House Republicans Strike a Blow for Self-Referral

Today’s Managing Health Care Costs Indicator is $300 million

Really?

The House passed its payroll tax reduction extension – and it’s got a provision that repeals elements of the Affordable Care Act that restrict physician-owned hospitals. These are the hospitals that were immortalized in Atul Gawande’s Cost Conundrum, which described how physician-owned hospitals lead to overutilization in McAllen, Texas.

[Renaissance Hospital] is the newest hospital in the area. It is physician-owned. And it has a reputation (which it disclaims) for aggressively recruiting high-volume physicians to become investors and send patients there. Physicians who do so receive not only their fee for whatever service they provide but also a percentage of the hospital’s profits from the tests, surgery, or other care patients are given. (In 2007, its profits totalled thirty-four million dollars.) Romero and others argued that this gives physicians an unholy temptation to overorder.

Self-referral leads to more utilization. The CBO estimates that this provision will increase costs for Medicare alone by $300 million.

If we want to control health care costs and control the federal deficit, this is the wrong direction.

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"Truthiness" and the Republican Presidential Debate

Today's Managing Health Care Costs Indicator is

 800,000

The Kaiser Family Foundation  has done us the favor of extracting the health questions from last night’s Republican presidential debate.

My take on the ‘truthiness’ of selected answers:

The Congressional Budget Office has said that Obamacare will kill 800,000 jobs.  -  Michele Bachman

The CBO estimated that the Affordable Care Act would slightly lower the overall cost of health care premiums for large employers, which could create new jobs.   It will be hard to create net new jobs in health care and lower health care costs.  Politifact  calls this “barely true” because the CBO noted that ½% of the workforce that works for health insurance only might choose not to work.

Obamacare….  took away $500 billion, a half-trillion dollars out of Medicare  - Michele Bachman

The Affordable Care Act cut future growth of Medicare by $500 billion over 10 years.  There is no way to cure the deficit without cutting Medicare’s future growth.  It’s not nearly the cut in future Medicare costs envisioned by the Paul Ryan budget plan.  It’s also not taking money from Medicare beneficiaries, but lowering future rate increases for providers.

We didn't raise taxes in Massachusetts. – Mitt Romney

We were lucky in Massachusetts to have over half a billion dollars in federal Medicaid waivers to help support health care reform.  We also did use additonal money from general tax revenue. There was no tax increase simply because the economy was in good shape and we had dollars available in the then-current tax base.

When you get into a mandate, it ultimately ends up with unconstitutional powers. –Newt Gingrich

The courts will ultimately decide.   The individual mandate was initially championed by conservatives.  It’s hard to avoid adverse selection and make insurance inexpensive for all without some penalty for not having insurance.  John McDonough has an excellent commentary reviewing this history.

If you're an average couple and you paid your entire amount into -- into Medicare, you would have put $140,000 into it. And in your lifetime, you will take out more than three times that much.  –Ron Paul

This is true.  Medicare is a good bargain because it costs less than commercial insurance, and a better bargain still for beneficiaries because there is a considerable subsidy.  Medicare is not fully funded by taxes directed to Medicare only.  Paul goes on to say that Medicare is “insolvent.”  It’s not really – it just will require decreasing costs or increasing tax subsidies.

We have to have more competition in medicine.  – Ron Paul

Michael Porter and others argue that we don’t need more competition – we need different competition.  We need competition among providers for meaningful bundles of services, rather than competition among health plans that don’t have enough impact on actual care delivery.

Why can't we opt out of the whole system and take care of ourselves?  - Ron Paul

Works when you’re healthy, can be deadly if you’re sick unless you have huge personal wealth!

My own plan… will feature performance pay rather than just volume pay to hospitals and clinics and providers.  –Tim Pawlenty  

Many agree that fee for service payment is a major problem leading to considerable provider-driven overutilization. This is a good idea, and I’ll await his plan eagerly.

[I] would allow… private contracting so those people who want to voluntarily could contract with their doctor or their hospital in addition to Medicare, and it would be outside the current system and it would relieve the pricing pressure on the current system.  –Newt Gingrich

Individuals contracting with their physician or hospital would have little leverage to lower prices, and the administrative costs of such a system would be hard to imagine.

 We think you can save $70 billion to $120 billion in Medicare and Medicaid annually by not paying crooks... –Newt Gingrich

Many suspect that fraud and abuse could be as much as 10% of medical costs.  Medicare and Medicaid together cost almost $900 billion, so this is possible.  However, it’s not as easy as it looks, and many who oppose regulation have a difficult time accepting the type of oversight that could be required.

I wholeheartedly support…a program that is identical to what seniors already have. It’s called Medicare Part D….[and it] is 41 percent under budget because seniors are involved in controlling costs – Rick Santorum

The Ryan Plan, which Santorum supports, is very different than Medicare Part D.  The Ryan plan would cap government expenditure, whereas Part D allows government costs to rise with medical inflation rate.  Medicare Part D is under budget not because of competition or seniors with “skin  in the game,” but because of generic drugs and much lower senior enrollment than projected.

The Independent Payment Advisory Board [is going to] ration care from top to bottom –Rick Santorum

There is a good thought article yesterday from the Concord Coalition , a center-right anti-deficit group, about why the IPAB is a critical part of health care reform.   We need to make tough decisions, and this approach is much like the way we deal with potential military base closings.  

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A Bad Bill - Whatever the Name

Today’s Managing Health Care Costs Indicator is $145 billion

What if there was a proposed bill that would raise the federal deficit by $145 billion over the next ten years, would increase the projected number of uninsured in the country by 32 million (from 6% to 17%), and would raise premiums for those purchasing insurance both in the employer and in the individual market? Source: Congressional Budget Office. Further, what if this proposed bill would destroy 250,000 to 400,000 jobs annually over the next decade and reduce the number of workers who start new businesses, move to new jobs, or otherwise invest in themselves and the economy?  Source: David Cutler white paper. 

That bill would be pretty unpopular, right?

Actually, that bill would be HR 2, the ill-titled “Repealing the Job-Killing Health Care Law Act,” introduced with great fanfare by the new Republican majority in the House of Representatives.  The bill got 236 votes to pass its first procedural hurdle last week, and was expected to pass this coming week. (It will be delayed as the House suspends substantive activity following the tragic shooting of Representative Gabrielle Giffords and 18 others). The House leadership has announced it will prohibit amendments to the bill, and strictly limit debate.

The bill is symbolic, with no chance of passing the Senate or being signed into law.  However, it’s interesting to see that even apparent winners would be losers with this repeal bill.

è Insurers would not suffer the cuts in Medicare Advantage payments, a total of $145 billion over 10 years.  They would also not be subject to new regulations making it more difficult to withdraw insurance coverage after premiums had been paid, and would be able to continue to offer policies that limited total payments, including lifetime maximums and “mini-med” plans.   However, insurers would also not have millions of additional beneficiaries.  Even during the recession, small businesses have been adding employees to the insurance rolls due to a tax break incorporated into the Affordable Care Act.

è Providers including physicians and hospitals would not be subject to lower rates of Medicare increases over the next decade.  However, they would face a high level of uninsured Americans, which would likely cause increased pressure to lower prices. Further, the Medicare Trust Fund would “run out” much sooner, and it’s not clear that providers won’t have to accept cuts at some point anyway.  The Republican plan could include transition of Medicare to a series of vouchers, which would likely lead to further disruptions of revenue.

è Drug Companies and medical device companies could avoid explicit taxes or fees that would be levied under the affordable care act.  But both would face more uninsured individuals ill-equipped to pay premium prices for drugs or medical devices.  For the pharmaceutical companies, giving discounts to enlarge their market has always led to higher income and higher profits, as I’m sure will be the case with the 50% discount to Medicare beneficiaries within the ‘donut hole’

è Patients deeply desire many of the protections built into the Affordable Care Act, including guarantee issue, full coverage of preventive care, and protections against “recission,” or withdrawing health insurance when it is already in place due to minor errors on the original application.  Parents are relived able to let their adult children remain on their health insurance policies in these terrible economic times.  The big gain from repeal would be that people would be free to opt out of purchasing insurance at all.   This is sensible for rich people (who wouldn’t lose all their possessions if they got sick), but has worked poorly for those less fortunate – who get the most benefit from the community-wide risk sharing of health insurance. 

HR 2, whatever its title, is bad policy.  It’s good that it will be heading for the scrap heap.

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The Republican Health Care Plan

Today’s Managing Health Care Cost Indicator is 239

The election is over, and while the Democrats retain a narrowed majority in the Senate, they lost 60 House seats.  John Boehner will take over as Speaker of the House in January.  There are 239 Republicans as of now in the next House; the NY Times reports that there are seven seats still undecided.

The election season had plenty of overheated rhetoric about health care – and Republican whip, Eric Cantor, has released a health care plan with some detail.   

Here’s a summary of that plan:

1. Establish high risk pools for those who are difficult to insure, and fund this with $25 billion.
   The funding is small, and there is a promise to cap their premiums at 50% more than regular premiums, which would be actuarially expensive.
2. Extend HIPAA so that employees would be protected from exclusions of preexisting illness even if they did not exhaust their COBRA coverage
3. Eliminate annual or lifetime maximum
4. Prohibit recissions (where an insurance company withdraws coverage that has already been in force and paid for because of an often-minor error in the original application.)
5. Fund $50b for a state innovation fund
6. Establish state health plan “finders,” a marketplace for health plans, as opposed to exchanges, where consumers can purchase health plans
7. Administrative simplification
8. Allow small businesses to band together as “association health plans.”
9. Cover dependents on their parents’ plan until age 25 (instead of the 26 in Affordable Care Act)
10. Eliminate legal barriers to auto-enrollment, or “opt out” insurance, where employees will be enrolled unless they refuse.
11. Allow interstate sale of insurance
12. Make health care savings accounts more attractive, through tax credits and by allowing their use to purchase high deductible health plans (HDHPs), to fund some past expenses,  and by requiring greater HDHP-HSA coordination
13. Malpractice reform, including caps on noneconomic damages ($250,000), proportional damages (meaning that the party with deep pockets or generous insurance would only pay her share of damages), and limits on attorney billing.
14. Eliminate comparative effectiveness research.  The cost of this research is small, and it could help us figure out what health care is most valuable.
15. Allow higher discounts for wellness.  This effectively allows higher penalties for those who do not have healthy lifestyles.
16. Increased funding for antifraud efforts, as well as better subrogation to recover claims from other responsible parties and tracking banned providers across state lines.
17. Prohibitions on taxpayer funding for abortions and protections for health care professionals who don’t want to participate in certain procedures, such as pharmacists who believe the “morning after pill” is equivalent to abortion and therefore immoral.
18. FDA approval for biosimilars. This is similar to the Affordable Care Act

There is a lot missing from this bill.   There is no employer or individual mandate, and no big bucks for subsidizing health care purchases by those of low and modest income.  It’s likely that the bill will have little effect at decreasing the number of uninsured Americans.  There is no Medicare Payment Commission to help reign in costs if the market "doesn't work."

What would the Republican plan do to health care costs?

Malpractice reform could help lower the cost of health care a bit, although these changes could make it harder for genuinely harmed patients to receive legal assistance for a tort claim.  More systems to detect and prevent fraud can also lower health care costs.

Allowing interstate sale of insurance would essentially eliminate state regulation of health insurance, since all health plans could simply move their domicile and be subject to regulation by a different state.  Just as most businesses prefer the corporate regulation of Delaware, we could see most health plans relocating to a low-regulation state.   This could lower the cost of health care, to the extent that many states have expensive coverage mandates.  It would likely lower consumer protection, especially in the northeast and on the west coast.

There are no cuts to Medicare, so Medicare would remain on track to have an “insolvent” hospital trust fund by 2017.  It’s ironic that many Republicans including Newt Gingrich have suggested that Americans should be weaned from Medicare, while this plan actually means Medicare costs will be substantially higher than with the Affordable Care Act. 

There are no cuts to Medicare Advantage plans, although a number of studies have suggested that many of these are overpaid, especially the private fee for service plans.  Further, the bill includes no taxes on providers, pharmaceutical companies, medical device companies, and insurers.

Overall, the Cantor plan would lead to fewer Americans insured and higher federal deficits than the Affordable Care Act.  Overall health care trend is not likely to bend significantly because of the Medicare provisions of this proposal. 

Another article of note: The NYTimes reports that some employers are charging differential insurance rates for highly compensated employees compared to lower compensated employees.   As premiums go up, those with lower income have suffered from both increased premiums and increase in out of pocket costs at the point of service.   Keeping health care affordable for those of modest means will require that the premiums be affordable and that copayments and coinsurance aren't ruinous.   Thanks to Wing Lee of HPM235 for pointing out this article . 

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Obama Health Care Reform Proposal: New Life, or Last Gasp?

The Obama White House released its health care proposal today in advance of the Thursday bipartisan summit.   The proposal builds off the bill passed by the Senate.  The White House also gave a special nod to Republican ideas incorporated in the proposal.  In this post, I’ll briefly review the proposal, and then review why I believe that many of the parties that embraced the initial legislation will lose interest, and be happy to see this proposal die on the vine.

Main elements:

-          Eliminate the provisions for special deals for Nebraska (and presumably Louisiana)

-          Offer more subsidies to make insurance affordable for the working class

-          Eliminate the ‘donut hole’ for senior citizen prescriptions more rapidly

-          Provide more subsidies to community health centers

-          Create a Health Insurance Rate Authority to oversee health insurance premium increases

-          Regulate health insurers to prohibit some of the worst abuses, including recission , and require more appeals process

-          Decrease the penalty for violating the individual mandate to purchase insurance

-          Impose a payroll tax for employers of over 50 whose employees get tax credits to purchase health insurance

-          $40 billion in new tax credit for small businesses to encourage insurance

-          Crack down harder on fraud and abuse, including better use of databases, harsher penalties, and holding Medicare intermediaries more accountable.

-          Prohibit brand name drug company payments to generic drugmakers to delay marketing of new generic medications

-          Delay of new fees on medical device companies, which would be framed as excise taxes

-          Decrease Medicare Advantage payments to health plans by more, including penalizing those health plans which submit coding suggesting increased illness burden when claims suggest that this is not true

-          Initiate the “Cadillac tax” for high value health plans later, omit dental and vision care, and adjust for age and gender

-          Increase Medicare inpatient tax for high income taxpayers.

-          $10 billion more in fees from pharmaceutical companies (Total $33 billion over 10 years)

-          Increase funding for state Medicaid programs, and make this uniform

-          $1 billion for implementation.

Much of this represents finding a “middle ground” between the House and Senate bills.  Giving administrators the tools to better fight fraud is a good idea, and more subsidies for the working class and small businesses will make it more likely this bill would really decrease the level of uninsured. 

Notably absent is malpractice reform – which would not save big dollars , but could help the bill gain more support. 

The White House estimates that this bill would help insure an additional 31 million Americans, and would decrease the deficit by $100 billion over 10 years.

But I’ve become pessimistic.

Many months ago, before anyone had heard of Scott Brown and when the Democrats got their 60^th Senate seat, passage of health reform seemed close to a certainty. In that environment, the stakeholders came to the table and made real concessions (even if some, including me, pointed out that some of these concessions were self-serving – like pharmas which promised $80 billion in prescription discounts in exchange for far more in new business . The insurers agreed to rein in rate increases in exchange for more membership. The physicians and hospitals agreed to lower rate increases in exchange for fewer uninsured patients. AARP agreed to Medicare cuts.  None of these concessions felt painless to these stakeholders, but they were willing to come to the table when it appeared that health care reform was inevitable.  They made concessions because the alternative appeared to be worse – being left out and potentially suffering more severe cuts.

The current rate of health care cost increases is economically unsustainable – but we have what in game theory is called a “Nash Equilibrium”  where none of the players in a multiplayer game are willing to change their strategy for fear other players will not change theirs.  When it looked like everyone would change their strategy – the logjam appeared to be broken. 

Today, the political world is a different place.  Some commentators are talking about a failed Obama presidency, and the Tea Party convention (with its 600 attendees) commanded two days of news attention.   The Republicans are dead-set against deficits, but denounce any attempt to cut Medicare spending by encouraging evidence-based medicine as “death panels.”

Health care cost inflation isn’t sustainable –  and so we will come to a crisis that will break this logjam.  It looked like the Obama administration and its allies in Congress would have broken the Nash Equilibrium in late 2009.  It’s not looking any easier in early 2010.

By the way, the Kaiser Family Foundation has put together a great side-by-side summary of the different health plan proposals.  

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