Health Care's Tougher Problem--Solving the Access Problem Isn't Enough If We Don't Deal With Costs

Today we honored to have Brian Klepper post for the first time. Brian's posts have been appearing on some of the leading health care blogs and I finally pestered him long enough that he agreed to begin doing some here.

Today, he reminds us that solving our health care access problem is far from enough if we don't get costs under control:

Health Care's Tougher Problem

by Brian Klepper

Health care reforms are finally in vogue again, in state legislatures, Congress, among presidential candidates and in the movies. Most proposals focus on universal coverage of basic or comprehensive health benefits. This is practical as well as noble. As the numbers of uninsured and underinsured patients continue to explode, the worry is that doctors and hospitals will be financially overwhelmed by demands for unpaid services. Funding every patient for at least basic services would make care more available. But it would also strengthen the stability of the professionals and institutions that provide care.

Even so, universal coverage alone will add significant cost to an already overburdened system – about $300 billion for comprehensive benefits, according to America's Health Insurance Plans. Health care’s out-of-control cost growth – almost 5 times as fast as the rest of the economy between 2000 and 2006 – is pricing individual, corporate and governmental purchasers out of coverage. So any effort that seeks a stable and sustainable health system must attend to cost as well as access.

It is impossible to know exactly how much waste there is in America’s vast, incredibly complex health system. But many experts agree that as much as half of care and cost – more than a trillion dollars a year at this point – is inappropriate, preventable, or the result of errors or administrative inefficiencies in every part of the system. There are many drivers: inadequate management tools, enormous workloads, greed, defensive medicine and perverse financial incentives.

Two structural flaws promote excess in health care. First is fee-for-service (FFS), the most common approach to reimbursement, which rewards more care rather than the right care. Under FFS, more procedures and products produce more revenue, and the opposite is true as well. Doing less, even while getting the same results, produces less revenue, so health care organizations have little reason to invest in efficiency.

The second flaw is that objective pricing and performance information is generally unavailable. This makes it hard for managers to identify problems and opportunities so they can be addressed, and it results in poor or even dangerous performance generally going unnoticed.

Worse, the industry’s awareness that behaviors are difficult to detect has created an opportunistic culture, with aggressive tactics for revenue generation that add cost without adding value. Because information is mostly unavailable on cost, on who doesn’t do a good job and on what doesn’t work, the market cannot distinguish and favor appropriateness and excellence.

Weaning the health care industry from unnecessary care and cost will be much harder, technically and culturally, than mandating universal coverage, and it must be undertaken carefully, with a long-term time line, national leadership and resolve. The revenues associated with waste have become a significant portion of most health care organizations’ financial baselines. Simply slashing payments could be disastrous to important organizations with thin margins, like hospitals and primary care groups.

We can disrupt the primary drivers of the health care crisis. Knowing the relative performance of all professionals and organizations will help health care work like other markets. And changing the reimbursement incentives to reward the right care would drive waste from the system.

A lot is at stake here. Skyrocketing costs are rapidly eroding enrollment in health coverage. We could reach a tipping point in which, as resources dry up while the demand for care increases, health care – the nation’s largest business sector, one-seventh of the economy and one-ninth of our jobs – is disrupted and the turmoil cascades to other parts of the economy.

The industry has taken its first tentative steps toward two important cost reforms – transparency and performance-based reimbursement – but the intensity and potential scale of the crisis warrants more focused, immediate national attention and resources. In any case, we shouldn’t rely on the industry to drive or even support these changes. Few groups willingly lose financial ground. Health care’s lobbies will likely present a unified front against reforms that threaten financial performance.

So real change, if it comes, must be shepherded by the leaders of non-healthcare business, the one group with more heft and political influence than the health care industry. A small group of Fortune CEOs, willing to meet and provide visible leadership, could orchestrate the initiation of a much broader effort. They could recruit all business to impose performance disciplines on the health care sector, to resolve the threat to our national economic security, and to make better care more available and more affordable to everyone in America.

Brian Klepper is a health care analyst based in Atlantic Beach, Florida.

The Nursing Shortage--Important Data On Why

Brian Klepper has another one of his great posts up—this time over at “The Health Care Blog.”

We all know there is a nursing shortage but Brian sheds a new light on just why.

Here is a small sample from his post, “Benign Neglect and the Nursing Shortage:”

"Almost three-quarters of Nursing schools surveyed said the main reason that they can't train enough new nurses is a lack of qualified faculty. When I first heard this, it seemed counter-intuitive. There must be thousands of very seasoned and appropriately trained nurses who would be glad to go into the classroom.

"Not so. A July 2005 survey of Colleges of Nursing around the country found that 2/3 of all respondents said they had nursing faculty vacancies and needed to hire additional faculty. Of course they want nurses with PhDs, if possible, but with a range of specializations and the ability to both teach and do research. Even so, between 1992 and 2000, the percentage of Nursing faculty positions occupied by PhDs dropped 19%, from two-thirds to less than half.

"Data from 2001 showed it took a PhD nurse almost 21 years on average after receiving her undergraduate degree to get her terminal degree. The average age of full time Nursing faculty in 2001 was 51, and its almost certainly older now. As many a 300 PhD Nursing faculty are expected to retire in the next decade, exacerbating the problem.

"There are many reasons why Nursing faculty are difficult to come by, but one is overwhelmingly dominant. Nurses qualified to be faculty have to take significant pay cuts for the privilege of taking a teaching position. Nursing schools are unable to pay Nursing faculty candidates what they would make working as nurses in clinical positions in the marketplace."

I encourage you to read Brian’s full post, “Benign Neglect and the Nursing Shortage.”

"Undue Advantage"--The Washington Post Calls for Medicare Advantage Cuts

Tuesday's Washington Post had an editorial on the debate over whether HMOs should be paid more than Medicare receives for the same senior's health care.

Originally, the Congress decided to pay private health plans more as a means to "prime the pump" to encourage both private health plan insurers and seniors to give the new Medicare Advantage plans a try. Both had some bad experiences in the late 1990s when government payments to private Medicare plans sustained big cuts and both seniors and health plans fled the private programs.

Now, the health plans are arguing the extra payments ought to be made permanent.

While there is a legitimate debate over just how many years it should take to equalize payments, The Post has it about right.

Undue Advantage

The House was right to scale back the insurance industry's subsidies for seniors.

Tuesday, August 21, 2007; Page A14

KAREN IGNAGNI, chief lobbyist for the health insurance industry, had an important point. Testifying before Congress in 1999, Ms. Ignagni argued that private insurance plans offering coverage for seniors ought to operate on a "level playing field" with regular fee-for-service Medicare, under which doctors are reimbursed directly by Medicare. Back then, the private plans were being paid less than what regular Medicare providers were making. Ms. Ignagni decried what she called the "fairness gap" and argued that the private plans "should not receive disproportionately low government payments."

Times have changed. Instead of being paid less than private providers on the theory that they can operate more efficiently, such plans, now known as Medicare Advantage, are being paid on average 12 percent more. And Ms. Ignagni and her group, now called America's Health Insurance Plans, are lobbying furiously to keep that, well, advantage.

Some of the money is plowed back into extra benefits to attract more seniors into the plans, and the lure is working: Close to one in five are now enrolled in private plans, which range from HMOs to networks of preferred providers to the most outrageous and expensive arrangement of all, private fee-for-service plans, which cost a whopping 19 percent more than regular Medicare.

The extra spending -- more than $50 billion over the next five years -- makes an already financially unstable Medicare program more expensive. It also unfairly raises premium costs for all seniors, who subsidize the extra benefits of those who sign up for managed-care plans.

A bill approved by the House this month would phase out the excess payments to Medicare Advantage plans and devote the savings to the State Children's Health Insurance Program, which provides coverage for children in low-income families that earn too much to qualify for Medicaid. The House would also use some of the savings to help pay for changes in the Medicare program, including extra help for low-income seniors.

Defenders of the existing payment structure argue that while Medicare Advantage plans may cost the government more, the 12 percent differential is inflated, and that flattening the rates would drive the plans out of existence. They argue that the plans, even if there is a higher cost to the government, lower overall health-care spending by providing more preventive care. They also say that the plans provide important and otherwise unaffordable benefits to low-income seniors.

We agree that private plans can play an important and useful role in delivering good medical care to seniors. But if the problem is providing extra help to low-income seniors, there are more efficient means of doing so than overpaying Medicare Advantage plans for every senior, needy or not. And we don't understand why the level playing field the private plans once so avidly sought is now not good enough.

Medicare Will Stop Paying Hospitals for Errors--Will Private Health Plans Follow?

Medicare will stop paying for the costs associated with "hospital errors." These can include the costs for treating infections, falls and other things Medicare deems the hospital should have been able to prevent.

Health plans tend to follow Medicare policy in their payment practices. Many believe the private sector is going to follow suit.

On its face, the new policy makes sense. If you get your car fixed, and the garage breaks your car in the process of repair, they ought to make good the damages.

But it can also be more complicated that that when it comes to caring for people.

The Doc over at the blog, "The Physician Executive," made some interesting comments on the subject that included:

"While I understand the value of increasing medical accountability, there must still be recognition that all outcomes, including hospital-acquired infections, have multifactorial causation. So what about a catheter-related infection in someone whose immune system is suppressed from medication. What if the infection was acquired outside the hospital, but became evident in-hospital? What if the patient didn't follow directions? What about the visitors?"

And also:

"The other appalling aspect of this rule is that it does not respect the single most important principle of quality data: NEVER use your data punitively. Despite every temptation to do so, the risk is that you may provide an incentive for people to fiddle with or otherwise manipulate their data."

Doctor Ammon has just begun publishing his own blog and has a really good blogside manner. He's worth checking out.

You can read his full post on the subject.

Fred Thompson—Too Good to Be True? Thompson Says He Will Shake Things Up In the Health Care Debate

The Washington Post’s David Broder is one of those people I have only the greatest respect for. So his recent column, recounting an interview with soon to be Republican presidential candidate Fred Thompson, caught my eye.

Broder described a Fred Thompson that sounds too good to be true:

“When Fred Thompson makes his long-delayed entrance into the Republican presidential race, he will not tiptoe quietly. Instead, he will try to shake up the establishment candidates of both parties by depicting a nation at peril from fiscal and security threats—and prescribing tough cures that he says others shrink from offering.”

He quotes Thompson as saying he, “will take some risks that others are not willing to take, in terms of forcing a dialogue on our entitlement situation, our military situation and what it’s going to cost” to ensure our nation’s future.

“There’s no reason for me to run just to be president,” Broder quoted Thompson as saying. “I don’t desire the emoluments of the office. I don’t want to live a lie and clever my way to the nomination or election.”

Thompson said in the interview that he would have opposed the Medicare Part D prescription drug program, “a 17 trillion add-on to a program that’s going bankrupt.”

Referring to the crisis that is looming over America’s out-of-control entitlement costs, “Nobody in Congress on either side in the presidential race wants to deal with it. So we just rock along and try to maintain the status quo. Republicans say keep the tax cuts; Democrats say keep the entitlements. And we become a less unified country in the process, with a tax code that has become an unholy mess, and all we do is tinker around the edges.”

Referring to national security and the fiscal crisis of an aging society with runaway health care costs, Broder quotes Thompson as saying these challenges, “are worth a portion of a man’s life. If I can’t get elected talking that way, I probably don’t deserve to be elected.”

Is Fred Thompson too good to be true?

Speaking of "clevering" your way along, see my recent post: Good Riddance to Karl Rove--How Part D Left an $8 Trillion Debt and Got Them Nothing

Democratic Presidential Candidate Bill Richardson Announces a Health Reform Plan

Democratic presidential candidate Bill Richardson recently announced his health reform plan.

Richardson's health care proposal follows the general outline offered by other Democratic candidates in that it focuses first on getting everyone insured and falls short in getting at the fundamental problem creating so many uninsured--health care costs.

Bill Richardson's health plan also builds on existing public and private health insurance programs.

Richardson would:

• Provide tax credits on a sliding scale to help residents purchase health insurance.
• Require employers to pay a share of their worker's health care costs.
• Allow people ages 55 to 64 to buy into Medicare.
• Expand Medicaid and SCHIP to cover more low-income families and children.
• Allow individuals and businesses to buy their health insurance from an expanded Federal Health Benefit Plan (the same program Congress and the President use).
• Improve health care efficiency through the increased use of health care information technology.
• Mandate that health insurers no longer can deny coverage to people with pre-existing conditions.
• Expand veterans care by giving them a "Heroes Card" enabling them to access the private system.
• Limit interest rates applied to health care bills and credit cards.
• Allow the federal government to negotiate Medicare drug prices directly with pharmaceutical companies.
• Establish incentives for preventive care programs.

Richardson claims his plan would cost an estimated $110 billion per year but that the savings from the plan would cover the cost.

Richardson was quoted as saying, "Despite Republican hand-wringing about the cost of universal care, it is clear that the cost of doing something--in lives and dollars--pales in comparison to the cost of doing nothing." He also said, "My plan does not build a new bureaucracy. The last thing we need between patients and doctors is another sticky web of red tape."

Like all of the leading Democratic candidates, Richardson is ready to move forward with a big and comprehensive reform plan. But he is not interested in a big government-run plan that would "build a new bureaucracy."

His claim that his program will cost nothing is at the outer edge of wishful thinking. Getting everyone covered will save lots of money. But it will take bundles of money up-front to get a program like this going.

Because the structure of his plan is similar to the plans already announced by rivals Barack Obama and John Edwards--and the plan coming from Hillary Clinton--his program costs will not be lower than theirs.

In many respects, this plan is comparable to the Massachusetts health plan that has found that granting access to insurance is only the beginning--being able to afford to get everyone in and then running the plan in a way that does control costs is the real challenge.

The Richardson health plan takes that first step but hardly addresses short-term affordability and long term costs.

But he is right about this, "It is clear that the cost of doing something--in lives and dollars--pales in comparison to the cost of doing nothing."

But that statement will quickly become fatally flawed short-term thinking if he doesn't more realistically deal with the long-term costs and create an affordable strategy.

Series of posts on the Massachusetts health plan

Good Riddance to Karl Rove--How Part D Left an $8 Trillion Debt and Got Them Nothing

It seems to be the Washington summer sport to pile on Karl Rove in the wake of his announcement that he will be leaving the White House.

Let me add my own good riddance.

America’s health care dilemma is one of our greatest problems. Our inability to provide basic health care services at an affordable cost to all of our people is nothing to play around with.

Politicians—Democrats and Republicans both—have had their turn at manipulating this issue for political gain.

But nothing comes close to this administration’s record on that score and Karl Rove was right at the middle of their health care political calculations.

Right at the top of that list is the Medicare Part D drug benefit.

Early on this administration calculated that one important element in creating a “permanent Republican majority” was to steal the two centerpiece Democratic issues—Medicare and Social Security.

Nothing is so central to the Democratic claim on populism as these two programs. If they could be remade in Republican terms, then went the reasoning, they could be taken from the Democrats and could form the base of a “permanent Republican majority.”

After all, seniors vote in disproportionate numbers in an electorate that votes too little and getting senior votes onside would make the difference.

The second part of that grand plan, the Bush administration’s attempts to begin to privatize Social Security, failed.

But the administration’s promise to create a new, and very important, senior drug benefit succeeded.

President Bush spent enormous political capital in his attempt to “modernize” the Social Security system. It is ironic that the 75-year unfunded liability in the Social Security System is $4 trillion. The same unfunded liability in Medicare is now $32 trillion—$8 trillion of it newly created by the Medicare Part D benefit.

Make no mistake, seniors deserve a drug benefit, but they deserve one that is part of a reformed Medicare system that is sustainable.

When George Bush ran for president in 2000, I thought he made a credible policy argument for the fundamental reform of Medicare. But that quickly fell by the way as the political imperative took over.

This administration’s political calculation to spend twice the Social Security system’s unfunded liability in an attempt to steal the seniors from the Democratic Party with an unsustainable Part D program is the height of political cynicism.

And as the 2006 elections proved, it didn’t work.

There are lots of reasons to wish Karl Rove good riddance. This is mine.

What’s the point of winning in the first place if you only use the platform to win the next one and leave $8 trillion in unfunded liability in the process?

The Latest Health Wonk Review is Up!

Julie Ferguson over at "Workers'Comp Insider" has done her usually astute job of compiling the best from the health policy and market blog world in the latest edition of "Health Wonk Review."

Her digest makes for great summer reading!

Rudy Giuliani Announces a Health Care Proposal That Would Provide Tax Incentives for Consumers to Purchase Individual Insurance

Rudy Giuliani announced that he will be proposing a system of individual tax incentives to enable consumers to purchase individual health insurance in addition to any employer options they might have. His proposals are also designed to shift the U.S. health insurance system away from employer-sponsored coverage.

Under the proposal:

• Giuliani is proposing a $15,000 family/$7,500 individual standard tax deduction for anyone who does not get their health insurance coverage through an employer--they purchase it individually.
• He would also provide additional subsidies to help low-income people buy health insurance.
• He provided no details as to the amount of the subsidies or the plan's overall costs but said he would provide more detail in the coming months.

Giuliani said that he expects the proposal would increase the number of people who buy health insurance in the individual market. He also expects the standard deductions would enable consumers to put extra money into health savings accounts (HSAs).

While the Democratic candidates proposals focus on dealing with access first and cost later, Giuliani's focus is on bringing the cost of health insurance down with these market reforms and as costs come down more people would be insured, "You have to start bringing the price down before you can figure out how many people you can include. It has to be done incrementally. It can't be done with a magic wand all at once."

Read Giuliani's op-ed piece in the Boston Globe: "A Free Market Cure for the U.S. Health Care System"

A more comprehensive analysis of the Giuliani proposal in an earlier post: Giuliani Set to Announce a Health Care Proposal--But He Has to Make it Affordable for Everyone

Why Is President Bush So Willing to Veto Spending Bills All of a Sudden?

This President didn’t veto a single spending bill during the first six years of his presidency when the Republicans were in control. You might recall John McCain’s characterization of the Republican Congress when he said they spent money “like drunken sailors” all with the concurrence of President Bush.

Now, with the Democrats in control, the President seems more than ready to confront Congressional spending—he's threatened to veto about every Democratic domestic spending bill now under consideration in the Congress.

He's even threatened a veto of the bipartisan Senate SCHIP reauthorization bill when lots of Republicans are onside with the Democrats pleading with him to approve the S-CHIP deal and when there is no chance the Congress will seriously consider his alternatives like his health care income tax proposal.

What’s going on here?

A little history might be helpful.

You might remember the first news conference Bill Clinton had in the wake of the 1994 election in which the Republicans took control of the Congress. One statement Clinton made in response to questions about the big Republican victory and their bold plans to change the national agenda has lived on, “I am not irrelevant.”

President Bush now faces many of the same questions in the wake of last fall’s Democratic victory, particularly as Republican support for his Iraq policy is melting on Capitol Hill.

The National Review, a bastion of conservatism founded by William F. Buckley, Jr., and filled with articles written by leading conservatives, represents Bush’s political “base” if anything does.

That’s why a recent article in the opinion section of the Washington Post by Byron York, National Review’s White House correspondent and the author of “The Vast Left Wing Conspiracy,” is all the more notable.

The title of the article tells all, “Base to Bush: It’s Over.”

This from the article:

“So now the president has 18 months left in office, and they won’t be quiet ones. Absent the committed backing of his party, he will be forced to exercise power based not on his political clout but rather on the authority the Constitution gives the office of the president: He is commander in chief. He can veto bills. He can issue pardons. And that’s about it.”

I’d say that about sums it up for why Bush is now so veto happy—even when it’s Republicans he’s publicly arguing with.

The statement he’s making, particularly to Republicans in Congress, like Chuck Grassley and Orin Hatch who did the SCHIP deal with Democrats and all of those House members who voted with the Democrats on the Labor-HHS-Education bill is, “Wait a minute with all of your deals with this Democratic Congress, I’m still relevant!”

This is where it gets interesting.

Is Bush about to do what Clinton did to restore his presidency—willingly face off with a Congress recently taken over by the other party in a winner-take-all budget battle that included a government-shutdown?

With his support in the polls, from Republicans in Congress, and from his base in the country, at such low levels this President is standing almost alone on everything from Iraq to SCHIP and looks more intent than ever on pursuing a course he strongly believes in and has the Constitutional prerogatives to carry out.

Earlier Post: SCHIP Reauthorization and High Stakes Politics

SCHIP Reauthorization and High Stakes Politics

Everyone agrees that the State Children’s Health Insurance Program (SCHIP) needs to be reauthorized.

But Washington couldn’t have made such a simple idea any more complicated or controversial.

So far:

• The Senate has come to a bipartisan agreement, supported by lots of Republicans, that would increase spending by $35 billion, add another three million kids to the six million already covered, pay for it with a 61 cent tobacco tax, and streamline the program more along its original lines.
• The House is struggling to approve a much larger $60 billion expansion and pay for it with both a tobacco tax and cuts to private Medicare plans that would equalize them with traditional Medicare over a three year phase-in beginning in 2009. The House bill also deals with other health care issues like the upcoming physician fee cuts.
  
• President Bush has said both proposals go too far toward creating government-run health care and he has promised to veto both.
• Republicans are working with Democrats in the Senate in an attempt to have the votes to override a presidential veto. They might have the votes in the Senate and are less likely to have the needed two-thirds in the House.
  

The Congress is set to leave town at the end of this week and not come back until after Labor Day.

Where is this going to come out?

First, SCHIP will be reauthorized. Most likely, Bush and the Congress, led by Republican Senators who include Grassley and Hatch, will work out a deal by the end of September that will likely expand the current SCHIP program in the $15 - $20 billion range and pay for it with a smaller tobacco tax—and not Medicare Advantage cuts.

The House bill is just an exercise that goes way beyond anything that is possible in the Senate.

Failing that, the program will be continued at present levels using a “continuing resolution.” No one will let it die when it sunsets on September 30th. In this scenario, SCHIP would get punted to the year-end omnibus reconciliation that the Democrats will have far more control over.

The Congress is ready to cut private Medicare payments. Congress needs the Medicare Advantage money to forestall the upcoming 10% physician fee cuts.

The House SCHIP bill is valuable in that it shows the health plan industry the worst case scenario for private Medicare cuts—no sooner than 2009 and a three-year phase-out of payments above traditional Medicare.

But we won’t get to the physician fee cuts and private Medicare payments until the year-end omnibus budget bill where the Democratic committee chairmen will have total control of the Congressional budget process.

The most likely outcome is that the Senate will drive a less dramatic cut to Medicare Advantage than the House wants—looks to me like a four to five year phase-out with the possibility that Private Fee For Service rates in urban areas would be frozen—all starting no sooner than 2009.

To make things even more interesting, Bush has also threatened to veto about all the Democratic spending bills.

Just how far President Bush is willing to go in this budget showdown with the Congress will become evident in how the SCHIP negotiations between the White House and Republican Senators turn out. If they can’t get a SCHIP deal done, we will be headed toward a big budget showdown between the President and the Congress. That is something that Republicans are really worried about—they have to face reelection even if Bush doesn’t.

If cooler heads prevail we will have lots of compromises that will include the necessary Medicare Advantage cuts to pay for other provider needs—particularly the docs.

If cooler heads don’t prevail, we will have one hell of a budget mess.

SCHIP will tell us if Bush is in the mood to deal or not.

Earlier Post on the Senate SCHIP compromise: Bush Reaffirms Veto Threat Over SCHIP Despite Strong Republican Support for Bipartisan Compromise—What’s Really Going On Here?