The Downfall of AIG

Those of you outside of Washington, DC likely missed the Washington Post's three-part investigation of the events leading to the downfall of AIG.

It makes for good holiday reading. I highly recommend the series to you.

Knowing the culture at AIG from many years of activity with the company and its leadership, I can tell you the story certainly has the culture right.

While this is not a health care story per se, it is a story about risk taking and understanding, and never getting cocky about, risk. AIG execs argued for years they really had no risk in their credit default swap business. My experience is that when someone is willing to pay you lots of money to lay a risk off on you--in this case a whopping $80 billion of exposure--there is risk.

You can read the full report here.

"A Handshake That Made Health Care History"--A Boston Globe Expose: A "Quiet Deal" Between Mass Blue Cross and Boston's Most Powerful Hospitals

In a lengthy expose entitled, "A Hand Shake That Made Health Care History," the Boston Globe details what it called a "gentleman's agreement that accelerated a health care cost crisis" in Massachusetts. The reported deal was between Partners Health Care, the state's biggest health care provider, and Massachusetts Blue Cross, the largest state insurer.

The article charges that the agreement all but kept the national health plans from gaining a foothold in the state and forced the state's other not-for-profit insurers to accept Partner's terms.

I will suggest this article, apart from its sensational reporting, may have two significant implications:

1. There will now be more pressure for Massachusetts to change the financial terms with its health care providers in order to keep the Mass Health Law afloat. The Massachusetts Health Law is coming up on its third year and its unsustainable costs are generally seen as a huge challenge for its long term viability. Getting those costs under control will have to focus on what is paid to providers more than any other issue. This may be the opening salvo on what will be more focus and pressure on what doctors and hospitals are paid in the state. The day this law was passed the die was cast that the generous payments made to powerful providers would have to be faced--sooner or later--and that day is upon them.
2. Getting doctors and hospitals onside will be the real challenge to health care reform. Health care reform in Massachusetts, and more importantly in Washington, will require payment policy that doctors and hospitals can buy into and at the same time result in sustainable costs for any new health reform plan. While hospitals are more powerful in Boston than most other markets, I would argue that this story is a study in just who really is, or can be, the most powerful player in the American health are system--it is the health care provider.
   

The recent CBO cost study underscores that it is what is being paid to health care providers that will be the real challenge to reform. If the docs and hospitals don't like the health reform plan they are politically powerful enough to kill it. If it is too generous to providers, the plan will be fiscally unsustainable.

Here is a small excerpt from the Boston Globe Story:

"Partners Healthcare was born in 1993, but its powerhouse potential didn't fully hit home until 2000. That's when the emerging giant cut a quiet deal with Blue Cross to ratchet up insurance costs across the state. Nothing in Massachusetts healthcare has been the same since.

"It was the gentleman's agreement that accelerated a health cost crisis.

"And Dr. Samuel O. Thier, chief executive of Partners HealthCare, and William C. Van Faasen, chief executive of Blue Cross Blue Shield of Massachusetts, weren't about to put it in writing.

"And so, in May 2000, the two simply shook hands on this: Van Faasen would give Partners doctors and hospitals the biggest insurance payment increase since Massachusetts General and Brigham and Women's hospitals agreed to join forces in 1993.

"In return, Thier would protect Blue Cross from Van Faasen's biggest fear: that Partners would allow other insurers to pay less. Those who helped broker the deal say Thier promised he would push for the same or bigger payment increases for everything from X-rays to brain surgery from Van Faasen's competition, ensuring that all major insurers would face tens of millions in cost increases. Blue Cross called it a "market covenant."

"The deal, never before made public, marked the beginning of a period of rapid escalation in Massachusetts insurance prices, a Spotlight Team investigation has found, as Partners repeatedly used its clout to get rate increases and other hospitals tried to keep up. Individual insurance premiums have risen 8.9 percent a year ever since the "market covenant," state figures show, more than twice the annual rise in the late 1990s.

"Both Partners and Blue Cross deny that they acted improperly in the 2000 payment negotiations or in their dealings since. Partners issued a statement saying that Thier pledged only that he would treat all insurers equally. Blue Cross executives have said that the big pay raise to Partners in 2000 was needed to offset years of low rates."

You can read the entire article here.

CBO to Health Care Reformers: Naive Policy Makers Need Not Apply

The Congressional Budget Office (CBO) has released two comprehensive papers detailing the policy and financial options for health care reform: Key Issues in Analyzing Major Health Insurance Proposals and Budget Options, Volume I: Health Care.

I can't overestimate the importance of these documents to health care reform.

I recently did a post as sort of an open letter to the CBO: To the Congressional Budget Office: Please Keep Playing it Straight!

After reading these two reports, totaling more than 400 pages of some of the most valuable health policy analysis I have ever seen, I now know that I had no reason to worry that the CBO would just tell the politicians what they wanted to hear.

Any Congressional health care reform proposal will need to be “scored” by the CBO and, by preempting the coming proposals with this report, the career CBO health care experts have now made it very clear they will not be an easy touch. Reformers are going to have to play the game on the up and up—show real savings or find the money elsewhere. CBO Director and incoming Obama Budget Director, Peter Orszag, also deserves a lot of credit for supporting his staff and issuing this report.

It is also clear that, whoever the Congressional Democratic leadership appoints to succeed Orszag, a marker is down. The CBO is on the record about what the likely reform options will cost before anyone had a chance to bring political pressure to bear. And, that just might have been intentional.

The work contains an inventory of about all of the health care reform options being discussed complete with a thorough cost/benefit analysis detailing their impact on federal spending. There would certainly be impact on private spending from many of these options but this at least gives us a relative cost index to compare the many health care reform ideas. This is also a financial report and did not attempt to measure quality improvements.

Taken together these two documents make a number of critical points:

1. There are no one, two, or even ten silver bullets. There are literally dozens of steps that will likely have to be taken in order to achieve the savings necessary to make our system more cost and quality effective.
2. The politically easy stuff won't get it done. Democrats and Republicans have said that things like prevention, wellness, and wider use of health information technology can free-up the savings we need to make our system affordable even while we dramatically expand the number of citizens covered. But the CBO confirms that these less politically problematic “cost containment lite” proposals won’t be enough: “…approaches—such as the wider adoption of health information technology or greater use of preventive medical care—could improve people’s health but would probably generate either modest reductions in the overall costs of health care or increases in such spending within a 10-year budgetary window.”
3. Really controlling costs will be very hard and will require some courageous and politically problematic actions: “Those problems cannot be solved without making major changes in the financing or provision of health insurance and health care. In considering such changes, policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal spending and total costs for health care.”
4. Changing what we pay will have far more potential to change the system's costs than changing how we pay.
   

The CBO’s work provides a detailed shopping list of policy options complete with assumptions and an analysis of what the various steps could cost or save the federal budget.

When you read through the reports it becomes clear that there are things we can do that will help but really be a drop in the huge health care bucket. There are other things that we can do that would have a really dramatic impact on federal health care spending—and they tend to be the most politically problematic.

For example, The Baucus Health Plan makes a big deal about saving money from “waste, fraud, and abuse.” But such efforts are estimated by the CBO to save a relatively inconsequential $500 million over ten years. Using pay-for-performance systems, the health care fix de jour, yields only single digit gains while reducing Medicare physician payments in line with productivity gains would save a whopping $201 billion over ten years.

Rebasing the Medicare physician payments using the Medicare Economic Index (MEI) would cost a budget busting $556 billion over the next ten years and "equalizing" the private Medicare Advantage payments—the favored method to pay for a fix—would only save $157 billion over the same period.

Many of these proposals save a great deal of federal spending because they shift costs to the private sector—for example a “pay or play” large employer mandate would save the government $48 billion but would certainly cost the private employer community a great deal more.

Here is a partial list to give you a sense for the trade-offs. Note in particular the items, or categories, that make a big or small difference compared to others. The estimates apply to federal spending and the cumulative impact the particular proposal would have on the deficit over ten years--between 2010 and 2019.

The reports also detail the many advantages and disadvantages to do these things not directly reflected by the budget estimates.

I offer this partial list from the 115 options presented as a quick opportunity to compare many of the most mentioned policy options and other options the CBO has found will have the biggest impact. You really need to read the document and the assumptions that go with these estimates to fully appreciate the analysis.

Change the Health Insurance System

• Foster the Formation of Association Health Plans – Adds $220 million to the deficit by 2019.
• Allow Individuals to Purchase Non-Group Health Insurance Coverage in Any State - Reduces the deficit by $7.4 billion by 2019.
• Impose a “Pay-or-Play” Requirement on Only Large Employers – Reduces the deficit by $48 billion by 2019.
• Establish a National High-Risk-Pool Program – Fully subsidizing all state’s to enable them to cap high risk pool premiums at 150% of the market would add $16 billion to the deficit by 2019.
• Establish a National Reinsurance Program to Provide Subsidies to Insurers and Firms for Privately Insured Individuals – Enacting a program to absorb 75% of the cost of high cost claims would add $752 billion to the deficit by 2019.
• Create a Voucher Program to Expand Health Insurance Coverage – Providing vouchers for the uninsured with incomes below 250% of poverty with a cap of $1,500 for individuals and $3,000 for families would add $65 billion to the deficit by 2019.
• Require States to Use Community Rating for Small-Group Health Insurance Premiums – Reduces the deficit by $5 billion by 2019.

Medical Malpractice Reform

• Limit Awards from Medical Malpractice Torts – Reduces the deficit by $5.6 billion by 2019.

Change the Tax System

• Reduce the Tax Exclusion for Employment-Based Health Insurance and the Health Insurance Deduction for Self-Employed Individuals – Capping family health insurance deductions at $1,442 per month adds $452 billion in new revenues by 2019.
• Replace the Income Tax Exclusion for Employment-Based Health Insurance with a Phased-Out Deduction – Beginning to phase-out the exclusion for employer health insurance at $160,000 in family income adds $552 billion in new revenues by 2019.
• Disallow New Contributions to Health Savings Accounts – Adds $10.5 billion in new revenue by 2019.
• Replace the Existing Income and Payroll Tax Exclusion on Employer Provided Health Insurance with a Refundable Credit – A more limited credit equal to 25% of health insurance premiums that would be phased out for high earners would increase federal revenues by a whopping $606 billion by 2019.

Expand Access to Public Programs

• Raise the Age of Eligibility for Medicare to 67 – Reduces Medicare spending by $85.6 billion by 2019.
• Create a Medicare Buy-In Program for Individuals Ages 62 to 64 – Adds $1.2 billion to the deficit by 2019. CBO estimates the average single premium would be $7,600 a year in 2011.
  
• Expand Medicaid Eligibility to Include Young Adults with Income Below the Federal Poverty Level – Adds $22 billion to mandatory spending by 2019.
• Create a Medicaid Buy-In Program – Allowing the uninsured below 300% of poverty to buy-in to Medicaid would add $7.8 billion to the deficit by 2019.
• Expand Medicaid Eligibility to Include Parents with Income Below the Federal Poverty Level – Adds $37 billion to the deficit by 2019.

Quality Initiatives and Pay-for-Performance

• Reduce Medicare Payments to Hospitals with High Readmission Rates Above the 50th Percentile – Saves $9.7 billion by 2019.
• Expand the Hospital Quality Incentive Demonstration to All Hospitals – Saves $2.9 billion by 2019.
• Deny Payment Under Medicaid for Certain Hospital-Acquired Conditions – Reduces mandatory spending by $45 million by 2019.
• Allow Physicians to Form Bonus-Eligible Organizations and Receive Performance-Based Payments – Reduces spending by $5.3 billion by 2019.
• Pay Primary Care Physicians in Medicare Using a Partial-Capitation System, with Bonuses and Penalties – A net reduction of $5.2 billion in spending by 2019.
• Pay for a Medical “Home” for Chronically Ill Beneficiaries in Fee-for-Service Medicare – An increase in mandatory spending of $5.6 billion by 2019.
• Fund Research Comparing the Effectiveness of Treatment Options – The net effect on the deficit between 2010 and 2019 would be an increase of $860 million and “reduce total spending on health care in the United States by an estimated $8 billion over the 2010–2019 period (or by less than one-tenth of 1 percent).” CBO seems to be saying that more such information will be of small value unless underlying incentives that promote inefficient practice patterns are not changed.

Health Information Technology

• Create Incentives in Medicare for the Adoption of Health Information Technology Including Bonuses and Penalties for all Physicians – A reduction in the deficit of $4.4 billion by 2019.
• Require the Use of Health Information Technology as a Condition of Participation in Medicare – A savings of $11 billion on physician payments and a savings of $23 billion for hospitals by 2019.

Change Provider Payments

• Reduce Medicare’s Fees for Physicians in Areas with Unusually High Spending – A reduction of $5.3 billion in federal spending by 2019.
• Reduce Medicare’s Payment Rates Across the Board in High-Spending Areas – A savings of $51 billion by 2019.
• Reduce Annual Updates in Medicare Fee-for-Service Payments to Reflect Expected Productivity Gains - $201 billion in savings by 2019.
• Reduce the Update Factor for Hospitals’ Inpatient Operating Payments Under Medicare by 1 Percentage Point – A savings of $93 billion by 2019.
• Reduce the Update Factor for Payments to Providers of Post-Acute Care Under Medicare by 1 Percentage Point – A savings of $54 billion by 2019.
• Eliminate Inflation-Related Updates to Medicare’s Payment Rates for Home Health Care for Five Years – A savings of $50 billion by 2019.
• Modify the Sustainable Growth Rate Formula for Updating Medicare’s Physician Payment Rates With Annual Updates Based Upon the Medicare Economic Index (MEI) and Include a Part D Hold-Harmless– Eliminating the Sustainable Growth rate Formula and rebasing on the MEI would increase spending by $556 billion over ten years. Freezing payments at 2009 levels would cost $318 billion over ten years.
  
• Set the Benchmark for Private Plans in Medicare Equal to Local Per Capita Fee-for-Service Spending – Reduces spending by $157 billion by 2019.
• Require Manufacturers to Pay a Minimum Rebate on Drugs Covered Under Medicare Part D – Using the Medicaid rebate policy as a model saves $110 billion by 2019.

SCHIP

• Eliminate Allotment Caps for the State Children’s Health Insurance Program and Permit States to Expand Coverage up to 400 Percent of the Federal Poverty Level – Adds $80 billion to the deficit by 2019.

Premium and Cost Sharing in Federal Programs

• Require a Copayment for Home Health Episodes Covered by Medicare – A 10% Copay saves $47 billion by 2019.
• Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare – Saves $27 billion by 2019.
• Impose a Deductible and Coinsurance for Clinical Laboratory Services Covered by Medicare – Saves $24 billion by 2019.
• Institute a Premium for Higher-Income Enrollees Under Medicare’s Drug Benefit Similar to That Used in Part B – Saves $10 billion by 2019 without adjusting for inflation.
• Increase Funding for the Health Care Fraud and Abuse Control Program in Medicare and Medicaid by $1 billion – Savings of $1.5 billion by 2019 for a net savings of $500 million.
• Increase the Payroll Tax Rate for Medicare Hospital Insurance by One Percentage Point – Increasing the Medicare tax by one percentage point on all earnings would increase federal revenue by $592 billion by 2019—doing it only on earnings above $150,000 would increase federal revenues by $77 billion by 2019.

The inescapable conclusion is that what we pay has the potential to matter more than more than how we pay for it.

You can download the CBO reports here.

Conservatives Need to Be Part of Health care Reform

Stuart Butler, Vice President of Domestic Policy at the conservative Heritage Foundation has an op-ed in Thursday’s Washington Times, “Four Steps Can Heal Health Care.”

He makes some very valuable points and proposes four steps toward reforming the health care system most people—liberals and conservatives—could agree on:

1. Making sure every working family has access to an affordable private health plan that could include state-based default plans with agreed upon minimum benefits and premiums subsidized through reinsurance pools that spread any adverse risk over the broad private market.
2. Encouraging insurance exchanges not unlike those envisioned by Democrats but at the state level where Stuart sees these exchanges avoiding “endless Congressional micromanagement.”
3. Reforming the existing federal tax preferences for health insurance by capping the value of these tax breaks as a means to encourage more efficient plans and raise revenue to help pay for premium subsidies
4. Redesigning the Medicaid and SCHIP programs by giving states the ability to streamline these programs and free-up funds to expand the help the low-income people get for health insurance—including vouchers to purchase private coverage.

The liberals are not going to achieve health care reform on their own. Liberals and a few moderates aren’t either. Trying to get 52 or 55 votes in the Senate will not be enough. Without broad based Congressional support opponents of any reform bill will cut it to pieces.

In order to make the country as a whole comfortable that the reworking of the American health care system is going to be for the better we are going to need a broad consensus that reaches into the ranks of at least some conservatives as well. The American people need to see more than liberals and more than Democrats standing up for it.

Don’t forget, 85% of all Americans have health insurance. They may be worried about it and its future, but they have it and it isn’t hard to scare them into thinking that the risks of change still outweigh any big unproven new programs. Harry and Louise are still alive and well and easily spooked.

Stuart Butler’s op-ed should remind Democrats that conservatives have a lot to contribute to this debate, and if they really want to build a broad based coalition toward health care reform our people can feel comfortable with, it would be wise to reward goodwill offerings like this with a goodwill opportunity to be genuinely part of the process.

Earlier post: Consensus on Health Care Reform Means More Than 70 Senate Votes

“Irrational Exuberance” and Health Care Reform—Slow Down!!!

I think Pete Stark has it right. In a story in The Hill, Stark calls for waiting until later in 2009 or 2010 to move on a big health care reform proposal. The House Ways and Means Health Subcommittee Chair also points out that there are a number of "deferred maintenance" issues that will need to be dealt with sooner—SCHIP renewal, the upcoming Medicare physician fee cuts, and the pending health information technology bill.

The excitement about the potential for health care reform is palpable these days here in Washington and among advocates across the country that have been waiting years for this opportunity.

The Obama health care team has been quoted as pointing to what they reportedly perceive as big mistakes the last time we tried health care reform in 1993—the Clintons waited too long while their fresh political capital dissipated, they did the process in too much secrecy, and they didn’t push the bill through under budget rules that would have avoided the Senate 60-vote rule.

I will suggest that none of these was their most serious mistake.

I have a friend who President Clinton invited to the White House to get a preview of the Clinton Health Plan. He got to read the plan in a room, wasn't able to make any notes, and then went into the Oval Office to give the President his reaction. He tells me he said, "Mr. President, your health plan is a turkey and when you send this up to Congress they are going to gut it, stuff it, and cook it."

They sure did.

The Clintons most serious mistake was not in these things like moving quickly or maneuvering around the 60-vote rule that really constitute the politics of health care reform, but in the policies their health care reform bill attempted to enact.

More than having the politics wrong they had the policy wrong—or at least they were too far out in front of what the country could accept and as a result, they left the door wide-open for their opponents to "gut it, stuff it, and cook it."

Trying to ram a health care reform bill through the Congress before enough of the key stakeholders have been brought onside and voters have been properly prepared for the significant change any real reform would entail would be exactly the same biggest mistake the Clintons made.

And I believe we may be going down that road again.

We do not have consensus in this country on what a real health care reform bill should look like, we do not have enough of the major stakeholders in the loop, and we sure don’t have an environment that, when powerful opponents start the negative advertising, the bulk of our people will still be behind a bill.

And we won’t in just a few months—health care house parties or not.

We do have a lot of “irrational exuberance” over health care reform and that is on its way to setting us up for another really big failure.

"Expanding Coverage Without Increasing Health Care Spending: Dartmouth Institute White Paper Recommends Course for the Obama Administration"

Once again the Dartmouth Institute for Health Policy and Clinical Practice has provided a valuable contribution to our health care reform discussion with their new paper, "Improving Quality and Curbing Health Care Spending: Opportunities for the Congress and the Obama Administration."

In my mind the authors made two critical points:

1. We can insure everyone without dramatically increasing national health care spending.
2. But only if we make some really hard decisions about making our system more efficient--the really big cost containment issues we have discussed on this blog before.

As the authors say, "Were lower-performing, higher-cost, higher intensity hospitals and providers to adopt the practices of these high value integrated systems, costs would be greatly reduced."

And, there is the challenge.

This simply underscores that until we are ready to tackle the real problem--cost and quality--head-on, just dumping more trillions of dollars into subsidizing access to this mess we call a health care system will only make matters worse.

Here is a portion of their study overview and a link to the full document:
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The United States can extend coverage to the country's uninsured without substantially increasing overall health care costs, according to a Dartmouth Atlas white paper released by The Dartmouth Institute for Health Policy and Clinical Practice (TDI).

"Most analyses of coverage reform predict that we will spend more as a nation on health care once theuninsured gain coverage and begin consuming more care," write lead authors John E. Wennberg and Shannon Brownlee. "But we predict that covering everyone will have a much smaller impact on the trend in health care costs, provided that capacity is not increased." Co-authors of the paper are Elliott S.Fisher, Jonathan S. Skinner, and James N. Weinstein, all of TDI.

Not increasing capacity while improving quality and increasing coverage, say the authors, can be
achieved in a number of ways, including reducing oversupply of health care services in high spending regions of the country. As documented repeatedly over 20 years of research by the Dartmouth Atlas Project, more spending on health care, more procedures and more hospitalizations, do not result in better health outcomes for patients.

The paper, An Agenda for Change-- Improving Quality and Curbing Health Care Spending: Opportunities for the Congress and the Obama Administration, presents four priorities for achieving true health care reform:

• Promote the growth of organized systems of care. Atlas research has shown that the best, most effective, efficient, and appropriate health care is delivered by systems such as the Geisinger Clinic, Mayo Clinic, and others. Were lower-performing, higher-cost, higher intensity hospitals and providers to adopt the practices of these high value integrated systems, costs would be greatly reduced. Most importantly, patients would receive better care. The paper lays outspecific changes that would encourage health providers to move to organized delivery systems.
• Require informed patient choice and shared decision-making. By not adequately informing patients about risks and benefits and the full range of treatment options available to them, patients often receive care that they do not want ­ and would not choose had they been fully informed.
• Establish a federal physician workforce policy that achieves the goals of organized care. TDI research has shown that the U.S. does not need more physicians; we have enough to care for America's needs well into the future.
• Fund a Federal science policy that builds the scientific basis for cost-effective care.

Who's The Guy Sitting Next to You? The Obama Health Care Reform Parties and Unexpected Guests

The incoming Obama administration is getting a quick start toward health care reform.

By the end of the year, they anticipate having thousands of health care discussions in homes, businesses, coffee shops, and the like.

About everyone, including the Obama health care team, believe Hillary Clinton's 1993 top-down health care reform process was a big mistake. The new folks don’t intend to make that mistake—good for them.

But there is that old saying, “Be careful what you wish for.” The Obama health care team is going to get one incredible response and I expect the input will literally reach from one extreme on this health care issue to another. What they will almost certainly find is that there is very little in the way of consensus on just what America’s health care system should look like in the years ahead.

There seems to be this sense in the many stories I am reading about health care reform that we are at a very different place than we were in 1993--voters and stakeholders all understand this health care system is unsustainable and must change. Therefore, we have a good chance of having health care reform this time.

I agree that voters and stakeholders all understand that things must change. But that is all I see them agreeing on. Get to the details and you will see just how little consensus we do have.

But give the Obama team credit for wanting to build a grass roots organization from all of the names and email addresses they are about to collect from people who care enough about health care reform to give a few hours of their holiday time.

I did have to chuckle a bit reading Robert Pear’s story in today’s New York Times with the headline, “Insurers Seek Presence at Health Care Sessions.” Here's a bit of it:

“The health insurance industry is encouraging its employees and satisfied customers to attend. A trade group representing some of the nation’s largest health care businesses, including drug companies, is organizing several meetings. The American Medical Association and other medical societies are encouraging doctors to get involved.”

These groups are made up of Americans too and certainly have every right to be sure their neighbors understand their perspective on health care reform.

Maybe the biggest lesson the Obama administration, and every person attending, will come away with is just how little consensus we have in this country over how to reform our health care system and how hard this is really going to be.

That would be a good first step.

You can sign-up for your Obama Health Care Reform Party here.

And, here's my review of the Obama Health Care Plan--everyone needs a program!

The Best Way to Spend the Coming Federal Health IT Money: An Open Letter to the Obama Health Team

An Open Letter to the Obama Health Team
By David C. Kibbe & Brian Klepper

It seems likely that the Obama administration and Congress will spend a significant amount on health IT by attaching it as a first-order priority to the fiscal stimulus package. We take the President-elect at his word when he recently said:

“...we must also ensure that our hospitals are connected to each other through the Internet. That is why the economic recovery plan I’m proposing will help modernize our health care system – and that won’t just save jobs, it will save lives. We will make sure that every doctor’s office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.” (December, 6, 2008)

Whether the health IT money is well spent will depend on how it is distributed and what it buys. Most observers suppose that federal health IT investment dollars will be used to help doctors’ offices and hospitals acquire and implement electronic health record systems (EHRs or EMRs). These are commercial software suites for entering, storing and managing patient health data within a practice or health organization.

We agree that some of the federal health IT money should go to purchase EHRs, especially to doctors and hospitals in rural and under-served areas, which otherwise could not afford them.

The Easy, Wrong Solution
The easy solution would be to spend most of the health IT funds on EHRs. The EHR industry has made it easy by establishing a mechanism to "certify" EHR products if they incorporate certain features and functions.

But the easy solution would not be the right one. EHRs still are notoriously expensive. Often, practicing physicians do not consider many of the features and functions to be useful or important. It can cost as much as $40,000 per physician in a medium size medical practice at the beginning of an EHR implementation. Even that regal sum may not completely cover the hardware and technical support necessary.

EHRs can be difficult to implement, upsetting practice workflows. In general, physicians' practices have not adjusted quickly or smoothly to the disruptive nature of the switch from paper to electronic systems for patient care. Implementations can take months or even years to stabilize.

And the turmoil associated with the implementation can often have negative revenue repercussions for the medical practices they are intended to help. Physicians routinely report that, during the adjustment period, the number of patients they can see and treat in a day drops by twenty to thirty percent, with a commensurate decline in revenues.

Nor is there conclusive evidence that the use of EHRs improves patient care quality.

Finally, EHRs from different vendors are not yet interoperable, meaning that patient information cannot yet be easily exchanged between systems. If America’s physician practices suddenly rushed to install the systems of their choice, it would only dramatically intensify the Babel that already exists.

These barriers to adoption are well documented; they form the wall that has kept physician EHR adoption overall to less than 25 percent in this country. Even if a hefty federal subsidy reduced the exorbitant cost of the EHRs, many practices would suffer severe negative business impacts, and primary care access could temporarily be reduced on a national scale.

So important as EHRs are, at this point there are far better ways to invest in health IT for the doctor's office and hospital. These approaches are low cost and would have immediate high impact on the quality and safety of care. They could build on and utilize existing health IT infrastructure, and be relatively non-disruptive to practice workflows. These factors would encourage adoption by minimizing risk for the doctors, their staffs, and their patients.

E-prescribing As a Model
The success of e-prescribing – as health technology and as public policy – makes it a model for future efforts. E-prescribing uses computing devices to enter, modify, review, and communicate prescription information. The entire process can be automated, from a prescribing doctor's fingertips on the keyboard to the receiving pharmacist's view of the medication order on his/her monitor. All this is possible through the use of standards- and web-based software that is free or inexpensive to the medical practice.

The only technology required of the doctor is Internet connectivity and access to one of the popular browser software programs, like Internet Explorer or Mozilla Firefox, which are already present in most offices and clinics around the country. E-prescribing takes advantage of this existing infrastructure, which is why its adoption is growing rapidly, particularly after CMS authorized an incentive payment to e-prescribing physicians of 2 percent of their total Medicare allowed charges during 2009.

E-prescribing has succeeded because it is an incremental and low-risk health IT that made it easy for physicians and pharmacists to electronically share prescription data, and because it was encouraged by financial incentives. E-prescribing produced significant benefits to physicians over the short term, but simultaneously provided a pathway to more comprehensive IT use over time. It also avoided a sharp decline in access to primary care.

More Bang, With Less Turmoil, For the Buck
We believe that the Obama administration could leverage IT spending in similarly inexpensive ways. Smaller, incremental steps would likely impact a larger number of medical practices in the short-term, benefiting patients while limiting the disruption to doctors.

Here are three suggestions:

1) Referral Management. No patient ought to be referred from a primary care provider to a specialist unless the relevant personal health data are available. Yet, as often as half the time the paperwork arrives, if it arrives at all, after the patient's specialist appointment. This wastes time, results in duplication of tests, medications and procedures, and may imperil personal health.

Care can only be coordinated and continuity assured if information follows the patient wherever the next care event will occur. The solution is relatively easy and no more difficult than e-prescribing.

Create financial incentives for the implementation of simple tools that allow doctors and practices to share health data and communicate with other doctors. It should start with the specialists to whom they refer patients, and include the specialist when (s)he returns the patient to the primary care physician. A 1-2 percent bonus to doctors who e-refer would significantly increase continuity of information among doctors, which would translate to better continuity of care for patients, and lower costs to the system.

2) Patient Communications. Patients want and deserve to communicate through secure email with their medical home practices. They also increasingly want to use the Web to schedule appointments, pay bills and view portions of their medical records, such as lab results. These online services are not expensive for medical practices to provide through companies that offer them as “web portals” and they offer more than convenience to patients.

These communication tools are a means of closing the “collaboration gap” that exists between busy physicians and their busy patients, allowing routine tasks to be moved outside the rushed seven-and-a-half-minute office visit. This gives consumers time to digest and reflect upon how best to meet their health and wellness goals and offers doctors the luxury of better-informed patients. While some consumers are willing to pay their doctors an additional monthly fee to obtain these online services, a small payment from Medicare similar to that offered for e-prescribing would make the business case for doctors' adoption of these patient-friendly online services. Adoption would surge.

3) Infrastructure Build-Up and Maintenance. Nowhere is access to the Internet more essential than in health care. We must assure that broadband Internet connectivity reaches every medical practice and every home in America, no matter how rural a region or how low income a neighborhood. Currently there are too many areas in the country where cable and DSL do not reach, often due to the small numbers of subscribers and the consequent barrier to investment by network carriers this imposes. The federal health IT initiative should subsidize both the establishment of broadband service in those areas, and the subscription fees for low income and health disparity populations that could benefit the most from Internet connectivity with health care providers and online care services.

The new Administration and Congress are about to throw a lot of money at the health IT problem, and the conventional thinking is to buy everyone an EHR of his/her choosing. While we enthusiastically applaud the vision that this represents, a more measured approach would create a smoother and more productive transition. At the same time, it would signal the EHR industry that, for national deployment, they need to come to terms with issues they have avoided so far, like interoperability and cost.

David C. Kibbe MD MBA is a Family Physician and Senior Advisor to the American Academy of Family Physicians who consults on healthcare professional and consumer technologies. Brian Klepper PhD is a health care market analyst and a Founding Principal of Health 2.0 Advisors, Inc.

How Can We Accomplish Health Care Reform If Everyone Ends Up Getting More?

I doubt anyone would disagree with the statement that America’s health care costs are too high, continue to grow at an unsustainable rate, and reform is critical to control costs, get everyone covered, and improve quality.

In the wake of the election, I see one positive and magnanimous press release after another coming from the health care special interests. The press is full of daily stories touting the coming health care reform efforts as different this time. The stakeholders understand things are different, know we have to do something, and are ready to cooperate, goes the reasoning.

Really?

Yesterday a group of insurers and hospitals released a report by Milliman, Inc. saying that government Medicare and Medicaid underpayments to providers are leading to the shifting of $88.8 billion a year onto private payers in what amounts to a “hidden tax.”

According to the study, hospitals earned 23.1 percent of revenue for privately insured patients, compared with a negative 10.8 percent for Medicare and Medicaid patients in 2006.

The unmistakable conclusion—the government has to pay more—level the playing field—for Medicare and Medicaid in order to eliminate this “hidden tax” on private payers.

The study calculates that Congress could correct the problem by increasing funding to Medicare and Medicaid by $90 billion annually. However, the hospital and health insurance industry seems to understand getting payment equalization is unlikely. "Our first major objective is to make sure there aren't major cuts in these programs," AHA President Richard Umbdenstock said.

The Milliman study is probably right. Cost shifting by doctors and hospitals to private payers to offset government underpayments has been an age-long problem.

But add this one to a long list of health care providers that argue they deserve more money—or at least can’t be the ones to sacrifice in order to bring America’s health care costs under control.

The Medicare physicians are due for a 21% physician fee cut on January 1, 2010 because their costs have been increasing by at least 5% more a year than the Sustainable Growth Rate Formula, designed to keep Medicare physician costs under control, says they should. A permanent fix would cost about $200 billion over ten years. Primary care physicians have been adamant in their arguments that primary care, in particular, is underpaid by both public and private payers while the specialties argue they are also under unsustainable financial stress.

Everyone is calling for “pay-for-performance”—whatever that is. Whatever that is it won’t do any good unless we end up paying out less cash to health care providers in the aggregate than we do today.

Last year the durable medical equipment providers were targeted for a competitive bidding program to control their costs but were successful in getting it put off.

The Medicare Advantage HMOs have fought hard to keep their private Medicare payments estimated to average 13% more than traditional Medicare gets for the same risk—undoubtedly now getting ready to use this data to call for their payments not to be cut in 2009 because they have higher physician and hospital costs than Medicare does. So much for the market controlling Medicare costs.

There is no provider of health care or health care services that I know of that doesn’t strongly believe they are underpaid for the work they do.

The past few weeks have been filled with one press release after another from the health care stakeholders telling us they are ready for health reform and want to work with the new Congress and President to get it done.

But they all want more.

How do we accomplish health care reform by giving everyone more?

Likely Health Care Reform Will Not Reform the American Health Care System

Remember those Archway "Windmill Cookies?" They were a favorite when I was growing up.

Robert Pear's article in the New York Times this weekend reminded me of that treat my mother used to buy for us kids. His article also illustrated the crisis many families are facing in what looks like it will be the worst recession of our lifetimes.

Archway was a great American company--it was in business for 72 years. Great treats that were part of so many childhoods and the place a lot of people worked for most if not all of their working years. A company that took good care of its people.

Until Archway went out of business recently when its current owner--a private capital fund--shut off the financing in the face of big losses. Unfortunately another common American business story these days.

Archway had a self-insured health plan regulated under ERISA. ERISA health plans, unlike pension plans, have no funding requirements or backstop federal insurer. If the company can't fund its health benefit plan the benefits cease and the workers simply become another creditor if they have outstanding medical bills to be paid.

The employer-based ERISA health insurance system may just be about the best thing in our dysfunctional health care system. 175 million people generally have great health insurance because of it. The vast majority of employers voluntarily offer comprehensive benefits and do everything they can to cover their people--most paying 75% of the premium. You don't hear about age rating, guaranteed insurability problems, or limited benefits. Having a choice, I expect about every American would pick a typical corporate ERISA health plan over Medicare or Medicaid.

The problem is that the whole ERISA health insurance system depends upon the employer's goodwill and ability to pay the bill month to month.

With unemployment at about 8%, and likely headed to at least 10%, lots of people are being laid off.

Worse are all of the corporate insolvencies.

If the employer goes out of business there is no COBRA benefit continuation option because your ERISA plan is dead--the administrator is not on the hook to give you COBRA options or pay your outstanding bills even if it is one of the national health plans. Health plans generally pay their claims one or two months in arrears, so if you had surgery last month and the plan hasn't paid any of your self insured bills and then ceases to operate you are out of luck (you may have coverage for claims that have reached the plan's reinsurance point).

That is what is happening at Archway today.

Some advocates for health care reform use this kind of example to tell us this is a big reason we need to have a health reform bill passed in the Congress next year.

They are right--but they also may not understand that even an Obama campaign-style health reform bill will not come close to ending this problem.

For example, non-partisan health care analysts at The Lewin Group, have estimated the Obama health plan would only cover about half of the uninsured leaving 22 million still without coverage. The similar Massachusetts Health Law is providing no assistance for most families making between $52,000 and $110,000 a year toward the $10,000 to $12,000 cost of family health insurance in that state.

As I have said on this blog before, doing a halfway job on health care reform is hardly progress. Health care reform without effective cost containment is just destined to blow up. Saying we are doing access reform but leaving the system full of coverage gaps raises expectations but just gives us a more expensive and even more unaffordable system.

Stories like this are not a reason to copy the Massachusetts Health Law or even enact the Obama Health Plan. Neither will come close to giving workers health insurance security.

Only a health plan with tough cost containment, a comprehensive safety net that works from day-1, and a self sustaining means to pay for it all will solve this problem.

We don't need to do this in steps. Wyden-Bennett, as an example, gives us a self-financing comprehensive safety net that covers virtually everyone--and continues to allow for ERISA plans. Add to that some tough cost containment and we can really solve this problem.

But let's not kid ourselves that any of the plans that look to be on the table today are the answer to what the former Archway employees are going through. They are not.

We Can Save 30% By Getting Rid of the Waste in the U.S. Health Care System—Sounds Like "Groundhog Day" To Me

As we begin the health care reform discussion in earnest, many are pointing out all of the waste in the system and the need to research what works best, provide the incentives to do it, manage the big spenders’ chronic care better, make better use of heath information technology, and encourage wellness and prevention.

One of the disadvantages of being at this for more than 20 years is that I feel like I’ve seen this movie a few times before. You may recall the picture "Groundhog Day" where the guy kept living through the same thing time after time.

I am particularly taken by those that cite the statistics regarding health care waste and efficiency as if this was a new discovery they made in the last few days.

For example, the excellent groundbreaking research from Dartmouth is often cited pointing to the conclusion that as much as 30% of all medical spending does nothing to improve care.

I can’t disagree with many of these conclusions having argued much the same myself.

In an op-ed authored by John Wennberg, director of the same Dartmouth researchers at the Center for the Evaluative Clinical Sciences; former Surgeon General C. Everett Koop, MD; and me; we made many of the same points:

• "The health care reform plans proposed by the president and the Democrats just tinker with our deeply flawed system. We need to challenge our basic concepts about health care and then move to reform the system.
• "In health care, more is not always better, and more may even be hazardous to your health. The amount of health care consumed by Americans differs remarkably, depending on where they live. Bostonians receive almost twice as much hospital care and at twice the cost per capita as do New Havenites. Yet there is no evidence that the people of Boston need more or that they live longer or are happier because they receive more.
• "Even more puzzling is the pattern of variation in surgery. The rates for cardiac bypass surgery and hysterectomy are higher in New Haven, but the rate of carotid artery surgery is higher in Boston.
• "We need to undertake a systematic, well-funded program of "outcomes research" to enable patients and physicians to know the outcomes of all medical treatments. If we allocated about one-fourth of a cent of each insurance dollar to fund outcomes research, we would achieve lower costs and higher quality health care for everyone.
• "But there is one area in medicine where more is better. All our efforts at health care reform will come to nothing if reform is not undergirded by a widespread ethic of prevention.
• "We should slash administrative costs by replacing the more than 1,100 insurance forms clogging the system with one simple electronic coding system for claim payment and data collection.
• "Insurance companies must stop competing with each other about whom to exclude from coverage. Instead they must compete on how well they bring sick and healthy people together in pools to make affordable health insurance available to every American.
• "Medicare needs not only financial reform but also conceptual reform that includes education about appropriate care at the end of life.
• "We must demand an end to irrational competition between hospitals, which leads to excess technology and beds. Insurance companies and Medicare should establish contracts with "centers of excellence" that will maintain quality care by ensuring decisions based on patient preference, continuous quality improvement and long-term follow-up.
• "We must act quickly because we have a long way to go. It may take a decade, even though we improve year by year."

OK, here is why I get to feel like it’s "Groundhog Day" year after year when I hear these same points made as if they are fresh ideas.

Our op-ed appeared in the Washington Post on February 19th, 1992!

While we can point to many improvements in our health care system, overall after 16 years, we're in a deeper hole.

In 16 years, we've talked a lot about the things we know need fixing but we haven't really confronted any of them.

There is a point when it makes sense to stop suggesting the same stuff over and over again and begin to ask ourselves why we haven’t gotten off square one with these great ideas.

Could it be because the next steps from concept to action would entail real cost containment and taking on the vested interests in the system?

Maybe just suggesting all of these broad concepts year after year is just pussyfooting around the problems and never really tackling the problems where the rubber meets the road.

Research on which treatments work the best? In 1992, the counter to that was that would be “cookbook medicine” and it “would put bureaucrats in charge where doctors should be.” Is it really any different today?

Today, we hear about "pay for performance." But have we agreed on what acceptable performance is and are the stakeholders ready to see their incomes cut? For "pay for performance" to save money we have to pay less money out. Do we have a consensus on how to separate the winners from the losers? Have we even gotten past the 1992 bullet points and into who is going to lose and on what basis?

I was in a meeting recently where I heard a physician representative suggest that improved physician performance would lead to less hospital costs suggesting that would be a source of offsetting revenue for physicians. Can't wait to see that one on the table.

The reality is that tackling all of these things is not really something those in our health care system—payers and providers—really want to do. That is why they have made only baby steps in 16 years.

I have to question the assertion I am commonly hearing today that there is plenty of consensus over how cost containment and quality improvement can happen.

Define quality for me. Then show me a system where there won’t be as many winners as losers—how else do you save 30%? Then I will show you a real health care policy debate and then we will see how much consensus we have.

Wellness? Wellness programs today look an awful lot like the voluntary education oriented wellness programs we were selling in 1988 and things are far worse. Prevention? Most of the commonsense steps in prevention were available to us years ago.

We have been avoiding the heavy lifting in health care reform for 16 years. For me, all of these new ideas aren't so much new ideas as one more "Groundhog Day" in the long-running health care debate.

We have to get past all of these guys with the “new ideas” and on to the real work for how we will actually implement these things and get a consensus of stakeholders to buy-in.

I am reminded of Paul Ginsburg's conclusion in his recent paper, Demystifying U.S. Health Care Spending, "Overall our understanding of high and rising costs is fairly solid. Our most pressing needs are not as much on the research side as on the development side, that is, all of the technical work needed to pursue many of the reforms..."

That is the discussion we really need to have before we waste our 17th year.