Insight, analysis & opinion from Joe Paduda
My post last week on Medical Malpractice generated a good bit of virtual commentary, some calling me to task for supporting one point of view and others saying I missed the central issues. Thanks to all for their considered and thoughtful comments. I’ll address them and do my best to be brief and factual.
The malpractice insurance crisis does not exist. Actually, it does, but only in the popular press and in the minds of the AMA, a few politicians and alarmists. In the real world, the cost of malpractice insurance as a percentage of total practice expenses changed little over the last 30 years, rising from 6% of expenses in 1970 to 7% in 2000.
The finding comes from a report based on data collected by the American Medical Association and published in the MarketWatch section of Health Affairs’ May/June 2006 issue.
While the overall percentage increased by just one point over that period, there were significant changes during the thirty years. From 1970 to 1986 malpractice expenses jumped from 6% to 11% of total practice expense before falling back to 6% in 1996. Premiums bumped back up by a point to 7% in 2000.
Notably, the cost of other practice expenses, including non-physician labor, utilities, rent and medical equipment and supplies, increased much more rapidly than med mal premiums.
Let’s contrast this reality with the hyperbole and outright misinformation generated by some; Ohio Rep. Deborah Price is a great example. She is one of the supporters of med mal reform who have cited some highly doubtful statistics, including one noting that “Four out of 10 Ohio physicians have retired or plan to retire in the next three years due to rising liability insurance premiums”.
If physicians are retiring because med mal premiums are now consuming a couple points more of their practice’s overall expenses, they are lousy business people and probably should join a large group practiice anyway.
NOTE – the AMA has published a comment on their website in an attempt to refute the original article claiming that the analysis stops in 2000 which makes it inaccurate (a possibly valid argument, although one that is refuted prospectively by the authors in their article) and arguing that the data used by the authors is misleading (although the authors make a solid case for their selection of data sources).
My take – the med mal “crisis” can affect pockets of physicians significantly while having relatively minimal effects on the overall population; and the inefficiencies in the insurance market are much greater contributors to the problem than are tort costs. And, most potential suits are never filed anyway.
What does this mean for you?
More wasted time arguing about non-factors when we could be trying to actually solve the real problems driving health care costs up and access down.
CMS’ head Mark McClellan believes that over 90% of Medicare beneficiaries will have drug coverage after Monday’s deadline for Part D enrollment. That may be true, but that does NOT mean Part D enrollment is at 90%.
As has been ably reported in many places including this blog, before Part D most Medicare-eligible folks already had coverage from their Medicare Advantage plan, their employer, through their retirement plan, Tricare, or another source.
That left about 16 million without any drug coverage (out of the 43 million total eligibles). With the latest stats indicating there remain 4.5 million seniors without drug coverage, it looks like Part D will just pass the “adverse selection test” of a minimum of 70% of eligibles enrolled (my sense is a program of this type actually requires much higher enrollment, near 90%, to mitigate the risk of adverse selection).
Where does that leave us? There is a complex risk share program in place designed to protect Part D plan sponsors from adverse selection, a program that is in large part subsidized by taxpayers. However, there remains significant risk inherent in the program, a risk that private insurers would not have taken on without the taxpayers< backing them up.
So, we have a self-described conservative government using public funds and public policy to support private industry’s entrance into a new market.
Doesn’t sound very “conservative” to me. If Part D isn’t attractive enough for private companies to enter into on their own, why are we bribing them to do so? Are we not implicitly agreeing to commit public funds to this program? And if so, why didn’t we just cover drugs under Medicare, thereby avoiding all the doughnut hole, enrollment, dual-eligible and associated troubles?
I’ll admit to being somewhat ambivalent about the recent action by the Tennessee state senate to eliminate the state’s assumption of risk in Gov. Phil Bredesen’s CoverTennessee plan. The Plan, designed to help provide health insurance to lower-income ciitizens (among other goals) relies in part on the assumption of risk by the State for losses above a set limit.
While I strongly believe in the centrality of universal coverage to any meaningful health care reform, I’m also leery of taxpayers’ subsidization of big business. Unfortunately, it may be difficult to get health plans to step up to the CoverTennessee plate without some way of protecting them against “excessive” losses.
While the Feds constructed a rather intricate risk-share program for Part D, my reading of that effort is that it is too complex, and potentially too generous, by far. Instead, perhaps the State should set up a reinsurance pool, funded in part by the commercial health plans participating in the CoverTennessee Plan and in part by the State (i.e. taxpayers). This pool might have two components; one to cover losses of any plans that go bankrupt, and another providing, on a quota-share basis, a mechanism to mitigate losses for specific health plans.
The deeper you dig into health care data, the more interesting the stuff you learn. For years, insurers and health plans have been analyzing patient, physician, procedure, and facility data in an effort to learn more about the inter-relationships of costs, outcomes, demographics, and scores of other factors. A lot of this is arcane, a good bit useful, and some downright intriguing.
Into the latter category comes a study that shows surgeons performing the same procedures at the same hospital on similar patients with similar outcomes can incur very different costs.
The study, authored by Washington University in St Louis, indicates that costs can vary by as much as 45%.
What does this mean for you?
When assessing provider performance, you have to consider all aspects, including the total costs for their patients, and not just the physician components,
One health insurer has at least 30% market share in virtually all of the nation’s major markets. This finding, published in the AMA’s “Competition in Health Insurance; A comprehensive study of US markets”, indicates that the market’s consolidation has resulted in a monopsony wherein there are few buyers (in this case of provider’s services) and many sellers (again, in this case, providers).
The market is even more consolidated than the above statistic indicates; in 56% of the markets studies, one health plan has over 50% market share, and in one of five markets, a single health plan controls over 70% of the market.
This makes for a small group of companies controlling the buying and selling of health care; they have created a monopsony on the buying end and an oligopoly on the selling end.
What does this mean for you?
US health care may be devolving to a not-quite-single payer system; with three plans dominating the marketplace, providers have little control over selling their services, and health plan purchasers have few sources from whom to buy their health insurance.
The health care market does not lend itself to new entrants as barriers to entry are quite high. Provider contracts are required, and without market share, providers won’t give meaningful contracts. And without meaningful contracts, employers won’t sign up.
So new entrants are stuck in a Catch-22. The result – continued market consolidation, leading to fewer options for providers (sellers) and employers (buyers).
While the “market” may be working here, the result is likely unfavorable for both providers and employers. Wealth is indeed being created at the health plan level, but at the expense of their suppliers and customers.
The net is this. Is it acceptable to allow companies to exert this level of control over health care ?
Few managed care firms have enjoyed a run of financial success close to that experienced by United HealthGroup, and its executives have done remarkably in the process. But success can be a dangerous thing, as it appears UHG’s executive greed may have superceded good judgement. The latest is the ongoing drip drip of news about United Healthcare’s inappropriate executive stock options program continued today with the news that UHG may have to restate earnings to account for the practice of backdating stock options.
Executive stock options at United did not have specific dates for granting of options; the dates floated. The floating date in and of itself is not the issue; what could be problematic is the accusation that the option grant date was backdated to take advantage of movements in the underlying stock, thereby artificially inflating the value of the options.
And we aren’t talking a few bucks here and there. According to the Minneapolis Star-Tribune, United Chairman and CEO Bill “McGuire held options valued at $1.6 billion at the end of 2005; (COO Steve) Hemsley had options worth $663 million. Collectively, the 10 outside directors have cashed in options worth $159.2 million in the past five years.”
While we all admire capitalism and the wealth it creates, when the wealth-creation process is manipulated to generate fortunes for a few, that’s not quite so admirable. And, if this happens while the company itself is hammering its contracted providers for ever-lower reimbursement, that’s a PR problem writ large.
With United’s current status as one of the top three insurers in the nation (covering some 27 million members, or 9% of the national population) and the dominant player in many markets, it does have market power, and has never been shy about exercising same. But success appears to have bred contempt on the part of UHG’s executives for their fellow shareholders and contracted providers, an attitude that may come back to haunt UHG.
What does this mean for you?
Another example that hubris kills.
Marketplace, public radio’s daily business show, ran a short piece on Medicare Part D enrollment today, with comment by Bob Laszewski and I. Not sure how we ended up disagreeing; or if we were…
WIth the announcement that indicted Bureau of Workers Compensation investment manager Tom Noe is seeking to change his plea from not guilty, it appears that once again the scandal that won’t stop looks to be entering a new and evern more entertaining phase.
Noe, Republican fund raiser and rare coin industry advocate, “asked to change his not guilty pleas to federal charges of funneling money to President Bush’s re-election campaign.” (Akron Beacon-Journal, May 11, 2006) Now, don’t confuse this legal problem with one or more of Noe’s myriad other…difficulties (including the mystery of the disappearing coins; the where-did-Tom-Noe-get-the-money-to-buy-all-that-art-and-other-stuff question; the new allegations that Noe’s activities extended across the Atlantic to Spain where he was involved in stock price manipulations and company takoever shenanigans (?!); and his other potentially-illegal campaign contributions).
I’m surmising that Noe’s decision to change pleas involves some kind of deal wherein Noe will name names and cause yet more heartburn for dirty politicians in Ohio.
Who knew workers comp could be so entertaining?
Hat tip to Workers Comp Executive for the new news on Noe.
The California Health Care Foundation has published its annual Health Care Costs 101 report, providing a wealth of data on cost trends, cost drivers and health care funding sources. Here are a few highlights.
1. Health care costs in the US topped $2 trillion in 2005, over $6500 per person.
2. Hospital care accounted for 30% of the total, and physician and clinical services 21%.
3. The cost of drugs has gone from $20 per person in 1984 to $188 in 2004.
4. Governments fund 39%of health care spending with 22% from the feds and 17% state and local.
5. The overall health care inflation rate in 2004 was 7.9% . This marks the 24th consecutive year health care inflation has exceeded the overall inflation rate.
And the kicker – in 2015, health care costs will comprise 20% of US GDP.
