No Competition: The Price Of A Highly Concentrated Health Care Market

By Diane Archer
Health Affairs Blog, March 6, 2013
As health care costs swell, the private insurance system that covers most working Americans is in crisis. Americans are paying higher and higher premiums for increasingly threadbare coverage, and employers are getting out of the business of providing health care altogether. Rising costs cannot be attributed purely to improving technology or increasing operating costs for providers, because Medicare has controlled per capita spending more effectively than commercial insurers that provide employer-sponsored coverage.
Rather, commercial insurers cannot contain costs because the pricing mechanism for medical services is broken. When it comes to health care, competition simply isn’t working.
Prices in the private sector are out of control. On average, private insurers pay 25 percent more than Medicare for physician services and 30 percent more for hospital care. What’s more, both public and private sector payment rates for doctors in America are far and away the highest in the world, and research suggests that these high rates are among the principal reasons health care is so much more expensive in this country than elsewhere.
These international gaps are much wider in the private sector. For instance, private payments for an office visit in the United States cost 70 percent more than those abroad, while public payments are 27 percent higher.
Rather than being influenced by competition, health care prices are largely set by insurers and providers with monopoly power to maximize profits. Big hospital chains and provider groups dominate most local markets and extract extremely high rates from dominant insurers, which are motivated by fear of losing market share if they fail to attract these providers to their networks.
Commercial health plans have little bargaining power when they negotiate prices with monopolistic providers. In fact, even insurance industry lobbyists admit that private health plans cannot hold down the cost of health care. Insurers choose instead to adapt to this non-competitive environment.
So what is to be done?
The Patient Protection and Affordable Care Act (“ACA”) will for the first time guarantee the overwhelming majority of Americans access to good coverage, a huge step forward.  But it expands coverage mostly by relying on the dysfunctional private insurance market. There is no evidence that the newly created exchanges will exert any downward pressure on prices, given the experience of private plans to date.
Congress needs to recognize that players in the private health care marketplace will continue to set excessive rates until they are stopped. These exorbitant rates are not only hurting working people, they are also driving up Medicare costs and imposing a massive burden on taxpayers and the federal government. Doctors and hospitals are conditioned to expect higher and higher rates and demand higher payments from public programs.
Congress has three options to rein in runaway prices: It can use Medicare-style techniques to set rates or rate ceilings in the commercial marketplace, including in the new health insurance exchanges, just as every other developed nation does. It can give people under 65 the choice of a public health insurance plan that works like Medicare, competes against the private health plans, and brings down costs. Or it can do both.
Over the long-term, the federal government might be able to address the broken pricing mechanism by enforcing antitrust laws more aggressively than before to break up monopolies in health care markets. But it is worth remembering that even heavily regulated insurance markets – such as Medicare Advantage or the exchange system in Massachusetts – have not been particularly successful at controlling costs. The simple fact is that the array of existing incentives for commercial insurers does not tend to drive down prices. Given the direction of commercial insurance, relying on the current version of “competition” is destined to jeopardize access to health care for millions of working Americans while driving public spending upward.
http://healthaffairs.org/blog/2013/03/06/no-competition-the-price-of-a-h…

The increase in anti-competitive consolidation of hospitals and physician groups is thought to be contributing to our high health care spending, especially since private insurers have been very feeble price negotiators in this concentrated market. Does that mean that we need the government trust busters to step in to introduce more competition in health care?
As Noble laureate Kenneth Arrow demonstrated a half century ago, there are many reasons that merely busting up consolidated health systems could never lead to a functioning competitive market in health care. Besides, the cost escalation has always been with us, long before the more intense consolidation efforts began. As far as the wish to achieve lower prices through competition, we can forget about competing hospitals, competing physician groups, competing accountable care organizations, and, especially, competing private insurance plans.
As far as what we should do, Diane Archer suggests either extending Medicare’s administered pricing function to private insurers as well, or providing a Medicare-like plan that competes with the private insurers, or both.
During the debate over the “public option,” we explained how merely adding another insurance option, even though government-run, to our highly dysfunctional, fragmented system of financing health care would have very little impact on achieving our goals of universality, equity, efficiency, and affordability.
Although government-administered pricing has been effective for Medicare, using it for private insurers also would fall short of these goals since the dysfunctional system would still remain in place. Even combining price controls and a public plan option together would still be inadequate, for the same reasons.
So what should we do? Instead of continuing to apply patches to our current system, we should replace it with an improved Medicare that makes health care affordable for all of us. There would be no need for public option plans, nor for government rate setting of private insurance, if we got rid of the overpriced and inefficient market of private health plans.

By Kev Coleman
HealthPocket, March 7, 2013

Given that health insurance plans will have to meet new minimum coverage standards starting in 2014, HealthPocket examined the current marketplace of individual health plans to measure the market disruption that will occur as these plans are replaced by plans compliant with the new standards.

Our research took the Affordable Care Act’s Essential Health Benefits as our starting point. The Essential Health Benefits are the minimum categories of health insurance coverage that every qualified health plan must have starting January 1, 2014. HealthPocket then examined 11,100 individual health plans across the United States to see how many plans had coverage in each of the Essential Health Benefit categories.

The data shows that there will be a near complete transformation of the individual and family health insurance market starting in 2014. Less than 2% of the existing health plans in the individual market today provide all the Essential Health Benefits required under the Affordable Care Act (ACA).

On average, the health plans provided 76% of the ACA’s Essential Health Benefits. Benefits such as hospitalization, emergency care, and ambulatory services (such as visits to a primary care doctor or specialist) were covered by almost all plans in one form or another. A more detailed analysis of our results revealed that the missing 24% of Essential Health Benefits were concentrated around a few categories.

Dental and vision care for children was the least likely of the Essential Health Benefits to be provided in base benefits for a health insurance plan. Only one out of four plans nationally had these benefits within their base coverage. Looking at these benefits at a more granular level revealed that only 8% of plans provided coverage for dental check-up services. Maternity coverage was nearly as infrequent as pediatric dental and vision coverage. Two thirds of health plans did not offer their beneficiaries prenatal, delivery, and postnatal healthcare coverage. Substance Use Disorder Coverage was frequently absent in health insurance coverage as well. Only half of plans covered inpatient and outpatient services for substance use issues (e.g. alcohol or drug addiction). Mental health coverage was slightly better with six out of ten plans covering inpatient and outpatient treatment.

Implications for Health Insurance Premiums?

One of the questions raised by the results of this study is whether the coverage expansion required by the ACA will cause premiums to rise in 2014. Although the answer to that question is beyond the scope of this study, premiums could rise due to a combination of factors, including:

* The closing of the coverage gap as described in this study

* Guarantee issue provisions that will allow people with pre-existing medical conditions to enroll in health plans

* ACA actuarial value requirements on the maximum out-of-pocket costs that can be charged to beneficiaries

http://www.healthpocket.com/healthcare-resources/few-existing-health-plans-meet-new-aca-essential-health-benefit-standards#.UTnodq4tb3V

Comment:

By Don McCanne, M.D.

One of the problems that needed to be addressed by the Affordable Care Act (ACA) was the fact that health plans in the individual market have very skimpy benefits – benefit packages that were designed by private insurers who were attempting to keep their premiums competitive. This study confirms the extent of the inadequacies of these plans.

In response, ACA included a mechanism to require a minimum basic level of essential health benefits (EHB). The expansion of the benefits to be covered, along with guaranteed issue to those with preexisting disorders, and placing a maximum on out-of-pocket costs, will all result in significantly higher premiums for plans offered in the individual market. That is in spite of the fact that many will still find the benefits to be deficient, and will still face large out-of-pocket costs because of the low actuarial values of the plans that most people will select.

Even with subsidies, these plans will be expensive. And for those who do not qualify for subsidies? Maybe those potential purchasers would finally see the wisdom of establishing an equitable public system of financing health care through progressive taxes – a single payer national health program. They certainly aren’t going to like what they are going to get under ACA.

Almost No Existing Health Plans Meet New ACA Essential Health Benefit Standards

By Kev Coleman
HealthPocket, March 7, 2013
Given that health insurance plans will have to meet new minimum coverage standards starting in 2014, HealthPocket examined the current marketplace of individual health plans to measure the market disruption that will occur as these plans are replaced by plans compliant with the new standards.
Our research took the Affordable Care Act’s Essential Health Benefits as our starting point. The Essential Health Benefits are the minimum categories of health insurance coverage that every qualified health plan must have starting January 1, 2014. HealthPocket then examined 11,100 individual health plans across the United States to see how many plans had coverage in each of the Essential Health Benefit categories.
The data shows that there will be a near complete transformation of the individual and family health insurance market starting in 2014. Less than 2% of the existing health plans in the individual market today provide all the Essential Health Benefits required under the Affordable Care Act (ACA).
On average, the health plans provided 76% of the ACA’s Essential Health Benefits. Benefits such as hospitalization, emergency care, and ambulatory services (such as visits to a primary care doctor or specialist) were covered by almost all plans in one form or another. A more detailed analysis of our results revealed that the missing 24% of Essential Health Benefits were concentrated around a few categories.
Dental and vision care for children was the least likely of the Essential Health Benefits to be provided in base benefits for a health insurance plan. Only one out of four plans nationally had these benefits within their base coverage. Looking at these benefits at a more granular level revealed that only 8% of plans provided coverage for dental check-up services. Maternity coverage was nearly as infrequent as pediatric dental and vision coverage. Two thirds of health plans did not offer their beneficiaries prenatal, delivery, and postnatal healthcare coverage. Substance Use Disorder Coverage was frequently absent in health insurance coverage as well. Only half of plans covered inpatient and outpatient services for substance use issues (e.g. alcohol or drug addiction). Mental health coverage was slightly better with six out of ten plans covering inpatient and outpatient treatment.
Implications for Health Insurance Premiums?
One of the questions raised by the results of this study is whether the coverage expansion required by the ACA will cause premiums to rise in 2014. Although the answer to that question is beyond the scope of this study, premiums could rise due to a combination of factors, including:
* The closing of the coverage gap as described in this study
* Guarantee issue provisions that will allow people with pre-existing medical conditions to enroll in health plans
* ACA actuarial value requirements on the maximum out-of-pocket costs that can be charged to beneficiaries
http://www.healthpocket.com/healthcare-resources/few-existing-health-pla…

One of the problems that needed to be addressed by the Affordable Care Act (ACA) was the fact that health plans in the individual market have very skimpy benefits – benefit packages that were designed by private insurers who were attempting to keep their premiums competitive. This study confirms the extent of the inadequacies of these plans.
In response, ACA included a mechanism to require a minimum basic level of essential health benefits (EHB). The expansion of the benefits to be covered, along with guaranteed issue to those with preexisting disorders, and placing a maximum on out-of-pocket costs, will all result in significantly higher premiums for plans offered in the individual market. That is in spite of the fact that many will still find the benefits to be deficient, and will still face large out-of-pocket costs because of the low actuarial values of the plans that most people will select.
Even with subsidies, these plans will be expensive. And for those who do not qualify for subsidies? Maybe those potential purchasers would finally see the wisdom of establishing an equitable public system of financing health care through progressive taxes – a single payer national health program. They certainly aren’t going to like what they are going to get under ACA.

Blue Shield and Aetna to raise healthcare rates over state objections

By Chad Terhune
Los Angeles Times, March 6, 2013
Despite objections from regulators, health insurers Blue Shield of California and Aetna Inc. are proceeding with double-digit rate increases that state officials said were unreasonable.
Officials at the California Department of Managed Health Care said increases that average more than 11% for about 47,000 individual and small-business policyholders of Blue Shield and Aetna were unreasonable. But state officials don’t have the authority to reject changes in premiums, and increasingly health insurers refuse state demands to lower rates.
“I am disappointed that after lengthy negotiations, Blue Shield and Aetna were unwilling to bring their proposed health plan increases down to a reasonable level,” said Brent Barnhart, director of the Department of Managed Health Care.
Last year, Aetna led the way for the industry’s more defiant stance by proceeding with an 8% rate hike on some small-business policyholders despite objections from the state insurance department. In January, California Insurance Commissioner Dave Jones scolded Anthem for proceeding with an 11% premium hike for small businesses that he determined was excessive.
http://www.latimes.com/business/la-fi-health-insure-rates-20130307,0,130…

It is no surprise that in California – a state that can review insurance premium increases but has no power to control them – private insurers are proceeding with premium increases deemed to be unreasonable. The surprise is that our elected representatives continue to keep in charge of our health care spending an industry that uses us as instruments to achieve their own business ends.
Imagine a scenario in which Medicare would demand unreasonable increases in premiums. It would never happen. Medicare is a service model designed to serve us, the people. Private insurers are business models designed to serve their own business interests.
Did anyone ever think that it might be a good idea to dismiss the private insurers and provide Medicare for all of us?

By Steven Brill
Reuters, March 5, 2013

For the past 10 days I’ve been interviewed on various television and radio shows about the article I wrote for the March 4 issue of Time, called “A Bitter Pill.”  It’s all about how exorbitant prices and profits are at the core of the crisis America uniquely faces when it comes to financing healthcare, the cost of which now accounts for roughly a fifth of our gross domestic product.

Invariably a question has come up in these interviews about how I thought of that approach. So, since this is supposed to be a column about good story ideas, I think I’ll use it to explain the genesis of “A Bitter Pill” in more detail than I’ve been able to on the talk show circuit.

During the long debate over President Barack Obama’s health insurance reform proposals, a question kept nagging at me: Everyone on all sides seemed to accept as a given that healthcare was wildly expensive, and the only debate seemed to be over who should pay for it. I wondered: Well, why is it so expensive in the first place?

I had no idea what the answers were. But it seemed obvious that there was only one way to find out: If you want to know why something is so expensive, figure out every element of its costs. In other words, follow the money.

As those who have read the article or heard about it now know, I found that all my initial suspicions were wrong. By following the money, I discovered that our healthcare prices are out of whack for a reason that was hiding in plain sight — a reason that should be obvious to anyone who has ever been a healthcare consumer, which means all of us: There is no such thing as a free market in healthcare, if one defines a free market as a place where there is some balance of power between the buyer and the seller. Instead, healthcare is – except when Medicare is the buyer – a lopsided seller’s market. That became clear at both ends of the money trails I followed – from the patients’ lack of any knowledge of what they were buying or its prices, much less any leverage to bargain over it, to the sellers’ ability and willingness to charge absurdly high prices on everything from gauze pads to ambulance services to cancer wonder drugs.

In other words, everyone along the supply chain – from hospital administrators (who enjoy multimillion-dollar salaries) to the salesmen, executives and shareholders of drug and equipment makers ‑ was reaping a bonanza. The only exceptions, I found, were those actually treating the patients ‑ the nurses and doctors (unless the doctors were gaming the system by reaping consulting fees from drug or device makers or setting up diagnostic clinics in their practices in order to steer patients there for expensive tests).

http://blogs.reuters.com/stories-id-like-to-see/2013/03/05/coming-up-with-a-bitter-pill/

Comment:

By Don McCanne, M.D.

These excepts from Steven Brill’s explanation of how he came to write “Bitter Pill,” his TIME special report on exorbitant prices and profits in U.S. health care, reveal that there are two elements that come out untarnished: 1) most of the doctors and nurses actually treating the patients, and 2) Medicare.

The first point is very reassuring, but the second point should be a call to action. As Brill writes, “healthcare is – except when Medicare is the buyer – a lopsided seller’s market.” We really do need to make Medicare, in an improved version, a buyer for all of us.

***

For those who have not yet read the 36 page report, “Bitter Pill,” it can be downloaded at the following link. The point to glean from the article is how well Medicare works, which should lead you to the conclusion that we need an improved Medicare for all of us, as opposed to merely accepting the relatively ineffectual tweaks that he suggests at the end of the article.

http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us/

Coming up with “A Bitter Pill”

By Steven Brill
Reuters, March 5, 2013
For the past 10 days I’ve been interviewed on various television and radio shows about the article I wrote for the March 4 issue of Time, called “A Bitter Pill.”  It’s all about how exorbitant prices and profits are at the core of the crisis America uniquely faces when it comes to financing healthcare, the cost of which now accounts for roughly a fifth of our gross domestic product.
Invariably a question has come up in these interviews about how I thought of that approach. So, since this is supposed to be a column about good story ideas, I think I’ll use it to explain the genesis of “A Bitter Pill” in more detail than I’ve been able to on the talk show circuit.
During the long debate over President Barack Obama’s health insurance reform proposals, a question kept nagging at me: Everyone on all sides seemed to accept as a given that healthcare was wildly expensive, and the only debate seemed to be over who should pay for it. I wondered: Well, why is it so expensive in the first place?
I had no idea what the answers were. But it seemed obvious that there was only one way to find out: If you want to know why something is so expensive, figure out every element of its costs. In other words, follow the money.
As those who have read the article or heard about it now know, I found that all my initial suspicions were wrong. By following the money, I discovered that our healthcare prices are out of whack for a reason that was hiding in plain sight — a reason that should be obvious to anyone who has ever been a healthcare consumer, which means all of us: There is no such thing as a free market in healthcare, if one defines a free market as a place where there is some balance of power between the buyer and the seller. Instead, healthcare is – except when Medicare is the buyer – a lopsided seller’s market. That became clear at both ends of the money trails I followed – from the patients’ lack of any knowledge of what they were buying or its prices, much less any leverage to bargain over it, to the sellers’ ability and willingness to charge absurdly high prices on everything from gauze pads to ambulance services to cancer wonder drugs.
In other words, everyone along the supply chain – from hospital administrators (who enjoy multimillion-dollar salaries) to the salesmen, executives and shareholders of drug and equipment makers ‑ was reaping a bonanza. The only exceptions, I found, were those actually treating the patients ‑ the nurses and doctors (unless the doctors were gaming the system by reaping consulting fees from drug or device makers or setting up diagnostic clinics in their practices in order to steer patients there for expensive tests).
http://blogs.reuters.com/stories-id-like-to-see/2013/03/05/coming-up-wit…

These excepts from Steven Brill’s explanation of how he came to write “Bitter Pill,” his TIME special report on exorbitant prices and profits in U.S. health care, reveal that there are two elements that come out untarnished: 1) most of the doctors and nurses actually treating the patients, and 2) Medicare.
The first point is very reassuring, but the second point should be a call to action. As Brill writes, “healthcare is – except when Medicare is the buyer – a lopsided seller’s market.” We really do need to make Medicare, in an improved version, a buyer for all of us.
***
For those who have not yet read the 36 page report, “Bitter Pill,” it can be downloaded at the following link. The point to glean from the article is how well Medicare works, which should lead you to the conclusion that we need an improved Medicare for all of us, as opposed to merely accepting the relatively ineffectual tweaks that he suggests at the end of the article.
http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-…

Office of Inspector General
Department of Health and Human Services, March 2013

Objectives

1. To assess sponsors’ Pharmacy and Therapeutics (P&T) committees’ conflict-of interest-definitions.
2. To determine whether sponsors’ P&T committees established objective processes to determine and manage committee members’ conflicts of interest.
3. To determine whether the Centers for Medicare & Medicaid Services (CMS) oversee sponsors’ P&T committee compliance with conflict-of-interest requirements.

Findings

Most sponsors’ P&T committees had limited definitions of conflicts of interest, which could prevent them from identifying conflicts
  * Half of P&T committees’ definitions did not address conflicts prohibited by Federal regulations
  * P&T committees’ definitions did not always address relationships with other entities that could benefit from formulary decisions
  * More than two-thirds of P&T committees’ definitions did not address employment

Many sponsors’ P&T committees allowed members to determine and manage their own conflicts of interest
   * Nearly two-thirds of P&T committees relied on members to determine whether financial interests constituted conflicts
  * More than three-quarters of P&T committees relied on members to recuse themselves from discussions and votes

CMS does not adequately oversee sponsors’ P&T committee compliance with Federal conflict-of-interest requirements
  * CMS does not review P&T committee conflict-of-interest information
  * Data discrepancies would prevent CMS from identifying with certainty the members of each P&T committee

Conclusion and Recommendations

Our findings reveal that both sponsors and CMS conduct limited oversight of P&T committee conflicts of interest, compromising their ability to ensure that financial interests do not influence formulary decisions. Specifically, we found that without direction and oversight from CMS, many sponsors’ P&T committees have limited oversight of members’ conflicts of interest. Additionally, we found that CMS does not adequately oversee compliance with the Federal requirement that at least one physician and at least one pharmacist on each committee be free of conflict.

To address limitations in how P&T committee members’ conflicts are defined, determined, and managed, we recommend that CMS:

* Define PBMs as Entities That Could Benefit From Formulary Decisions

* Establish Minimum Standards Requiring Sponsors To Ensure That Safeguards Are Established To Prevent Improprieties Related to Employment by the Entity That Maintains the P&T Committee

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Determine Whether Disclosed Financial Interests Are Conflicts

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Manage Recusals Because of Conflicts of Interest

* Oversee Compliance With Federal P&T Committee Conflict-of-Interest Requirements and Guidance

Agency Comments and Office of Inspector General Response

CMS did not concur with our first and second recommendations, concurred with part of our third and fourth recommendations, and concurred with our fifth recommendation.

CMS maintained that it is not necessary to conduct additional P&T committee conflict-of-interest oversight because current formulary reviews and P&T committee audits appropriately protect beneficiaries from any adverse effects of potential conflicts of interest.

If conflicts of interest among P&T committee members are not addressed, beneficiaries may receive inferior therapies when safer or more effective therapies are available, limited Medicare dollars may be wasted to pay for inappropriate treatment, and public confidence in the Federal Government may be undermined. In contrast, CMS asserts that conflicts of interest would not disadvantage beneficiaries or the Federal Government because it believes that formulary decisions influenced by conflicts would result in higher premiums and the plan would be priced out of the marketplace.

https://oig.hhs.gov/oei/reports/oei-05-10-00450.pdf

Comment:

By Don McCanne, M.D.

When the conservatives enacted the Part D drug program for Medicare, they designed it as a private sector solution, using private insurer sponsors and private pharmacy benefit managers (PBMs), while specifically prohibiting any competing public drug plan.

An important function of these intermediaries is to select the drugs to be covered through their formularies, balancing the adequacy of drug selection with the opportunity for profit not only for the insurer sponsors and the PBMs, but also for the pharmaceutical firms supplying the drugs. This function is carried out by the sponsors’ own Pharmacy and Therapeutic (P&T) committees, and not by the government.

The potential for conflict of interest within these P&T committees is enormous. This is why this report from the Office of the Inspector General (OIG) is so important. The committee members are in a position to advocate for the interests of the insurer sponsors, or the PBMs, or the pharmaceutical firms. Decisions which benefit any or all of these would likely be detrimental to the patients who pay premiums and a portion of the Part D drug costs, and to the taxpayers who help fund the Part D program of Medicare.

But don’t worry. This program was set up to allow the free market to work its magic. Apparently this is not only the agenda of the conservatives who established this program, this laissez-faire approach is also being followed by the current “liberal” administration.

In her letter in response to the OIG report, acting CMS administrator Marilyn Tavenner wrote, “… if a P&T committee were to create a formulary while operating under a potential conflict of interest, because a discriminatory formulary would not be approved, the only potential impact would be that the bid could be more expensive and, therefore, less competitive. Beneficiaries could easily evaluate these higher premiums in the marketplace and choose a more efficient plan to meet their needs. As a result, we could expect that any authentic conflicts of interest, given our level of formulary review, would disadvantage the sponsor and not the beneficiary or Medicare program.” Note that this is the exact opposite of what is stated above.

Have you tried to shop for Part D plans? Though the premium might be the first feature you see, the complexity of the various benefits, and especially the differences in the formularies are very difficult to make sense of. How can you look up medications that may be prescribed for you next year when you don’t even know what those medications are? And are you really going to carry a formulary with you each time you see the doctor?

How nonsensical this dependency on the power of the market is can be understood by comparing the prices we get through the privatized version of the government Medicare Part D program, with the prices we get through the government purchases of drugs for the VA system. The VA pays about 40 percent less for drugs than paid under Medicare Part D (Austin Frakt). It seems that the only magic in the marketplace is the increased revenues that these intermediaries can glom off of us pathetic saps.

With HHS Secretary Kathleen Sebelius pushing private Medicare Advantage plans (yesterday’s message), and soon-to-be-confirmed CMS Administrator Marilyn Tavenner pushing private Medicare Part D drug benefits, we have
the private sector pretty well covered. One more step to the defined contribution premium support proposal and the private sector will have it locked up.

Our love of the marketplace brings to mind Puck’s comment to Oberon, “Lord, what fools these mortals be!”