What does the current economic meltdown mean for health care reform and efforts to control the cost of health care?

Ezekiel Emanuel (oncologist, ethicist and brother of Rahm Emanuel, the Democratic whip in the House of Representatives) has a blog in the New York Times bemoaning the fact that health care reform has “fallen off the radar screen.”  He points out that health care cost increases have been a primary reason why increased productivity has not led to increased wages for most workers, and states that health care “is a severe disease that will have to be cured to get the economy really going.” 

He posted this a few hours before the stock market free fall, when the Dow Jones Industrial Average lost 777 points (and a larger stock index suggested that $1.2 trillion of shareholder value had been erased in a single trading day.) 

 What does this mean to the efforts to reform health care (and control costs)?

 Reasons why we are less likely to see substantial changes in the near future:

1)      1) Health care won’t be the marquee issue of the 2008 presidential election

2)     2)  We have lower expectations for major efforts in health care transformation

3)      3) We will tolerate higher levels of uninsured and underinsured

4)    4)   Government will be distracted  


Reasons why we are more likely to see substantial changes in the near future:

1)      1) The level of financial pain will be high. This makes it more likely that the current trajectory will look unattractive enough that more stakeholders will tolerate more extensive change (and risk).  This isn't all good news -- decreased spending on health care will probably be in both discretionary and truly necessary services. 

2)    2)  Government at all levels is the largest payer, and governmental units (cities, towns, states) are having a hard time balancing their budgets even before we see the full impact of the economic slowdown.

3)     3)  After the financial services deregulatory mess, regulation is “in” again.   This gives government another potential lever to control prices.  In the US, health care cost is generally due to high prices per unit, rather than more units of service delivered than other “first world” countries.  On the other hand, price controls did not work well in the Nixon administration. 


Americans facing more difficulty paying medical bills

The Center for Study of Health System Change reports that almost 1 in 5 Americans live in families that self-report difficulty paying their medical bills. This is a big increase since 2003, when it was 15%.   My last post was about the Kaiser/HRET study showing that health insurance premium inflation is down to about 5% this year - the lowest it's been since the late 90s.  Nonetheless, employees are paying more for their insurance and facing higher deductibles and coinsurance and copayments - so the level of pain has increased.  Once again, this survey preceded the current economic meltdown, so it's likely that things will get worse before they get better. 

Kaiser HRET Health Costs Survey

This week the Kaiser Family Foundation and the Health Research and Education Trust released the annual employer health benefits survey this past week. As always, this study is a treasure trove of statistics. The average family health insurance plan increased by 5% -- to $12,680, and the average single policy (purchased through employers) cost $4704. Family premiums increased by 27% over 2004, and by 119% over 1999. For the first time in a number of years, the percentage of firms offering health insurance did NOT decline, although this survey predated the current economic maelstrom. Bigger firms and those with fewer low wage workers were more likely to offer employee health insurance. Lower wage workers, on the average, were also more likely to elect not to accept employer-sponsored health insurance, presumably due to the employee cost of premium. Deductibles and copayments are up, and more employees are on high deductible health plans.

Of note, KFF/HRET is famous for one graphic which health care policy wonks refresh each year - and it seems to be missing from this report. This compares the cost of health insurance premiums to the overall inflation rate and the change in average wages. This graphic is at the top of this post.

Note that the BLS says that CPI (Urban) is up 5.6% this year (July-July), and wages are up 3.3%. So - for the first time in many years, CPI looks like it will be higher than the inflation in health insurance premiums! Also, for the first time in years, I'll have to make my own slide showing this relationship.

Consumers Cutting Down on Health Spending

The Wall Street Journal reports that consumers are spending less on health care.  Prescriptions fell 0.5% last quarter and almost 2% this quarter; 1 in 5 say that they are cutting back on physician office visits, and 1 in 9 say they are cutting back on prescriptions.  The story also includes distressing illustrative anecdotes- like  parents canceling their health insurance so they can afford to self-pay for preventive care for their children. 

Sever financial distress does lower health care utilization -but does it indiscriminately.  Patients say "no" to valuable evidence-based care as well as discretionary and even unnecessary care.    Countries which have had prolonged financial crises (think Russia after the collapse of USSR) have also seen a real loss in population health (including decreased life expectancy)  - probably caused by a combination of impoverishment and lack of access to health care. 

The financial maelstrom will likely lower the overall cost of health care - but this is likely a destructive way to accomplish that goal. 

McCain's Health Proposal: Will it Save Money?

There has been recent attention to John McCain’s health care plan – which is really quite radical. There are two key elements to his plan. (1) McCain would eliminate the tax deduction for employer-sponsored health insurance, and replace this with a much smaller tax credit.  (2) McCain would allow insurers to sell their health plans across state lines – essentially letting them choose in which state to be regulated.

Many others have pointed out the advantages of these two approaches, including exposing patients to the real cost of their health care, making insurance more “portable,” and allowing people to avoid costly state mandates.    Others have pointed out some substantial concerns ; these include “cherry picking” that would make insurance difficult to obtain for those with illness, decreased ability for the healthy to subsidize the care of those with illness, and loss of important consumer protections enforced variably by states.

I’d like to address the question of whether McCain’s proposals would actually save money.

There are a few mechanisms by which this type of reform could save real dollars in the health care system.

(1) Elimination of mandates -- states with high levels of mandates do have higher costs. For example, Charlie Baker in a recent post said that mandates cost a total of 12% of the insurance premium in Massachusetts.  Here is a link to the  report.

Elimination of state regulations could also allow for substantial innovation in health care finance and delivery.  See a great article by James Robinson on this in the current Health Affairs

 (2) Exposure of patients to actual health care costs could create pressure to lower fees.   However, this pressure would generally have to be exerted through lower volumes.  In general, Massachusetts is below national averages for most type of utilization - so the question is "would this exposure to real costs reduce unnecessary care, or necessary care?"  The most recent article from Newhouse, et al from the RAND Health Insurance Experiment suggests that increased exposure to costs will reduce both appropriate and unnecessary care.  

However, the  McCain proposal is also likely to raise costs in other ways.

(1) It costs far more to administer a health plan which is sold retail, to individuals, rather than wholesale, to employers.   Therefore, the "medical loss ratio" of these new plans would be far lower than the 85% we often see now.  It might be worth paying more on the administrative side if it would help us deliver better care - but that's not clear. 

(2) Although there are many reasons why we should not tie health insurance to employment, it's most important to have a group to share risk.    Employers are a natural group - and unless we want government-sponsored health insurance based on home address, it's not clear what other grouping would work well.  With individuals purchasing insurance on their own, it's likely that we will see far more insurer competition on recruiting the healthiest patients.  That means that the insurers will have higher profits, but fewer of the dollars spent on health care premium will actually go to health care. 

(3) If this reform does swell the ranks of the uninsured, it could encourage price increases to compensate for this lost revenue.   There is some evidence that when Medicare underpays hospitals, they turn around and increase prices to private payers.  (Go to chart 4.7)  

My conclusion - it is likely that this reform, if passed, would lower costs somewhat - but the social cost in terms of valuable care foregone would be too high.  I believe that this approach would likely swell the ranks of the uninsured enough that it would lead to compensatory increases in costs for those with insurance.  If we are willing to allow patients to go without care, then this could lower costs substantially.   I suspect we are not willing. 

Health Information Exchanges Said to Reduce Costs

The e-Health Inititiative, a multi-stakeholder nonprofit, just released results of its 2008 Health Information Exchange survey -- and says that HIEs save money. There are 42 exchanges in this year's survey, an increase of 10 since 2007.  The biggest challenge is said to be developing sustainable financing.

All of us know how much time and effort practicing clinicians spend tracking down imaging and laboratory results from other institutions -- and deeply believe that an information exchange is likely to save time and trouble and improve the overall quality of care.   But how compelling is the evidence that the system saves money?

This survey has some serious limits.  There is no standardized methodology to quantify cost savings or to allocate HIE costs.  I suspect that in many instances savings in medical costs might be fully offset by initial administrative costs of setting up and running these HIEs.  Further, the HIEs themselves are strongly biased toward reporting success rather than failure.   In many instances, costs are only eliminated when  previous non-electronic methods are eliminated.  For physician offices, for instance, there are no real resource savings until the staff that once tracked this type of material are laid off. 

I have no doubt that effective Health Information Exchanges should save money and improve the quality of care.  Whose money is saved is important - and calculating it right is critical if we're counting on those savings to make health care more affordable.

Do Retail Clinics Save Money?

This month's Health Affairs carries a number of thought-provoking articles -- more on this in coming posts. An article from Minnesota's Health Partners suggests that the insurer's contract with Minute Clinic did improve patient access - but didn't save any money on a risk-adjusted basis. This study was done using "episode treatment groups" for five acute episodes - which made up over 3/4 of Minute Clinic visits. Minute Clinic provided only a bit over 3% of the care in these episodes.

How could that be? Minute Clinics charge so much less per visit -- shouldn't they save money?

There are a few hypotheses. It's possible that many patients receiving care at Minute Clinics would otherwise have waited and thus a lower price is still more costly than NO cost to the health care system. This study would likely have missed this - as episodes are only triggered when patients seek care. In any event, overall Health Partners cost for these types of episodes increased - and most of this was driven by cost per unit rather than the number of episodes. The author also states that other providers could have raised their prices to account for the lost business.

Finally, although the press coverage trumpets "no cost savings," the actual article is more nuanced. In fact, the mean costs for episodes at Minute Clinics were substantially lower - but this was washed away by risk adjustment. Another piece of good news - physicians in Massachusetts have worried that pharmacy-associated nurse practitioners will prescribe antibiotics in every case. Mean pharmacy costs were significantly  lower (not by many dollars) than pharmacy costs in physicians offices and urgent care facilities.

Pay for Performance: Unintended Consequences

A cardiologist in yesterday's NY Times reports on a patient who received days of unnecessary antibiotics -- which he attributes to a Medicare Pay for Performance program encouraging rapid antibiotic treatment for community acquired pneumonia. The patient had a severe antibiotic complication, and spent two weeks in the hospital. Hence, pay for performance and public reporting, in this instance, led to higher costs.

There is good evidence that public reporting and pay for performance do increase performance in areas of measurement. Of course, they can distract attention from other important issues ("crowd out") and in many instances, these programs encourage correcting underuse - this will also increase costs.

Sometimes, these programs can encourage providers to rethink core processes. Let me give you an example. The sooner a patient with an acute heart attack has an angioplasty, the more likely she will have less damage to the heart. Nonetheless, historically "door to balloon" times (from the emergency room door to the catheterization lab) have been very high. For instance, the best hospitals are almost always able to complete an angioplasty within 90 minutes of a patient's presentation -- many other hospitals fail to do this more than half the time! Not many patients are reading the public reporting - but hospital administrators and physicians are - and care is improving as a result.

Back to Dr.Jauhar's example , I believe that hospitals can diagnose community acquired pneumonia in a hospital in less than 6 hours from patient arrival without resorting to indiscriminate use of antibiotics. Public reporting and pay for performance shines a bright light on this important issue. In many hospitals, clinicians are figuring out how to reduce steps, eliminate bottlenecks, delegate authority to non-physicians, and reduce the cycle time before treatment for pneumonia. In the end, that should improve quality AND reduce costs - but there are bumps along the way.

Laparoscopic Bariatric (Weight Loss) Surgery Saves Money (?)

Laparoscopic bariatric surgery returns its initial economic investment in a bit over 2 years, a study in this month's American Journal of Managed Care  asserts.  This is much more than can be said for most medical interventions  - which are cost-effective (usually meaning a cost of less than, let's say, $50,000 per quality adjusted life year), but not cost-saving (meaning that after the investment is made, medical costs actually go down.)  If this study (3651 patients in a 5 million patient database) is replicated -- this will make it more compelling for health plans to pay for this service.  Of course, few effective medical procedures are required to prove that they actually save money - most actually just make patients' lives better - which bariatric surgery has already been well-shown to do.  Also - most procedures which are initially claimed to save resources end up actually costing the system more money!

How could this be true - even if the AJMC study is absolutely correct?   During the study period (1999-2005), laparoscopic bariatric surgery was restricted to the highest risk patients, and done in a relatively small number of facilities by highly skilled high-volume surgeons.  If the procedure is used more widely, it's likely to be employed in patients with less of a "pay off."  It's also likely to be done by more surgeons with less expertise, at centers that don't have the same emphasis on multi-disciplinary programs.  

Further, in an accompanying editorial another healthcare economist points out that the savings in this study actually represent increase of cost of controls - those who had bariatric surgery didn't have lower post-operative costs!  

That's not to say that health plans shouldn't provide coverage for this procedure.  In fact, as the editorialist comments, few covered medical procedures pay for themselves. 

Push-back against employer penalties in MA

Health care reform in Massachusetts required many grand compromises, and was ultimately passed with broad support from the provider community, the health plans, and employers.  For the provider community, the legislation included incremental Medicaid payment, which decreased hospital losses on this program.   For health plans, the legislation opened up a new market. For employers, the "mandate" was substantially watered down - and the assessment on employers not offering health insurance was capped at $295 per employee -- an amount calculated as the equivalent to previous employer contributions to the uncompensated care pool.  
Considering that an individual insurance plan now costs  more than $3000 per year for a plan with a $2000 deductible -- this employer assessment seems quite low.  On the other hand, employers vehemently opposed an employer mandate passed in the late 1980s and later repealed - so keeping employers "on board" for the current effort is critical.  Further, there is federal legislation (ERISA- the Employees Retirement Income Security Act) which preempts any state regulation of self-funded health insurance plans.  Partners Health Care, a big supporter of state health care reform, testified on Beacon Hill last week that higher employer assessments could lead to an ERISA challenge to the state law.   A successful ERISA challenge could undermine the entire health care reform package.

The challenge remains for Massachusetts' efforts to achieve near-universal insurance coverage - how to pay for it!

Mercer Expects Health Costs to Increase by 5.7%

Mercer Consulting, one of the largest employer consulting firms, put out its preliminary estimate that employers will see a 5.7% rise in the cost of health insurance in 2009.  This is the lowest increase in 10 years- but will still outpace inflation.   Notably, the increase for smaller employers is far larger, and employers continue to increase patient financial responsibility.  Uptake for "consumer directed health plans" - those with a very high deductible and often an associated health care savings account, remains low.   

Patient Balance Billing

Good report in Business Week about health providers accepting insurance payment, but then billing patients for additional amounts that should be written off based on the insurance contract.  Most insurance plans pay a steeply discounted rate for hospital and outpatient care.  Although this article isn't very clear on this, some insurance contracts allow doctors to balance bill -and in some states balance billing is legal for Medicare recipients. (In Massachusetts, physicians must agree to Medicare rates if they see Medicare patients).  Remember, most health plans will only pay the lesser of charges or allowable fee schedule - which encourages providers to charge at least a little bit more than the highest amount any health plan will pay!

Obama vs. McCain health care policies

Jonathan Oberlander, a UNC professor, has written a dispassionate piece for the NEJM comparing health care policies of the Democratic and Republican presidential candidates. He concludes that Obama's plans are likely to decrease the uninsured, but neither candidate has an especially effective approach to cost control. This article is free to nonsubscribers.

Hospital/health system monopoly

The Wall Street Journal had a thoughtful article on the dominance of Carilion Health System in southern Virginia. It noted that the federal government tried unsuccessfully to prevent a merger in 1989. At this point, according to the WSJ article, southwestern Virginia has gone from the least expensive to the most expensive region of Virginia.


Before the Fall 2 semester starts, I'll be posting links to articles about health care costs that might be of interest to students of HPM 235 - and might be interesting to others as well. Where possible, I'll post links that will work for all - for information that requires a Harvard ID - nonstudents will need to seek other sources for full text.