Category: Health Alerts

Kaiser Permanente’s Former Chairman Might Not Understand Why Healthcare Prices Are Different

A version of this Health Alert appeared at Forbes.

Consumer Reports has published an article demanding that we get “mad about the outrageous cost of health care.”

Hey, I’m all for that. The article goes through the usual list of subjects, e.g. $37.50 for a single Tylenol, having two or three MRI scans when one will do, etc. The article also asserts that “health care works nothing like other market transactions. As a consumer, you are a bystander to the real action…” I could not agree more. However, I was a taken aback by a statement from George Halvorson, the former Chairman of Kaiser Permanente:

“There is no such thing as a legitimate price for anything in health care,” says George Halvorson, former chairman of Kaiser Permanente, the giant health maintenance organization based in California. “Prices are made up depending on who the payer is.”

It is the last sentence that is so wrong that I thought it deserved a blog post, especially as it came from one of the most accomplished healthcare executives in the United States. Prices made up depending on “who the payer is” is not unique to health care. It is a characteristic of almost all markets.

In undergraduate economics classes, they teach the characteristics of a “perfectly competitive market.” One of those characteristics is that suppliers are price-takers. One apple vendor, more or less, will have no impact on the market, so one vendor entering or leaving the market will not change the price, especially as an apple is an undifferentiated commodity. This refers to the “law of one price.”

Haha Gotcha! Medical Pricing

By almost any measure, the U.S. health care system remains dysfunctional. If you apply some of its common practices to other industries, they sound ridiculous. Consider this hypothetical thought experiment. Suppose you made an appointment at a local dog kennel for them to keep your dog, Bowser, while you were on vacation. You asked if they could bathe and groom Bowser just prior to your return. As is standard practice, you probably had to sign a consent form agreeing to pay for the boarding and any additional fees insured. Maybe the grooming fees weren’t guaranteed ahead of time, but you were assured they were nominal and normal for the services. Among the forms you were asked to sign, there was some fine print that said should your dog become ill, the services of a veterinarian would be arranged at your expense.

During his stay Bowser seemed lethargic and a little anxious — and he wasn’t very interested in his food. Maybe you assumed this is normal for a dog left at a kennel for a week. But Doggie Spa & Canine Resort cannot take any chances. It called in a pet behavioral therapist to assess Bowser’s condition. The doggie shrink brought along a colleague for a second opinion. The pet behavior therapist recommended Bowser be walked twice a day to lift his spirits. However, another veterinarian — an orthopedist — had to assess Bowser’s gait to make sure he was healthy enough to be walked. A pet nutritionist analyzed Bowser’s diet and assessed his food intake. She sent a stool sample to a lab for analysis of food absorption. She ultimately decided that spoon-feeding Bowser might encourage him to eat.

Upon your return you pick up your dog expecting to pay for boarding, bathing and grooming. You know Bowser was well-taken care of, but the fees were much higher than expected. Within days of your return, itemized bills from vendors begin to arrive. The person who bathed your dog sent a separate bill from Doggie Spa’s bathing fee. A different bill from the person who applied the shampoo is in your stack of mail. Yet another bill arrives from the groomer. You discover the groomer also brought along an assistant groomer. She too submits a bill. The pet nutritionist and the lab both sent bills. A bill even arrived from another person who walked your dog twice a day while you were away. Spoon feeding Bowser twice a day for a week incurred 14 separate dietitian charges. Indeed, the pet behavioral therapist swung by Doggie Spa on his way home every night to make sure Bowser was doing OK — and you got charged for each visit. Worse, you discover some of the people who sent you a bill charged far, far more than the pet resort’s regular vendors. The on-call vendors called other vendors to assist. But these out-of-network vendors are not bound by Doggie Spa‘s standard rates, they can charge anything they want. You discover Doggie Spa actually encouraged these upcharges so it too could bill a separate facilities fees for them. Arranging for the dog activity therapist to assess your dog; that generated a separate charge for both the Doggie Spa and the dog walker.

The Return of Death Panels? Government-Funded End-of-Life Counselling is Morally Questionable

A version of this Health Alert appeared at Forbes.

Are death panels on the rebound? Obamacare envisioned Medicare paying physicians to discuss end-of-life-care with their patients. When this sparked fierce blowback from citizens who feared that “death panels” would ration care to elderly patients, the Administration backed off.

However, the American Medical Association (AMA) has been lobbying for the execution (pun intended) of this provision. The AMA is a business which profits from its monopoly over the billing codes that physicians use when they submit claims to Medicare. The more billing codes there are, the better it is for the AMA.

For patients, however, it is risky to allow the government to pay physicians to counsel us on end-of-life issues. There is another approach, but it is so emotionally challenging that it may be impossible to implement.

End-of-life planning is back on the radar screen because of a very thorough report just released by the Institute of Medicine (IoM). It comprises a wealth of information on the state of end-of-life planning in America today. Unfortunately, it contains a dangerous recommendation: Government-funded counseling.

At its best, end-of-life counseling would ensure that patients are well informed about the costs and benefits of intense medical intervention at the end of life. Although dissatisfied with where we stand today, the report notes progress: In the last two decades, palliative and hospice care has grown tremendously. By 2011, a majority of hospitals had palliative-care programs. Almost half of adults over 40 have an advanced-planning directive and have discussed care preferences with a loved one.

It would be great if that figure moved up towards 100 percent. Some private insurers have begun covering end-of-life counseling that leads to signing advanced-planning directives, paying between $50 and $350 to doctors for providing these services. The IoM report cites Aetna’s “concurrent care model”, used commercially and in Medicare Advantage, which assigns nursing-care managers with palliative expertise to patients with a prognosis of about twelve months. This led to more than doubling the use of palliative care (from 30 percent of cases to 70 percent) and significantly reduces costs.

Medicaid Spending Will Be More Than Advertised

According to the Centers for Medicare & Medicaid Services, spending on Medicaid, the jointly funded state-federal welfare program that provides health benefits to low-income people, increased 6.7 percent in 2013 to $449.5 billion. And it will keep growing at a fast rate:

Total Medicaid spending is projected to grow 12.8 percent in 2014 due to increased enrollment of nearly 8 million beneficiaries. Primarily driving the increase in enrollment are states that chose to expand coverage to adults up to 138 percent of the federal poverty level.

As some states are expected to expand their Medicaid programs after 2014, an additional 8.5 million people are expected to enroll in the program by 2016. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, Medicaid spending growth is projected to be 6.8 percent per year on average.

This comprises a massive increase in welfare dependency. I think it’s a low-ball estimate. The Office of the Inspector General of the U.S. Department of Health & Human Services has just released a Spotlight article on Medicaid, summarizing a decade of research on how states game the system to increase spending beyond that which the federal government anticipated.

The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example, the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. What politician can resist a deal like that?

Obamacare’s Second Open Enrollment Starts in Two Months — and It Is Going to be Awful

A version of this Health Alert appeared at Forbes.

If there is one thing that the Administration and Democratic candidates have in their favor going into the mid-term elections, it is that election day is November 4, and Obamacare’s second open enrollment begins on November 15. If the dates were flipped, there is little doubt that voters affected by Obamacare would wreak havoc on the politicians who imposed the Rube Goldberg contraption of exchanges on them.

Despite having just tossed another $60 million out the window “to help consumers navigate their health care coverage options in the Health Insurance Marketplace,” the Administration will likely face an even more bemused and disgruntled population of Obamacare “consumers” than it did the first time around.

Obamacare enrollment may already be below the 8.1 million trumpeted by the Administration after the first enrolment season legally closed on March 31 (although it actually closed sometime around the middle of April). Because there are special circumstances (for example, marriage, divorce, or moving to a new state) that allow people to change coverage outside enrollment season, that number has changed.

Unfortunately, the Administration has stopped reporting exchange enrollment, which it used to do monthly. The latest evidence, from Amanda Kowalski of Yale University and the Brookings Institution, is that 13.2 million people were covered in the individual market at the end of June, representing an increase of 4.2 million above the pre-Obamacare trend. This includes both on-exchange and off-exchange coverage.

Why Do Large Employers Want to Control Their Employees’ Health Benefits?

There is no doubt that large employers want to offer health benefits to their employees. It does not seem to bother them that each employee is not free to spend his own money on health insurance that suits his and his family’s needs.

The effect of Obamacare on these benefits has yet to be determined. At one extreme, an analyst at S&P Capital IQ concluded earlier this year that 90 percent of employees working at companies in the S&P 500 stock index would lose their employer-based health benefits by 2020. These are the largest companies in the United States.

Nevertheless, these employers continue to commit themselves resolutely to employer-based benefits. In the next few weeks, I will be a guest at two events where large employers will promote how important health benefits are to them. Tomorrow, the Bipartisan Policy Center will host a conference titled Building Better Health: Innovative Strategies from America’s Business Leaders – A Report from the CEO Council on Health and Innovation. Present will be the CEOs of Coca-Cola (Muhtar Kent), Verizon Communications (Lowell C. McAdam), and Bank of America (Brian T. Moynihan), among others.

In October, the Business Roundtable will host a conference which will promote its recent report, Driving Innovation in the Health Care Market Place. This 108-page report discusses evidence that large employers are successful at managing health costs. Much of the evidence promoted comes from so-called “wellness programs.” For example:

Through an innovative program called “Your Health Matters,” AT&T provides the resources and education to help participants grow from health awareness to health improvement. We strive to reduce the risk of chronic illness by increasing engagement with and adherence to clinical protocols.

Indian Patients Suffer from India’s Weak Pharmaceutical Patents

A version of this Health Alert appeared at Forbes.

India’s recently elected Prime Minister, Narendra Modi, will visit the United States later this month. One of the sticking points in the U.S.-India relationship is weakness in India’s laws governing intellectual property (IP). The Global Intellectual Property Center of the U.S. Chamber of Commerce ranks 25 countries in its Global IP Index, and India comes in last place. Indian growth will continue to lag as long as this persists, as researchers have demonstrated the positive relationship between IP protection and a country’s prosperity.

One of India’s weak spots is patent protection for new prescription drugs. New research also shows, counterintuitively, that this limits patients’ access to new medicines. Professors Ernst R. Berndt and Ian M. Cockburn analyzed the 184 new medicines approved by the U.S. Food and Drug Administration between 2000 and 2009. Shockingly, it took more than five years for half of those drugs to become available in India.

Ten years after being launched in the United States or elsewhere, almost one quarter of the new medicines were still not available in India. The authors also compared when the drugs were available in other developed countries. For example, in 2010, 160 of the new medicines were available in Germany, but only 111 were available in India.

Berndt and Cockburn conclude that India’s patent law is to blame for this long lag in access versus the United States and other countries. The authors found that half of the new medicines faced copycats within one year of launching in India, and 85 percent faced copycats within three years. In Germany, by contrast, none of the drugs faced copycats within five years.

Obamacare and Employment

The media cheered a report published by the Urban Institute and the Robert Wood Johnson Foundation, which asserts that Obamacare (“the ACA”) does not explain the high proportion of part-time workers:

This increase in part-time work is fully attributable to an increase in involuntary part-time work. The increase in involuntary part-time work, however, is not specific to the category of part-time work defined by the ACA (i.e., less than 30 hours per week), but applies to part-time work more broadly (also between 30 and 34 hours per week). Moreover, transitions between full-time and part-time work in 2014 are in line with historic patterns. These findings suggest that the increase in part-time work in 2014 is not ACA related, but more likely due to a slower than normal recovery of full-time jobs following the Great Recession.

Perhaps we should celebrate this conclusion from Obamacare’s supporters. Previously, some cheered the theory that Obamacare, which expands Medicaid eligibility and heavily subsidizes health insurance for middle income households, would lead people to voluntarily reduce their working hours. In 2010, then Speaker Nancy Pelosi encouraged people who wanted to be musicians, for example, to quit their jobs and focus on their (as yet undiscovered) talents, because taxpayers would underwrite their health coverage.

This approach was endorsed in the Congressional Budget Office’s conclusion that Obamacare would reduce employment by 1.5 percent in 2017 and 2.0 percent in 2024 (amounting to 2 million to 2.5 million jobs). As the CBO summarized its conclusion: “Also, the ACA’s subsidies effectively boost the income of recipients, which will lead some of them to decide they can work less and still maintain or improve their standard of living.”

“Interoperability” of Electronic Health Data Is a Unicorn

A version of this Health Alert appeared at Forbes.

Having spent $26 billion of taxpayers’ money since 2009 inducing hospitals and physicians to install electronic health records (EHRs), many champions of the effort are dismayed that the EHRs are not interoperable. That is, they cannot talk to each other — which was the whole point of subsidizing the effort.

All this money has achieved a process goal: There has been a significant uptake in EHR adoption. According to a recent review, the proportion of physicians who have at least a basic EHR has increased from under 22 percent to 48 percent. Doctors were motivated by the bounty offered, plus the threat of having reimbursements clawed back in 2015 if they did not adopt EHRs. The proportion of hospitals with EHRs has similarly increased from 12 percent to 44 percent.

But what do these EHRs do? What they do not do is talk to each other. According to the same review, “only 10 percent of ambulatory practices and 30 percent of hospitals were found to be participating in operational health information exchange efforts.”

All those billions of taxpayer dollars are paid out to providers who attest to “meaningful use” of EHRs. However, there are three stages of meaningful use.  Stage 1 was easy: Plug it in and turn it on. Stage 2 was originally supposed to be achieved by 2013, but that has been pushed back until 2016. The hang up is that Stage 2 has a high hurdle for interoperability.

According to the final rule published in September 2012, requirements include “the expectation that providers will electronically transmit patient care summaries with each other and with the patient to support transitions in care. Increasingly robust expectations for health information exchange in Stage 2 and Stage 3 would support the goal that information follows the patient.”

Despite the delay, providers are still complaining that the requirements are too demanding. According to Russell Branzell, president and CEO of the College of Healthcare Information Management Executives: “Now the very future of Meaningful Use is in question.”

Are Medicare Advantage Plans Overpaid and Corrupt?

Medicare Advantage consists of private plans in which Medicare beneficiaries can choose to enroll. They were made more popular by the Medicare Modernization Act of 2003, which also introduced Medicare’s drug benefit (Part D). If not for Medicare Advantage, beneficiaries would be stuck in the traditional Medicare Part A (physician) and Part B (hospital) plans, where the federal government determines how much to pay providers according to bureaucratic formulae. It’s sort of like Gosplan, the old Soviet economic pricing and planning mechanism.

To escape this fate, one third of Medicare beneficiaries now choose Medicare Advantage plans. Obamacare (“the ACA”) was supposed to squeeze those seniors out of their plans in order to finance Obamacare. However, when the time came, the Administration balked. Meghan McCarthy of Morning Consult explains this “Potomac Two-Step“:

The approach, two years in a row, has been that CMS issues a proposed rate in February with very tough reductions, a proposition that rallies insurers and members on both sides of the aisle to vehemently oppose the cuts. After much hand-wringing and commenting, the administration arrives at a much friendlier number in the final release.

Medicare Advantage plans are popular for a number of reasons. Most importantly, they provide better care than traditional Medicare. Joseph Newhouse and Thomas McGuire review this in an academic journal. It is ably summarized by Austin Frakt in the New York Times UpShot blog:

Medicare Advantage plans — private plans that serve as alternatives to the traditional, public program for those that qualify for it — underperform traditional Medicare in one respect: They cost 6 percent more.

But they outperform traditional Medicare in another way: They offer higher quality.