qotd: Auto-renewal of health plans is a problem we don’t need

The New York Times
September 29, 2014
Auto-Renewing Your Health Plan May Be Bad for You, and for Competition
By Austin Frakt

Overwhelmed with increasing choice in the new exchanges, returning
consumers may not relish the idea of selecting a new plan. A feature
built into the exchanges practically invites them not to do so:
auto-renewal. Consumers insured by an exchange plan this year who do not
actively choose a new one for next year will be automatically
re-enrolled in their current plan or automatically enrolled in a similar
one if their plan is discontinued. This auto-renewal is meant to help
increase and maintain the size of the insured population and to promote
continuous coverage. But if people rely on auto-renewal without
evaluating all available options, some may end up in plans that aren't
ideal for them.

Next year, the premiums of the currently cheapest silver-rated plans are
going up by an average of 8.4 percent. Because of that, many of those
plans will no longer be the cheapest. The customers who switch to the
silver plans that are the cheapest in 2015 will see their premiums rise
by only 1 percent on average.

Auto-renewal also offers insurers a way to retain customers without
vigorously competing for them, counting on the fact that some consumers
will stick with their plans even when, rationally, they should not.

Here, basic economic theory is in conflict with the finding from
behavioral economics that when choices become too numerous and complex,
consumers resort to heuristics (or shortcuts), leading to suboptimal
decisions. For instance, when we can't fully evaluate all options, we
tend to default to familiar brands. And, because it takes time and
effort to re-evaluate options, we tend to stick with our initial choice
of brand when making a new purchase.

If we want more competition, we need to induce fewer people to default
to auto-renewal.

Auto-renewal exists for a reason, but if consumers rely on it too much,
the results will include higher premiums and greater market power for
insurers.


NYT Comments:

Don McCanne
San Juan Capistrano

Under a well designed single payer national health program there would
be no need to choose networks since the entire health care delivery
system is covered, and there would be no need to shop deductibles since
they would be eliminated.

The problem of auto-renewal would disappear since enrollment would be
for life.

http://www.nytimes.com/2014/09/30/upshot/auto-renewing-your-health-plan-may-be-bad-for-you-and-for-competition.html

qotd: When your emergency physician is out of your network

The New York Times
September 28, 2014
Costs Can Go Up Fast When E.R. Is in Network but the Doctors Are Not
By Elisabeth Rosenthal

Patients have no choice about which physician they see when they go to
an emergency room, even if they have the presence of mind to visit a
hospital that is in their insurance network. In the piles of forms that
patients sign in those chaotic first moments is often an acknowledgment
that they understand some providers may be out of network.

But even the most basic visits with emergency room physicians and other
doctors called in to consult are increasingly leaving patients with
hefty bills: More and more, doctors who work in emergency rooms are
private contractors who are out of network or do not accept any
insurance plans.

When legislators in Texas demanded some data from insurers last year,
they learned that up to half of the hospitals that participated with
UnitedHealthcare, Humana and Blue Cross-Blue Shield — Texas's three
biggest insurers — had no in-network emergency room doctors.
Out-of-network payments to emergency room physicians accounted for 40 to
70 percent of the money spent on emergency care at in-network hospitals,
researchers with the Center for Public Policy Priorities in Austin found.

"It's very common and there's little consumers can do to prevent it and
protect themselves — it's a roll of the dice," said Stacey Pogue, a
senior policy analyst with the nonpartisan center and an author of the
study.

When emergency medicine emerged as a specialty in the 1980s, almost all
E.R. doctors were hospital employees who typically did not bill
separately for their services. Today, 65 percent of hospitals contract
out that function. And some emergency medicine staffing groups — many
serve a large number of hospitals, either nationally or locally — opt
out of all insurance plans.

Regulations created by the Affordable Care Act specify that insurers
must use the best-paying among three methods for reimbursing
out-of-network physicians dispensing emergency care: pay the Medicare
rate; pay the median in-network amount for the service; or apply the
usual formula they use to determine out-of-network reimbursement, which
often depends on "usual and customary rates" in the area.

But in most states, doctors can then bill patients for the difference
between their charge and what the insurer paid.

http://www.nytimes.com/2014/09/29/us/costs-can-go-up-fast-when-er-is-in-network-but-the-doctors-are-not.html

Center for Public Policy Priorities study of out-of-network emergency
room doctors:
http://forabettertexas.org/images/HC_2014_09_PP_BalanceBilling.pdf

KFF on state balance billing restrictions:
http://kff.org/private-insurance/state-indicator/state-restriction-against-providers-balance-billing-managed-care-enrollees/

****


Comment by Don McCanne

A consequence of allowing health insurers to contract selectively with
health care professionals (physicians) and institutions (hospitals) is
that patients not only are financially penalized should they elect to
obtain their care outside of the contracted networks, they may
unavoidably face such penalties when they have sought care only within
networks.

One of the more egregious examples is when they obtain emergency
services at a contracted emergency room only to find out after the fact
that the physicians staffing the emergency room are not in the network.
The patient then is billed not only for deductibles and copayments
applied to allowed charges, but also for the balance of the charges in
excess of the allowed charges - a process known as balance billing.

"The Affordable Care Act provides some protections for enrollees in need
of emergency services, but does not prohibit balance billing by
out-of-network providers" (KFF). For further information on state
restrictions on balance billing, use the KFF link above.

When something is not right, as it clearly isn't here, it is important
to define the problem before crafting a solution. State regulators and
legislators are defining this as a problem of balance billing "abuse"
and are looking at mechanisms to prohibit balance billing. But is that
really the problem?

Insurers, with the complicity of state and federal legislators, have
established limited networks of providers to leverage more favorable
payment rates for health care services. But these rates neglect the
health care delivery system outside of the networks. Now states are
considering making out-of-network physicians comply with contracts to
which they never agreed. That is as unreasonable as making insurers pay
out-of-network fees in full simply because the insurers did not have a
contract with the physicians. Do you have a contract or not? You can't
have it both ways.

The problem here needs to be redefined. Balance billing is not the
primary defect. It is the nature of our complex, dysfunctional financing
infrastructure that leads to a multitude of perverse consequences such
as balance billing - an infrastructure that was perpetuated and expanded
by the Affordable Care Act. We need to rebuild the infrastructure. We
need a single payer national health program. Balance billing would not
exist under such a system.

qotd: Community health centers stuck with unpaid bills for insured patients

Kaiser Health News
Daily Health Policy Report
September 26, 2014

Underinsured ACA Enrollees Strain Community Health Centers

Obamacare enrollees are straining the finances of community health
centers around the country, some health center leaders say. The issue is
that many lower-income patients with insurance coverage through the
federal and state exchanges bought bronze-tier plans with lower premiums
but high deductibles, coinsurance and copayments and no federal
cost-sharing subsidies. When these patients face high out-of-pocket
costs for care that falls below the deductible, they can't afford it.
So the centers are subsidizing that care by offering them means-tested
sliding-scale fees. When the centers, which are not allowed to turn away
patients for inability to pay, try to get the insurers to pay, the
claims are usually denied, and the centers have to write it off as
uncompensated care (Modern Healthcare, Dickson, 9/25).

http://www.kaiserhealthnews.org/daily-report.aspx

****



Comment by Don McCanne

One of the advantages of reform that ensures that everyone would have
health care coverage is that safety-net institutions, such as community
health centers (CHCs), could be assured that payments would be made for
the services they provide, ending the continual struggle of funding
these institutions. As it turned out, reform will still leave 31 million
uninsured, perpetuating this problem. But at least those now insured
will no longer stress the budgets of the CHCs. Or will they?

Those purchasing the cheapest plans on the exchanges - the bronze plans
- have an average of only 60 percent of their health care costs covered.
This requires very high deductibles which are not affordable for many of
the low-income individuals purchasing these plans. Because of high
deductibles which are difficult to collect after services are rendered,
many health care providers are requiring payment upfront. Many would-be
patients end up walking away because of the lack of funds.

Where are these people to turn? The CHCs of course. They cannot turn
patients away, so they see them. When the CHCs then bill the bronze plan
insurers, the charges are below the deductibles and so the claims are
denied. They can then turn to the patients to try to collect
means-tested fees that would apply to the deductibles, but such efforts
are often futile, and so the CHCs end up writing off the charges as
uncompensated care.

This is the plight of the underinsured and of the providers who care for
them. With low actuarial value plans and often-inaccessible narrow
networks, underinsurance has become ubiquitous. It is one of the most
serious flaws in health care financing today, not only for the exchange
plans but now also for a rapidly growing percentage of
employer-sponsored plans.

This is just one of thousands of major flaws in our financing system. It
just isn't right. We can fix this by changing to a single payer national
health program. Let's do it. Now.

qotd: HCA’s dishonest IPO

Reuters
September 23, 2014
U.S. hospital chain HCA must face class action over 2011 IPO
By Jonathan Stempel

HCA Holdings Inc, one of the largest U.S. hospital chains, must face a
shareholder class-action lawsuit accusing it of concealing revenue
declines and its routine performance of unnecessary cardiac procedures
prior to its $4.35 billion initial public offering in March 2011.

U.S. District Judge Kevin Sharp in Nashville, Tennessee, rejected HCA's
claim that the plaintiffs had missed "multiple opportunities" to learn
more about the company before buying their shares, including from media
reports, conference calls, and disclosures during the IPO road show.

Shareholders alleged that HCA, its directors, its former private equity
owners and its investment banks concealed how the company was seeing
adverse trends in Medicare revenue including cardiology, and Medicaid
revenue per admission; and accounted improperly for a 2006
reorganization and a 2010 restructuring.

"Given defendants' alleged violation of the federal securities law and
its impact on a large number of geographically dispersed investor(s), a
class action is the superior vehicle for adjudication of the claims,"
Sharp wrote. "The alternative would be to have (potentially) thousands
of individual actions, which is likely impractical for most investors,
and which would risk burdening the judicial system."

The IPO had been the largest by a company owned by private equity firms.
HCA had been taken private in 2006 by a group led by Bain Capital,
Kohlberg Kravis Roberts and Merrill Lynch's private equity arm.

The case is Schuh et al v. HCA Holdings Inc et al, U.S. District Court,
Middle District of Tennessee, No. 11-01033.

http://www.reuters.com/article/2014/09/23/us-hca-holdings-classaction-idUSKCN0HI2LA20140923

****


Comment by Don McCanne

The private insurers are not the only villains that are driving high
health care costs in the United States. The private, investor-owned
segment of the health care delivery system is also bringing us higher
costs, often with inferior quality. A case in point is HCA - one of the
nation's largest investor-owned hospital chains.

HCA is already infamous for having set a record in paying a $1.7 billion
settlement for Medicare fraud. This new allegation of fraud does not
directly involve patients or taxpayers, rather it involves potential
shareholders at the time of their 2011 initial public offering (IPO).
The private owners at that time included the Frist family and some
private equity firms, including Bain Capital.

The reason that this is important to those of us concerned about health
care reform is that these people are so dishonest that they not only
cheat patients and taxpayers, they also cheat their own shareholders!

When we expel the private insurers from our health care system, we need
to expel the passive investors as well. HR 676 - the Expanded & Improved
Medicare For All Act, sponsored by John Conyers (now with 62 cosponsors)
does both. It converts the health care delivery system to non-profit
status, and it replaces private insurers with a single payer national
health program.

HCA was founded by the family of Bill Frist, former leader of the U.S.
Senate. The Medicare fraud case was initiated when Florida Governor Rick
Scott was head of HCA. Bain Capital was co-founded by presidential
candidate Mitt Romney. If we are going to achieve health care justice
for all, the voters do have some responsibility here.

qotd: Outrageous out-of-network billings

The New York Times
September 20, 2014
After Surgery, Surprise $117,000 Medical Bill From Doctor He Didn't Know
By Elisabeth Rosenthal

Before his three-hour neck surgery for herniated disks in December,
Peter Drier, 37, signed a pile of consent forms. A bank technology
manager who had researched his insurance coverage, Mr. Drier was
prepared when the bills started arriving: $56,000 from Lenox Hill
Hospital in Manhattan, $4,300 from the anesthesiologist and even
$133,000 from his orthopedist, who he knew would accept a fraction of
that fee.

He was blindsided, though, by a bill of about $117,000 from an
"assistant surgeon," a Queens-based neurosurgeon whom Mr. Drier did not
recall meeting.

In Mr. Drier's case, the primary surgeon, Dr. Nathaniel L. Tindel, had
said he would accept a negotiated fee determined through Mr. Drier's
insurance company, which ended up being about $6,200. (Mr. Drier had to
pay $3,000 of that to meet his deductible.) But the assistant, Dr.
Harrison T. Mu, was out of network and sent the $117,000 bill.

When Mr. Drier complained to his insurer, Anthem Blue Cross Blue Shield,
that he should not have to pay the out-of-network assistant surgeon,
Anthem agreed it was not his responsibility. Instead, the company cut a
check to Dr. Mu for $116,862, the full amount.

For months, Mr. Drier stewed over what to do with the $117,000 check
Anthem Blue Cross had sent him to pass on to Dr. Mu, refusing to sign
over a payment he considered "outrageous and immoral."

Mr. Drier tried to negotiate with the surgeons to divvy up the $117,000
payment in a way he believed was more fair; he liked Dr. Tindel and felt
he was being underpaid. Mr. Drier's idea, he wrote in an email, was to
settle on "a reasonable fee for both the surgeon and assistant and
return the rest of the check to the insurance company/employees" of his
company.

But in July, he received a threatening letter from Dr. Mu's lawyer
noting that he had failed to forward the $117,000 check. So he sent it
along, with regret.

If the surgery had been for a Medicare patient, the assistant would have
been permitted to bill only 16 percent of the primary surgeon's fee.
With current Medicare rates, that would have been about $800, less than
1 percent of what Dr. Mu was paid.

In recent years, unexpected out-of-network charges have become the top
complaint to the New York State agency that regulates insurance companies.

http://www.nytimes.com/2014/09/21/us/drive-by-doctoring-surprise-medical-bills.html

****


Comment by Don McCanne

Although this is an outrageous example of the perversities of private
insurers using provider networks to manipulate health care spending, it
nevertheless helps us understand why we should reject the private
insurers and their patient-unfriendly, investor- or board-pleasing
business tools of health care.

Depending on which state regulations, which insurer, and which specific
insurance plan, this out-of-network billing for Mr. Drier's assistant
surgeon could have had different outcomes. The worst is that he could
have been responsible for the entire $117,000 fee and that it would not
have applied to his deductible nor to his maximum out-of-pocket benefit
cap. In this case, Mr. Drier did not experience a major financial loss,
but those who pay insurance premiums will have to pay more when
considering the cumulative effect of all such benefit overpayments.

It just doesn't seem right when you try to buy the best insurance that
you can afford, and the insurers then tell you which physicians and
hospitals you can use if you want full coverage. Plus they frequently
expose you to high out-of-pocket costs - costs that you would think
insurance should cover - when you end up under the care of an
out-of-network provider, often through no fault of your own as in this
instance with Mr. Drier.

Had the procedure been provided under Medicare, the assistant surgeon's
fee would have been determined automatically, and at a fraction of the
billed price. An improved Medicare for all not only would have set the
fee at a fair level, it also would not have had network issues to deal
with since the entire health care system would be one single "network"
(integrated systems such as Kaiser Permanente merely being additional
providers of one's personal choice within the universal health care
delivery system).

The full New York Times article by Elisabeth Rosenthal describes many
other instances of surprises and misunderstandings that stem from the
complexities of various plans and their networks - surprises that would
not occur in a well designed, single payer national health program.
Under single payer, you get the health care that you need, wherever it's
needed, and it's simply paid for by our own public insurer.

qotd: Fortune 500 companies shift more costs to employees

University of South Carolina
September 18, 2014
Survey: Fortune 500 employees can expect to pay more for health insurance
By Peggy Binette

Employees working for Fortune 500 companies can expect to pay higher
employee contributions for their health insurance, according to a survey
of chief human resource officers about the impact of the Patient
Protection and Affordable Care Act (also known as PPACA or Obamacare)
conducted by the Darla Moore School of Business at the University of
South Carolina this past May/June.

Patrick Wright, a professor in strategic human resource management,
directs the annual the HR@Moore Survey of Chief HR Officers.

Key findings from the survey include:

• 78 percent report a rise in health insurance costs (average of 7.73
percent);
• 73 percent report having moved or will move employees to Consumer
Directed Health Plans;
• 71 percent report raising or plans to raise employee contributions to
health insurance;
• 30 percent report moving or plans to move pre-65 retirees to ACA
health exchanges;
• 27 percent report cutting back health insurance coverage eligibility;
• 24 percent report ensuring that part-time employees work less than 30
hours weekly to avoid penalty;
• 12 percent report increasing or plan to increase part-time workers; and
• 10 percent report limiting or plan to limit the full-time employee hires.

87 percent of chief HR officers reported taking or planning to take last
least one action to reduce costs. And, most of those actions are being
shouldered by employees.

The most common strategy is moving employees into Consumer Directed
Health Plans. CDHPs provide employees with a set amount of money for
regular (not catastrophic) healthcare that they manage, which shifts
responsibility from employer to worker. Firms also are defraying the
rising cost of health insurance to employees by raising the premiums
they pay for their health insurance and limiting dependent coverage.

PPACA requires employers to provide health insurance to employees who
work 30 hours or more weekly. While small businesses are more likely to
hire part-time workers, Wright says, larger firms are enforcing the cap
to avoid increased costs.

One CHRO told Wright "When we put the limit at 30 hours, we frequently
had people that worked 32-34 hours, and if enough of them did so, it
would put us at legal risk for fines. Therefore we now limit workers to
27 hours to ensure that we minimize the number that might exceed 30 hours."

The recent U.S. jobs report in June reported an increase of 799,000
part-time jobs compared to an increase of 288,000 full-time jobs, which
may reflect the employment strategies being reported in the HR@Moore survey.

Wright says what continues to be unclear is whether the quality of
employee healthcare has improved or suffered as a result of Obamacare.

http://www.sc.edu/uofsc/newsreleases/2014/09_mooreschool_hr_chro_survey_ppaca.php#.VBx3sUur_-B

****


Comment by Don McCanne

This academic survey of human resource officers at Fortune 500 companies
shows that they plan to address rising costs of their health benefit
programs by increasing the financial burden on their employees. Check
the key findings from the survey listed above. Each one is bad news for
the employees.

The most important reason given for choosing the model of reform that
became the Affordable Care Act (ACA) was that the majority of Americans
were receiving their health care coverage through their employment, and
that these plans provided the best coverage available. The best of the
best were the plans offered by the very large employers - the Fortune
500 companies.

So what is their response? As if there were not enough problems already
with excess deductibles, narrower provider networks, tiering of health
care services and drugs, limiting dependent coverage, and other
innovations that impair access and reduce costs, in the face of ever
more increasing costs the employers are now raising employee
contributions to the plans, shifting to consumer directed plans that
place a greater financial burden on the employees, reducing eligibility
for their employees, shifting retirees out of their plans, reducing
hours for part-time employees in order to avoid ACA penalties, and
limiting full-time employee hires while increasing part-time workers.
And this is the best of the best!

The diagnosis is obvious. ACA was the wrong model for reform. We need a
single payer national health program. Delaying that change will only
cause the deficiencies to get worse, especially when we leave the
private insurers in charge. It's too bad that the Fortune 500 executives
don't have a little more empathy for their employees. After all, it's
their employees who have been responsible for the increases in
productivity - the gains of which the executives are scooping off the top.


If empathy doesn't cut it, the executives need to be reminded of Nick
Hanauer's "The Pitchforks Are Coming… For Us Plutocrats":

http://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014_full.html

qotd: Is health care consolidation for efficiency, or for market control? Check our prices.

The New York Times
September 17, 2014
F.T.C. Wary of Mergers by Hospitals
By Robert Pear

As hospitals merge and buy up physician practices, creating new
behemoths, one federal agency is raising a lonely but powerful voice,
suggesting that consumers may be victimized by the trend toward
consolidation.

Hospitals often say they acquire other hospitals and physician groups so
they can coordinate care, in keeping with the goals of the Affordable
Care Act. But the agency, the Federal Trade Commission, says that
mergers tend to reduce competition, and that doctors and hospitals can
usually achieve the benefits of coordinated care without a full merger.

The commission is using a 100-year-old law, the Clayton Antitrust Act of
1914, to challenge some of the mergers and acquisitions, and it has had
remarkable success in recent cases.

"Hospitals that face less competition charge substantially higher
prices," said Martin S. Gaynor, director of the F.T.C.'s bureau of
economics, adding that the price increases could be "as high as 40
percent to 50 percent."

Doctors and hospitals say they must collaborate to survive and thrive
under the Affordable Care Act.

But Deborah L. Feinstein, director of the bureau of competition at the
Federal Trade Commission, said the health care law did not repeal the
antitrust laws.

Often, Ms. Feinstein said, when hospitals and doctors join forces, their
goal is not just to control costs or improve care, but to "get increased
leverage" in negotiations with health insurance companies and employers.

"They say they need better rates so they will have more money to invest
in their facilities," Ms. Feinstein said. "When you strip that down,
it's basically just saying, 'We want a price increase.' Even if the
price increase is motivated by a desire to invest more in the business,
that's problematic. That incentive to invest may not be there if you
don't have competition as a spur to innovation — if you're not worried
about losing business to the hospital down the street."

The F.T.C. has long argued that mergers can cause higher prices by
reducing competition among hospitals in the same market. New research
suggests that another dynamic, rarely considered by antitrust officials,
can also lead to significant price increases.

The research shows that hospitals gain bargaining power when they are
acquired and become part of a big hospital system that has no other
presence in the local market.

"Acquisitions of hospitals by large national chains such as Hospital
Corporation of America, Ascension Health or Tenet Healthcare may not
increase hospital concentration in the affected local markets, but could
nevertheless generate higher prices," said Matthew S. Lewis, an
associate professor of economics at Clemson University.

http://www.nytimes.com/2014/09/18/business/ftc-wary-of-mergers-by-hospitals-.html

****


Comment by Don McCanne

Integrating health care delivery services with the goal of improving the
quality and price efficiency of health care services for the community
at large is an admirable goal of the Affordable Care Act (ACA). The
merger mania taking place is being marketed as a means of achieving that
integration. Yet the monkey wrench in the model is the supposed
dependency on market competition instead of government oversight as a
means of providing higher quality at a lower cost.

Yet merging health care services with the claim that quality improves as
costs go down is proving to be a fraud. For the last century we have had
to enforce antitrust laws and regulations simply because market
consolidation results in oligopolistic control and higher prices
instead. We are now seeing this throughout our health care system as
providers recognize the business opportunities of greater clout in rate
negotiations made possible by anti-competitive consolidation. The FTC
has challenged less than one percent of these deals, indicating the
conflict within our government of supporting implementation of ACA as
opposed to protecting the public from unfair antitrust activities.

The flaw is to be found in the ACA model of reform. Excessive power has
been granted to private insurance intermediaries that negotiate in the
private sector with the providers. The tool they cite repeatedly is
competition. Yet not only do we have the seminal work of Nobel laureate
Kenneth Arrow, we also have decades of experience that confirms that
this fiction of a market has brought us an outrageously expensive system
with only mediocre outcomes on average.

All other wealthy nations cover everyone at an average cost of half of
what we spend per person. Their success is based on the role of
relatively rigorous government regulation or direct management. Even if
the FTC stepped up its antitrust functions, our private insurers would
continue to use a wide variety of business practices that advance their
own interests at our cost. The vested interests in the privately owned
sectors of the health care delivery system would also continue to
position themselves favorably.

If we had a single payer national health program with a not-for-profit
health care delivery system, our stewards would be left with the task of
trying to get the system to work best for the benefit of patients - all
patients. Would that be so terrible?

qotd: The nefarious plot of generic drug tiers

AJMC.com
September 17, 2014
Is All "Skin in the Game" Fair Game? The Problem With "Non-Preferred"
Generics
By Gerry Oster, PhD, and A. Mark Fendrick, MD

The new blockbuster drug sofosbuvir (Sovaldi) is offering hope to many
patients with hepatitis C, but treatment is expensive and many insurers
are demanding that patients shoulder a large portion of the cost. The
demand that patients pay a larger share of their drug costs, however, is
not limited to expensive new medicines. In fact, many patients are now
facing substantially higher co-pays for various generic drugs that their
insurers have designated "non-preferred," often including those
recommended as first-line treatment in evidence-based guidelines for
hypertension, diabetes, epilepsy, schizophrenia, migraine headache,
osteoporosis, Parkinson's disease, and human immunodeficiency virus
(HIV). We are concerned about this relatively recent development.

For many years, most insurers had formularies that consisted of only 3
tiers: Tier 1 was for generic drugs (lowest co-pay), Tier 2 was for
branded drugs that were designated "preferred" (higher co- pay), and
Tier 3 was for "nonpreferred" branded drugs (highest co-pay). Generic
drugs were automatically placed in Tier 1, thereby ensuring that
patients had access to medically appropriate therapies at the lowest
possible cost. In these 3-tier plans, all generic drugs were de facto
"preferred." Now, however, a number of insurers have split their
all-generics tier into a bottom tier consisting of "preferred" generics,
and a second tier consisting of "non-preferred" generics, paralleling
the similar split that one typically finds with branded products.
Co-pays for generic drugs in the "non-preferred" tier are
characteristically much higher than those for drugs in the first tier.

To better understand coverage policies in plans with 2 tiers for generic
drugs, we identified several such offerings, including both commercial
plans and those under the Medicare Part D program, via an informal
search of the Internet. For 6 such plans, we examined coverage policies
for 10 widely used drugs—all generically available—that are recommended
as first-line treatment in current evidence-based guidelines.

While 2 of the plans provide access on a "preferred" basis to all of the
medicines we considered, 1 or more of the drugs are "non-preferred" in
all of the remaining plans. Metformin, for example, is a "non-preferred"
drug in 1 plan, despite being a first-line treatment for type 2 diabetes
mellitus. Two plans have no "preferred" generic anticonvulsant drugs; 3
plans have no "preferred" generic antipsychotic medicines; levodopa is
designated a "non-preferred" agent in 3 plans; 4 plans have no
"preferred" generic triptans (for migraine headache); and all generic
antiretrovirals are Tier 2 agents in 4 plans. When there are no
"preferred" generics from which clinicians and patients with particular
diseases can choose, it may be argued that the diseases themselves
effectively are "non-preferred."

It is sometimes argued that patients should have "skin in the game" to
motivate them to become more prudent consumers. One must ask, however,
what sort of consumer behavior is encouraged when all generic medicines
for particular diseases are "non-preferred" and subject to higher
co-pays. The answer is informed, we believe, by a 2007 JAMA study of
cost sharing by researchers at RAND, which was based on a review of 132
published studies. The authors report that "(i)ncreased cost sharing is
associated with lower rates of drug treatment, worse adherence among
existing users, and more frequent discontinuation of therapy" and that
"for certain conditions, the evidence clearly indicates that more cost
sharing is associated with increased use of other medical services, such
as hospitalizations and emergency department visits.

When insurers designate clinically important generic medicines
"nonpreferred" and there are no therapeutically equivalent "preferred"
alternatives from which to choose, it cannot be argued that patients are
thereby motivated to become more prudent consumers. The existence of
clinically sound therapeutic choices is a precondition for any
meaningful effort intended to make patients put "skin in the game."
Without choice, such policies are simply punitive and run counter to
established principles of formulary design and management.

http://www.ajmc.com/publications/issue/2014/2014-vol20-n9/Is-All-Skin-in-the-Game-Fair-Game-The-Problem-With-Non-Preferred-Generics

Charles Ornstein of ProPublica provides an excellent discussion of this
in today's New York Times:
http://www.nytimes.com/2014/09/18/upshot/how-insurers-are-finding-ways-to-shift-costs-to-the-sick.html

****


Comment by Don McCanne

Why are the insurers establishing tiers of generic drugs with different
levels of cost sharing? Cost sharing does shift some of the
responsibility of paying for care from the insurer to the patient, but
this goes far beyond that.

Establishing tiers of drugs with different levels of cost sharing
originally was to encourage patients to select generic drugs which were
much less expensive for the insurer to cover. Unfortunately, with our
let-the-market-work policies, drugs are being priced in the
stratosphere. Even generics have seen skyrocketing price increases. You
might think that this is why the private insurers have decided to place
generics in tiers, but you would be missing their nefarious strategy.

What we are seeing is the placement of generic drugs used to treat
serious chronic diseases into the non-preferred tier which then exposes
the patient to greater cost sharing. The shopping behavior that the
insurer is encouraging is to have patients with chronic disorders leave
their plans and enroll in their competitors' plans instead. Thus the
tier of non-preferred generic drugs has been established to chase away
patients who have "non-preferred" chronic diseases - non-preferred by
the insurer, that is.

This really does demonstrate how much more evil the private insurers
have become. They will continue to find new ways to swindle us. What is
insane is that we continue to tolerate them when we know that there is a
far better solution - a single payer national health program. Why is the
nation not outraged?

qotd: Dartmouth studies sending us in the wrong direction?

Brookings Institution
September 2014
Why the Geographic Variation in Health Care Spending Can't Tell Us Much
about the Efficiency or Quality of our Health Care System
By Louise Sheiner

Abstract

This paper examines the geographic variation in Medicare and
non-Medicare health spending and finds little support for the view that
most of the variation is likely attributable to differences in practice
styles. Instead, I find that socioeconomic factors that affect the need
for medical care, as well as interactions between the Medicare system
and other parts of the health system, can account, in an econometric
sense, for most of the variation in Medicare health spending.

The paper also explores the econometric differences between controlling
for health attributes at the state level (the method used in this paper)
and controlling for them at the individual level (the approach used by
the Dartmouth group.) I show that a state-level approach can explain
more of the state-level variation associated with omitted health
attributes than the individual-level approach, and argue that this
econometric difference likely explains much of the difference between my
results and those of the Dartmouth group.

More broadly, the paper shows that the geographic variation in health
spending does not provide a useful way to examine the inefficiencies of
our health system. States where Medicare spending is high are very
different in multiple dimensions from states where Medicare spending is
low, and thus it is difficult to isolate the effects of differences in
health spending intensity from the effects of the differences in the
underlying state characteristics. I show, for example, that previous
findings about the relationships between health spending, the share of
physicians who are general practitioners, and quality, are likely the
result of omitted factors rather than the result of causal relationships.

I. Introduction

It is well known that Medicare spending per beneficiary varies widely
across geographic areas. The conventional wisdom from the leaders in
this research area, the Dartmouth group, is that little of this
variation is accounted for by variation in income, prices, demographics,
and health status, and, instead, most of the variation represents
differences in "practice styles." Further, the Dartmouth research
suggests that the additional health spending of the high-spending areas
does not improve the quality of health care, and, indeed, might even
diminish it.

One of the implications of the Dartmouth work is that health care
spending can be reduced without significant effects on health outcomes.
For example, Sutherland, Fisher, and Skinner (2009) argue "Evidence
regarding regional variations in spending and growth points to a more
hopeful alternative: we should be able to reorganize and improve care to
eliminate wasteful and unnecessary service." This view was promoted by
the Obama Administration as part of the effort to reform health care. In
a Wall Street Journal op-ed, then OMB-director Peter Orszag, referring
to the Dartmouth work, noted "If we can move our nation toward the
proven and successful practices adopted by lower-cost areas and
hospitals, some economists believe health-care costs could be reduced by
30% -- or about $700 billion a year -- without compromising the quality
of care.

The Dartmouth group has also argued that this geographic variation holds
the key to reducing excess cost growth in health care. According to
Fisher, Bynum, and Skinner (2009), "By learning from regions that have
attained sustainable growth rates and building on successful models of
delivery-system and payment system reform, we might... manage to "bend
the cost curve." ....... Reducing annual growth in per capita spending
from 3.5% (the national average) to 2.4% (the rate in San Francisco)
would leave Medicare with a healthy estimated balance of $758 billion, a
cumulative savings of $1.42 trillion."

In this paper, I reexamine the geographic variation in health spending
at the state level and find little support for the Dartmouth views. I
find that most of the geographic variation in Medicare spending is
explainable, at least in an econometric sense, by differences in
socioeconomic factors that affect the need for medical care and the
resources available in the nonelderly population to finance it. Although
it is not possible to rule out the Dartmouth view that the differences
in spending reflect differences in practice styles, I show that there
are other explanations for the variation in spending that seem to be
better supported by the data. Furthermore, I show that the relationships
between health spending (both Medicare and non-Medicare), physician
composition, and quality are likely the result of omitted factors rather
than the result of causal relationships.

More broadly, the paper shows that the geographic variation in health
spending does not provide a useful way to examine the inefficiencies of
our health system. States where Medicare spending is high are very
different from states where Medicare spending is low, and thus it is
difficult to isolate the effects of differences in health spending
intensity from the effects of the differences in the underlying state
characteristics. Insights into the relationship between health spending
and outcomes are more likely to be provided by natural experiments such
as that analyzed by Doyle (2007), who showed that among visitors to
Florida who had heart attacks, outcomes were better at hospitals with
higher spending, the true experiment run in Oregon in which a group of
uninsured low-income adults was selected by lottery to be given the
chance to apply for Medicaid (Finkelstein et al, 2011), or the recent
paper by Finkelstein et al which focuses on Medicare beneficiaries who
move (Finkelstein, 2013).

It is important to note at the outset that nothing in this paper
suggests that improvements in our health system are unattainable.
Rather, the paper suggests that comparisons of spending between high
cost states and low costs states are unlikely to provide a measure of
how much we can hope to gain by efforts to improve health system efficiency.

The paper is organized as follows. I first give a brief overview of the
literature on geographic variation. Then I present the basic results
from the Medicare regressions, and show that the cross-state variation
in average Medicare spending is well explained by differences in
population characteristics across states. I compare my results to those
of the Dartmouth group and suggest a number of reasons why my results
differ. I show that, econometrically, there is a difference between
controlling for attributes at the individual level (the Dartmouth
approach) and controlling for them at the state level (the approach used
here), and that this difference is likely to be empirically important
when it comes to health care. I argue that my state-level approach
better controls for the variation in health and other socioeconomic
variables that affect health demand. In addition, to the extent that
there are area differences in practice styles, I show that these too
likely reflect systemic differences across states, and thus would likely
be difficult to alter.

I then explore the relationships between Medicare and non-Medicare
spending across the states, and show that the two appear to be somewhat
negatively correlated. This correlation is quite important in thinking
about the relationship between provider workforce characteristics,
quality, and health spending. In particular, I show that taking into
consideration some of the demographics and health insurance variables by
state changes the conclusions one gets from previous studies. Finally, I
show that the growth rates of Medicare spending are negatively related
to the level of health spending—that is, low spending states tend to
have higher growth rates than high-spending states. The conclusion
assesses the implications of this work for Medicare policy.

VIII. Conclusions

The evidence presented in this paper shows that most of the variation in
Medicare spending across states is attributable to factors that affect
health and health behaviors, rather than to random variation in practice
styles. Isolating the exact channels through which differences in health
affect Medicare spending is difficult, however, because both the need
for health spending and provider practice styles will likely be affected
by variations in population health and variables that are correlated
with it.

But the paper has several findings that suggest that the variation in
Medicare spending does not represent wasteful spending that could be
easily eliminated without significant effects on the health system.
First, population characteristics have more explanatory power for
Medicare spending than measures of social capital, indicating that the
variation in patient characteristics is more important than variation in
provider characteristics. Second, health measures are significantly more
correlated at the state level than at the individual level, making it
likely that state level regressions do a better job of controlling for
unobserved variation in population health. Third, there does not seem to
be a significant relationship between the use of "preference- sensitive
procedures" and the level Medicare spending. Fourth, states with high
levels of Medicare spending tend to have lower levels of non-Medicare
spending. Providers in these states may face greater financial
difficulties, and may "volume shift" to Medicare patients in order to
cover costs.

The paper also shows that conclusions about the relationships between
health spending, physician composition, and quality are sensitive to the
inclusion of variables like the share of the population uninsured,
black, or diabetic. What this sensitivity demonstrates is the difficulty
of using the geographic variation in spending for hypothesis testing. It
is not surprising that states in the South spend more on Medicare and
have worse outcomes. These states perform significantly worse in
numerous areas, including high school graduation rates, test scores,
unemployment, violent crime, and teenage pregnancy. There are many ways
that such differences can affect health utilization and outcomes,
including differences in underlying health, social supports and social
stressors, patient self-care and advocacy, ease of access to services,
capabilities of hospital and physician nurses and technicians, and
cultural differences in attitudes toward care. A comparison of health
spending in Mississippi with health spending in Minnesota is not likely
to provide a useful metric of the "inefficiencies" of the health system
in isolation; rather, the difference in spending likely mirrors broader
societal problems unrelated to the health system per se.

Finally, the evidence also suggests that low-cost states are not
low-growth states. Thus, the geographic variation in Medicare spending
is probably not the key to finding ways to slow spending growth while
continuing to improve quality over time.

http://www.brookings.edu/~/media/projects/bpea/fall%202014/fall2014bpea_sheiner.pdf

****


Comment by Don McCanne

Did this paper really say what it seems like it said? Wow! It is
important because it seems to be a highly credible challenge to the
principle that much of the waste in health care spending is due to
variation in practice styles, as allegedly demonstrated by the Dartmouth
group.

According to this Brookings paper by Louise Sheiner, "The evidence
presented in this paper shows that most of the variation in Medicare
spending across states is attributable to factors that affect health and
health behaviors, rather than to random variation in practice styles."
Further, "But the paper has several findings that suggest that the
variation in Medicare spending does not represent wasteful spending that
could be easily eliminated without significant effects on the health
system."

Double wow! This suggests that the efforts of reducing waste through
accountable care organizations (ACO) that are designed based on the
Dartmouth studies of waste are mostly for naught. It also explains why
to date the experiments with ACO models have had very little impact on
either efficiency or quality.

Of particular concern is the finding that areas in the South with high
Medicare spending have worse outcomes, and they also "perform
significantly worse in numerous areas, including high school graduation
rates, test scores, unemployment, violent crime, and teenage pregnancy."
You cannot help but think that more resources need to be directed toward
these societal ills. It is not just health care that needs our attention.

For us, the important take-home point of this paper is that we should
turn our attention away from puff programs such as ACOs that hold little
promise of delivering on higher quality and lower costs, and turn
instead to policies that have been proven in other nations to be
effective. Of course we're referring to a single payer national health
program. We already know that it works.

qotd: Private insurers using “virtual credit cards” to loot physician payments

AMA Wire
September 12, 2014
Footing bill for insurers' pay methods shouldn't fall on doctors

An increasingly common payment method among health insurers offers these
companies significant financial rewards while sticking physicians with
all the associated fees and extra work. But physicians are fighting back
as the AMA and other health care associations take the issue to the
federal government.

Many insurers are choosing to use virtual credit cards for claims
payments to physicians, instead of sending paper checks or paying via
the electronic funds transfer (EFT) standard transaction. When paying
via virtual credit card, insurers send single-use credit card payment
information and instructions to physicians via mail, fax or email. The
physician's office staff then processes the payment as they would a
patient's credit card.

For each of these payments, physicians are charged fees that typically
amount to 3-5 percent of the total payment, the AMA explained in recent
testimony (log in) to the National Committee on Vital and Health
Statistics, an advisory board to the secretary of the U.S. Department of
Health and Human Services (HHS).

That adds up. If a physician contractually is owed $5,000, for instance,
he or she could have to shell out up to $250 in fees.

In a letter (log in) sent last week to HHS Secretary Sylvia Burwell, the
AMA and three other leading organizations called on the agency to
prohibit insurers from forcing physicians to accept this payment method.

http://www.ama-assn.org/ama/pub/ama-wire/ama-wire/post/footing-bill-insurers-pay-methods-shouldnt-fall-doctors

****

Letter
August 25, 2014

To: The Honorable Sylvia Mathews Burwell, Secretary, Department of
Health and Human Services

We, the undersigned organizations, are writing to you to convey our
views and recommendations in response to recommendations made to you by
the National Committee on Vital and Health Statistics (NCVHS) on May 15,
2014.

At issue is a type of non-standard electronic funds transfer (EFT)
transaction known as a "virtual card" payment. In a virtual card
payment, a health plan or its vendor sends a single-use credit card
number to a provider by mail, fax or email. This is known as a virtual
card because a physical card is never created or presented to the
provider. The provider must then manually enter the virtual card number
into its Point-of-Sale (POS) processing terminal, and the card
processing network provides an authorization for the payment. The
provider then receives funds in the same way as for other card payments
– via an Automated Clearing House (ACH) funds transfer from the POS
merchant acquiring vendor to the provider's bank account. For these
virtual card payment authorizations, providers pay interchange fees of
approximately 3 percent of the value of the payment (though anecdotally
some providers have reported paying as much as 5 percent). Providers are
unexpectedly losing income through these card fees, which essentially
reduce the contracted fee rate that has been negotiated with the health
plan for a particular service or services. Many providers are
understandably opposed to incurring these fees, especially when they did
not choose to use this payment method and when they are faced with a
manual, burdensome opt-out process that further delays payment. In many
cases, decision- makers in the provider's office only become aware of
the incurred fees after receiving monthly statements from credit card
merchants, as the virtual cards are processed by billing office staff
without any strategic decision in the practice to accept this form of
payment.

American Hospital Association (AHA)
American Medical Association (AMA)
Medical Group Management Association (MGMA)
NACHA, The Electronic Payments Association

(Requires login)
https://download.ama-assn.org/resources/doc/psa/x-pub/joint-virtual-card-letter-hhs.pdf

****


Comment by Don McCanne

It's in their blood. Private insurers will always find a way to cheat
others under the guise of good business practices. Now private insurers
are using the scam of "virtual credit cards" in order to keep 3 to 5
percent of agreed upon payments made to physicians under their network
contracts, while loading more administrative work onto the backs of the
physicians' staff members.

Thieves. That's all they are. Thieves.

qotd: Some Covered California patients involuntary transferred to Medi-Cal

KCRA.com/AP
September 9, 2014
Income checks throw Californians off health plans

Some Californians who purchased individual health coverage through the
state's insurance exchange are suddenly being dropped or transferred to
Medi-Cal, the program for the poor that fewer doctors and providers accept.

The changes are occurring as incomes are checked to verify the
policyholders can purchase insurance through the exchange.

Officials at Covered California acknowledged that a number of people are
being shifted around during income checks and eligibility updates.

"It will happen continually," spokesman Dana Howard said.

This year, he said, the exchange adjusted its income eligibility scale
when the federal government updated the poverty scale. As a result,
Howard said, people near the thresholds are sometimes moved between
private health plans and Medi-Cal. The checks might also determine that
some people make too much money to receive a subsidy.

Evette Tsang, a Sacramento insurance agent, said some of her clients
unexpectedly received Medi-Cal cards even though they were content with
the plan they purchased through the exchange.

"There's a lot of people who have never been on Medi-Cal, and they don't
want to. You hear the service is not as good, providers are not easy to
find," Tsang said.

http://www.kcra.com/news/income-checks-throw-californians-off-health-plans/27962242

****

Los Angeles Times
September 9, 2014
Editorial
A California solution for a Medicaid quirk

The 2010 federal healthcare reform law required virtually all adult
Americans to carry insurance, starting this year. And to help make
policies affordable, it offered subsidies to lower-income households
while expanding the Medicaid insurance program to more of the poorest
residents. But there's a key difference between those two groups: Only
those in the Medicaid program may find their estates billed after they
die to pay back some of the aid.

Most troubling, the new requirement to obtain coverage is prompting
millions of Californians to sign up for Medi-Cal, where they are put in
Medi-Cal's version of an HMO. Only after they enrolled are they told
that, if they are 55 or older, the state will seek to recover the value
of the coverage from their estates. They could be in perfect health,
receiving no medical care at all, but still be running up a bill that
their estate will have to pay.

The California Legislature responded by passing a bill (SB 1124) that
would stop Medi-Cal, the state's version of Medicaid, from trying to
collect repayment for routine medical care and insurance premiums. The
measure now awaits action by Gov. Jerry Brown, whose Department of
Finance opposes the bill because it would cost Medi-Cal an estimated $30
million a year.

http://www.latimes.com/opinion/editorials/la-ed-medi-cal-20140910-story.html

****

Los Angeles Times
September 8, 2014
Editorial
What can be done about Covered California's doctor gap?

A separate study of three rural counties by the California Health Report
found that more than half of the doctors listed by Medi-Cal in those
counties either were turning away new patients or couldn't be reached by
phone.

A related issue is whether the networks offered by health plans can
actually deliver the coverage the plans promise.

Insurers say they're taking the problem seriously, which should help
both those who shop for individual policies and the growing ranks
enrolled in managed-care plans through Medi-Cal.

http://www.latimes.com/opinion/editorials/la-ed-health-insurance-networks-20140908-story.html

****


Comment by Don McCanne

At the beginning of the health care reform process, we complained that
the various factors in the proposed multi-payer model that would
determine what health care coverage a person would have would be highly
variable and would result in instability of health care coverage. The
current experience in California provides an inkling of the extent of
this problem.

Some who purchased plans through California's ACA insurance exchange -
Covered California - are losing that coverage when auditing demonstrates
that income levels were not confirmed, income levels changed, or income
eligibility levels changed because of updates in the federal poverty
thresholds. Regardless, people were losing the coverage which they had
selected, and became uninsured or moved to other private plans, or, in
some cases, were involuntarily enrolled in Medi-Cal - California's
Medicaid program.

The latter is a particular problem. First, many of these people pride
themselves on their self-sufficiency, even though they need to accept
government subsidies so that they could afford the exchange plans. They
understand that these subsidies are necessary, not for their own
personal failings but simply because health care has become so expensive
that the average worker can no longer bear the full costs. For these
people, being forced into a welfare program - Medi-Cal - can be humiliating.

But what is even worse, the Medi-Cal ticket doesn't automatically grant
them admission to the health care system. Although there was already a
shortage of physicians who would accept Medi-Cal patients, the lists of
providers currently contain names of many physicians who are now turning
away new Medi-Cal patients. Also, most of the newly eligible are being
enrolled in Medi-Cal managed care plans when preliminary reports
indicate that these plans do not have the capacity to carry the load.

Just to add further insult, those moved into Medi-Cal may have their
estates billed to recover Medi-Cal costs, when there is no recovery
process for subsidies provided for the Covered California exchange plans.

There are thousands of other reasons that coverage is unstable under the
Affordable Care Act. In contrast, a single payer system provides the
same comprehensive national health program for life. You can't get much
better stability than that.

qotd: Federal Reserve report on consumer finances

Federal Reserve Bulletin
September 2014

Changes in U.S. Family Finances from 2010 to 2013: Evidence from the
Survey of Consumer Finances

The Federal Reserve Board's triennial Survey of Consumer Finances (SCF)
collects information about family incomes, net worth, balance sheet
components, credit use, and other financial outcomes. The 2013 SCF
reveals substantial disparities in the evolution of income and net worth
since the previous time the survey was conducted, in 2010.

Family incomes

* Between 2010 and 2013, mean (overall average) family income rose 4
percent in real terms, but median income fell 5 percent, consistent with
increasing income concentration during this period.

* Families at the bottom of the income distribution saw continued
substantial declines in average real incomes between 2010 and 2013,
continuing the trend observed between the 2007 and 2010 surveys.

* Families in the middle to upper-middle parts (between the 40th and
90th percentiles) of the income distribution saw little change in
average real incomes between 2010 and 2013 and thus have failed to
recover the losses experienced between 2007 and 2010.

* Only families at the very top of the income distribution saw
widespread income gains between 2010 and 2013.

* The differentials in average income growth between 2010 and 2013 are
also observed for other family groupings in which large differences in
income levels are observed, notably across education groups, by race and
ethnicity, homeownership status, and levels of net worth.

Net worth

* Consistent with income trends and differential holdings of housing
and corporate equities, families at the bottom of the income
distribution saw continued substantial declines in real net worth
between 2010 and 2013, while those in the top half saw, on average,
modest gains.

* Ownership rates of housing and businesses fell substantially between
2010 and 2013.

* Retirement plan participation in 2013 continued on the downward
trajectory observed between the 2007 and 2010 surveys for families in
the bottom half of the income distribution.

* The decrease in stock ownership rates was most pronounced for the
bottom half of the income distribution.

http://www.federalreserve.gov/pubs/bulletin/2014/pdf/scf14.pdf

****


Comment by Don McCanne

The recovery of the economy has left behind everyone except the wealthy.
Most individuals and families are less able to afford housing,
education, retirement, vacations, college expenses, and, of especial
concern to us, health care. Many economists believe that this may
represent the new normal.

The public policies that we need to bring us all back on a solid footing
are straightforward. But politics has resulted in the erection of almost
impenetrable barriers. Just today the Senate reconfirmed the fact that
billionaires are still free to buy our elections (and the billionaires
have fared very well as the rest of us have been left behind).

If we could improve just the financing of health care so that it is
affordable for everyone, we would have taken one major step towards
implementing the public policies that we need to more equitably share
the gains in our economy. The Affordable Care Act falls far too short of
the level of equitable health care financing that we need. The
progressive financing that characterizes a single payer system would
move us more dramatically in the right direction. Not only would
everyone have health care, but we would be improving family incomes and
net worth as well.

Policy is easy. But we really have to work on the politics. The
billionaires can buy the souls of the politicians for only so long.
Start sharpening your pitchforks (Hanauer).

qotd: Narrow networks reduce specialized care for the sickest patients

The National Bureau of Economic Research
NBER Working Paper No. 20462
September 2014
Controlling Health Care Costs Through Limited Network Insurance Plans:
Evidence from Massachusetts State Employees
Jonathan Gruber, Robin McKnight

Abstract

Recent years have seen enormous growth in limited network plans that
restrict patient choice of provider, particularly through state
exchanges under the ACA. Opposition to such plans is based on concerns
that restrictions on provider choice will harm patient care. We explore
this issue in the context of the Massachusetts GIC, the insurance plan
for state employees, which recently introduced a major financial
incentive to choose limited network plans for one group of enrollees and
not another. We use a quasi-experimental analysis based on the universe
of claims data over a three-year period for GIC enrollees. We find that
enrollees are very price sensitive in their decision to enroll in
limited network plans, with the state's three month "premium holiday"
for limited network plans leading 10% of eligible employees to switch to
such plans. We find that those who switched spent considerably less on
medical care; spending fell by almost 40% for the marginal complier.
This reflects both reductions in quantity of services used and prices
paid per service. But spending on primary care actually rose for
switchers; the reduction in spending came entirely from spending on
specialists and on hospital care, including emergency rooms. We find
that distance traveled falls for primary care and rises for tertiary
care, although there is no evidence of a decrease in the quality of
hospitals used by patients. The basic results hold even for the sickest
patients, suggesting that limited network plans are saving money by
directing care towards primary care and away from downstream spending.
We find such savings only for those whose primary care physicians are
included in limited network plans, however, suggesting that networks
that are particularly restrictive on primary care access may fare less
well than those that impose only stronger downstream restrictions.

Full paper available at this link:
http://www.nber.org/papers/w20462

****

The New York Times
September 9, 2014
Narrow Health Networks: Maybe They're Not So Bad
By Margot Sanger-Katz

Lots of people shopping in the new health care marketplaces this year
picked health plans that limited their choice of doctors and hospitals.
The plans were popular because they tended to cost less than more
conventional plans that covered nearly every health care provider in a
region.

The proliferation of these more limited plans, called narrow networks,
has worried consumer advocates and insurance regulators. The concern is
that people will struggle to find the care they need if their choices
are limited.

Maybe we don't have to worry so much. A new study suggests that, done
right, a narrow network can succeed in saving money and helping certain
patients get appropriate health care. The study, published as a working
paper with the National Bureau of Economic Research, looked at a program
that used financial incentives to steer workers into narrow plans. Those
that chose the plans saved their employer money, saw their primary care
doctors more and used the emergency room less.

Mr. Gruber says this study should not be the final word on narrow
networks, but he said he hoped it would change the tenor of the debate
about them. Instead of automatically seeing a narrow network as a
sinister plan feature, he said, he hopes market watchers will now see
them as a tool that can, in some cases, help save money without hurting
patients.

"Nobody is talking about forcing people into these plans," he said.
"We're talking about offering people a choice with price incentives."

**

NYT Reader Comments:

Don McCanne
San Juan Capistrano, CA

Quoting from the Gruber and McKnight paper:

"We first find that patients are very price sensitive in their decisions
to switch to limited network plans…"

"…those who are most healthy are the most price sensitive."

"for the chronically ill… we find a strong shift in spending from
specialists to primary care physicians…"

"…we conclude that the real savings from limited network plans arises
from restrictions downstream from the primary care provider."

Healthy individuals buy the cheapest plans not worrying about the
choices in specialized care that they believe they will not need anyway.
But for chronically ill patients who are responsible for most of our
health care spending, they are losing specialized services when they are
enrolled in these narrow network plans.

This study was too short to be able to measure adverse outcomes due to
lack of specialized services. Shouldn't we find that out before most of
us are shoved into narrow networks?

Or better, shouldn't we take a closer look at proven systems that use
public policies to control spending without restricting patient choice -
models such as single payer or a national health service?

**

Kate
Portland OR

One thing that really concerns me about this is people with rare or
complex conditions that need specialty care. Waits, for example, for
endocrinology in my city are a minimum of 3 months for new patients and
diabetes is one of the nations' biggest health problems. It is also very
difficult now for new patients to find a new primary care MD depending
their insurance. Narrow networks prevent people from accessing care. I
am a nurse case manager, so arranging transitional care is what I do for
a living. I'm surprised to see this article. It's a little myopic.

**

sfdphd
San Francisco

Let's be honest. Narrow networks are fine for people who are not sick
now and are willing to take the chance that they will not get sick in
the coming year. If you are already ill or worry that you may become
ill, narrow networks are not good. Don't lie to us...

http://www.nytimes.com/2014/09/10/upshot/narrow-health-networks-maybe-theyre-not-so-bad.html?rref=upshot&abt=0002&abg=1

****


Further comment by Don McCanne

The most important finding in this study is that enrollment of
chronically ill patients in narrow networks results in a strong shift in
care from specialists to primary care physicians. That reduces costs,
but does it change outcomes? According to the authors, "we are unable to
demonstrate health effects with any certainty."

The work of Barbara Starfield and others has previously demonstrated
that a strong primary care infrastructure does provide greater value in
health care. But people with serious chronic disorders - where a
disproportionate share of our health care spending is directed - may
very well benefit from specialized care.

This study shows that narrow networks are used to block access to that
specialized care, simply by excluding coverage of much of the
specialized services offered within the community. As this study shows,
the care defaults to the generalist regardless of the patient's specific
needs.

A well functioning system would provide liberal access to primary care
services, which would then provide a portal to an appropriate level of
specialized services. A singe payer national health program would do
precisely that - primary care not serving as a gatekeeper but rather
serving as a resource to improve integration of health care services.

Narrow networks are a tool of private insurers used to reduce spending
by impairing access to care no matter how appropriate it might be.
Jonathan Gruber indirectly acknowledges the concerns people have about
narrow networks when he states, "Nobody is talking about forcing people
into these plans." But patients are backing into these plans simply
because they cannot afford other plans with more comprehensive networks.

Under single payer, the network is the entire health care delivery
system. That's the network that we need - for all of us.

qotd: Et tu, Atul?

Don Berwick for Governor (Massachusetts)


It is time to find a way to get to yes on a *single payer system* in
Massachusetts. The complexity of our health care payment system adds
costs, uncertainties, and hassles for everyone - patients,
families, doctors, and employers. On day one, I will appoint a
multi-stakeholder Single Payer Advisory Panel to investigate and report
back within six months on how Massachusetts moves to a single
payer health insurance system like Medicare for all.


http://www.berwickforgovernor.com/health-care


****



0.jpg*Atul Gawande**Verified account*@Atul_Gawande
<https://twitter.com/Atul_Gawande>

My MA checklist for tomorrow: (1) Go to polling station. (2) Vote for

#DonBerwick <https://twitter.com/hashtag/DonBerwick?src=hash>for the
Democratic Gov nomination.


https://twitter.com/Atul_Gawande


****



Comment by Don McCanne


Although PNHP does not endorse political candidates, this is important
news for single payer advocates. Donald Berwick, former administrator of
the Centers for Medicare and Medicaid Services (CMS), has made single
payer a central issue in his campaign to be the Democratic nominee for
Governor of Massachusetts. And now he has been endorsed by noted Harvard
Professor and journalist Atul Gawande, who has quite a following
amongst the politicos in D.C., not to mention those around the nation
who follow health policy.


It is now more clear than ever that the Affordable Care Act is going to
fall far short of the reform that we need. The fact that single payer is
an issue in today's election in Massachusetts - the state that already
has both Romneycare and Obamacare - indicates that the single payer
concept is alive and well. Although it is likely that Martha Coakley
will be the nominee, that attests to her popularity within the state, as
the voters are going to the polls to select an individual personality as
their candidate and are not voting based on specific issues.


The message is that, although ACA is the law of the land, it is still
okay to advocate for single payer. In fact, more than okay. Fixing our
highly dysfunctional system is still an imperative.


Whether or not Don Berwick and Atul Gawande are ambitious men, they
surely are honorable.

qotd: U.S. far out in front again - in hospital administrative waste

Health Affairs
September 2014
A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs
Exceed All Others By Far
By David U. Himmelstein, Miraya Jun, Reinhard Busse, Karine Chevreul,
Alexander Geissler, Patrick Jeurissen, Sarah Thomson, Marie-Amelie Vinet
and Steffie Woolhandler

Abstract

A few studies have noted the outsize administrative costs of US
hospitals, but no research has compared these costs across multiple
nations with various types of health care systems. We assembled a team
of international health policy experts to conduct just such a
challenging analysis of hospital administrative costs across eight
nations: Canada, England, Scotland, Wales, France, Germany, the
Netherlands, and the United States. We found that administrative costs
accounted for 25.3 percent of total US hospital expenditures—a
percentage that is increasing. Next highest were the Netherlands (19.8
percent) and England (15.5 percent), both of which are transitioning to
market-oriented payment systems. Scotland and Canada, whose single-payer
systems pay hospitals global operating budgets, with separate grants for
capital, had the lowest administrative costs. Costs were intermediate in
France and Germany (which bill per patient but pay separately for
capital projects) and in Wales. Reducing US per capita spending for
hospital administration to Scottish or Canadian levels would have saved
more than $150 billion in 2011. This study suggests that the reduction
of US administrative costs would best be accomplished through the use of
a simpler and less market-oriented payment scheme.

From the Discussion

Hospitals' administrative overhead varied more than twofold across the
nations we studied as a share of total hospital costs and more than
fourfold in absolute terms. These costs were far higher in the United
States than elsewhere.

In all nations, hospital administrators must procure and coordinate the
facilities, supplies, and personnel needed for good care. In nations
where administrators have few responsibilities beyond these logistical
matters, administration seems to require about 12 percent of hospital
expenditures.

Modes of hospital payment can increase the complexity and costs
associated with two additional management tasks: garnering operating
funds and securing capital funds for modernization and expansion.

Garnering operating funds requires little administrative work in nations
such as Canada, Scotland, and Wales, where hospitals receive global,
lump-sum budgets. In contrast, per patient billing (for example, using
DRGs) requires additional clerical and management personnel and
special-purpose IT systems. This is true even in countries—such as
France and Germany—where payment rates, documentation, and billing
procedures are uniform.

Billing is even more complex in nations where each hospital must bargain
over payment rates with multiple payers, whose documentation
requirements and billing procedures often vary, as is the case in the
United States and the Netherlands.

Differences in how hospitals obtain capital funds also appear to affect
administrative costs. The combination of direct government grants for
capital with separate global operating budgets—as in Scotland and
Canada—was associated with the lowest administrative costs. (Wales has
recently transitioned to such a system, reversing previous market
reforms.) Hospitals in France and Germany, where direct government
grants account for a substantial share of hospital capital funding, have
relatively low administrative costs despite per patient, DRG-based billing.

Administration is costliest in nations where surpluses from day-to-day
operations are the main source of hospital capital funds: the United
States and, increasingly, the Netherlands and England. In such health
care systems, the need to accumulate capital funds for modernization and
expansion stimulates administrators to undertake the additional work
that is needed to identify and pursue profit opportunities.

http://content.healthaffairs.org/content/33/9/1586.abstract

****

PNHP Press Release
September 8, 2014
Bureaucracy consumes one-quarter of US hospitals' budgets, twice as much
as in other nations: Health Affairs study

A study of hospital administrative costs in eight nations published
today in the September issue of Health Affairs finds that hospital
bureaucracy consumed 25.3 percent of hospital budgets in the U.S. in
2011, far more than in other nations.

Administrative costs were lowest (about 12 percent) in Scotland and
Canada, whose single-payer systems fund hospitals through global,
lump-sum budgets, much as a fire department is funded in the U.S.

The article attributes the high administrative costs in the U.S. to two
factors: (1) the complexity of billing a multiplicity of insurers with
varying payment rates, rules and documentation requirements; and (2) the
entrepreneurial imperative for hospitals to amass profits (or, for
nonprofit hospitals, surpluses) in order to fund the modernization and
upgrades essential to survival.

"We're squandering $150 billion each year on hospital bureaucracy," said
lead author Dr. David Himmelstein, a professor at the CUNY/Hunter
College School of Public Health and lecturer at Harvard Medical School.
"And $300 billion more is wasted each year on insurance companies'
overhead and the paperwork they inflict on doctors."

He added: "Only a single-payer reform can squeeze out the bureaucratic
waste and use the money to give patients the care they need. Instead,
we're layering on more bureaucracy in insurance exchanges and
'accountable care organizations.'"

http://www.pnhp.org/news/2014/september/bureaucracy-consumes-one-quarter-of-us-hospitals'-budgets-twice-as-much-as-in-ot

****


Comment by Don McCanne

This international comparison of hospital administrative costs further
documents the profound administrative waste that characterizes U.S.
health care financing. This study is particularly important because it
clarifies the two major factors resulting in this waste: 1) the
administrative complexity of interacting with a multitude of insurers,
and 2) "the entrepreneurial imperative for hospitals to amass profits or
surpluses" in a system with market-driven pricing.

Although all other nations waste less than we do on administration, they
do so in varying degrees. Thus we can learn lessons from them,
especially the two lessons above. Extrapolating from this Health Affairs
article, the solution for hospital financing is obvious: switch to
single payer and use global budgets for hospitals and separate budgeting
for capital improvements. But don't stop there. Apply single payer
principles to the financing of our entire health care delivery system.
That would free up perhaps $400 billion or more that could be used to
ensure appropriate health care for everyone.

qotd: Urban Institute and Bankrate on high deductibles

Urban Institute
September 4, 2014
QuickTake: Nonelderly Workers with ESI Are Satisfied with Nonfinancial
Aspects of Their Coverage but Less Satisfied with Financial Aspects
By Adele Shartzer and Sharon K. Long

The Urban Institute's Health Reform Monitoring Survey has been tracking
health insurance coverage, including employer-sponsored insurance
coverage (ESI), since the first quarter of 2013. This QuickTake reports
on nonelderly (ages 18–64) workers' ESI in June 2014. In June 2014, most
workers (88.6 percent) were insured and, among those who were insured,
most (80.7 percent) had ESI (data not shown). When asked to assess their
ESI, workers were generally satisfied with their ESI in terms of
available health care services, choice of doctors and other providers,
and the quality of the care available under the plan; less than 5
percent of nonelderly workers with ESI coverage report being
dissatisfied with any of these factors. However, satisfaction levels are
much lower for the financial aspects of coverage, with workers more
concerned about premiums, co-payments, and their potential financial
risk from high medical bills. Nearly one in four nonelderly workers with
ESI (23.4 percent) is dissatisfied with the premium they pay for
coverage, and 27.2 percent are dissatisfied with the deductibles they
pay when receiving care. The protection that ESI provides against high
medical bills may be particularly limited for low-income nonelderly
workers (those with family income at or below 138 percent of FPL): 32.1
percent of low-income workers with full-year ESI report having problems
paying medical bills in the past 12 months. Overall, 14.2 percent of
nonelderly workers with full-year ESI report having problems paying
medical bills over the past 12 months.

http://hrms.urban.org/quicktakes/Nonelderly-workers-with-ESI.html

****

The New York Times
September 4, 2014
How People Feel About Their Employer-Sponsored Health Plans
By Margot Sanger-Katz

There are new results from the Urban Institute's Health Reform
Monitoring Survey, which asked people with employer-based coverage how
they liked what they had.

For people earning between 138 percent and 400 percent of the federal
poverty limit, or between $33,000 to $95,000 — the income range of
people who are most likely to buy insurance on the public marketplaces —
more than 23 percent of workers with employer coverage reported having
problems paying their medical bills in the last year.

Sharon Long, a senior fellow at Urban, said that the results suggested
that consumers might not be prepared for what happened when they
combined a high-deductible insurance plan with big medical bills.

"What we've heard anecdotally from people with health plans is more
people are signing up for high-deductible health plans and then being
surprised that they have to pay the deductible," she said. That's a
concern on the new health insurance marketplaces, too. Early evidence
suggests that people tended to opt for cheaper plans, many of which came
with high deductibles — meaning that the newly insured may face some of
the same financial strain if they become seriously ill.

Deductibles and co-payments have been rising, as a growing number of
employers embrace the idea that giving workers more of a financial stake
in their medical care will help reduce overuse. "It's been going up over
the past few years," said Gary Claxton, a director of the Health Care
Marketplace Project at the Kaiser Family Foundation, which runs a
comprehensive annual survey of the employer insurance market. And no one
likes paying high insurance premiums or out-of-pocket costs

Over all, Ms. Long said, the rising costs of health care are likely to
remain a concern for consumers, wherever they get their insurance. "I
expect what we'll see over time, unless we are able to get costs under
control, is that all the cost questions are going to be an issue," she said.

http://www.nytimes.com/2014/09/05/upshot/how-people-feel-about-their-employer-sponsored-health-plans.html

****

Bankrate.com
September 4, 2014
Worried about health insurance? That's common
By Jay MacDonald

Bankrate's Health Insurance Pulse survey was conducted Aug. 21-24 by
Princeton Survey Research Associates International.

Tom Baker, a professor of insurance law at the University of
Pennsylvania Law School, points out that a majority of working adults
receive their health insurance through their employer and thus have
largely been spared a direct impact from the Obama health care law. But
the survey's concerned majority may partially reflect uneasiness about
employer-based plans.

"There is research being done on liquidity, or 'financial fragility,'
where they asked people if they could come up with $2,000 to pay for a
major medical bill in the next month," he says. "I think 40 percent of
respondents said they either couldn't or it would be very difficult.
That suggests that people are financially fragile."

David Cusano, a senior research fellow at Georgetown University's Health
Policy Institute in Washington, D.C., suspects some of the fear over
health costs may stem from growing first-hand experience with how health
insurance works.

"With the Affordable Care Act, anybody who now wants insurance can get
it," Cusano says. "The question now becomes: 'Can I afford to use it?'
When you think about people confronting out-of-pocket maximums at around
$7,000 or deductibles of $5,000 for a family, that's a lot of money. You
throw prescription drug copays into the mix, and I can see where you
would be worried."

http://www.bankrate.com/finance/insurance/health-insurance-poll-0814.aspx

****


Comment by Don McCanne

These two surveys are of people who have employer-sponsored health
insurance - the very large market of health plans that was protected by
the Affordable Care Act ("you can keep the insurance you have"). The
most significant change in employer-sponsored plans is in the increased
use of high deductibles as a means of slowing premium growth for the
employers.

The trade off is that employees and their families are exposed to
greater out-of-pocket costs whenever they access health care. These
surveys demonstrate that this exposure is not merely theoretical but is
actually creating significant financial insecurity for the insured.

But isn't the primary purpose of insurance to relieve you of financial
hardship should you have health care needs? Instead, these newer
insurance product designs are increasing the risk of financial hardship,
both in the employer-sponsored market, and especially, by design, in the
plans offered by the ACA insurance exchanges. That is why they selected
a lower actuarial value plan as the benchmark plan in the exchanges.

Reform should have been about fixing the problems with our health care
financing, not making them worse. A far better system would simply
provide access to health care when needed, without linking that care to
specific financial transactions controlled by a third party insurance
intermediary. We don't need private insurance programs. We would do far
better with prepaid health care, financed equitably through progressive
tax policies.

It's in our name. PNHP is Physicians for a National Health Program, not
physicians for private health insurance.

qotd: What do health care cost trends mean for us?

Health Affairs
September 2014
National Health Expenditure Projections, 2013–23: Faster Growth Expected
With Expanded Coverage And Improving Economy
By Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison,
Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz
and John A. Poisal (all affiliated with CMS Office of the Actuary)

Abstract

In 2013 health spending growth is expected to have remained slow, at 3.6
percent, as a result of the sluggish economic recovery, the effects of
sequestration, and continued increases in private health insurance
cost-sharing requirements. The combined effects of the Affordable Care
Act's coverage expansions, faster economic growth, and population aging
are expected to fuel health spending growth this year and thereafter
(5.6 percent in 2014 and 6.0 percent per year for 2015–23). However, the
average rate of increase through 2023 is projected to be slower than the
7.2 percent average growth experienced during 1990–2008. Because health
spending is projected to grow 1.1 percentage points faster than the
average economic growth during 2013–23, the health share of the gross
domestic product is expected to rise from 17.2 percent in 2012 to 19.3
percent in 2023.

Model And Assumptions

These projections remain subject to substantial uncertainty and reflect
the variable nature of future economic trends, as exemplified by the
prolonged and comparatively sluggish nature of the recovery from the
2007–09 recession. In addition, the United States has experienced only
the initial effects of the ACA's coverage expansions. The impacts of
reform on the behavior of consumers, insurers, employers, and providers
will continue to unfold throughout the projection period and beyond. In
particular, the supply-side effects of the ACA remain highly speculative
and are not included in these estimates.

Conclusion

Since the end of the Great Recession in 2009, economic growth in the
United States, as measured by GDP, has remained slow: just 3.9 percent
per year, on average, which is well below the average rate experienced
in the four years following the three previous recessions. The fact that
recent health spending increases have not returned to their prerecession
rates is consistent with the long-standing relationship between overall
economic growth and health spending growth.

Growth rates for both the economy and health spending have been slow.
However, the health share of GDP has remained relatively constant since
2009 and is expected to be 17.2 percent in 2013. Contributing to the
stable share in 2013 are continued low use of medical care and
provisions of both sequestration and health reform that constrain
payments to Medicare providers.

The period in which health care has accounted for a stable share of
economic output is projected to end in 2014, primarily because of the
coverage expansions of the ACA. It is anticipated that by 2017, once the
mostly one-time transition effects of expanded coverage have fully
transpired, the health share of GDP will increase, albeit at a slower
rate than its historical average, as an improving economy and the aging
of the baby-boom generation lead to faster health spending growth.

http://content.healthaffairs.org/content/early/2014/08/27/hlthaff.2014.0560.abstract

****


Comment by Don McCanne

When people ask how much the United States is spending on health care,
it is the numbers from this report that are usually cited. So how much
are we spending now, and what will that spending grow to a decade from now?

Projected spending for 2014:

National health expenditures (NHE): $3.057 trillion
NHE per capita: $17,354
NHE as a percent of GDP: 17.6%

Projected spending for 2023:

National Health expenditures (NHE): $5.159 trillion
NHE per capita: $26,691
NHE as a percent of GDP: 19.3%

With the Affordable Care Act (ACA) the changes in spending represent not
only the usual factors that the actuaries consider each year, they also
include the changes in coverage due to the establishment of the
insurance exchanges and the expansion of Medicaid, along with other
direct and indirect results of implementing ACA. Considering all of the
variables, the actuaries once again have done a commendable job in
arriving at their estimates.

Although the authors do make it clear that there is substantial
uncertainty in these predictions, especially due to the variable nature
of economic trends, there is one aspect that should raise our concern.
Their results depend on the prediction that there will be faster growth
in disposable personal income. Yet when you read the work of Thomas
Piketty, Emmanuel Saez, Joseph Stiglitz, Robert Reich and others, there
is a very real concern that, though the economy may continue to reward
the rentiers generously, personal incomes for workers may well remain
stagnant. Many will have no discretionary income and may have to
continue to cut into the portions of their budgets that pay for
essential needs.

This will be of particular concern because of the increases in
out-of-pocket spending that will be required as more people are shifted
into lower actuarial value plans with higher cost sharing, especially
higher deductibles. Many policy experts believe that a significant
portion of the recent slowing in health care spending has been due to
the high out-of-pocket costs for upfront health care, causing patients
to decline care that they should have. This is not the way we should be
trying to put a lid on health care spending. People will suffer and some
will die simply because of their perception that health care is
personally not affordable because of the high upfront costs.

Another important consideration is that predictions of future health
care spending are dependent not only on expansion of health care
coverage and on the other variables, but they also are dependent on the
baseline costs of the existing health care financing system. As we all
know, the administratively complex multi-payer system that we have in
the United States is the most expensive model of financing health care
with its tremendous built in waste. If we were to change to an efficient
single payer system, not only would everyone have affordable access to
health care, we would not be talking about a trend in national health
expenditures that in a decade will consume almost one-fifth of our gross
domestic product.