qotd: George Halvorson criticizes deductibles

Health Affairs Blog
September 30, 2014
An Interview With George Halvorson:
The Kaiser Permanente Renaissance, And Health Reform's Unfinished Business
By Jeff Goldsmith

Kaiser (Permanente) surprised the health plan community by announcing in
March 2002 the selection of a non-physician, George Halvorson, as its
new CEO.

During his twelve year tenure as CEO, Halvorson not only guided the plan
to solid profitability, but added a million members in California, its
largest market, despite a devastating recession and a national retreat
of commercial HMO membership.

The Growth Of High-Deductible Health Plans

Jeff Goldsmith: If you look at the Kaiser/HRET survey, which focuses on
the employer segment, the HMO wedge shrinks while the high deductible
health plan wedge seem to grow in proportion. In 2013, High Deductible
Health Plans (HDHPs) represented around 30 million lives. Are HDHPs
"managed care" in your view?

George Halvorson: Yes. I think they are a form of managed care. HDHPs
get involved to some degree in delivery of care. They require care/data
reporting. They have some care protocols or some care-related elements
they don't allow. So I would classify all those plans and products under
the broad category of managed care. If employers buy a $500 dollar
deductible plan from Kaiser Permanente — and about 10 percent of Kaiser
members are now in plans that have deductibles that are high or higher —
the employees still get their care at KP. When they pay the fee for the
office visit, they pay KP as opposed to paying it outside, so that the
cash flow for KP is basically the same. It just comes down two separate
channels, copays and premiums, instead of coming down one prepaid
premium channel.

Goldsmith: How hard was it for your colleagues, particularly the
Permanente physicians, to accept the philosophical change that
required? In the legacy Kaiser model, there was no cost to the patient.

Halvorson: Everyone at KP, including myself, strongly preferred the
model where there was no cost for the patient. However if 10 percent of
our employer customers want to buy a high deductible product and we
don't sell it to them, then they leave. Kaiser has hospitals, clinics,
pharmacies, lots of care-related infrastructure that would not do as
well if 10 percent of the patients were gone. It is important to point
out that we made a very conscious decision to not change care in any way
for those patients. That was a critical issue. It is easier to maintain
the old approach for all patients because 90 percent of the KP's members
are still in the older benefit model.

Goldsmith: Of the million people that were added to Kaiser in California
during your time as CEO in California, how many of them came because of
this change in your benefits strategy?

Halvorson: Now about 10 percent of Kaiser's members are in plans with
deductibles of some kind. I personally went to California's managed care
regulators and worked to persuade them to allow us to offer the
product. I had to give them assurances that we would not be changing
the delivery of care for those members in any way. Those members would
not be there if we had not offered a product with personal financial
exposure in it.

Goldsmith: Did the high deductibles make your job as a care system
easier or harder?

Halvorson: Harder.

Goldsmith: Why?

Halvorson: Because we had to bill the patient.

Goldsmith: What else besides the billing?

Halvorson: The billing was the major issue.

Goldsmith: It didn't make it more difficult for you to get them to do
things that were in their own health interest, even if it cost them money?

Halvorson: Because we are who we are and because we ask people to do
what we ask them to do in a very consistent and reasonable way, members
tend to follow. We didn't see a lot of people refusing to get needed
care based on the fact that they had deductibles. That was largely
because we are so committed to a particular set of care concepts and
protocols that the credibility of the individual caregiver for the
patient triumphed over the financial exposure.

http://healthaffairs.org/blog/2014/09/30/an-interview-with-george-halvorson-the-kaiser-permanente-renaissance-and-health-reforms-unfinished-business/

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Comment by Don McCanne

Former Kaiser Permanente CEO George Halvorson said, "Everyone at KP,
including myself, strongly preferred the model where there was no cost
for the patient." So why did they start selling plans with deductibles?

Simply stated, it was because many employers demanded deductibles and
other forms of cost sharing. Deductibles have become a standard
throughout the insurance industry, and most employers like them because
the premiums paid are lower since up front costs of health care are
being shifted to their employees' pockets.

Yet Halvorson said that deductibles made their job as a health care
system harder, mainly because of the administrative inefficiencies of
having to bill each patient for these charges. Kaiser received the same
total amount but they had to establish "two separate channels, copays
and premiums, instead of coming down one prepaid premium channel."

Either way, the employees were paying the costs - through forgone wage
increases that paid the premiums, or through direct out-of-pocket
payment of the deductibles. The only reason for making this change was
the pigheadedness of the employers who insisted, based primarily on
misguided ideology, that they wanted to join the high deductible,
consumer-directed bandwagon.

It is well known that deductibles frequently cause individuals to forgo
appropriate care which can then result in adverse health outcomes.
Halvorson said that they "didn't see a lot of people refusing to get
needed care." Without the data it is hard to know, but since most of
Kaiser's patients have decent jobs with employer-sponsored plans, these
are patients from a relatively healthy sector of the population, mostly
with reasonable incomes, so they may be less likely to forgo appropriate
care. But even amongst Kaiser's patient population, there will be some
who will find deductibles to be significant barriers to care.

There is nothing good about Kaiser's deductibles, but there are several
things that are bad. And this is in the best of circumstances.

With a single payer system there would be no deductibles, just as there
were not in Kaiser's legacy system. Perhaps the most revealing comment
Halvorson made is that before and after instituting deductibles, "the
cash flow for KP is basically the same." It didn't make a difference; it
just mucked things up!

qotd: HHS authorizes higher hypothetical cost threshold for privatized Medicaid

GAO
Released September 8, 2014
Medicaid Demonstrations:
HHS's Approval Process for Arkansas's Medicaid Expansion Waiver Raises
Cost Concerns

What GAO Found

In approving Arkansas's Medicaid Section 1115 demonstration, the
Department of Health and Human Services (HHS) gave the state the
authority to test whether providing premium assistance to purchase
private coverage offered on the health insurance exchange will improve
access to care for individuals newly eligible for Medicaid as a result
of the Patient Protection and Affordable Care Act (PPACA).

In approving the demonstration, HHS did not ensure that the
demonstration would be budget- neutral — that is, that the federal
government would spend no more under the state's demonstration than it
would have spent without the demonstration. Specifically, HHS approved a
spending limit for the demonstration that was based, in part, on
hypothetical costs — significantly higher payment amounts the state
assumed it would have to make to providers if it expanded coverage under
the traditional Medicaid program — without requesting any data from the
state to support the state's assumptions. GAO estimated that, by
including these costs, the 3-year, nearly $4.0 billion spending limit
that HHS approved for the state's demonstration was approximately $778
million more than what the spending limit would have been if it was
based on the state's actual payment rates for services under the
traditional Medicaid program. Furthermore, HHS gave Arkansas the
flexibility to adjust the spending limit if actual costs under the
demonstration proved higher than expected, and HHS officials told us
that the Department granted the same flexibility to 11 other states
implementing demonstrations that affect services for newly eligible
beneficiaries. Finally, HHS, in effect, waived its cost-effectiveness
requirement that providing premium assistance to purchase individual
coverage prove comparable to the cost of providing direct coverage under
the state's Medicaid plan, further increasing the risk that the
demonstration would not be budget-neutral.

As of June 2014, HHS has approved one additional state's — Iowa's —
demonstration to use premium assistance to purchase exchange coverage.
Iowa's demonstration is more limited in scope in that it covers a
portion of the expansion population, those with incomes of 101 percent
to 133 percent of the federal poverty level. As with its approval of the
Arkansas demonstration, HHS gave Iowa the flexibility to adjust its
spending limit and waived the cost-effectiveness requirement. According
to HHS officials, three other states as of June 2014 had indicated an
interest in implementing a similar approach.

In commenting on a draft of this report, HHS disagreed with GAO's
findings that HHS's approval process did not ensure that the Arkansas
demonstration will be budget-neutral. GAO maintains the validity of
these findings.

What GAO Recommends

GAO is not making recommendations in this report. GAO has had
long-standing concerns with HHS's policy, process, and criteria for
reviewing and approving section 1115 demonstrations, including the lack
of transparency in the basis for approved spending limits. GAO has
previously reported that HHS's budget neutrality policy and process did
not provide assurances that demonstrations would be budget-neutral to
the federal government. Among other concerns, GAO reported that HHS
allows methods for establishing the spending limit that GAO believes are
inappropriate, such as allowing states to include hypothetical costs —
expenditures that the state could have made under its Medicaid program
but did not — in establishing the baseline for the spending limits. As a
result, GAO has made a number of recommendations in the past to improve
the budget neutrality process for Medicaid demonstrations. In 2008,
because HHS disagreed that changes to the budget neutrality policy and
review process were needed, we suggested that Congress require the
Secretary of HHS to improve the demonstration review process by, for
example, better ensuring that valid methods are used to demonstrate
budget neutrality.

http://www.gao.gov/products/GAO-14-689R


From the full GAO report:

HHS's approval of $778 million dollars of hypothetical costs in the
Arkansas demonstration spending limit and the department's waiver of its
cost-effectiveness requirement is further evidence of our long-standing
concerns that HHS is approving demonstrations that may not be
budget-neutral. HHS's approval of the Arkansas demonstration suggests
that the Secretary may continue to approve section 1115 Medicaid
demonstrations that raise federal costs, inconsistent with the
Department's policy of budget neutrality. Moreover, the additional
flexibility granted to Arkansas and 11 other states to increase the
spending limit if costs prove higher than expected sets another
precedent, further eroding the integrity of HHS's process. If, as it did
with Arkansas, HHS allows states to use an approach to expanding
Medicaid that is expected to cost more than expansion under the existing
Medicaid program with fewer cost controls in place, there could be
significant cost implications for the federal government. Efforts to
ensure cost- effectiveness and budget neutrality in Medicaid expansion
demonstrations have even greater fiscal implications given that states
that choose to do so will receive enhanced federal funding for the newly
eligible population.

http://www.gao.gov/assets/670/665265.pdf

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Comment by Don McCanne

Our two major public programs for health care financing - Medicare and
Medicaid - continue down the path of privatization, with the complicity
of the Department of Health and Human Services (HHS).

We've reported many times that the private Medicare Advantage plans that
are displacing the traditional Medicare program have been deliberately
funded well in excess of that allotted for traditional Medicare, both by
acts of Congress and by administrative chicanery at HHS.

Now the GAO reveals that HHS has also used the section 1115 Medicaid
waiver process to allow states to not only transfer their Medicaid
patients to private health plans, but to also allow them to meet the
higher costs of private plans, through innovative chicanery such as
"allowing states to include hypothetical costs — expenditures that the
state could have made under its Medicaid program but did not — in
establishing the baseline for the spending limits."

Although privatization of Medicare and Medicaid has long been a
Republican goal, since the neo-liberals have dominated the Democratic
leadership, they have aided and abetted this effort. We are supposed to
be a democracy, yet no matter how we vote, we are electing politicians
who spend more of our tax and premium dollars on the administrative
waste and mediocre performance of the private insurers. Any suggestions?

qotd: Interconnectivity though private market health information technology

The New York Times
September 30, 2014
Doctors Hit a Snag In the Rush to Connect
By Julie Creswell

Regardless of who is at fault, doctors and hospital executives across
the country say they are distressed that the expensive electronic health
record systems they installed in the hopes of reducing costs and
improving the coordination of patient care — a major goal of the
Affordable Care Act — simply do not share information with competing
systems.

While most providers have installed some kind of electronic record
system, two recent studies have found that fewer than half of the
nation's hospitals can transmit a patient care document, while only 14
percent of physicians can exchange patient data with outside hospitals
or other providers.

Epic and its enigmatic founder, Judith R. Faulkner, are being denounced
by those who say its empire has been built with towering walls,
deliberately built not to share patient information with competing systems.

Where interconnectivity between systems does occur, it often happens
with steep upfront connecting charges or recurring fees, creating what
some see as a digital divide between large hospital systems that have
the money and technical personnel and small, rural hospitals or
physician practices that are overwhelmed, financially and technologically.

A research report from the RAND Corporation described Epic as a "closed"
platform that made it "challenging and costly for hospitals" to
interconnect with the clinical or billing software of other companies.

A sort of Microsoft of the Midwest, built on a sprawling campus on
nearly 1,000 acres of farmland near Madison, Wis., the privately held
Epic has emerged as a leader in the race to digitize patient medical
records. Its systems hold the health records of nearly half the country.

In 2005, when it became clear to her that the government was not
prepared to create a set of rules around interoperability, Ms. Faulkner
said, her team began writing the code for Care Everywhere. Initially
seen as a health information exchange for its own customers, Care
Everywhere today connects hospitals all over the country as well as to
various public health agencies and registries.

Careful in her choice of words, Ms. Faulkner offered muted criticism of
regulators for, essentially, failing to create what she did — a contract
to help providers connect to one another and a way to authenticate that
only the correct person could view the patient information.

"I'm not sure why the government doesn't want to do some of the things
that would be required for everybody to march together," she said.

http://www.nytimes.com/2014/10/01/business/digital-medical-records-become-common-but-sharing-remains-challenging.html

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PNHP Quote of the Day (excerpts)
July 21, 2004
The Decade of Health Information Technology: Delivering Consumer-centric
and Information-rich Health Care
By David J. Brailer, MD, PhD, National Coordinator for Health
Information Technology

While the federal government plays an important role in HIT adoption,
the effective use of, and value creation from, this technology lies
predominantly with the private sector. The federal government will
provide a vision and a strategic direction for a national interoperable
health care system, but will rely on a competitive technology industry,
privately operated support services, and shared investments in HIT
adoption. The private sector must develop the market institutions to
deliver the products and services that can transform the paper-based
health care system into an electronic, consumer-centered, and
quality-based system. The private sector can best ensure that HIT
products are successfully implemented in ways that meet the varying
needs of American health care across settings, cultures, and
geographies. The private sector can also continue constant innovation in
HIT and ensure that products are delivered on an affordable basis.

Comment by Don McCanne (July 21, 2004)

What has the magic of the competitive marketplace produced in the way of
an integrated IT system to this date? High costs, very poor penetration,
and system failures! Competitive market theory dictates that we should
be leading the world with a high quality health care IT system at a low
cost. What went wrong?

First of all, a fragmented system of multiple private plans, public
programs and uninsurance does not provide an infrastructure that is very
conducive to an integrated IT system. A single payer system, or, at
minimum, a highly regulated system of universal coverage through
multiple plans, would provide a framework that would ensure adaptability
of an integrated IT system. Of course, a single, publicly administered
system would be much preferred for an integrated IT system.

But the greatest difficulty with private IT solutions lies in the very
nature of these marketplace models. Their goals are, above all, to
maximize profits and to maximize the market price of their shares.

What might the private sector do that doesn't serve our interests well?
They will produce products that command the highest prices that the
market will bear. They will design the products to provide a continuing
revenue stream. Once gaining a significant share of the market, they
will design incompatibility with other systems in an attempt to garner
the entire market. They will design obsolescence into their systems to
ensure future markets for their new innovative products. They will
partner with and perhaps acquire other related entities that can expand
profit potentials through greater control of components of the health
care system which their products can influence. Although these are good
business practices, they are terrible policies for our health care system.

The health information technology report released today (July 21, 2004)
should alarm us all. Although we all agree on the importance of an
integrated IT system, the Bush administration is limiting the role of
the government to being an enabler that encourages the private sector to
develop a successful business model. Rather than higher quality at a
lower cost, we'll end up with mediocrity at a much higher cost, wasting
even more of our health care dollars.

http://www.pnhp.org/news/2004/july/a_private_health_car.php

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Comment by Don McCanne (October 1, 2014)

A decade ago we already had a very successful, publicly-owned health
information technology system (HIT) with interconnectivity - VistA - the
system in use by the Veterans Health Administration. Under the
leadership of President George W. Bush, it was decided that we should
move forward with interconnecting our entire health care system through
HIT, but that the system should be developed in the private sector
instead. What has happened since?

President Bush appointed David Brailer as his National Coordinator for
Health Information Technology. On July 21, 2004 he released a 178 page
report describing the framework of his proposal - The Decade of Health
Information Technology (a decade just completed). Although the link to
their report is no longer active, perhaps the most informative sentence
in the report is the following: "The private sector must develop the
market institutions to deliver the products and services that can
transform the paper-based health care system into an electronic,
consumer-centered, and quality-based system." Although the federal
government would provide "a vision" for HIT, it would be developed and
operated exclusively in the private market.

In my Quote of the Day comment on the day the report was released 10
years ago, I wrote: "What might the private sector do that doesn't serve
our interests well? They will produce products that command the highest
prices that the market will bear. They will design the products to
provide a continuing revenue stream. Once gaining a significant share of
the market, they will design incompatibility with other systems in an
attempt to garner the entire market. They will design obsolescence into
their systems to ensure future markets for their new innovative
products. They will partner with and perhaps acquire other related
entities that can expand profit potentials through greater control of
components of the health care system which their products can influence.
Although these are good business practices, they are terrible policies
for our health care system."

So what did they do? The New York Times article reveals that Epic, a
privately held company, "holds the health records of nearly half the
country." Epic is "a 'closed' platform that made it 'challenging and
costly for hospitals' to interconnect with the clinical or billing
software of other companies." "Where interconnectivity between systems
does occur, it often happens with steep upfront connecting charges or
recurring fees." Recognizing the need for interoperability, Judith
Faulkner, the founder of Epic, established "Care Everywhere" which
performs well as a new profit center for Epic but performs poorly in
establishing universal connectivity. How could anyone know ten years ago
that this might happen? Well, it was known.

This is analogous to the decision made to rely heavily on private health
insurance in our efforts to expand health care coverage to everyone,
based on the idea that the market can do it better than the government.
We have been predicting the adverse consequences of this, and every day
we see more evidence that our predictions, based on solid health policy
science, are all coming true. In health care we are facing excess costs
and poor performance, just as we are with our private HIT systems.

Under a single payer system we would have a cost-effective,
publicly-owned, integrated HIT system that is designed to serve patients
and their health care professionals, rather than a system that is
designed to serve, well, Judith Faulkner (#261 on Forbes 400, Net worth
$2.3 billion).