September 2009

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Physicians Prefer a Mixed Public-Private Healthcare System

September 15, 2009 in Current Events, Supply of Medical Services | No comments

The NEJM recently reported on physician views about the public option and the possible expansion of Medicare.  It turns out, most physicians favor the status quo of a mix of public and private financing.  

Why would doctors support a public plan? It could be ideological. They may simply believe that more government health insurance would make society more equitable. Or they may believe that they can receive more money from government reimbursement than hard-bargaining private companies. Or it could be that dealing billing rules from multiple private insurance companies is much worse than dealing with billing issues from Medicare.

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Obama v. Nixon

September 14, 2009 in Current Events, Public Policy | 8 comments

In 2009, President Barack Obama addressed the nation calling for healthcare reform.  In 1974, President Richard Nixon also addressed the nation calling for healthcare reform.  Let us analyze Nixon’s speech and compare it to Obama’s.

  • “Today the need [for reform] is even more pressing because of the higher costs of medical care.”  Obama echoes this sentiment. 
  • “…the 25 million Americans who remain uninsured.”  Nixon hoped to expand coverage for the 25 million Americans who, in 1974 who did not have health insurance.  He planned to do this using with the creation of “Assisted Health Insurance, covering low-income persons.”  In 2009, there are 46 million uninsured Americans.  Obama also proposes using tax credits to help poor and middle class individuals afford private insurance.  Obama also proposes a public option.
  • “Americans who do carry health insurance often lack coverage which is balanced, comprehensive and fully protective.”  Health insurance was originally created as protection against serious illnesses and hospital stays.  Routine physician visits were not covered.  This often meant that check-up and preventive care was not covered and Nixon wanted to expand the scope of insurance coverage.  In the present day, most individuals who have insurance have relatively comprehensive health insurance.  In fact, as a reaction to the expanding scope of present day health insurance, Republicans support HSAs which use high deductibles to transfer more of the cost of care towards the individual patient.
  • Comprehensive Health Insurance Plan (CHIP).  This was Nixon’s solution to the problem that many individuals who had insurance had only partial insurance.  It basically expands the scope of insurance coverage. In the present day, most individuals who do have insurance have relatively comprehensive coverage.
  • “Third, it builds on the strength and diversity of our existing public and private systems of health financing and harmonizes them into an overall system.”  Nixon’s CHIP plan aims to provide subsidies for health insurance and aims to reform health care, but will not overhaul the system (à la a single payer system or the elimination of Medicare in exchange for all private insurance).  Obama’s currently proposes reforms to the current system that also builds on the existing healthcare infrastructure.
  • “Fourth, it uses public funds only where needed and requires no new Federal taxes.”  Nixon claims that his plan will not use any new taxes.  Obama did not claim he would not raise taxes, but did assert that “I will not sign a plan that adds one dime to our deficits.”  However, the government’s spending on health care as a share of GDP has accelerated over time.  This was true in Nixon’s time, is true now, and most expert believe it will continue into the future.
  • “Sixth, it encourages more effective use of our health care resources.”  Obama wants to “eliminate is the hundreds of billions of dollars in waste and fraud” as well as “create an independent commission of doctors and medical experts charged with identifying more waste in the years ahead.”  More effective use of health care resources was, is and will continue to be a laudable goal; actually realizing these efficiency gains in practice, however, is more difficult.
  • “No family would ever have annual out-of-pocket expenses for covered health services in excess of $1,500, and low-income families would face substantially smaller expenses.”  Nixon planned a cap on patient annual out-of-pocket costs.  Currently, Nixon’s proposal has become commonplace.  Most group health insurance plans offer an out-of-pocket cap as does Medicare and Medicaid.  However, for non-group health insurance, these caps are often not available.  Obama proposed that health insurance companies “…will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or a lifetime.”
  • “Medicare, however, does not cover outpatient drugs, nor does it limit total out-of-pocket costs.”  Nixon believed that Medicare should cover drug costs and limit out-of-pocket costs.  Medicare does limit out-of-pocket costs and, with the creation of Medicare Part D, most prescription drug costs are covered for seniors. 
  • COST: “the total new costs…would be about $6.9 billion.”  Obama’s plan would cost “$900 billion over ten years.” 
  • Nixon wanted to “increase the supply of physicians.”  Nixon believed that increasing the supply of physicians will drive down costs as competition increases.  With patient paying less and less money out of pocket, this may no longer hold.  If supplier-induced demand exists, an increase in the supply of physicians will increase demand and costs and not necessarily decrease prices.  Obama did not discuss physician shortages in his speech.  
  • “On December 29, 1973, I signed into law legislation designed to stimulate, through Federal aid, the establishment of prepaid comprehensive care organizations.”  HMOs now control a significant portion of the health insurance market.
  • “I also contemplate in my proposal a provision that would place health services provided under CHIP under the review of Professional Standards Review Organizations. These PSRO’s would be charged with maintaining high standards of care and reducing needless hospitalization.“ This is similar to Obama’s “independent commission of doctors and medical experts charged with identifying more waste in the years ahead.”

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Links

September 11, 2009 in Current Events | No comments

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Why is healthcare so expensive?

September 11, 2009 in Economics - General | 3 comments

Why is medical care so expensive? It depends on who you ask. Victor Fuchs (1996) polled 46 health economists, 44 economic theorists and 42 practicing physicians. Fuchs asked if they agreed with the following statement: “The primary reason for the increase in the health sector’s share of GDP over the past 30 years is technological change in medicine.”

  • Health Economists: 81% agree,
  • Practicing Physicians: 68% agree,
  • Economic Theorists: 37% agree.

Is technological change the force driving increased health care costs? It depends who you ask.

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A Critque of the Republican Response to Obama’s Health Care Speech

September 10, 2009 in Current Events, Public Policy | 3 comments

Today, I will review the Republican Response to President Obama’s health care reform speech. To sum up, Republicans propse:

  • malpractice reform (likely damage caps)
  • allowing individuals to buy health insurance across state lines,
  • allowing small businesses and individuals to pool together (not the same as creating a health insurance exchange),
  • refundable tax credits for low- and modest-income Americans, and
  • no public option/co-op.

Below are some highlights from the speech [with my comments in brackets].

“Good evening. I’m Dr. Charles Boustany…” [read: Because I'm a doctor, you can trust me...right? Here's a profile on Boustany.]

it’s time to start over on a common-sense, bipartisan plan focused on lowering the cost of health care while improving quality. [Who doesn't want high quality at lower cost? The difficulty is to actually implement a plan that will accomplish this.]

Replacing your family’s current health care with government-run health care is not the answer. In fact, it will make health care much more expensive. [Generally, the government has not done a good job of containing costs. On the other hand, neither has private health insurance. ]

And it cuts Medicare by $500 billion, while doing virtually nothing to make the program better for our seniors. The president had a chance, tonight, to take the government-run health care off the table. Unfortunately, he didn’t do it. [Obama says, "I will protect Medicare," with exception of cuts where waste and fraud occur. The Republicans claim Obama will decrease Medicare funding significantly. I am not sure which is the truth. However, these two sentences make the Republican stance confusing. They say don't cut Medicare, but "take government-run health care off the table." Medicare is government-run health care! If Republicans were truly against government health care, they would oppose Medicare and try to replace it with vouchers or some other system. ]

One, all individuals should have access to coverage regardless of pre-existing conditions. [This is one area where Obama and the Republicans agree.]

Two, individuals, small businesses and other groups should be able to join together to get health insurance at lower prices, the same way large businesses and labor unions do. [I don't see much of a proposal here. Currently, small businesses and individuals can group together to buy insurance. However, these pools often don't work well because the sickest individuals and small businesses with sick employees are the ones who most want to join these groups. This is known as the problem of adverse selection. If premiums rise in these pools as healthier individuals drop out, this results in a death spiral. Republicans do not seem to be advocating a health insurance exchange as Obama proposed, only not to make it illegal for individuals and small business to group together--which they can do already.]

Three, we can provide assistance to those who still cannot access a doctor. [According to a recent Republican proposal, this would entail making health insurance tax-deductible even if it is purchased through a nongroup plan and creating refundable tax credits for low- and modest-income Americans. ]

And four, insurers should be able to offer incentives for wellness care and prevention. [This is not a real proposal; insurers currently are able to offer incentives for wellness care and prevention.]

We need to establish tough liability reform standards, encourage speedy resolution of claims, and deter junk lawsuits that drive up the cost of care. [As I mentioned in my previous post, the claims won in malpractice suits are not the cause of high health care costs; many patients are seriously injured by medical errors and deserve compensation. However, the defensive medicine many doctors practice to avoid lawsuits, does lead to unnecessary tests and drives up costs]

Let’s also talk about letting families and businesses buy insurance across state lines. [This sounds like a good idea. Individuals should be able to purchase whatever type of health insurance they please. However, this basically would mean that the federal government, and not states, would be the regulator of health insurance. This may increase industry-wide consolidation, but may increase competition in areas with a single dominant insurer. Still, if distant insurance companies do not have contracts with local doctors, this legislation will have little impact on the quality of care.]

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Obama’s Health Care Speech Critique

September 9, 2009 in Current Events, Public Policy | 15 comments

Today, President Obama made a speech calling for healthcare reform. To sum up, Obama is proposing:

  • creating a health insurance exchange,
  • an individual mandate,
  • guaranteed renewability of health insurance,
  • subsidies for individuals and small businesses to purchase insurance, and
  • public option/co-op.

Below are some highlights from the speech [with my comments in brackets].

So tonight, I return to speak to all of you about an issue that is central to that future – and that is the issue of health care. [It's about time.]

Everyone understands the extraordinary hardships that are placed on the uninsured, who live every day just one accident or illness away from bankruptcy… These are middle-class Americans. [This is true. The poorest Americans--excluding illegal immigrants--receive health care coverage from Medicaid and thus are need not worry about health care coverage. The quality of Medicaid coverage is always up for debate, however. The middle-class, the self-employed, those who work for small firms are the ones least likely to have insurance.]

Many other Americans who are willing and able to pay are still denied insurance due to previous illnesses or conditions that insurance companies decide are too risky or expensive to cover. [This is one of the major problems with the current health insurance system. There is insurance for acute illnesses (e.g., a broken arm, a car accident), but those with chronic conditions face higher insurance premiums or may be dropped completely. What is needed may be health status insurance.]

We are the only advanced democracy on Earth – the only wealthy nation – that allows such hardships for millions of its people. [One must keep in mind that although health insurance is important, it is only a means to an end. That end is better health. Reducing illness rates through public health initiatives, clean water, better sewage disposal, better eating habits, and exercise may be more beneficial to improving health than simply expanding health insurance. Further, would giving all Americans low quality health insurance be better or worse than having some individuals with high quality insurance and others with none? Nevertheless, it is true that the U.S. has the highest rate of uninsurance in the developed world.]

More and more Americans worry that if you move, lose your job, or change your job, you’ll lose your health insurance too. [This is the problem of job lock and job stretch]

We spend one-and-a-half times more per person on health care than any other country, but we aren’t any healthier for it. [The U.S. spends 15.3% of GDP on health care. Here are medical spending rates for other nations.]

…those of us with health insurance are also paying a hidden and growing tax for those without it – about $1000 per year that pays for somebody else’s emergency room and charitable care. [This is true, but insured individuals overuse the emergency room more than the uninsured.]

Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid. [Medicare's trust fund will run out of money in 2017. ] …Put simply, our health care problem is our deficit problem. Nothing else even comes close. [True.]

I believe it makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch. [That's what the U.K. did when they developed their single-payer NHS.]

First, if you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. [Although one should build on the existing health insurance infrastructure, the Obama plan does little to improve the existing government health insurance options. Since 16% of Americans already rely on the government for health insurance, reforming these programs is imperative.]

…it will be against the law for insurance companies to deny you coverage because of a pre-existing condition. As soon as I sign this bill, it will be against the law for insurance companies to drop your coverage when you get sick or water it down when you need it most. [Disallowing insurance companies to drop individuals with pre-existing conditions will do either one of two things. If insurance companies can raise prices, individuals with pre-existing conditions will simply face extremely high premiums. If insurance companies are not allowed to raise premiums, the premiums for healthier enrollees will have to cover this additional cost. Further, insurance companies may still have an incentive to provide poor treatment. For instance, the insurance company with the best AIDS clinic may get expensive AIDS patients. Thus, insurance companies may have a disincentive to provide high quality treatment to the sick. Additional commentary is available here. Risk-adjustment subsidies as practiced in Switzerland is one option to solve this problem. ]

And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies [Most already do.]

…creating a new insurance exchange – a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices. [I am not exactly sure how insurance exchange would work. Would insurance companies give on flat premium for all individuals? Would premiums be based on age? Gender? Smoking habits? Pre-existing conditions?]

For those individuals and small businesses who still cannot afford the lower-priced insurance available in the exchange, we will provide tax credits, the size of which will be based on your need. [This is what John McCain advocated. However, instead of vouchers for all, tax subsidies will be available to middle class Americans without employer provided health insurance. A voucher system, where all individuals would receive an amount to use towards insurance based on income has been popular among many economists.]

That’s why under my plan, individuals will be required to carry basic health insurance. [An individual mandate. See my previous comments here, here and here.]

My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. [Even in the private market for health insurance, there is little competition.]

…making a not-for-profit public option available in the insurance exchange [see my comments here.  In general, those who support a public option point to the European and Canadian systems and cite how much more efficient these systems are than the U.S. Those who oppose a public option point to the European and Canadian systems and cite how much more inefficient these systems are than the U.S.  A public option could improve health care quality if it is well-run and is fiscally sustainable over the long run (e.g., Veterans Affairs). However, if it provides poor quality of care (e.g., Medicaid) and is fiscally unsustainable (e.g., Medicare), than the public option will not improve the American health care system.

...private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. [This is likely true in the short run. The government could fairly price health insurance and compete with private insurance. However, if the public option become most attractive for the sickest, poorest individuals, the average cost to cover beneficiaries will rise relative to the costs of private insurance companies. Then the government will be faced with a choice: either price health insurance more in line with individual or group risk (i.e,. raise premiums) or use tax dollars to subsidize care. If they did the former, the public plan would be little different than a private insurer. If they do the latter, the public plan would receive a subsidy. ]

First, I will not sign a plan that adds one dime to our deficits – either now or in the future [read: I will increase taxes. That is the only way to pay for the small business/individual subsidies proposed]

Second, we’ve estimated that most of this plan can be paid for by finding savings within the existing health care system [Every politician mentions this, but few can achieve it. We'll see how well Obama does, but I am skeptical.]

…unwarranted subsidies in Medicare that go to insurance companies. [read: payments for Medicare Advantage will decrease.]

I don’t believe malpractice reform is a silver bullet, but I have talked to enough doctors to know that defensive medicine may be contributing to unnecessary costs. [I am not sure what the exact proposal is...damage caps? The claims won in malpractice suits are not the cause of high health care costs; many patients are seriously injured by medical errors and deserve compensation. However, the defensive medicine many doctors practice to avoid lawsuits, does lead to unnecessary tests and drives up costs]

Add it all up, and the plan I’m proposing will cost around $900 billion over ten years – less than we have spent on the Iraq and Afghanistan wars [read: this plan is really expensive but, hey, it costs less than than two wars put together.]

“What we face,” [Ted Kennedy] wrote, “is above all a moral issue; at stake are not just the details of policy, but fundamental principles of social justice and the character of our country.” [read: Ted Kennedy supported my plan if you don't like it you're trampling on his grave.]

I understand that the politically safe move would be to kick the can further down the road – to defer reform one more year, or one more election, or one more term. [This is 100% true. Obama the politician should just do nothing and let Medicare run out of money and let the next politician deal with the crisis. Obama the statesman has decided use his office to enact these reforms. Whether or not you agree with Obama's plan, it is admirable for him to go out on a limb to attempt to solve our some of our health care problems. He does, however, "defer reform" for Medicare, since no significant changes to benefit packages or funding was proposed.]

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Obama will not insist on a public option

September 9, 2009 in Current Events | No comments

The N.Y. Times reports that President Obama will not insist that a public option be part of any health reform package. You can watch the full speech tonight at 8pm ET live online here. Or for those of you (like me) who prefer the written word, you can always read the speech transcripts available later tonight.  Here’s a list of what to look for in Obama’s speech.

The Economist reports on Obama and the online media. Market Sentinel report shows the 94 most influential online sites and whether or not they favor Obama’s proposal. [Note: The Healthcare Economist is one of these top 94 sites].

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Medicare Reimbursement Information VI

September 9, 2009 in Medicaid/Medicare | 1 comment

The Medicare Reimbursement series continues with today’s focus on outpatient care. The sources of this information is MedPAC’s Payment Basics.

Outpatient Hospital Services

  • Outpatient hospital procedures range from injections to complex surgical procedures that require anesthesia. Outpatient hospital care accounted for $19 billion of total Medicare spending in 2007.
  • Currently, outpatient hospital reimbursement is based on the outpatient prospective payment system (OPPS); similar to the PPS for inpatient hospital care. Originally, outpatient hospital reimbursement was based on hospital cost. Under this system, copayments for outpatient care were about 50% of cost. Under the OPPS, copayments are declining each year as a share of total OPPS payments until they reach 20 percent. OPPS pays providers based on HCPCS coding, specifically the ambulatory payment classifications (APCs).
  • Congress has legislated permanent hold-harmless status to cancer and children’s hospitals. In addition, beginning in 2006 rural sole community hospitals (SCHs) receive an additional 7.1 percent above standard payment rates on all OPPS services except drugs and biologicals.
  • CMS assigns some new services to “new technology” APCs based only on similarity of resource use. CMS chose to establish new technology APCs because some services were too new to be represented in the data the agency used to develop the initial payment rates for the OPPS. Services remain in these APCs for two to three years, while CMS collects the data necessary to develop payment rates for them.
  • CMS makes most OPPS payments on a per service basis, but CMS pays for partial hospitalizations on a per diem basis.
  • Hospitals can receive three payments in addition to the standard OPPS payments: i) pass-through payments for new technologies, ii) outlier payments for unusually costly services, and iii) hold-harmless payments for cancer and children’s hospitals and rural hospitals with 100 or fewer beds.

Outpatient Dialysis Services

  • In 1972, the Social Security Act extended all Medicare Part A and Part B benefits to individuals with ESRD (of any age) who are entitled to receive Social Security benefits. ESRD beneficiaries account for 1% of Medicare enrollment.
  • Spending for the 450,000 enrolled ESRD beneficiaries in 2006 was $20 billion. Of this, $8.4 billion was spent on dialysis.
  • The base payment rate for each dialysis treatment is $132.49 for freestanding facilities and $136.68 for hospital-based facilities. By 2009, however, this rate will be the same for both types of facilities. The base rate is adjusted for patient age, BMI, body surface area as well as a geographic cost adjustment factor.
  • Medicare pays dialysis facilities a predetermined payment for each dialysis treatment they furnish. Medicare covers two methods of dialysis—hemodialysis and peritoneal dialysis. The composite rate currently excludes several injectable drugs—such as erythropoietin, vitamin D, and iron—for which physicians are separately reimbursed.
  • The Medicare Improvements for Patients and Providers Act of 2008 adjust payments in a number of ways. In the near future, injections will also be included in the composite rate. A P4P program is being instituted which evaluates physicians based on anemia management, dialysis adequacy, patient satisfaction, iron management, bone mineral metabolism, and vascular access.

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Quotation of the Day

September 9, 2009 in Miscellaneous | 2 comments

“It is a sin to judge any man by his post.”

  • St. Augustine

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Low Life Expectancy in the United States: Is the Health Care System at Fault?

September 8, 2009 in Uncategorized | 10 comments

Americans pay more for medical care than any other country and have one of the highest levels of income per capita of any country in the world. Despite its immense wealth and healthcare spending, the United States ranks 50th in life expectancy, worse than Jordan, South Korea, and Bosnia and Herzegovina. In a Commonwealth Fund report, the U.S. ranks last among 19 countries according to the criteria of “Mortality amenable to medical care.”

Despite these facts Preston and Ho (2009) claim that the American medical system is in fact very good. Instead of using overall life expectancy, Preston and Ho use more accurate measures of how well the American health care system operates. One could use the incidence rate of disease. However, effective diagnosis and early diagnosis will inflate statistics measuring incidence–since early stage disease is found in more patients–but also increases the probability a treatment is successful. For instance, “the United States has a higher prevalence than Europe of the major adult diseases, including cancer, heart disease, and diabetes (Thorpe et al. 2007; Avendano et al. 2009). But higher prevalence could reflect higher incidence, better detection, or longer survival resulting from more successful treatment…Relatively high survival rates imply either that the disease has been detected unusually early or that treatment is unusually successful.”

The thesis of the paper is that the U.S. does a better job of screening patients for cancer as well as providing more aggressive treatment. The authors find:

“mortality reductions from prostate cancer and breast cancer have been exceptionally rapid in the United States relative to a set of peer countries. We have argued that these unusually rapid declines are attributable to wider screening and more aggressive treatment of these diseases in the US…5-year survival rates from all of the major cancers are very favorable; survival rates following heart attack and stroke are also favorable (although one-year survival rates following stroke are not above average); the proportion of people with elevated blood pressure or cholesterol levels who are receiving medication is well above European standards.”

This still leaves the question of why life expectancy is so low when the U.S. health care system is good. Likely the reasons are behavioral (e.g., smoking, obesity, stress) or public health related (e.g., clean drinking water, sanitation, pollution), and are not due to problems within the medical system. While the U.S. health care system is far from perfect, it is likely comparable or slightly superior to the medical care received in other developed countries.

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