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

GAO, Released September 8, 2014

What GAO Found

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

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

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

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

What GAO Recommends

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

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

From the full GAO report:

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

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

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Comment:

By Don McCanne, MD

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

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

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

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

Reforming Medicare: What does the public think?

AEI and the Brookings Institution, September 19, 2014

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

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

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

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How To Fix Medicare? Ask The Public

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

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

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

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

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

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

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

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Re-Designing Medicare

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

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

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

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

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

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

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

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

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

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Comment:

By Don McCanne, MD

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

A few specifics:

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

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

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

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

Doctors Hit a Snag In the Rush to Connect

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

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

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

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

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

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

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

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

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

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

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

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

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

Comment by Don McCanne (July 21, 2004)

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

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

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

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

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

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

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Comment:

By Don McCanne, MD

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

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

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

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

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

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

Auto-Renewing Your Health Plan May Be Bad for You, and for Competition

By Austin Frakt
The New York Times, September 29, 2014

Overwhelmed with increasing choice in the new exchanges, returning consumers may not relish the idea of selecting a new plan. A feature built into the exchanges practically invites them not to do so: auto-renewal. Consumers insured by an exchange plan this year who do not actively choose a new one for next year will be automatically re-enrolled in their current plan or automatically enrolled in a similar one if their plan is discontinued. This auto-renewal is meant to help increase and maintain the size of the insured population and to promote continuous coverage. But if people rely on auto-renewal without evaluating all available options, some may end up in plans that aren’t ideal for them.

Next year, the premiums of the currently cheapest silver-rated plans are going up by an average of 8.4 percent. Because of that, many of those plans will no longer be the cheapest. The customers who switch to the silver plans that are the cheapest in 2015 will see their premiums rise by only 1 percent on average.

Auto-renewal also offers insurers a way to retain customers without vigorously competing for them, counting on the fact that some consumers will stick with their plans even when, rationally, they should not.

Here, basic economic theory is in conflict with the finding from behavioral economics that when choices become too numerous and complex, consumers resort to heuristics (or shortcuts), leading to suboptimal decisions. For instance, when we can’t fully evaluate all options, we tend to default to familiar brands. And, because it takes time and effort to re-evaluate options, we tend to stick with our initial choice of brand when making a new purchase.

If we want more competition, we need to induce fewer people to default to auto-renewal.

Auto-renewal exists for a reason, but if consumers rely on it too much, the results will include higher premiums and greater market power for insurers.

Comment:

By Don McCanne, MD

Under a well designed single payer national health program there would be no need to choose networks since the entire health care delivery system is covered, and there would be no need to shop deductibles since they would be eliminated.

The problem of auto-renewal would disappear since enrollment would be for life.

Costs Can Go Up Fast When E.R. Is in Network but the Doctors Are Not

By Elisabeth Rosenthal
The New York Times, September 28, 2014

Patients have no choice about which physician they see when they go to an emergency room, even if they have the presence of mind to visit a hospital that is in their insurance network. In the piles of forms that patients sign in those chaotic first moments is often an acknowledgment that they understand some providers may be out of network.

But even the most basic visits with emergency room physicians and other doctors called in to consult are increasingly leaving patients with hefty bills: More and more, doctors who work in emergency rooms are private contractors who are out of network or do not accept any insurance plans.

When legislators in Texas demanded some data from insurers last year, they learned that up to half of the hospitals that participated with UnitedHealthcare, Humana and Blue Cross-Blue Shield — Texas’s three biggest insurers — had no in-network emergency room doctors. Out-of-network payments to emergency room physicians accounted for 40 to 70 percent of the money spent on emergency care at in-network hospitals, researchers with the Center for Public Policy Priorities in Austin found.

“It’s very common and there’s little consumers can do to prevent it and protect themselves — it’s a roll of the dice,” said Stacey Pogue, a senior policy analyst with the nonpartisan center and an author of the study.

When emergency medicine emerged as a specialty in the 1980s, almost all E.R. doctors were hospital employees who typically did not bill separately for their services. Today, 65 percent of hospitals contract out that function. And some emergency medicine staffing groups — many serve a large number of hospitals, either nationally or locally — opt out of all insurance plans.

Regulations created by the Affordable Care Act specify that insurers must use the best-paying among three methods for reimbursing out-of-network physicians dispensing emergency care: pay the Medicare rate; pay the median in-network amount for the service; or apply the usual formula they use to determine out-of-network reimbursement, which often depends on “usual and customary rates” in the area.

But in most states, doctors can then bill patients for the difference between their charge and what the insurer paid.

Center for Public Policy Priorities study of out-of-network emergency room doctors: http://forabettertexas.org/images/HC_2014_09_PP_BalanceBilling.pdf

KFF on state balance billing restrictions: http://kff.org/private-insurance/state-indicator/state-restriction-against-providers-balance-billing-managed-care-enrollees/

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Comment:

By Don McCanne, MD

A consequence of allowing health insurers to contract selectively with health care professionals (physicians) and institutions (hospitals) is that patients not only are financially penalized should they elect to obtain their care outside of the contracted networks, they may unavoidably face such penalties when they have sought care only within networks.

One of the more egregious examples is when they obtain emergency services at a contracted emergency room only to find out after the fact that the physicians staffing the emergency room are not in the network. The patient then is billed not only for deductibles and copayments applied to allowed charges, but also for the balance of the charges in excess of the allowed charges – a process known as balance billing.

“The Affordable Care Act provides some protections for enrollees in need of emergency services, but does not prohibit balance billing by out-of-network providers” (KFF). For further information on state restrictions on balance billing, use the KFF link above.

When something is not right, as it clearly isn’t here, it is important to define the problem before crafting a solution. State regulators and legislators are defining this as a problem of balance billing “abuse” and are looking at mechanisms to prohibit balance billing. But is that really the problem?

Insurers, with the complicity of state and federal legislators, have established limited networks of providers to leverage more favorable payment rates for health care services. But these rates neglect the health care delivery system outside of the networks. Now states are considering making out-of-network physicians comply with contracts to which they never agreed. That is as unreasonable as making insurers pay out-of-network fees in full simply because the insurers did not have a contract with the physicians. Do you have a contract or not? You can’t have it both ways.

The problem here needs to be redefined. Balance billing is not the primary defect. It is the nature of our complex, dysfunctional financing infrastructure that leads to a multitude of perverse consequences such as balance billing – an infrastructure that was perpetuated and expanded by the Affordable Care Act. We need to rebuild the infrastructure. We need a single payer national health program. Balance billing would not exist under such a system.

Underinsured ACA Enrollees Strain Community Health Centers

Kaiser Health News, Daily Health Policy Report, September 26, 2014

Obamacare enrollees are straining the finances of community health centers around the country, some health center leaders say. The issue is that many lower-income patients with insurance coverage through the federal and state exchanges bought bronze-tier plans with lower premiums but high deductibles, coinsurance and copayments and no federal cost-sharing subsidies. When these patients face high out-of-pocket costs for care that falls below the deductible, they can’t afford it.  So the centers are subsidizing that care by offering them means-tested sliding-scale fees. When the centers, which are not allowed to turn away patients for inability to pay, try to get the insurers to pay, the claims are usually denied, and the centers have to write it off as uncompensated care (Modern Healthcare, Dickson, 9/25).

http://www.kaiserhealthnews.org/daily-report.aspx

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Comment:

By Don McCanne, MD

One of the advantages of reform that ensures that everyone would have health care coverage is that safety-net institutions, such as community health centers (CHCs), could be assured that payments would be made for the services they provide, ending the continual struggle of funding these institutions. As it turned out, reform will still leave 31 million uninsured, perpetuating this problem. But at least those now insured will no longer stress the budgets of the CHCs. Or will they?

Those purchasing the cheapest plans on the exchanges – the bronze plans – have an average of only 60 percent of their health care costs covered. This requires very high deductibles which are not affordable for many of the low-income individuals purchasing these plans. Because of high deductibles which are difficult to collect after services are rendered, many health care providers are requiring payment upfront. Many would-be patients end up walking away because of the lack of funds.

Where are these people to turn? The CHCs of course. They cannot turn patients away, so they see them. When the CHCs then bill the bronze plan insurers, the charges are below the deductibles and so the claims are denied. They can then turn to the patients to try to collect means-tested fees that would apply to the deductibles, but such efforts are often futile, and so the CHCs end up writing off the charges as uncompensated care.

This is the plight of the underinsured and of the providers who care for them. With low actuarial value plans and often-inaccessible narrow networks, underinsurance has become ubiquitous. It is one of the most serious flaws in health care financing today, not only for the exchange plans but now also for a rapidly growing percentage of employer-sponsored plans.

This is just one of thousands of major flaws in our financing system. It just isn’t right. We can fix this by changing to a single payer national health program. Let’s do it. Now.

How to fix Obamacare

The Economist, September 20, 2014

It is now nearly a year since the roll-out of Obamacare.

Ironically the “socialist” Mr Obama did not do the one thing that might have cut taxpayers’ costs dramatically: introduce a European “single payer” health-care system. Instead he tried to tweak America’s system in two ways – to expand coverage and to reduce costs.

The results are mixed. Practically every competent health-industry lobbyist managed to insert a line protecting the services his paymasters provide – so Obamacare is too costly and too complicated.

So what would make American health care better now? Since its failings lie more within the system than with the president’s attempt to reform it, health reformers should concentrate on three areas that could make its flawed market work better: directing handouts towards the poor rather than the affluent, nudging individuals to take charge of their own health care, and making sure that prices are transparent.

If America wants to stick to the idea that it has a health-care market, then it should focus on trying to make it more like a market – with prices, competitors and some form of choice.

http://www.economist.com/news/leaders/21618788-americas-health-care-system-remains-dysfunctional-it-could-be-made-better-how-fix

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Comment:

By Don McCanne, MD

After telling us that it is ironic that President Obama did not introduce a single payer system, The Economist tells us that we should use prices, competitors and choice if we want to make our health care system more like a market. That seems odd advice since their system is not only single payer, it is socialized medicine – a national health service.

The Economist is not naive. They certainly know of the work of Nobel laureate Kenneth Arrow showing us that markets do not work in health care. Maybe their recommendation for market reform of U.S. health care stems from their reputation as excelling in understated wit, but what the market approach has done to drive up costs and impair the functioning of our health care delivery system isn’t really very funny.

Let’s just take them at their word that a single payer system would have been a much more effective choice. And we can still make that choice.

U.S. hospital chain HCA must face class action over 2011 IPO

By Jonathan Stempel
Reuters, September 23, 2014

HCA Holdings Inc, one of the largest U.S. hospital chains, must face a shareholder class-action lawsuit accusing it of concealing revenue declines and its routine performance of unnecessary cardiac procedures prior to its $4.35 billion initial public offering in March 2011.

U.S. District Judge Kevin Sharp in Nashville, Tennessee, rejected HCA’s claim that the plaintiffs had missed “multiple opportunities” to learn more about the company before buying their shares, including from media reports, conference calls, and disclosures during the IPO road show.

Shareholders alleged that HCA, its directors, its former private equity owners and its investment banks concealed how the company was seeing adverse trends in Medicare revenue including cardiology, and Medicaid revenue per admission; and accounted improperly for a 2006 reorganization and a 2010 restructuring.

“Given defendants’ alleged violation of the federal securities law and its impact on a large number of geographically dispersed investor(s), a class action is the superior vehicle for adjudication of the claims,” Sharp wrote. “The alternative would be to have (potentially) thousands of individual actions, which is likely impractical for most investors, and which would risk burdening the judicial system.”

The IPO had been the largest by a company owned by private equity firms. HCA had been taken private in 2006 by a group led by Bain Capital, Kohlberg Kravis Roberts and Merrill Lynch’s private equity arm.

The case is Schuh et al v. HCA Holdings Inc et al, U.S. District Court, Middle District of Tennessee, No. 11-01033.

http://www.reuters.com/article/2014/09/23/us-hca-holdings-classaction-idUSKCN0HI2LA20140923

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Comment:

By Don McCanne, MD

The private insurers are not the only villains that are driving high health care costs in the United States. The private, investor-owned segment of the health care delivery system is also bringing us higher costs, often with inferior quality. A case in point is HCA – one of the nation’s largest investor-owned hospital chains.

HCA is already infamous for having set a record in paying a $1.7 billion settlement for Medicare fraud. This new allegation of fraud does not directly involve patients or taxpayers, rather it involves potential shareholders at the time of their 2011 initial public offering (IPO). The private owners at that time included the Frist family and some private equity firms, including Bain Capital.

The reason that this is important to those of us concerned about health care reform is that these people are so dishonest that they not only cheat patients and taxpayers, they also cheat their own shareholders!

When we expel the private insurers from our health care system, we need to expel the passive investors as well. HR 676 – the Expanded & Improved Medicare For All Act, sponsored by John Conyers (now with 62 cosponsors) does both. It converts the health care delivery system to non-profit status, and it replaces private insurers with a single payer national health program.

HCA was founded by the family of Bill Frist, former leader of the U.S. Senate. The Medicare fraud case was initiated when Florida Governor Rick Scott was head of HCA. Bain Capital was co-founded by presidential candidate Mitt Romney. If we are going to achieve health care justice for all, the voters do have some responsibility here.