By Bob Herman
Becker’s Hospital Review, May 14, 2012

One of the biggest buzz words in health care today is “reform” — and to quote REO Speedwagon, “It’s everywhere.” Perhaps the biggest poster child of the term “reform” is the Patient Protection and Affordable Care Act that President Barack Obama signed into law in March 2010.

Some argue the law — which is currently being contested in the Supreme Court —overreached its bounds in reforming what most would say is a broken health care system, but many others believe the law did not go far enough, especially when it comes to providing maximum health coverage and creating significant savings in the delivery system.

Enter, single payer.

Single-payer health care has made a lot of headlines in the past year, most notably in Vermont. In May 2011, Gov. Peter Shumlin signed the single-payer bill into law, which laid the groundwork for creating a publicly funded health system in which the state would act as the main insurer by 2017. Montana Gov. Brian Schweitzer also asked the federal government for a waiver this past September so Montana could set up its own single-payer health system based on what is used by its northern neighbor, Saskatchewan, although no waiver has been granted. Even California lawmakers proposed a bill in January that would have established a single-payer health care system, although it was ultimately defeated.

It’s vividly apparent that health care spending is out of control in the United States, considering it is at its highest level ever. According to the National Health Expenditure Accounts, total health expenditures reached $2.6 trillion in 2010, which translates to roughly $8,402 per person — a record high. A recent study from The Commonwealth Fund also found health care spending in the United States dwarfs a dozen other industrialized countries, but the varied quality measures do not make the U.S. health care system “notably superior.”

“The mistake the United States made is that we poured so much money into health care and we postponed our reforms for so long, we’ve created very powerful stakeholders,” said William Hsiao, PhD, professor of economics at the Harvard School of Public Health in a Harvard Crimson report last year. “They are so invested, they make it so difficult, if not impossible, to reform the system.”

Much of that money and investment is tied up in numerous insurers that many think complicate the system beyond control and create excessive administrative overheads — and these administrative costs are borne both by the health insurance sector as well as the provider sector. “The biggest issue in health care is the complexity of the various payment streams and arrangements,” says Jim Grigg, CPA, partner and national health care assurance practice leader at Crowe Horwath. “Health care reform didn’t go anywhere near far enough in terms of reforming the system. The number and types of contracts with any given insurer, between each hospital, different by state — it’s a morass of complications.”

So could a national single-payer system — a system that is very different from the current state of affairs and is also different from the PPACA — help hospitals and create a more beneficial health care system at large? Understanding what would occur in a single-payer system, as well as its challenges and benefits, could lead to a clearer answer.

The basic tenets behind a true single-payer system

A single-payer health care system is a structure that would replace the multiple payers and health insurers with one public or quasi-public agency that organizes the health financing — and only the health financing. Medical decisions would still be left up to patients and physicians. More likely than not, the federal government would act as the sole agency in reimbursing providers (similar to CMS now), or state governments could act as the single payer (like in Vermont, potentially). However, health care delivery systems, such as hospitals, can still be private, says Kip Sullivan, JD, steering committee member of the Minnesota chapter of Physicians for a National Health Program.

All citizens would have health insurance from the day they are born, and all medically necessary services — which include preventive care, mental health, reproductive health, dental, vision, prescription drug and most acute-care services — would be covered. While the PPACA expands health insurance to millions and places a larger emphasis on preventive care instead of “sick” care, the dominant financing mechanisms and intermediaries were not altered significantly.

As is the case with any proposal to make coverage universal, a central question of single-payer health care is: How will this be funded? Like many broad questions, there’s more than one possible answer. A single-payer system could be funded from numerous, smaller taxes (e.g., a tax on candy, a tax on ammunition, etc.), a single tax on one source (e.g., payroll or income) or a mix of two or three taxes, Mr. Sullivan says.

Another important factor of a single-payer system is the focus on clinical decisions rather than complicated payment streams, says James Burdick, MD, professor of surgery at the Johns Hopkins University of Medicine. Similar to the goals of the PPACA, a focus on the “Triple Aim” — improving the health of the population, enhancing the patient experience of care and reducing the per capita costs of care — starts with an unwavering foundation in clinical quality. “Evidence-based medicine should be maximized by this process,” Dr. Burdick says. “The things that would be controlling the costs are doing the right care instead of arbitrary administrative decisions.”

Vermont’s version of a single-payer system is still evolving and was based on the research of Dr. Hsiao, who is internationally renowned for his single-payer health care economics. Vermont’s Green Mountain Care Board, a five-person committee comprised of state health care professionals and other community members, is tasked with setting up the state’s system, and it will make a formal financing proposal in 2013. By the time the system is fully operating in 2017, it is projected to save the state roughly $880 million through savings in health premiums and other general health care costs.

The challenges and benefits of single-payer

Daniel Fass, MD, director of the Institute for Image-Guided RadioTherapy in Rye, N.Y., has long thought the U.S. health care system has needed massive reform. He says the PPACA was a good start but, like all legislation, will evolve over time. A single-payer system, however, runs into one of the biggest obstacles of any new government initiative: skepticism. “If single-payer were enacted, then the federal government would have even more control, and most people at this point in time don’t want to see that,” Dr. Fass says.

Because Vermont is a smaller state with fewer hospitals, a single-payer pilot is more manageable, he says. As the Green Mountain Care Board and Gov. Shumlin unveil their plans for complete state funding, its results will be influential if other states take the plunge and request a single-payer waiver. “If Vermont rolled out single-payer and succeeded in terms of cost control, then other states would look at it as a model going forward, but that doesn’t mean that’d be the best model for all states,” Dr. Fass says.

Tom Huebner, president and CEO of Rutland (Vt.) Regional Medical Center, says his hospital is already looking ahead to prepare for the single-payer changes. While the state law will expand insurance access to all Vermont residents — something he calls the most beneficial part of the law — the challenge of adequate physician volume looms.

“We will require a sufficient number of primary care and specialty physicians who are able and willing to participate,” Mr. Huebner says. “A lot of us are concerned that if compensation for ph
ysicians is not maintained at a level that is competitive with the rest of the country, we’ll see physicians leaving our state. We have a lot of people promising us that won’t happen, but that’s still a worry.”

In addition to the lack of legislative will and physician supply, Dr. Fass — who used to be the director of radiation oncology at Greenwich (Conn.) Hospital — says the enormous transition to a single-payer system will leave many in the for-profit health insurance industry scrambling for jobs, since for-profit insurers would be siphoned out.

However, as Mr. Sullivan points out, several former single-payer bills that were proposed at various government levels — such as U.S. House Bill 676 in 2007 and Minnesota’s Senate Bill 118 in 2009 — would provide a certain level of funding to retrain displaced health insurance workers into new health care roles during the first few years of single-payer implementation. “Also, when health insurance employees lose their jobs because of single-payer legislation, they will know they won’t also lose their health insurance, which is what happens to unemployed people under our current multiple-payer system,” Mr. Sullivan says.

When it comes to a single-payer health care system, two benefits immediately jump to the forefront: Everyone is insured, and administrative costs are greatly slashed. The “everyone is insured” benefit is pretty straightforward — uncompensated care for hospitals and other providers would be eliminated if everyone had health insurance, and providers would not have to worry about missed reimbursements and exorbitant spending to chase payments on the back end. The overall administrative cost savings, however, require deeper digging for true impact.

Hospitals, physicians and other health care providers are currently mired in an ecosystem with literally tens of thousands of ways to be paid. The number of different HMOs, PPOs and other managed care organizations and contracts is almost dizzying. At the heart of the issue is government payers (Medicare and Medicaid) versus private health insurers.

Robert Zirkelbach, press secretary of America’s Health Insurance Plans, the lobbying association for private health insurers, points to several reports — such as one that tested hospital readmission rates in Medicare Advantage versus traditional Medicare — on the effectiveness of private health plans. In the end, he says a single-payer system would be eliminating a vital cog of the U.S. health care machine

“Surveys consistently show that the vast majority of policyholders express strong satisfaction with their private health plans,” says Robert Zirkelbach, press secretary of America’s Health Insurance Plans, the lobbying association for private health insurers. “Health plans have pioneered programs to coordinate care for patients with chronic conditions, promote prevention and wellness and incentivize providers to improve the quality and safety of patient care. Data show that private plans outperform current government-run programs on a variety of quality and safety measures, including reducing hospital-acquired infections, never-events and preventable hospital readmissions.”

Michael Diamond, MD, of the Allergy, Asthma, Arthritis and Lung Center in Daytona Beach, Fla., also argues a single-payer system would expose physicians to “unwanted oversight” by the government in their health care decisions. “With the newfound power to benchmark physicians and regulate payments, the government will inevitably restrict the use of potentially beneficial therapies and pay differentially for perceived differences in quality, with potential unintended consequences such as increased health care disparities,” he wrote in an article for the American Journal of Respiratory and Critical Care Medicine.

However, several other studies have shown that the government programs — specifically Medicare, which is the basis of a single-payer system — surpass private health insurers in several of those areas and also save money.

According to a Kaiser Family Foundation (pdf) report, the administrative costs of Medicare have stayed incredibly low over the past several years — less than 2 percent of all Medicare expenditures. In fact, the most recent Medicare Trustees report found administrative expenses accounted for only 1.4 percent of total expenditures across Medicare Parts A, B and D. On the other hand, in a true apples-to-apples comparison, administrative costs of Medicare Advantage plans, the private Medicare insurers better known as Medicare Part C, account for approximately 11 percent of spending — or almost 8 percent more than traditional Medicare, according to Congressional Budget Office reports. Other private, commercial health plans have administrative costs stretching as high as 30 percent, on average. (The PPACA’s medical loss ratio currently caps private health insurer administrative costs at 20 percent in the small group and individual market.)

By virtue of having to deal with the plethora of private insurers, hospitals and physicians incur enormous overhead expenses as well. In fact, according to an article from the New England Journal of Medicine, the average U.S. hospital devotes 24.3 percent of spending to administration and billing. A study in the Annals of Family Medicine found that physicians devote almost a third of their day to simple documentation and paperwork alone. Ezekiel Emanuel, MD, a bioethicist at the National Institutes of Health, wrote in a recent New York Times article that the total U.S. billing and administrative costs equal roughly $360 billion per year, or 14 percent of total U.S. health care expenditures. Hospitals and physicians take up half of those costs because they have to perform the “myriad…administrative functions associated with health care,” said Dr. Emanuel.

A single-payer health care system would take on a traditional “Medicare-for-all” approach, thus leading to significantly lower administrative costs. Hospitals that are able to break even or profit on Medicare today would be in an even better position to succeed. “If hospitals and physicians don’t figure out that administrative waste is the primary problem and allow others to say overuse is the problem, then they are going to be micromanaged for as long as the myth lives,” says Mr. Sullivan of the Minnesota chapter of Physicians for a National Health Program.

Paul Spencer, CPC, CPC-H, compliance officer for Fi-Med Management, used to work in the private health care insurance industry. He says the high costs of the private health insurance industry are mirrored in other health care initiatives spearheaded by private enterprises. For example, CMS outsources its Medicare Recovery Auditor program to private contractors, who are tasked with recouping improper Medicare claims. Despite reports of large overpayment recoveries (RACs have reportedly collected $1.27 billion in overpayments since 2009), hospitals have successfully appealed more than 70 percent of their RAC denials that were initiated by the private RACs. “We have to get past the orthodoxy that the private sector can do it better than government,” Mr. Spencer says. “With the Medicare RAC program and the amounts of dollars chasing shadows, you would have a hard time convincing me the private sector is doing well.”

Dr. Burdick of Johns Hopkins agrees, saying the United States needs to stray away from commerce in medicine and focus on physician-led efforts to make the right clinical judgments that also lead to lower costs. “Because we would be defining what care is going to be given, we could get rid of any interference and massive administrative problems,” he says.

The universal health care coverage and reduced administrative costs of a single-payer system would eventually lead to one of the most important byproducts: heightened efforts to become a healthier population. “If you had a one-payer system, think how easy that would be to account for,” Mr. Grigg says. “Unfortunately, what happens i
s the amount of energy that goes into accounting for all these programs, payers, patient billing — those are all dollars that don’t go toward patients.

“Wouldn’t we rather have those dollars in the emergency department than in patient accounts?” he adds. “We have burdened our hospitals to have huge administrative overheads that aren’t doing a thing to promote health in this country.”

A future for single-payer?

If single-payer is to hold any weight in the United States, Vermont will be seen as the primary barometer over the next several years. “It will be interesting years from now when Vermont has had its health care system up and running to see how many businesses relocate to Vermont,” Mr. Spencer of Fi-Med Management says. “If you have the ability to get a large chunk of health care investment off your bottom line, it has to be tempting to move into that kind of environment.”

Jeff Fried, CEO of Beebe Medical Center in Lewes, Del., says he’s uncertain if single-payer should be the next path for the U.S. health care system, but it’s something that must be considered, if for nothing else to create a more seamless episode of care for patients. “One of the big problems is [the health care system] operates in silos,” Mr. Fried says. “Acute-care, outpatient, home care providers, long-term acute-care providers, insurers, doctors that are employed, doctors that are privately run. Communication is often times fragmented, and it’s a very complicated system.”

It’s clear legislation is pushing the fee-for-service model out of the health care playing field, but Mr. Fried says FFS is not the major contributor to higher health care costs. “One of the problems with the system is that everybody, hospitals included, has focused on expanding, growing and developing services,” Mr. Fried says. “Certainly they are necessary and needed, but sometimes in the course of that, we have lost track of how we put ourselves in a better position to take care of people who need access to health care.”

Single-payer health care is normally thought about in terms of foreign health care systems, but as costs continue to spiral out of control, the industry must start asking itself: Is the current path of reform enough? Or will “reform” just be another buzz word? “If we’re going to have a system based on insurance and spreading risk, it’s only fair to have everyone participate,” Mr. Fried says. “My own personal thoughts about the issues we’re struggling with are that we don’t seem to be very unified. Everyone is fighting for their own issues. In our society, health care is not a privilege. However, it should be something everyone has access to, and everyone should bear some responsibility.”

“Even if [the PPACA] were thrown out, we have to get out of our individual silos and work together to create a better system for everybody,” Mr. Fried adds.

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