Feb

Cutting Federal health care costs

Posted by Joe Paduda on Monday, February 14th, 2011 | Comments

The debate is on, and it is going to get even more nasty, heated, and divisive.
If we’re serious about cutting Federal health care expenditures over the long term, here are two changes that will do just that.
1. Requiring HHS to negotiate with pharma for Part D drug costs would reduce annual expenditures by over $20 billion.
As I’ve noted repeatedly(but unfortunately few in the mass media have), Part D’s perhaps the biggest deficit problem we have – the ultimate unfunded liability is now over $20 trillion. Of course, we could solve the majority of our budget problems by just canceling Part D, but neither the Democrats nor the Republicans ) will do that.
So, as long as we’re stuck with the damn thing, we ought to make it as inexpensive as possible. The best way to do that is to use the buying power of Part D to negotiate with manufacturers to get the best possible price for drugs that you – the taxpayer – are paying for. Believe it or not, the original Part D legislation expressly forbids negotiation with manufacturers for pricing.
In a 2006 House analysis, a report “showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com.”
Another study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”
Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins – effects that must be balanced against the nation’s long-term financial viability.
2. Stop paying for medical ‘bridges to nowhere’; Require HHS to base reimbursement for devices and therapies on efficacy and effectiveness.
As noted in a recent piece in Health Affairs, “with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services.” CMS is prohibited from considering benefit to the patient when developing reimbursement formulae and levels.
About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.
It is amazing that we pillory the Feds when they spend taxpayer dollars on services or items that (some opine) don’t work at all or don’t work as they are supposed to, yet prohibit CMS from doing precisely that.
Cutting costs while improving outcomes is absolutely possible. Whether it is politically feasible is another question entirely.

Feb

Health reform and Medicare cost reduction

Posted by Joe Paduda on Monday, February 7th, 2011 | Comments

The ongoing and far-from-resolved debate about whether or not health reform will erduce costs has generated lots of fear-mongering, wildly inflated claims, and far too little intelligent discussion. Jonathan Cohn’s attempt to add a bit more intelligence to that discussion is well worth a read.
Care and Cost, a sort of ongoing compendium of thoughtful articles on the subject, republished Cohn’s Kaiser Health News piece dissecting the Medicare Actuary’s recent comments on the impact of reform on cost.
Richard Foster is the chief actuary for Medicare – the person tasked with calculating how much it will cost, and estimating whether cost will go up or down and by how much due to this or that change. He recently testified before the House Budget Committee on the impact of reform on Federal health expenditures, basing his testimony largely on the basis of his work in April of 2010.
Foster made a couple of key points.
Cohn’s piece focuses on a couple key points. First:
“By 2019, the net reduction in Medicare expenditures is estimated to be 0.5 percent of GDP, which represents an 11-percent decrease from the level projected prior to the Affordable Care Act. [emphasis added] This percentage reduction would grow larger over time as a result of the compounding effect of the slower annual updates in Medicare payment rates for most categories of health care providers.”
Good news, right?
Well, he then went on to call into question the basis for that estimate:
It is important to note that the estimated savings for one category of Medicare provisions may be unrealistic. The Affordable Care Act requires permanent annual productivity adjustments to price updates for most providers (such as hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide private, non-farm productivity gains. While such payment update reductions will create a strong incentive for providers to maximize efficiency, it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large. [emphasis added]
So, what happens? According to Foster, about 15% of Part A providers (non-hospital/facility, non-pharma) would become unprofitable, and CMS might make changes to increase their reimbursement.
There’s another distinct possibility; Congress will tell CMS that it can’t increase payments to less-efficient providers, and those providers either a) get more efficient or b) drop out of the program. And there’s ample precedence for this scenario; one need look no further than the recent changes to durable medical equipment reimbursement.
I’d add the recent – and long overdue – focus on the national debt and deficit may significantly increase the intestinal fortitude of members of Congress, perhaps enough even to make them stick to their guns and force providers to get better or get out.
What does this mean for you?
Intellectual honesty is all too rare in the debate over reform. Foster’s views are well worth discussion, but don’t take them at face value.

Feb

If health reform is overturned

Posted by Joe Paduda on Wednesday, February 2nd, 2011 | Comments

We know that much of the opposition to the Accountable Care Act is feeling pretty good right now, as they should after the Florida judge’s rejection of the Act.
What we don’t know is what will happen if they are successful in overturning health reform.
What will our country’s health system look like in five years if there isn’t reform?
Impact on insurers
Without reform of the insurance underwriting and rating laws, insurers will seek to be even more selective about the policies they write – their right, and I’d argue an obligation on the part of the for-profit health plans. As stock companies, their first obligation is to their owners – and that obligation requires them to generate profits and growth. That is not a value judgment – it is a statement of fact.
Health plans just don’t want the ‘risk’ that someone will have a claim. I’d expect healthplans will also continue to ‘churn’ their books – to try to dump policies that have been in place for more than three years, as that is about when claims start to pile up.
The number of viable healthplans will continue to shrink. As a mature industry, the healthplan business has been steadily consolidating – if anything that will accelerate. And no, the free market will not increase ‘choice’; we already have a free market for commercial plans (and Medicare Advantage and Part D) and in most areas there are at most two plans to choose from.
Smaller healthplans will find it increasingly hard to compete, as the big plans get ever-better discounts from providers, who have to make up the lost revenue by cost-shifting to the smaller plans with less clout. As their costs go up, so will their rates, until they either wither away or get bought out by the big plans.
PPO plans will get ‘nichier and nichier’. Their higher medical costs will push members towards HMO-type plans, making it harder for employers with widely-spread workers to get affordable coverage unless they buy insurance from one of the big plans that operates in all the areas the employer has bodies. Inevitably, some workers will be left with poor coverage…
Impact on individuals and families
Bureaucrats at insurance companies will still be making decisions about what doctors you can see and how much they’ll pay and what they’ll cover and what they won’t. You’ll have to ask permission for services, and hope and pray they get paid. Those same bureaucrats will tell you they’re interested in keeping you healthy, but that’s only till they can churn you out of their book.
There will continue to be a hodgepodge of state-specific insurance mandates, rules, regulations, and enforcement mechanisms, as well as benefit designs and limitations
But the big problem is this – it will get harder and harder for individuals and employers to get insurance coverage.
Here’s one all-too-common scenario. The breadwinner loses her/his job, and with it health insurance coverage. They find a new job, but that company doesn’t offer benefits as they are too expensive. So, Ms/Mr Breadwinner, responsible person that s/he is, tries to buy an individual policy. There are several insurers that write those policies, so the applications go in – followed by requests for medical records, documents, and attestations signed by their physicians. Oops, one of the family has a mild case of asthma, and dad takes cholesterol medication, and mom saw a counselor a few years ago after her dad died.
Three insurers decline to offer a proposal, and the one that does will exclude any cardiovascular coverage for dad, any pulmonary issues for junior, and mom won’t be covered for any psychiatric or anxiety or related issues. And, oh, the policy is 50% more expensive than the original quote. Leaving Mr/Ms Breadwinner to decide if they want to come up with $22,000 a year for less-than-full coverage and their HSA deductible (in 2009 dollars)…
Unfortunately there isn’t any governmental assistance, so the Breadwinners, who make $75k a year, are looking at spending almost a third of their gross income on health insurance – insurance that doesn’t cover their most likely health problems.
Think this is hyperbole? You’re wrong. This is happening every day in every community, and if health reform is overturned, it is going to happen more and more often.
What does this mean for you?
Here’s hoping those seeking to overturn reform have a solution in mind that will actually work. And when you consider their ‘solutions’, remember that no insurer will cover your pre-existing condition unless they are forced to. Or your parents’ or your kids’ or your friends’.
Posted by on August 12, 2009 2:53 PM | Link to this post

Jan

Paul Ryan’s blatant hypocrisy – and the abject failure of mainstream media

Posted by Joe Paduda on Wednesday, January 26th, 2011 | Comments

Wisconsin Rep Paul Ryan gave the ‘official‘ [pre-speech prepared remarks] GOP post-State of the Union rebuttal. I thought he was a fiscally conservative Republican – just the kind of person we desperately need on Capitol Hill.
After all, Ryan’s getting a good deal of press because he’s perceived to be a budget expert/wonk. Here’s a bit of what he had to say.
– Health care spending is driving the explosive growth of our debt.
– the President and his party made matters even worse, by creating a new open-ended health care entitlement. [referring to the health reform bill]
What Mr Ryan conveniently forgets, or more likely avoids, is this:
Seven short years ago he – and his GOP buddies – passed the single largest entitlement program since Medicare – the Medicare Part D drug benefit with no dedicated financing, no offsets and no revenue-generators – the entire cost – which is now around sixteen trillion dollars – simply added to the federal budget deficit.
The health reform bill has many warts – as I’ve noted time and time again – yet one it does NOT have is adding sixteen trillion dollars to the deficit. According to Bruce Bartlett writing in the Fiscal Times, “By 2030, Part D alone will cost taxpayers 1 percent of GDP.”
The complete failure of the mainstream media to note this blindingly obvious hypocrisy is stunning.
I couldn’t find a single instance where the MSM commenters noted this hypocrisy; there were a few in the blogosphere, but none from mainstream pundits and talking heads.
Let’s suspend reality and accept the GOP’s claim that health reform will add $700 billion to the deficit. That’s one-twentieth of the deficit from Part D.
That’s right – Paul Ryan’s Part D added twenty times more to the Federal deficit than even he claims reform will. Yet in his comments he didn’t once offer to end, or fix, or reduce Part D. Ryan was long on problem, and non-existent on solutions – perhaps because he’s a big part of the problem himself.
Where’s the accountability? How can he get away with this? Why isn’t the main stream media at least reporting on this? Commenting? Perhaps just noting in passing?
Folks, we have a BIG deficit problem. If we aren’t deadly serious about what we need to do, we’re screwed. Whether you’re a conservative or liberal, Glenn Beck-er or Rachel Maddow fan, red stater or blue stater, there are basic, immutable facts.
Part D’s $16,000,000,000,000.00 ultimate cost is one of the more obvious.
I’d hoped for a much better, more mature, more fiscally responsible – hell, more old-style fiscally conservative Republican Paul Ryan – one who would candidly discuss Part D, give specific suggestions about how its cost could be reduced, and take some responsibility for our current fiscal situation.
When the Ryan I – and undoubtedly many others – wanted to hear didn’t appear, it would have been nice if the talking heads noted his absence. I don’t know who is more disappointing – Ryan or the media.

Jan

The cost – or savings – of repealing reform

Posted by Joe Paduda on Wednesday, January 19th, 2011 | Comments

Well, the GOP says repealing health reform will save $700 billion, while Nancy Pelosi (D CA) says it reform will save $1.3 trillion. Who’s right?
Surprise!
Neither.
FactCheck’s take is the CBO’s projection that repealing reform would add $230 billion to the deficit is the best available. The CBO itself says that’s just an estimate. But it’s the best we have.
What’s the basis for the politico’s claims? Pelosi’s basing her number on CBO’s estimate 20 years out – a looooong time from now, and one so far away as to be beyond nebulous. , something the agency says is an imprecise and uncertain calculation. That, and she’s spinning; there’s no ‘savings’ but rather is actually a reduction in the projected federal deficit.
The GOP’s claim that “the bill would add over $700 billion in red ink over the next decade,”? FactCheck said we “judge it to be mostly bogus.”
Boehner et al contend that about 400 billion dollars in the CBO’s Medicare savings are being “double-counted.” But,as FactCheck (and many others) have pointed out, CBO is simply not doing that.
Of the other $300+ billion in ‘costs’, there’s $200 billion for a permanent “doctor fix” to prevent a cut in Medicare payments to doctors. As many have pointed out, that’s completely separate from the bill – and oh, BTW, many Republicans endorse the “doctor fix” anyway.
The GOP also says reform’s administrative costs will be about $115 billion – that’s wildly inflated as well. CBO’s pegged these at about $15 billion over the next 10 years.

What does this mean for you?
Base your projections on the CBO. They’ve no axe to grind, unlike the pols.

Jan

Well, that didn’t take long – the GOP ‘rethinks’ its commitment

Posted by Joe Paduda on Wednesday, January 5th, 2011 | Comments

UPDATE – yesterday I reported on GOP House members’ commitment to cut a hundred billion from the discretionary spending this fiscal year (which, by the way, started October 1, 2010). After I posted this piece, the GOP reneged on the commitment, with aides to Speaker Boehner saying the $100 billion figure was ‘hypothetical’.
No, it wasn’t.
In the ‘Pledge to America’ the signatories said “We will roll back government spending to pre-stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone.”
In a speech at the time of the midterm elections, Boehner himself committed to that number, saying “We’re ready to cut spending to pre-stimulus, pre-bailout levels, saving roughly $100 billion almost immediately.” (note Boehner’s website had the link up yesterday, it doesn’t work today.)
So why is this in a blog focused on health care?
Simple. The GOP has committed to overturning, or at the least de-funding, health reform. Not some of the Accountable Care Act – all of it.
That includes:
– the prohibition against medical underwriting that effectively prevents those of us with pre-existing conditions from obtaining individual coverage in most states.
– the closing of the doughnut hole in Part D that will save seniors thousands on their drug bills
– the requirement (already in place) that insurers cover kids till age 26

– the requirement (already in place) that prohibits medical underwriting or pre-ex exclusion for kids
– vouchers for less-well off folks to use to help cover the cost of insurance
– prohibition on lifetime maximum coverage limits
I find it…interesting that many of the same folks who passed Part D and its $16 trillion addition to the deficit in an attempt – successful at that – to woo seniors, would now want to upset seniors, and moms, and families by killing provisions that most voters like.
We’ll see.

Dec

What happens without a mandate?

Posted by Joe Paduda on Wednesday, December 15th, 2010 | Comments

That depends on whether the rest of the reform bill survives without that clause. I’ve heard from a couple of sources that the Accountable Care Act doesn’t include a severability clause. If that is true, than the entire bill may be thrown out if the mandate is ruled un-Constitutional.
That’s for others steeped in the details of the ACA and law to figure out. As I’m sure they will.
(Lest we get all excited about the Virginia case, note that there have been about twenty suits filed so far re the ACA, 12 have been dismissed and in two other cases both judges ruled the mandate is Constitutional.)
If the rest of the ACA does survive the demise of the mandate, we’ll have a very, very interesting situation. Health insurers will be required to take all comers, the rates they can charge will be highly regulated, benefit plans consistent across most insurers and employers, and there will be no upcharging or medical underwriting or discrimination based on age, pre-existing conditions, or sex.
It would be tough to design a better recipe for disaster for insurers.
Nonetheless, that’s what we’ll be faced with if the mandate is removed; the rest of the Act will become law, and individuals and employers would – at least theoretically – be able to buy insurance when they need health care, and drop it when they don’t.
There’s already a precedence for this – in the Massachusetts experiment, loss ratios in the individual market for at least one health plan were about 600%.
The White House recognizes the problem – in a response to the latest court challenge to the mandate that is notable for its focus on individual responsibility for the costs of their care:
“However, unless every American is required to have insurance, it would be cost prohibitive to cover people with preexisting conditions. Here’s why: If insurance companies can no longer deny coverage to anyone who applies for insurance – especially those who have health problems and are potentially more expensive to cover – then there is nothing stopping someone from waiting until they’re sick or injured to apply for coverage since insurance companies can’t say no. That would lead to double digit premiums increases – up to 20% – for everyone with insurance, and would significantly increase the cost health care spending nationwide. We don’t let people wait until after they’ve been in a car accident to apply for auto insurance and get reimbursed, and we don’t want to do that with healthcare. If we’re going to outlaw discrimination based on pre-existing conditions, the only way to keep people from gaming the system and raising costs on everyone else is to ensure that everyone takes responsibility for their own health insurance.”
Whether the President and/or Congress would try to overturn the ACA, or remove the underwriting language is to be determined. While the White House’s statements to date acknowledge the issue, AHIP et al have few friends left among Democrats, and those friends would be hard pressed to convince the Administration to be nice to an industry that has been anything but to the Democrats.

Dec

Health care rationing – reality in Arizona

Posted by Joe Paduda on Monday, December 6th, 2010 | Comments

Friday’s NYTimes reports Arizona has decided to stop funding certain organ transplants under the state’s Medicaid program. According to the article, “lung transplants, liver transplants for hepatitis C patients and some bone marrow and pancreas transplants, which altogether would save the state about $4.5 million a year” were ended in October.
While it’s tempting to make political hay out of this, the reality is Arizona’s decision, as painful as it may be, reflects decisions we as a society have to make.
The $4.5 million saved could be spent on preventive medicine, diabetes screening, cholesterol medication, pre-natal care, and other high-value services, services that would likely reduce the need for future acute care while improving the health of many more Arizonans. And the decision process used by the state, while not perfect, is one that we as a society must come to terms with.
The reality here is the government – ‘faceless bureaucrats’ to some, compassionate and caring stewards of taxpayers’ funds to others – determined who will live – perhaps if only for a few more months – and who will not.
Before instituting the change, Arizona studied the outcomes of transplants funded by the program. The results were pretty bad – according to the state, 13 of 14 patients under the state’s health system who received bone marrow transplants from nonrelatives over a two-year period died within six months.
Other disagreed with the state’s assessment; outside specialists said the success rates were considerably higher, particularly for leukemia patients in their first remission.
I’m not qualified to determine which side is ‘more right’, and anyway, that’s beside the point.
Which is starkly simple. We as a nation cannot afford to provide every health care service that may help every patient.
As db said on his blog;
“We can ration health care rationally or irrationally. We can ration health care based upon emotionally appeals or based on data. We must remember that a decision to pay for one treatment or diagnostic test may deprive someone else of a different treatment or diagnostic test. Or even worse, one treatment may cost so much that many other patients will go without a vaccines or preventive visits.
Rationing exists, it will continue to exist, and we have an obligation to ration in a fair way. We should not value some diseases over other disease. We should avoid emotional appeals, but rather look at data to make the difficult decisions that must be made.”
I find it intriguing that a state governed by the GOP is in the forefront of this issue (along with Oregon, which has been addressing Medicaid rationing for years). I sincerely hope – but highly doubt – this will result in an honest, open, and non-politicized discussion of what we can and cannot afford, and why, and how we’re going to allocate scarce resources.
Because that’s exactly what we must do.
Currently, Medicare is legally prohibited from setting payment based on the efficacy of a specific procedure/medication/treatment. This has to change. It is fiscally irresponsible to pay the same amount for treatments that have a one percent and a one hundred percent effective rate.
Unless and until we address this issue head on, our efforts to reduce the deficit are pointless.

Dec

Fixing health reform – Part Three, reducing costs

Posted by Joe Paduda on Thursday, December 2nd, 2010 | Comments

So, you want to get serious about reducing the cost of entitlement programs? How does $25 billion a year, or a quarter-trillion over ten years sound?
Does it sound even better if there’s no increase in taxes? How about if there’s no reduction in services? And what if beneficiaries didn’t have to pay any higher fees, or suffer a reduction in benefits?
What’s the catch?
It would require one simple change in Federal law – allow the Secretary of HHS to negotiate prices with pharmaceutical manufacturers.
According to an analysis done three years ago, that’s exactly what would happen.
When Part D legislation was passed back in 2003, the Feds were expressly forbidden to negotiate drug prices for Part D. Despite a long and successful history of the Feds doing just that, Congress decided that the private market would do a better job of controlling cost than the gubmint. In actuality, “A report by Families USA, which looked at the top 20 drugs prescribed to seniors, found that VA prices were substantially lower than the cheapest Part D plans, with a median price difference of 58%.6”
That ‘VA’ is the Veteran’s Administration, a federal government entity.
The study indicated “An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004…”
And that’s in 2003 dollars. Recall that brand drug prices increased over 9 percent last year alone; In 2010 dollars, we’re easily above the $25 billion per year number for savings.
In a 2006 House analysis, a report “released by Democratic staff on the House Government Reform Committee showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com.”
I don’t know why the Bowles-Simpson deficit commission didn’t consider this in their just-released deficit reduction strategy. After all, Part D alone is responsible for $15 trillion in ultimate deficit dollars. You would think this would be enough to get liberals, conservatives, Druids, Neanderthals, John Birchers, hippies, Greens and Flat-earthers all clamoring for action.
You would think…

Dec

Fixing health reform – Part Two, Medical Loss Ratios

Posted by Joe Paduda on Wednesday, December 1st, 2010 | Comments

A couple weeks ago I started what was going to be a discussion of how we should ‘fix’ health reform that was intended to run on consecutive days – only to have that sidetracked by goings-on in the health, political, and financial worlds that pushed reform to my back burner.
Let’s get back to reform.
First, the easy part. There’s no question Congress has to address the 1099 issue – the requirement that all businesses have to inform the IRS when they pay anyone more than $600 over a year. As a small business person myself, I have zero time to send out 1099s to my cell phone, internet access, web hosting, legal, accounting, admin support and other suppliers. No brainer.
Here’s a much harder one. Medical loss ratios (MLR).
For politically-obvious reasons, the Senate included requirements that health insurers spend a set percentage of their premiums on actual medical costs and quality improvement activities; at least 80% for individual/small group policies and 85% for larger group coverage. If an insurer’s admin expense (all costs EXCEPT medical costs are higher than 20%/15%, policyholders get a refund/rebate of the ‘extra’.
The rebate requirement kicks in on January 1, 2011; insurers are already scrambling to figure out how to identify, aggregate, and report costs; lobbying HHS and the National Association of Insurance Commissioners to consider medical management and prevention expenses part of the medical cost category; and crunching numbers to figure out what their medical costs will be in 2011, and based on that, what premiums they can charge.
The MLR requirement is going to require health plan execs to spend an inordinate amount of time and energy figuring out what costs go where and how they need to report those costs to HHS. If they screw up and their medical costs and quality improvement expenses are below the threshold, they have to pay a penalty.
While one can make a rather superficial argument that this is all to the good as it improves transparency, I’m hard pressed to understand how this ultimately benefits anyone.
Health plans that do a great job managing chronic conditions may well be ‘penalized’ for that success. Plans that contract with providers who deliver excellent preventive care, ensure expectant moms take their vitamins and don’t smoke, and get their tubby patients to drop a few pounds may find they are cutting checks come MLR audit time. Payers channeling patients to hospitals with low infection rates and few re-admissions will be in the same situation, as would those that carefully monitored potential diabetics’ health status and clinical signs.
These programs are costly, many have unproven benefits and/or won’t pay off for some years, and therefore the cost of the programs today (if they don’t qualify as ‘quality improvement’) will add to expenses, driving down the MLR.
While I‘m not a believer in the infinite wisdom of the free market, I do know that the health plans that deliver lower costs – over time – will have a major competitive advantage over their less-capable competitors. While insurers and providers need very, very close watching when it comes to risk selection, rescission, underwriting, and care authorization, we don’t need to waste their time – and ours – worrying about their MLR.

Category: Health Policy