorite cost-containment tactic-routinely refusing to pay for necessary medical services.

If Congress passed legislation giving Medicare the authority to limit drug prices and lowering Medicare’s eligibility age from 65 to zero, we would have a national single-payer system, what single-payer advocates often refer to as Medicare-for-all.

UNIONS AND SINGLE-PAYER

Although several AFL-CIO affiliates have long supported a national single-payer system, the national AFL-CIO has deliberately avoided endorsing single-payer. Today, a section of the AFL-CIO’s website entitled ‘How can we fix our health care system?’ says not a word about single-payer.

The website does mention, however, the National Coalition on Health Care, to which the AFL-CIO belongs. The NCHC consists of big corporations (including AT&T, GE, Pfizer, and United Health Group, the nation’s largest health insurance company), churches, and unions.

Like the AFL-CIO, the NCHC avoids supporting fundamental health care reform, instead calling public attention to our health care system’s deficiencies and the need for universal coverage.

(Many people equate single-payer with universal coverage, but the two are not synonymous. A government could, in theory, establish a single-payer system and not cover its uninsured. Similarly, universal coverage could be achieved without fundamental health care reform, by, for example, raising taxes high enough to pay for health insurance for the nation’s 44 million uninsured, and turning the new revenues over to the health insurance industry.)

LABOR’S PARALYSIS

The AFL-CIO has never explained why it won’t endorse single-payer, leaving observers to draw their own conclusions. In a 1999 article for The Journal of Health Politics, Policy and Law, Marie Gottschalk focused on the fact that some unions, including many in the building trades, run their own insurance plans (called Taft-Hartley funds), which would disappear under a single-payer system.

According to Gottschalk, in 1991 AFL-CIO President Lane Kirkland and SEIU President John J. Sweeney led the internal campaign to keep the AFL-CIO from endorsing single-payer. The issue came to a head that year because premium inflation had hit double digits for several years in a row, and because the single-payer movement had succeeded in introducing single-payer legislation in several state legislatures and the House of Representatives.

Single-payer advocates, including unions such as AFSCME and UAW, believed that labor’s endorsement would add significantly to single-payer’s credibility with politicians and the media. But the federation’s health policy committee split eight-eight on a motion to endorse single-payer.

A second possible reason for the AFL-CIO’s single-payer paralysis is the Democratic Party’s tendency towards either paralysis or bogus solutions on health care, coupled with the AFL-CIO’s tendency to follow the Democrats on health policy, rather than lead them.

In the early 1990s, the AFL-CIO in Minnesota stood by while Democrats campaigned for ‘managed competition,’ the doomed theory that pushing people into HMOs would solve the health care crisis. When ‘managed competition’ bit the dust in the late 1990s, Minnesota’s Democratic legislative leadership simply stopped talking about fundamental reform, and the AFL- CIO did not challenge them.

NO VOICE

The AFL-CIO’s hemming and hawing on single-payer came with a high price. It deprived the organization of a voice in the debate about health care reform that reached a crescendo during the first term of the Clinton presidency.

Not surprisingly, labor had little influence in the writing of the Clintons’ awful Health Security Act of 1993 (which advocated managed competition). Not surprisingly, single-payer legislation was shunted aside in Congress and nearly all state legislatures. Not surprisingly, the Health Security Act died in the Senate in 1994.

The death of that legislation, and a short-lived reprieve from rampant health care inflation in the mid-1990s, swept health care reform off the national agenda for the rest of the 1990s.

But by 2000, double-digit premium inflation had returned and unions were out on strike all over the country over employer attempts to cut insurance coverage and shift costs to employees. More and more union leaders are now calling for political action to solve the health care crisis.

But effective political action on the health care crisis is highly unlikely as long as the AFL-CIO refuses to endorse single-payer.

Even with the AFL-CIO in the ranks of the single-payer movement, the odds against single-payer being established in the near future are not good. But if the AFL-CIO were to endorse the single-payer solution and pour resources into organizing grassroots support for it, that would jolt the debate about single-payer up to a much more visible level, which would in turn make organizing for single-payer a lot easier.

Kip Sullivan is on the steering committee of the Minnesota Universal Health Care Coalition.

U.S. patients face long queues!

U.S. patients face long queues!

The Boston Globe
August 1, 2004
Colonoscopies tax health industry
By Liz Kowalczyk

… hundreds of thousands have queued up for colonoscopies.

The rush has strained the healthcare system…

… some (hospitals) are booked for six months.

http://www.boston.com/yourlife/health/diseases/articles/2004/08/01/colonoscopies_tax_health_industry?pg=full

Comment: The above comments are true. Significant queues have developed for
colonoscopies in the United States. But the point of using the selected excerpts from the article is that it demonstrates the type of deception that is being used to imply that universal health care systems always result in queues and marketplace systems never do. In fact, demand that exceeds capacity is what results in queues regardless of the method of funding health care. Many nations with universal public systems have proven that capacity can be adjusted to meet an appropriate level of demand.

The United States does have a significant but invisible queue due to two factors. Those without adequate insurance are not allowed a place in the line, and those who are in the system and theoretically have adequate coverage are receiving only half of the services that they should be. Neither of these groups are tallied, and so their “infinite” queue is neither defined nor discussed.

The deception of the opponents of reform in using queues as a reason to reject a universal system should be no more acceptable than my deception in editing out the comments that explain that the long queues are due to the recent recommendation that colonoscopy now be used for routine colon cancer screening. Capacity will be increased in response to this demand, just as capacity is being increased in Canada in response to increased demand for diagnostic imaging.

We know how to improve access and improve appropriate utilization of our health care system. Let’s start demanding more honesty in our national dialogue on reform.

Global budgets and sustainable growth rate

Global budgets and sustainable growth rate

United States General Accounting Office Testimony Before the Subcommittee on Health, Committee on Energy and Commerce, House of Representatives
May 5, 2004
Medicare Physician Payments
Information on Spending Trends and Targets
Statement of A. Bruce Steinwald, Director, Health Care-Economic and Payment
Issues

Concluding Observations

To a large extent, the physician fee cuts projected by Medicare’s Trustees are required under SGR’s system (Sustainable Growth Rate system) of cumulative spending targets to make up for excess spending in earlier years. MMA (Medicare Prescription Drug, Improvement, and Modernization Act of 2003) added to the excess spending by specifying minimum fee updates for 2004 and 2005 without resetting the spending targets for those years. As a result, physician fee cuts were postponed, not avoided.

In considering the projected fee cuts, however, it is important to recall that Congress originally established Medicare spending targets for physician services in response to runaway spending in the 1980s. The recent increase in volume and intensity growth suggests that Medicare faces a fundamental physician spending growth problem even if the SGR slate of missed spending targets were somehow wiped clean. Currently, projected Medicare spending for physician services exceeds what policymakers have specified-through the parameters of the SGR system-is the appropriate amount to spend. Because of expected increases in the volume and intensity of services provided by physicians, real spending per beneficiary is projected to grow by more than 3 percent per year. SGR, designed to promote fiscal discipline, allows such spending to grow by just over 2 percent per year. If the growth in real spending per beneficiary is not lowered through other means, SGR will mechanically reduce fee updates in an attempt to impose fiscal discipline and moderate total spending increases. Although this mechanical response may be desirable from a budgetary perspective, any consequences for physicians and their patients are uncertain.

http://www.gao.gov/new.items/d04751t.pdf

Comment: A common response to escalating prices is the institution of price (fee) controls. This response is not limited to governments, as in the case of Medicare, but it is also characteristic of the private sector, as in the dictated fees of the managed care plans. In health care, in order to increase income when fees are fixed, physicians respond by increasing the volume of services (number of services provided to each patient) and by increasing the intensity of services (increasing the complexity and costliness of those services). The experience with Medicare confirms that this phenomenon is very real.

Because of escalating spending in the Medicare program, the sustainable growth rate (SGR) system was established. Total program spending for physicians was allowed to increase at a “sustainable” rate of about 2% per year. It is important for single payer supporters to understand this concept because it is somewhat analogous to the “global budgets” which would be used to limit excessive growth in health care expenditures. A more rational rate than an arbitrary 2% would be adopted, but the system would still be funded within the confines of a defined budget.

Because the volume and intensity of Medicare services have been increasing significantly, the fees (prices) per unit of service will decrease over the next several years. This has been compounded by the requirement to recapture, through lower fees, payments made in previous years that were high due to forecast estimates that proved to be erroneous. But even without these errors, physicians will perceive the lower fee schedule to represent pay cuts, even though the global payments will increase by about 2%. It can be anticipated that there will be increased physician opposition to any “government-run” program like Medicare. We should be prepared to explain to them how lower fees will not reduce their gross incomes (although overutilizers could drain funds away from physicians who are trying to provide care at more appropriate levels of utilization).

Fee-for-service incentivizes excessive services. Capitation for individual physicians incentivizes the erection of barriers to care. Salary plus incentives seems to be the least perverse mechanism of compensation, but would we be willing to convert our health care system into a national health service?