PNHP

Wal-Mart squeezes employee health benefits

Wal-Mart squeezes employee health benefits

Wal-Mart Cuts Some Health Care Benefits

By Steven Greenhouse and Reed Abelson
The New York Times, October 20, 2011

After trying to mollify its critics in recent years by offering better health care benefits to its employees, Wal-Mart is substantially rolling back coverage for part-time workers and significantly raising premiums for many full-time staff.

Citing rising costs, Wal-Mart, the nation’s largest private employer, told its employees this week that all future part-time employees who work less than 24 hours a week on average will no longer qualify for any of the company’s health insurance plans.

In addition, any new employees who average 24 hours to 33 hours a week will no longer be able to include a spouse as part of their health care plan, although children can still be covered.

Wal-Mart also significantly reduced the amount of money it contributes to the savings accounts workers can use to pay for medical bills that are not covered under their plan. Last year, the company put $1,000 into accounts for families but it will cut the amount by half for next year to just $500.

Barbara Collins, a sales associate at the Wal-Mart in Placerville, Calif., said that the premiums for the H.M.O. plan for herself and her 5-year-old son would rise to $18 every two weeks from $10. Her big concern, she said, was that her deductible would jump to $5,000 a year, from $1,000 — a daunting amount considering she earns $19,000 a year.

Dan Schlademan, director of Making Change at Walmart, a union-backed campaign, condemned the changes.

“No wonder people are protesting in the streets,” he said. “This is another example of corporations putting profits ahead of what’s good for everyday Americans. It’s outrageous and damaging to many hard-working families that the biggest corporation in America is increasing health care costs for many employees by 40 percent.”

http://www.nytimes.com/2011/10/21/business/wal-mart-cuts-some-health-care-benefits.html?_r=1&hp=&pagewanted=all

And…

The Richest People in America

Forbes
September 21, 2011

#6 Christy Walton $24.5B

#9 Jim Walton $21.1B

#10 Alice Walton $20.9B

#11 S. Robson Walton $20.5B

http://www.forbes.com/forbes-400/#p_2_s_arank_All%20industries_All%20states_All%20categories_

And…

Wage Statistics for 2010

Social Security Online
October 21, 2011

By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $26,363.55 for 2010.

http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2010

Comment:

By Don McCanne, MD

A fundamental principle in the Affordable Care Act is that we would continue to rely very heavily on employer sponsored plans for the majority of health care coverage in America. How is that working? Wal-Mart, the nation’s largest private employer, is increasing the insurance deductible to $5,000 for an employee earning $19,000 per year.

Yet look at her employers. Four members of the Walton family are amongst the eleven wealthiest individuals in America, each worth over $20 billion. (Compare that with the Koch brothers, who own Congress, each worth $25 billion.) This is in a nation with a median wage of $26,364.

Relying on employers to do the right thing no longer cuts it. Not only do they fail to pay enough, they can no longer be relied upon to see that their employees and their families receive adequate health benefits.

It’s time to enact an improved Medicare for all, even if we have to “Occupy Congress” to accomplish that.

Wal-Mart squeezes employee health benefits

Wal-Mart Cuts Some Health Care Benefits

By Steven Greenhouse and Reed Abelson
The New York Times, October 20, 2011

After trying to mollify its critics in recent years by offering better health care benefits to its employees, Wal-Mart is substantially rolling back coverage for part-time workers and significantly raising premiums for many full-time staff.

Citing rising costs, Wal-Mart, the nation’s largest private employer, told its employees this week that all future part-time employees who work less than 24 hours a week on average will no longer qualify for any of the company’s health insurance plans.

In addition, any new employees who average 24 hours to 33 hours a week will no longer be able to include a spouse as part of their health care plan, although children can still be covered.

Wal-Mart also significantly reduced the amount of money it contributes to the savings accounts workers can use to pay for medical bills that are not covered under their plan. Last year, the company put $1,000 into accounts for families but it will cut the amount by half for next year to just $500.

Barbara Collins, a sales associate at the Wal-Mart in Placerville, Calif., said that the premiums for the H.M.O. plan for herself and her 5-year-old son would rise to $18 every two weeks from $10. Her big concern, she said, was that her deductible would jump to $5,000 a year, from $1,000 — a daunting amount considering she earns $19,000 a year.

Dan Schlademan, director of Making Change at Walmart, a union-backed campaign, condemned the changes.

“No wonder people are protesting in the streets,” he said. “This is another example of corporations putting profits ahead of what’s good for everyday Americans. It’s outrageous and damaging to many hard-working families that the biggest corporation in America is increasing health care costs for many employees by 40 percent.”

http://www.nytimes.com/2011/10/21/business/wal-mart-cuts-some-health-care-benefits.html?_r=1&hp=&pagewanted=all

And…

The Richest People in America

Forbes
September 21, 2011

#6 Christy Walton $24.5B

#9 Jim Walton $21.1B

#10 Alice Walton $20.9B

#11 S. Robson Walton $20.5B

http://www.forbes.com/forbes-400/#p_2_s_arank_All%20industries_All%20states_All%20categories_

And…

Wage Statistics for 2010

Social Security Online
October 21, 2011

By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $26,363.55 for 2010.

http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2010

A fundamental principle in the Affordable Care Act is that we would continue to rely very heavily on employer sponsored plans for the majority of health care coverage in America. How is that working? Wal-Mart, the nation’s largest private employer, is increasing the insurance deductible to $5,000 for an employee earning $19,000 per year.

Yet look at her employers. Four members of the Walton family are amongst the eleven wealthiest individuals in America, each worth over $20 billion. (Compare that with the Koch brothers, who own Congress, each worth $25 billion.) This is in a nation with a median wage of $26,364.

Relying on employers to do the right thing no longer cuts it. Not only do they fail to pay enough, they can no longer be relied upon to see that their employees and their families receive adequate health benefits.

It’s time to enact an improved Medicare for all, even if we have to “Occupy Congress” to accomplish that.

Ratings plummet for Medicare drug plans serving low-income patients

Lower Income Seniors See Star Ratings Drop in Available Medicare Prescription Drug Plans in 2012

Avalere Health
October 19, 2011

According to a new Avalere Health analysis of the Centers for Medicare and Medicaid Services’ (CMS) landscape file of the 2012 Medicare market, a high number of prescription drug plans (PDPs) eligible for auto-assignment of low income subsidy (LIS)-eligible beneficiaries will see a drop in their star ratings from 2011 to 2012. In 2012, 52 percent of LIS-eligible plans are rated 2 stars compared to only 3 percent in 2011. In 2011, 83 percent were rated 3 stars and 14 percent were rated 4-5 stars. In 2012, 43 percent are rated 3 stars, and only 5 percent are rated 4-5 stars.

Avalere Health attributes this precipitous decline in star ratings to the new rating system established by CMS for 2012. The new system places a greater emphasis on clinical outcome measures like medication adherence. Previous year ratings emphasized more process-oriented measures such as how long a person was kept on hold when calling a plan for assistance. Moreover, unlike the Medicare Advantage program, which rewards plans with higher payments for achieving higher ratings, there is no payment incentive in Medicare Part D.

http://www.avalerehealth.net/wm/show.php?c=&id=890

Comment: 

By Don McCanne, MD

We can only speculate as to why there was a very dramatic decline in the star ratings earned by Medicare prescription drug plans serving low income subsidy (LIS)-eligible individuals.

Was it because the plans simply don’t care about this low income population as long as they get their business?

Was it because there is no financial reward for Part D plans receiving higher star ratings?

Was it because of the change in the measurements of a new rating system? If so, that would confirm the findings of other studies that have shown that when efforts are made to improve results on measured processes or outcomes (“teach to the test”), then less attention is paid to those processes and outcomes which are not measured. Suddenly adding in measurements of neglected processes and outcomes would certainly cause star ratings to plummet.

Regardless of the explanation, we pay far more for the private sector to manage these plans, while our choices in products and providers are restricted, and value is diminished by the diversion of funds to these intrusive intermediaries that provide worthless services. They really do care only about their investors and not about us. It’s time to replace them and the rest of the wasteful intermediaries with our own publicly-administered, improved Medicare for all.

Some states seek flexibility to push health-care overhaul further

By Sarah Kliff
The Washington Post, Oct. 16, 2011

As far as health-reform boosters go, Oregon Gov. John Kitzhaber is among the most stalwart.

“We want to show that health reform is something real, that it actually works,” he said. “Oregon is a place that can actually make it happen.”

His state has aggressively implemented the health overhaul Congress passed last year, taking more than $100 million in federal funding to do so.

But at the same time, the health-care law puts Kitzhaber (D) in a bind. This year, Oregon passed its own plan, which starts with changing how it pays doctors and eventually ends with allowing public employees to enroll in Medicaid, the federal insurance program for low-income Americans. There’s just one big obstacle: What Oregon wants to do would require the Obama administration to waive integral pillars of its signature legislative accomplishment.

“We would need a number of waivers to implement all of this,” he said. If Oregon doesn’t get them? “That,” Kitzhaber said, “would be a problem.”

Kitzhaber isn’t alone. A handful of states are pursuing health measures that go far beyond the Obama administration’s signature legislative accomplishment, the Affordable Care Act.

They stand in contrast to Republican governors, who have aggressively opposed the law. Twenty-seven states are challenging the law in the courts as unconstitutional, while two, Florida and Louisiana, have just refused to implement much of the law.

For Democratic governors who want to push changes further, navigating the federal law is a much more complex and nuanced task. They want to implement the law, as well as be waived from key parts of it.

“The Affordable Care Act’s main goal was to expand coverage,” Kitzhaber said. “We’re trying to pivot from that and go quite a bit further.”

The health-care law does allow states to pursue ideas outside its purview. It includes State Innovation Waivers for those that want to bypass key components such as the mandated purchase of insurance, so long as they can meet certain benchmarks on cost and coverage. The waivers become available in 2017, three years after most of the law takes effect.

But for states such as Oregon and Vermont, that timeline is problematic. Because most of the law takes effect in 2014, they worry about setting up a system only to dismantle it a few years later, to implement the policies they really want.

In February, President Obama endorsed legislation that would allow the waivers to start in 2014. But it has been languishing in the Senate for months, never seeing a committee hearing.

Meanwhile, states continue to lay the groundwork for health measures that go well beyond the Affordable Care Act, meeting regularly with administration officials to discuss what flexibility might be available.

Vermont has moved swiftly in pursuing universal health care. In May, the state became the first to attempt to implement a single-payer system. The state has begun discussions with the Obama administration about waivers that would be necessary to convert health insurance there into a single-payer health plan, run by a public board.

“We’ve had some very general discussions with the federal government about our single-payer plans, [and] we’ll continue to push for earlier waivers,” said Anya Rader Wallack, chair of the new Vermont Green Mountain Care Board, which held its first meeting last week. She had been a top health policy adviser to Gov. Peter Shumlin (D). “If we can’t have it, we can’t implement our reforms as fast as we’d like to. It’ll make a difference in terms of the degree of simplification in implementation and the savings associated with that.”

Montana has also started exploring single-payer options. Last month, Gov. Brian Schweitzer (D) announced that he would seek permission to open up his Medi­caid program to government employees and other individuals, laying the foundation for a future universal coverage program.

“Most of the Republican governors have either asked or plan to ask for a block grant, which is kind of what I’m talking about here,” he said. “Send me the money and I’ll take responsibility for my Medicaid population. Don’t be my partner anymore.”

Schweitzer has spent three years working on the plan, modeled after one in Saskatchewan, the Canadian province directly north of Montana. But unlike Vermont officials, he’s skeptical that the Obama administration will give him permission to move forward. As evidence of a lack of federal flexibility, Schweitzer points to another waiver request he made, one that would offer a prescription drug benefit to non-Medicaid patients, that the federal government denied.

“Since we’re proposing to save citizens’ money, you’d expect some kind of chorus and music, maybe a presentation with some plaques and flowers,” he said. “That’s what you’d expect. But in my experience, that’s not what you get.”

The Obama administration has spent “countless hours” working with states to implement ideas that diverge from the federal law, White House spokesman Nick Papas said. “Giving states the chance to pursue innovative ideas that strengthen the health-care system is one of our top priorities,” he said.

For some states, though, it’s already too late. Before the health-care law was enacted, Connecticut had explored the possibility of a public option, an insurance plan administered by the state. But after the health-care law came into being, that proposal got pared back to a study of publicly financed insurance. At the time, Gov. Dan Malloy (D) said his top priority was implementing the federal law — the state’s own ideas would have to wait.

Kitzhaber is trying to make sure that doesn’t happen in Oregon. He spent several days in Washington last week trying to clear the way for his state’s proposed changes. He met with Valerie Jarrett, White House senior adviser, and Nancy-Ann DeParle, deputy chief of staff, on the issue last Monday. The next day he met with Donald Berwick, administrator of the Centers for Medicare and Medicaid Services, to discuss a Medicaid waiver Oregon would soon request.

Kitzhaber said Berwick was “very supportive” of his ideas for Medicaid, and his White House meeting went well, too.

“I do think they’re very interested in a state that can demonstrate, on the ground, that health reform is working in the face of all these attacks,” he said.

But whether the White House can give Kitzhaber the flexibility he wants remains an open question.

“We obviously are interested in moving much sooner” than current law allows, he said. “States are going to hit a wall way before 2017.”

http://www.washingtonpost.com/national/health-science/some-states-seeking-flexibility-to-push-health-reforms-further/2011/10/14/gIQALX7VpL_story.html

Gov. Schweitzer pushes universal health care in Montana, ahead of Affordable Care Act

By Joan McCarter
Daily Kos, Fri Sep 30, 2011

Montana Governor Brian Schweitzer, not willing to wait for the Affordable Care Act to kick in in two or three years, is challenging the federal government to start having a dialogue about real health care reform now by allowing Montana to set up a system modeled on “SaskCare,” the Saskatchewan health system, the first universal health care system among the Canadian provinces.

In an interview with Daily Kos Friday, Schweitzer talked about his rationale for the plan. It builds on a request he made last year for a Medicaid waiver for his state to set up a “Medicaid Part D” program, as he called it, a prescription benefit plan for all Montanans. That proposal, intended to hit at the heart of a long-time Schweitzer foe—the pharmaceutical industry—would have allowed the state to offer a prescription drug program to all Montana citizens that would provide the drugs at Medicaid prices.

That waiver request was denied.

Building on that, and taking Saskatchewan as his model, Schweitzer will request a waiver from HHS for not just Medicaid, but Medicare, Veterans Administration and Indian Health Services funds that are provided to the state. He wants a block grant of those moneys to set up a single payer system. And he’s using Saskatchewan as his model because of the similarities between that province and his state.

“Montana has a population of 990,000 people,” he explains. “Saskatchewan has a population of 1,050,000. Their average age is about the same average age of Montana. They’re about 10 percent Indian, we’re about 7 and a half percent Indian. The other ethnic groups—they’re a mirror image of us … So we have the same ethnic population, we’re farmers, we’re loggers, we’re miners, we’re oil developers … They, in Saskatchewan, live two years longer and have lower infant mortality.”

Looking at those basic elements, Schweitzer asked province Premier Brad Wall for details on their health system. He discovered that the province spends about $4 billion a year on universal health care, about $4,000 per person. In Montana, all systems—public and private, state and federal—it’s a little more than $8 billion, and about twice as much per person.

“So they’re living longer, less infant mortality, and they’re paying half as much,” said Schweitzer. “Unlike Washington, D.C., that piqued my interest. This is maybe a system that I want to look into.”

Schweitzer talked about all of the factors at work in the high cost of care in the United States, factors that are well-known to anyone who has followed the health care reform debate: high costs in pharmaceuticals, in medical devices, in the number of services provided, in the fractured and divergent system providing care.

“In Saskatchewan,” he explained, “they have five MRIs for the entire province. We have three in Helena for 35,000 people and a couple of dozen for Montana. Why? Because they cost $3 million and you can make $500,000 a year on them.”

“We have an $8 billion health care industry in Montana right now, and 50 percent of it, or $4 billion, is coming directly from the federal government,” he continued. “That may be enough so that we can get the rest of Montana in it. We turn to the rest of Montana and say to them we’ve got this $4 billion, and we’re taking care of all these people, and now we’ve run the rates and if you want to pay into this system, here’s how much it’s going to be. If you don’t want to buy into that system, you don’t have to.”

“If you want to pay twice as much for Blue Cross and Blue Shield and have their accountants lie to you,” the governor said, “you just stay right where you’re at. But I think they’ll knock our door down.”

Schweitzer is not too optimistic about the chances of this broad waiver being granted, but wants the health care reform discussion to continue. He’s also not sure that in the intervening years between now and when the major provisions of the Affordable Care Act are implemented, that the core of the law will actually be maintained.

“The Affordable Care Act is probably not going to be implemented,” he argued. “And most of it isn’t going to be implemented until ’14, and by that time it’s going to have changed a great deal. We have people who continue to live lives, and they have children who get sick and there’s elderly people who get sick and sometimes people get in accidents—we can’t wait around for Congress.”

http://www.dailykos.com/story/2011/09/30/1021603/-Gov-Schweitzer-pushing-single-payer-in-Montana,-ahead-of-Affordable-Care Act

Disarray of our health care workforce

National Center for Health Workforce Analysis

Health Resources and Services Administration (HRSA)

For at least a decade, the United States has experienced worsening workforce shortages in the health professions. Analysts now are projecting a nationwide shortage of almost 100,000 physicians, as many as one million nurses, and 250,000 public health professionals by 2020.

Due to the high cost of health insurance and increasingly pervasive staffing shortfalls in the health professions, at least 50 million Americans lack access to the most basic care. A third are children.

http://bhpr.hrsa.gov/healthworkforce/

And…

The Complexities of National Health Care Workforce Planning

Authored by a team from Deloitte Center for Health Solutions
Bipartisan Policy Center, October 18, 2011

Background

Establishing future workforce requirements is an inherently imprecise activity. Health care is a complex environment with many uncertainties affecting workforce supply and demand. Characterized by multiple stakeholders at the national, state and local levels and within professional, educational and other jurisdictions, the interdependencies between the groups that make up the health care sector are complicated. Moreover, efficient and effective workforce planning and deployment is inextricably linked to changes in demand for services, clinical technologies that facilitate diagnosis and treatment, payments that influence provider behaviors, workforce policies that frame licensing and scope of practice, as well as the overall structure of the system especially as it is impacted by the recently-passed Patient Protection and Affordable Care Act of 2010.

Section Five of the Patient Protection and Affordable Health Care Act of 2010 emphasizes the need for strategies to increase workforce supply and capabilities, develop workforce diversity, and strengthen professional areas where supply is weak. These strategies are necessary to plan for a supply of professionals that is able to meet the changing demands of the health care system.

Looking Ahead: Workforce Innovations in the U.S.

National Health Workforce Commission:  A 15-member committee (as yet unfunded) appointed by the General Accountability Office, the National Health Care Workforce Commission is required to review health care workforce supply and demand and make recommendations regarding national priorities and policy. Other areas of focus will involve review of the implementation of state health workforce development grants program and workforce development actions including career pathways, policies and practices regarding recruitment, retention and training of the health care workforce.

Findings

The U.S. health care industry is capital intense, highly regulated and labor intensive. These three factors complicate efforts to radically and/or quickly change its workforce composition. Health care consumes 17 percent of the U.S. gross domestic product (GDP), and the U.S. consistently spends more on health care per capita than other developed countries. As widely noted, health care costs exceed $9,000 per capita and will increase at six percent annually for the next decade. Innovative approaches to educating and training the health care workforce are imperative to effectively manage increased demand for services while reducing costs and improving quality. Traditional supply-demand analyses for the health care industry workforce fall short in addressing both objectives. Fragmented and inconsistent data collection, variance in methodological assumptions and rigor, mistrust between professional groups and wide differences in regulatory and educational context contribute to an incomplete understanding of workforce supply and demand. 
 
To ensure an adequate, effective workforce in the U.S. health care system, a fresh approach is critical. The National Health Workforce Commission as well as the National Center for Health Workforce Analysis are integral to the transformation of the US health care system. These bodies must lead in the creation of a solid methodological foundation upon which workforce shortages, demand and regulatory oversight must be constructed.

http://www.bipartisanpolicy.org/system/assets/drupal/Workforce%20Study.pdf

Comment: 

By Don McCanne, MD

Health care consumes 17 percent of the U.S. gross domestic product, yet our health care workforce is in a terrible state of disarray. The fragmentation of our health care system makes it virtually impossible for the private sector to plan and coordinate the development of our health care workforce. This is exactly the type of need that requires government action and oversight. Yet the 15 member National Health Workforce Commission remains unfunded.

Occupy Wall Street? Maybe it’s time to Occupy Congress!

The value of $100,000 drugs

UK medical group rejects new skin cancer treatment

By Maria Cheng
Bloomberg Businessweek, October 14, 2011

An independent British medical watchdog says the first treatment proven to help people with the deadliest form of skin cancer is too expensive to be used by the U.K.’s health care system, a recommendation critics called a potential death sentence.

The drug, Bristol-Meyers Squibb’s Yervoy, has offered some hope to people with advanced skin cancers, though a recent study showed it only worked in a small segment of patients studied, and they lived just four months longer than patients given older medications.

The National Institute for Clinical Excellence, or NICE, advised Friday that at a cost of 80,000 pounds ($126,600) Yervoy “could not be considered a cost-effective use” of health funds. A final decision is expected next month after a public consultation.

In the U.K., most medicines are paid for by the government, as long as they’re recommended by the cost-efficiency watchdog. The agency commonly rejects expensive drugs, including recently advising against new treatments for prostate cancer, breast cancer, and multiple sclerosis, though patients and doctors are increasingly protesting the decisions.

The government usually adopts NICE’s recommendations, meaning doctors in the government-funded health service cannot prescribe Yervoy without NICE’s approval.

In its decision, NICE said it was not convinced by the evidence, saying the data for Yervoy, which works by stimulating the immune system to fight cancer, did not compare it to older drugs used to treat melanoma. NICE also said the trial was too short to know how long the drug’s effects would last and raised concerns about the drug’s side effects, including diarrhea, rash, fatigue and nausea, which they said could affect a patient’s quality of life.

“We need to be sure that new treatments provide sufficient benefits to justify the significant cost (the health care system) is being asked to pay,” said Sir Andrew Dillon, NICE’s chief executive, in a statement.

Patient groups and charities slammed the decision, labeling it a “death sentence” for people with advanced skin cancer.

http://www.businessweek.com/ap/financialnews/D9QC77O00.htm

And…

U.K. Agency Rejects Bristol-Myers Skin Cancer Drug

By Jonathan D. Rockoff and Sten Stovall
The Wall Street Journal, October 14, 2011

Yervoy is expected to be a blockbuster for Bristol, with more than $1 billion in yearly sales. The therapy was approved in the U.S. in March and in Europe in July. It had $95 million in sales during the second quarter. Bristol CEO Lamberto Andreotti recently said the company was “very happy with the results so far” from the drug’s uptake.

“The price of Yervoy reflects the value of Yervoy,” Mr. Andreotti added, at the Pharmaceutical Strategic Alliances conference in New York last month.

http://online.wsj.com/article/SB10001424052970204002304576630891235750606.html

And…

Melanoma (stage III or IV) – ipilimumab: appraisal consultation document

National Institute for Health and Clinical Excellence (NICE)
October 12, 2011

Key conclusion

Ipilimumab is not recommended for the treatment of advanced (unresectable or metastatic) malignant melanoma in people who have received prior therapy.

The Committee was satisfied that ipilimumab meets the criteria for being a life-extending, end-of-life treatment and that the trial evidence presented for this consideration was robust.

The Committee acknowledged that few advances had been made in the treatment of advanced melanoma in recent years and ipilimumab could be considered a significant innovation for a disease with a high unmet clinical need.

Despite the combined value of these factors the Committee considered that the magnitude of additional weight that would need to be assigned to the QALY gains (quality-adjusted life years) for people with advanced (unresectable or metastatic) melanoma would be too great for ipilimumab to be considered a cost-effective use of NHS resources.

http://guidance.nice.org.uk/TA/WaveCRS2/48/Consultation/DraftGuidance

Comment: 

By Don McCanne, MD

Should a $126,000 drug (Yervoy, ipilimumab) that produced only a very minimal benefit in a small segment of patients studied, yet caused significant side affects, be included in program that we finance? Is there no limit as to what we should add to coverage when our national health expenditures are already challenging individual, business and government budgets?

When the CEO of the manufacturer of this drug says, “The price of Yervoy reflects the value of Yervoy,” we should take a serious look at what constitutes value. That’s precisely what NICE did. Their fairly detailed report should be read before endorsing “anything goes” health care.

There is a limit. When we are picking up the tab, either through taxes for government programs or through premiums for private plans, we should be very concerned about how are funds are being spent.

Additional comment from Merton Bernstein:

Shouldn’t we also question the validity of the price assigned by the manufacturer? The likelihood is that its development was aided by some public funds. If a useful drug is out of reach for those  who need it, should not the patent owner modify normal cost calculations to bring it within the reach of more people?  It seems to me that pricing drugs should include element reflecting who bore the cost of development and who bears the cost of its unavailability because of cost  considerations.

The value of $100,000 drugs

UK medical group rejects new skin cancer treatment

By Maria Cheng
Bloomberg Businessweek, October 14, 2011

An independent British medical watchdog says the first treatment proven to help people with the deadliest form of skin cancer is too expensive to be used by the U.K.’s health care system, a recommendation critics called a potential death sentence.

The drug, Bristol-Meyers Squibb’s Yervoy, has offered some hope to people with advanced skin cancers, though a recent study showed it only worked in a small segment of patients studied, and they lived just four months longer than patients given older medications.

The National Institute for Clinical Excellence, or NICE, advised Friday that at a cost of 80,000 pounds ($126,600) Yervoy “could not be considered a cost-effective use” of health funds. A final decision is expected next month after a public consultation.

In the U.K., most medicines are paid for by the government, as long as they’re recommended by the cost-efficiency watchdog. The agency commonly rejects expensive drugs, including recently advising against new treatments for prostate cancer, breast cancer, and multiple sclerosis, though patients and doctors are increasingly protesting the decisions.

The government usually adopts NICE’s recommendations, meaning doctors in the government-funded health service cannot prescribe Yervoy without NICE’s approval.

In its decision, NICE said it was not convinced by the evidence, saying the data for Yervoy, which works by stimulating the immune system to fight cancer, did not compare it to older drugs used to treat melanoma. NICE also said the trial was too short to know how long the drug’s effects would last and raised concerns about the drug’s side effects, including diarrhea, rash, fatigue and nausea, which they said could affect a patient’s quality of life.

“We need to be sure that new treatments provide sufficient benefits to justify the significant cost (the health care system) is being asked to pay,” said Sir Andrew Dillon, NICE’s chief executive, in a statement.

Patient groups and charities slammed the decision, labeling it a “death sentence” for people with advanced skin cancer.

http://www.businessweek.com/ap/financialnews/D9QC77O00.htm

And…

U.K. Agency Rejects Bristol-Myers Skin Cancer Drug

By Jonathan D. Rockoff and Sten Stovall
The Wall Street Journal, October 14, 2011

Yervoy is expected to be a blockbuster for Bristol, with more than $1 billion in yearly sales. The therapy was approved in the U.S. in March and in Europe in July. It had $95 million in sales during the second quarter. Bristol CEO Lamberto Andreotti recently said the company was “very happy with the results so far” from the drug’s uptake.

“The price of Yervoy reflects the value of Yervoy,” Mr. Andreotti added, at the Pharmaceutical Strategic Alliances conference in New York last month.

http://online.wsj.com/article/SB10001424052970204002304576630891235750606.html

And…

Melanoma (stage III or IV) – ipilimumab: appraisal consultation document

National Institute for Health and Clinical Excellence (NICE)
October 12, 2011

Key conclusion

Ipilimumab is not recommended for the treatment of advanced (unresectable or metastatic) malignant melanoma in people who have received prior therapy.

The Committee was satisfied that ipilimumab meets the criteria for being a life-extending, end-of-life treatment and that the trial evidence presented for this consideration was robust.

The Committee acknowledged that few advances had been made in the treatment of advanced melanoma in recent years and ipilimumab could be considered a significant innovation for a disease with a high unmet clinical need.

Despite the combined value of these factors the Committee considered that the magnitude of additional weight that would need to be assigned to the QALY gains (quality-adjusted life years) for people with advanced (unresectable or metastatic) melanoma would be too great for ipilimumab to be considered a cost-effective use of NHS resources.

http://guidance.nice.org.uk/TA/WaveCRS2/48/Consultation/DraftGuidance

Should a $126,000 drug (Yervoy, ipilimumab) that produced only a very minimal benefit in a small segment of patients studied, yet caused significant side affects, be included in program that we finance? Is there no limit as to what we should add to coverage when our national health expenditures are already challenging individual, business and government budgets?

When the CEO of the manufacturer of this drug says, “The price of Yervoy reflects the value of Yervoy,” we should take a serious look at what constitutes value. That’s precisely what NICE did. Their fairly detailed report should be read before endorsing “anything goes” health care.

There is a limit. When we are picking up the tab, either through taxes for government programs or through premiums for private plans, we should be very concerned about how are funds are being spent.

Additional comment from Merton Bernstein:

Shouldn’t we also question the validity of the price assigned by the manufacturer? The likelihood is that its development was aided by some public funds. If a useful drug is out of reach for those  who need it, should not the patent owner modify normal cost calculations to bring it within the reach of more people?  It seems to me that pricing drugs should include element reflecting who bore the cost of development and who bears the cost of its unavailability because of cost  considerations.

The fundamental flaw with the IOM recommendation on benefits

Essential Health Benefits: Balancing Coverage and Costs (2011)

Institute of Medicine

“The committee concludes that the EHB (Essential Health Benefits) should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost.” (Section 4, page 7)

http://books.nap.edu/openbook.php?record_id=13234&page=85

Comment: 

By Don McCanne, MD

When the Institute of Medicine (IOM) released its recommendations on the method for determining essential health benefits for the private plans to be offered in the state insurance exchanges called for in the Accountable Care Act, advocates of comprehensive health care for everyone were quite disappointed, to say the least. When looking through this 300 page report for an explanation as to why they recommended such intolerably skimpy benefits, the one sentence above stands out.

By predefining a specific cost target and then defining a benefit package to fit those costs, the committee explicitly has recommended that the new standard for health insurance in America should be a defined contribution rather than a defined benefit.

This concept, which is permeating our public and private social programs, has been one of the most destructive to our unifying stance of social solidarity. Many have seen their pensions based on defined benefits being converted into individual plans in which contributions are defined but benefits are no longer guaranteed, being dependent on the variables of investment returns and, more importantly, the gamble that you won’t outlive your personal account. (Of course, the annuity industry is quite willing to take a major portion of your account in exchange for guaranteeing you less generous payments for the remainder of your life.)

The privatization health care schemes, such as the proposed voucher program for Medicare, also would provide a defined contribution to be used to purchase a skimpier, ill-defined benefit package, unless the individual contributes more personal funds that many simply do not have.

The IOM recommendation for the exchange plans does the same. The standard defined contribution would be subsidies provided toward the price of a skimpy plan with inadequate benefits. If the individual wants a plan with adequate defined benefits, an additional personal contribution to the premium would be required to buy up to a better plan, again with the questionable assumption that the person has the funds.

The media keep reporting that participants in Occupy Wall Street and similar demonstrations throughout the nation don’t seem to know what they want. That is blatantly untrue. They want our economy to work not only for the top 1 percent, but for the other 99 percent of us as well. Taking away our defined benefits and substituting an inadequate contribution is precisely the the type of activity that has left middle-income Americans behind.

Let’s take a stand. Let’s immediately let President Obama and Secretary Sebelius know that we won’t tolerate this injustice. Then let’s expand the protests into a national movement that returns America to the people. We may have to have a dialogue with the Tea Party people as to just what that means. It doesn’t mean abandoning government, but rather it means taking control of our government so it works for the benefit of all of us – a defined benefit, if you’ll permit.

The fundamental flaw with the IOM recommendation on benefits

Essential Health Benefits: Balancing Coverage and Costs (2011)

Institute of Medicine

“The committee concludes that the EHB (Essential Health Benefits) should be defined as a package that will fall under a predefined cost target rather than building a package and then finding out what it would cost.” (Section 4, page 7)

http://books.nap.edu/openbook.php?record_id=13234&page=85

When the Institute of Medicine (IOM) released its recommendations on the method for determining essential health benefits for the private plans to be offered in the state insurance exchanges called for in the Accountable Care Act, advocates of comprehensive health care for everyone were quite disappointed, to say the least. When looking through this 300 page report for an explanation as to why they recommended such intolerably skimpy benefits, the one sentence above stands out.

By predefining a specific cost target and then defining a benefit package to fit those costs, the committee explicitly has recommended that the new standard for health insurance in America should be a defined contribution rather than a defined benefit.

This concept, which is permeating our public and private social programs, has been one of the most destructive to our unifying stance of social solidarity. Many have seen their pensions based on defined benefits being converted into individual plans in which contributions are defined but benefits are no longer guaranteed, being dependent on the variables of investment returns and, more importantly, the gamble that you won’t outlive your personal account. (Of course, the annuity industry is quite willing to take a major portion of your account in exchange for guaranteeing you less generous payments for the remainder of your life.)

The privatization health care schemes, such as the proposed voucher program for Medicare, also would provide a defined contribution to be used to purchase a skimpier, ill-defined benefit package, unless the individual contributes more personal funds that many simply do not have.

The IOM recommendation for the exchange plans does the same. The standard defined contribution would be subsidies provided toward the price of a skimpy plan with inadequate benefits. If the individual wants a plan with adequate defined benefits, an additional personal contribution to the premium would be required to buy up to a better plan, again with the questionable assumption that the person has the funds.

The media keep reporting that participants in Occupy Wall Street and similar demonstrations throughout the nation don’t seem to know what they want. That is blatantly untrue. They want our economy to work not only for the top 1 percent, but for the other 99 percent of us as well. Taking away our defined benefits and substituting an inadequate contribution is precisely the the type of activity that has left middle-income Americans behind.

Let’s take a stand. Let’s immediately let President Obama and Secretary Sebelius know that we won’t tolerate this injustice. Then let’s expand the protests into a national movement that returns America to the people. We may have to have a dialogue with the Tea Party people as to just what that means. It doesn’t mean abandoning government, but rather it means taking control of our government so it works for the benefit of all of us – a defined benefit, if you’ll permit.

Killing Medicaid the California Way

By BRUCE C. VLADECK and STEPHEN I. VLADECK
New York Times, October 13, 2011

VIRTUALLY all of the debate over the health care legislation enacted last year has focused on the constitutionality of the individual mandate, the requirement that, by 2014, nearly all Americans either purchase health insurance or pay a fine if they fail to do so. The Supreme Court now seems likely to decide the fate of the mandate, perhaps as early as June.

But last week the court also heard oral arguments in another case that could, indirectly, have a far greater impact on whether the act can meet the goal of expanding health care access by broadening eligibility for Medicaid, by 2014, to 15 million people.

One of the central substantive requirements of the Medicaid program, which serves more than 50 million poor and disabled Americans, is what’s known as the equal access mandate, which requires states to set the rates at which they reimburse Medicaid providers at levels sufficient to ensure an adequate supply of providers. As both Congress and the executive branch have understood since Medicaid’s creation in 1965, there would be little incentive for providers to participate in Medicaid if their payments were too far below market levels.

Nevertheless, in response to vast budget shortfalls, the California Legislature in 2008 enacted an across-the-board 10 percent cut in reimbursement levels for Medi-Cal, the state Medicaid program. Three groups of Medicaid beneficiaries and providers sued the state, arguing that the categorical reduction was inconsistent with, and therefore pre-empted by, the equal access mandate. On the merits, three federal appellate panels agreed and halted the rate reduction.

In the case it heard last week, Douglas v. Independent Living Center of Southern California, the Supreme Court will not resolve whether those decisions were correct: the incompatibility between California’s rate reduction and the equal access mandate appears to be settled. Instead, the justices agreed to consider a technical but critical question: whether private parties, be they Medicaid beneficiaries or providers, may even bring such suits in the first place.

When Medicaid was enacted, the possibility of private suits to enforce its provisions could be taken for granted. In the past decade, however, the Supreme Court has held federal statutes to an increasingly restrictive standard in deciding whether or not they may be privately enforced. The result has been clear: most of the lower courts facing the issue in recent years have held that the equal access provision can no longer be enforced in suits by beneficiaries or providers.

But if beneficiaries or providers can’t enforce the equal access provision, who will? The answer, according to both California and the Obama administration, which filed an amicus brief in support of California in the Douglas case, is the United States Department of Health and Human Services. What they fail to acknowledge, however, is that the department utterly lacks the financial, legal, logistical and political wherewithal to enforce the provision. (We helped write an amicus brief in support of the plaintiffs.)

First, the department doesn’t have the resources to oversee compliance with the equal access provision. As Justice Anthony M. Kennedy pointed out at the oral argument last week, only 500 employees supervise nearly $400 billion in Medicaid expenditures. Indeed, the department’s budget for the administration of Medicaid declined by 44 percent between the 2008 and 2010 fiscal years, even as Medicaid costs have kept rising.

Second, even if the department sought to expand enforcement of the equal access provision, it would encounter the additional hurdle that its enforcement budget — unlike the bulk of the Medicaid program — depends on annual appropriations. Medicaid must compete annually with the National Institutes of Health, the Food and Drug Administration, the Centers for Disease Control and Prevention and other agencies.

Third, even with proper funding, the department has repeatedly admitted that its authority to enforce the equal access provision and to provide remedies for violations is limited, practically and legally. When states fail to comply with the equal access mandate, the department’s options are either to reject a state Medicaid plan up front or withdraw financing after the fact — both of which punish Medicaid beneficiaries at least as much as they punish the offending states. As a result, the department has focused instead on trying to cajole rather than coerce states into complying.

Despite these reservations, only Justice Kennedy seemed outwardly concerned during last week’s oral argument in Douglas about whether exclusive federal enforcement could be effective. If the rest of the justices hold that the equal access provision cannot be privately enforced, that will open the door for other states with budget shortfalls to enact similar across-the-board cuts in Medicaid reimbursement rates. From there, it would be only a matter of time before providers abandoned Medicaid beneficiaries for private consumers en masse, thereby vitiating the animating purpose of the Medicaid program.

Of course, even if the justices rule for California, Congress is free to respond by clarifying that Medicaid beneficiaries or providers should be able to enforce the equal access provision. But given the politics of the moment, and the reality that violating the equal access mandate saves money for states and the federal government, a true legislative fix seems unlikely.

Thus, even as it vigorously defends the constitutionality of the individual mandate, the Obama administration may be complicit in eviscerating Medicaid — and setting back the broader goal of ensuring that all Americans have access to quality health care.

Bruce C. Vladeck was the administrator of Medicare and Medicaid from 1993 to 1997. Stephen I. Vladeck is a professor of law at American University.

How Doctors Could Rescue Health Care

By Arnold Relman
New York Review of Books, October 27, 2011

1. The US is facing a major crisis in the cost of health care. Corrected for inflation, health expenditures in the public sector are nearly doubling each decade, and those in the private sector are increasing even more rapidly. According to virtually all economists, this financial burden, which is now consuming about 17 percent of our entire economic output (far more than in any other country), cannot be sustained much longer. The federal share, including payments for Medicare and Medicaid, was 23 percent of the national budget in 2009 and is a prime cause of the deficit.1

There is no current prospect of raising taxes. If the federal long-term debt is to be reduced, government health expenditures on Medicare and Medicaid must be controlled. However, there is no agreement in Washington on how that can or should be done. Both parties claim to have the answer but, as I will make clear, no initiatives proposed by either party have much chance of significantly slowing the rise in federal health costs without reducing access to needed services. Major reform will be required, but that is not even under consideration. In any case, health legislation is currently stalled by a bitter political deadlock. No initiatives to improve health care will come out of Congress until after the 2012 elections and, unless the results are unexpectedly decisive, probably not even then. Still, as I will explain here, there is a chance that new developments in the way physicians are organizing themselves to deliver care might improve the currently dismal prospects for action on major reform and cost control.

2. In his September 8 address to Congress, the President spoke of the urgent need to control the costs of Medicare. To do this he is relying principally on the Affordable Care Act, passed by Democrats in March 2010. The Act expands insurance coverage but, as already explained in these pages,2 it is not likely to slow the rise of costs significantly. Republicans in Congress are seeking to stop it from being implemented and their potential candidates for president are demanding its repeal, while state governments that are controlled by Republicans are challenging its constitutionality in federal courts. They question the Act’s mandate that all citizens not covered by public or private insurance plans be required to purchase private insurance or incur a tax penalty. The Republican legal challenge has so far received a divided reception in lower courts and will probably reach the Supreme Court next year. The mandate is a critical part of the Act because private insurers will not offer coverage at affordable prices to all applicants, as the Act assumes, unless everyone—young and healthy included—is required to be insured. Whatever the Court’s decision, it will not have much effect on health costs because the law does very little or nothing to address some of the most important causes of the high cost of care and its rapid inflation.3

First, the Act does not replace—but expands—the investor-owned private health insurance industry. According to the actuary for the government’s Center for Medicare and Medicaid Services (CMS), this industry’s overhead and profits currently add over $152 billion to the cost of care.4

Second, the Act does not change the method of payment for most medical care, which is based on fees for each procedure and therefore encourages specialists to use expensive procedures excessively, while giving all physicians strong financial incentives to provide more services than needed.

Third, it does nothing to change the current fragmentation of medical care. This allows specialists to practice in isolation without restraints on cost, causes duplication and disorganization of services, and discourages the use of primary care physicians. The latter are essential to cost-effective care because they help patients avoid unnecessary, expensive procedures. But with specialists earning much higher incomes per unit of working time, primary care doctors are disappearing. The Act addresses this problem, but only by providing minimal financial incentives to primary care doctors; they are unlikely to make much difference.

In the absence of effective general solutions for these causes of rising costs, there is little chance that the Act will “bend the curve” of medical inflation as Democrats hope. The law does, however, propose to cover the cost of adding millions of beneficiaries to Medicaid and to private plans over ten years. It does this by cutting payments to the private “Medicare Advantage” plans now chosen by some 12 million Medicare beneficiaries, and by eliminating tax exemptions for expensive insurance coverage offered by employers to favored employees. Apart from two ill-conceived and probably unworkable exceptions, the Act offers no other broad initiatives directly aimed at reducing costs.

The first exception, in Section 3022 of the Act, proposes to share any Medicare savings with so-called accountable care organizations (ACOs). ACOs are defined as federally certified multispecialty groups of physicians that collaborate with one or more hospitals and contract with Medicare to provide comprehensive care to a designated group of patients on a fee-for-service basis. ACOs would in principle have incentives to control costs because the government would give them a share of any savings they produced by using fewer resources in delivering good care. But the 126 pages of regulations proposed to govern this program, published by the Department of Health and Human Services on April 7, 2011,5 threaten to undermine it. The regulations were considered so onerous and impractical, and the benefits to participating ACOs so dubious, that almost all multispecialty medical groups have indicated they would not participate.6

Even if the regulations are substantially modified before they are fully adopted, the CMS, which would administer the program, probably could not handle the extra work required to manage more than a relatively small number of participating ACOs. This program is therefore not likely to have much effect on health care costs.

Section 3403 of the Act is often cited as a powerful tool for controlling costs, but there is much reason to be skeptical. It establishes an Independent Payment Advisory Board (IPAB), a presidentially appointed independent committee of fifteen full-time members. If government spending rises too rapidly, the IPAB must offer proposals for cost control, and Congress must act on them or enact its own measures for equivalent savings. However, the law stipulates that the IPAB cannot reduce Medicare benefits or increase Medicare premiums, and it defers any proposed reductions in payments to hospitals for a few years. The IPAB would thus be limited to suggesting cuts in payments to physicians, payments for some ambulatory services such as emergency room visits, and payments for Medicare Advantage plans and Medicare Part D prescription drugs.

Unless the IPAB were to recommend some limitation to their total income, physicians could easily respond to reduced fee schedules by providing more services, such as performing more diagnostic tests. Physicians’ average incomes have not kept pace with the rising costs of managing an office, and there is widespread unhappiness among the profession over the threat of cuts in payment that have been mandated by past legislation. Some physicians are now refusing to see new Medicare patients for this reason, so I doubt there would be support in Congress for much further reduction in fee schedules.

Moreover, payments to physicians account for only about a fifth of total health expenditures. The other four fifths consist largely of costs of hospital and nursing home care as well as payments for drugs and other medical products, and the overhead costs of private insurers. A realistic reduction of payments to doctors could at most save one
or two percent of total costs, and wouldn’t necessarily slow inflation. The other cost-saving options left open to the IPAB are also limited in scope and would have relatively little effect on “bending the curve.” Furthermore, and most importantly, there will probably be fierce Republican opposition in Congress to IPAB appointments and funding, which will hamstring its function. The IPAB’s prospects for success are therefore dim.

3. Republicans in Congress have pretty much limited their health policy to an unyielding opposition to “Obamacare,” to calls for reform of malpractice litigation, and to their traditional reliance on “market forces.” Their latest initiative is the proposal by Representative Paul Ryan of Wisconsin to privatize Medicare and change federal support of Medicaid by substituting fixed grants for its current open-ended commitment to paying a large share of costs to the states. Under his proposal the Medicare system covering most of the medical costs of elderly citizens would be gradually replaced by a federal voucher system. Starting in 2022 each new Medicare beneficiary would choose a private insurance plan and the government would give participants in the plan a voucher to help pay for coverage. The voucher would start at $8,000, which would grow only according to the Consumer Price Index, but with some undefined adjustment for people who are older and sicker.

However, actuarial experts predict a near doubling of total Medicare costs within a decade; so Ryan’s proposed vouchers would fall far behind actual costs, and beneficiaries would have an increasing financial burden. The Ryan plan reduces federal outlays for Medicare by shifting costs to patients. It has been passed by the Republican majority in the House, but not by the Senate, and the President strongly opposes it.

Defending Ryan’s plan, Republicans say that under current policies Medicare will soon be bankrupt. They are correct that rising Medicare costs are unsustainable, but the fact remains that the Ryan voucher plan puts an intolerable burden on the elderly and would undoubtedly reduce their access to needed care. We can predict, for example, that patients would make fewer visits to physicians for checkups and reduce their compliance with expensive drug regimens.

As for Ryan’s proposal to reduce Medicaid outlays by making fixed grants to states, the states would have considerable discretion in spending these grants, and their deficits would almost certainly force them to curtail Medicaid services in order to meet other budgetary needs. The grant idea, although favored by some state governors, has provoked wide opposition because it threatens the medical services needed by low-income citizens, and because Medicaid money now also supports nursing home care for the elderly.

4. If neither party is proposing effective solutions to the cost crisis, and political deadlock in Washington is preventing the consideration of new ideas, are we doomed to witness a slowly collapsing health care system that eventually will provide adequate care only to those who can afford to pay? In his latest book on health care,7 the Princeton sociologist Paul Starr, who worked on the ill-fated Clinton Health Security Plan, despairs of any political action that could bring about major reform. However, a new movement in the medical profession might help to start such reform by reconfiguring the way medicine will be practiced.

Traditionally, physicians have practiced either alone or in small partnerships with a single specialty, such as cardiology. Now a big shift to large groups containing many specialties is taking place. These multispecialty practices vary in size, but include physicians in almost all fields. Primary care physicians usually make up almost half the medical staff. They counsel patients and coordinate care by the specialists. Groups usually share common facilities, medical records, scheduling, and billing, and their physicians cooperate in the care of patients.

Many multispecialty groups pay doctors at least in part with base salaries, with the rest of their compensation derived from each physician’s collected fees. Only a few pay entirely by salary, but that may change. Most groups are owned by physicians, but many are now being organized and managed by hospitals. Well-established large groups owned by physicians include the Mayo Clinic, Cleveland Clinic, Permanente Medical Group, Intermountain Healthcare, Scott & White, Marshfield Clinic, Geisinger Health System, Lahey Clinic, and Harvard Vanguard. Many smaller physician-owned groups now exist throughout the country (though there are only a few in the Southeast), and their number is growing rapidly. So are groups owned by hospitals, including academic medical centers as well as large community hospitals. An unknown, but probably substantial, proportion of these groups are not for profit; i.e., they have no investors and use any net income to maintain and improve facilities and services.

The American Medical Group Association (AMGA) is the trade organization that represents most multispecialty physician-owned groups. The American Hospital Association (AHA) is the trade organization for almost all general hospitals. In recent communications with senior officials at the AMGA and the AHA, I learned that membership in the AMGA now stands at about four hundred groups, the highest ever, and is increasing at an unprecedented rate of about 10 percent annually. These four hundred multispecialty groups employ about 117,000 full-time medical doctors, but since many of their physicians work less than full-time, the total number of doctors now employed by such groups is probably close to 140,000, not counting the unknown number in physician-owned groups that are not members of the AMGA.

The AHA says that a 2010 survey of its member hospitals reveals that they employed roughly 120,000 practicing physicians, but the survey did not disclose how many were in multispecialty group practices. Allowing for this incomplete reporting, the total number of physicians now practicing in multispecialty groups could be close to 200,000, or about a quarter of all practicing physicians, and this number is increasing rapidly.

There are many reasons for this change. Young doctors now finish their training with substantial debt, often in the range of $150,000 or more. The prospect of assuming even more debt to start their own practice is daunting. Joining a multispecialty group means less financial risk and provides ready-made facilities and a staff to schedule patients and bill for services. Groups usually offer an income fully competitive with that to be expected in independent private practice. They often pay better fringe benefits than solo practitioners could provide for themselves.

Half of all medical students are now women, and soon they will represent nearly half of all practicing physicians. Women are more likely than men to choose some type of primary care practice, and I and others have found that many of them particularly appreciate the opportunity afforded by group practice to share responsibilities and to limit their working time. Many young male physicians are also glad to be working in a less competitive and more collegial environment, with opportunities to choose limited working hours.

In short, physicians are increasingly looking for arrangements that allow them to focus more on the practice of medicine and less on managing a business. They also want at least a little more time for personal and family life. Practice in multispecialty groups is the obvious answer. Single-specialty groups offer some similar advantages, but are not as attractive. They are smaller, have fewer resources, and will not be able to adapt as well to the new payment methods that government and private payers intend to employ.

Meanwhile, evidence has been accumulating that organized care by multi-specialty groups provides good medical service and has the potential of saving much money.8 This
is because, as most clearly shown by John Wennberg and his colleagues at Dartmouth,9 much of the care prescribed and provided by independent specialists is unnecessary. Physician-owned not-for-profit groups, particularly those that pay their doctors at least partly by salaries, are not as likely to provide unnecessary services or to recommend hospitalization when it is optional. Their physicians have few financial incentives to do so, and the services of their specialists are coordinated with their primary care doctors, who usually recommend the simplest and least expensive choices consistent with good medical care.

However, today’s competitive health care market, with its private health insurance companies and fee-for-service payment system, severely limits the potential cost savings of a delivery system based on not-for-profit group practice. Private insurers contribute to high costs not only because of their profits and overhead, as already noted, but because doctors and hospitals have to pay the considerable costs of billing the insurance companies and collecting money from them. I favor a much less expensive single public payer system supported by a universal, progressive, designated health care tax. Fee-for-service payment gives doctors incentives to provide more services than needed and allows for fraudulent billing. It should be replaced by an advance payment to physicians for comprehensive care on a per capita basis.

To receive such payment, group practices would have to reimburse their physicians largely by salary. Regulations would require open enrollment of patients; to limit the risk of fixed payment for comprehensive care, groups would need public reinsurance or other financial guarantee to protect against the possibility that some patients might need expensive services.

There is much reason to believe that such a reformed system could deliver good care for all at considerably less cost and could also control cost inflation10—although such a system does not have the remotest chance of being legislated by our national government anytime soon. But what if, as seems likely, the rapid trend toward group practice that I have described were to continue, and almost all medical care were ultimately to be provided through multispecialty group practices? Despite the limitations imposed by the existing health care market, the advantages of organized care might become obvious not only to patients but to business employers and even to legislators and policymakers in Washington.

The question would then arise: If restructuring the delivery of medical care is so helpful, why not reform the insurance and payment of care as well? Supported by most of the medical profession and by most voters, major reform might finally be seriously discussed. It might become easier to pass legislation that created a system based on a tax-supported single-payer system, with prepaid comprehensive care for all. Obviously, there is no guarantee this would happen. Indeed, the odds would still be against it. But if most physicians were to be employed in multispecialty groups, the growing number of practitioners now supporting major reform would probably become a strong majority. This could well change the climate of opinion enough to influence legislation.

Dr. Francis J. Crosson, former executive director of the Kaiser-Permanente physicians’ organization and a prominent advocate for physician-managed groups becoming federally certified ACOs, believes that they will be essential for the future control of health costs.11 But unlike the broad reforms I favor, in the system he envisions these group practices would function in a competitive marketplace, in which public and private insurers would offer them financial incentives to improve care, and market forces would be expected to control prices. However, I am convinced that good affordable universal care will require major reform of all parts of the system because market forces and the current system have clearly encouraged excessive medical treatment and diagnostic testing. Insurance coverage will need to be replaced by tax-supported universal access to medical care, which should change from a competitive market to a not-for-profit social service.12

Hospitals, as we have seen, are now hiring more physicians to work in groups. As hospital employees, these physicians inevitably feel pressure to protect their employers’ income by filling beds and using hospital facilities for tests and procedures. They are less likely to control costs than physicians in independent not-for-profit groups. It is not yet clear which type of group will dominate, but those owned by physicians would probably be more supportive of reform.

The greatest resistance to reform would come from the private insurance industry. But with the savings that a reformed health system would generate, it should be possible for whatever agency collects the health care tax to buy out the industry’s investors. Some current employees of insurance companies might be usefully employed in a new single-payer system. Moreover, it seems likely that the jobs lost in health insurance companies would be offset by new jobs created through the expansion of an economy relieved of unsustainable health costs.

I do not underestimate the complexity of the task or the strength of opposition to reform by vested interests, and by conservatives who rail against a “government takeover” of health care. Reform could be delayed for years, or indefinitely. However, the status quo will soon no longer be tenable because of rising costs. New thinking about major reform and private health insurance will be necessary.

Private investor-owned health insurance appeared quite suddenly in the final few decades of the last century, reaping the profits from the health coverage that employers were offering to their employees. But except for a brief and unpopular era of cost control by “managed care” in the 1990s, the private insurance industry has not contributed anything to the health care system nearly comparable in value to the costs it has added.

In some European countries, private insurance companies are an integral part of popular and less expensive health care systems, but they are usually not-for-profit and are closely regulated by government. In Switzerland, for example, the government mandates universal not-for-profit private insurance coverage for most medical services; it also requires uniform benefits and controls costs by regulating insurance premiums and the fees paid to physicians. The government also owns most of the major hospitals. In view of our distinctive political and economic traditions, and cultural diversity, we could not easily adopt this or any other foreign system. We will have to find our own health care solutions.

Health reform might begin in the states. Vermont has recently approved a single-payer system that includes a public board to develop a global health budget and new reimbursement methods to replace fee-for-service payment. The board will help physicians to form multispecialty groups that can accept prior payments for comprehensive care of patients. Many other details remain to be worked out. Federal permission for the state to pool all government health care funds will be needed before the plan can become operative, which is estimated for 2017.13 Similar initiatives may be introduced in other states; if successful, state plans would encourage Congress to enact national reforms.

5. The net effect of the reformed system I have described here on the government’s costs can only be guessed at, but savings would be very large. Any initial increases in expenditures owing to expanded coverage would certainly be more than balanced by savings later on. However, government would hold the ultimate cost-controlling weapon because it would determine the rates at which it reimbursed groups for prepaid, comprehensive care, and would thereby have full control of health care expenditures. If everyone (including politicians and
government officials) were in the system, there would be little chance that the government would underfund it, or allow its services to deteriorate.

Such reforms are the best—perhaps the only—hope of preserving the benefits of Medicare and Medicaid and achieving affordable universal access to care. In today’s political climate these reforms have no chance, but this could change if physicians continue to join groups and transform the organization of medical care. If encouraged by public opinion and by physicians, the members of Congress might see the clear advantages of the group practice model. They might then legislate the broad reforms in insurance and payment that would make this model much more effective. If that were to happen, the medical profession would have made an important, although unplanned, contribution to the rescue of the US health care system.

1 Lisa Potetz and Juliette Cubanski, A Primer on Medicare Financing , Henry Kaiser Family Foundation, July 2009, Exhibit 2.
  
2 Jonathan Oberlander and Theodore R. Marmor, “The Health Bill Explained at Last,” The New York Review , August 19, 2010.
   
3 Arnold Relman, “Health Care: The Disquieting Truth,” The New York Review , September 30, 2010.
   
4 Sean P. Keehan et al., “National Health Spending Projections Through 2020: Economic Recovery and Reform Drive Faster Spending Growth,” HealthAffairs , Vol. 30, No. 8 (August 2011).
   
5 Department of Health and Human Services, Federal Register , Part II, Vol. 76, No. 67 (April 7, 2011).
   
6 Ricardo Alonso-Zaldivar, “Medical Group Pans Key Element of Obama Health Plan,” The Boston Globe , May 12, 2011.

7 Remedy and Reaction: The Peculiar American Struggle Over Health Care Reform (Yale University Press, 2011.)
  
8 Kenneth H. Chuang, Harold S. Luft, and R. Adams Dudley, “The Clinical and Economic Performance of Prepaid Group Practice,” Toward a 21st Century Health System , edited by Alain C. Enthoven and Laura A. Tollen (Jossey-Bass, 2004); and Brent C. James and Lucy A. Savitz, “How Intermountain Trimmed Health Care Costs Through Robust Quality Improvement Efforts,” HealthAffairs , Vol. 30, No. 6 (June 2011).
  
9 John E. Wennberg, Tracking Medicine: A Researcher’s Quest to Understand Health Care (Oxford University Press, 2010).
   
10 Arnold Relman, A Second Opinion: Rescuing America’s Health Care (PublicAffairs, 2010).
   
11 Francis J. Crosson, “The Accountable Care Organization: Whatever Its Growing Pains, the Concept Is Too Vitally Important to Fail,” HealthAffairs , Vol. 30, No. 7 (July 2011).

12 Relman, A Second Opinion .

13 Anya Rader Wallack, “Single Payer Ahead—Cost Control and the Evolving Vermont Model,” The New England Journal of Medicine , Vol. 365 (August 18, 2011).

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