The health reform battle is escalating. And the President is moving to the head of the pro-reform forces. According to a piece in the NYTimes,
“Ultimately, as happened with the recovery act, it will become President Obama’s plan,” the White House budget director, Peter R. Orszag, said in an interview. “I think you will see that evolution occurring over the next few weeks. We will be weighing in more definitively, and you will see him out there.”
Till now, President Obama has stayed above the fray, talking in generalities about the economic imperative of health care reform, the need to automate the cottage industry that is the health care system (my characterization, not his), and the flaws in the current system. That’s not to discount the significant ‘reform-type’ initiatives that passed early on in this very young administration, including S-CHIP, initiatives that would have been plenty important if expectations weren’t so high. But high they are, and Obama has clearly decided it is time for the President to start doing some of the heavy lifting.
This is where it is going to get very interesting.
Way back in February 2009 the President put forth a health care reform ‘plan’; actually it was more of a list of things to get done, and avoided addressing the key issue – how are we going to pay for reform, and what medical care should we be paying for (a nice way of saying ‘cost control’). Now he’s getting a bit more specific, but avoiding any lines in the sand in an effort to gain some bipartisan support.
What’s interesting is the disagreement between Senate Republicans and the President/most Democratic Senators is centered around the public plan option. I just don’t see this as a huge issue, and continue to wonder why the GOP, AHIP et al are so bothered by the idea of competing with a government-sponsored option.
I’m wondering if the Dems keep promoting the idea more as a bargaining chip than anything else, as it pales in comparison to changes in reimbursement for physicians, pharma, devices, and facilities in terms of overall importance.
That’s where the real battle is going to be fought.

Yesterday we examined the health insurance industry’s role in the current reform process. Today we’ll look at the recession’s impact on reform initiatives.
There are two obvious effects of the recession – fewer folks with insurance, and lower revenues for providers. The latter has been well-publicized, with physicians seeing fewer patients; Hospitals are also suffering.
Colorado, hospitals delivered 29.2 percent more charity care in the first half of 2008 than in the same period in 2007, bad debt was up 6 percent and in total uncompensated care grew by 18.7 percent.
Hospitals in Pennsylvania saw a 12% increase in uncompensated care in 2007, and it is a safe bet that there was an even greater rise in 2008.
Minnesota‘s hospitals saw uncompensated care almost double, a change that contributed to a decline in overall facility profitability from a 4.8% return in Q3 2007 to a loss of 2.5% in Q3 2008.
And that’s not even getting into the states with real problems – New York, for example.
There is a direct link between higher rates of uninsurance the financial fortunes of providers. But there’s also a more subtle issue – the increase in the number of individuals and families with high deductible plans is likely as big a factor in the problem as the number of uninsured.

Although the high deductible plan members ostensibly have insurance, in reality they don’t have coverage unless they have funded their deductible accounts. And it appears that many, if not a majority, have no money in those accounts. As a result, providers aren’t getting paid because their patients don’t have the money.
This will get worse. I projected there would be over 50 million uninsured by the end of this year, and the latest data indicates that may be slightly low – Health Affairs is looking for 52 million to be without coverage in 2010.
This vicious cycle is accelerating. There are fewer workers with coverage who still need care, providers are looking to recoup lost revenue by cost-shifting to those patients with insurance, thereby driving up costs for the payers left in the game.
One study reports insureds are paying more for their health insurance. “That so-called “hidden health tax” in 2009 was $1,017 for a family policy and $368 for an individual…The uninsured who sought treatment in 2008 received about $116 billion in care, the study said. Of that, they paid for about 37 percent of the costs and government programs and charities paid for another 26 percent.”
The rest, about $42.7 billion, was uncompensated care that was passed on to the insured in the form of higher prices for their care.
While I (and others whose opinions I respect) have issues with some aspects of the report, the overall picture for providers is grim. The current system is fragile at best. Providers’ reimbursement is directly tied to the fortunes of the business community, and when that community drops insurance, the impact is broad and deep.
One solution adopted by creative folks looking for care is to head south – to Mexico.
But for the rest of us – prospective and current patients and providers alike, the recession provides a stark reminder of the fragility of the US health care system and its dependence on employment-based health insurance.
What does this mean?
Two things. First, providers’ financial difficulties may well force them to make concessions they otherwise wouldn’t even consider. The current situation is bleak, but the outlook long term is worse if we don’t solve the health care problem – and providers are terrified of the what-if scenario. They may just be scared enough to bend far enough to get something meaningful passed. That’s a big ‘maybe’.

Second, I’ve said, and still say, that the reform package that eventually passes (if one does, (which is still suspect) will build off the current employment-based system. The recession won’t change that, but may result in Congress drafting legislation that provides a much stronger safety net/alternative coverage vehicle for employers and their workers who can’t/won’t pay for coverage via the employer market.

Ya gotta do your research.
That’s a basic lesson in the business world, but one that some seem to forget. The latest example – actually there are two – comes courtesy of Grace-Marie Turner of the Galen Institute. Ms Turner sent me an email, copied below.
Dear Mr. Paduda,
Every day, another politician promises to “fix” health care.
With that in mind, the Galen Institute recently launched a YouTube video contest asking average Americans to create persuasive, 90-second videos bringing attention to the dangers of government health care and the benefits of free market reforms. The contest was inspired by the “First Do No Harm” principle. Doctors follow it — shouldn’t politicians?
Today, we’re announcing the winners of our contest. You can view the entries, along with the winning videos, here:http://www.youtube.com/groups_videos?name=firstdonoharm.
If you’re interested in doing a post on our contest, please feel free to contact me via telephone or e-mail or use the press release below.
All best,
Grace-Marie Turner
President, Galen Institute
Alexandria, VA
Here’s my response:
Ms Galen:
Thanks for your email.
I disagree with the premise and the purpose of your “campaign”. You are erecting a strawman based on a distortion of the plans currently under serious consideration and in so doing not contributing to the dialogue but rather distorting it.
It is unfortunate that you are not able or willing to engage on the merits of the current proposals but instead have resorted to fearmongering and obfuscation. There should be an open and honest debate; this effort damages your organization’s credibility and does not contribute to meaningful discussion.
Sincerely,
Joseph Paduda
Principal
Health Strategy Associates, LLC
The two research blunders committed by Ms Turner are:
a) sending me this press release. Obviously the good folk at Galen have not read this blog or any of my other articles on health care/reform/insurance/policy.
b) deciding this would be an effective way to engage in, and perhaps change the course of, the health care debate. Galen and the right-wing think tanks are rapidly slipping into irrelevance, and with this nonsensical PR effort Turner is accelerating the process. Instead of engaging in a thoughtful, intelligent, fact-based debate, Galen has resorted to the shopworn tactic of trying to scare the pants off common folks.
There are solid, reasonable arguments against a public plan option, single payer, connectors and other aspects of health reform proposals currently under consideration. That’s not to say I agree with some or all of them, but I do believe they are helpful.
It is indeed unfortunate that Ms Turner’s contribution is nothing more than a reminder of why McCarthyism was so destructive.

The chances of meaningful healthcare reform look increasingly likely. Whether it will be reform we can afford is an entirely different question.
We’ll be taking a look at the differences this time around, and today will begin with the role of the health insurance industry.
Don’t expect to see Harry and Louise return to the small screen (TV or computer); while there may be an occasional sighting, the sponsors of the original edition have refused to let the aging couple out of the retirement home. Fearing a catastrophic backlash, health insurers are doing everything possible to be kindler, gentler, and easier to work with. They’ve got a long way to go, but their path is clear. A 2008 USA Today/Kaiser Family Foundation/Harvard School of Public Health poll had the industry with a 40 percent favorability rating with the public, lower than banks, airlines and drug companies, and half the approval rating of doctors.
Many view insurers as part of the problem, and with the continuous drumbeat of bad press, they aren’t doing themselves any favors. The public and the powerful do not trust healthplans, who have not given either constituency any reason to do so.
To the extent the insurers are able to stay at the table, they are finding their influence is dramatically lower than it was even twelve months ago. Particularly in the House, where Reps. Waxman and (even more so) Stark (D CA) are the powers behind reform, the health insurance industry has few supporters willing to publicly advocate for their views. In the Senate, it’s not so much that health plans have more friends as fewer enemies, and the friends they do have are reduced to yelling from outside the door.
Healthplans did this to themselves. Medicare Advantage was seen by most as a flat-out hand-out to insurers, who grew fat and profitable from overpayments funded by taxpayer dollars. The health insurance industry way overplayed its hand. Braying about the power and brilliance of private industry and its obvious ability to easily outperform the stumbling bumbling bureaucracy while seeking huge subsidies from that selfsame government was a doomed strategy. Hypocrisy is always a tough sell.
The industry is now all-but-prostrate at the feet of Congress, offering to give up medical underwriting, stop charging sick folks higher premiums, and even reduce health care costs – in return for an requirement that everyone buy health insurance. This last is no concession at all, adding huge revenue dollars while also aligning the industry with the powers that be. Win-win indeed; in retrospect this is so obviously good for the health insurance industry that it is amazing Harry and Louise weren’t pushing for universal coverage back in 1992. What’s new is the revelation that underwriting is not only expensive, but unpopular.
Health plans should count themselves very lucky that the President and key Senators refuse to engage in discussion about single-payer, instead proposing to build a new health insurance/care system on top of the existing (mostly) private insurance infrastructure.
But they can’t entirely give up their old ways, as evidenced by the public battle over the public plan option. This is where the industry may well make a catastrophic mistake. The public doesn’t like health plans, seeing them as mean-spirited, bureaucratic, monolithic entities ensconced in huge office buildings with leaders that are paid way too much for their ability to reject patient’s pleas for care while raising rates every few months and underpaying physicians. Now these private insurers and their advocates on the Hill are complaining about the unfairness of a public plan option, one wherein the government would ‘compete’ with private insurers.
In today’s world, the industry’s arguments against a public plan ring false. Opponents complain about faceless bureaucrats coming between patients and doctors; their lobbyists may have forgotten this was the health industry’s business model, but the public sure hasn’t. On a macro scale, voters traumatized by the failure of the mortgage and banking industry are loathe to trust yet another big financial industry to do the right thing; there has been precious little indication that the industry is in any way interested in that strategy.
All but lost in the debate has been the question of cost reduction. The industry’s pledge to reduce costs by two trillion dollars over ten years was quickly withdrawn, after President Obama masterfully maneuvered the industry and their supporters into a made-for-TV press event wherein he lauded them for that commitment. I’d expect to see a replay of that confab more than once as the debate heats up, and insurers will find themselves squirming on an increasingly hot seat as they try to spin their past statements. In so doing they’ll just dig themselves an increasingly deep hole – aren’t healthplans supposed to control costs? If so, why can’t you? And if you can’t, why, exactly, are we relying on you as the foundation for a new health system?
If meaningful reform happens, the primary beneficiaries will include healthplans. Yet another example of why it’s always better to be lucky than good.

I’ve been asked to do a point-counter point with Jacob Hacker, one of the more vocal supporters of a Medicare-for-All program.
It’s my contention that Hacker overstates the case for Medicare, and in so doing weakens the case for a public plan option. Specifically, he argues that Medicare has lower administrative costs and does a better job holding down medical trend. I disagree.
Medicare has an unfair advantage over private plans: it doesn’t need to maintain reserves, earn profits to attract capital, or pay premium taxes. These result in big dollar ‘savings’ over private plans. It is also important to note that Medicare’s cost structure is dramatically different in other ways.
1.) Medicare has no underwriting or sales expenses or marketing costs. No commissions, either. This saves a lot of admin dollars. This differential would disappear in a health connector-type system, with the playing field leveled by dramatically reducing commercial healthplans’ marketing costs and elimination of their underwriting expense.
2.) Medicare has one-time enrollment and dis-enrollment, and greatly simplified eligibility processes. This cuts their costs, but would not continue under a connector model.
There’s more here.

Last week PBM giant Medco hosted a discussion of health reform that was one of the better events I’ve encountered – better because the conversation was realistic, pointed, and quickly got into the reality of health care reform – it’s about cost.
Participants were David Snow, Medco CEO; Howard Dean, MD, Chan Wheeler of UnitedHealthGroup, and Ben Sasse, assistant professor of public policy at the University of Texas and a former U.S. assistant secretary of Health and Human Services during the Bush Administration.
Snow led off with a backgrounder on past health care reform efforts reaching back about a hundred years (perhaps I exaggerate). The key observation was fear is used by opponents to stop health care reform, to confuse consumers and grind it to a halt. Opponents of specific aspects of reform are focused on preserving and protecting their future, so they scare Americans so they choose to stay with what they have rather than risking the unknown. While this may seem obvious to some, it is important to remember what derailed reform in the past, as we will certainly see the same tactics used by opponents this time – and in fact, already are.
Snow did dwell on tort reform issues, as all big corporate execs do – to their detriment. For every misrepresented story of hot McDonald’s coffee there are dozens of med mal suits that never get filed. Medco has a solid business reputation, and the tort system is one of the few checks we have on companies like Purdue and Cephalon, companies that are in businesses closely related to Medco’s who damage the entire industry by their reprehensible conduct.
But I digress, if only a little. Snow did mention that there is a movement underway to use evidence based medicine as protection against lawsuits – if EBM guidelines are used appropriately then physicians would have some legal protections against med mal litigation.
Snow did a creditable job reviewing the history of past defeats of health care reform, noting the AMA was extremely effective in defeating pretty much every effort (with the notable exception of Medicare). And these guys have been very creative, becoming expert in employing grass roots efforts to stifle reform. Perhaps the most revealing was the AMA’s coffee cup campaign.
The coffee cup campaign was a very well financed effort by the AMA to defeat Medicare. Featuring a recording by none other than Ronald Reagan, the AMA rallied physicians’ wives (back then there were few female physicians) to support the AMA’s lobbying campaign. Snow pointed out, rather pointedly, that the AMA does a great job of not seeing the future; Medicare was anathema to physicians, yet Medicare has been a great boon to most physicians and other providers.

All panelists (and Snow) acknowledged that cost has not been addressed in any meaningful way in the reform discussions to date. Dean and Wheeler both agreed that their have been no substantive discussions of health cost control. Interestingly, it appeared to my ears that Dean came out against a single payer plan, saying it would not lead to the innovation and improvements that will help deal with cost and quality issues over long term. He forcefully argued for a public plan option, saying “If you don’t have a public plan [in the mix], you shouldn’t bother…”
I’m beginning to think he’s right.
Finally, one of the better lines I’ve heard came from one of the panelists, in referring to physicians, he described some as ‘partialists not specialists’.
A very accurate, and very useful, description.

Anne Zeiger at Fierce Healthcare was first to market with the news that the American Hospital Association decided it wasn’t really committed to helping reduce health care spending by $2 trillion over ten years. (from Modern Healthcare)
To be fair, the AHA’s boss said “we did not say that we would save this country $2 trillion on our own…” But he also didn’t commit to any measurable savings – at all.
Wow, it seems like just yesterday the pundits and pols were rejoicing in the new, broad commitment to help the nation cut health care costs. Wait, it was just yesterday…
There’s good news here. We’re blowing thru the meaningless promises, the blandishments and feel-good words quickly. That makes it just slightly more likely we’ll get to the hard stuff, where we’ll actually see if there is enough political will to significantly cut costs enough to cover more Americans.
But I still don’t see it happening.

Ok, I’m a geek. Anyone who rides his bike while listening to the Kaiser Network’s podcast on the public health plan option (all 102 minutes of it) is, if anything, over-qualified for the appellation.
But boy, it sure was interesting.
I did have to take a break part way thru; listened to this to get my mind grounded after too much ethereal discussion of esoteric topics.
The discussion featured Karen Davis, President of The Commonwealth Fund, Karen Ignagni, President and Chief Executive Officer of AHIP (America’s Health Insurance Plans).
John Holahan, Director, Health Policy Center at the Urban Institute, and Stuart Butler, Vice President, Domestic and Economic Policy Studies at the Heritage Foundation.
A lively group with diverse opinions. I was most impressed with Holahan. His pragmatic, sensible, plain-spoken way of describing the issue and potential impact of a public health plan option was highly effective. Karen Davis was articulate as always, Karen Ignani is a very intelligent and articulate spokesperson for the health insurance industry. Butler’s talk was sprinkled with strawmen (public plan advocates want it because it will make Americans feel comfortable with universal healthcare) and dark predictions that any public plan option will inevitably lead to single payer, and public plan advocates are just single-payer folks in competitive clothing.
One of the key issues debated was the subject of reimbursement – would a public plan use Medicare rates, commercial rates, or some number between the two. Butler’s argument (and Ignani’s too, at times), was that the public plan would use Medicare, and thus lead to even more cost shifting to private plans, and they could do so because the government is all-powerful. (I’ve debunked this argument here).
Butler persisted in using the Lewin study (which assumed Medicare reimbursement) as the basis for much of his argument. As Davis and others have noted, it is unlikely a public plan option would use Medicare, for the simple reason that few providers would agree to it. And folks, without providers, you have no health plan.
Holahan and Ignani did an excellent job dissecting the administrative cost argument. The net is Medicare’s costs are much lower for some reasons that will likely persist in a public plan model, but much of their ‘advantage’ would disappear if the plan had to hold reserves, manage utilization, and if the private plans didn’t have to pay for underwriting, marketing, and associated costs.
Butler opined that Congress, in the person of the evil Henry Waxman (D CA) and Pete Starck (also D CA) would use their powers to advantage the public plan and dis-advantage private insurers, noting that those of us who did not believe that also believe professional wrestling is legitimate. Those Brits sure are funny!
The net is this.
1. I’m not convinced a public plan is a have-to.
2. Opponents’ arguments against a public plan are weak and based on unlikely assumptions.
3. I still don’t know what they’re so scared of. If government is so incompetent (as the Heritage folks make abundantly clear in everything they do and say), why are health plans and their political think-tank allies so worried about it?

A loose group of health care organizations, vendors, and providers, including hospitals, pharmaceutical manufacturers, medical device makers, physicians and labor organizations, will voluntarily reduce US health care spending by $2 trillion over the next ten years.
According to a White House release, “”Over the next ten years – from 2010 to 2019 – they are pledging to cut the growth rate of national health care spending by 1.5 percentage points each year – an amount that is equal to over $2 trillion.”
Ha.
The announcement yesterday comes ahead of a busy week on Capitol Hill, as the health care debate starts to come out into the open. It is clear evidence of the health care industry’s all-time high fear level – fear that this time Congress and the Administration may actually do something to control costs.
Here’s how Politico put it “The coalition represents industry, hospitals, pharmaceuticals, medical device makers, physicians and labor – organizations that disagree on other areas of Obama’s health care proposals.
But by working together on cost containment measures – one of the less contentious pieces of reform – the coalition is also sending a message to Congress ahead of a debate this week on financing a massive overhaul that major players in the system can find savings on their own.”
The Politico piece went on to quote a senior administration official “These are sophisticated entities, and they would know better than to make a commitment that was not feasible…So I have every confidence that in doing this that they have analyzed some of the specific steps they believe they could already take and other steps they would be more likely to take as part of overall health care reform to get a comfort level where this kind of reduction was achievable.”
Wow. Now that’s some breathtaking naivete. On the level of “they’ll greet us with flowers and candy”, Mr Rumsfeld’s famous quote about the Iraqis’ reaction to our invasion. What, were Emanuel, Orszag, Sibelius, Biden et al out of the office (it was a Sunday)? Who was the senior administration official, Bo?
Forgive me if I’m wildly skeptical. The industry will self-regulate overall growth in health care costs? How’s that going to work? How is this committed group of for-profits and labor going to police each other? WIll there be deep cuts in pharma and no cuts in labor costs? How are they going to agree to split the health care pie? How they will measure health care spending and assign ‘share’ to each coalition member?
This is pure PR, nothing but bald-faced political posturing by a bunch of scaredy-cats terrified that someone will finally hold them accountable. By setting the measurement standard at ten years, they are putting off the evaluation of their results far enough in the future that the individuals leading this effort will be retired, in other jobs, or promoted – so someone else will have to explain why the ‘industry’ failed to meet their commitment.
It is merely an attempt by these companies, labor organizations, and providers to give their political allies a tool to use in the coming Congressional debates, a tool to demonstrate the deep level of commitment on the part of the industry to solving the health care crisis without government regulation. This does show how afraid the health care industry is of actual regulation with teeth, how scared they are that they will not be able to compete with a governmental health care plan option (while they simultaneously hoot at ‘getting health care from the folks who bring you the DMV’).
This isn’t just a big-business driven effort – it is also supported by labor. Health care unions are deeply concerned that health care reform will actually result in closure of redundant and inefficient health care facilities and cuts in reimbursement.
Please. Let’s get serious. Seventeen percent of the US economy is not going to regulate itself. If you believe it will, then you believe in the Easter bunny.