Thursday, May 8, 2014

Fwd: qotd: Should hospitals become the insurers?

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-------- Original Message --------
Subject: qotd: Should hospitals become the insurers?
Date: Thu, 8 May 2014 10:08:14 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The Fiscal Times
March 27, 2014
Hospitals plot the end of insurance companies
By Rob Garver

At The Atlantic's Health Care Forum in Washington on Thursday [March
27], health care and business professionals said that there's an
increasing trend in the industry toward cutting insurance companies out
of the process entirely, as large, regional hospital systems move into
the insurance business.

Dr. Kenneth L. Davis, CEO and president of Mount Sinai Health System,
the largest health care provider in the state of New York, said that
starting next year, Mt. Sinai will begin offering its own Medicare
Advantage plan. It will look for other opportunities to bring premium
payments directly into the hospital system, rather than filtering them
through insurance companies.

Davis said he expects organizations similar to his to move in the same
direction. "Inevitably the large systems are going to move to take part
of the premium dollar," he said.

For both non-profit systems like Mt. Sinai and for-profit systems, he
said, retaining more and more of the health care premiums paid by
consumers is essential to providing a full spectrum of care. He said
that his system's St. Luke's Hospital in New York runs a psychiatric
program that loses $14 million per year. It's "not sustainable," he
said, so the system needs to cross-subsidize the money-losing services
that it nonetheless must continue to provide, with income from more
profitable services, such as orthopedic surgery.


Comment by Kip Sullivan JD

The media is doing a good job of telling the public that consolidation
within the hospital industry accelerated dramatically after the
Affordable Care Act was enacted. The media is doing a terrible job of
explaining why.

The flabbiness of managed-care speak is part of the problem. So too is
the tendency of merger partners in all sectors of the economy to feign
disinterest in market power and to claim their merger was motivated only
by a desire for greater efficiency. These problems were on display
during a recent interview of Dr. Kenneth Davis, CEO of Mount Sinai
Health System (an enormous hospital-clinic chain), by Corby Kummer, a
senior editor for the Atlantic.

The Fiscal Times summary of that interview, quoted above, accurately
portrays what Davis said. He mentioned two motives for his recent
acquisition of other hospitals: (1) to ensure that services that lose
money for Mt. Sinai, such as pediatrics, psychiatry, and obstetrics, are
cross-subsidized by money-making services such as orthopedics; and (2)
to create an entity large enough to bear insurance risk. But Dr. Davis
failed to explain why Mt. Sinai should have to cross-subsidize anything
or bear any insurance risk, and Mr. Kummer's vague questions failed to
clarify Dr. Davis's opaque remarks.

Dr. Davis was one of several experts convened on March 27 by The
Atlantic for a forum on "fundamental questions underlying" the
Affordable Care Act. Mr. Kummer began the interview with this gentle
question: "How should people be viewing… the size of these health care

Dr. Davis first replied with his cross-subsidization argument. He
claimed cross-subsidization was possible only "in an integrated health
care system" that can create "efficiencies both in clinical care and
corporate infrastructure." He said the Roosevelt Hospital was going to
become a "real mecca for orthopedics," and that in turn would make
adequate financing of underfunded services possible.

Note the unspoken, undocumented assumptions lurking under these
statements, including:

• Control of numerous hospitals and clinics by a single corporation
results in "efficiencies;"
• Mt. Sinai's management, not society through its government, should
decide how much doctors should be paid, and
• Mt. Sinai should seize the power to do that by gobbling up other

Some version of the second question did enter Mr. Kummer's mind, but he
couldn't figure out how to pose it. "Is one way of bending the cost
curve trying to equalize that hierarchy of reimbursement, or is that
just too much to hope for?" he finally blurted out. Davis dodged the
question (see Davis's answer at 5:30 into the interview).

Rather than rephrase his question, Kummer raised another subject. He
asked Davis if Mt. Sinai intended to start its own insurance company.
Davis said it wasn't clear yet whether Mt. Sinai would create an
insurance company in partnership with an existing insurer or "with our
own license," but he had no doubt Mt. Sinai would become an insurance

Rather than question why hospitals should be branching into the
insurance business, Kummer asked: "Does the Affordable Care Act make it
easier for you to think in terms of offering this product?"

"No, it's the macroeconomics of health care that is forcing this," Davis
replied. "It's large systems coming together that are large enough to
take actuarial risk…. You need a certain size and scale to be able to
take risk."

Can you imagine a more abstract answer? Some force majeure was making
Davis build an empire so he could "take actuarial risk." Kummer bought it.

A good interview would have helped listeners understand the policies
that have triggered periodic spasms of merger fever in our health care
system, and the arguments for and against letting those policies
persist. The most important cause of the rapid consolidation of our
health care system is the 40-year-old campaign waged by the powerful
managed care movement to blame the fee-for-service method for overuse of
health care, and to replace that method with capitation and other
methods of forcing doctors and hospitals to bear insurance risk. The
zenith of this campaign was reached in March 2010 with the enactment of
the Affordable Care Act. This campaign conveniently ignores the role of
high administrative costs inflicted on the system by our multiple-payer
system and by managed care itself.

The media occasionally drops a hint that the attack on fee-for-service
is the original cause in the chain of causes leading to merger fever.
For example, the New York Times article on Mt. Sinai's merger with
Continuum Health Partners last year quoted Richard Ravitch, a member of
Mt. Sinai's board, saying: "'The fee-for-service system is going to be
history shortly," it will be replaced with a system of "bundled
payments" that shift insurance risk to hospitals, and to handle that new
system hospitals will "need a population that's larger than what any one
[hospital] has … today."

But the article made no effort to explain why the fee-for-service method
should be terminated, why a system of "bundled payments" would be
better, and who is promoting these notions. The nation badly needs the
mainstream media to connect the dots between the demonization of
fee-for-service and the latest merger spasm in our health care system.

The dots could be connected quite simply, as follows:

• Managed care advocates, including leaders of both political parties,
think overuse is the cause of our health care crisis, and that overuse
is caused by the fee-for-service method;
• The managed care movement's demonization of fee-for-service and its
lionization of shifting risk onto hospitals and doctors means providers
must consolidate in order to bear insurance risk.

Once the dots are connected, society can then ask, Is it true that
overuse is our main problem and fee-for-service causes it, and if not,
is there a better way to solve the health care crisis?

For single-payer advocates, the answer is clear. It makes utterly no
sense to replace the existing insurance industry with a hospital-based
insurance industry. The existence of multiple, privately controlled
insurers is the problem. Shifting control over those insurers from the
traditional insurance industry to the hospital industry does not solve
that problem. We need one publicly controlled insurer.

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