February 26, 2001
Don, Quite a debate you’re running in incremental change toward universal coverage. Here’s my take on how the HIAA – Families USA proposal affects it:

Given the principles by which for-profit medical insurance operates, I doubt that pushing the HIAA – Families USA proposal is a step toward universal coverage. One key principle for the success of for-profit insurers is avoiding risk. In this regard, they try to enroll mostly healthy people. This is what the industry is doing in pushing CHIP; it is targeting largely a healthy population, children.

Another principle of the industry is to be as stingy as possible when paying for the medical care. For decades, the industry has used co-pays, deductibles and other arbitrary measures to reduce its costs. Starting in the 1990’s, it made wide use of “utilization review” and other “managed care” techniques. It has become so good at using these techniques, that it may have greatly undermined the value of having coverage, including CHIP coverage.

The industry has a record of abusing public health care funds. Look at Medicare HMOs. The insurance industry tended to enroll healthy seniors and used managed care techniques to impede their access to medical care. For a while, it made large profits doing so. As the government wised up and began demanding more for their money, the industry began bailing out of the program.

CHIP insurers may, eventually, go the way of Medicare HMOs. They may tend to rip off the program until the government figures it out. Then, reforms may be demanded and the industry may bail out.

I believe that health insurance must be run according to the principles of public programs to be able to expand to universal coverage. They must pool the coverage of high-risk and low-risk people like Medicare
and Medicaid. By not breaking off low-risk people, they can afford to give coverage to high-risk people.

They must be directly accountable to publicly elected officials. That is why Medicare and Medicaid maintain their benefits. Unlike for-profit insurance, it is hard for their overseers to summarily dismiss concerns
of people needing medical coverage.

Both Medicare and Medicaid have shown the capacity to expand. Medicare was able to cover people with end-stage renal disease. In the 1980’s, Medicaid enrollment and benefits grew greatly.

I’m for incremental change toward universal health coverage. Expanding programs like Medicare, Medicaid, and public hospital systems would be that kind of change.

It is fine with me for folks to promote CHIP. It certainly will help some people. But, when it comes to universal coverage, I don’t think that you can get there from here.

Ramon Castellblanch

February 27, 2001 – Uwe Reinhardt responds to the responses:

To my gentle critics:

I feel like a heel beating up on people like you, for whom I have a great deal of admiration and affection. I would assume that you are physicians who, in their medical school days, were members of AMSA and
who do not see themselves, as so many other American physicians do, as “the last bastion of free enterprise.”

On the other hand, I have despaired of ever seeing in this country a health system that balances the dignity and freedom sought by doctors and their patients with society’s desire to have the health system operate within some larger budget constraint. You cannot ever have such a system, my friends. You cannot ever have it, not under our system of governance.

The US is, in many ways, a lovely and often graceful country–one blessed beyond belief. But some higher power seems to have saddled it also with sundry curses, among them a system of “justice” that is anything but just and a health system that is the strangest mixture of unbridled compassion and unbridled isolated Social Darwinism, with many shades in between. All systems of human services in the US always bracket the best and the worst everywhere else: we always have the best and the worst in the OECD, all within one system.

I give a talk with colored PPT slides in which I show that any nation’s health system actually balances two “qualities of life”: the quality of life of patients, and the quality of life of those who derive their incomes from surrendering real resources to patients (directly, as, for example, doctors, or indirectly, as, for example, researchers at Pfizer). In most other nations, the trade-off between these two qualities of life seems to be heavily weighted in favor of patients. In this country, on the other hand, the quality of life of providers always
has been and always will be the overarching goal, to which all others are subordinated. That is why patients will always come second (unless they can pay their way to first place here and there).

There is nothing you or your patients can do about it, because under our system of governance your voice simply does not count. We do have representative government, but it does not represent you: it represents
whoever can purchase that representation. Do you have the money to do that buying?

The upshot of this sermon is that your choice in America is not, as you seem to believe, between (a) 1990s style “managed care” and (b) a dreamlike, comprehensive, universal health-insurance coverage with a simple, humane administrative structure and a reasonably adequate budget. That is what you are talking about, I think, but you cannot ever have it. In fact, even your beloved Medicare may soon be dismantled to be rendered a lot more complicated and, I believe, frustrating to you all. And you cannot stop that either, because you are powerless. After all, how much money could you ever concentrate on state and federal legislators to be properly “represented”?

Instead, your choice in health care will be between one rather flawed system (the current one) and other possibly even more flawed systems. You simply must get used to it.

And here is where I may possibly shock you. In a talk entitled “Would Jesus have loved ‘managed care’?”, delivered about two years ago at the Palo Alto Medical Foundation’s conference, I tried to convince the
audience–and I believe I even convinced physicians in the audience–that the managed care system of the 1990s probably would have pleased Jesus more than would have the unmanaged American health system
of the 1980s, mainly because his Mom would have been treated better in the 1990s than she would have been in the 1980s. Furthermore, during the 1990s, America’s medical establishment–physicians, alas, in the lead–
was busily helping to price kindness out of America’s soul, and Jesus would not have liked that either. I recall making a Xmas card about this pricing-kindness-out-of-peoples’-soul business that at the time.

If anyone would like to take me on in a debate “RESOLVED: THAT U.S. HEALTH CARE OF THE 1980s WAS BETTER THAN US HEALTH CARE OF THE 1990s,” I’ll gladly take the negative of the debate, because I love to win debates, and this one I would win hands down. My opponents would not even have a fighting chance. Any takers? Try me and make my day!

Best wishes,

UER

P.S. I have attached a paper that may fire you up even more.

Note from Don: Dr. Reinhardt attached his paper, “On the Utterly Predictable Managed-Care Kvetch,” from the Journal of Health Politics, Policy and Law. It is vintage Reinhardt and quite provocative, and I definitely recommend reading it. Because it is a 194KB file, I have not attached it to this message since it could overload e-mail systems. If you would like to receive this paper by e-mail, please notify me with the message: Send “Kvetch”

Don McCanne
mccanne1@home.com

February 27, 2001 – Prof. Pauline Rosenau responds:

Dr. McCanne, Please send me “Kvetch” but I have something to add to the
discussion.

>From Dr. Reinhardt’s assessment I can only conclude that what this country really must have is campaign financing reform. It is a top priority, the key to so many policy matters. It would work a revolution – not just in health policy but across the board. Only when the people pay for candidates’ campaign expenses and take on
the nasty task of regulating those expenditures (even if it requires a constitutional amendment) will Congress be accountable to the electorate. Only then will the cynicism that encompasses the entire electoral process and results in the lowest voter turnout of any industrialized country, change.

It’s fundamental!

Pauline

February 27, 2001 – McDermott’s tax credit proposal

Rep. Jim McDermott’s tax credit concept was presented today in remarks
before The Annenberg Public Policy Center and The Atlantic Monthly
conference, “Bipartisan Paths to Expanded Health Coverage: Prospects for
2001 and Beyond”

Reading his statement, it is clear that significant problems with a
refundable tax credit model have not been resolved. The hurdles are
great enough such that I would not anticipate a bill in the near future,
although we should remain alert to that possibility. The full statement
is available at:

http://www.house.gov/mcdermott/feb01.htm#02/27/01

The ideal system you describe is the Canadian model. Overall capacity
there is fixed by budget and health planning, and physicians do the best
within that system of constraints. Another way of putting this is that
patients have free choice of doctors and hospitals and the latter have
free choice of therapy within the physical resource constraint imposed
on both patient and doctor by the government. There is rationing, but
with appeal to fixed physical capacity, not with appeal to money budgets
in the face of excess capacity (the US model).

Why is the Canadian model off the table? Because America’s physicians,
as represented by the AMA, have shoved it off the table. Recall that
the AMA in the early 1990s had a $4 million war chest for the sole
purpose of bad-mouthing the Canadian health system. And the gullible
American public went along with it. All one needs to tell Americans is
that foreigners are un-American and the case is closed. We saw that in
the referendum on the single-payer system in California.

Thus, my friend, no sympathy for physicians from this economist, nor for
patients who find themselves pushed around by MBAs. I am firmly on the
side of the MBAs. American physicians have always sought a system
riddled with excess capacity and rationed with appeal to budgets, and
that is precisely what they got, “as the doctor ordered,” so to speak.
And, let us face it, MBAs are the ideal people to ration with appeal to
budgets. That is the great skill of business people.

Best regards,
UER

Don’s comment: I certainly agree that we would need MBAs to help us
manage global budgets under a public service model, but we no longer
want them as emissaries of Wall Street.

The Washington Post
February 25, 2001

by Bill Brubaker

“Shortly after becoming chairman of Aetna Inc. last year, William H. Donaldson stood before a hostile audience of physicians and made a promise he has since repeated many times.” “…Donaldson said there would be ‘a sea change in our corporate attitude toward working with your profession.'”

And now…
William H. Donaldson, chairman of Aetna Inc.:

“We’re trying to bring some discipline to, let’s say, doctors… who send out for 25 tests or do things that are unnecessary. The medical profession has been taught in school that everything is okay. I mean: ‘Send out for 1000 tests. Do it.’ You know, with no attention to price control. No attention to the efficient and effective practice of medicine.”

“People want more than what they bought, the coverage that’s been bought. (They want) a $1 million experimental something or other. We say, ‘No, that isn’t covered by your policy.'”

Comment by Dr. Don McCanne:

William Donaldson recognized that Aetna had trashed both patients and physicians. His business acumen made him realize that, to be successful, Aetna would have to regain the support of patients and physicians, and thus his promise of a “sea change.” William Donaldson also knows that, as chairman, his first responsibility must be to the shareholders. He is obligated to look at the balance sheet and attempt to manipulate each side in order to increase the bottom line. He cannot escape his fundamental business instinct.

On the expenditure side, the problem is obvious to an astute businessman. Physicians spend too much and patients consume too much. So businessmen know where to place the blame for the problems with our health care system – on the patients and the physicians! So the proper business response is to control this reckless spending behavior. Even though physicians order only tests that are appropriate for the clinical circumstances, a good businessman will reduce this overhead expense by declaring some tests to be “unnecessary.” Even though patients expect help as long as any hope remains, a good businessman will extinguish that hope because it is “unaffordable” for the corporation. There is a fundamental cultural difference between the MBA and the MD. The private health plan model that controls our system today has placed the MBA in charge.

Is there a model that can put the MD in charge? After all, cost constraints will be with us forever, and the MD would have to function within these limits. What would happen if we were to change the primary mission of our health care system from the current business model of maximizing shareholder value to a public service model of maximizing allocation of our finite health care resources? In selecting tests for the patient, the physician would be selecting beneficial tests that would be limited only by the amount of resources available. There would be no arbitrary reduction of tests to fulfill the MBA’s duty to increase the bottom line. When the patient is looking for hope, the avenues available would be limited only by the existing resources and not by the MBA that wants to improve profits by dashing hope.

We need to nurture the partnership of the patient and the physician. We can do this by removing the MBA from the relationship, and by returning free choice to the patient. We can make accessible our health care resources to the limit of the full capacity of our system. We can do this by rejecting the private, middleman health plans, and by replacing them with a publicly administered, universal risk pool. Why on earth has this model been left off of the negotiating tables? Please tell me!

Don R. McCanne, M.D.
33781 Avenida Calita
San Juan Capistrano, CA 92675-4905
949-493-3714
Fax 949-493-7985
mccanne1@home.com

The Washington Post
February 25, 2001

by Bill Brubaker

“Shortly after becoming chairman of Aetna Inc. last year, William H. Donaldson stood before a hostile audience of physicians and made a promise he has since repeated many times.” “…Donaldson said there would be ‘a sea change in our corporate attitude toward working with your profession.'”

And now…
William H. Donaldson, chairman of Aetna Inc.:

“We’re trying to bring some discipline to, let’s say, doctors… who send out for 25 tests or do things that are unnecessary. The medical profession has been taught in school that everything is okay. I mean: ‘Send out for 1000 tests. Do it.’ You know, with no attention to price control. No attention to the efficient and effective practice of medicine.”

“People want more than what they bought, the coverage that’s been bought. (They want) a $1 million experimental something or other. We say, ‘No, that isn’t covered by your policy.'”

Comment by Dr. Don McCanne:

William Donaldson recognized that Aetna had trashed both patients and physicians. His business acumen made him realize that, to be successful, Aetna would have to regain the support of patients and physicians, and thus his promise of a “sea change.” William Donaldson also knows that, as chairman, his first responsibility must be to the shareholders. He is obligated to look at the balance sheet and attempt to manipulate each side in order to increase the bottom line. He cannot escape his fundamental business instinct.

On the expenditure side, the problem is obvious to an astute businessman. Physicians spend too much and patients consume too much. So businessmen know where to place the blame for the problems with our health care system – on the patients and the physicians! So the proper business response is to control this reckless spending behavior. Even though physicians order only tests that are appropriate for the clinical circumstances, a good businessman will reduce this overhead expense by declaring some tests to be “unnecessary.” Even though patients expect help as long as any hope remains, a good businessman will extinguish that hope because it is “unaffordable” for the corporation. There is a fundamental cultural difference between the MBA and the MD. The private health plan model that controls our system today has placed the MBA in charge.

Is there a model that can put the MD in charge? After all, cost constraints will be with us forever, and the MD would have to function within these limits. What would happen if we were to change the primary mission of our health care system from the current business model of maximizing shareholder value to a public service model of maximizing allocation of our finite health care resources? In selecting tests for the patient, the physician would be selecting beneficial tests that would be limited only by the amount of resources available. There would be no arbitrary reduction of tests to fulfill the MBA’s duty to increase the bottom line. When the patient is looking for hope, the avenues available would be limited only by the existing resources and not by the MBA that wants to improve profits by dashing hope.

We need to nurture the partnership of the patient and the physician. We can do this by removing the MBA from the relationship, and by returning free choice to the patient. We can make accessible our health care resources to the limit of the full capacity of our system. We can do this by rejecting the private, middleman health plans, and by replacing them with a publicly administered, universal risk pool. Why on earth has this model been left off of the negotiating tables? Please tell me!

Don R. McCanne, M.D.
33781 Avenida Calita
San Juan Capistrano, CA 92675-4905
949-493-3714
Fax 949-493-7985
mccanne1@home.com

The Wall Street Journal
February 21, 2001

by Scott Hensley

Uwe Reinhardt, James Madison Professor of Political Economy at Princeton
University:

“In the next recession, I think employers will make free choice more expensive to employees by adopting this defined-contribution approach.”

WSJ: How do you think health care coverage will change then?

Dr. Reinhardt: “It will become a multitier system, by ability to pay. You would still have the uninsured as the bottom tier. The next-lower tier would be gatekeeper-model HMOs. There will be a primary-care gatekeeper and no free choice of specialists. There will be tight drug formularies. There will be generics whenever possible. And you may not
always get today’s technology. You might, in fact, get yesterday’s technology.”

“I think Medicaid, for instance, will try to use that model as much as possible, which might not be bad – certainly better than the unmanaged fee-for-service Medicaid. No one ever proved that gatekeeper models are bad clinically. It is just simply annoying to us to have to get permission to go to an ear doctor when our ear aches. The low-wage workers with employer-paid insurance probably would have to opt for this low-cost model also.”

“Eventually, the free-choice insurance models will cost more. But what you will be buying is not necessarily higher-quality care, just more choice. The middle and upper-middle class will be in HMOs with point of service, meaning patients can go outside the HMOs for care but pay substantially more out of pocket for freedom of choice or for PPOs –
which are loosely managed. And then, of course, there is emerging boutique medicine for the moneyed elite. Well-to-do people – of whom there are now quite a few – will probably keep forever the open-ended, fee-for-service, “Disneyland” health insurance policy most Americans had before the 1990s.”

Comment by Dr. Don McCanne:

If we continue to passively accept the premise that the only realistic solutions to our health care system problems are to incrementally build on the current model dominated by health plans, then we can expect to realize Dr. Reinhardt’s predictions. But why should we? We have the resources to provide high quality care for everyone. As long as everyone is provided access to all beneficial services, then there is no reason that the moneyed elite should be denied access to hospital penthouse suites or vanity cosmetic surgery if they want to pay for that independently. Employers will move further into defined contribution models which can only have the effect of impairing access
for lower income individuals due to lack of affordability of the out of pocket expenses that they will be forced to bear. Our health care delivery system is in fairly good shape, though sound policy decisions could improve it. Our system of funding and allocating our abundant resources is in critical condition. Incremental tinkering will only consume more funds, and perpetuate and expand highly flawed policy. It is indefensible that we leave off of the negotiating table the one reform that would correct most of these defects in funding and allocation. It is an ethical imperative that our national leadership
take a serious look at the model of a publicly administered, universal risk pool, and compare that model with our current one of incremental tinkering. We should demand no less.

Don McCanne
mccanne1@home.com

Kaiser Family Foundation Release -February 9, 2001

John Holahan, co-author of the Urban Institute study:

“Medicaid spending could grow by up to 10 percent in the near future because of rising health care costs, particularly prescription drugs, the eroding impact of Medicaid managed care, wage pressures in the health care industry, (and) the use of supplemental financing programs and enrollment increases.”

Diane Rowland, Executive Director of the Kaiser Commission on Medicaid and the Uninsured:

“State efforts to improve health care coverage for the low-income population are beginning to pay off. We need to build on this success by continuing to expand coverage even if the economy cools off.”

The full report is available at:
http://www.kff.org/content/2001/2230/2230.pdf

Comment by Dr. Don McCanne:

Medicaid has been praised as a program that provides health care coverage for the low-income segment of our society. Although the issues are very complex, we should step back for a broader perspective on the role of Medicaid.

Only the impoverished, and not even all of them, are granted the ticket that allows entry to the facilities of Medicaid providers. From the perspective of the provider, that ticket means only that the the individual bearing it has cleared the qualification process to
participate, and that the provider will look only to the program, and not to this impoverished individual, to be compensated for services rendered.

Although many varieties of providers are involved, for simplification we will look only at physicians and hospitals. Hospitals receive 12% of their revenues through Medicaid and physicians receive 7%. The reasons for this difference are also complex, but a few factors are evident.

Hospitals do not have much choice as to whether they will accept Medicaid patients. Most hospitals have an obligation to accept virtually all acute care patients, regardless of payment source. Hospitals, whether for-profit or nonprofit, operate on a very small
profit margin. Managed care plans have been effective in ratcheting down rates for hospitals, and so the government has had to assure that their programs, including Medicaid, have been funded at a level that assures the solvency of hospitals. Otherwise, our hospital system could collapse. The burden of cost shifting has been moved from the insurance industry to the taxpayers, especially through Medicare, but to a limited extent also through Medicaid.

On the other hand, physicians often do have a choice as to whether they will accept Medicaid patients (except for emergency room coverage). Physicians also have a much lower percentage of overhead than hospitals and are able to accept the losses on Medicaid by accepting a lower net income. Those physicians that believe that everyone should have access to care demonstrate their belief by accepting the more modest lifestyle associated with modest incomes. As a result, in physicians’ offices,
the taxpayers benefit from cost shifting. This explains one factor in the physician-hospital revenue differential.

Low income Medicaid patients tend to have greater medical needs with a greater need for acute care hospitalization. Because of low compensation rates, care in physicians’ offices tends to be more crisis oriented, with lower levels of preventive and maintenance care. This aggravates the need for acute care hospitalization due to neglect of
chronic disorders, thereby increasing hospital costs.

Access to care under Medicaid is impaired. Hospitals will admit acute care patients, but elective patients are often discouraged, especially by for-profit hospitals. Many physicians will not accept Medicaid patients. Those that do usually have over-booked appointment schedules, and may not be accessible geographically. Many primary care physicians have a great deal of difficulty in obtaining specialized care for their Medicaid patients. Managed care entities now provide inefficient, wasteful middleman services for many Medicaid programs. Through highly restricted provider lists, these managed care entities have further reduced access, especially by severe limits in the lists of authorized specialists.

A subtle but pernicious attitude permeates our health care system. That attitude is that, somehow, Medicaid patients are second rate citizens, not deserving of the level of care to which “working families” are entitled. It is a “welfare program” for the poor. It is a very low tier on a multi-tiered system of health care, surpassing only the tier of the uninsured.

We have the resources to provide comprehensive care for everyone. There is no reason to continue to support the flawed health policies and humiliation of the Medicaid program. Everyone in this nation could have free choice of quality care if only we would establish a publicly administered, universal risk pool.