Race Is On to Profit From Rise of Urgent Care

By Julie Creswell
The New York Times, July 9, 2014

NORWALK, Conn. — For more than eight hours a day, seven days a week, 52 weeks a year, an assortment of ailments is on display at the tidy medical clinic on Main Avenue here. But all of the patients have one thing in common: No one is being treated at a traditional doctor’s office or emergency room.

Instead, they have turned to one of the fastest-growing segments of American health care: urgent care, a common category of walk-in clinics with uncommon interest from Wall Street. Once derided as “Doc in a Box” medicine, urgent care has mushroomed into an estimated $14.5 billion business, as investors try to profit from the shifting landscape in health care.

But what is happening here is also playing out across the nation, as private equity investment firms, sensing opportunity, invest billions in urgent care and related businesses. Since 2008, these investors have sunk $2.3 billion into urgent care clinics. Commercial insurance companies, regional health systems and local hospitals are also looking to buy urgent care practices or form business relationships with them.

The business model is simple: Treat many patients as quickly as possible. Urgent care is a low-margin, high-volume proposition.

Urgent care clinics also have a crucial business advantage over traditional hospital emergency rooms in that they can cherry-pick patients. Most of these centers do not accept Medicaid and turn away the uninsured unless they pay upfront. Hospital E.R.s, by contrast, are legally obligated to treat everyone.

Already, the race is on to build large chains with powerful, national brands — a McDonald’s or a Gap of health care. Wall Street money is driving the growth, but so are other forces. Millions of newly insured Americans are seeking care. Others are frustrated by long waits at E.R.s, or by having to conform to regular doctor’s hours.

The insurance giant Humana paid nearly $800 million in 2010 to buy Concentra, the nation’s largest group of urgent care centers, with about 300 currently. Two years later, Dignity Health, a San Francisco-based health system, acquired U.S. HealthWorks, a group that today has 176 centers.

Even hospitals are embracing the trend. Florida Hospital in Orlando, for example, has opened 24 Centra Care urgent care clinics.

But some of the most aggressive buyers have been private equity firms, according to data from a research firm, PitchBook.

In 2010, General Atlantic, a private equity firm, and Sequoia Capital, a giant in venture capital, acquired a stake in MedExpress Urgent Care, which operated 47 clinics in four states. today, MedExpress has 130 clinics in 10 states.

****

Comment:

By Don McCanne, MD

The growing popularity of urgent care centers is understandable. Patients can receive timely care with shorter waits, at a cost well below that of hospital emergency departments. These centers are working well for patients, for the health professionals who staff them, and for… yes, passive investors who have learned how to divert to their own coffers some of the $3 trillion that we are spending on health care.

That’s the thing about capitalism. When there is an opening that can provide a significant return on invested dollars, capitalists jump in, while socialists stand back and observe, especially since the machinery of government grinds very slowly.

In the case of urgent care centers, what approaches will provide the best return for the capitalists? Above all, locate them in wealthy communities. Do not ever consider placing them in communities with high poverty levels, even though the medical need may be great. Cherry pick your patients. You can turn away Medicaid and cashless uninsured patients and give them instructions on how to get to the nearest hospital emergency department, which is required by law to accept them. But cater to the insurance companies that are quite willing to pay your higher fees as long as they are lower that emergency department fees. In fact, maybe the insurers will even be willing to pay a premium to buy you out.

The record is in on for-profit health care facilities. Business principles trump patient service principles every time. Make the most money on insured patients that the market will bear, but avoid losses on uninsured and welfare patients by turning them away. 

About those socialists who are standing back and observing, what are they to do? How do they move urgent care services into communities with high poverty? They know that the private investors want no part of that. What about primary care practices? Isn’t it unrealistic to expect physician offices to be staffed 24 hours a day? What about community health centers? On their tight budgets, can they provide 24hour/7day urgent care services? What about emergency departments of hospitals? Of course, they are already serving that function, but at very high fees that are used to support other money-losing services of the hospital – not to mention long delays at times other health care facilities are closed.

Under a single payer system, facilities would be established through central planning based on the health care needs of the community, not on what would be the most profitable. Passive investors would not be involved and thus would play no role in those decisions, as they shouldn’t. 

Private sector investors move in rapidly at any opportunity, structuring their investments to get the most dollars they can from us while neglecting those without dollars. Government bureaucrats move much more slowly, but at least they get it right, making sure that health care is available for people when they need it. Single payer is what we need.

Anthem Blue Cross faces another suit over Obamacare doctor networks

By Chad Terhune
Los Angeles Times, July 9, 2014

Amid growing scrutiny statewide, insurance giant Anthem Blue Cross faces another consumer lawsuit over its use of narrow networks in Obamacare coverage.

A group of Anthem policyholders sued California’s largest for-profit health insurer Tuesday in state court, accusing the company of misrepresenting the size of its physician networks and the insurance benefits provided.

A similar suit seeking class-action status was filed June 20 against Anthem, a unit of WellPoint Inc., The Times has reported.

In response to the two lawsuits, Anthem said “materials at the time of enrollment and in members’ explanation of benefits have clearly stated that the plan was an EPO plan which may not have out of network benefits.”

The company added that Blue Cross Blue Shield Assn. rules required the PPO designation on EPO member cards because coverage for emergencies is available in other states.

In May, two San Francisco residents sued Blue Shield in state court, accusing the company of misrepresenting that their policies would cover the full network.

Separately, California regulators are investigating whether Anthem and Blue Shield of California violated state law in connection with inaccurate provider lists and making it difficult for patients to obtain timely care.

To hold down premiums under the health law, Anthem and Blue Shield cut the number of doctors and hospitals available to patients in the state’s new health insurance market.

These exclusive-provider organization, or EPO, health plans have been particularly troublesome for some consumers who were accustomed to having more conventional preferred-provider organization, or PPO, policies.

One of the major differences is that patients with an EPO plan typically have little or no coverage if they see an out-of-network medical provider and they are often responsible for the full charges.

“EPOs will continue to play a role,” said exchange spokeswoman Anne Gonzales. “But we’re going to have to do a better job educating people about how these networks work. We recognize the EPO model can be confusing.”

Some supporters of the Affordable Care Act say the smaller size of the provider networks isn’t the problem so much as clear information about what doctors and hospitals are available.

“The problem has been the transparency and reliability of the networks,” said Micah Weinberg, a health-policy analyst at the Bay Area Council, an employer-backed group.

“That’s the problem that we need to fix. If we focus on narrowness we will be focusing on the wrong thing,” Weinberg added.

http://www.latimes.com/business/healthcare/la-fi-anthem-narrow-networks-lawsuit-20140709-story.html

****

Comment:

By Don McCanne, MD

Micah Weinberg, a health-policy analyst at the Bay Area Council, an employer-backed group, says, “The problem (with exclusive provider organizations – EPOs) has been the transparency and reliability of the networks. That’s the problem that we need to fix. If we focus on narrowness we will be focusing on the wrong thing.” Really? Narrow networks are not the problem?

There is a general rule that when you are confronted with a problem you should provide a solution that corrects the problem at its origin rather than providing a solution that requires compliance by everyone else involved. In the case of EPOs it would have been far better to simply eliminate them and address cost issues by more effective policies rather than to try to get each individual to understand EPOs and comply with the restrictions on which health care providers will be covered – compliance which is sometimes impossible to achieve.

Once private insurers began using networks of contracted physicians and hospitals, compliance has been a problem for many reasons. The network lists are difficult to access. They undergo continual revisions. Frequently not all physicians providing coordinated health care services are contracted with the insurer. EPOs tend to use narrower networks to leverage more favorable contracts with those who do participate which further limits patients’ access and coverage. The individual’s selection of health plans often changes for a variety of reasons, and the networks change accordingly. This often disrupts continuity of care.

The only rationale for EPOs is for the insurer to negotiate lower prices. It is a terribly inefficient and disruptive way to do that. A far more effective way of pricing health care services appropriately would be to establish a single payer system. There would be no networks involved.

Much the same applies to PPOs. They differ from EPOs primarily in that they may cover a very modest portion of the charges outside of their networks, but they do not protect the patient from prices that are higher than the insurers’ usual contracted rates. By the rule that a problem should be corrected at its source, PPOs should be eliminated as well.

In fact, single payer advocates know that this applies to all private insurance plans. They should be eliminated and replaced with a single, publicly-financed and publicly-administered health program. You have eliminated the problem at its origin – the private insurers – and have replaced it with a program in which patient compliance is totally automatic – a single payer national health program.

Inadequate State, Federal Payment Rates Forcing Hospital Closure, Officials Say

By David Gore
California Healthline, July 5, 2014

Doctors Medical Center in San Pablo, about 10 miles north of Oakland, is slated to shut its doors at the end of July, unless some kind of deal can be worked out to keep it operating.

There are many contributing factors to the financial death spiral at Doctors Medical Center, according to said Eric Zell, chair of the West Contra Costa Healthcare District board of directors, which oversees Doctors Medical Center. But there is one fundamental and underlying reason it cannot remain economically viable:

“It’s the Medi-Cal and Medicare reimbursement rates,” Zell said. “The rates are just too low.”

Zell added, “The payer mix is 80% Medicare/Medi-Cal and about 10% uninsured. There’s only about 10% private pay, and that’s not enough to keep us going.”

According to hospital officials, Doctors Medical Center is paid 60 cents for every dollar it spends to treat each Medi-Cal patient and just 90 cents on the dollar for every Medicare patient.

When you’re looking at 100 patients a day and you lose money on 90 of them, the losses mount quickly, according to John Gioia, a longtime district supervisor on the Contra Costa Board of Supervisors.

Most medical facilities have a payer mix with a much higher percentage of people with commercial health insurance to mitigate the losses of their Medi-Cal, Medicare and uninsured patients, Gioia said.

And when you have such a large population of people living at poverty level, that also means the residents of western Contra Costa County don’t have much money to try to underwrite the hospital.

Doctors Medical Center is one of the few remaining stand-alone small district hospitals left in the state, Gioia said. “There have been many places like this, hospitals like this in similar circumstances,” he said. “Many have closed, dozens of them in California.”

“This hospital represents a larger problem and issue,” Gioia said, referring to the access issue that would emerge in the west county if Doctors does shut down. “This represents a larger problem and issue,” he said. “Is there a model that’s more sustainable?”

“I think this is a failure of our health care system,” (state Sen. Loni) Hancock said. “We need to have a single payer health system.”

But at its root, Hancock said, it shouldn’t be up to hospitals in the area to pick up the slack for low Medi-Cal and Medicare rates.

“Look, it’s a great health care system for employed, insured people,” Hancock said. “But this is not a health care system for people who are poor.”

http://www.californiahealthline.org/insight/2014/inadequate-state-fed-payment-rates-forcing-hospital-closure-officials-say

Doctors Medical Center is owned and operated by the West Contra Costa Healthcare District.

Home

Doctors Medical Center Has an Emergency

If it doesn’t get financial help in the next few months, it will close its doors permanently. More than 40,000 people use Doctors Medical Center for emergency room services every year. If you have a heart attack or stroke, or you are in an accident, the ER at DMC is often the first stop for an ambulance. Without it, an ambulance trip could take up to an additional hour. That time could mean the difference between life and death.

http://www.savedmc.org

****

Comment:

By Don McCanne, MD

It does not take much intellect to understand that hospitals should be located where they are needed and that they should be financed by a system that would ensure that adequate funds would be available to pay for appropriate health care services for the community. Based on our current methods of hospital planning and financing, it may be intellect that is in short supply.

Today a hospital that is located in a community with high levels of poverty is dependent on income from Medicare and Medicaid. In California these programs, especially Medicaid (Medi-Cal), pay rates below costs of providing that care. Insolvency is inevitable. This is directly related to our dysfunctional, fragmented system of financing health care through a multitude of private insurers, public programs, and no programs at all.

With the private sector making decisions on hospital planning, areas with assurance of revenues will be selected – usually areas with a high percentage of privately insured patients plus Medicare patients with higher regionally adjusted payment rates. The private planners do not select areas with high poverty rates and high numbers of uninsured and Medicaid beneficiaries. Private planning decisions are based on money, not on local need.

Under a well designed single payer system, capital spending is budgeted separately. Hospitals are built in areas of need. The hospital operations are financed through global budgets, just as with our fire and police departments. Public financing obviates the need to consider wealth when establishing the location of health facilities.

If Doctors Medical Center is closed down, the billionaire who is passing through town and is critically injured in an accident may die if his ambulance has to drive past a padlocked emergency department and continue for another hour to a different facility. No amount of money will buy your way to the front of that queue.

We need to adopt a system that will provide both appropriate planning and appropriate financing. Our current fragmented system can’t do that.

California State Senator Loni Hancock is right. “This is a failure of our health care system. We need to have a single payer health system.”

Health-care expenditure and health policy in the USA versus other high-spending OECD countries

By Luca Lorenzoni MSc, Annalisa Belloni MSc, Franco Sassi PhD
The Lancet, July 1, 2014

Summary

The USA has exceptional levels of health-care expenditure, but growth has slowed dramatically in recent years, amidst major efforts to close the coverage gap with other countries of the Organisation for Economic Co-operation and Development (OECD). We reviewed expenditure trends and key policies since 2000 in the USA and five other high-spending OECD countries (Canada, France, Germany, the Netherlands, and Switzerland). Higher health-sector prices explain much of the difference between the USA and other high-spending countries, and price dynamics are largely responsible for the slowdown in expenditure growth. Other high-spending countries did not face the same coverage challenges, and could draw from a broader set of policies to keep expenditure under control, but expenditure growth was similar to the USA. Tightening Medicare and Medicaid price controls on plans and providers, and leveraging the scale of the public programmes to increase efficiency in financing and care delivery, might prevent a future economic recovery from offsetting the slowdown in health sector prices and expenditure growth.

Health expenditure levels

The higher health spending reported in the USA is not simply a result of the country’s greater wealth or of the age structure of its population. Even the larger prevalence of risk factors — including obesity — explains only a small part of the reported differences. OECD Health Care Quality Indicators show that the US health-care system is doing well in several areas (eg, cancer care), but less well in others (particularly the primary care sector). Overall, the quality of the care provided does not seem to explain the higher health expenditure in the USA.

OECD work on comparative price levels in health suggests that the prices, rather than volumes, of health services contribute the most to explaining the higher US spending, in line with the conclusions of scholarly work.

Probable explanations for health price levels exceeding general price levels in the USA include a more intense use of health-related technologies, low productivity, decentralised price negotiations, fragmentation in the insurance market, and a high level of provider concentration. In a private insurance or provider model — as in the Netherlands and Switzerland (with compulsory insurance coverage), and the USA (with voluntary insurance coverage) — a high amount of choice is combined with weaker cost control. In particular, the USA — excluding Medicare — does not use a centralised authority to set health spending budgets or negotiate prices with providers. A public-contract model — as in Canada, France, and Germany — gives a central authority (national government or social insurance administration) more leverage over health-care providers, generally with lower administrative costs than multiple-payer systems.

From the Discussion

The USA is an outlier in the scenery of OECD health-care systems, for its staggering levels of expenditure, the extent of fragmentation of its system and the sheer complexity of its administration, the power of vested interests, and the large number of people left without adequate health insurance coverage. However, during the period examined in this paper, characterised by a long and severe recession with a fluctuating economy and employment rates, differences in growth rates between the USA and other high-spending countries were substantially reduced. Great efforts have been made to sustain coverage and lift the USA from the bottom of the OECD coverage league table. Efforts have also been made to contain further growth in health-care expenditure, with rates falling in line with those of other high-spending OECD countries. This progress is no reason for complacency, and more and bigger efforts are needed in the years to come, particularly in controlling the main driver of higher health-care expenditure in the USA — ie, health sector prices. The risk that a future sustained economic recovery, and the probable general price increases that would come with it, might offset the gains made in recent years is real and should be anticipated. Medicare and Medicaid price controls on plans and providers, such as adjustments in payments to Medicare Advantage managed care plans, or DRG base rate adjustments to account for expected productivity growth in the general economy, could be tightened further and extended, particularly for pharmaceutical products and physician fees, without resorting to measures affecting service use, which would restrict choice or coverage. More daring measures could be used in the hospital sector, such as all-payer fees negotiated at state level (eg, Maryland’s Health Service Cost Review Commission), global budgets, and reference prices, although these would involve major changes in the US health-care market approach. Examples of effective measures are available from other countries, which might bring the USA further in line, in terms of both health-care expenditure and coverage, notwithstanding the relatively smaller effect of policy changes in the USA, in view of the different relation between insurance or financing and delivery systems. Changes gradually introduced towards the end of the study period, which will probably affect expenditure growth in the future, include bundled payments, reference prices for hospital care, and the introduction of Accountable Care Organisations to realign provider incentives, with a potential for quality improvement, in addition to cost containment. However, more evidence is needed about the complex causal pathways that link health-care expenditure and use with health outcomes, to avoid possible detrimental effects on population health from tightened controls on health-care expenditure.

[The authors are from the Health Division, Organisation for Economic Co-operation and Development (OECD), Paris, France.]

http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)60571-7/fulltext

Press release – The Lancet: “Dramatic slowdown in growth of US health expenditure over last decade closes gap between USA and other high-spending countries”: http://www.eurekalert.org/pub_releases/2014-06/tl-tld062714.php

Press release – OECD: “After Decline in U.S. Health Expenditure Growth, OECD Sees Risk of Spending Uptick in Recovery”: http://www.oecd.org/washington/lancet-health-unitedstates.htm

Comment:

By Don McCanne, MD

This OECD study comparing health care spending and health policy in the United States with five other high-spending OECD nations confirms that health care financing systems undergo continual revision. Yet the United States is unique in that our policy changes have not moved us from first position on per capita spending nor from last position on the proportion of the population that is covered.

As the authors state, “the USA is an outlier in the scenery of OECD health-care systems, for its staggering levels of expenditure, the extent of fragmentation of its system and the sheer complexity of its administration, the power of vested interests, and the large number of people left without adequate health insurance coverage.” Although some slowing in health care spending has occurred, future spending trends are uncertain.

The authors suggest some possibilities for reform, but they are based on maintaining the basic financing structure that was expanded but not fundamentally altered by the Affordable Care Act (ACA). In fact, some of their suggestions were derived from ACA.

This paper is helpful since it describes the dynamics of health financing policy in several wealthy nations. We can always learn from others, even if the lessons are on what not to do. On the latter point, other nations have had much to learn from us even if they have not applied the lessons well (e.g., unwise attempts at privatization schemes).

The obvious flaw in this paper is that the authors did not discuss more comprehensive reform proposals such as a single payer national health program. They do, however, note that the United States “does not use a centralised authority to set health spending budgets or negotiate prices with providers,” whereas a public-contract model used in other nations “gives a central authority (national government or social insurance administration) more leverage over health-care providers, generally with lower administrative costs than multiple-payer systems.”

Doesn’t it seem that this is the lesson we should be receiving from other nations? Doesn’t this cry out for single payer in the United States? Of course, we already knew that. Our policy failure is a political failure. We will not get the policy right until we change our politics.

Health-care expenditure and health policy in the USA versus other high-spending OECD countries

By Luca Lorenzoni MSc, Annalisa Belloni MSc, Franco Sassi PhD
The Lancet, July 1, 2014

Summary

The USA has exceptional levels of health-care expenditure, but growth has slowed dramatically in recent years, amidst major efforts to close the coverage gap with other countries of the Organisation for Economic Co-operation and Development (OECD). We reviewed expenditure trends and key policies since 2000 in the USA and five other high-spending OECD countries (Canada, France, Germany, the Netherlands, and Switzerland). Higher health-sector prices explain much of the difference between the USA and other high-spending countries, and price dynamics are largely responsible for the slowdown in expenditure growth. Other high-spending countries did not face the same coverage challenges, and could draw from a broader set of policies to keep expenditure under control, but expenditure growth was similar to the USA. Tightening Medicare and Medicaid price controls on plans and providers, and leveraging the scale of the public programmes to increase efficiency in financing and care delivery, might prevent a future economic recovery from offsetting the slowdown in health sector prices and expenditure growth.

Health expenditure levels

The higher health spending reported in the USA is not simply a result of the country’s greater wealth or of the age structure of its population. Even the larger prevalence of risk factors — including obesity — explains only a small part of the reported differences. OECD Health Care Quality Indicators show that the US health-care system is doing well in several areas (eg, cancer care), but less well in others (particularly the primary care sector). Overall, the quality of the care provided does not seem to explain the higher health expenditure in the USA.

OECD work on comparative price levels in health suggests that the prices, rather than volumes, of health services contribute the most to explaining the higher US spending, in line with the conclusions of scholarly work.

Probable explanations for health price levels exceeding general price levels in the USA include a more intense use of health-related technologies, low productivity, decentralised price negotiations, fragmentation in the insurance market, and a high level of provider concentration. In a private insurance or provider model — as in the Netherlands and Switzerland (with compulsory insurance coverage), and the USA (with voluntary insurance coverage) — a high amount of choice is combined with weaker cost control. In particular, the USA — excluding Medicare — does not use a centralised authority to set health spending budgets or negotiate prices with providers. A public-contract model — as in Canada, France, and Germany — gives a central authority (national government or social insurance administration) more leverage over health-care providers, generally with lower administrative costs than multiple-payer systems.

From the Discussion

The USA is an outlier in the scenery of OECD health-care systems, for its staggering levels of expenditure, the extent of fragmentation of its system and the sheer complexity of its administration, the power of vested interests, and the large number of people left without adequate health insurance coverage. However, during the period examined in this paper, characterised by a long and severe recession with a fluctuating economy and employment rates, differences in growth rates between the USA and other high-spending countries were substantially reduced. Great efforts have been made to sustain coverage and lift the USA from the bottom of the OECD coverage league table. Efforts have also been made to contain further growth in health-care expenditure, with rates falling in line with those of other high-spending OECD countries. This progress is no reason for complacency, and more and bigger efforts are needed in the years to come, particularly in controlling the main driver of higher health-care expenditure in the USA — ie, health sector prices. The risk that a future sustained economic recovery, and the probable general price increases that would come with it, might offset the gains made in recent years is real and should be anticipated. Medicare and Medicaid price controls on plans and providers, such as adjustments in payments to Medicare Advantage managed care plans, or DRG base rate adjustments to account for expected productivity growth in the general economy, could be tightened further and extended, particularly for pharmaceutical products and physician fees, without resorting to measures affecting service use, which would restrict choice or coverage. More daring measures could be used in the hospital sector, such as all-payer fees negotiated at state level (eg, Maryland’s Health Service Cost Review Commission), global budgets, and reference prices, although these would involve major changes in the US health-care market approach. Examples of effective measures are available from other countries, which might bring the USA further in line, in terms of both health-care expenditure and coverage, notwithstanding the relatively smaller effect of policy changes in the USA, in view of the different relation between insurance or financing and delivery systems. Changes gradually introduced towards the end of the study period, which will probably affect expenditure growth in the future, include bundled payments, reference prices for hospital care, and the introduction of Accountable Care Organisations to realign provider incentives, with a potential for quality improvement, in addition to cost containment. However, more evidence is needed about the complex causal pathways that link health-care expenditure and use with health outcomes, to avoid possible detrimental effects on population health from tightened controls on health-care expenditure.

[The authors are from the Health Division, Organisation for Economic Co-operation and Development (OECD), Paris, France.]

http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)60571-7/fulltext

Press release – The Lancet: “Dramatic slowdown in growth of US health expenditure over last decade closes gap between USA and other high-spending countries”:http://www.eurekalert.org/pub_releases/2014-06/tl-tld062714.php

Press release – OECD: “After Decline in U.S. Health Expenditure Growth, OECD Sees Risk of Spending Uptick in Recovery”: http://www.oecd.org/washington/lancet-health-unitedstates.htm

This OECD study comparing health care spending and health policy in the United States with five other high-spending OECD nations confirms that health care financing systems undergo continual revision. Yet the United States is unique in that our policy changes have not moved us from first position on per capita spending nor from last position on the proportion of the population that is covered.

As the authors state, “the USA is an outlier in the scenery of OECD health-care systems, for its staggering levels of expenditure, the extent of fragmentation of its system and the sheer complexity of its administration, the power of vested interests, and the large number of people left without adequate health insurance coverage.” Although some slowing in health care spending has occurred, future spending trends are uncertain.

The authors suggest some possibilities for reform, but they are based on maintaining the basic financing structure that was expanded but not fundamentally altered by the Affordable Care Act (ACA). In fact, some of their suggestions were derived from ACA.

This paper is helpful since it describes the dynamics of health financing policy in several wealthy nations. We can always learn from others, even if the lessons are on what not to do. On the latter point, other nations have had much to learn from us even if they have not applied the lessons well (e.g., unwise attempts at privatization schemes).

The obvious flaw in this paper is that the authors did not discuss more comprehensive reform proposals such as a single payer national health program. They do, however, note that the United States “does not use a centralised authority to set health spending budgets or negotiate prices with providers,” whereas a public-contract model used in other nations “gives a central authority (national government or social insurance administration) more leverage over health-care providers, generally with lower administrative costs than multiple-payer systems.”

Doesn’t it seem that this is the lesson we should be receiving from other nations? Doesn’t this cry out for single payer in the United States? Of course, we already knew that. Our policy failure is a political failure. We will not get the policy right until we change our politics.

Gingrich’s Correct Prediction About Medicare’s Future

By Austin Frakt
The New York Times, July 7, 2014

On Oct. 24, 1995, Newt Gingrich made an assertion about what would happen to Medicare if its beneficiaries could choose between it and private plans. Medicare is “going to wither on the vine because we think people are voluntarily going to leave it — voluntarily.” Though he later walked this statement back, many observers viewed it as an attack on the program.

In fact, over the nearly two decades since, Mr. Gingrich’s claim has undergone something of a test — and it has largely passed it.

In that time, Medicare beneficiaries have enjoyed various levels of access to private alternatives to traditional Medicare through the Medicare Advantage program and its predecessors.

Today, 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan, more than at any time in history.

The surge in Medicare Advantage enrollment seems surprising. With payments to plans cut by the Obama administration, history suggests enrollment should go down, not up. What, then, could explain the growing popularity of private Medicare plans?

One answer is that baby boomers, who are just entering Medicare-eligibility age, are more accustomed to the types of insurance Medicare Advantage offers, such as H.M.O.s, than their predecessors were.

Another answer is that prior generations of retirees may have been more likely to have had coverage from former employers that wrap around traditional Medicare, filling in its gaps. This coverage has become less common as employer-sponsored retirement benefits have eroded generally. Since Medicare Advantage plans generally offer extra benefits, financed by the generous government subsidies they receive relative to traditional Medicare, perhaps new retirees are turning to them in greater numbers for more complete coverage.

As Medicare Advantage grows, traditional Medicare necessarily shrinks and its influence on the American health care system weakens. If the trend continues, policies, including those in the Affordable Care Act, designed to use traditional Medicare as a tool to reshape health care delivery for all Americans may become less potent. Is there a tipping point at which traditional Medicare ceases to matter?

If so, we’re probably not there yet, but we may be moving toward it. Unless things change, the data suggest Mr. Gingrich may have been right in a way: Given a choice between traditional Medicare or more benefits from more highly subsidized private plans, Medicare beneficiaries may well be willing to let the former wither on the vine.

Reader comments:

Don McCanne 
San Juan Capistrano, CA

Although the higher payments to the Medicare Advantage plans are being reduced, the Obama administration, with encouragement from Congress (responding to AHIP’s intense lobbying campaign), has offset some of the reductions with innovative measures to increase payments to the private insurers.

That is perpetuating the blatant unfairness wherein taxpayers are paying more for those enrolled in the private plans than they are for those enrolled in the traditional Medicare program.

If it is right that we pay the private insurers more, then in all fairness we should be paying more for those in the traditional program so that everyone receives comparable benefits.

Fairness should be of the highest priority when our elected politicians are spending our tax dollars. Once we get that right, it will be no contest when it comes to comparing the traditional Medicare program with the private Medicare Advantage plans that divert a large portion of funds to profound administrative excesses, wasteful marketing, excessive executive compensation packages, and profits for superfluous passive investors, as they take away our choice of health care providers.

If we voters insist on fairness, it will be the private Medicare Advantage plans that will wither on the vine.

****

Further comment by Don McCanne

Maintaining the integrity of the traditional Medicare program is important because it serves as an example of the capabilities of the government in managing a public insurance program. If the reputation of Medicare is trashed it would provide powerful rhetoric for the opponents of single payer.

The Medicare plus Choice program was established to provide private health plan competition to the traditional Medicare program, supposedly bringing us higher quality at lower cost. The experiment proved to be a failure since it was clear that the private insurers were unable to deliver on that promise. The privatizers did not give up. The program was revitalized as Medicare Advantage, but with a new twist. To supposedly prove that the plans could provide higher quality at lower cost, Congress cheated. They gave the plans an extra 14 percent over the costs of traditional Medicare, thinking that we wouldn’t notice.

The plans became popular mainly because they could entice Medicare beneficiaries with extra benefits, though those benefits were only a small part of their extra payments. That was enough to lure more enrollees. Recognizing that the plans were being paid too much, and struggling to find ways to pay for the Affordable Care Act, Congress included in the Act a gradual reduction in these Medicare Advantage overpayments.

It did not take long for the insurance industry to organize protests against Obama’s “cuts to Medicare.” The Obama administration, under pressure from members of Congress, responded with three years of accounting gimmicks that would offset some of the reductions.

Not only is our tax money being unfairly diverted to the private insurers, while neglecting those in the traditional program, a portion of the Part D premiums paid by traditional Medicare beneficiaries is also being diverted to the provision of more benefits for the Medicare Advantage patients – benefits that those in the traditional program do not receive.

It is important that we publicize this injustice so that the blatant cheating will end. Once that happens, the Medicare Advantage plans will have proven to be a failed model of health care financing. Hopefully then people will listen when we show them that a publicly administered and financed program – a single payer system – provides much greater value in health care.