This is a little late but the folks over at Managed Care magazine had a nice start of year forecasting piece in their January edition which has several forecasts of the next five years.  Particularly interesting is Ken Abramowitz’s piece on why Consumer-Directed Health Care Won’t Fly. Abramovitz is no screaming lefty, in fact he works for the Carlyle Group, the defense group that’s also a home for George Bush, John Major and other right-wing refugees from the cold war. So why does he think Consumer-directed health plans will be a fad? He thinks that consumers won’t be able to figure out pricing and employers are the only groups who have a hope of negotiating properly with health plans.  I don’t share much of Abramowitz’s faith in employers but I do share his skepticism that the consumer market for health care services will be any more than a total zoo.

JD Klienke has some fun stuff to say about the consumer world and the continual crisis.  I like his last line:

Everyone will complain about the system’s myriad inefficiencies, and blame everybody else for its imminent collapse, and life will go on

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Hospitals that have been complaining that Medicare won’t let them discount to the uninsured have been told that by the Bush Administration they are wrong and that they can. Last year I wrote about how providers have been charging cash payers more than the insured’s wholesale price and that they come after you for the money.

In a related story, those hospitals who were chasing down patients and putting them in jail for non-payment are finding out that collecting on the "body attachments" will be very expensive. The WSJ reports:

In an unusual move that is sending shock waves across the hospital industry, Illinois authorities have revoked the tax-exempt status of a prominent Catholic hospital. Their decision follows a determination by local tax authorities that the hospital wasn’t a charitable institution, in part because of the way it treated needy patients.

As a result, Provena Covenant Medical Center, a hospital in Urbana with 270 licensed beds, will have to pay $1 million in property taxes, though the hospital says it plans to appeal. More worrisome to hospital-industry officials is the possibility that not-for-profit hospitals nationwide could find their tax-free status as charitable institutions challenged on similar grounds.

Last year at Bard Parker’s request I wrote some comments in his medical and Georgia Bulldog football blog A Chance to Cut to respond to his post about it. I basically said that the bad publicity would outweigh the benefits for these hospitals (scroll down to the very bottom of this page for my comments published over there). I’m obviously getting prophetic in my old age!

Ross at The Bloviator is on a high and rightly so!  He has great news about a new baby boy, and new job and a guaranteed lottery win (well maybe not the last one, but then he probably failed stats 101!)  Congrats, Ross!

Meanwhile Ross reminds me that even back in those dark days before there was a THCB, he was writing about the fact that the Medicaid games in his home state of Illinois were likely to draw the Federal scrutiny that the Wonk wrote about and the NY Times picked up on. And his last line has the question "if every state did this, would the Feds allow such maneuvers?". If we go to block grants the answer is clearly no.

While you may have thought that the New York Times was up on the news, the careful reader of THCB might have noticed that today’s story, titled U.S. Nears Clash With Governors on Medicaid Cost, shares exactly the theme of this post from Jones the Policy Wonk back in late December.

Both the NY Times and The Wonk believe that the Adminstration is gong to go after states that play games with their Medicaid accounting to increase Federal dollars into their Medicaid systems. The Wonk told us to pay attention to the appointment of Dennis Smith as CMS chief.  What was his quote in the NYT?

"The Medicaid program must be a federal-state partnership, not an exercise in financial gamesmanship," said Dennis G. Smith, the top federal official for Medicaid.

Now I actually agree that there shouldn’t be these accounting shell games, but the states do this because they are desperately short of cash to deal with their responsibilities and unlike the Feds, they can’t go into deficits for as long as the eye can see (although Arnie is trying!). They’re already cutting Meidcaid services and SCHIP (500,000 kids off those rolls in California and 300,000 in Texas according to JeanneScott). Now there’s a chance that there might be substantially more cuts as Medicaid moves to a block grant system–the adminstration’s end-game.

So I’m all for ending these games. But instead we should either be properly funding health care for the poor and vulnerable, as Medicaid is intended to do, or admit that we don’t want to and just give up on the program–as we have for 43 million citizens already. Oh well, I suppose we have to cut off these loopholes and stop running up the deficit for those Medicaid-types so that there’s enough for vital programs like tax cuts on dividends, missile defense, raiding medical marujiana co-ops, invading Iraq, subsidizing millionaire cotton farmers, giving the airwaves to media corporations for free homeland security.

UPDATE: It appears that the noises from HHS & the White House are having the impact expected amongst the Republicans in Congress. Modern Healthcare reports late today that Tenet’s best friend Senator Grassley is on the case

While Grassley may have a point about the consultants and the games they play, do you think he’d be quite so agressive if Medicaid was a subsidy program for rural hospitals that produced ethanol?

I came across this article from Jeff Lemieux who used to be the head staffer for the Commission on the Future of Medicare under Breaux and Thomas.  (The commission never went anywhere, but that surely wasn’t his fault).  The article is called The Curious, Counter-Intuitive Relationship Between Medicare Costs and HMO Enrollment and basically says that the more Medicare recipients joined HMOs the lower overall Medicare spending went, and that the relationship was partially causal.  When I first skimmed it I wanted to throw something at the computer screen.  But now I’m not so sure.  Take a look at it and I’ll give more comments in an update later in the morning.  It’s very relevant given PDIMA’s passage last year.

UPDATE:  OK, the site appears to be back up after an unexplained hosting glitch on Friday, so here goes for my take on this piece. 

Lemieux makes two major arguments. (Please read his piece if you can as this precis doesn’t do it justice) and they are well argued and (probably) empirically unprovable as the regression analysis equation required to figure out what caused what would be damn long. Lemieux himself says that there was so much going on that it’s hard to parse out.

First, he says that political pressure from conservative Republicans trumpeting Medicare HMOs as a solution to all the ills of the Medicare program caused liberal Medicare officials to subtly cut spending in response to show that the mainstream Medicare program could cut costs too.  He says that this attack on spending started in advance of the Balanced Budget Act (BBA) in 1997 that specifically went after hospital spending in Medicare and caused overall Medicare costs to actually decrease for a brief period of about 18 months. So his argument is that more Medicare recipients going into HMOs will cause the FFS Medicare program to innovate and compete by cutting its own costs.

Second, he says that the accepted wisdom that the Medicare Risk HMOs only recruited healthy seniors was wrong because if that had been the case, the increase in average cost of those staying behind in the Medicare program plus the 95% of average cost doled out to the Medicare HMOs as premium should have been reflected in an increase in the overall cost of the program. But instead at the time when Medicare HMO growth was at its height Medicare costs increases headed down not up. (I hope you’re following)

Both of these arguments may have some grain of truth in them, but equally both can be refuted.  For example, a significant amount of the reduction in Medicare cost growth came as the home health care program was frozen in place in the mid-1990s because of the massive amount of fraud in it.  Now that fraud had been going on for the better part of a decade (and was partly to do with laundering drug-trade profits in Florida).  Why did Medicare fraud become such a big deal?  Ed Hughes used to give a talk in which he said the reason was that all the FBI agents who had been assigned to chasing Russian spies in the cold war found themselves in 1992 with nothing to do, and so they seized on health care fraud as the next big boom area for their services. (If you think that’s far fetched consider that the FBI was a main mover behind the banning and demonization of Marijuana in 1937 after their work chasing bootleggers ended with the repeal of Prohibition).  So given that since 9-11 the FBI has got other stuff on its mind perhaps the increase in Medicare costs since then reflects that all the fraudsters who’d stopped taking it to Medicare in the mid-1990s are now back.

Is that the real answer? Almost certainly not, but there are several other factors and there’s actually been some real research on a related topic by Lauren Baker at Stanford. Baker found that from 1990-4 in areas where there was growing HMO penetration (which tended to be in the same places where there was highest Medicare HMO penetration too), overall health care utilization in the Medicare program fell slightly.

The standard interpretation of this is that physicians can only practice one style of medicine at a time. So when enough managed care comes to town–meaning the number of HMO patients goes from 10% to 20% or higher–they start practicing more conservatively with all their patients including those in Medicare FFS. So you could argue that Lemieux is right about HMOs causing a decline in Medicare FFS costs, but it’s all HMOs not just Medicare ones, which never got above 15% of the Medicare population and only got above 30% of the Medicare population in a few big cities, mainly in the West.

Lemieux’s other analysis is that the notion that only healthy Medicare recipients were going into HMOs was false.  The GAO report on this used data from the early 1990s.  Well it was pretty true then, hence the profits of HMOs like Pacificare that specialized in Medicare HMOs–reflected here in its stock price versus the S&P index–went up very fast until the growth in Medicare HMO enrollment slowed after 1996. After that they started getting to saturation in the markets where they were strongest out in the west, which meant that their mix probably did look like the overall Medicare populations. Their remaining growth was in the big cities in the East where Medicare payments were much higher and for a while the HMOs could still make money by hammering the hospitals on price and admission rates.

However, even if the HMOs were not recruiting healthier people, claiming that risk selection in Medicare HMO recruitment had anything to do with the overall costs of Medicare is a big stretch.  Don’t forget that Medicare spends 50% of its money on 10% of its people and 80% on 20%.  And the numbers in HMO’s never got much beyond 15% of the whole Medicare population.  My guess is that the vast majority of very expensive cases got treated the same way in both FFS and HMOs, as the costs of the really expensive cases were probably re-insured out by the Medicare HMOs, and they never had a sufficient number of the really expensive ones to try to change what happened with their care.

So what was happening with the care of the expensive folks?  Well costs went up much faster for Medicare than in the private sector in the early 1990s because it took HCFA longer than the private sector to figure out that they could beat their suppliers down on price.  The employers and HMOs figured it out in 1993-4, HCFA didn’t start being so aggressive until 1996 and really not until the BBA cuts took effect in 1997-8–hence the sharp fall in Medicare cost growth in 1997-9 as shown in Lemieux’s chart. By then of course the AHA got their people in Congress to adjust the rates, first on the side issues like rehabilitation care, and then overall.  At the same time America’s hospitals were merging like crazy to gain market share to enable them to raise prices to the private sector, while the HMOs were being beaten up in the court of public opinion, and gave up trying to cut expenditures. Of course drug costs (which as you know if you’ve been awake in the last 2 years) are not covered by FFS Medicare were going up like a rocket and were a big part of making Medicare HMOs’ margins shrink, which is one reason that their enrollment stopped growing as they often stopped offering cheap or free drug coverage. Not surprisingly they found that their members left in response.

So the artificial price controls of HCFA didn’t last long, and the artificial price controls of HMOs didn’t either.  And when market power switches back to suppliers, costs go up fast. Public costs and private costs take turns in going up fastest–but they all go up in the end. That’s the same pattern that Uwe Rheinhardt has been talking about in his core speech for years. My contention is that the Medicare HMO issue is somewhat irrelevant to the overall expansion of Medicare costs, and will stay that way for some time.

However, Lemieux is a supporter of innovation in Medicare and so am I.  He thinks that a combination of private plan innovations and mainstream response to that innovation will create the chronic care management, improved patient care and process innovation that I think we both agree is necessary to change the program. To that end he’s arguing that Medicare HMOs and other private plans will over the long run save costs. 

He may be right and they may be the best source of innovation but I think what he’s missing is the real reason that lefty Democrats are so opposed to the private sector expansion into Medicare. They are all decrying the privitization of Medicare, but I don’t think that’s the real problem.

The real issue for the future of Medicare is whether it will be defined benefit or a defined contribution.  As the AAHP’s own propaganda survey shows more money from the government means a higher "contribution", and hence the ability of the private plan to offer more at a lower premium cost to the senior. The real fear of the those in the left who care about equity isn’t so much that the private plans themselves will destroy Medicare or not provide promised services, or even that the people left in FFS Medicare will really be that much more expensive.  Scratch them very hard and you’ll see that their real concern is that once a large number of seniors are in a private plan and there’s a widespread acceptance of a voucher-type defined contribution system, at that point, defined contribution could be mandated. Then the mainstream plan will just become another option where the senior can spend their voucher. And of course the "contribution" from the government will be means tested as of 2006 anyway (rich seniors will be getting less of a "contribution" to Part B premiums after then).

That’s when things get really worrying, as the voucher now becomes a form of government welfare, and of course that can be cut if things get tough on the budget side.  So eventually it’s not impossible to foresee a time when the Medicare recipient gets a voucher that can only buy the overloaded public FFS plan, or a bare-bones private plan.  And of course the better-off seniors can trade up with their own money to a better class of plan.  That’s the nightmare scenario for the Democrats, and it’s hard to see  a way to definitively avoid that happening in the current legislation.

To paraphrase a concept Lemieux introduces elsewhere, we shouldn’t be focusing on whether the public sector MacDonalds or the private sector Burger King makes a better cheeseburger unless we’re damn sure that the senior of the future will be able to eat in the same resturant as everyone else and won’t be abandoned outside on the sidewalk as many were before 1965–and as the uninsured are now.

Everything you ever wanted to know about the US system is buried in this article in the NY times article called Whose Problem Is Health Care?. The interesting core paragraphs tell you that

After corporate income taxes, employee benefits are the second-largest structural cost for American manufacturers, adding 5.8 percent to costs, according to the study. In all major economies, paying for health care means a combination of public and private money. But in the United States, businesses pay a larger chunk than do their European and Asian counterparts.

"In Canada, for example, a lot of the expenditures for health are funded out of general revenues," said Jeremy Leonard, an economic consultant for the Manufacturers Alliance, and the report’s main author. In Canada, the private sector spends 2.8 percent of gross domestic product on health care; in the United States, the private-sector figure is 7.7 percent. And American private-sector spending falls disproportionately on big employers like manufacturers. Some 97 percent of members of the National Association of Manufacturers provide health care coverage for employees. In 2002 alone, General Motors, which covers 1.2 million Americans, spent $4.5 billion on health care.

Uwe Reinhardt, an economist at Princeton, has referred to General Motors, Ford and Daimler-Chrysler as "a social insurance system that sells cars to finance itself.”

And as Uwe knows, the US government is a mutual insurance company with large military wing struggling with its debt repayment package.

All the other salient facts are that over 95% of companies with more than 200 workers provide health insurance, and only 65% of those under 200 employees do.  And those that do not are the ones paying low wages (i.e. it’s not the law firms or boutique investment banks). So that’s where uninsurance comes from and why 85% of the unisured are the working poor.

The other side of the story is that the US private sector spends 7.7% of GDP on health care. (I think that’s the same as saying that of the GDP, 7.7% goes on health care that is privately funded).  If I recall it rightly some 15% of private sector payroll goes on health care costs. But the overall issue is that although costs are a big deal for employers, they are not the biggest deal and are a realtive low percentage of total expenditures. Contrast that with the role of the health minister in most European countries.  His or her health care bottom line is 100% of what s/he cares about, and also has to be defended from both other government departments and the central treasury in governments that budget centrally, not at the whim of a parliament that can create programs without caring about the overall government budget (as does the US Congress). Hence, no-one in the US is responsible for overall health care costs.

This is not in itself good or bad.  It’s just different, and certain parties, such as large employers, the uninsured and anyone buying their own health insurance, do way worse than they would in a system that didn’t rely on employment-based insurance and had some central cost control.  But don’t worry, if you’re reading this and you don’t fit into that category–perhaps because you work in the health system–it probably means that you’re doing better than you would in one of those nasty single payer countries!

Over at Medpundit, Sydney Smith quotes the WSJ on health care cost breakdowns and argues that HSAs will allow market intervention in the share of spending that goes to doctors and pharmaceuticals, and will bring both that spending under control and enforce market discipline on the providers to give us stuff we want.  The WSJ thinks that what the consumer wants is flash computer-based customer service and they may well be right. There are though a couple of problems with this, and it takes a nerdy wonk like me to point them out. First, it’s unclear exactly what the HSA can be used to pay for (OTC drugs? I doubt it; off formulary drugs? Maybe not in Medicare) so there’ll be less of a market in which it can enforce its discipline than might be suspected. Second, about half of physician costs are connected to other costs that involve hospital stays and surgery–in other words they happen after the deductible has already been blown and the HSA spent, and we’re not talking about 33% of spending but more like 20-odd % of the "market" being "managed" by these new HSA bearing consumers–and that’s assuming that everyone gets one.  The real issue as George Halvorson points out and Milton Friedman despite his many intelligent view points gets wrong is that almost 70% of the money goes on 10% of the people.  That’s where the costs need to be controlled, and there’s nothing in the HSA that can possibly do anything about that.

Now from the other side of my mouth, here’s why I’m getting one.  I pay my own insurance and I have medical expenses that don’t reach my deductible and I’d love to pay those in pre-tax versus post-tax dollars. So for people like me, they’ll grow as a niche insurance product. But I’m only 8% of the market.  64% are in employer-based insurance and they’re beginning to flirt with consumer-directed health plans. Some of these consumer-directed health plans give  money to the employees to put in their HSA. Once employers figure out that giving real money to employees for their HSA’s means taking it away from their self-insurance pool, they’ll either find the next trendy product OR reduce markedly the amount they give so that it is way less than the deductible.  At that point all but the healthiest employees will move back to a more comprehensive plan.

Meanwhile Sydney will have to figure out why she’s creating a understandable consumer price list–and that’s not simply printing out the CPT codes– just for the 10% of patients walking into her office who are now paying with pre-tax but real dollars. My advice is to her is to mark those prices up!

You might note that today in the UK the Hutton report on the Blair government, Iraq and "sexing up" was released. More on that later (although it exonerates the UK government from the "sexing up" allegation).

Over at The Businessword Don, Ross and I have been having an interesting back and forth in these comments regarding the uninsurance issue. In a nutshell, if you want a universal insurance system, in some way those who are working and have decent insurance will have to subsidize those who are working and don’t, as they make up 75% of the uninsured. Don, Ross and I agree on that, but disagree about whether we should do it and also how we should do it.  But that is the rational place to start.  We also agree that it’s not a situation that will change any time soon, and that it’s an important part of health care that deserves regular comment. As Limbaugh might say, that, my friends, is an honest platform for debate. But remember that not everything you read in the health care world is quite as honest.

In my in-box today I got a very curious missive from the Foundation for Health Coverage Education a new organization that I’d never heard of (and I tend to follow Foundations in California out of egregious self-interest!).  But OK, these folks say they want to promote education about the many federal and state health care coverage programs in California, which all sounds very worthy, and they have a press release about their new online tool that does that. Wa-hoozlle! 

However, on slightly closer reading I noticed that this Foundation is run by an insurance broker:

So I’m already a little suspicious, and then it continues

The Foundation claims that 90% of bills incurred by the uninsured are eventually paid off, and therefore forcing them to buy insurance would deprive them of the ability to buy housing, cars, food etc.  This is indeed beautiful voodoo economics.

So half the uninsured are voluntarily uninsured? Lebherz may not have noticed but the public programs that he thinks are just waiting to take in 3 million Californians have no money–all over the country they are cutting rolls rather than adding to them. Has he heard of our little budget problem and the consequent Medi-Cal cuts?

As for the rest, well the numbers are pretty dubious.  According to Kaiser Family Foundation 64% of the nation’s uninsured come from households with incomes less that 200% of poverty (~$26,000) (go to page 8 in the link for more), and only 19% make 300% or more, which equates to about $39,000.  Somehow in the Lebherz analysis this equates to 35% of uninsured Californians are in households making more than $50,000. But even if that’s right a good chunk of these folks would love to have health insurance but cannot find affordable insurance in the individual market. As I’ve posted before, I know because I’ve tried as have my friends–and I think that paying $4,000 to $12,000 a year for health insurance coverage with a $2,000 deductible and many exclusions is not realistic for many households even those with incomes more than $50,000 a year.

The problem is of course twofold. 1) We end up with very little contribution into the insurance pool from the uninsured, and it’s clear that they could probably come up with at least half of the balance required for the nation to get to universal coverage. And 2) more importantly from the point of view of the safety net system, dealing with the uninsured is a hugely inefficient financial train wreck.

However, the real point of this new "Foundation" is that no rational system would need a huge amount of waste motion otherwise know as the health insurance brokerage market–so any attempt to sell the current system as being "not in any real trouble" is all Lebherz and his ilk care about. So you can just lie and keep repeating the lies and maybe someone will believe you, or as in the UK focus on the irrelevance of whether a single claim was "sexed-up" or not. Oh yes and there really were WMDs, WMD programs, Al-Quaeda terrorists, a bad guy called Saddam in Iraq, and health care’s getting more and more like foreign policy everyday