Friday, April 30, 2010

qotd: Edward Luce of Financial Times on single payer

Washington Journal
April 30, 2010
Edward Luce, Financial Times, Washington Bureau Chief

I think I would, controversially, and these are my personal opinions, not the opinions of the Financial Times, necessarily; but you mentioned single payer. I think if we could transcend the political realities for a moment... in terms purely alone of American competitiveness, forget the moral argument, forget the social justice case for universal access to public health care, but just in terms of putting a lid on the galloping costs in the American economy, the disincentive to creating a new manufacturing job here for example, as opposed to in China, or Canada for that matter, I would have a single payer system. A single payer system would be able to negotiate like a monopsony, which is the buyer side of a monopoly, and to reduce drug prices which is one of the biggest contributors to health care inflation in America. It would be able to do all sorts of things to drive health care costs down, and that would help begin to solve America's fiscal problem. 

Comment:  Although we cannot just forget the moral argument - the social justice case for single payer - those who worry more about the American economy should be just as concerned as we are. As Financial Times Washington Bureau Chief Edward Luce states, single payer "would help begin to solve America's fiscal problem." The nation should be unified, socially and politically, in support of single payer reform.

Thursday, April 29, 2010

qotd: New Health Affairs article on administrative waste

Health Affairs
April 29, 2010
Saving Billions Of Dollars — And Physicians' Time — By Streamlining Billing Practices
By Bonnie B. Blanchfield, James L. Heffernan, Bradford Osgood, Rosemary R. Sheehan and Gregg S. Meyer


The U.S. system of billing third parties for health care services is complex, expensive, and inefficient. Physicians end up using nearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. On a national scale, our hypothetical modeling of these changes would translate into $7 billion of savings annually for physician and clinical services. Four hours of professional time per physician and five hours of practice support staff time could be saved each week.

Opportunity For Reform 

The growth in administrative complexity has been largely overlooked as an opportunity for health care reform, with administrative expenses being viewed as a relatively mild influence on the growth in health spending. The Patient Protection and Affordable Care Act of 2010 does not contain major provisions to limit excessive administrative complexity. However, it does require that health plans begin to standardize the transfer of electronic data, which will cut down some of the duplicative information technology costs. The law does not specifically address the need for comprehensive uniformity of all data and information requirements.

The results of this study enumerate the inefficiencies engendered by excessive administrative complexity. We also hope that they will provide detail to enable understanding of the magnitude of these costs, and to inspire multistakeholder discussions around proposals of incremental reforms that standardize payment processing rules across payers. The current cost of excessive complexity would not be tolerated by employers from any other type of vendor. We believe that once fully explained, the current administrative burden will be recognized as intolerable by patients, purchasers, and policy makers.

Thus far, health reform has not resulted in a single-payer mandate that replaces the U.S. health insurance industry and nationalizes billing and payment processes. But the evidence of the system costs from excessive complexity in our case study indicates that imposing a standard set of payment requirements, increased payment-rule transparency, standardized forms, and a standard set of data exchange requirements remains an important and high-value target for future policy reform efforts.

An incremental move to one set of payment rules would yield significant dollar savings as well as work-life and productivity opportunities for physicians and their office staffs. Done carefully, administrative simplification could still leave room for a diversity of insurance products and could promote innovation without relying on blunt and opaque administrative processes as a tool.

The savings from reducing administrative complexity could be translated into decreased costs in general. These decreased costs would be of greater magnitude than estimated here. Many of the changes under the single-rule-set scenario would result in decreased costs for payers as well, and would provide resources that could be passed on as savings to purchasers and patients or could be used to provide additional needed health services.

Achieving these savings would not require restructuring the basic market-system tenets of our complex health care system through, for example, mandating a single-payer approach. Rather, mandating a single set of rules, a single claim form, standard rules of submission, and transparent payment adjudication — with corresponding savings to both providers and payers — could provide systemwide savings that could translate into better care for Americans.

Comment:  This study confirms the previously well documented administrative waste that occurs in physicians' practices due to the complexity of complying with the various requirements of multiple payers in our fragmented system of health care financing. However, the authors do a disservice by perpetuating the myth that all we need is a single billing form and a single set of rules, thereby obviating the need to switch to a single payer model of health care financing.

The authors estimate that a single claim form and simplified rules would save about $7 billion yearly. Yet the single payer model has been projected to save about $400 billion yearly. What are these authors overlooking?

First is the profound administrative waste intrinsic to the private insurance industry. It is so great that our legislators up front granted them the right to retain 15 to 20 percent of insurance premiums just to pay these costs (plus profits).

Although this article indicates that the administrative burden on the physicians is great, the authors still would not salvage all of the waste that is recoverable since they contend that the insurers could still continue to provide a diversity of innovative insurance products, perpetuating the inevitable administrative complexity.

Anyone who has looked at a hospital bill understands the great administrative complexity of hospital payment systems under our multi-payer system. Under a single payer system, hospital financing would be provided by global budgets based on legitimate costs, much like our fire and police departments. The labor-intensive, complex hospital chargemaster disappears. 

Bulk purchasing would be used for pharmaceuticals and medical supplies, again greatly reducing the administrative waste.

More waste is generated when payers and providers try to work the system to their own advantages - an understandable response in a complex and opaque system. A single payer system provides much greater precision and transparency in payment processes.

It is not as if the authors didn't understand these differences. They cite the landmark paper of Woolhandler, Campbell and Himmelstein showing the dramatic reduction in administrative waste in Canada compared to the United states, after Canada changed to a single payer system of financing. But they seem to sweep the conclusions under the carpet while insisting that all we need is a simple form (which we already have - CMS 1500) and simple rules (which we will never have with the diversity of insurance products and insurer innovation that they support).

Perhaps the most outrageous comments in this paper are the following:

"Prior studies of this problem have examined the relative overall administrative costs of health care in the United States, particularly in comparison to those in Canada. However, these studies have been able to provide only an overall view of the costs and do not provide specific direction to foster improvements. As a result, these findings have done little to move stakeholders in the U.S. health care system — including patients, providers, payers, purchasers, and policy makers — to confront excessive administrative complexity as a target for reform."

No specific direction!? The single payer advocates have been vociferous in showing the direction in which we must head! Google "health care administrative costs." There are over 45 million results, and the first one is the landmark NEJM article by Woolhandler, Campbell and Himmelstein. People who deny that there is adequate evidence that a single payer system would provide us the savings that we need to provide health care to everyone are simply liars!

Monday, April 26, 2010

qotd: CMS Actuary's report on financial effects of PPACA

Centers for Medicare and Medicaid Services
Office of the Actuary
April 22, 2010
Estimated Financial Effects of the "Patient Protection and Affordable Care Act," as Amended
By Richard S. Foster, Chief Actuary

The estimated effects of the PPACA (Patient Protection and Affordable Care Act) on overall national health expenditures (NHE) are shown in table 5 (at link below).  In aggregate, we estimate that for calendar years 2010 through 2019, NHE would increase by $311 billion, or 0.9 percent, over the updated baseline projection that was released on June 29, 2009. The NHE share of GDP is projected to be 21.0 percent in 2019, compared to 20.8 percent under prior law.

Comment:  Although much attention was given to the CBO (Congressional Budget Office) estimates of the financial impact of the PPACA (Patient Protection and Affordable Care Act), CBO's report was concerned primarily with the impact of the reform on the federal budget, taking into consideration the net costs of the program enacted and the offset of new revenues. The report from the Office of the Actuary of CMS (Centers for Medicare and Medicaid Services) is of much more practical importance for most of us since it describes the impact on our national health expenditures (NHE) - what we will be paying collectively for health care in the future.

To no surprise, we will be paying more than we would have had there been no reform enacted. More people will have coverage through an expansion of Medicaid/CHIP and through subsidized plans to be offered in the new state insurance exchanges. Expanding coverage improves access and thus increases spending. Some are impressed by the fact that the increase in NHE will be only 0.9 percent more than the projected NHE would be without reform.

Keep in mind that without reform, our NHE would have increased from 17.8 percent of GDP (Gross Domestic Product) in 2010 to 20.8 percent in 2019. When it was decided to make health care reform a priority, one of the major reasons was that this increase was considered to be nearly intolerable. The PPACA will increase this even more - to 21.0 percent of GDP - an even less tolerable number. That amounts to a staggering $4,670 billion NHE in 2019 alone.

What should be even more alarming are some of the measures in the bill that kept these numbers from being even higher:

* A major portion of the expansion is in Medicaid, a welfare program that reduces health expenditures by simply paying much lower rates. A continued lack of willing providers is inevitable, especially after the temporary reinforcement of primary care rates expires. If they are not allowed to expire, NHE will be even higher assuming that rates for specialized services will not be reduced further as an offset.

* Another major portion of the newly insured will receive their coverage through the state insurance exchanges. This report projects less increase in health expenditures because of "significant discounts negotiated by private health insurance plans." Why would these "discounts" be any greater in the exchanges that they are now in the existing private insurance markets? Looking for a reduction in NHE through the magic of the marketplace within government established exchanges is not realistic.

* The excise tax on employer-sponsored plans with higher premiums is expected to "increase rapidly" after 2019, per this report. Employers will respond by reducing benefits, thereby increasing out-of-pocket costs for the employees and their families. This may also slow growth in health expenditures, but by the perverse policy of erecting financial barriers to beneficial health care services. Not paying for care that people should have obviously is not a rational way to slow the growth of our NHE.

* The $5 billion authorized for the national high-risk insurance pool is expected to be depleted very soon, resulting in substantial premium increases to sustain the program, in turn resulting in lower participation rates. Not spending money on high-risk pools will limit expenditures, but at what cost?

* Scheduled "productivity adjustments" to Medicare payment updates will further slow the growth in Medicare payments at a time when providers are already very concerned about current rates. The report states, "the Medicare productivity adjustments could become unsustainable even within the next 10 years." Slowing growth in NHE through an "unsustainable" process certainly can't be relied upon.

* The Independent Payment Advisory Board for Medicare is tasked with recommending further reductions in Medicare spending, without reducing benefits. Such recommendations could further stress an "unsustainable" process.

* Some of the reduction in health expenditures would occur because of a decline in the numbers covered by employer-sponsored plans which traditionally have had relatively generous benefits. Again, reducing benefits for services that people need is an inappropriate method of reducing total health expenditures.

We do need to control the excess growth in our national health expenditures, but not by methods that impair access to beneficial services, such as those in the PPACA. 

If we adopted a single payer national health program, we could slow spending by eliminating the profound administrative excesses, by improving pricing though negotiation with health care professionals, by global budgeting of hospitals, by negotiated bulk purchasing of drugs and health care supplies, by evidence-based decisions on covering appropriate services but not ineffective and deleterious services, and by separate budgeting of capital improvements, thereby slowing the over-utilization that is characteristic of systems with excess capacity.

For the physical and financial health of all of us, let's replace PPACA with an improved Medicare that takes care of everyone.

Wednesday, April 21, 2010

qotd: Will regulatory oversight of premium increases slow spending?

Los Angeles Times
April 21, 2010
Democrats seek greater control over health insurance rates
By Noam Levey

Congressional Democrats have begun pushing legislation giving government regulators greater authority to block big increases in health insurance premiums.

The move, which comes less than a month after President Obama signed the healthcare legislation, is aimed at giving all states the power to stop premium hikes deemed excessive and allowing the federal government to step in if the states don't act.

"There is no need for federal involvement in states with insurance commissioners who are protecting consumers," (Sen. Dianne) Feinstein said Tuesday.

"Health plan premiums are a symptom, not a cause of the problem," said Karen Ignagni, who heads America's Health Insurance Plans, the industry's Washington-based lobbying arm.

Comment:  The cause of high health insurance premiums is high health care costs. State insurance regulators have no control over that, nor over the administrative costs of the insurers. If insurance company profits are abusive, then regulators can pare back profits to a reasonable level. 

The problem is that insurance company profits are an almost undetectable portion of our $2.5 trillion national health expenditures (NHE). Dramatically reducing insurer profits will not even appear as a footnote in the report of our NHE. The terrible waste is not in insurer profits but in the profound administrative inefficiencies of a fragmented system based on a multitude of private and public plans.

Karen Ignagni of America's Health Insurance Plans is correct when she says that insurance premiums are a symptom and not a cause of the problem. High health care costs are. Unfortunately, her industry has been and will continue to be ineffective in controlling rising costs. Throughout the reform process she had stated repeatedly, in effect, that the government must provide the solutions to rising costs.

Under the reform model approved by Congress and the President, there are no effective solutions. Merely experimenting with meager health policy proposals holds little promise for effective cost containment at the level that we need. (Those who contend that the independent Medicare advisory board would be effective should keep in mind that it would ratchet down Medicare while allowing the private insurers free run. That could be a disaster for Medicare.)

Of course, the government solution that Karen Ignagni doesn't want, but one that would be truly effective, would be an improved Medicare that covers everyone. (Is there an echo in here?)

Tuesday, April 20, 2010

qotd: Fixed MLR will drive health care costs higher

The Washington Post
April 18, 2010
Health insurers weighing options to get ahead of reform
By David S. Hilzenrath

The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.

To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.

But even before the health-care overhaul was signed into law last month, one of the nation's largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, "medical management," and "clinical health policy," a WellPoint executive said in a March briefing for investors.

Redefining medical spending to make the requirement more attainable is just one way insurers might adapt to the new legislation.

Similarly, the requirement that insurers devote 80 or 85 percent of premiums to medical claims and related expenses creates conflicting incentives. At its simplest, it encourages insurers to cut overhead expenses. In addition, it might give insurers pause before raising copayments and deductibles, turning away applicants with preexisting conditions, or squeezing payments to doctors and hospitals, because each of those steps would reduce medical spending and make it harder for insurers to meet the required ratios.

On the other hand, the target ratios might give them added incentive to raise premiums. By doing so, they could keep overhead and profit fixed, even as those items decline as a percentage of the premium dollar.


United States Senate
Committee on Commerce, Science, and Transportation
Staff Report for Chairman Rockefeller
April 15, 2010
Implementing Health Insurance Reform: New Medical Loss Ratio Information for Policymakers and Consumers

The goal of the medical loss ratio provision of the new health care law is to make sure that consumers get the full benefit of the health care premiums they pay insurers. As this report discusses, the insurance industry is beginning to consider the financial impact of the new minimum medical loss ratio requirements. At least one company, WellPoint, has already "reclassified" more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to "MLR shift" their previously identified administrative expenses.

As the National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS) work to implement the new statutorily required medical loss ratios, they need to make sure that insurers are spending consumers' premium dollars on delivering health care and improving the quality of this care. Boosting medical loss ratios through creative accounting will not fulfill the new law's goal of helping consumers realize the full value of their health insurance payments.


April 20, 2010
American National Exec: Company to Stop Selling Individual Health Plans

Two subsidiaries of American National Insurance Co. will stop selling individual medical expense health insurance plans due to the minimum medical loss ratio requirements contained in the new U.S. health reform law, an executive with the multiline insurer said.

The individual health plans are mostly high-deductible, major medical products that are a small part of the corporation's overall business, he said. They comprise about one-third of American National's total health sales a year.

The decision to stop new sales was made "after careful consideration of the recent health care legislation and based on the knowledge that the companies' individual medical expense plans will not meet the requirements" of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, the company said.

Comment:  Although this concept has been touched upon in previous qotd messages, it is important that we clearly understand that the newly enacted medical loss ratio (MLR) requirements provide insurers with an incentive to further drive up health care costs.

How could that be? The intent of placing minimum limits on the medical loss ratio (the percentage of premiums spent on actual health care) was to limit the maximum percentage of premium dollars spent on administrative costs and profits. When the administrative costs exceed the permissible limits, the insurers, it was suggested, would find administrative efficiencies in their own operations, thereby helping to control overall spending. But since administrative services are the product that they are selling us, why would they want to pare back their own business?

Rather than achieving compliance with the medical loss ratio by reducing their own product, doesn't it make much more sense from a business perspective to increase the amount of medical services being paid for, thereby achieving compliance with the ratio without any reduction in their own product? Of course it does.

One way to do that is to reclassify as health care as much as possible of the administrative services that they provide. As the Senate report indicates, WellPoint has already reclassified more than half a billion dollars of administrative expenses as medical expenses. This has a double accounting advantage on the ratio since it both reduces the administrative component while increasing the health care component.

What should concern us even more is the potential impact on health care spending. The more health care that the insurers authorize, the greater the health care component of the medical loss ratio. If they can hold their administrative costs at about the same level, increasing the health care component of the ratio allows them to increase... guess what... profits!

There are two ways to increase health care spending. The insurers can approve more medical services, increasing both the frequency and intensity of services authorized. More scary is that they are also motivated to increase health care spending by simply paying higher prices!

Let's look at an example using an $80 billion insurance fund. Once the state sets up the insurance exchanges, they will be dominated by individuals and small employers. For this market, the law will require that the insurers maintain a medical loss ratio of at least 80 percent ($64 billion must be spent on health care). If they have fixed administrative costs of 15 percent ($12 billion), they can keep 5 percent as profits ($4 billion). If they can hold their administrative costs steady (at $12 billion) while increasing health care spending by 25 percent over a couple of years (to $80 billion), and increasing their premiums by 25 percent ($80 billion insurance fund increases to $100 billion) their administrative costs decrease to 12 percent (still $12 billion). That leaves 8 percent for profits ($8 billion, up from $4 billion). Thus they DOUBLE their profits merely by being certain that health care costs continue to spiral upwards.

For those who insist that all we need is incremental fixes to the legislation that passed, tell us how you're going to fix this one. Private market forces will always place profits before all else. Change the rules, and they will always find another way.

Imagine instead a health care financing system with about 3 percent administrative costs, zero profits, and incentives to control excessive prices and limit the excessive growth in the frequency and intensity of non-beneficial, high-tech services and products. That's what we would have if we enacted an improved Medicare system that covered everyone.

Monday, April 19, 2010

qotd: Restrictive provider networks

The Boston Globe
April 17, 2010
Some health networks drop elite hospitals
By Liz Kowalczyk

Health insurers are starting to sell policies that largely bar consumers from receiving medical care at popular but expensive hospitals such as Massachusetts General and Brigham and Women's — a once radical idea that is gaining traction as a way to control soaring health care costs.

Amid intense scrutiny into why health care costs in Massachusetts are climbing 7.5 percent a year, limited networks have emerged as the most immediate way to control costs.

The Group Insurance Commission (the agency that oversees health insurance for state employees) required its two largest providers — Harvard Pilgrim and Tufts Health Plan — to develop restrictive networks this spring.

(Dolores Mitchell, executive director of Group Insurance Commission) acknowledged that restricted plans could lead to problems in the market, if healthy employees migrate to cheaper plans and those with serious illness remain in more expensive open networks because they need broad access to the advanced care provided at teaching hospitals. That outcome could raise costs for individuals in the open plans, since costs would be spread among fewer employees.

Comment:  Massachusetts intends to expand the use of limited provider networks in order to slow the rise in costs. The Patient Protection and Affordable Care Act also specifically allows the use of limited provider networks for the private plans that are to be established within the state insurance exchanges. The campaign rhetoric was that patients should have choice, yet the legislation limits patient choice of hospitals and health care professionals.

Losing choice is a big price to pay for allowing each private insurer to assemble provider lists based on lowest prices, especially when that doesn't control total costs but only shifts costs. Contrast that with a single payer that negotiates appropriate prices with every provider on behalf of all patients. Appropriate prices would be based on legitimate costs plus fair profits throughout the health care delivery system. An expanded and improved primary care system would provide a portal for access to appropriate specialized services in any appropriate institution.

How would that work for expensive academic medical centers? Institutions would negotiate global budgets with consideration of patient care, teaching, and research services, and separate budgeting for capital improvements. The patient care component should not be any more expensive than similar care provided at the community level, except for high-tech services provided exclusively by the academic center. Even those services should be priced appropriately and accessed only when clinical screening indicates that they are warranted. Patients need guidance in order to prevent inappropriate choices of non-beneficial, high-tech services.

Restrictive provider networks are simply one more perversity that we don't need in our health care financing system.

Friday, April 16, 2010

qotd: UnitedHealth CEO reaps nearly $100 million from stock options

The Washington Post
April 16, 2010
UnitedHealth CEO reaps nearly $100 million from stock options
By David S. Hilzenrath

The chief executive of UnitedHealth Group, one of the nation's largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.

According to measurement standards used by the Securities and Exchange Commission, Hemsley's compensation for 2009 was a less stratospheric $8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

The compensation committee of UnitedHealth's board believed that Hemsley's 2009 compensation package "was appropriate to recognize Mr. Hemsley's overall leadership in positioning the Company for long-term success in a very difficult overall economic environment," UnitedHealth said in the report filed with the SEC Thursday.

The committee credited Hemsley with "enhancing the Company's reputation, ethical culture and tone at the top."

"Although Mr. Hemsley's total compensation is below the median as compared to other CEOs in the Company's peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him," the company reported.

Comment:  Although the compensation of UnitedHealth's Stephen Hemsley may be enough to motivate and retain him, it is difficult to see how it affirms his role in enhancing an ethical culture at the top. The behavior for which he is being rewarded is precisely what should have been eliminated with the recently enacted health care financing legislation.

The ethical culture we should have would be one in which our health care dollars would be used to ensure that everyone receives the health care that they need. Instead, President Obama and Congress have ensured that Mr. Hemsley and his ilk will continue to be richly rewarded (for what?), while tens of millions are left without coverage, and the rest of us will have difficulties paying our premiums and our-of-pocket expenses.

UnitedHealth's version of "ethical culture." What BS!

Thursday, April 15, 2010

qotd: Ohio's lesson for Medicare Part D

The Columbus Dispatch
April 14, 2009
State, patients, doctors like new Medicaid drug plan
By Catherine Candisky

When the state took back control of Medicaid's prescription-drug program last year, there was a lot of talk about how the move would save millions.

It has.

But it's also making it easier for patients to get the medications they need.

An analysis by the Ohio Coalition for Patient Rights found that Medicaid patients have improved access to "quality and appropriate" treatments and medications.

On Feb. 1, the state created a single, statewide drug formulary for all Medicaid programs, replacing eight different managed-care pharmacy plans. 

At the time, state officials said the so-called carve-out would save money because the state is eligible for savings programs such as drug-company rebates.

The Coalition for Patient Rights' analysis compared access to 122 drugs for health conditions including asthma, heart disease, diabetes and mental illness. It found that the state formulary, in many instances, placed fewer restrictions on patients' ability to obtain medications prescribed by their doctor.

Such restrictions include the need for prior authorization from the insurer before a drug can be obtained and requiring patients to try different drugs before medications prescribed by their doctors can be made available.

Physicians also are applauding the change.

"We supported the idea of the carve-out because each managed-care company had its own formulary, and from an administrative perspective, it was a nightmare," said Ann Spicer of the Ohio Academy of Family Physicians.

"It's much simpler dealing with a single formulary, and the number of prior authorizations have been drastically reduced."

Comment:  Enactment of Medicare Part D - the Medicare drug program - was a gift to the pharmaceutical industry and the private intermediaries managing the drug benefits. The government was even explicitly prohibited from negotiating drug prices in a competing plan. Many of us at the time objected to the rejection of the broader concept of having the government as the exclusive administrator of the Part D pharmaceutical benefit. We could have had greater savings and less third party intrusion if we had adopted a public program instead.

The story from Ohio is a vindication for those of us who still insist that the Medicare Part D program should be revamped into a public program that would better serve patients, without wasting funds on the excesses of the pharmaceutical firms and the pharmacy benefit managers.

Think of how this compares with the recent health care financing reform process. The debate ended up being over a competing public insurance option, after totally rejecting any consideration of a single publicly administered insurance program for everyone. Eventually even the public option was rejected, just as a competing public Part D option had been rejected. The Republicans established the flawed policy principles with Part D, and the Democrats have now followed the same path.

The Ohio experience demonstrates not only that Medicare drug benefits should be administered by the government, but also, by extrapolation, that our entire health care financing infrastructure should be converted into an improved Medicare for everyone. We can still do that.

Wednesday, April 14, 2010

qotd: UnitedHealth usurping role of primary care provider

The Wall Street Journal
Health Blog
UnitedHealth to Pay Walgreens, YMCA, for Progress on Diabetes
By Katherine Hobson

UnitedHealth Group and Walgreens say they're teaming up with the YMCA on a program that will reimburse pharmacists and lifestyle coaches to help insured patients prevent and control diabetes.

The program, which will be announced Wednesday at the CDC Diabetes Conference in Kansas City, Mo., will have two parts, says Tom Beauregard, executive vice president of UnitedHealth and executive director of the UnitedHealth Center for Health Reform and Modernization. The prevention arm will use UnitedHealth claims data and other demographic information to flag people at risk of developing diabetes and invite them to a free, 16-session exercise and nutrition class at a local YMCA. They'll have monthly follow-up after the class is over, and instructors will be paid bonuses if participants meet certain modest weight-loss goals.

The control part of the program will be administered with Walgreens. Participants who already have diabetes will receive a 45-minute assessment and then other health-care coaching sessions, covering both medical and lifestyle management, says Colin Watts, chief innovation officer at Walgreens.

(Beauregard) said UnitedHealth would pay the YMCA around $300 for someone who completed the program and it could rise to $500 for someone who met weight-loss goals. Neither he nor Watts would disclose the reimbursements to Walgreens, but Watts says it includes a strong pay-for-performance element.

Comment:  One of the most important goals of health care reform was to reinforce the primary care infrastructure to provide for everyone a medical home that would ensure access to the highest quality care reasonably attainable.

That would have been easy through a universal publicly administered health care financing program such as an improved Medicare that included everyone. Instead reform was based on an expansion of a chronically underfunded welfare program - Medicaid - plus an infusion of taxpayer funds into an expansion of the private insurance industry.

Think about it. UnitedHealth is using its proprietary data bank to glean information about primary care patients, and then using that information to pull the patients out of their primary care homes and referring them on to the YMCA and Walgreens, effectively fragmenting their health care management. If the programs are appropriate, the decision to use them should be made in the primary care home, and not usurped by middlemen money managers. 

With the need to demonstrate a medical loss ratio of 80 percent (individual and small groups) to 85 percent (large groups), we can anticipate that UnitedHealth, WellPoint and the other for-profit insurers will make every effort they can to establish other similar programs outside of the mainstream of health care that would satisfy their medical loss ratio requirements. Of course these programs will draw funds away from primary care professionals, hospitals and other health care providers.

We do need a much stronger primary care infrastructure, but we need to get UnitedHealth and the others out of the way so that we can do it right. A publicly-owned financing system would place patients first, ensuring that they would have the coordinated care that they need.

Tuesday, April 13, 2010

qotd: Healthcare overhaul won't stop premium increases

Los Angeles Times
April 13, 2010
Healthcare overhaul won't stop premium increases
By Noam N. Levey

Public outrage over double-digit rate hikes for health insurance may have helped push President Obama's healthcare overhaul across the finish line, but the new law does not give regulators the power to block similar increases in the future.

And now, with some major companies already moving to boost premiums and others poised to follow suit, millions of Americans may feel an unexpected jolt in the pocketbook.

At least in the short term, regulators will be able to do little more than require insurers to publicly explain why they want to raise rates. Consumer advocates think that will not be an effective deterrent against premium increases such as the 39% hike that Anthem Blue Cross sent some California customers last year.

"It is a very big loophole in health reform," Sen. Dianne Feinstein (D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are pushing legislation to expand federal and state authority to prevent insurance companies from boosting rates excessively.

But more intensive oversight would not begin until 2014, when states set up new regulated insurance markets, or exchanges, where consumers who do not get insurance at work would shop for coverage. 

The healthcare bill allows regulators to ban insurers from the exchanges if their rates are deemed unjustified.

Comment:  The health insurance overhaul that is now law does not include significant regulatory control of private insurance premiums. At most, plans can be excluded from the state insurance exchanges if their premiums are considered to be excessive. Thus the call for more legislation to increase oversight of premium increases. But would this really address the problem?

Actually the bill does require that 75 to 85 percent of premium dollars must be spent on health care. As long as the insurers demonstrate that they are complying with that requirement, the premium increases are not deemed to be excessive as far as excluding them from the exchanges. Of course they will be excessive, but that is because health care costs will continue to rise at excessive rates.

There are two questions we should be asking. One is why we should consider 15 to 25 percent of the premium to be a reasonable share for the private insurers to consume for their own intrinsic purposes, especially when they place an administrative burden of another 12 percent or so on the providers of health care, amounting to an administrative cost of 27 to 37 percent of the insurance premiums. You would think that this would be a prime target in our efforts to improve health care spending.

The other question we should be asking is why we should finance health care using using a market model that has a half century track record proving that it is ineffective in controlling costs, when we could be using a public insurance model that would use proven economic tools that can actually slow health care increases to sustainable rates.

Regardless of the hoopla, we didn't reform health care financing, we only expanded our existing dysfunctional system. We don't have to accept this. We can still do it right.

Monday, April 12, 2010

qotd: Mutual fund managers are relieved

The New York Times
April 9, 2010
Health Care Overhaul May Help a Fund Sector
By Geraldine Fabrikant

Now that President Obama has finally gotten his sweeping health overhaul passed, mutual fund managers can breathe a sign of relief. Finally, there is some certainty about the changes, and most of them appear to be beneficial for health care stocks.

"There does not seem to be any onerous cost control," said Les Funtleyder, a heath care analyst at Miller Tabak, an insititutional brokerage firm and asset manager.

In the wake of the new bill, the only negative he sees is a potential problem for insurance companies, like WellPoint, the UnitedHealthGroup and Aetna, because at some point they will have to cover all potential clients. "Then the question is, will they price these things so that they can avoid losing money?" he asked.

Comment:  For those of us who continue to express concerns about the failure of the reform legislation to adequately control the excess growth in health care spending, this news is no surprise. Mutual fund managers are relieved that there are no onerous cost controls, allowing them to continue to include health care stocks as an important part of their portfolios. The only concern they've expressed is that health insurers now are going to have pay for health care for high-cost patients that they've been successful in excluding from their plans.

Expanding our expensive dysfunctional health care financing system works well for Wall Street, but it doesn't work for the rest of us. It is absolutely inevitable that we will have to adopt a program of social insurance, preferably an improved Medicare for all.  The sooner, the better.

Friday, April 9, 2010

qotd: UCSF student Eric LaMotte on single payer

The UCSF Student Newspaper
April 8, 2010
Opinion: Healthcare Reform Not Found: Abort, Retry, Ignore?
By Eric LaMotte

Despite the intense efforts of a vocal minority, healthcare reform was enacted this year by congressional Democrats who claimed to place the needs of American citizens over those of corporations. Unfortunately, they chose to enact policies that will continue to allow a costly, complex, fragmented, for-profit insurance system to inflict damage on the rest of our healthcare system. Now, living in a post-reform world, we must decide where to go from here, and I am reminded of the error prompt that every frustrated computer user has had to answer at one point or another: Abort, Retry, Ignore?

Amidst the already loud voices in support of "Abort" and "Ignore," we need to raise a new and thundering voice for "Retry." The national single payer bill described above (in the full article at the link below) is already written: HR 676.

In California, we will have our own shot at enacting a statewide single payer system with SB 810. The bill passed the State Senate in January by a vote of 22-14. But it's a long way from being enacted, and California's idiosyncratic political system makes it unlikely that California will be the first state to enact a single payer plan. You can support real reform by joining efforts with PNHP/CaPA, CaHPSA, AMSA, CNA, or California OneCare.

For a picture of Eric LaMotte with Senator Arlen Specter, with the caption, "Senator Specter talks with first-year medical student Eric LaMotte, who supports single payer health insurance":

Comment:  For a breather, today's message is an affirmation that there is hope for the future in health care, as represented by this article by Eric LaMotte, an astute medical student at the University of California at San Francisco (my alma mater).

Thanks, Eric.

(During our travels this month, qotd messages will be sporadic to nil.)

Thursday, April 8, 2010

qotd: Pennsylvania's Blues avoid battle

American Medical News
April 5, 2010
Highmark sues to block state review of Blues competition
By Emily Berry

Highmark Inc. has asked a state court to block the Pennsylvania Dept. of Insurance from investigating or releasing any findings about the state of competition between the state's four BlueCross BlueShield-affiliated plans.

In a lawsuit filed March 16, the Pittsburgh-based company accused Pennsylvania Insurance Commissioner Joel Ario of planning to try to break up the Blues plans' current licensing arrangement, set by the BlueCross BlueShield Assn.

The state's four Blues plans split their business into distinct territories. The only overlap is in central Pennsylvania, where Highmark, which has a Blue Shield trademark, and Capital BlueCross compete.

Pennsylvania Gov. Ed Rendell criticized Highmark's decision to block the state's review. "I am disappointed -- but not surprised -- that Highmark has chosen to fight our efforts to ensure the protection of consumers and guarantee a free and fair marketplace," he said in a statement. "Health insurance is a big business. Historically, it has operated -- and especially here in Pennsylvania -- with limited regulation and weak oversight."

Comment:  Pennsylvania's four BlueCross BlueShield plans have staked out different territories, effectively eliminating market competition between the Blues. One of the reasons that the reform model was based on private health plans was that market competition was supposed to bring us higher quality insurance products at lower costs. Instead, Pennsylvania is getting higher costs at whatever quality.

What is in the recently-enacted health reform legislation that will prevent such anti-competitive practices? The state health exchanges? This is an industry that is suing to block the release of any information about anti-competitive behavior. Just because they've been granted a new marketing tool in the form of the exchanges doesn't mean that they are going to change their ways. The major markets are already concentrated amongst a few insurers, and they will continue to remain so.

Since we have lost the benefit of competition, why should we spend so much more merely to keep the private insurers in control? Let's recover the resources that they waste and use the funds for a truly universal program that actually does cover all of us. That will require new, preemptive legislation, but it's just what we need - an improved Medicare for everyone.

Wednesday, April 7, 2010

qotd: Why are insurers buying back their shares?

American Medical News
April 5, 2010
Health plan profits: Relying on the market
By Emily Berry

Boosting earnings per share keeps Wall Street (and shareholders) happy. And in for-profit health insurance, shareholders come first.

When companies have extra cash, they think of the best way to benefit shareholders. "It is a fairly straightforward decision: they have dollars. They could potentially use those to buy new computers, hire new staff, open new markets, increase reimbursement or deliver more services, but in the for-profit world, their first obligation is returns to their owners," said Joe Paduda, principal for the consulting firm Health Strategy Associates in Madison, Conn.

So how are they making money?

Administrative cost controls play some part. But there are other factors: First, insurers also make money from investing premium dollars, and the returns they make on those investments have stabilized since the market crash of 2008.

The other factor is plans' billions of dollars worth of share buybacks, which affect the figure Wall Street watches most -- earnings per share. Even if cash profits don't change, per-share earnings will go up, because a company has fewer shares in the market.

Insurers' investments and share buybacks matter, because they can indirectly affect doctors' pay. If the market isn't doing well and investment income drops, insurers feel even more shareholder pressure to raise premiums or cut costs, rather than risk an operating loss. That means less flexibility for doctors in negotiating reimbursements.

"They have less margin for error, because investment returns are so low," Paduda said. If health plans see higher-than-expected spending, "or they sell a policy to folks who, God forbid, actually get sick, then they've got a problem."

(Dave Shove, a New York-based senior research analyst specializing in managed care for BMO Capital Markets Equity Research Group) said share repurchases are simply a way to reward shareholders. Other options are paying dividends or buying other firms.

But health insurers historically have made very few dividend payments, he said, and "the health insurance business is pretty consolidated now. That just leaves one thing to do, and that is buy back stock, so they're doing it."

(Scott Harrington, PhD, professor of health care management at the Wharton School of the University of Pennsylvania) said health insurers, like other companies, have favored share repurchases over paying bigger dividends, in part because the tax code favors repurchases, but also because if shareholder dividends are increased one year then cut the next, the market interprets that as very bad news.

WellPoint Chief Financial Officer Wayne DeVeydt told investors at a March conference that the company plans to spend nearly $4 billion on share repurchases in 2010, following $2.6 billion in 2009.

Not everyone likes the way investments and stock prices drive the U.S. health care system. But short of a single-payer, government-controlled system, health system reform proposals are not aimed at changing this part of the way health insurance companies work.

"This is the world we live in," Shove said. "These guys are for-profit, and as long as we have insurance companies, we have to live with the consequences of that."

Comment:  When some of the non-profit Blues insurers converted to for-profit status, the primary reason given for that conversion was to open access to capital markets. What does that mean?

When a shareholder-owned corporation issues new stock, it is allegedly for the purpose of raising capital to expand operations, growing the industry and increasing profits. That is what capitalism is all about.

But when a corporation buys back stock, it is not for the purpose of contracting operations, but rather it is to pump up the per share value. It is not merely a coincidence that this increases the value of the large blocks of shares held by top management and the board of directors, by increasing the percentage of ownership in the company. New stock issues dilute ownership, whereas stock repurchases concentrate ownership.

The funds used to buy back the shares could have been used instead to slow the growth in premiums or to reduce the excessive cost sharing burden created by the shift towards underinsurance products, benefiting their customers - the patients. But no. As this article states, "shareholders come first."

As Dave Shove states, ""This is the world we live in. These guys are for-profit, and as long as we have insurance companies, we have to live with the consequences of that."

Perhaps the most important statement in this article: "... short of a single-payer, government-controlled system, health system reform proposals are not aimed at changing this part of the way health insurance companies work."

The obvious conclusion is that reform should not stop short of a single payer system. We have more work to do.

Tuesday, April 6, 2010

qotd: Hospital executives rank United HealthCare and WellPoint/Anthem as worst

Revive Public Relations
March 31, 2010
Fourth Annual National Survey of Hospital Executives Reveals "Best" and "Worst" Among the Nation's Insurance companies

Revive, a national public relations firm specializing in Health Care and Healthy Living, today released the results of its fourth annual National Payor Survey of hospital executives. The only one of its kind in the country, the survey targeted hospital leaders in the industry who negotiate managed care contracts with national health insurance companies – CEOs, CFOs, and directors of managed care.

The survey gathered data on hospital leaders' opinions on seven of the largest health insurers or insurer groups in the nation: United HealthCare, CIGNA, Aetna, Coventry, Humana, Wellpoint/Anthem, and the local state or regional independent non-profit Blue Cross or Blue Shield plan.

While all respondents tend to regard insurance companies as equally negative when it comes to business practices, each year's survey has revealed United HealthCare as the clear outlier. For four years, United HealthCare has been consistently ranked as the worst among respondents in all survey categories and a clear trend has emerged. This year, WellPoint/Anthem saw declines that brought the company down to levels near United HealthCare.

Words hospitals used to describe United HealthCare:

17% - Bad/Negative
15% - Inflexible/Rigid/Unreasonable
13% - Challenging
13% - Deceptive/Dishonest/Unethical
8% - Aggressive/Bully
11% - Good/Fine
2% - Prompt
2% - Convenient/Easy
1% - Professional

(Similar terms were used to describe other insurers, including WellPoint/Anthem)

Comment:  From the perspective of hospital executives, the two worst insurers in the nation happen to be the largest - United HealthCare and WellPoint/Anthem, even though "all respondents tend to regard insurance companies as equally negative when it comes to business practices."

And now we have reform that not only locks us into this industry, but expands it further!? It can be changed.

Monday, April 5, 2010

qotd: Gaming the individual mandate

The Boston Globe
April 4, 2010
Short-term customers boosting health costs
By Kay Lazar

Thousands of consumers are gaming Massachusetts' 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and ran up claims of more than $1,000 per month while in the plan. Their medical spending while insured was more than four times the average for consumers who buy coverage on their own and retain it in a normal fashion, according to data the state's largest private insurer provided the Globe.

The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month.

The problem is, it is less expensive for consumers — especially young and healthy people — to pay the monthly penalty of as much as $93 imposed under the state law for not having insurance, than to buy the coverage year-round. This is also the case under the federal health care overhaul legislation signed by the president, insurers say.

Comment:  Health policy science told us ahead of time that a mandate for individuals to buy private health insurance would not work if the penalties for not doing so were quite modest. Yet Massachusetts enacted such a plan, and now very similar policies have been enacted into federal law.

The Massachusetts experience has demonstrated that health care consumers will act in their own financial interest. Individuals who perceive themselves to be in good health will elect to pay the much lower penalty for being uninsured. If they then develop expensive medical problems, they will sign up for a health plan, but then will drop their coverage after their medical needs are met. It means little to them that this drives up premiums for those who remain in the insurance pools.

There are legitimate reasons that state and federal legislators have been reluctant to assign greater penalties for not being insured. The most important is that insurance premiums are simply not affordable for moderate income individuals who do not receive adequate public or employer assistance. Even the modest penalties create a financial hardship for some. Pushing the penalties higher would compound the financial stresses that too many middle income families are already experiencing.

There are policy interventions available, but those under consideration are based on leaving the private insurance industry in charge. One suggestion is to close enrollment except for a short period of open enrollment once or twice a year. This would leave already financially strapped individuals without a safety valve should problems arise during closed enrollment periods. Another suggestion would be to reinstitute (Massachusetts) or expand (federal) the waiting period before preexisting disorders are covered, even if of very recent onset, again preventing coverage for more urgent, serious problems.

Though some might suggest that these individuals would be getting what they deserve for not being insured, the real fault is with policies inherent in the design of a financing system based on private insurance plans. Individuals are forced to choose between private insurance coverage that they may not be able to afford, or exposing themselves to the potential of greater financial insecurity by remaining uninsured. If solving problems in a system creates new problems, then we should question the system itself.

We can do this far better. We can separate the financing from the delivery of health care. With a single payer, improved Medicare for all, everyone would be automatically covered, for life. The financing of the system would not be through premiums tagged to private plans, but rather would be through progressive tax policies in which each person would pay an equitable share, and no one would face a financial hardship.

Gaming the individual mandate is not a very fun game. Let's shut it down, and change to a system that works for everyone.

Friday, April 2, 2010

qotd: WellPoint/Empire drops four non-profit hospitals

The Wall Street Journal
April 2, 2010
WellPoint Unit Drops Stellaris From Network
By Avery Johnson and Suzanne Sataline

A unit of WellPoint Inc. dropped Stellaris Health Network, a four-hospital chain in Westchester, N.Y., from its network after Stellaris asked for a 15% increase in reimbursement payments from the health insurer.

Stellaris says it merely wanted the insurer to pay rates consistent with what it receives from other health plans in the market. "Our non-profit community hospitals can no longer subsidize the record profits of a health-insurance conglomerate," said Arthur A. Nizza, Stellaris's president and chief executive, in a statement. Empire asserts charges of overall profitability aren't relevant to this particular situation.

The decision will affect thousands of members of Empire BlueCross BlueShield, a WellPoint unit in New York, who use the hospital system. Empire has six million members in New York, and Stellaris has been one of its top 10 hospital systems in the state based on size and member utilization.

The failure to reach an agreement, which resulted in the contract being terminated late Wednesday, is the latest in a string of negotiations between hospitals and insurers that have gone hostile.

Comment:  It is common to hear hospital administrators complain about low reimbursement rates from Medicare, yet how many terminate their participation in the Medicare program? And of course Medicare never unilaterally terminates a provider except when appropriate in cases of criminal fraud or incompetency that constitutes a hazard to patients.

Yet what happens when a private insurer is the payer? The decision to terminate a contract is strictly a business decision made based on market conditions, having much less to do with the value, quality or necessity of the services being provided, but much more to do with the oligopolistic leverage that the insurer has in the market. The private insurer, based purely on a business decision, is quite willing to disrupt the continuity of health care services for its own customers. And WellPoint/Empire says that their profitability isn't relevant when it makes these decisions!?

And what will the new reform legislation do to correct these blatant injustices? It will pour more taxpayer funds into the coffers of these intrusive middleman, providing them with even greater leverage in their negotiations with the health care delivery system.

Do we want a health care financing system that is designed to benefit the money managers, or do we want a financing system designed to be sure that health care is there when patients need it? If we favor the latter, then we need to dump the private insurers and adopt an improved Medicare program that takes care of everyone.

Thursday, April 1, 2010

qotd: Taiwan to move towards more equitable financing

Focus Taiwan News Channel
March 30, 2010
Talk of the day -- Health insurance overhaul nearly ready
By Sofia Wu

The health insurance premium rate will be raised from the current 4.55 percent to 5.17 percent April 1, but Department of Health (DOH) Minister Yaung Chih-liang said Monday the public could end up paying less in premiums when a second-generation health care system is adopted in two years.

Earlier Monday, Yaung briefed Premier Wu Den-yih on draft amendments to the National Health Insurance Act that will pave the way for the introduction of a new generation of health care insurance.

After listening to Yaung's briefing, Wu said the executive branch will lobby lawmakers to pass the draft package during its current session to allow for an early implementation of the second-generation system.

Under the new system, premiums will be paid by the insured, employers and the central government. At present, the government's contribution is financed by both central and local governments.

The new system will calculate premiums based on total household income (including wages, stock dividends, rental income and other unearned income) instead of the current model that considers only the insureds' salaries or earned income.

Yaung said the new system will be more equitable, as wealthy households whose income does not mainly rely on earned income will have to pay higher premiums.

Comment:  Taiwan's single payer system has been phenomenally successful, though they, like all other nations, have had to confront increases in health care costs. Under the current financing system it has become necessary to increase the percent of income paid as insurance premiums, to the displeasure of the citizens of Taiwan. That has prompted recommendations to improve the financing system.

The most important change is to shift from a premium based on a percentage of earned income to a percentage of all household income, including wages, stock dividends, rental income and other unearned income. The obvious impact of this is to make the contribution more equitable by increasing the progressive nature of the health care tax. This acknowledges the necessity of instituting a transfer not only from the healthy to the sick, but also from the wealthy to those with more modest incomes. Costs are too high to do otherwise.

Another change is to eliminate the contribution of local governments, which frequently struggle with their budgets, and to shift the full responsibility for the government contribution to the central government.

When you think about, we've already adopted these principles for our Medicare program. The program was established as a federally funded program, unlike Medicaid which depends on state funding as well. Also, the reconciliation bill just signed by President Obama includes a Medicare tax on the unearned income of wealthier individuals. 

But there is one glaring difference between the approaches of Taiwan and the United States. Taiwan uses an exceptionally efficient single payer system that covers everyone, whereas we lose almost all of the advantages of the single payer model by limiting our Medicare program to less than 15 percent of our population.

It's great that we've accepted the principle of equitable financing of health care, but wouldn't you think that our government stewards would be smart enough to know that we also need a stable, efficient financing infrastructure, if for no other reason than to ensure that everyone benefits from equitable financing? The Taiwanese stewards have already figured that one out.