The Wrong Prescription
Letter to the Editor
The Washington Post
January 16, 2006

I hope that The Post’s Jan. 10 editorial “Certificate of Need? Yes!” helps stop the plan to build another hospital in a city that does not need more hospital beds.

Almost all of the serious health care problems in the Washington area require more effective disease prevention and primary health care; better access to doctors and nurses for routine and early-stage problems; better nutritional counseling; access to affordable healthy food; and an array of health services that are either unavailable or available only on a fragmented and dysfunctional basis to low-income families.

Employers and employees pay on average more than $12,000 a year for family health coverage in the District. Unnecessary, costly additions to an expensive health care system will drive up costs more. Some employers will drop coverage as a result or move jobs out of the high-cost city. Either way, the poor and others with low incomes will suffer most.

The District has too much high-tech health care and too little good primary care. The worst step that the city could take is to waste $400 million on an unneeded hospital, which undoubtedly will cost even more than that before it is done.

Helen Darling
President
National Business Group on Health

http://www.washingtonpost.com/wp-dyn/content/article/2006/01/15/AR2006011500691.html

Comment: Health care reform is often presented as a divisive issue. In articles on the topic, the single payer model of Physicians for a National Health Program (PNHP) is often presented as a government solution which has been contrasted with private sector solutions such as those supported by the National Business Group on Health. But are private business interests and public insurance interests really incompatible when it comes to health care reform?

Without commenting on the advisability of a new district hospital for Washington (which should be based on an assessment of need), this letter by Helen Darling could have been written by a member of PNHP. Look at the points on which we agree:

* Capital improvements, such as new hospitals and bed capacity, such be based on regional planning responding to identified needs.

* Excessive, ineffective high-tech health care should not be funded.

* Our deteriorating primary care infrastructure should be dramatically reinforced, which can be done by improving resource allocation.

* Prevention should be a primary goal using public health measures such as disease prevention, better nutrition with access to affordable healthier food, earlier access to the health care delivery system, and removal of impairments in access to other health services – impairments that are partially due to the fragmentation of our public and private systems of funding care.

* Current trends are resulting in a further decline in employer-sponsored coverage and “the poor and others with low incomes will suffer most.”

What is divisive about this? We agree on these points. Now is the time for all individuals and organizations to come together on reform. This does not mean that we have to enter a process of compromise in which each side gives up maybe half of the fundamental issues they support.

The National Business Group on Health can continue to advocate for higher quality services, for error reduction, for reduction of wasteful high-tech excesses, for provider assessments designed to improve system performance and for other measures that achieve the market goals of higher quality at lower costs. PNHP can continue to advocate for universal coverage, for administrative efficiency in funding care, for improved allocation of health care resources, for an equitable system of funding the universal risk pool in which each individual or entity contributes a fair share, and for budgeting mechanisms that slow the rate of growth in health care spending. These and other important goals can be achieved without having to compromise, but rather by cooperating. Together we can achieve an equitable, affordable, high quality, comprehensive health care system that would meet the needs of every individual while fulfilling the commitment of business and government for better health care for all.

Although the following quote is on war and killing, the affirmation should help us reflect on why we should not let up in our fight for health care justice:

“Now let me say that the next thing we must be concerned about if we are to have peace on earth and good will toward men is the nonviolent affirmation of the sacredness of all human life.”

Rev. Dr. Martin Luther King, Jr.

Public Solutions to Health Care Wait Lists
By Michael M. Rachlis
Canadian Centre for Policy Alternatives
December 2005

Executive Summary

Waits for care are the biggest political issue facing Canadian health care. Both citizens and providers are concerned that too many waits are too long and put some patients at risk.

Canadians would do well to consider public sector solutions to the wait-times problem. The good news is that many such public solutions are at hand. Here are two of the most innovative ones:

* The health care system should establish more specialized short-stay surgical clinics within the public sector. These clinics provide the efficiencies that private clinics have capitalized on, without siphoning public dollars to shareholders.

* Lessons learned from queue-management theory should be adopted. Examples from both the public and private sectors – such as line-ups at banks and airports – show us how better coordination and flow of queues can dramatically reduce wait times.

Canadians tend to assume that, if there is a wait for health care, there isn’t enough of it. For example, many breast patients have to wait for a mammogram, then wait for an ultrasound, and then wait again for a biopsy. The Sault Ste. Marie breast health centre reduced the wait-time from mammogram to breast-cancer diagnosis by 75% by consolidating the previously separate investigations. If a woman has a positive mammogram, she often has the ultrasound, and sometimes the biopsy as well, on the same day.

The Rexdale Community Health Centre serves 6,000 patients in a disadvantaged community in northwest Toronto. In 2003, patients faced a four-to six-week wait for appointments. The centre temporarily increased resources to clear its backlog, and now provides same-day service.

This same plan can be followed for surgical wait lists. First, map the process. At each step, assess whether capacity is sufficient to meet demand. If it is, temporarily increase resources to clear the backlog and go to just-in-time servicing. If capacity is insufficient for demand, then re-design services. If there is still unmet demand, then a bottleneck has been identified. It requires more resources.

These public solutions – specialty clinics in the public sector and application of queueing theory to surgical wait lists – are but two of many alternatives to private finance and for-profit delivery. Others include increasing surgical capacity in public hospitals and putting greater emphasis on prevention. There is no shortage of such solutions if the political will is present.

Let’s not add private problems to our health care system. We already have the public solutions at hand. Let’s put them into practice.

http://www.policyalternatives.ca/documents/
National_Office_Pubs/2005/Health_Care_Waitlists.pdf

And…

Explaining Waiting-Time Variations for Elective Surgery Across OECD Countries
By Luigi Siciliani and Jeremy Hurst
OECD Economic Studies No. 38, 2004/1

This study has added to the limited evidence on variations in waiting times across OECD countries for publicly-funded elective surgical procedures and on their possible determinants.

We have compared key statistics for the group of countries where waiting times are a major health policy concern (Australia, Canada, Denmark, Finland, Ireland, Italy, Netherlands, New Zealand, Norway, Spain, Sweden, and United Kingdom), with another group where waiting times are not a concern (Austria, Belgium, France, Germany, Japan, Luxembourg, Switzerland, and the United States). It is found that countries which do not report waiting times, on average spend more in health care, have higher capacity (measured in terms of acute care beds and doctors), and implement more frequently forms of activity-based funding for hospitals and fee-for-service systems for doctors (as opposed to salary). On the demand side, the two groups of countries do not differ markedly in need, as measured through the proportion of elderly in the total population or mortality rates, and in the degree of cost sharing (co-payments for surgery).

http://www.oecd.org/dataoecd/15/52/35028282.pdf

Comment: This and previous OECD papers have demonstrated that maintaining adequate capacity in the health care delivery system is important in avoiding excessive wait times or queues. Monitoring and adjusting capacity as appropriate prevents unnecessary queues.

The report by Michael Rachlis is important because he demonstrates that queue management need not be expensive. Sometimes modest resources must be added to expand capacity, but the amounts are negligible when considered as a percentage of the entire health care budget. His most important point is that the application of queue-management theory can correct the problems with virtually no increase in spending. A private system of funding care is not a prerequisite. The only requirement is a responsible steward with political will.

If the United States decided to include everyone in its health care system, we would have to ensure adequate capacity and apply queue-management theory. Fortunately, affordability would not be an issue since the $2 trillion that we will be spending this year is more than enough to meet those costs.

Our other option is to continue with our current, very effective method of controlling queues. We can continue to make access to health care unaffordable for a major sector of our society so those individuals don’t clog up the queue. That’s easy, and it works!

Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector
By Merrill Matthews, Ph.D.
The Council for Affordable Health Insurance
January 10, 2006

Executive Summary

One of the most common, and least challenged, assertions in the debate over U.S. health care policy is that Medicare administrative costs are about 2 percent of claims costs, while private insurance companies’ administrative costs are in the 20 to 25 percent range.

It is very difficult to do a real apples-to-apples comparison of Medicare’s true costs with those of the insurance industry. The primary problem is that private sector insurers must track and divulge their administrative costs, while most of Medicare’s administrative costs are hidden or completely ignored by the complex and bureaucratic reporting and tracking systems used by the government.

This study, based in part on a technical paper by Mark Litow of Milliman, Inc., finds that Medicare’s actual administrative costs are 5.2 percent, when the hidden costs are included.

In addition, the technical paper shows that average private sector administrative costs, about 8.9 percent – and 16.7 percent when commission, premium tax, and profit are included – are significantly lower than the numbers frequently cited. But even though the private sector’s administrative costs are higher than Medicare’s, that isn’t “wasted money” that could go to insuring the uninsured. In fact, consumers receive significant value for those additional dollars.

We also raise an important, although heretofore unrecognized, issue that gives Medicare an inherent advantage on administrative costs. Because of the higher cost per beneficiary, Medicare administrative costs appear lower than they really are. If the numbers were adequately “handicapped” for comparison with the private sector, they would be in the 6 to 8 percent range.

Finally, like the private sector, Medicare also has to obtain funds to pay claims. But the cost of raising that money, or borrowing it if the government doesn’t collect it from taxpayers, is excluded from Medicare administrative cost calculations. While we don’t in this paper draw any conclusions about what we shall call the “cost of capital” and its impact on Medicare’s administrative costs, we do want to highlight that those costs exist and that taxpayers, both today and in the future, must bear those costs.

http://www.cahi.org/cahi_contents/resources/pdf/
CAHI_Medicare_Admin_Final_Publication.pdf

Comment: The Council for Affordable Health Insurance (CAHI) is an association of insurance carriers advocating for market-oriented solutions to the problems of our health care system. Their bias for affordable private health insurance is at odds with our bias for affordable publicly-funded health care for everyone. They have now released a report “exposing” Medicare’s hidden administrative costs.

It is important to be aware of this report and the paper of Mark Litow of Milliman, Inc. on which this report is based. Opponents of single payer reform will use the concepts presented to dismiss the charge that private insurers are responsible for much more administrative waste than is our Medicare program.

When we are challenged, our best quick response would be to use their own numbers. After they have adjusted the numbers by applying their biased assumptions, the percent of private sector administrative costs is still over three times the administrative costs of Medicare (16.7 percent and 5.2 percent, respectively). The actuality of the administrative excesses is not in dispute – only the degree of the egregiousness of the excesses.

The opponents will also point out that the percent of administrative costs for Medicare beneficiaries is lower because the per person health care costs are higher than in the relatively healthy private insurance sector. But shouldn’t the administrative spending be directed primarily toward claims processing, especially since Medicare enrollment is a low-cost, once-in-a-lifetime event? Why should a greater percentage of health care dollars be used to administer private insurance programs with a much lower rate of claims processing? The administrative costs of claims processing is related much more to the volume of claims and much less to the number of beneficiaries. Thus their “handicapped” numbers are specious.

In another section of their report they claim that administrative costs “add value.” Most of us have difficulty recognizing the value of marketing costs, medical underwriting, brokers’ fees, excessive executive compensation packages, insurer profits, and other such administrative excesses. This claim alone, that these excesses add value, should destroy the credibility of this report.

The most important component of administrative waste was totally left out of this report – the administrative burden placed on the providers of health care. The recent Health Affairs report by J. Kahn and his colleagues demonstrated that just the billing and insurance related costs of private insurance consume about 21 percent of premium dollars, in a large part due to the administrative burden of physicians and hospitals. A single, administratively-streamlined system of claims management would dramatically reduce the waste of our current fragmented system.

And what is their conclusion?

“However, the issue is not and should not be which segment, private sector insurers or government-run plans, has the lowest administrative costs. The issue should be which does the best job of providing quality health insurance coverage for the best price. When one looks at all of the money pouring into Medicare, even with the price controls imposed by the government, the answer has to be the private sector.”

And we’re leaving these guys in charge? It almost makes you want to cry.

National Health Spending In 2004: Recent Slowdown Led By Prescription Drug Spending
By Cynthia Smith, Cathy Cowan, Stephen Heffler, Aaron Catlin the National Health Accounts Team (Office of the Actuary, Centers for Medicare and Medicaid Services)
Health Affairs
January/February 2006

U.S. health care spending rose 7.9 percent to $1.9 trillion in 2004, or $6,280 per person. Health spending accounted for 16 percent of gross domestic product (GDP).

Medicare spending rose 8.9 percent to $309 billion in 2004.

Total Medicaid spending (federal plus state and local) reached $290.9 billion in 2004.

Private health insurance premiums amounted to $658.5 billion in 2004, compared with $563.5 billion in benefits paid.

The employee share of employer-sponsored and individually purchased coverage rose to $206.4 billion in 2004, while out-of-pocket spending for copayments and deductibles and for noncovered goods and services reached $235.7 billion. When payroll taxes and premiums associated with government-subsidized care such as Medicare and Medicaid are added in, aggregate household spending totaled $557.2 billion-more than one-third of PHC (personal health care) spending in 2004. Aggregate private business spending was $448.3 billion.

The trajectory of health care spending continues to be driven by new medical treatments, rising prices, and growing utilization. Medical progress has improved health care for many families, but rising costs are also a growing burden for households, businesses, and governments. Medical spending continues to rise faster than wages and faster than economic growth, and workers are paying much more in health care premiums than just a few years ago. As costs rise, the efficiency of health care spending is increasingly scrutinized, which has led to greater interest in paying for improved quality or outcomes, disease management, and consumer-directed health care. Although much of health spending may be highly valued, continued spending growth will require difficult trade-offs for businesses, households, and governments as other spending also rises. These trade-offs are more stringent for those with fewer resources.

http://content.healthaffairs.org/cgi/content/abstract/25/1/186

Comment: Although presented as a “slowdown” in spending, the 7.9 percent increase is significantly greater than the increase in cost of living, and now constitutes 16 percent of the GDP.

In looking at the source of funds, it is important to recognize a principle accepted by virtually all economists. The employer component of the Medicare payroll tax is part of the total employee compensation package; employees fund that tax through a non-itemized reduction in take-home pay. Thus the $67.4 billion Medicare tax listed as a private business source of funds should really be listed as part of the aggregate household spending. (Actually, the entire employee benefit package is a business expense, but this principle acknowledges the fact that the source of payroll taxes for social insurance programs – Medicare and Social Security – is the employee-beneficiary of the program.)

Adjusting for the employer component of Medicare payroll taxes, private business is a source of $380.9 billion of the funds for health services and supplies, and the aggregate household spending is $624.6 billion. Although employer-sponsored coverage remains a very important source of health care funding, the out-of-pocket spending by households represents a significantly greater burden imposed by health cost escalation. In addition, taxpayers fund the public portion of health spending which is $682.7 billion.

So what are we doing about the increasing burden of rising health care costs? We are shifting more of the costs to the households. Although we all feel the pain, those with health care needs who can’t afford care will feel it the most.

The tragedy is that we know how to fix our system. But… we’re not doing it. What a shame.

Physician Acceptance of New Medicare Patients Stabilizes in 2004-05
By Peter J. Cunningham, Andrea Staiti, Paul B. Ginsburg
Center for Studying Health System Change
January 2006

Despite an earlier Medicare payment rate reduction, the proportion of U.S. physicians accepting Medicare patients stabilized in 2004-05, with nearly three-quarters saying their practices were open to all new Medicare patients, according to a new study by the Center for Studying Health System Change (HSC).

Only 3.4 percent of physicians reported that their practices were completely closed to new Medicare patients in 2004-05, also statistically unchanged from 2000-01.

In fact, Medicare beneficiaries’ access to primary care physicians increased between 2000-01 and 2004-05, reversing an earlier decline. Among privately insured patients, trends in physician access are similar to those for Medicare patients, suggesting that overall health system dynamics have played a larger role in physician decisions about accepting Medicare patients than have Medicare payment policies.

Implications

… physicians likely consider Medicare payment rates in the context of what they receive from other payers, especially private insurers. In this context, Medicare payment as a percentage of private insurer payments has increased substantially in the past 10 years, from about 71 percent on average in 1996 to 81 percent in 2003. And Medicare fees are still much more generous than Medicaid fees, despite the fact that Medicaid fees increased relative to Medicare between 1998 and 2003-from 64 percent of Medicare in
1998 to 69 percent in 2003.

Given rapidly rising private insurance premiums, private payers’ pressure to keep physician payment rate increases to a minimum is likely to continue. In addition, continued decreases in the number of privately insured Americans, along with increases in the number of people with Medicaid or who are uninsured, may make it increasingly difficult for physicians to substitute higher paying privately insured patients for Medicare patients.

Perhaps the greater risk is not that stagnant Medicare payment levels will reduce Medicare beneficiaries’ access to physicians, but that continued financial pressure from all payers and declining incomes will compel physicians to limit patients that generate the least revenue, especially Medicaid and uninsured patients.

http://www.hschange.org/CONTENT/811/#ib5

Comment: We frequently hear that we will see a mass exodus of physicians from the Medicare program because of the failure of Medicare rates to keep up with the increase in overhead expenses (and expected profits) for physician practices. We haven’t seen that exodus, and that may be due to the fact that private insurers have slowed their rate increases even more than Medicare, reducing the price differential that might motivate physicians to replace Medicare patients with privately insured patients. Also, with the decline in employer-sponsored coverage, there are fewer privately insured patients to fill the void that would be created by eliminating Medicare patients.

Ironically, the market response of the private insurance industry has protected access for patients in the public Medicare program, obviously benefiting Medicare patients. So how could this be bad news? With both Medicare and the private insurers placing greater restraints on the profit potential of patients, physicians must maximize the utilization of their time and resources. That would normally be desirable except for one major factor. They are forced to reduce their time allotment for charitable services provided to uninsured patients and for the uncompensated portion of costs of providing care to Medicaid patients. Access for these individuals is already significantly impaired and can only grow worse with current trends.

Under a single payer system, physicians would be granted the right to negotiate adequate rates that would cover their costs and provide fair profits. As a transparent process, it would be fair for physicians and fair for taxpayers who fund the system.

Why would taxpayers agree to fair compensation for physicians? When they are sick, they don’t want to try to obtain care from an overworked, underpaid malcontent who doesn’t have the time to see them. They want the field of medicine to continue to attract some of the most qualified candidates that society has to offer. Our fragmented system of funding care has placed that goal at risk.

AFL-CIO President John Sweeney Remarks on Fair Share Health Care Campaign
AFL-CIO
January 5, 2006

…AFL-CIO unions are taking bold steps and paving the way — state-by-state and piece-by-piece — towards health care reform through our landmark Fair Share Health Care campaign in some 30 states.

AFL-CIO unions have been working hard on this landmark legislation since early last summer. And we are proud to announce our final product.

Our Fair Share Health Care legislation would set a minimum standard for health care; it requires large employers to pay their fair share for health care (defined as a percentage of total wages) or pay into a state fair share health care fund that can be used to provide or subsidize health care for uninsured workers in the state.

The bottom line is that our health care system is broken — but it didn’t just split open. Big companies like Wal-Mart are pulling it apart and profiting at taxpayers’ expense.

Health care is a basic need of every family. It’s nothing short of immoral that big, rich companies are shirking their responsibilities to their employees — we’re talking about mothers and fathers who are pushed to tears because they can’t take their children to the doctor. And it’s happening every day.

To make matters worse, those companies that DO provide insurance are increasingly shifting the cost onto workers and cutting back on the benefits they provide…

http://www.aflcio.org/mediacenter/prsptm/sp01052006.cfm

And…

Governor Schwarzenegger’s 2006 State of the State Address
Office of the Governor of the State of California
January 5, 2006

His complete, unedited comments on health care reform in California:

Health care. I ask myself, what’s the quickest way that we can help the greatest number of people with the spiraling health care costs? I believe in the free market. I believe in free trade. I mean we buy food from overseas. We buy cars from overseas. Why not prescription drugs? So I call upon the federal government to permit the safe importation of prescription drugs. I say, let the free market work.

http://www.governor.ca.gov/state/govsite/gov_htmldisplay.jsp?sCatTitle=Speeches&sFilePath=/govsite/selected_speeches/
20060105_StateoftheState.html&sTitle=2006&iOID=73545

Comment: This year we will surpass $2 trillion in health care expenditures – more than enough to provide high quality, comprehensive health care services for absolutely everyone. We already know that we can easily accomplish this by dumping our fragmented, highly flawed system of funding health care and adopting a single-payer national health insurance program. Yet we listen to others when they tell us that this might be the ideal, but we can’t do it because it’s not feasible. So we turn to incremental measures.

What will the Fair Share Health Care approach do to improve health care coverage and access? Targeting large employers in thirty states sounds like a massive expansion, but the large target actually is comparatively small: Wal-Mart. Wal-Mart employs about 1.2 million individuals, and many of them are already insured. Even if Fair Share legislation passed in every state, the net impact on covering the 46 million uninsured would be almost negligible.

There is another very serious flaw in this proposal. Our fragmented system of funding care has left us incapable of controlling the seemingly-eternal explosion in health care costs. Legislators and the policy community have thrown in the towel and instead have turned to efforts to make health care premiums affordable. Without a lid on actual costs, premiums can be controlled only by reducing coverage, increasing cost sharing through patient access fees, and using devious methods to exclude from coverage those with greater health care needs.

It can be anticipated that the compromise with Wal-Mart will be to allow consumer-directed products, with affordable premiums, that fail to provide financial security for those who will need to access the health care system. Other employers are looking for a way out, and they’ll gladly jump on that train. The only losers will be the patients who need care and the health care providers whom they can no longer afford.

While waiting for comprehensive reform to become politically feasible, we generally have supported incremental measures that do expand affordable access and coverage. We are now staring at a runaway locomotive heading toward us. Although a few more may be covered, the increasing momentum of cost shifting to those with needs will further diminish affordable access for average-income Americans. The Fair Share campaign will merely stoke the fires, driving us to the cliff. Once we’re over the cliff, the feasibility of comprehensive reform will be obvious, but do so many really have to suffer for us to finally act?

If the AFL-CIO continues to support inadequate incremental measures, the day of reckoning will be delayed further. Will the AFL-CIO help take control of that runaway locomotive by supporting national health insurance, or would they prefer to sit down with Gov. Schwarzenegger and other state governors and discuss measures that would allow the free market to work?