California Insurance Marketplace Wants To Kick Out Poor-Performing Hospitals

By Chad Terhune
California Healthline, March 18, 2016

California’s insurance exchange is threatening to cut hospitals from its networks for poor performance or high costs, a novel proposal that is drawing heavy fire from medical providers and insurers.

The goal is to boost the overall quality of patient care and make coverage more affordable, said Peter Lee, executive director of the Covered California exchange.

“The first few years were about getting people in the door for coverage,” said Lee, a key figure in the roll-out of the federal health law. “We are now shifting our attention to changing the underlying delivery system to make it more cost effective and higher quality. We don’t want to throw anyone out, but we don’t want to pay for bad quality care either.”

It appears to be the first proposal of its kind in the country. The exchange’s five-member board is slated to vote on it next month. If approved, insurers would need to identify hospital “outliers” on cost and quality starting in 2018. Medical groups and doctors would be rated after that.

Providers who don’t measure up stand to lose insured patients and suffer a black eye that could sully their reputations with employers and other big customers.

By 2019, health plans would be expected to expel poor performers from their exchange networks.

The idea has already sparked fierce opposition. Doctors and hospitals accuse the exchange of overstepping its authority and failing to spell out the specific measures they would be judged on.

Health insurers, normally at odds with providers, have joined them in the fight. The insurers are balking at the prospect of disclosing their negotiated rates with providers. Health plans have long resisted efforts that would let competitors or the public see the deals they make with doctors and hospitals.

But scrutinizing the negotiated rates would help the exchange identify high-cost providers and allow policyholders with high deductibles to see the differences in price before undergoing a surgery or imaging test.

Lee said it’s time for the exchange to move beyond enrollment and flex its market power on behalf of its 1.5 million members. He said insurers haven’t been tough enough on hospitals and doctors.

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “There may be a dominant hospital system that’s charging through the nose, but without them you don’t have an adequate network. It will be interesting to see how Covered California threads that needle.”

A study last year found that 75 percent of Covered California plans had narrow physician networks, with more restricted choices than all but three other states.

“I don’t know of anyone even close to trying this,” said Dan Polsky, the study’s author and executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. “I applaud Covered California for being bold to improve quality and reduce costs, but I worry about the implementation.”

Polsky said measuring quality can be complicated, and steps must be taken to ensure hospitals and doctors aren’t penalized for treating sicker patients or serving lower-income areas. Most quality-boosting efforts use financial bonuses and penalties rather than exclusion.

Under the Covered California plan, hospitals would be judged on a wide range of performance and safety measures, from rates of readmission and hospital-acquired infections to adverse drug events. The exchange said it will draw on existing measures already tracked by Medicare and other groups, and it will work with hospitals, consumer advocates and other experts over the next 18 months to finalize the details.

California physicians warn that the exchange’s proposal could further reduce networks that are already too thin for patients.

Charles Bacchi, chief executive of the California Association of Health Plans, predicted that Covered California’s idea will backfire, discouraging hospitals and doctors from participating in the exchange and driving up premiums as a result.

“It’s the right goal but the wrong approach,” Bacchi said. “Covered California is proposing a top-down, arbitrary measurement system that carries a big stick. This can make it difficult for health plans and providers to work together constructively.”

http://californiahealthline.org/news/california-insurance-marketplace-wants-to-kick-out-poor-performing-hospitals/

***

Comment:

By Don McCanne, M.D.

California has been an “active purchaser” of health plans for its ACA exchange – Covered California. To help keep insurance premiums down, it has contracted with plans that have amongst the narrowest provider networks in the nation. Now they want to measure quality and costs and expel providers, beginning with the hospitals, that rank poorly on these measurements. What could be wrong with this?

Choosing physicians and hospitals is much more involved than merely exercising personal preferences. Impaired accessibility, instability, lack of continuity with changing contracts, lack of integration of services, surprise out-of-network billings, and the like are just a few of the reasons that narrow networks are disadvantageous for patients, and, after all, shouldn’t the system be designed primarily to take care of patients?

The purported reason for active purchasing is to obtain higher quality at lower cost. But we don’t even know how to measure quality beyond token star-type ratings. Outcomes are much more dependent on socioeconomic factors than they are on the quality of the delivery services. So then is cost alone an adequate reason to pursue active purchasing? The traditional Medicare program is far more effective at controlling costs than are the private sector health plans, including those offered through the exchanges. So forget quality and cost as determinants of optimal provider networks.

Dedicated physicians and hospitals who care for some of the sickest and most deprived patients do not score as high on quality measures simply because the measurements are more focused toward the carriage trade. What an injustice it would be for the poor and sick if we expelled their physicians and hospitals merely because they failed the tests of some naive policy wonk from behind the scenes.

Patients should have free choice of their physicians and hospitals in a system that is affordable for all. We could have that by changing to a single payer national health program – an improved Medicare for all.

California Insurance Marketplace Wants To Kick Out Poor-Performing Hospitals

By Chad Terhune
California Healthline, March 18, 2016

California’s insurance exchange is threatening to cut hospitals from its networks for poor performance or high costs, a novel proposal that is drawing heavy fire from medical providers and insurers.

The goal is to boost the overall quality of patient care and make coverage more affordable, said Peter Lee, executive director of the Covered California exchange.

“The first few years were about getting people in the door for coverage,” said Lee, a key figure in the roll-out of the federal health law. “We are now shifting our attention to changing the underlying delivery system to make it more cost effective and higher quality. We don’t want to throw anyone out, but we don’t want to pay for bad quality care either.”

It appears to be the first proposal of its kind in the country. The exchange’s five-member board is slated to vote on it next month. If approved, insurers would need to identify hospital “outliers” on cost and quality starting in 2018. Medical groups and doctors would be rated after that.

Providers who don’t measure up stand to lose insured patients and suffer a black eye that could sully their reputations with employers and other big customers.

By 2019, health plans would be expected to expel poor performers from their exchange networks.

The idea has already sparked fierce opposition. Doctors and hospitals accuse the exchange of overstepping its authority and failing to spell out the specific measures they would be judged on.

Health insurers, normally at odds with providers, have joined them in the fight. The insurers are balking at the prospect of disclosing their negotiated rates with providers. Health plans have long resisted efforts that would let competitors or the public see the deals they make with doctors and hospitals.

But scrutinizing the negotiated rates would help the exchange identify high-cost providers and allow policyholders with high deductibles to see the differences in price before undergoing a surgery or imaging test.

Lee said it’s time for the exchange to move beyond enrollment and flex its market power on behalf of its 1.5 million members. He said insurers haven’t been tough enough on hospitals and doctors.

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “There may be a dominant hospital system that’s charging through the nose, but without them you don’t have an adequate network. It will be interesting to see how Covered California threads that needle.”

A study last year found that 75 percent of Covered California plans had narrow physician networks, with more restricted choices than all but three other states.

“I don’t know of anyone even close to trying this,” said Dan Polsky, the study’s author and executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. “I applaud Covered California for being bold to improve quality and reduce costs, but I worry about the implementation.”

Polsky said measuring quality can be complicated, and steps must be taken to ensure hospitals and doctors aren’t penalized for treating sicker patients or serving lower-income areas. Most quality-boosting efforts use financial bonuses and penalties rather than exclusion.

Under the Covered California plan, hospitals would be judged on a wide range of performance and safety measures, from rates of readmission and hospital-acquired infections to adverse drug events. The exchange said it will draw on existing measures already tracked by Medicare and other groups, and it will work with hospitals, consumer advocates and other experts over the next 18 months to finalize the details.

California physicians warn that the exchange’s proposal could further reduce networks that are already too thin for patients.

Charles Bacchi, chief executive of the California Association of Health Plans, predicted that Covered California’s idea will backfire, discouraging hospitals and doctors from participating in the exchange and driving up premiums as a result.

“It’s the right goal but the wrong approach,” Bacchi said. “Covered California is proposing a top-down, arbitrary measurement system that carries a big stick. This can make it difficult for health plans and providers to work together constructively.”

http://californiahealthline.org/news/california-insurance-marketplace-wants-to-kick-out-poor-performing-hospitals/

California has been an “active purchaser” of health plans for its ACA exchange – Covered California. To help keep insurance premiums down, it has contracted with plans that have amongst the narrowest provider networks in the nation. Now they want to measure quality and costs and expel providers, beginning with the hospitals, that rank poorly on these measurements. What could be wrong with this?

Choosing physicians and hospitals is much more involved than merely exercising personal preferences. Impaired accessibility, instability, lack of continuity with changing contracts, lack of integration of services, surprise out-of-network billings, and the like are just a few of the reasons that narrow networks are disadvantageous for patients, and, after all, shouldn’t the system be designed primarily to take care of patients?

The purported reason for active purchasing is to obtain higher quality at lower cost. But we don’t even know how to measure quality beyond token star-type ratings. Outcomes are much more dependent on socioeconomic factors than they are on the quality of the delivery services. So then is cost alone an adequate reason to pursue active purchasing? The traditional Medicare program is far more effective at controlling costs than are the private sector health plans, including those offered through the exchanges. So forget quality and cost as determinants of optimal provider networks.

Dedicated physicians and hospitals who care for some of the sickest and most deprived patients do not score as high on quality measures simply because the measurements are more focused toward the carriage trade. What an injustice it would be for the poor and sick if we expelled their physicians and hospitals merely because they failed the tests of some naive policy wonk from behind the scenes.

Patients should have free choice of their physicians and hospitals in a system that is affordable for all. We could have that by changing to a single payer national health program – an improved Medicare for all.

Clinton’s Health Plan Gets Mostly Passing Grades From Policy Experts

By Joyce Frieden
MedPage Today, March 15, 2016

Democratic presidential candidate Hillary Clinton’s ideas for improving the Affordable Care Act (ACA) drew cautious praise from health policy scholars, but they said they had no chance of enactment without a major change in Congressional attitudes.

“If we’re really serious about getting to the general uninsured and getting costs down, and it’s a choice between scratching everything and starting over [or] building on the Affordable Care Act … I would build on what Clinton’s talking about,” Ken Thorpe, PhD, of Emory University in Atlanta, said in a phone interview.

Clinton’s plan is “Very much a small adjustment to ACA, and in the climate we have, getting anything through [Congress] is a real challenge,” said Paul Hughes-Cromwick, MA, of the Center for Sustainable Health Spending at the Altarum Institute, in Ann Arbor, Mich. “Most of what she’s talking about is very small, and some things are already happening.”

On her website, Clinton lists the following planks among those in her healthcare proposal:

*  Make premiums more affordable and lessen out-of-pocket expenses for consumers purchasing health insurance on the ACA exchanges. This would include a tax credit of up to $5,000 per family to offset a portion of out-of-pocket and premium costs above 5% of income.

*  Support new incentives to encourage all states to expand Medicaid. Clinton proposes allowing any state that signs up for the Medicaid expansion to receive a 100% match for the first 3 years.

*  Invest in navigators, advertising, and other outreach activities to make exchange enrollment easier. Today, as many as 16 million people or half of all those uninsured are eligible but not enrolled in Medicaid or an exchange plan. Clinton plans to invest $500 million per year in an aggressive enrollment campaign.

*  Expand access to affordable healthcare to families regardless of immigration status. Clinton “believes we should let families — regardless of immigration status — buy into the Affordable Care Act exchanges,” according to her website.

*  Continue to support a “public option.” Clinton wants states to be able to establish a public option under which people could buy into a publicly funded health insurance plan.

*  Defend the ACA. “Hillary will continue to defend the ACA against Republican efforts to repeal it,” the website said. “She’ll build on it to expand affordable coverage, slow the growth of overall health care costs (including prescription drugs), and make it possible for providers to deliver the very best care to patients.”

*  Lower out-of-pocket costs like co-pays and deductibles. “Hillary believes that workers should share in slower growth of national healthcare spending through lower costs,” according to the website.

*  Reduce the cost of prescription drugs. “Hillary believes we need to demand lower drug costs for hardworking families and seniors.”

*  Transform our healthcare system to reward value and quality. “Hillary is committed to building on delivery system reforms in the Affordable Care Act that improve value and quality care for Americans.”

Compared with the plan offered by Clinton’s Democratic primary opponent, Sen. Bernie Sanders (I-Vt.), who wants to institute a single-payer “Medicare-for-all” program, hers is “definitely more realistic,” said Michael Sparer, PhD, JD, of Columbia University in New York City, in an interview. However, “a lot depends on what happens to Congress as well [if she becomes President]. If something would change in Congressional makeup, I think she has a pretty clear fix-it agenda.”

Even without such a change in Congress, “she will try to use whatever authority under ACA to encourage states to experiment,” he added.

Similarly, Elbert Huang, MD, MPH, at the University of Chicago, said he was impressed by the level of specificity in Clinton’s plan, especially compared with those of Sanders and Republican presidential candidate Donald Trump.

Jon Oberlander, PhD, of the University of North Carolina-Chapel Hill, agreed in an email that, overall, Clinton’s plan is “more than realistic” — “if we are to continue to make progress in reducing the uninsured population, making Obamacare more affordable for Americans with modest incomes is imperative. Politically, however, even these incremental measures are not so easy.”

However, Oberlander continued, “As for [Clinton’s] public option … its chances of enactment in the current Congressional environment are zero. Even if Democrats retake majorities in Congress in 2016, it would face an uphill path to enactment.”

A federally run public option, he said, “is symbolic politics, something that liberal Democrats like that allows Clinton to counter Sanders’ single-payer proposal.”

Clinton’s Medicaid expansion proposal “will be incredibly tricky to pull off politically,” said David Becker, PhD, of the University of Alabama at Birmingham School of Public Health, in an email to MedPage Today.

“Even in a state like Louisiana where Medicaid expansion will take effect on July 1, it is somewhat unlikely that Republican senators and representatives would support expanding federal support. This proposal also assumes that states that have already expanded their programs will be happy to support the extension of funding without asking for something in return.”

As to spending more money on navigators, “I’m not entirely sure this is money well spent,” Becker said. “People that are eligible but not enrolled for public health insurance programs tend to be low-utilizers who re-enroll when they need care. Although marketing and outreach efforts have varied across the states, the benefits of increased spending on these efforts are not clear.”

Clinton’s proposal to lower out-of-pocket costs might work with plans on the insurance exchanges, said Alan Sager, PhD, at Boston University, but is incompatible with the economics of private insurance.

“For private employers it’s very tough today, since employers and their benefits advisors think that higher out-of-pocket costs are the one tool they can wield to contain their healthcare costs,” Sager said in an email. “Many economists fantasize that higher out-of-pocket costs will somehow shoehorn size 10 healthcare into size 5 free-market competition. And some reporters and ‘consumer advocates’ fantasize that better information about price and quality will make us healthcare super-shoppers.”

Sager added, “Without real cost controls — not widely supported politically by Americans — out-of-pocket costs will continue to look to many people like the only game in town” for restraining overall costs.

He also dismissed the “reward value and quality” part of Clinton’s plan, calling it “tough to do without torturing hospitals and doctors to make them give us still more data. And they control the data so they can game the measures of value/quality if they want.”

David Howard, PhD, another Emory University scholar, told MedPage Today that he was troubled by Clinton’s proposing of new spending without suggesting how the costs would be offset.

“Clinton promises new subsidies for people who buy insurance on the exchanges, new subsidies to help offset out-of-pocket costs, and additional funds to subsidize state Medicaid expansions,” he wrote in an email. “At a time when the federal government is struggling to afford entitlements, it is irresponsible to promise new spending without offsetting spending reductions elsewhere.”

Jan Carney, MD, MPH, at the University of Vermont in Burlington, said she is concerned about what’s missing from all the candidates’ proposals, including Clinton’s.

“Public health issues such as infant mortality, obesity, HIV, injuries, homicides, and drug-related deaths all represent preventable contributors to health care costs,” she said in an email. “These specific areas (where we do much worse than other countries) and other areas of public health, would make a strong addition to this national healthcare discussion.”

Christopher Jones, PhD, of the Vermont Center for Clinical and Translational Science, in Burlington, named another topic of concern: biocybersecurity. “Health information has a longer shelf life than financial information and when both are sold on the black market, it is health information that commands a higher price,” he said in an email. “This will most assuredly be a concern for the Democratic candidate when s/he gets elected.”

http://www.medpagetoday.com/Washington-Watch/ElectionCoverage/56734

***

Comment:

By Don McCanne, M.D.

Not a very exciting article. And that’s the point. When you read Hillary Clinton’s proposals, they all fall under the category of mere tweaks to our current dysfunctional system.

Tens of millions will remain uninsured; underinsurance will not be eliminated; Medicaid would be expanded without addressing its deficiencies in access; administrative excesses, including waste in marketing would increase; the undocumented would be allowed in without a way to pay for it; an ineffectual public option would continue to be offered through Section 1332 waivers; and so forth. Lower co-pays and deductibles along with a higher tax credit would be helpful, but to be effective, it would require significantly higher taxes when we have a Congress that continues to resist, on a bipartisan basis, any tax increases.

Although the title of this article indicates that the health policy experts cited give her efforts a “passing grade,” they basically do not see much more than fine tuning of the status quo. There is no suggestion that we could achieve reform goals of universality, affordability, increased provider choice, greater access, greater administrative efficiency, and optimal equity in the financing of health care.

Many of the Clinton measures proposed would further increase health care spending while falling short on goals. That would be a shame when instead we could place effective controls on spending through a single payer national health program – an improved Medicare for all – while achieving all of the listed goals of reform.

Physicians for a National Health Program (PNHP) is a nonpartisan educational organization. It neither supports nor opposes any candidates for public office.

Clinton’s Health Plan Gets Mostly Passing Grades From Policy Experts

By Joyce Frieden
MedPage Today, March 15, 2016

Democratic presidential candidate Hillary Clinton’s ideas for improving the Affordable Care Act (ACA) drew cautious praise from health policy scholars, but they said they had no chance of enactment without a major change in Congressional attitudes.

“If we’re really serious about getting to the general uninsured and getting costs down, and it’s a choice between scratching everything and starting over [or] building on the Affordable Care Act … I would build on what Clinton’s talking about,” Ken Thorpe, PhD, of Emory University in Atlanta, said in a phone interview.

Clinton’s plan is “Very much a small adjustment to ACA, and in the climate we have, getting anything through [Congress] is a real challenge,” said Paul Hughes-Cromwick, MA, of the Center for Sustainable Health Spending at the Altarum Institute, in Ann Arbor, Mich. “Most of what she’s talking about is very small, and some things are already happening.”

On her website, Clinton lists the following planks among those in her healthcare proposal:

*  Make premiums more affordable and lessen out-of-pocket expenses for consumers purchasing health insurance on the ACA exchanges. This would include a tax credit of up to $5,000 per family to offset a portion of out-of-pocket and premium costs above 5% of income.

*  Support new incentives to encourage all states to expand Medicaid. Clinton proposes allowing any state that signs up for the Medicaid expansion to receive a 100% match for the first 3 years.

*  Invest in navigators, advertising, and other outreach activities to make exchange enrollment easier. Today, as many as 16 million people or half of all those uninsured are eligible but not enrolled in Medicaid or an exchange plan. Clinton plans to invest $500 million per year in an aggressive enrollment campaign.

*  Expand access to affordable healthcare to families regardless of immigration status. Clinton “believes we should let families — regardless of immigration status — buy into the Affordable Care Act exchanges,” according to her website.

*  Continue to support a “public option.” Clinton wants states to be able to establish a public option under which people could buy into a publicly funded health insurance plan.

*  Defend the ACA. “Hillary will continue to defend the ACA against Republican efforts to repeal it,” the website said. “She’ll build on it to expand affordable coverage, slow the growth of overall health care costs (including prescription drugs), and make it possible for providers to deliver the very best care to patients.”

*  Lower out-of-pocket costs like co-pays and deductibles. “Hillary believes that workers should share in slower growth of national healthcare spending through lower costs,” according to the website.

*  Reduce the cost of prescription drugs. “Hillary believes we need to demand lower drug costs for hardworking families and seniors.”

*  Transform our healthcare system to reward value and quality. “Hillary is committed to building on delivery system reforms in the Affordable Care Act that improve value and quality care for Americans.”

Compared with the plan offered by Clinton’s Democratic primary opponent, Sen. Bernie Sanders (I-Vt.), who wants to institute a single-payer “Medicare-for-all” program, hers is “definitely more realistic,” said Michael Sparer, PhD, JD, of Columbia University in New York City, in an interview. However, “a lot depends on what happens to Congress as well [if she becomes President]. If something would change in Congressional makeup, I think she has a pretty clear fix-it agenda.”

Even without such a change in Congress, “she will try to use whatever authority under ACA to encourage states to experiment,” he added.

Similarly, Elbert Huang, MD, MPH, at the University of Chicago, said he was impressed by the level of specificity in Clinton’s plan, especially compared with those of Sanders and Republican presidential candidate Donald Trump.

Jon Oberlander, PhD, of the University of North Carolina-Chapel Hill, agreed in an email that, overall, Clinton’s plan is “more than realistic” — “if we are to continue to make progress in reducing the uninsured population, making Obamacare more affordable for Americans with modest incomes is imperative. Politically, however, even these incremental measures are not so easy.”

However, Oberlander continued, “As for [Clinton’s] public option … its chances of enactment in the current Congressional environment are zero. Even if Democrats retake majorities in Congress in 2016, it would face an uphill path to enactment.”

A federally run public option, he said, “is symbolic politics, something that liberal Democrats like that allows Clinton to counter Sanders’ single-payer proposal.”

Clinton’s Medicaid expansion proposal “will be incredibly tricky to pull off politically,” said David Becker, PhD, of the University of Alabama at Birmingham School of Public Health, in an email to MedPage Today.

“Even in a state like Louisiana where Medicaid expansion will take effect on July 1, it is somewhat unlikely that Republican senators and representatives would support expanding federal support. This proposal also assumes that states that have already expanded their programs will be happy to support the extension of funding without asking for something in return.”

As to spending more money on navigators, “I’m not entirely sure this is money well spent,” Becker said. “People that are eligible but not enrolled for public health insurance programs tend to be low-utilizers who re-enroll when they need care. Although marketing and outreach efforts have varied across the states, the benefits of increased spending on these efforts are not clear.”

Clinton’s proposal to lower out-of-pocket costs might work with plans on the insurance exchanges, said Alan Sager, PhD, at Boston University, but is incompatible with the economics of private insurance.

“For private employers it’s very tough today, since employers and their benefits advisors think that higher out-of-pocket costs are the one tool they can wield to contain their healthcare costs,” Sager said in an email. “Many economists fantasize that higher out-of-pocket costs will somehow shoehorn size 10 healthcare into size 5 free-market competition. And some reporters and ‘consumer advocates’ fantasize that better information about price and quality will make us healthcare super-shoppers.”

Sager added, “Without real cost controls — not widely supported politically by Americans — out-of-pocket costs will continue to look to many people like the only game in town” for restraining overall costs.

He also dismissed the “reward value and quality” part of Clinton’s plan, calling it “tough to do without torturing hospitals and doctors to make them give us still more data. And they control the data so they can game the measures of value/quality if they want.”

David Howard, PhD, another Emory University scholar, told MedPage Today that he was troubled by Clinton’s proposing of new spending without suggesting how the costs would be offset.

“Clinton promises new subsidies for people who buy insurance on the exchanges, new subsidies to help offset out-of-pocket costs, and additional funds to subsidize state Medicaid expansions,” he wrote in an email. “At a time when the federal government is struggling to afford entitlements, it is irresponsible to promise new spending without offsetting spending reductions elsewhere.”

Jan Carney, MD, MPH, at the University of Vermont in Burlington, said she is concerned about what’s missing from all the candidates’ proposals, including Clinton’s.

“Public health issues such as infant mortality, obesity, HIV, injuries, homicides, and drug-related deaths all represent preventable contributors to health care costs,” she said in an email. “These specific areas (where we do much worse than other countries) and other areas of public health, would make a strong addition to this national healthcare discussion.”

Christopher Jones, PhD, of the Vermont Center for Clinical and Translational Science, in Burlington, named another topic of concern: biocybersecurity. “Health information has a longer shelf life than financial information and when both are sold on the black market, it is health information that commands a higher price,” he said in an email. “This will most assuredly be a concern for the Democratic candidate when s/he gets elected.”

http://www.medpagetoday.com/Washington-Watch/ElectionCoverage/56734

Not a very exciting article. And that’s the point. When you read Hillary Clinton’s proposals, they all fall under the category of mere tweaks to our current dysfunctional system.

Tens of millions will remain uninsured; underinsurance will not be eliminated; Medicaid would be expanded without addressing its deficiencies in access; administrative excesses, including waste in marketing would increase; the undocumented would be allowed in without a way to pay for it; an ineffectual public option would continue to be offered through Section 1332 waivers; and so forth. Lower co-pays and deductibles along with a higher tax credit would be helpful, but to be effective, it would require significantly higher taxes when we have a Congress that continues to resist, on a bipartisan basis, any tax increases.

Although the title of this article indicates that the health policy experts cited give her efforts a “passing grade,” they basically do not see much more than fine tuning of the status quo. There is no suggestion that we could achieve reform goals of universality, affordability, increased provider choice, greater access, greater administrative efficiency, and optimal equity in the financing of health care.

Many of the Clinton measures proposed would further increase health care spending while falling short on goals. That would be a shame when instead we could place effective controls on spending through a single payer national health program – an improved Medicare for all – while achieving all of the listed goals of reform.

Physicians for a National Health Program (PNHP) is a nonpartisan educational organization. It neither supports nor opposes any candidates for public office.

“There Is Regulatory Capture, But It Is By No Means Complete”

Interview of Kenneth J. Arrow
Pro-Market: the blog of the Stigler Center at the University of Chicago Booth School of Business, March 15, 2016

Kenneth J. Arrow, one of the most influential economists of the 20th century, reflects on the benefits of a single payer health care system, the role of government and regulatory capture.

Kenneth J. Arrow requires very little introduction. Very few people, if any, can say they have influenced the development of economic theory in the 20th century as deeply as Arrow, who revolutionized the field of economics with groundbreaking contributions to general equilibrium theory, welfare theory, social choice theory and risk. In 1972, at the age of 51, Arrow won the Nobel Prize in Economics (sharing the prize with John R. Hicks). Arrow was the youngest economist ever to win the prize, a title he still holds to this day.

Born in New York in 1921, the son of Romanian-Jewish immigrants, Arrow’s life and work were profoundly influenced by the experience of growing up during the Great Depression. Over the years, his published papers on a wide variety of subjects, from innovation and monopolies to racial discrimination, information and climate change. In 1963, he published his classic paper on health care, Uncertainty and the Welfare Economics of Health Care, which was the first to show that existing competitive market models cannot be applied to the health care industry. The article effectively created the field of health economics, and is still frequently cited in debates regarding the role of non-market forces and institutions (like government) in the health system.

Q: Looking back on your seminal 1963 paper about healthcare industry – it seems that the American health care system has only gotten worse since. Some people claim that it is the worst among developed nations in terms of cost, waste and wrong incentives to physicians, hospitals and research, and influence of special interest groups – producing very high rents, and little value.

Certainly in terms of inefficiency, I don’t think it has improved at all. The system is about as inefficient, and it was pretty inefficient then too. If we look at measurements like cost per capita, compared to comparable countries like Canada or the UK, it got worse. The rather reasonable attempts to improve the delivery, that is to extend health care to more people, have led to a bigger system, and therefore more complexity and more chance for exploitation. We talk about a price system, but that is not what we have. What we have is a system in which one buyer will pay ten times what other buyers will pay for similar medical devices, or services. So the idea of a price system as the source of efficiency fails at the most elementary level.

These things are never simple. You do want incentives for pharmaceutical companies to generate new drugs. Developing drugs is a pretty expensive proposition, and the failure rate is pretty high, so we have to create incentives for companies to innovate. The problem with what’s happening now is that to some extent, because the American market is not uncontrolled and other markets are, we are subsidizing new drugs to other countries.

Q: Is there a way to mitigate this problem?

This is not a problem that’s just confined to the pharmaceutical industry, but I think it’s most intense there. The question of intellectual property goes back several hundred years. Since the 17th century, the basic deal is that in return for the innovation, you give [innovators] monopoly power. That’s the way you pay for the upfront costs and provide incentive. This of course gives rise to monopolies, which is an inevitable conflict. Even Hayek was disturbed about whether intellectual property is really property in the same sense that a house is property.

The truth is it’s very easy to rail against it, but it’s not easy to find a substitute. People have proposed substitutes from time to time, like paying the innovator the social value of the innovation, and insist on free competition after that. But since no one knows how to evaluate the social value, it’s not a very practical answer.

There is no easy way out of this conflict, though a better-regulated system could help. A better bargaining position will improve matters, but you have to be a little careful, because you don’t want to hurt innovation. What you have under the present situation is a great incentive for health providers, hospitals and HMO, to get bigger, because that improves their bargaining position vis-à-vis the insurance companies.

A single payer will have control that will allow it to prevent things like differential pricing from happening. If the government was allowed to use its bargaining power, it would dominate. There will be monopolies, but they would be facing a single payer. A monopoly usually has power because it is the only one facing a large market of diverse individuals.

I’m afraid you’re talking to someone who’s an “on the one hand, on the other hand” type of person, which makes me a poor advocate.

Q: It does sound like you are strongly in favor a single-payer system, though.  Last year you signed, along with 266 other economists, a declaration that called on policymakers around the world to work toward universal health coverage.

I wouldn’t say I’m strongly in favor of a single payer system. I can find objections to it. But I still think it’s better than any other system. However, the idea of permitting private practice must not be ruled out. Similar to the UK, there can be a single payer system which everybody can go to, and private medical practices for those who want. In the UK, private medicine is about 20 percent of the total, so there is this escape valve for those who want it, but also a single payer system that anybody can join.

Q: Perhaps the way to fix the American health care system is simply to adopt the UK model?

I would say the Canadian model, rather than the UK model. But it’s so politically out of the question I don’t even think about it.

Q: So you’re saying that one answer to the influence of special interest groups in the health care system is to have the government intervene in a major way, whether it is through a single payer system or something more akin to the UK model?

That’s right. Of course, George Stigler would say that there could be regulatory capture, but so far it doesn’t seem to have happened really.

Q: Doesn’t the rather-muted regulatory response to phenomena like pharmaceutical price hikes and “evergreening” – making minor tweaks to existing formulations in order to artificially extend patents – suggest at least a possibility of a capture?

There’s no question that every time you have interaction between government and private interests, especially concentrated ones, they’re always going to have power. In this case, I think there’s no alternative.

Medicare particularly has succeeded in imposing price regulations of a pretty detailed nature without too much trouble. Recent regulations regarding readmission rates for Medicare have gone through a surprising lack of opposition. We know that other countries have also succeeded in doing this without too many scandals, even countries that are not thought of as models of good government.

Q: In that 1963 paper you wrote that “the laissez-faire solution for medicine is  intolerable.” 50 years later, do you still believe that to be true?

We don’t have a laissez-faire system. The intervention of the federal government, as measured by expenditures, is growing. It is not a private system at all. Roughly 50 percent of health costs are paid for by the government, and state governments are spending more and more on health. It’s crowding out education. State budget-support for education, especially higher education, is crowded out by two things: health and prisons. Nobody is prepared for the idea of a laissez-faire system, and we never really had one.

https://promarket.org/there-is-regulatory-capture-but-it-is-by-no-means-complete/

Arrow, Kenneth J., “Uncertainty and the Welfare Economics of Medical Care, The American Economic Review, December 1963:
https://www.aeaweb.org/aer/top20/53.5.941-973.pdf

***

Comment:

By Don McCanne, M.D.

Nobody understands markets and health care better than Nobel laureate Kenneth Arrow who wrote the classic treatise on the topic over half a century ago. Based on his work, it is clear that the government must be involved if we are to improve efficiency in the system as we attempt to expand it to include everyone. So what does Kenneth Arrow think about single payer as a model for health care?

Although he understands that there are some deficiencies in the single payer model, he states, “it’s better than any other system.” He does say that he believes that private practice should be permitted as an option, like they have in the United Kingdom. But when asked if the United States should adopt the UK system, he says, “I would say the Canadian model, rather than the UK model.” That’s interesting in that Canada does not permit health care to be paid for privately if it is covered by their single payer Medicare program (although that continues to be challenged by the Canadian privatizers).

Kenneth Arrow is not an ideologue. He is a gifted, two-handed economist (i.e., looks at the options). He has stated that single payer is better than any other system, and we should listen to him.

“There Is Regulatory Capture, But It Is By No Means Complete”

Interview of Kenneth J. Arrow
Pro-Market: the blog of the Stigler Center at the University of Chicago Booth School of Business, March 15, 2016

Kenneth J. Arrow, one of the most influential economists of the 20th century, reflects on the benefits of a single payer health care system, the role of government and regulatory capture.

Kenneth J. Arrow requires very little introduction. Very few people, if any, can say they have influenced the development of economic theory in the 20th century as deeply as Arrow, who revolutionized the field of economics with groundbreaking contributions to general equilibrium theory, welfare theory, social choice theory and risk. In 1972, at the age of 51, Arrow won the Nobel Prize in Economics (sharing the prize with John R. Hicks). Arrow was the youngest economist ever to win the prize, a title he still holds to this day.

Born in New York in 1921, the son of Romanian-Jewish immigrants, Arrow’s life and work were profoundly influenced by the experience of growing up during the Great Depression. Over the years, his published papers on a wide variety of subjects, from innovation and monopolies to racial discrimination, information and climate change. In 1963, he published his classic paper on health care, Uncertainty and the Welfare Economics of Health Care, which was the first to show that existing competitive market models cannot be applied to the health care industry. The article effectively created the field of health economics, and is still frequently cited in debates regarding the role of non-market forces and institutions (like government) in the health system.

Q: looking back on your seminal 1963 paper about healthcare industry – it seems that the American health care system has only gotten worse since. Some people claim that it is the worst among developed nations in terms of cost, waste and wrong incentives to physicians, hospitals and research, and influence of special interest groups – producing very high rents, and little value.

Certainly in terms of inefficiency, I don’t think it has improved at all. The system is about as inefficient, and it was pretty inefficient then too. If we look at measurements like cost per capita, compared to comparable countries like Canada or the UK, it got worse. The rather reasonable attempts to improve the delivery, that is to extend health care to more people, have led to a bigger system, and therefore more complexity and more chance for exploitation. We talk about a price system, but that is not what we have. What we have is a system in which one buyer will pay ten times what other buyers will pay for similar medical devices, or services. So the idea of a price system as the source of efficiency fails at the most elementary level.

These things are never simple. You do want incentives for pharmaceutical companies to generate new drugs. Developing drugs is a pretty expensive proposition, and the failure rate is pretty high, so we have to create incentives for companies to innovate. The problem with what’s happening now is that to some extent, because the American market is not uncontrolled and other markets are, we are subsidizing new drugs to other countries.

Q: Is there a way to mitigate this problem?

This is not a problem that’s just confined to the pharmaceutical industry, but I think it’s most intense there. The question of intellectual property goes back several hundred years. Since the 17th century, the basic deal is that in return for the innovation, you give [innovators] monopoly power. That’s the way you pay for the upfront costs and provide incentive. This of course gives rise to monopolies, which is an inevitable conflict. Even Hayek was disturbed about whether intellectual property is really property in the same sense that a house is property.

The truth is it’s very easy to rail against it, but it’s not easy to find a substitute. People have proposed substitutes from time to time, like paying the innovator the social value of the innovation, and insist on free competition after that. But since no one knows how to evaluate the social value, it’s not a very practical answer.

There is no easy way out of this conflict, though a better-regulated system could help. A better bargaining position will improve matters, but you have to be a little careful, because you don’t want to hurt innovation. What you have under the present situation is a great incentive for health providers, hospitals and HMO, to get bigger, because that improves their bargaining position vis-à-vis the insurance companies.

A single payer will have control that will allow it to prevent things like differential pricing from happening. If the government was allowed to use its bargaining power, it would dominate. There will be monopolies, but they would be facing a single payer. A monopoly usually has power because it is the only one facing a large market of diverse individuals.

I’m afraid you’re talking to someone who’s an “on the one hand, on the other hand” type of person, which makes me a poor advocate.

Q: It does sound like you are strongly in favor a single-payer system, though.  Last year you signed, along with 266 other economists, a declaration that called on policymakers around the world to work toward universal health coverage.

I wouldn’t say I’m strongly in favor of a single payer system. I can find objections to it. But I still think it’s better than any other system. However, the idea of permitting private practice must not be ruled out. Similar to the UK, there can be a single payer system which everybody can go to, and private medical practices for those who want. In the UK, private medicine is about 20 percent of the total, so there is this escape valve for those who want it, but also a single payer system that anybody can join.

Q: Perhaps the way to fix the American health care system is simply to adopt the UK model?

I would say the Canadian model, rather than the UK model. But it’s so politically out of the question I don’t even think about it.

Q: So you’re saying that one answer to the influence of special interest groups in the health care system is to have the government intervene in a major way, whether it is through a single payer system or something more akin to the UK model?

That’s right. Of course, George Stigler would say that there could be regulatory capture, but so far it doesn’t seem to have happened really.

Q: Doesn’t the rather-muted regulatory response to phenomena like pharmaceutical price hikes and “evergreening” – making minor tweaks to existing formulations in order to artificially extend patents – suggest at least a possibility of a capture?

There’s no question that every time you have interaction between government and private interests, especially concentrated ones, they’re always going to have power. In this case, I think there’s no alternative.

Medicare particularly has succeeded in imposing price regulations of a pretty detailed nature without too much trouble. Recent regulations regarding readmission rates for Medicare have gone through a surprising lack of opposition. We know that other countries have also succeeded in doing this without too many scandals, even countries that are not thought of as models of good government.

Q: In that 1963 paper you wrote that “the laissez-faire solution for medicine is  intolerable.” 50 years later, do you still believe that to be true?

We don’t have a laissez-faire system. The intervention of the federal government, as measured by expenditures, is growing. It is not a private system at all. Roughly 50 percent of health costs are paid for by the government, and state governments are spending more and more on health. It’s crowding out education. State budget-support for education, especially higher education, is crowded out by two things: health and prisons. Nobody is prepared for the idea of a laissez-faire system, and we never really had one.

https://promarket.org/there-is-regulatory-capture-but-it-is-by-no-means-complete/

Arrow, Kenneth J., “Uncertainty and the Welfare Economics of Medical Care, The American Economic Review, December 1963:
https://www.aeaweb.org/aer/top20/53.5.941-973.pdf

Nobody understands markets and health care better than Nobel laureate Kenneth Arrow who wrote the classic treatise on the topic over half a century ago. Based on his work, it is clear that the government must be involved if we are to improve efficiency in the system as we attempt to expand it to include everyone. So what does Kenneth Arrow think about single payer as a model for health care?

Although he understands that there are some deficiencies in the single payer model, he states, “it’s better than any other system.” He does say that he believes that private practice should be permitted as an option, like they have in the United Kingdom. But when asked if the United States should adopt the UK system, he says, “I would say the Canadian model, rather than the UK model.” That’s interesting in that Canada does not permit health care to be paid for privately if it is covered by their single payer Medicare program (although that continues to be challenged by the Canadian privatizers).

Kenneth Arrow is not an ideologue. He is a gifted, two-handed economist (i.e., looks at the options). He has stated that single payer is better than any other system, and we should listen to him.

CNN TV One Democratic Presidential Town Hall

CNN, March 13, 2016

QUESTION (from Teresa O’Donnell, an office coordinator from Powell, Ohio): I have voted for Obama, and then my health insurance skyrocketed from $409 a month to $1,090 a month for a family of four. I know Obama told us that we would be paying a little more, but doubling – over doubling my health insurance cost has not been a little more. It has been difficult to come up with that kind of payment every month. I would like to vote Democratic, but it’s cost me a lot of money, and I’m just wondering if Democrats really realize how difficult it’s been on working class Americans to finance Obama care.

(APPLAUSE)

HILLARY CLINTON:  Wow, Thank you for asking me that, because. May I ask you, before you were buying your family health insurance in the individual family market? Were you getting it through the employer? How were you insured before?

QUESTION:  I was purchasing it privately, because we both had bouts of unemployment.

CLINTON:  So you were going to a broker and buying a health insurance policy.

QUESTION:  Yes.

CLINTON:  And in effect, it nearly tripled after you went on to the exchange and bought a policy under the Affordable Care Act, is that right?

QUESTION:  We could not do that.  It was much more expensive than just purchasing private insurance from the insurance company.

CLINTON:  So you are still buying private insurance directly?

QUESTION:  Yes.

CLINTON:  OK.  Well, first of all, let me say I want very much to get the costs down, and that is going to be my mission, because I do think that for many, many people, but there are exceptions like what you are telling me, having the Affordable Care Act has reduced costs, has created a real guarantee of insurance, because if you’d had a pre-existing condition under the old system, you wouldn’t have gotten affordable insurance.

So it has done a lot of really good things, but, it has become increasingly clear that we are going to have to get the costs down.  And what I would like to see happen for you and your family is that if we can get the co-pays down, the deductibles down, get the prescription drug costs under control, that you would find an affordable plan on your exchange.

And one thing that I would like you to do, and I’m not saying it’s going to make a difference, but I would like you to just go shopping on that exchange.  As I understand it, Ohio has the federal exchange, is that right, Joyce?  Because they did not set up a state exchange.

So you have the federal exchange.  And to go on and keep looking to see what the prices are, because we have to get more competition back into the insurance market.  One thing that I want to work on with my friends from Congress who are here is we’ve got to get more non-profits that are capable of selling insurance back into the insurance market.

You know, Blue Cross and Blue Shield used to be non-profits.  And then they transferred themselves into for-profit companies.  And there was some effort made under the Affordable Care Act to get some competition from non-profit institutions, some of them worked and a lot of them didn’t.

I want to know what we can do, because if you could get a range of insurers, some of who were not-for-profit companies, that would lower costs.

So there is a number of things I am looking at.  And what I want to assure you and your family of is I will do everything I can as president, working with members of Congress where necessary, to try to get the costs down.

But I do want you to keep shopping, because what you are telling me is much higher than what I hear from other families, and so I want to be sure that if there is a better option out there for you, you’re going to be able to take advantage of it. 

And then I’ll work as hard as I can to get the costs down for everybody, and that includes prescription drug costs, which are skyrocketing and increasing costs for everything else.

(APPLAUSE)

http://cnnpressroom.blogs.cnn.com/2016/03/13/full-rush-transcript-hillary-clinton-partcnn-tv-one-democratic-presidential-town-hall/

***

Comment:

By Don McCanne, M.D.

Hillary Clinton says that one of her proposals is to bring health care costs down. This town hall exchange is significant because it reveals the depth, or lack thereof, as to how she might accomplish this.

She says that she would lower co-pays and deductibles. But the question was about high premiums, and the market is using higher deductibles and other cost sharing to lower premiums. Lowering deductibles will cause higher premiums, not lower.

She says that we need more non-profit insurers like Blue Cross and Blue Shield used to be. But if you compare premiums in California for for-profit Anthem Blue Cross and non-profit Blue Shield, they are the same. The non-profit insurers share the same inefficiencies and administrative excesses as the for-profits.

She says that she wants more competition in the exchanges so that less expensive plans will be available for diligent shoppers, but, again, lower premiums are possible only by reducing coverage – higher deductibles, less accessible narrower networks, etc.

Private plans competing in the marketplace is what we already had before the Affordable Care Act was passed. We merely continued the same system. Adding exchanges did very little except to enable the administration of subsidies and credits for lower-income individuals. For those not eligible for government subsidies and credits, nothing was done to control the very high costs of health care and the insurance products that pay for that care.

Unfortunately, Hillary’s proposal is more of the same. Perpetuate the fiction of lower prices through competition while manipulating the insurance products to have either lower premiums or poorer coverage. In fact, included in ACA is the excise tax (Cadillac tax) which is designed to prevent the marketing of full benefit plans. Making health care less affordable through greater out-of-pocket cost exposure is the exact opposite of where Clinton says she wants to take us. The problem is that the current financing infrastructure will not allow us to go there.

If we want affordable care for everyone, we need a single payer improved Medicare-for-all which will control costs and make the financing more equitable.

Physicians for a National Health Program (PNHP) is a nonpartisan educational organization. It neither supports nor opposes any candidates for public office.