Hospital industry consolidation – Still more to come?

By Leemore Dafny
The New England Journal of Medicine, December 11, 2013

The Affordable Care Act (ACA) has unleashed a merger frenzy, with hospitals scrambling to shore up their market positions, improve operational efficiency, and create organizations capable of managing population health. The figures are impressive: 105 deals were reported in 2012 alone, up from 50 to 60 annually in the pre-ACA, pre-recession years of 2005–2007. This activity could have lasting repercussions for consumers; the last hospital-merger wave (in the 1990s) led to substantial price increases with little or no countervailing benefits. …[A] compelling argument can be made for putting the brakes on consolidation. Indeed, unless new public and private initiatives are developed to discourage consolidation and to support enforcement of antitrust law, most of these deals will proceed unchallenged. [endnotes omitted]

….

[I]t would behoove health care analysts and policymakers who are concerned about consolidation to give enforcers more tools for doing their jobs and to develop other avenues for slowing the march toward conglomeration.

….

A full discussion of possible initiatives is beyond the scope of this article, but three ideas are worth mentioning. First, angel investors and venture capitalists could help create innovative health care – provider organizations that deliver clinically integrated, evidence-based care at the lowest possible cost without reducing competition. New funders would consider different organizational ideas and bring strategic and operational skills to their ventures, and they might be better positioned than local health care systems or physician groups to accept the associated risks. Second, Medicare could experiment with reimbursement schemes that provide incentives to newly forming accountable care organizations to pursue organizational structures that do not involve joint ownership of all assets. Joint ventures and contractual relationships would be easier to unwind than mergers, if that proved necessary.

Last, but certainly not least, we could urge private and public insurers to make detailed claims data readily available to public agencies and private researchers….. These data would enable researchers and enforcers to assess how the latest types of consolidations affect both costs and quality.

http://www.nejm.org/doi/full/10.1056/NEJMp1313948?query=TOC#.UqnH764iI9I.facebook

Comment:

By Kip Sullivan, JD

The first seven paragraphs of this essay present an important and rarely made argument, namely, consolidation within the hospital industry is accelerating once again, it is a serious problem, and antitrust law is too weak to stop it. The author correctly implies that the sections in the ACA authorizing ACOs are a significant cause of the latest epidemic of merger fever. But in the final two paragraphs the author prescribes utterly futile solutions. She recommends:

•  that outside investors sponsor new ACOs to compete with ACOs being created by hospitals;

•  that CMS encourage ACOs to form by contract rather than by merger so that in the remote event the Department of Justice were to win an antitrust suit the ACO would be easier to break apart; and 

•  that scholars and antitrust authorities do more research on ACOs.

Merger madness throughout the health care system will not stop until the incentive to merge is removed. That incentive is the conventional wisdom that the solution to our health care crisis is to shift insurance risk onto hospitals and doctors. The ACO fad is merely the latest expression of that groupthink.  Encouraging venture capitalists and CMS to sponsor more ACOs is not the solution. 

Within the health care sector of our economy, the most powerful incentive to build empires is the widespread belief, nourished enthusiastically by the insurance industry, much of academia, and both political parties, that our health care crisis is caused primarily by excessive volume of medical services induced by the fee-for-service payment method. If you buy this diagnosis, then you are compelled to endorse a “solution” that neutralizes the FFS incentive (salary) or turns the fee-for service incentive upside down. For reasons I won’t get into here, putting all doctors on salary has never been seriously considered. Instead, those who bought the overuse diagnosis adopted a solution that encourages providers to order fewer services. Since the early 1970s when this conventional wisdom took root, the antidote to FFS has been to force clinics and hospitals to share insurance risk with insurers and to subject providers to utilization review by insurers in the event that risk-sharing fails to cut volume enough. 

The earliest method of shifting insurance risk was called “capitation.” Capitation was later joined by “bonus sharing/withholding,” “pay-for-performance” (where “performance” was judged by cost to the insurance company), and lately “shared savings.” It all amounted to the same thing – making providers share the risk with insurance companies that the premium revenue taken in by insurance companies would not be sufficient to cover the cost of the medical services provided to the insurance companies’ policyholders. (To make the function of these schemes clear, it would have been helpful if the powers-that-be had called “capitation” and other forms of risk shifting “premium-splitting,” but that would, of course, have called attention to capitation’s close kinship with “fee-splitting,” and we wouldn’t want that.)

The solution has been, in short, to make clinics and hospitals bear some or all of the insurance risk traditionally borne by insurance companies. The ACO fad takes this logic to its natural endpoint: providers are being induced to accept some insurance risk now and will be induced or forced to accept all insurance risk later on, in other words, become insurance companies. (If this sounds incredible, you haven’t been reading what leading ACO advocates such as Elliot Fisher and the Medicare Payment Advisory Commission are talking about. These advocates have been silent on what it is insurance companies are supposed to do in a world where clinics and hospitals bear all insurance risk.)

This logic – that overuse induced by fee-for-service is the problem and shifting insurance risk is the solution — in turn required that clinics and hospitals be herded into large networks organized by insurance companies, and that patients be required or given incentives to see only providers within these networks. Herding providers into large systems was essential because small hospitals and clinics cannot bear insurance risk. Forcing patients to stay within networks was essential because you can’t ask providers to share insurance risk for patients who aren’t contractually required to come to them in the event of illness.

Let us stop for a moment and review this cascade of undocumented assumptions:

•  Overuse, not underuse and not excessive price, is the cause of our health care crisis;

•  The FFS method of payment is the main cause of overuse;

•  Forcing providers to bear insurance risk and to allow insurance companies to second guess provider-patient decisions is the appropriate antidote to FFS;

•  Providers must become big to shoulder insurance risk;

•  Patients must be forced to accept limited choice of provider if providers are going to be expected to bear insurance risk.

Once we array the elements of the establishment’s syllogism this way, we can see how the overuse diagnosis (and the refusal to acknowledge the primary role of high prices and administrative waste which drives prices up) created a strong incentive among providers to merge. But there was one other consequence of this syllogism which turned out to be perhaps the most powerful stimulus – the effect this syllogism had on incentives to get big within the insurance industry.

Allowing insurance companies to create provider networks and limit patient choice gave the early-adopting insurers much more market power over providers. The first insurers to create their own provider networks and limit patient choice (they were called HMOs) used this market power to extract enormous discounts from providers, and to exert more influence over decisions by doctors and patients. (By the early 1990s, HMOs were forcing hospitals to give them rates at 30-40 percent below those of competing insurers that had not yet adopted HMO tactics.) 

By the late 1980s this lopsided growth in market power in favor of insurance companies had induced a counter-reaction among providers, especially hospitals. They began to merge in order to create what John Kenneth Galbraith called “countervailing power” to offset the new power acquired by the burgeoning insurers. The insurance industry responded with more mergers of their own, which induced even more mergers among hospitals and clinics. And around the vicious cycle goes. The insurance industry’s effort to exclude many hospitals from networks available on ACA exchanges is just the latest skirmish in this never-ending and pointless battle. http://online.wsj.com/news/articles/SB10001424052702304202204579256621005722460

To sum up, by the mid-1990s the conventional wisdom that FFS-induced-overuse is the problem, and that shifting insurance risk to providers is the solution, had put enormous pressure on both insurers and providers to get big. This pressure has only been aggravated by the ACO provisions in the ACA, and to a lesser extent by the cuts in Medicare reimbursements to hospitals authorized by the ACA in order to finance enormous subsidies for the insurance industry.

Repealing those ACA provisions would be helpful, but far from sufficient. The urge to merge will not subside until policymakers stop demonizing FFS and lionizing risk-shifting to doctors and hospitals. 

Abandoning the quest to stamp out FFS does not mean we must give up on eliminating the overuse that does exist. We could enact a single-payer system and, failing that, take other steps within the current system. Single-payer systems affect overuse not by micromanaging doctors and hospitals, but by 

•  allocating capital equipment (such as MRIs) equitably and intelligently, 

•  funding more research on which treatments are most effective and educating doctors and patients on the results, 

•  controlling the relative price of services that appear to be overused (for example, lowering the fee for C-sections relative to the fee for normal deliveries), and 

•  making some types of fraud more easily detectable. 

Some of these solutions (such as more research and education) are available even under a multiple-payer system.

What we should not do is continue to experiment with shifting risk to doctors and hospitals.

]]>

U.S. ranks near bottom among industrialized nations in efficiency of health care spending

UCLA Fielding School of Public Health, December 12, 2013

A new study by researchers at the UCLA Fielding School of Public Health and McGill University in Montreal reveals that the United States health care system ranks 22nd out of 27 high-income nations when analyzed for its efficiency of turning dollars spent into extending lives.  

The study, which appears online Dec. 12 in the “First Look” section of the American Journal of Public Health, illuminates stark differences in countries’ efficiency of spending on health care, and the U.S.’s inferior ranking reflects a high price paid and a low return on investment.  

For example, every additional hundred dollars spent on health care by the United States translated into a gain of less than half a month of life expectancy. In Germany, every additional hundred dollars spent translated into more than four months of increased life expectancy.

The researchers also discovered significant gender disparities within countries.  

“Out of the 27 high-income nations we studied, the United States ranks 25th when it comes to reducing women’s deaths,” said Dr. Jody Heymann, senior author of the study and dean of the UCLA Fielding School of Public Health. “The country’s efficiency of investments in reducing men’s deaths is only slightly better, ranking 18th.”  

The study, which utilized data from 27 member countries of the Organization for Economic Cooperation and Development collected over 17 years (1991–2007), is the first-known research to estimate health-spending efficiency by gender across industrialized nations.  

 “While there are large differences in the efficiency of health spending across countries, men have experienced greater life expectancy gains than women per health dollar spent within nearly every country,” said Douglas Barthold, the study’s first author and a doctoral candidate in the department of economics at McGill University.  

The report’s findings bring to light several questions. How is it possible for the United States to have one of the most advanced economies yet one of the most inefficient health care systems? And while the U.S. health care system is performing so poorly for men, why is it performing even worse for women?  

The exact causes of the gender gap are unknown, the researchers said, thus highlighting the need for additional research on the topic, but the nation’s lack of investment in prevention for both men and women warrants attention. 

http://ph.ucla.edu/news/press-release/2013/dec/us-ranks-near-bottom-among-industrialized-nations-efficiency-health-care

American Journal of Public Health:  Abstract – “Analyzing Whether Countries Are Equally Efficient at Improving Longevity for Men and Women”: http://ajph.aphapublications.org/doi/abs/10.2105/AJPH.2013.301494

Comment:

By Don McCanne, M.D.

To no surprise to those who have been paying attention to the U.S. health care system, we rank very low amongst OECD nations – 22nd out of 27 studied – on the efficiency of health care spending when measured by improvements in life expectancy. Spending on women was even less efficient than spending on men. As we have long known, we spend more while getting less.

There are likely many factors that contribute to these differences, but there is no doubt that we have a very dysfunctional, fragmented, wasteful, inequitable health care financing system that certainly is an exemplar of inefficiency. Why should we not expect poor outcomes for our high level of spending?

Once we have in place a single payer national health program it will be much easier to identify the deficiencies specifically related to health care delivery, and then we can correct them. Ladies first, please.

]]>

Health Care Rationing: Doing It Better in Public and Private Health Care Systems

By Alan Maynard
Journal of Health Politics, Policy and Law, December 2013 Abstract All public and private health care systems ration patient access to care. The private sector rations access to consumers who are willing and able to pay. The poor and disadvantaged have limited access to care and inadequate income protection. In public health systems, care is provided on the basis of “need,” that is, the comparative cost-effectiveness of competing treatments. This results in patients being deprived of care if treatments are clinically effective but not cost-effective. Rationing health care is ubiquitous. In both types of systems physicians have discretion to deviate from these rationing principles. This has created inefficient variations in clinical practice. These are difficult to resolve because of the lack of transparency of costs and patient outcomes and perverse incentives. The failure to remove universal inefficiency in a period of economic austerity sharpens awareness of rationing. Hopes of greater efficiency are largely faith based. Competing ideologues from the left and the right continue to offer evidence for free solutions to long-established problems. Inefficiency is unethical, as it deprives potential patients of care from which they could benefit. Reducing inefficiency is essential but difficult. The universal challenge is to decide who shall live when all will die in a world of scarce resources. From the Overview In all countries there is a reluctance to use the word “rationing.” Policy makers and politicians prefer terms such as “prioritization” and “resource allocation.” Call it what you will, rationing in health care is ubiquitous in public and private health care systems. The latter ration by consumers’ ability to pay, and “success” is related to physicians and other providers making a good living. Public health care systems, in principle, ration in relation to need or comparative cost-effectiveness; in practice, prioritization is determined by physicians’ providing treatments that most satisfy the physicians. Productivity variations exist throughout the manufacturing and service industries. Indeed, these variations drive innovators to act smarter and capture market share from rivals. Public and private health care markets are remarkable in that innovation tends to increase costs rather than reduce them, as has happened in information technology and other industries. The causes of this difference are debated and include the power of the medical profession (physicians’ monopoly of many areas of activity where efficient substitutes exist), third-party pays (weak budget caps), and perverse incentives confronting providers and consumers (moral hazard). Mitigating problems such as these could ease rationing constraints but would not remove them. The failure of health care systems to measure and manage these problems with greater transparency and improved incentive structures will result in rationing becoming more explicit. The hope is that the consequent debate about who will die and who will live in what degree of pain and discomfort will not be dominated only by emotion (e.g., hysteria about “death panels”) but by evidence of cost-effectiveness produced by robust HTA programs (health technology assessment) and the transparent judgments of clinicians using this information. The policy priority, as efficient HTA and P4P (pay for performance) schemes increasingly influence rationing choices, will be to ensure that this is seen by the public as improving patient safety and value for money for insurers and taxpayers, and not merely seen as depriving patients of care from which they might benefit marginally but which societies choose not to fund, either by NHS rationing or US rationing by restrictive benefit packages and poor access. http://jhppl.dukejournals.org/content/38/6/1103.abstract

Comment:

By Don McCanne, M.D. “All public and private health care systems ration patient access to care.” Professor Alan Maynard of the University of York, with his characteristic academic objectivity, describes the differences in public and private approaches to health care rationing. Public health care systems ration access in relation to medical need, whereas private systems ration access based on willingness and ability to pay. In public systems, success is measured by the satisfaction of physicians with their ability to meet the medical needs of their patients, whereas in private systems, success is measured by the ability of physicians to make a good living. Both public and private systems experience inefficiency. Since the rationing that results from inefficiency deprives some patients of care that they should have, tolerating inefficiency is unethical. When you compare the public British system with the largely private system in the United States, it is clear that our much greater inefficiency results in an insufferable level of ethical compromise. We do ration far more than the British; we just don’t see it since our victims of rationing are not even allowed a position in the queue. Why do we tolerate this? A clue might be found in Alan Maynard’s words in “The Public-Private Mix for Health” (The Nuffield Trust, 2005): “As societies spend increasing proportions of their rising GDP on healthcare, more realism about its productivity in terms of improving the health of the population is needed. But this is not in the interest of the media, politicians and commerce. Promising miracles increases their income and power!”

]]>

Medicare Patients’ Access to Physicians: A Synthesis of the Evidence

By Cristina Boccuti, Christina Swoope, Anthony Damico and Patricia Neuman
Kaiser Family Foundation, December 10, 2013 Main findings: *  On a national level, Medicare patients have good access to physicians.  The vast majority (96%) of Medicare beneficiaries report having a usual source of care, primarily a doctor’s office or doctor’s clinic. *  Most people with Medicare — about 90 percent — are able to schedule timely appointments for routine and specialty care. Medicare seniors are more likely than privately insured adults age 50-64 to report “never” having to wait longer than they want for timely routine care appointments. *  A small share of Medicare beneficiaries say they looked for a new physician in the past year, and only 2 percent of seniors with Medicare report problems finding one when needed — comparable to rates reported by privately insured adults age 50-64. *  Medicare seniors report foregoing medical care at similar or lower rates than privately insured adults age 50-64. Certain subgroups of the Medicare population are more likely than others to report not seeing a doctor when they thought they needed to during the year, particularly beneficiaries who: are under age 65 and qualify for Medicare because of a permanent disability; have either Medicaid (dually eligible for Medicare and Medicaid) or no supplemental coverage; are Black; have lower incomes; are in fair or poor health, and/or have five or more chronic conditions.  Even within these vulnerable subgroups, however, the majority do not report foregoing doctor visits when needed. *  According to recently-released physician survey data, the majority (91%) of non-pediatric physicians accept new Medicare patients — the same rate that accept new patients with private non-capitated insurance.  This correlation persists generally across states, indicating that physician acceptance of new Medicare patients may be more related to local market factors than issues unique to Medicare overall. *  According to new physician data from Medicare, less than 1 percent of physicians in clinical practice have formally “opted-out” of the Medicare program, with psychiatrists accounting for the largest share (42%). These findings show that according to national patient and physician surveys and other data sources, most Medicare beneficiaries enjoy good access to physician services, comparable to the experiences of privately insured patients.  Most physicians accept new Medicare patients, and relatively few have formally opted out of the Medicare program. http://kff.org/medicare/issue-brief/medicare-patients-access-to-physicians-a-synthesis-of-the-evidence/

Comment:

By Don McCanne, M.D. This comprehensive report lays to rest once and for all the the rumor that physicians are leaving Medicare in droves. Most physicians accept new Medicare patients, and less than 1 percent have formally opted-out of the Medicare program. An improved Medicare would be even more attractive to physicians, especially if it covered everyone. It would dramatically reduce hassles with intrusive third party payers so that physicians could spend most of their time doing what they devoted their lives to – taking care of their patients. As far as the threat that physicians would quit if we enacted an improved Medicare for all, first of all, very few would leave – likely less than 1 percent – and, second, since most of those who would leave seem to be more interested in money rather than patients (think concierge), we really don’t want them around anyway. It would be a great way to clean up our profession.

]]>

AIDS advocates say drug coverage in some marketplace plans is inadequate

By Ariana Eunjung Cha
The Washington Post, December 9, 2013 The nation’s new health-care law says insurers can’t turn anyone away, even people who are sick. But some companies, patient advocates say, have found a way to discourage the chronically ill from enrolling in their plans: offer drug coverage too skimpy for those with expensive conditions. Some plans sold on the online insurance exchanges, for instance, don’t cover key medications for HIV, or they require patients to pay as much as 50 percent of the cost per prescription in co-insurance — sometimes more than $1,000 a month. “The fear is that they are putting discriminatory plan designs into place to try to deter certain people from enrolling by not covering the medications they need, or putting policies in place that make them jump through hoops to get care,” said John Peller, vice president of policy for the AIDS Foundation of Chicago. As the details of the benefits offered by the new health-care plans become clear, patients with cancer, multiple sclerosis, rheumatoid arthritis and autoimmune diseases also are raising concerns, said Marc Boutin, executive vice president of the National Health Council, a coalition of advocacy groups for the chronically ill. “The easiest way [for insurers] to identify a core group of people that is going to cost you a lot of money is to look at the medicines they need and the easiest way to make your plan less appealing is to put limitations on these products,” Boutin said. Insurers say that such accusations are unfounded, and that the drug coverage is more than adequate, with many plans exceeding the minimum levels required by the Affordable Care Act. But they acknowledge that to keep premiums low, they must restrict the use of some costly drugs if there are alternatives. And they say that when high-priced medications must be used, it’s reasonable to expect patients to pick up more of the cost. But people who expected the new plans to provide pharmaceutical coverage comparable with that of employer-sponsored plans have been disappointed. In recent years, employers have compelled workers to pick up a growing share of the costs, especially for brand-name drugs. But insurers selling policies on the exchanges have pared their drug benefits significantly more, according to health advocates, patients and industry analysts. Robert Zirkelbach, a spokesman for American’s Health Insurance Plans, an industry group, said the exchange plans are designed “to try to give consumers better value for their health-care dollars.” http://www.washingtonpost.com/national/health-science/aids-advocates-say-drug-coverage-in-some-marketplace-plans-is-inadequate/2013/12/09/0fca0fd0-5d18-11e3-95c2-13623eb2b0e1_print.html

Comment:

By Don McCanne, M.D. It is no surprise that private insurers would use every devious trick to try to limit their payments for expensive drugs, including requiring the patient to pay more through higher cost sharing, or by omitting expensive drugs from their formulary altogether. From the insurers’ perspective, that’s just good business. What is really nefarious is that they are now using this to discourage patients with expensive disorders from even enrolling in their plans. Patients with HIV/AIDS, multiple sclerosis, rheumatoid arthritis, lupus, cancer, hepatitis C, and other disorders who are on long term therapy with expensive drugs will go elsewhere for their coverage when they find that their current drug regimens would leave them with intolerable costs under these plans. A provision of the Affordable Care Act – guaranteed issue – requires that insurers accept all applicants, no matter how expensive their care is anticipated to be. But Obamacare did not change the nature of the private insurance beast. Insurers will always find more ways to circumvent requirements such as guaranteed issue. Insurers boast to their shareholders about innovation in insurance product design. The problem for us is that the innovations are not designed to improve access and affordability for the insured. The innovations are to improve the bottom line of the insurers. Just think of the innovations we are already seeing – higher deductibles, more limited provider choice through narrower networks, limited benefits within each of the ten categories of required benefits, and greater financial barriers to care such as these outrageous cost sharing requirements for drugs. The insurers are not through. When the insurance lobbyists are saying that they are trying to “give consumers better value for their health-care dollars,” they really mean keeping insurance premiums low enough to compete in the marketplace. They do that by paying as little as possible for health care, shifting ever more of the costs to patients. The sky is the limit on innovations when they are driven by greed. We have the wrong people in charge – the insurers. We need our own public financing system that is designed to help patients get care by removing financial barriers. That’s what an improved Medicare that covered everyone would do for us. Enough of this, “Boy, do we have a plan for you, and it’s cheap, but if you have anything wrong, study this plan carefully since you’ll find that it won’t cover what you need (and then go away kid, you bother me).”

]]>