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Dartmouth studies sending us in the wrong direction?

Dartmouth studies sending us in the wrong direction?

Why the Geographic Variation in Health Care Spending Can’t Tell Us Much about the Efficiency or Quality of our Health Care System

By Louise Sheiner
Brookings Institution, September 2014

Abstract

This paper examines the geographic variation in Medicare and non-Medicare health spending and finds little support for the view that most of the variation is likely attributable to differences in practice styles. Instead, I find that socioeconomic factors that affect the need for medical care, as well as interactions between the Medicare system and other parts of the health system, can account, in an econometric sense, for most of the variation in Medicare health spending.

The paper also explores the econometric differences between controlling for health attributes at the state level (the method used in this paper) and controlling for them at the individual level (the approach used by the Dartmouth group.) I show that a state-level approach can explain more of the state-level variation associated with omitted health attributes than the individual-level approach, and argue that this econometric difference likely explains much of the difference between my results and those of the Dartmouth group.

More broadly, the paper shows that the geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high are very different in multiple dimensions from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. I show, for example, that previous findings about the relationships between health spending, the share of physicians who are general practitioners, and quality, are likely the result of omitted factors rather than the result of causal relationships.

I. Introduction

It is well known that Medicare spending per beneficiary varies widely across geographic areas. The conventional wisdom from the leaders in this research area, the Dartmouth group, is that little of this variation is accounted for by variation in income, prices, demographics, and health status, and, instead, most of the variation represents differences in “practice styles.” Further, the Dartmouth research suggests that the additional health spending of the high-spending areas does not improve the quality of health care, and, indeed, might even diminish it.

One of the implications of the Dartmouth work is that health care spending can be reduced without significant effects on health outcomes. For example, Sutherland, Fisher, and Skinner (2009) argue “Evidence regarding regional variations in spending and growth points to a more hopeful alternative: we should be able to reorganize and improve care to eliminate wasteful and unnecessary service.” This view was promoted by the Obama Administration as part of the effort to reform health care. In a Wall Street Journal op-ed, then OMB-director Peter Orszag, referring to the Dartmouth work, noted “If we can move our nation toward the proven and successful practices adopted by lower-cost areas and hospitals, some economists believe health-care costs could be reduced by 30% — or about $700 billion a year — without compromising the quality of care.

The Dartmouth group has also argued that this geographic variation holds the key to reducing excess cost growth in health care. According to Fisher, Bynum, and Skinner (2009), “By learning from regions that have attained sustainable growth rates and building on successful models of delivery-system and payment system reform, we might… manage to “bend the cost curve.” ……. Reducing annual growth in per capita spending from 3.5% (the national average) to 2.4% (the rate in San Francisco) would leave Medicare with a healthy estimated balance of $758 billion, a cumulative savings of $1.42 trillion.”

In this paper, I reexamine the geographic variation in health spending at the state level and find little support for the Dartmouth views. I find that most of the geographic variation in Medicare spending is explainable, at least in an econometric sense, by differences in socioeconomic factors that affect the need for medical care and the resources available in the nonelderly population to finance it. Although it is not possible to rule out the Dartmouth view that the differences in spending reflect differences in practice styles, I show that there are other explanations for the variation in spending that seem to be better supported by the data. Furthermore, I show that the relationships between health spending (both Medicare and non-Medicare), physician composition, and quality are likely the result of omitted factors rather than the result of causal relationships.

More broadly, the paper shows that the geographic variation in health spending does not provide a useful way to examine the inefficiencies of our health system. States where Medicare spending is high are very different from states where Medicare spending is low, and thus it is difficult to isolate the effects of differences in health spending intensity from the effects of the differences in the underlying state characteristics. Insights into the relationship between health spending and outcomes are more likely to be provided by natural experiments such as that analyzed by Doyle (2007), who showed that among visitors to Florida who had heart attacks, outcomes were better at hospitals with higher spending, the true experiment run in Oregon in which a group of uninsured low-income adults was selected by lottery to be given the chance to apply for Medicaid (Finkelstein et al, 2011), or the recent paper by Finkelstein et al which focuses on Medicare beneficiaries who move (Finkelstein, 2013).

It is important to note at the outset that nothing in this paper suggests that improvements in our health system are unattainable. Rather, the paper suggests that comparisons of spending between high cost states and low costs states are unlikely to provide a measure of how much we can hope to gain by efforts to improve health system efficiency.

The paper is organized as follows. I first give a brief overview of the literature on geographic variation. Then I present the basic results from the Medicare regressions, and show that the cross-state variation in average Medicare spending is well explained by differences in population characteristics across states. I compare my results to those of the Dartmouth group and suggest a number of reasons why my results differ. I show that, econometrically, there is a difference between controlling for attributes at the individual level (the Dartmouth approach) and controlling for them at the state level (the approach used here), and that this difference is likely to be empirically important when it comes to health care. I argue that my state-level approach better controls for the variation in health and other socioeconomic variables that affect health demand. In addition, to the extent that there are area differences in practice styles, I show that these too likely reflect systemic differences across states, and thus would likely be difficult to alter.

I then explore the relationships between Medicare and non-Medicare spending across the states, and show that the two appear to be somewhat negatively correlated. This correlation is quite important in thinking about the relationship between provider workforce characteristics, quality, and health spending. In particular, I show that taking into consideration some of the demographics and health insurance variables by state changes the conclusions one gets from previous studies. Finally, I show that the growth rates of Medicare spending are negatively related to the level of health spending—that is, low spending states tend to have higher growth rates than high-spending states. The conclusion assesses the implications of this work for Medicare policy.

VIII. Conclusions

The evidence presented in this paper shows that most of the variation in Medicare spending across states is attributable to factors that affect health and health behaviors, rather than to random variation in practice styles. Isolating the exact channels through which differences in health affect Medicare spending is difficult, however, because both the need for health spending and provider practice styles will likely be affected by variations in population health and variables that are correlated with it.

But the paper has several findings that suggest that the variation in Medicare spending does not represent wasteful spending that could be easily eliminated without significant effects on the health system. First, population characteristics have more explanatory power for Medicare spending than measures of social capital, indicating that the variation in patient characteristics is more important than variation in provider characteristics. Second, health measures are significantly more correlated at the state level than at the individual level, making it likely that state level regressions do a better job of controlling for unobserved variation in population health. Third, there does not seem to be a significant relationship between the use of “preference- sensitive procedures” and the level Medicare spending. Fourth, states with high levels of Medicare spending tend to have lower levels of non-Medicare spending. Providers in these states may face greater financial difficulties, and may “volume shift” to Medicare patients in order to cover costs.

The paper also shows that conclusions about the relationships between health spending, physician composition, and quality are sensitive to the inclusion of variables like the share of the population uninsured, black, or diabetic. What this sensitivity demonstrates is the difficulty of using the geographic variation in spending for hypothesis testing. It is not surprising that states in the South spend more on Medicare and have worse outcomes. These states perform significantly worse in numerous areas, including high school graduation rates, test scores, unemployment, violent crime, and teenage pregnancy. There are many ways that such differences can affect health utilization and outcomes, including differences in underlying health, social supports and social stressors, patient self-care and advocacy, ease of access to services, capabilities of hospital and physician nurses and technicians, and cultural differences in attitudes toward care. A comparison of health spending in Mississippi with health spending in Minnesota is not likely to provide a useful metric of the “inefficiencies” of the health system in isolation; rather, the difference in spending likely mirrors broader societal problems unrelated to the health system per se.

Finally, the evidence also suggests that low-cost states are not low-growth states. Thus, the geographic variation in Medicare spending is probably not the key to finding ways to slow spending growth while continuing to improve quality over time.

http://www.brookings.edu/~/media/projects/bpea/fall%202014/fall2014bpea_sheiner.pdf

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Comment:

By Don McCanne, MD

Did this paper really say what it seems like it said? Wow! It is important because it seems to be a highly credible challenge to the principle that much of the waste in health care spending is due to variation in practice styles, as allegedly demonstrated by the Dartmouth group.

According to this Brookings paper by Louise Sheiner, “The evidence presented in this paper shows that most of the variation in Medicare spending across states is attributable to factors that affect health and health behaviors, rather than to random variation in practice styles.” Further, “But the paper has several findings that suggest that the variation in Medicare spending does not represent wasteful spending that could be easily eliminated without significant effects on the health system.”

Double wow! This suggests that the efforts of reducing waste through accountable care organizations (ACO) that are designed based on the Dartmouth studies of waste are mostly for naught. It also explains why to date the experiments with ACO models have had very little impact on either efficiency or quality.

Of particular concern is the finding that areas in the South with high Medicare spending have worse outcomes, and they also “perform significantly worse in numerous areas, including high school graduation rates, test scores, unemployment, violent crime, and teenage pregnancy.” You cannot help but think that more resources need to be directed toward these societal ills. It is not just health care that needs our attention.

For us, the important take-home point of this paper is that we should turn our attention away from puff programs such as ACOs that hold little promise of delivering on higher quality and lower costs, and turn instead to policies that have been proven in other nations to be effective. Of course we’re referring to a single payer national health program. We already know that it works.

Health care overhead is costing us big bucks

By Jim Landers
Dallas Morning News, Sept. 16, 2014

WASHINGTON — Americans spend more than $9,000 apiece on health care every year. Ouch, you say. But how does it feel to know that more than $1,000 of that sum goes to administrative costs? Or that Americans spend more than $210 billion a year on the health insurance claims system?

Needless back-office spending is one of the biggest sources of waste in health care, according to health insurers, providers and academics alike.

In a recent Health Affairs article, the authors estimated that administrative expenditures account for 25.3 percent of the average American hospital’s annual spending. No other developed nation comes close. The next highest, the Netherlands, spends 19.8 percent on administration.

“It’s getting worse,” said Dr. David Himmelstein, an internist who teaches at Hunter College in New York and Harvard Medical School. Himmelstein was the lead author of the article.

“It’s because we’re running health care more and more like a business. What that means is, if you think you can make $101, it’s worth spending $100 to do it. Hospitals are saying, gee, if we hired another financial person here they might help us bring in just a little more than their salary. There’s a whole variety of games you can play.”

Any business with 25 percent of its spending going to administration should be trying to cut, not add, to that burden. Hospitals, physicians and insurers all say that’s what they’re doing.

“We’re continuously looking at administrative costs and looking for ways to reduce the costs,” Wendell Watson, director of public relations with Texas Health Resources, wrote in an email.

“Over the last 10 years, we’ve consolidated many administrative functions to gain efficiencies and economies of scale and improved our processes to reduce costs where we can.”

Texas Health Resources owns 25 hospitals in North Texas. In the 12 months ending May 31, 2013, Texas Health Presbyterian Hospital of Dallas spent $119.8 million on administrative costs, or 20.3 percent of its expenditures that year. The figures come from Medicare reports sifted by American Hospital Directory, which compiles statistics on more than 6,000 hospitals.

Much of the administrative expense in American health care is due to the complexity of billing. There are many insurance companies and hundreds of thousands more companies that self-insure their employees with their own nuanced health plans. A hospital or physician’s office has to find the policy that matches the patient and send in a bill.

Insurers, meanwhile, collect those bills and promptly slash them. Whether it is BlueCross BlueShield of Texas, Aetna, Cigna or government insurance plans like Medicare and Medicaid, the billed price usually isn’t even close to the reimbursement. There are formulas that work through negotiated discounts that determine reimbursements. Then there are the co-payments and deductibles that the patient pays.

The American Medical Association says 10 percent of these reimbursements have errors. It put out a report card last year on various insurers, working out the average cost to handle each claim. Cigna did the best. Only 5.45 percent of their claims had to be reworked, and the average cost of a reworked Cigna claim for a physician’s office was pegged at $1.25.

Chicago-based Health Care Services Corp., whose divisions include BlueCross BlueShield of Texas, scored the worst. The AMA said 14.85 percent of its claims had to be reworked, and the average cost to process them through HCSC was $3.32.

Insurers say it would help if physicians and hospitals did a better job of filing claims. Some still come on paper. And even with electronic medical records, there are problems getting providers to send in the right information.

Taxpayers have paid $27 billion to help providers get with it. Physicians, meanwhile, are complaining that these electronic records have slowed care delivery. The average doctor now spends an extra 48 minutes a day struggling with electronic health records, says the American College of Physicians.

Himmelstein argues the current system would be vastly improved if the nation went to “single payer” health insurance — one national insurance company, with standard billing procedures.

Vermont has committed to implementing such a system, which is similar to the Canadian approach. It’s not a popular system in most other parts of the country. And so administrative costs continue adding to the cost of care.

Follow Jim Landers on Twitter at @landersjim.

http://www.dallasnews.com/business/columnists/jim-landers/20140915-health-care-overhead-is-costing-us-big-bucks.ece

Rashi Fein, Economist Who Urged Medicare, Dies at 88

By Douglas Martin
The New York Times, Sept. 13, 2014

Rashi Fein, an influential economist who strove to bring ethical and humanitarian perspectives to the nation’s health care system and helped lay the intellectual groundwork for Medicare in the 1960s, died on Monday in Boston. He was 88.

The cause was melanoma, his son Alan said.

When Dr. Fein began working on health issues as a young aide in the administration of Harry S. Truman, health care accounted for about 3 percent of the American economy. By the time he weighed in as a respected elder in the field during the debate over President Obama’s health care proposals, the expenditures had risen to 18 percent, an amount roughly equal to the economy of France.

As the money Americans spent on medical care increased, so did the role of economists specializing in health issues. Dr. Fein moved between government and academia, offering research and views on issues like meeting the demand for physicians. During the administration of President Lyndon B. Johnson, he led a public-private panel to develop ideas for the Medicare legislation, which, along with Medicaid, was signed into law in 1965.

Dr. Fein, a proud liberal, regretted that Medicare did not apply to everyone, just as he was disappointed that Mr. Obama’s Affordable Care Act did not consolidate insurance payments under the federal government. A federal single-payer system, he maintained, would be more cost effective and inclusive. The Obama plan, passed by Congress, relies on private insurance.

But Dr. Fein was nonetheless satisfied with incremental progress, Dr. Ezekiel J. Emanuel, chairman of the department of medical ethics and health policy at the University of Pennsylvania, said in an interview on Thursday. He quoted Dr. Fein, a former professor of his, as saying, “Getting everybody under the tent is better than standing on principle and not getting anything.”

Dr. Fein regarded both Medicare and the Affordable Care Act as important steps toward the overriding goal of helping “the people who have the least,” Dr. Emanuel said. In his 1986 book, “Medical Care, Medical Costs: The Search for a Health Insurance Policy,” Dr. Fein wrote, “Decent people — and we are decent people — are offended by unnecessary pain and suffering; that is, by pain and suffering for which there is a treatment and for which some (who are affluent) are treated.”

Mr. Fein was born in the Bronx on Feb. 6, 1926. His father, Isaac, was a history professor whose work took him to a chain of cities in the United States and Canada, including Winnipeg, Manitoba; and Bridgeport, Conn. His mother, the former Chaya Wertheim, was a schoolteacher.

Mr. Fein’s son Alan said his father and his father’s younger brother, Leonard — who went on to found organizations to combat hunger — had gotten their zeal for social justice from their parents.

“My preference for a universal insurance program derives from my image of a just society,” Dr. Fein wrote in his 1986 book. “It is an image based on a broadly defined concept of justice and liberty, nurtured by stories my parents told me, the books they encouraged me to read, and the values they expressed. To them, liberty meant more than political freedom; it also meant freedom from destitution — in Roosevelt’s phrase, ‘freedom from want.’ ”

After graduating from Central High School in Bridgeport, Dr. Fein was a Navy radar technician during World War II. He went on to earn a bachelor’s degree in economics and a doctorate in political economy from Johns Hopkins University.

In 1952, he took a teaching post at the University of North Carolina at Chapel Hill, while working on a Truman administration commission charged with exploring the possibilities for national health insurance.

Six years later, he led a study by the federal Joint Commission on Mental Illness and Health, which estimated that mental illness cost the United States $3 billion a year ($24.7 billion in today’s dollars) in treatment costs and lost work years, a small fraction of the estimated costs today.

In 1961, Dr. Fein became a senior staff member on the Council of Economic Advisers under President John F. Kennedy. He studied education issues in addition to helping to write legislation for Medicare. He moved on to the Brookings Institution as a senior fellow in 1963 and remained with it while directing the Medicare panel for Johnson, Kennedy’s successor.

After leaving Brookings, Dr. Fein was a professor of economics at the Kennedy School of Government and the Medical School of Harvard University. He retired in 1999.

In addition to his son Alan, Dr. Fein is survived by his wife of 65 years, the former Ruth Judith Breslau; another son, Michael; a daughter, Karen Fein; and four grandchildren. Another daughter, Bena Fein, died in 1995. Dr. Fein’s brother, Leonard, died in August.

Dr. Fein spoke of the importance of language in describing health care, deriding the term “death panels” that some opponents used in the debate over the Affordable Care Act.

“A new language is infecting the culture of American medicine,” he wrote in The New England Journal of Medicine in 1982. “It is the language of the marketplace, of the tradesman, and of the cost accountant. It is a language that depersonalizes both patients and physicians and describes medical care as just another commodity. It is a language that is dangerous.”

A version of this article appears in print on September 14, 2014, on page A26 of the New York edition with the headline: Rashi Fein, 88, Economist Who Urged Medicare, Dies.

Private insurers using “virtual credit cards” to loot physician payments

Footing bill for insurers’ pay methods shouldn’t fall on doctors

AMA Wire, September 12, 2014

An increasingly common payment method among health insurers offers these companies significant financial rewards while sticking physicians with all the associated fees and extra work. But physicians are fighting back as the AMA and other health care associations take the issue to the federal government.

Many insurers are choosing to use virtual credit cards for claims payments to physicians, instead of sending paper checks or paying via the electronic funds transfer (EFT) standard transaction. When paying via virtual credit card, insurers send single-use credit card payment information and instructions to physicians via mail, fax or email. The physician’s office staff then processes the payment as they would a patient’s credit card.

For each of these payments, physicians are charged fees that typically amount to 3-5 percent of the total payment, the AMA explained in recent testimony (log in) to the National Committee on Vital and Health Statistics, an advisory board to the secretary of the U.S. Department of Health and Human Services (HHS).

That adds up. If a physician contractually is owed $5,000, for instance, he or she could have to shell out up to $250 in fees.

In a letter (log in) sent last week to HHS Secretary Sylvia Burwell, the AMA and three other leading organizations called on the agency to prohibit insurers from forcing physicians to accept this payment method.

http://www.ama-assn.org/ama/pub/ama-wire/ama-wire/post/footing-bill-insurers-pay-methods-shouldnt-fall-doctors

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Letter , August 25, 2014

To:  The Honorable Sylvia Mathews Burwell, Secretary, Department of Health and Human Services

We, the undersigned organizations, are writing to you to convey our views and recommendations in response to recommendations made to you by the National Committee on Vital and Health Statistics (NCVHS) on May 15, 2014.

At issue is a type of non-standard electronic funds transfer (EFT) transaction known as a “virtual card” payment. In a virtual card payment, a health plan or its vendor sends a single-use credit card number to a provider by mail, fax or email. This is known as a virtual card because a physical card is never created or presented to the provider. The provider must then manually enter the virtual card number into its Point-of-Sale (POS) processing terminal, and the card processing network provides an authorization for the payment. The provider then receives funds in the same way as for other card payments – via an Automated Clearing House (ACH) funds transfer from the POS merchant acquiring vendor to the provider’s bank account. For these virtual card payment authorizations, providers pay interchange fees of approximately 3 percent of the value of the payment (though anecdotally some providers have reported paying as much as 5 percent). Providers are unexpectedly losing income through these card fees, which essentially reduce the contracted fee rate that has been negotiated with the health plan for a particular service or services. Many providers are understandably opposed to incurring these fees, especially when they did not choose to use this payment method and when they are faced with a manual, burdensome opt-out process that further delays payment. In many cases, decision- makers in the provider’s office only become aware of the incurred fees after receiving monthly statements from credit card merchants, as the virtual cards are processed by billing office staff without any strategic decision in the practice to accept this form of payment.

American Hospital Association (AHA)
American Medical Association (AMA)
Medical Group Management Association (MGMA)
NACHA, The Electronic Payments Association

(Requires login): https://download.ama-assn.org/resources/doc/psa/x-pub/joint-virtual-card-letter-hhs.pdf

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Comment:

By Don McCanne, MD

It’s in their blood. Private insurers will always find a way to cheat others under the guise of good business practices. Now private insurers are using the scam of “virtual credit cards” in order to keep 3 to 5 percent of agreed upon payments made to physicians under their network contracts, while loading more administrative work onto the backs of the physicians’ staff members.

Thieves. That’s all they are. Thieves.

Addendum:

Some readers commented that the insurers do not receive the transaction fees.

It is true that the insurers do not get the full 3-5% processing fee, but, like reward credit cards, the insurers receive a rebate of up to 1.75% cash.

Private insurers are infamous for their administrative waste. With these virtual credit cards, the insurers are dumping on the providers the administrative fees associated with these virtual cards, plus keeping the card rebates. So the insurers are costing the providers 3-5% even though they are pocketing only a portion. When you think about it, the insurers are receiving roughly a 35 percent return on the administrative investment made by the physicians, and that return is being paid by the physicians. It’s not even the insurers’ own money!

$1.43 of every $100 in America goes toward hospital administration

By Sarah Kliff
Vox, September 15, 2014

America spends a lot of money on the paperwork that makes hospitals run— $218 billion per year, to be exact. That works out to 1.43 percent of the entire American economy is spent on hospitals’ administrative costs. Of every $100 spent in America, that means $1.43 is going toward the billing specialists and schedulers that make hospitals here work.

Hospital administration has grown as a percent of the economy over the past decade, from 0.9 percent in 2000 to 1.43 percent in 2012, a new paper in the journal Health Affairs shows.

To put this in a bit of context: America spends twice as much on hospital administration as it does on the entire food budget. For what we pay for hospital paperwork, we could pay for all professional American sports three times over (they had a budget of $61 billion this year, according to PriceWaterhouseCooper).

This makes the United States different from most other countries. In 11 countries that this Health Affairsarticle looked at, hospitals usually put about 12 percent of their budget toward administrative activities. But in the United States, hospitals spend a full quarter of their funds on filing the necessary paperwork to make sure that surgeries happen and patients get scheduled.

This reflects something particular about the American health care system — namely, it’s a complex mess. Most other countries have some central agency that sets a national price for every procedure, from a heart transplant to an MRI. But that’s not how the United States works. Here, we have thousands of health insurance companies that each negotiate their own prices. For a hospital contracting with a dozen health plans — each charging a different price for an MRI, and anything else — that necessitates a whole bunch of paperwork.

There are, of course, trade-offs with a system like this. If the government sets the price too low — pays less, for example, for an MRI than hospitals would accept — that could restrict access to needed medicine. In that case, patients have little mode of recourse; they can’t switch to another plan, because there’s only one game in town.

You can learn more about how that system works, and its trade-offs, in the video below. Then read about Vermont’s plan to sharply reduce administrative costs by switching to a single-payer plan (and the massive obstacles the state faces) here.

http://www.vox.com/2014/9/15/6151861/1-43-of-every-100-in-america-towards-hospital-paperwork

Restructure our economically unsustainable health care system

By Ed Weisbart, M.D.
St. Louis Post-Dispatch, Letters, Sept. 16, 2014

If public policy decisions were driven by good business sense, the United States would long ago have stopped wasting so much of our health care dollar on the preservation of an irrational insurance industry. With millions remaining uninsured despite 17.6 percent of our gross domestic product being devoted to health care, we must restructure our economically unsustainable system.

New information from a multinational research team reveals yet another piece of information about the United States: More than a quarter (25.3 percent) of our hospital spending is dedicated to administration. Scotland and Canada, whose single-payer systems pay hospitals global operating budgets, with separate grants for capital, had the lowest administrative costs at 11.6 percent and 12.4 percent respectively. Other developed nations form a spectrum varying with their nation’s particular model for health care finance.

If our hospital finance system were as efficient as Canada’s, we would have saved more than $150 billion in 2011.

It’s difficult to see the value we gain by continuing to carry these costs. Our life expectancy lags other developed nations’, millions of us remain without access to affordable care, and we live with the unique fear that one major illness can force us into bankruptcy.

The uniquely American solution is hiding in plain sight: Improve Medicare and provide it to all Americans.

Dr. Ed Weisbart resides in Olivette, Mo.

http://www.stltoday.com/news/opinion/mailbag/restructure-our-economically-unsustainable-health-care-system/article_a629ab05-b92e-5fdb-bafa-29c5ef0102d6.html

Study: U.S. squanders $150B a year on hospital bureaucracy

By William Ulwelling, M.D.
Albuquerque Journal, Sept. 15, 2014

How affordable is the American health care system? And are matters getting better or worse? One factor is the cost-effectiveness of our hospitals. A major study published recently in Health Affairs revealed a big problem, and proposed an answer.

This study of hospital administrative costs in eight nations found that hospital bureaucracy consumed 25.3 percent of hospital budgets in the United States, far more than in other nations.

Step across the border into Canada and administrative costs in its hospitals – funded through a single-payer system – run about 12 percent. On a per capita basis, Americans are spending $667 per person on hospital administration, while Canadians spend only $158.

Of note, the study found no evidence that the high U.S. administrative costs translated into better care or yielded any other benefits.

These administrative costs are increasing – from 23.5 percent of U.S. hospital budgets in 2000 to 25.3 percent of hospital budgets in 2011. And the $215 billion American hospital administrative cost is a big-ticket item, amounting to 1.43 percent of our GDP.

The article attributes the high hospital overhead costs in the United States to two factors: (1) the complexity of billing a multiplicity of insurers with varying payment rates, rules and documentation requirements; and (2) the entrepreneurial imperative for hospitals to amass profits (or surpluses for nonprofits) to fund modernization and upgrades essential to survival.

Paradoxically, this entrepreneurial imperative has reduced hospital efficiency, driving them to divert personnel and dollars to marketing, to cherry-picking profitable patients and services (and avoiding unprofitable ones), and to expensive computer systems and consultants to game the payment system.

The study’s author summarizes the problem: “We’re squandering $150 billion each year on hospital bureaucracy, and $300 billion more is wasted each year on insurance companies’ overhead and the paperwork they inflict on doctors.

“Only a single-payer reform can squeeze out the bureaucratic waste and use the money to give patients the care they need. Instead, we’re layering on more bureaucracy and insurance exchanges and ‘accountable care organizations.’”

The Patient Protection and Affordable Care Act was a step in the right direction but we need to move to a single-payer system. The recent Health Affairs article adds to the concerns that, unless health care financing reform is put in place, Americans may be saddled with an un-Affordable Care Act.

Implementation of a single-payer system, also known as “Improved Medicare for all,” would provide substantial administrative and cost efficiencies. Additionally, it could remedy the greatest shortcoming of the ACA, which falls short of providing true patient protection.

While the ACA is expected to cover an additional 26 million people by 2024, forecasters expect that 31 million Americans will still lack insurance coverage in 2024. If our health care system became more cost-efficient and affordable, the savings could cover the final step of ensuring universal patient protection for all Americans.

Physicians from across the country – myself included – are fighting for improved Medicare for all. The organization leading the fight is Physicians for a National Health Program and, with 19,000 members, it is the nation’s largest single-payer advocacy group.

Here in New Mexico, the local chapter of Physicians for a National Health Program has invited Dr. Andy Coates, president of PNHP, to speak to the public at University of New Mexico Health Science Center Domenici Auditorium this Thursday from 5:30 p.m. to 7 p.m. His talk, “Beyond the ACA: The Single-Payer Solution” will discuss the new research on hospital waste, as well as other reasons why the American health care system needs to progress beyond the ACA. 

Dr. William Ulwelling is a resident of Albuquerque.

http://www.abqjournal.com/462071

U.S. hospitals burdened by high administrative costs

By Dr. Steffie Woolhandler
Modern Healthcare, September 13, 2014

When I was a kid in Shreveport, La., my father was chief of radiology at the local hospital. He also ran the hospital and supervised the cafeteria. Today he’d be the COO.

Now hospital administration takes a village. And that’s not a good thing.

Hospital administration cost the U.S. $215 billion in 2011. Other nations administer modern, first-class hospitals for far less. 

A study by our international team just published in Health Affairs found that administration consumed 25.3% of U.S. hospital budgets—1.43% of GDP (up from 0.98% in 2000), or $667 per capita. Canada spent $158, Scotland $164, England $225 and The Netherlands $325. If U.S. hospitals ran as efficiently as Canada’s or Scotland’s, the average family of four would save $2,000 annually on health costs. 

Not surprisingly, administrative costs were highest where hospitals must cope with a multitude of insurers, with varying copayments, rates and regulations. Canada and Scotland—where costs are lowest—have single-payer systems that pay hospitals a lump-sum budget, the way we fund fire stations. And like fire departments, their hospitals don’t collect from each victim of misfortune.

But payment complexity isn’t the only cost driver. Canadian and Scottish hospital administrators don’t have to play financial games that generate profits. Government grants, rather than capital markets or accumulated surpluses, fund new buildings and equipment. Even in Germany and France—which have multi-payer systems—administrative costs remain modest because government grants fund most hospital capital.

In contrast, as England has forced hospitals to seek profits in an increasingly market-oriented system, administrative costs have soared. And administrative costs in the Netherlands, which is implementing radical market-based reforms, are second only to ours.

Our findings challenge conventional wisdom that market discipline leads to hospital efficiency. Within the U.S., for-profit hospitals spend less than not-for-profits on clinical personnel like nurses, yet have higher total and administrative costs. Internationally, hospital efficiency is best in nations shunning market forces.

Accountable care organizations that force hospitals to behave like insurance companies won’t streamline administration. But a single-payer reform could realize vast savings on administration and redirect them to improved coverage and care. 

Dr. Steffie Woolhandler is a co-founder of Physicians for a National Health Program and a professor at the City University of New York’s School of Public Health at Hunter College.

Obamacare not enough, so some in labor want single-payer system; forum Sept. 13

By Olivera Perkins
The Plain Dealer (Cleveland), Sept. 12, 2014

CLEVELAND, Ohio – When many in the labor movement speak about health care reform they are not talking about Obamacare, but a single-payer system.

“It has been a historic goal of the labor movement to establish a Medicare for all, single-payer system in the U.S., just like almost every industrialized country in the world,” said Mark Dudzic, national coordinator for the Labor Campaign for Single Payer. “The labor movement, we believe, has to be in the forefront of the fight, if we are going to win that.”

Dudzic is one of the speakers in a forum tomorrow (Sept. 13) being sponsored by his Washington, D.C.-based group and the Single Payer Action Network of Ohio, or SPAN, which is lobbying for instituting such a health care system in Ohio. The event is scheduled for 2 to 4 p.m. at the North Shore AFL-CIO Federation of Labor, 3250 Euclid Ave., in Cleveland.

Those supporting single payer emphasize that they are not seeking a publicly funded system run by the government, in which health care workers would be public employees. Instead, they want one more like Medicare, in which users would go to private doctors, using public money to pay the bills. Supporters say one of the reasons such a system would cost less to operate is that administrative costs associated with a private insurance system would be gone.

Dudzic said single-payer advocates lobbied for the system’s adoption as Congress was considering the Affordable Care Act, also known as Obamacare. He believes the passage of ACA, has left more people open to single payer.

“It is a mass of contradictions,” he said of ACA.” On one hand, the Affordable Care Act expands health insurance coverage to millions more Americans, but it doesn’t control costs.

“In some ways, it models the dysfunctionality of the for-profit health care system,” Dudzic said. “It makes health care more of an individual responsibility than a social right that is inherent. It makes the individual responsible for paying for health insurance. It provides access to health insurance, but not access to affordable health care. That is a big difference between it and single payer.”

It is not that he doesn’t like the ACA, Dudzic believes it just doesn’t go far enough.

“Let me make it very clear,” he said. “No one we work with is calling for the repeal of the Affordable Care Act. We ought to finish the job by getting single payer.”

Many disagree single payer will be cheaper and allow better access to health care than a private insurance system. Ryan Thorn, president of the National Association of Health Underwriters, said health care costs need to be brought under control, but there are better options for doing this than a single-payer system.

He said if health care providers were required to tell consumers the cost of services and procedures before they were rendered, competition would lower medical costs. Thorn said, things being equal, most consumers would opt for providers with the most affordable prices.

“One important way to control costs is through transparency,” he said. “Health care is one of the only commodities in America in which nobody has a clue as to what it is gong to cost until you get the bill.

“We believe competition is a good thing,” he said. “Competition, in most cases, will help keep control of costs. Competition keeps technology sharp.”

Thorn said when single-payer advocates say they want the U.S. to have a health care system similar to that of other industrial nations, they are seeking to replace what has historically existed here with a lesser system.

“In most countries that have single payer, you will find a rationing of care,” Thorn said. “It works great as long as you’re healthy, but when you become sick, then you are going to be thinking twice about single payer.”

Debbie Silverstein, state director of SPAN, which is trying to get single payer in Ohio, said such efforts so far haven’t gained traction. A bill in the Ohio House and another in the state Senate, remain in committee — not evening having received hearings, she said.

“They are not taking these bills seriously,” Silverstein said of state legislators. “They are pretty much ignoring us.”

She said SPAN wants a universal health care system in Ohio, which could be publicly funded through such taxes as a payroll tax, a financial tax on investments and/or a sales tax. Beginning in 2017 – waivers — such as those associated with the ACA health insurance exchanges – could also help fund state single-payer systems, Silverstein said.

Thorn doubts if single payer would lower costs, but he is sure the system would raise taxes.

“As soon as the taxes are depleted, your health care is done until new taxes come in the door,” he said.

Like Silverstein, Dudzic believes interest in single payer will increase once waivers become available. So far, they say Vermont is the only state that has approved a single-payer system. While both advocates support single payer, they differ on whether ACA has become a vehicle for moving the country closer to single payer. Silverstein doesn’t see the connection. Dudzic does.

“There is buyers’ remorse,” he said of ACA.

For example, Dudzic said silver tier plans on the ACA exchanges have become the gold standard for coverage. He said unions who have negotiated coverage equivalent to gold or platinum tier plans, could risk facing a hefty tax because they offer more expensive coverage. Dudzic said this has made contract negotiations for many unions contentious.

Despite what he sees as an increasing desire for single payer, Dudzic said he doesn’t believe the fight to win it will be easy.

“We’re dealing with a gigantic, for-profit health care system that is a huge massive corporate power,” he said. “Anytime there is any attempt to change the health care system, so that it impacts their profits, that corporate power just mobilizes all of its resources.

“For every congressperson and senator, there are at least four people whose job it is — from the moment they get up everyday to the moment they go to bed — to ensure that no substantial change happens to the health care system,” Dudzic said.

Olivera Perkins is a staff writer at The Plain Dealer.

http://www.cleveland.com/business/index.ssf/2014/09/obamacare_not_enough_so_some_i.html

Some Covered California patients involuntary transferred to Medi-Cal

Income checks throw Californians off health plans

KCRA.com/AP,September 9, 2014

Some Californians who purchased individual health coverage through the state’s insurance exchange are suddenly being dropped or transferred to Medi-Cal, the program for the poor that fewer doctors and providers accept.

The changes are occurring as incomes are checked to verify the policyholders can purchase insurance through the exchange.

Officials at Covered California acknowledged that a number of people are being shifted around during income checks and eligibility updates.

“It will happen continually,” spokesman Dana Howard said.

This year, he said, the exchange adjusted its income eligibility scale when the federal government updated the poverty scale. As a result, Howard said, people near the thresholds are sometimes moved between private health plans and Medi-Cal. The checks might also determine that some people make too much money to receive a subsidy.

Evette Tsang, a Sacramento insurance agent, said some of her clients unexpectedly received Medi-Cal cards even though they were content with the plan they purchased through the exchange.

“There’s a lot of people who have never been on Medi-Cal, and they don’t want to. You hear the service is not as good, providers are not easy to find,” Tsang said.

http://www.kcra.com/news/income-checks-throw-californians-off-health-plans/27962242

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A California solution for a Medicaid quirk

Editorial, Los Angeles Times, September 9, 2014

The 2010 federal healthcare reform law required virtually all adult Americans to carry insurance, starting this year. And to help make policies affordable, it offered subsidies to lower-income households while expanding the Medicaid insurance program to more of the poorest residents. But there’s a key difference between those two groups: Only those in the Medicaid program may find their estates billed after they die to pay back some of the aid.

Most troubling, the new requirement to obtain coverage is prompting millions of Californians to sign up for Medi-Cal, where they are put in Medi-Cal’s version of an HMO. Only after they enrolled are they told that, if they are 55 or older, the state will seek to recover the value of the coverage from their estates. They could be in perfect health, receiving no medical care at all, but still be running up a bill that their estate will have to pay.

The California Legislature responded by passing a bill (SB 1124) that would stop Medi-Cal, the state’s version of Medicaid, from trying to collect repayment for routine medical care and insurance premiums. The measure now awaits action by Gov. Jerry Brown, whose Department of Finance opposes the bill because it would cost Medi-Cal an estimated $30 million a year.

http://www.latimes.com/opinion/editorials/la-ed-medi-cal-20140910-story.html

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What can be done about Covered California’s doctor gap?

Editorial, Los Angeles Times, September 8, 2014

A separate study of three rural counties by the California Health Report found that more than half of the doctors listed by Medi-Cal in those counties either were turning away new patients or couldn’t be reached by phone.

A related issue is whether the networks offered by health plans can actually deliver the coverage the plans promise.

Insurers say they’re taking the problem seriously, which should help both those who shop for individual policies and the growing ranks enrolled in managed-care plans through Medi-Cal.

http://www.latimes.com/opinion/editorials/la-ed-health-insurance-networks-20140908-story.html

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Comment:

By Don McCanne, MD

At the beginning of the health care reform process, we complained that the various factors in the proposed multi-payer model that would determine what health care coverage a person would have would be highly variable and would result in instability of health care coverage. The current experience in California provides an inkling of the extent of this problem.

Some who purchased plans through California’s ACA insurance exchange – Covered California – are losing that coverage when auditing demonstrates that income levels were not confirmed, income levels changed, or income eligibility levels changed because of updates in the federal poverty thresholds. Regardless, people were losing the coverage which they had selected, and became uninsured or moved to other private plans, or, in some cases, were involuntarily enrolled in Medi-Cal – California’s Medicaid program.

The latter is a particular problem. First, many of these people pride themselves on their self-sufficiency, even though they need to accept government subsidies so that they could afford the exchange plans. They understand that these subsidies are necessary, not for their own personal failings but simply because health care has become so expensive that the average worker can no longer bear the full costs. For these people, being forced into a welfare program – Medi-Cal – can be humiliating.

But what is even worse, the Medi-Cal ticket doesn’t automatically grant them admission to the health care system. Although there was already a shortage of physicians who would accept Medi-Cal patients, the lists of providers currently contain names of many physicians who are now turning away new Medi-Cal patients. Also, most of the newly eligible are being enrolled in Medi-Cal managed care plans when preliminary reports indicate that these plans do not have the capacity to carry the load.

Just to add further insult, those moved into Medi-Cal may have their estates billed to recover Medi-Cal costs, when there is no recovery process for subsidies provided for the Covered California exchange plans.

There are thousands of other reasons that coverage is unstable under the Affordable Care Act. In contrast, a single payer system provides the same comprehensive national health program for life. You can’t get much better stability than that.

The Havoc of the Unrestrained Drug Industry

By Ralph Nader
The Nader Page, Sept. 12, 2014

It is remarkable what very profitable drug companies—as they merge into fewer giant multinationals—continue to get away with by way of crony capitalism. Despite frequent exposure of misdeeds, the army of drug company lobbyists in Washington continues to gain political influence and rake in corporate welfare at the expense of taxpayers. The drug industry goes beyond crony capitalism when it then charges Americans the highest drug prices in the world.

Here is a short list of the honey pot produced by the lobbying muscle of the $300 billion a year pharmaceutical industry. It receives billions of dollars in tax credits for doing research and development that it should be doing anyway. Some companies reaped billions of dollars in revenues when they were granted exclusive rights to market a drug, such as Taxol, developed by the government’s National Institutes of Health (NIH). These corporations turn around and gouge patients without any price controls or royalties to NIH. (See http://keionline.org/ for more information.)

The pharmaceutical industry spends far more on marketing and advertising to physicians and patients than what it spends on research and development. More drug industry funds go to influencing politicians to prevent the implementation of price restraints on its staggering markups.

As Dr. Marcia Angell, the former editor of the New England Journal of Medicine wrote in her book, “The Truth About the Drug Companies,” “only a small fraction of its drugs are truly new; most are simply ‘me too’ variations on older drugs.” Dr. Angell charges that the industry is “primarily a marketing machine to sell drugs of dubious benefits, using its wealth and power to co-opt every institution that might stand in its way, including the U.S. Congress, the Food and Drug Administration, academic medical centers and the medical profession itself.” By the way, the drug industry is required by law to fund a large portion of the FDA’s drug review budget, which contributes to this weak regulatory oversight.

Katharine Greider points out in her book “The Big Fix: How the Pharmaceutical Industry Rips off American Consumers” that “Other countries move to control prices and sharply limit advertising.” This does not happen in the U.S. where many patients confront a “pay or die” system.

In recent years this stark choice has made headlines. New drugs, like Sovaldi for treating Hepatitis C, are costing consumers or taxpayers $84,000 for a full course of treatment or $1,000 a pill per day! The same drug treatment, according to the Washington Post, costs “$57,000 in Britain and just $900 in Egypt.” Other so-called “break-through” drugs are costing patients over $100,000 each a year and driving frantic health insurers and Medicaid managers up the wall.

Will competition bring prices down? Wall Street pharmaceutical analyst, Tim Anderson at Sanford C. Bernstein & Company, explains that this is not the case in a recent New York Times article. “He said that drug companies, while not colluding, ‘have all looked at each other and said, ‘None of us needs to compete on price if we just hold the line.’” The cause of competition was not helped when the drug company lobbyists used their campaign contributions and influence on Congress in 2003 to brazenly prohibit Uncle Sam from negotiating prices for the gigantic Medicare drug benefit program.

The financial rip-offs aren’t the only problems with the out-of-control drug industry. Federal law requires all approved drugs to be both “safe and effective.” The actual record has been shocking. The Public Citizen Health Research Group published three books – “Pills That Don’t Work” (1981), “Over The Counter Pills That Don’t Work” (1983), and “Worst Pills, Best Pills: A Consumer’s Guide to Avoiding Drug-Induced Death or Illness” (2005) – documenting hundreds of prescription and over-the-counter drugs that were not effective for their advertised purposes or had harmful side effects. Wide exposure to these findings, especially on the “Phil Donahue Show,” helped get many of these so-called medicines off the market.

Over the years, the government has fined drug companies billions of dollars for pushing unapproved uses of drugs. More perilously, drugs get approved prematurely and result in mass sickness and fatalities. This human toll takes an estimated 100,000 deaths a year in the U.S. from adverse effects of such drugs. For example, the drug Vioxx, sold by Merck & Co., Inc., as an anti-inflammatory drug, stayed on the market from 1999 to 2004 despite documented cardiovascular risks. According to the well-regarded medical journal Lancet, an estimated 88,000 Americans had heart attacks from taking Vioxx and 38,000 of them died.

Bextra, sold by Pfizer, Inc., another anti-inflammatory analgesic drug was approved by the FDA in 2001, and was then removed in 2005 because of concerns about increased risk of heart attacks and strokes, as well as serious, sometimes fatal skin reactions.

Rezulin, made by Parke-Davis/Warner Lambert, was approved by the FDA in 1997 and withdrawn in 2000 because the drug caused liver toxicity, having been linked to 63 liver-failure deaths.

Meridia, a weight-loss drug sold by Abbott Laboratories, was withdrawn by the company after thirteen years of sales because studies demonstrated that it increased the risk of adverse cardiovascular episodes, such as heart attacks, strokes and cardiac arrest.

These illustrations come from Public Citizen’s Health Research Group whose newsletter “Worst Pills, Best Pills News” has been reliably reporting these avoidable tragedies for many years.

There are other human and economic costs of the drug industry’s relentless sales pressure. Antibiotic resistance has been building up for half a century due to massive overuse of antibiotics both in humans and in edible farm animals. As a result, there are now lethal infections for which existing antibiotics are ineffective. And, inadequate warning labels have led to the misprescription of drugs and the use of drug combinations that have dangerous interactions.

Congress used to regularly investigate the drug companies when Senators like Estes Kefauver (D-Tenn.) and Gaylord Nelson (D-Wis.) were on Capitol Hill. Silence is now the norm. Even the drug company practice – to seek even more profits – of importing about eighty percent of the ingredients in our medicines from China and India, where public inspection regulations can be weak and the FDA has few inspectors, does not command the attention of our congressional representatives. About 100 Americans died in 2008 from a contaminated blood thinner called heparin imported from China.

So, next time you hear the talking heads from corporatist think tanks such as the American Enterprise Institute or the Heritage Foundation or their corporate allies demand “de-regulation,” consider what an inadequately regulated drug industry has already inflicted on millions of Americans.

https://blog.nader.org/2014/09/12/the-havoc-of-the-unrestrained-drug-industry/

Federal Reserve report on consumer finances

Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances

Federal Reserve Bulletin, September 2014

The Federal Reserve Board’s triennial Survey of Consumer Finances (SCF) collects information about family incomes, net worth, balance sheet components, credit use, and other financial outcomes. The 2013 SCF reveals substantial disparities in the evolution of income and net worth since the previous time the survey was conducted, in 2010.

Family incomes

  • Between 2010 and 2013, mean (overall average) family income rose 4 percent in real terms, but median income fell 5 percent, consistent with increasing income concentration during this period.
  • Families at the bottom of the income distribution saw continued substantial declines in average real incomes between 2010 and 2013, continuing the trend observed between the 2007 and 2010 surveys.
  • Families in the middle to upper-middle parts (between the 40th and 90th percentiles) of the income distribution saw little change in average real incomes between 2010 and 2013 and thus have failed to recover the losses experienced between 2007 and 2010.
  • Only families at the very top of the income distribution saw widespread income gains between 2010 and 2013.
  • The differentials in average income growth between 2010 and 2013 are also observed for other family groupings in which large differences in income levels are observed, notably across education groups, by race and ethnicity, homeownership status, and levels of net worth.

Net worth

  • Consistent with income trends and differential holdings of housing and corporate equities, families at the bottom of the income distribution saw continued substantial declines in real net worth between 2010 and 2013, while those in the top half saw, on average, modest gains.
  • Ownership rates of housing and businesses fell substantially between 2010 and 2013.
  • Retirement plan participation in 2013 continued on the downward trajectory observed between the 2007 and 2010 surveys for families in the bottom half of the income distribution.
  • The decrease in stock ownership rates was most pronounced for the bottom half of the income distribution.

http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

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Comment:

By Don McCanne, MD

The recovery of the economy has left behind everyone except the wealthy. Most individuals and families are less able to afford housing, education, retirement, vacations, college expenses, and, of especial concern to us, health care. Many economists believe that this may represent the new normal.

The public policies that we need to bring us all back on a solid footing are straightforward. But politics has resulted in the erection of almost impenetrable barriers. Just today the Senate reconfirmed the fact that billionaires are still free to buy our elections (and the billionaires have fared very well as the rest of us have been left behind). 

If we could improve just the financing of health care so that it is affordable for everyone, we would have taken one major step towards implementing the public policies that we need to more equitably share the gains in our economy. The Affordable Care Act falls far too short of the level of equitable health care financing that we need. The progressive financing that characterizes a single payer system would move us more dramatically in the right direction. Not only would everyone have health care, but we would be improving family incomes and net worth as well.

Policy is easy. But we really have to work on the politics. The billionaires can buy the souls of the politicians for only so long. Start sharpening your pitchforks (Hanauer).