"Sick Around America" on FRONTLINE

You may remember the FRONTLINE report, "Sick Around the World." It was the best job I have ever seen anyone do summarizing five different national health care systems--the U.K., Taiwan, Germany, Japan, and Switzerland--in just one hour.

I recommended it when it originally ran and I recommend it today. You can still see it here.

Now FRONTLINE has aired producer Jon Palfreman's effort to explain America's health care challenge in the FRONTLINE report, "Sick Around America."

This time Palfreman does a great job personalizing America's health care crisis making clear how close any of us who have health insurance are to the edge every day.

Jon has an incredible talent--being able to synthesize complex problems into just 54 minutes of air time.

I hope there is no need in the months ahead for Palfreman to use his considerable talents to synthesize the various health care policy solutions on the table, but if we are still deadlocked next season, I hope PBS assigns that task to him.

In the interest of full disclosure, I was asked to provide input for, "Sick Around America."

I recommend it and you can see the entire one-hour program here.

"EGMN: Notes from the Road"--A Refreshing and Interesting Look Inside the World of Docs

I just discovered a relatively new blog that might be of interest to you: "EGMN: Notes from the Road."

It comes from the publishers of a number of the periodicals physicians read, including Internal Medicine News, Cardiology News, and Family Practice News. Their unique take on the world of health care and policy blogging is to post from medical meetings, press conferences, and policy gatherings from the U.S. and around the world. As they put it, providing us with "analysis of the buzz, the people, and the stories."

They've got a bit of an edge as well as a sense of humor as they do a good job of "down the middle" reporting--particularly the provider perspective on our national health care challenge.

Here's a clip from one of their recent posts:

It’s increasingly obvious that a line in the sand is being drawn, and we’re not talking about one in the desert. Primary care physicians and specialists appear to be headed for a smackdown, aided and abetted by a Congress that’s going to have to figure out how to fund health care reform and also avoid the statutory 21% cut in Medicare physician fees coming later this year.

Or, this exchange over one post:

It turns out that I didn’t need to wear that red sweater to stand out in the crowd of surgeons today at the Academic Surgical Congress. My gender was enough. I spent the day surrounded by men in black suits—OK, so some were navy and charcoal too...

Maybe the preponderance of male surgeons is a consequence of the male urge to fix something that’s broken, and the satisfaction of immediate results, vs. having to wait longer to see the results of an intervention.

On a similar note: Fashion in medical specialties. I have also noticed that the surgeons like their suits and ties. I’m also entertained to see the pediatricians in their sneakers (some with their knitting in hand) and the sports medicine guys in their golf shirts (featuring golf course or team affiliation of choice). One thing I can’t figure out is how the women at any of these meetings who show up in sleeveless tops and sandals keep from freezing. I guess they must slip outside between speakers. Or they just have good circulation.

You get the idea...

I will suggest that many of you will find this blog an interesting way to keep up with what's going on over on the doc side of the health care world.

"Take the $600 Billion in New Revenue from Obama's 'Cap and Trade' Climate Change Proposal and Use it To Pay for Health Care Reform"

Last week Senate Majority Leader Harry Reid was quoted as raising the possibility we could take the $600 billion in new revenue projected from a "cap-and-trade" plan to cut green house-gas emissions and use some or all of it to help pay the estimated $1.5 trillion cost for comprehensive health care reform.

Energy and climate change issues aside that would be a bad idea--a really bad idea.

The biggest health care challenge we face in America is the cost of health care. To really reform the system we have to bring its costs under control. The only way we can achieve sustainable health care reform is to pay for most of the cost of any reform plan out of the savings we achieve fixing the system and its perverse incentives to spend more without regard to what we receive.

Finding $600 billion from another part of the budget to simply subsidize these out-of-control costs would be tantamount to just raising taxes to keep paying this unsustainable bill. Pouring another $600 billion into the system would have the supply-side inflationary effect of just pushing costs up even more--pour lots more money in and it will get spent. Why would any stakeholder--provider or beneficiary--have any incentive to reduce health care costs?

But finding $600 billion would go a long way to also meaning no one in Washington would have to face the hard choices needed to actually reform our system. It would mean we could just promise everyone painless access to whatever health care services they want. Just think how happy consumers, doctors, drug companies, hospitals, and all the rest would be.

That is until the money ran out.

But, you know, this is just shortsighted and politically expedient enough to go somewhere.

"Will CIGNA Remake The Health Plan Marketplace?"--CIGNA Embraces Onsite Clinics

Will CIGNA Remake The Health Plan Marketplace?
by BRIAN KLEPPER

America’s health plans are floundering. If their job has been to provide the nation’s mainstream families with access to affordable care (let’s leave quality out of it for the moment), they have failed miserably, though they were very profitable along the way, at least until Q1 2008. In 2008, the Milliman Medical Index – an estimate of the total cost for health coverage premium and out-of-pocket costs for a family of four – was $15,609. Now it is almost certainly above $17,000, more than the total income of more than one-third of American households.

To many health plan execs, these are simply market dynamics that must be accommodated through new product and service designs. I just attended a health plan conference where the overarching themes were the transition away from group to individual coverage, and the use of incentives and touch points like texting, email, and ergonomic Web interfaces to cultivate member competency, loyalty and retention.

There are important steps forward but, to me, the discussion tiptoed around the more glaring problem – costs this high have exhausted many purchasers’ ability to pay, and are rapidly shrinking health plans’ commercial market and profitability.

Several health plan execs at the conference pointed to the care delivery and supply sectors as the drivers of cost, but that is, at least in part, also an evasion. As payers, health plans can design incentives for more efficient care delivery. They can exert significant pressure on cost growth through many simple but demonstrably effective mechanisms:empowering primary care, leveraging market forces by making cost and performance transparent throughout the health care continuum, paying for results rather than for procedures.

But the harsh truth is that for about 10 years health plans, like all major health care sectors, have focused on anything but cost management for a simple reason: it has been in their short-term financial interests for health care to cost more. (Fully insured plans earn a percentage of total revenues. The large carriers who administer self-funded or ASO (Administrative Services Only) plans have raised administrative fees as claims costs have risen.) The problem is that the long-term consequences of that strategy have arrived.

It has been nearly a decade since, in November 1999, UnitedHealth Group announced that they were curtailing most utilization management activities. Their announcements said that the complexities of pre-certification had actually increased overall costs. And, of course, the process was typically cumbersome and often idiotic, infuriating doctors and hospitals. In a sense, this moment signaled the transition out of the first major phase of managed care, at least as hopefuls like me thought of it, and into a period of relative dormancy.

Like other health plans, United did a poor job conveying to employers and patients health care’s enormous waste and financial conflict, or the seriousness of the approaches necessary to turn those problems around. The physicians’ rebuttal – that accountants and clerks, rather than doctors, were making health care decisions – was well received in the marketplace. Ultimately, nearly all health plans followed suit. The sun set on that era of aggressive medical management.

What remained unsaid, though, was that fewer controls over care, combined with a reimbursement system that rewarded more procedures, would accelerate overall cost growth, and that the health plans, whose profits rose in absolute terms as total revenues rose, could ride that wave. And that’s how it played out. Between 1998 and 2005, health care premium grew 60 percent, or 2.4 times as fast as in the previous seven years. As last week’s Robert Wood Johnson report notes, premium growth between 1996-2006 rose nearly eight times as fast as the growth in personal income.

One of managed care’s more hare-brained ideas was slotting primary care physicians (PCPs) as “gatekeepers.” This meant that, faced with a patient whose condition warranted referral to a specialist, the PCP would likely lose touch with that patient’s care. Inside primary care, declining reimbursements translated to more patients, with less time available for any one patient. Meanwhile, specialists enjoyed increasing pay and were rewarded for doing more, though not necessarily the right, procedures. The continuity of care between primary and specialty physicians gradually eroded until it was all but forgotten. One of health care’s major check-and-balance mechanisms was lost, and costs skyrocketed.

The evidence that primary care should have primacy in any health care system is simple but compelling. Consider that about 30 percent of American physicians – family physicians, internal medicine physicians, pediatricians, and gynecologists – provide primary care, and that about 70 percent are specialists. In virtually every other developed nation’s health system, the ratio is approximately reversed. Their costs are about half ours, and their quality is typically as good or better.

Primary care’s effectiveness in creating better health at lower cost throughout a population is well documented in other health systems and in our own. Studies focused on the US also show that more access to primary care lowers mortality rates, but the same is not true for specialty care.

Sure there are other factors that make our costs higher – access to technologies, lifestyle issues, demographics, and a dozen more – but nothing has as strong or pervasive an influence as the straightforward relationship between the generalist and the specialist. If it is there, then controls for reasonable care are in place. Without it, as the Dartmouth Atlas has shown repeatedly, specialist and inpatient settings are rife with “unwarranted variation” – waste.

Onsite clinics are re-emerging into the American workplace at an astonishing rate. (Disclosure: I have a relationship with WeCare TLC, an onsite clinic company based in Lake Mary, FL.) About one-third of Fortune 1,000 employers already have clinics in place, and surveys show that one-third more will have installed them by the end of 2010.

They are proliferating among jumbo, large and mid-sized firms throughout the country. Although some less-than-astute consulting firms have pronounced that they can only work for firms with more than 1,000 employees, they are scalable when properly deployed. Many employers with as few as 150 employees have implemented them successfully.

Onsite clinics typically provide comprehensive primary care. In most situations so far, they sit in front of, but are separate from, the employer’s health plan. By investing in the clinic, the employer reduces health plan expenditures. This arrangement works best when the employer's health plan is self-funded. In fully insured plans, the savings would accrue to the insurance company rather than the employer. But even fully insured employers can benefit enough from occupational health savings and employee morale to more than justify a clinic.

The best clinics are complex machines.

They:

• Fully empower the primary care physician by providing good decision-support tools, by allowing them to spend more time with each patient, and by encouraging them to collaborate with specialists on their patient’s downstream care. It is worth mentioning that doctor-based clinics often seek to replace the care available on the health plan network, while nurse-based clinics typically are about supplementing the health plan’s care.
• Incorporate incentives that encourage physician performance and clinic use by employees and their families.
• Use a full complement of internal health IT tools – health information exchange, data repositories, analytics to identify patients with risk, analytics to conduct provider profiling, electronic health records, decision-support, internal performance monitoring – to manage clinical and administrative processes, as well as external tools – Web-based scheduling, personal health records, incentive and engagement programs, and linkages to consumer-facing Health 2.0 sites – that help patients become more involved in and aware of their own health and care.
• Develop creative purchasing arrangements for high cost items like drugs, labs, and equipment.
• Offer onsite health/disease/lifestyle management using trained nurse coaches.

Onsite clinics create their impacts in at least four major ways.

They:

• Exchange higher health plan costs for routine care for much lower costs inside the clinic. For example, costs for physician visits, drugs and labs provided through the clinic can be a fraction of what they generally cost through the plan.
• Provide face-to-face management of patients with chronic disease, who consume as much as 70 percent of a typical population’s health costs.
• Facilitate the collaborative management of patients who need specialty and inpatient care.
• Integrate personal heatlh services with those for occupational health – workers’ compensation, human resources testing (like pre-employment screening, drug screening, Department of Transportation exams), retention and recruitment, and productivity (absenteeism and presenteeism).

Not all clinic firms are created equally of course, and some have much better medical management models (and performance) than others. Most – but not all – I’ve encountered so far incorporate most of these elements.

But the effectiveness of onsite clinics is also related to their convenience and to the trust they’re capable of engendering in patients. These characteristics allow them to become fully-realized medical homes, places that patient feel comfortable turning to for care at any time, and places, to borrow NCQA President Peggy O’Kane’s phrase, where the clinicians are thinking about the patients, whether or not they’re in front of the doctor.

In its most basic terms, a clinic is really borne out of a covenant between an employer and a doctor, using the clinic firm as the vehicle, to do an end-around on the health plan. (Because effective clinics reduce health service utilization throughout the continuum, health plans may feel that they are, in part, disintermediated by them.) The employer pays the physician more to become more involved with each patient in the clinic and everywhere else that care is needed. In return the employees and their families receive better quality care at lower cost.

But in my experience, employers investigating a clinic want to understand why, structurally, a clinic will improve care and save them money. The decision to implement is directly tied to their experience that, for whatever reasons, the health plan is NOT going to help them reduce costs. They understand the reasoning that primary care, delivered from the clinic platform, will produce better results.

The explosive growth of onsite clinics is sensible. Within the twin dynamics of high cost health care and an economic downturn, they reduce risk and cost, and return a solid return on investment. They create dramatic improvements in both quality and cost – most report relatively rapid savings of 15-30 percent and reductions in annual cost growth – by delivering preventive, primary care, chronic disease management and acute care coordination services that impact both personal and occupational health.

Over the last couple years, CIGNA has emerged as a hotbed of innovation. At the conference a couple weeks ago, Ingrid Lindberg, who as CIGNA’s Chief Experience Officer leads its member communications efforts, gave a terrific talk on their efforts to create clearer and easier communications for its members and target markets, leveraging modern design and Web-outlets like YouTube, Facebook and Twitter. The other health plan representatives in the room were clearly impressed.

And then I spoke to a national authority on wellness/prevention programs, who volunteered that CIGNA had come very far and was perhaps the most advanced health plan he’d seen in its implementation of wellness/prevention.

But it is CIGNA’s clinics that seem the most telling. In 2008, CIGNA opened clinics for its own employees in 4 Eastern locations. Now, in 2009, it encourages employer clients with 1,000 or more employees to implement these structures.

Because clinics are such powerful platforms that integrate a wide variety of health care functionalities, this move could be interpreted as saying two very important things about CIGNA’s leadership and strategy:

• First, it suggests that CIGNA has broken from the conventional thinking among health plans and decided to pursue actions that can significantly drive down overall claims costs.
• Second, it suggests that CIGNA has decided to back the primacy of primary care, and could create financial incentives for primary care coordination that would be available to community-based PCPs.

If CIGNA were indeed pursuing these paths, it could optimize its clinics' effectiveness through modifications in its health plan designs, creating strong efficiencies in the market, and reducing claims costs and premiums for its fully insured and self-funded clients. If it’s pricing became sufficiently differentiated from other health plans who do not have these mechanisms in place, it might capture tremendous market share from other plans. If it could reduce cost enough, it might even produce new products that are affordable again to employers who have been priced out of the market by the old system.

If CIGNA paid primary care physicians more to spend more time with patients and to become engaged in their downstream care, it could trigger the boost that primary care needs. Providing leadership on this issue could begin the healing that primary care so desperately needs, and provide reason again for medical students to become generalists. The empowerment of primary care, and the hunger of PCPs to be allowed to practice more capably, could amplify CIGNA’s quality/cost management efforts.

These were such tantalizing prospects that, rather than simply speculate, I called and spoke with Jeff Kang, MD, CIGNA's Chief Medical Officer. Dr. Kang told me that, three years ago, CIGNA engaged in an enterprise-wide strategic effort that resolved to change many aspects of its business to optimize service for their customers. I’m paraphrasing here, but he said, “I know many companies will tell you this, but in our case it is true. We are not simply reacting to the crisis. We were determined to make an effort to become the best health services organization possible.”

Dr. Kang confirmed that CIGNA will aggressively pursue its onsite clinic effort, that they do see primary care and medical homes as key to creating improvements, and that they have many plans in these and other areas. He emphasized that primary care was only one of many efforts.

The proof will be in the results, of course. It is more than possible that other major health plans are headed in equally innovative directions, and that I simply am unaware of their efforts.

But, so far, CIGNA appears to be sincere, focused and far ahead of other plans in creating a new, very powerful model of health care delivery that does actually heed the lessons of the last 20 years.

If they, or any health plan with similar aspirations, succeed, they will take the market and change the ways all American health plans operate.

And that would be good news indeed for us all.

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

Anybody Know Where We Can Find a Quick Trillion Dollars?

"Irrational exuberance" over the chances for health care reform meet the budget realities.

The House and Senate Budget committees have begun work on the federal budget.

Last week’s CBO report estimated the Obama budget would:

• Produce a nearly $9.3 trillion deficit over the next decade.
• Generate annual budget deficits of nearly $1 trillion in each year from fiscal year 2010 to 2019.
• Increase budget deficits to more than 4% of GDP each year over the next decade.
• Double the national debt to 82% of GDP by 2018 (it was 8% of GDP in 2001).

Still stunned from that report, and under immense pressure from moderates in the Democratic party to cut spending, both the House and Senate Budget chairs have made it clear they intend to reduce the Obama budget and see the Congress proceed with health care reform following the pay-go rules.

That would mean any new health care reform spending over the next ten years needs to be offset with either cuts to existing spending or with new revenue.

President Obama outlined a $634 billion “down payment” on health care reform in his budget.

Half of that, $318 billion, came from raising taxes by reducing the charitable and mortgage deductions high-income folks pay. That proposal is deader than a doornail up on the Hill.

Another $175 billion comes from payments private Medicare plans get. That proposal will likely survive the budget process--although it may well just get swallowed up fixing the upcoming 21% Medicare physician fee cut. Another $141 billion over ten years comes from minor cuts to health care providers and has a chance of surviving the legislative sausage factory.

So, assuming the HMO cuts and provider cuts survive in the form they were proposed in the Obama budget, we would begin the health care reform process with about $318 billion toward the ten-year cost of the effort.

The consensus of opinion is that an Obama campaign-like comprehensive health care plan will cost at least $1.5 trillion over ten years.

That means for the Congress and the President to achieve comprehensive health care reform they will have to come up with at least $1.2 trillion from a combination of revenue sources and cuts.

Since there aren’t any extra dollars elsewhere in the budget, it’s a good assumption any cuts to pay for health care reform are going to have to come from the health care budget itself.

Comprehensive health care reform of the kind Democrats talked about during the campaign literally comes down to finding another $1.2 trillion to pay for it.

I will remind you of the CBO’s December report on health care budget choices that provides a list of 115 options. It literally provides us with an a la carte menu of options to choose from. It also makes it clear that the cost containment “lite” proposals like wellness, prevention, pay-for-performance, and health information technology hardly make a dent. The big money is in the politically problematic areas of cutting providers and beneficiaries in very tangible ways.

Even if a politically acceptable tax increase can be found to replace the first one the President proposed, that still leaves us about a trillion short.

Any volunteers?

Little Ado About Nothing—Part Deux

Last November, the insurance industry offered to do away with pre-existing conditions limitations. This week the health insurance trade associations have also offered to phase-out the practice of varying premiums based on health status in the individual market.

From their letter to Congress this week:

Specifically, by enacting an effective, enforceable requirement that all Americans assume responsibility to obtain and maintain health insurance, we believe that we could guarantee issue coverage with no pre-existing condition exclusions and phase out the practice of varying premiums based on health status in the individual market.

A reporter called me to ask if I thought this latest offer was a big deal.

I asked her how many employees her news organization had. She said, “a few dozen.” I asked her if the sicker employees pay a higher rate than the healthier in the company health plan. She said, “No.”

I then suggested that if an employer with a few dozen people in their health insurance plan could create a large enough pool to have the same rates for everyone no matter their health status then why would it be a big deal to do the same for a pool with tens of millions of people in it?

The operative phrase in the industry letter is, “by enacting an effective, enforceable requirement that all Americans assume responsibility to obtain and maintain health insurance.” Translated, if the federal government mandates that all men, women, and children in America have to be in the risk pool we’ll take the underwriting risk.

If you have everyone in the pool, there is virtually no underwriting risk. You have underwriting rules in the first place to minimize the anti-selection risk. If everyone is mandated to have insurance—to be in the pool—they can’t select—they don’t have the option to select—to buy or not to buy.

Put in more laymen’s terms, underwriting rules are meant to protect against people, for example, buying insurance on the barn after it burns down. You don’t want people trying to sign up for insurance after they have a loss or after it is clear to them they are sick. But if everyone is required to buy the insurance from the start, you don’t have the problem of people putting off or buying insurance when it is advantageous for him or her and not for the insurer—anti-selection.

Therefore, you don’t need to exclude anyone nor do you need to charge the sick a different price than the healthy because you not only have all the sick folks covered but you also have all the healthy people covered to offset their costs—a mandate that everyone buy insurance automatically has a perfectly balanced universal risk pool.

It is possible that one insurance company, particularly a small one, could somehow get more of the sick people in their pool than another but if that occurred it could be relatively easily taken care of through reinsurance between players.

A few months ago, the industry offered to guarantee that everyone would be insured—guaranteed insurability—if there was an individual mandate. Now they have added the offer to charge the sick and the healthy the same rate—in the individual market.

At that time of the first offer, I called it, “Much Ado About Little.”

The latest offer is, "Much Ado About Little, Part Deux.”

Though, at a time liberal Democrats are pushing to put a government-run health plan in direct competition with the private sector it is good PR.

The Newest Health Care Reform Arithmetic--Unbelievable!

"A coalition representing 30 health care organizations on Monday asked lawmakers in the House and Senate to suspend pay-as-you-go rules when drafting and passing health care overhaul legislation, saying much of the savings introduced by such a plan would be realized beyond the rules' 10-year budget window."

That paragraph from last week's Kaiser Daily Health Policy Report caught my eye.

I don't know whether to laugh or cry on account of this one.

The report cites arguments that major health care reform changes can produce trillions of dollars in savings beyond 10 years, but that many of the changes would require upfront investment.

What's even more startling to me is that the 30 organizations includes the U.S Chamber and the Pharmaceutical Research and Manufactures of America--good Republicans all. The group also includes AARP and the AFL-CIO.

I guess these strange bedfellows can all agree that if there is more money in it for each of them they can come together!

You know, it's one thing to do a ten-year federal budget projection and back-end load all of the savings. That is, "We won't save any money in the near and mid-term but ten years out you don't have to worry." That convoluted "dream on" budgeting has been around Washington, DC forever. But the new one is, "Don't worry if we spend $1.5 to $1.7 trillion (the newest health care reform estimates) over ten years--most of it running up the deficit even further--because we'll be able to pay it all back in 15 or 20 years."

Apparently, we have come to a point where this year's almost $2 trillion budget deficit has numbed everyone's fiscal sensibility. I have no other explanation for how these stakeholders could make this suggestion with straight faces.

We need to do health care reform because our system is outstripping our ability to pay for it now. Costs are out of control now. Medicare is about to go insolvent now. The average cost for employer-provided family health insurance exceeds $12,000 a year now.

When costs are out of control you do not rationalize letting them stay out of control for another decade. You fix it a lot sooner--not more then ten years later.

Or you don't fix it and just screw up the American financial system for a few more generations to come--literally.

These 30 organizations should be ashamed of themselves.

Physician Payment Reform--Time for Hard Choices

I recently authored a guest editorial in the February 15th edition of Family Practice News--"The Leading Independent Newspaper for Family Physicians."

Many years ago, the Congress established the Sustainable Growth Rate Formula (SGR) to control physician spending in Medicare. The concept is simple, if Medicare physician costs grow at a pace beyond affordability, next year's payments get cut to rebalance spending getting us back on an affordable track.

Of course, we now know that Medicare's physician costs have risen faster than the sustainable level and the Congress has overridden the formula every year. Private payments to doctors often tied to Medicare schedules have risen in tandem.

Now the docs are headed for a 21% fee cut on January 1 driven by the SGR if the Congress again doesn't act. Will they just punt again--likely cutting Medicare HMOs to pay the docs--or will they finally face up to physician payment reform?

Today, everyone says ditch the SGR because it's a disaster and hasn't controlled anything. But wait a minute, isn't the SGR just the parakeet in the mineshaft?

Pay for performance (P4P) seems to be the solution d'jour. But it won't work to control costs unless the overall physician community ends up getting less than it would have. P4P proposals without teeth are just a political sham to pay everyone more.

Here is my editorial:

Time for Hard Choices

When it comes to health care reform, one thing no one argues about is that costs will need to be cut. If President Barack Obama and Congress want to insure more people, the money will have to be spent more efficiently.

Unfortunately, however, cutting costs, especially physician payments, is going to be extremely difficult—if not impossible—to do. I have been watching the political debate among physician groups in Washington, and I've also been out in the rest of the country talking to physicians and physician groups. I have come away with the clear impression that none of them believes he or she can be paid less. All of them believe that their backs are against the wall, and that they just can't stay in business under the current reimbursement system. Where does that leave us? I don't know.

Pay for performance (P4P) is one idea that has been touted as a partial solution to our health care cost problem. It sounds like a great idea; who can argue that we should not be paying for good performance? The problem with it is that there's an elephant in the room: If you in fact pay for performance and pay more for the people who are the most efficient, you will pay less to doctors in general. P4P is a means to pay less. It has to be a means to pay less, because the Medicare program—which is currently experimenting with P4P—is headed toward insolvency in a few years. But in the P4P systems I see, it looks like everyone's a winner. Real P4P isn't going to work that way.

Another idea being suggested for changing the health care cost structure is revising the Sustainable Growth Rate (SGR) formula that is used by Medicare to calculate physician payments. But here's a question you don't hear in Washington: What's wrong with the SGR? It was created about 10 years ago to automatically pare back physician payments when the aggregate payments were unaffordable. Is it not the parakeet in the mine shaft warning us about spending too much?

I'm not saying that the SGR is perfect. But isn't it the SGR's job to tell us when the system is broken? If so, please don't shoot the messenger.

The SGR is a good example of real cost containment. Maybe Medicare got the formula wrong in terms of payments to primary care physicians vs. specialists, but in the aggregate, what's wrong with the answer it's giving us? Congress says we have to rebase it, which means “Never mind, let's give the doctors what they want.”

The SGR could be tied to a benchmark we could afford, such as the growth of the economy. If that benchmark were sufficient, we would be on track to payment reform. I don't want to defend the SGR in detail, but tying it to a benchmark of sustainability seems like a reasonable thing to do.

All this still leaves open the question of how much waste there is in health care spending. Data from the Dartmouth Institute for Health Policy and Clinical Practice show that 30% of all health care dollars are spent wastefully. We know how to fix that, but we don't want to do what we know needs to be done. Part of the solution is given in the Obama health plan—deciding which procedures and treatments are appropriate in which circumstances. A federal cost board that oversees when certain procedures are used would go a long way toward eliminating the waste. But that would get a lot of opposition from the device industry and other health care lobbying groups.

Health care reform isn't going to be easy; it involves a lot of hard choices. But we need to have the courage to do what must be done.

The Intensifying Collapse of the Health Care System, Why It's Different This Time, and What We Need to Think About Along the Way

The Intensifying Collapse of the Health Care System, Why It's Different This Time, and What We Need to Think About Along the Way

by Brian Klepper and David C. Kibbe

More than at any time in recent memory, powerful forces are buffeting the health care sector. We are in the midst of profound upheaval, driven by market and policy responses to the industry's long-term excesses. We can already see evidence that the dysfunction of our traditional health system is accelerating. It also seems clear that the center cannot hold indefinitely.

Dog Eat Dog
It is useful to remember that the health care industry's different stakeholders are adversaries. While they clearly share a common understanding that a wholesale meltdown is possible, there is little real motivation for collaboration and no unity. Independent of role, the industry as a whole has been focused on, and extremely effective at, securing dollars from purchasers: government, employers and individuals. But each silo within the industry has been separately focused on growing its own slice of the health care pie. In every niche, there are courteous conceits - access, appropriateness, efficiency and value - reserved for the good manners of public relations. But these are meaningful in practice only if they do not conflict with the professional's or the firm's economic performance.

Back in December when the bloom of the Obama election was still on the rose, the rhetoric of health industry representatives reflected widespread, earnest agreement that we must finally move toward meaningful reforms. But as the details of reform have taken shape, their impending realities have started to chill the industry's public stance on change. And so the gloves are coming off to protect self-interest as the system seeks solutions.

Steven Pearlstein of the Washington Post detailed the campaign by conservative commentators led by Rush Limbaugh to discredit the stimulus bill's allocation for comparative effectiveness research. The mantra was that this effort was really cost-benefit analysis intended to deny people care. But the funding for the disinformation effort came from the drug and device industries. The funders worried that credible data showing which drugs and devices actually worked best would wreck their sales, margins and, most importantly, their business paradigm of the last twenty years.

Short of an enterprise-wide catastrophe that sinks all ships, fundamental differences in goals will also make any real collaboration and compromise among the power players difficult. A New York Times story last week focused on two important unions, the Service Employees International Union (SEIU) and the American Federation of State, County and Municipal Employees (AFSCM), that suddenly and without comment, quit the multi-constituency Healthcare Reform Dialogue (HRD). HRD, a health care reform coalition, has tried to bring together employers, unions, and health industry players to find consensus on reform approaches. It is hard to not interpret this seemingly insignificant event, the shattering of unity by apparent intense disagreement, as a foreshadowing of the ferociousness yet to come on health care reform.

Then there's the simmering rage that lower- and middle-class Americans harbor for the industry. Most lawmakers are finally realizing that this is a sleeping dragon. True, nurses, pharmacists and doctors, in that order, continue to engender the greatest consumer trust of professionals. But many health care corporate segments - certainly the health plans and the drug companies - are widely seen as taking advantage whenever they can. Remember audiences' overwhelmingly supportive reactions to Helen Hunt's frustration with her HMO in the 1997 movie, As Good As It Gets?

So we have the industry's fragmentation and fear of reduced margin, and the consumers' seething. Now add an unexpected national economic downturn, and the industry is finding that tolerance of its exorbitant costs is evaporating and that its very structure is in question. Health care has out-priced the mainstream of its purchasers, a sin that is finally being revisited on every sector of the industry.

A Deteriorating Marketplace
We see circumstantial evidence that the health care industry is under unprecedented siege in the marketplace, the fruit of longstanding business practices that, as John Sinibaldi so eloquently pointed out last week, have consistently favored health care vendors over patients and purchasers.

Health plan enrollment is now like a sieve. At a recent conference of senior health plan executives, all admitted that enrollment had recently dropped precipitously. Some members are switching to other plans. But many more are dropping out because their premiums became unaffordable, or because they've lost their jobs. The execs also agreed that the multiplier used by industry professionals to estimate the number of total lives from employee lives, stable at 2.2 for many years, has plummeted over the last few years to 1.8. If true, that would signal that increased costs have driven fewer businesses to subsidize dependent coverage, resulting in a 20% drop in total enrollment - the casualties would be mostly children here - that is NOT being reflected in the uninsurance surveys. In a related vein, HHS data from before the economic downturn show that only 39% of Florida's small businesses - they comprise 95% of all Florida businesses - still offer health coverage to their employees. This is significantly below the coverage values reported by the Kaiser Family Foundation, which makes it difficult to believe that these dynamics are accurately reflected in the surveys of those populations.
As coverage erodes, we are most concerned about the hospitals and health systems that are the anchor health care resources in most communities. With the economy and stocks tanking, the investment income that was keeping many health systems afloat has disappeared. The ranks of the uninsured and underinsured have exploded, so uncompensated care costs and bad debt are skyrocketing. Few health systems have gotten serious about huge supply chain margins, often north of 50 percent, so there's nowhere to turn in the short term. While safety net short term acute care facilities have been under duress for many years, now these trends are conspiring to also threaten the community facilities that cater to those with more resources. One recent survey of 4,500 health systems, published before the economy really began to plummet, found that more than half were "technically insolvent or at risk of insolvency."

As the economy has worsened, and jobs and money evaporate, many patients are breaking physician appointments or are unable to pay for services received. Bad debt has become much more of a problem for physician practices, so many have become more aggressive in collections. We have received anecdotal reports that some physician practices are demanding payment in full prior to procedures, and are balance-billing their health plan patients in direct violation of their contractual agreements. The health plans aren't positioned to police every practice's policies. But if this trend is widespread in the system, it suggests that the niceties of business practice are going by the wayside as practices struggle to maintain.

Finally, the combination of health coverage erosion and high care costs is fueling an arms race that, until fixes are in place, patients will lose. The two fastest growing segments of the health care financial sector are individual credit scoring and collections, specifically aimed at capturing available dollars for the system. In this economy, aggressive collections practices will drive many more patients into bankruptcy, intensifying consumer dissatisfaction and further fueling the engines of change.

Is Health Care A Bursting Bubble?
One of us recently had a 3.5 hour diagnostic procedure at a local hospital outpatient surgery center. The EOB (Explanation of Benefits) from the health plan showed the hospital had submitted a facility charge of just over $13,000 - more than four months of total income for one-third of American households - and the health plan paid approximately $1,300, which means that willing vendors and purchasers agreed that the procedure's market value was 10% of the charge.

But without insurance, we would have been legally responsible for that bill, with the willingness to negotiate utterly at the discretion of the health system. Setting aside the fact that charges are crazily tied to the evolution of Medicare cost reports and grow out of stuffing every bit of possible cost into each charge, the EOB begs three questions.
1. Is it appropriate to add a 1,000% surcharge for the sin of uninsurance. For not-for-profit health systems especially, is it appropriate to do so while receiving a tax break for providing community service?
2. When a provider chooses to pursue a receivable figure that is more than the established market value (as determined through the contractual figure with the health plan), can that effort properly be understood as inflating the market?
3. Can a system maintain stability when it inflates value beyond the means of most of its purchasers ?

The definition of a market bubble is a high variance between the intrinsic value of a product and its market valuation. Bubbles always burst eventually, as inflated market values tumble back towards intrinsic value. We're seeing this with homes and banking stocks. Are we there yet with health care services? Could America's health system collapse?

The Threat
It's hard to imagine the health care system in free fall. The federal government pays for approximately half of health care already, through allocations for Medicare, Medicaid, SCHIP, the VA, and the Federal Employees' Benefit Program. The stimulus bill allocates a "down payment" of $634 billion for health care reform over the next ten years, assuming that somehow this money will go to save health care dollars. But it could just as easily become a bail out for the failing health care sector, massively larger than the bailouts for the banks or the autos, and "too large to fail." Keep in mind that health care is now 16 percent of the US economy, one dollar in seven and one job in eleven, so large that any significant disruption in the sector would inevitably cascade to all other parts of the economy.

And the threat goes both ways. Health care could push the larger economy over the cliff, or the reduced resources associated with the downturned economy could precipitate the collapse of a health care sector that has become accustomed to inflated reimbursements. Either way, American society is vulnerable and in very big trouble.

It goes without saying that, as the funding dries up, the safety net provider organizations that deliver the lion's share of care to the medically indigent will fail first, as did Martin Luther King in Los Angeles, and as Grady in Atlanta almost did. A year ago, the safety nets' distress at the edges of the system were already the most tangible signs of the unfolding crisis. Now, the problems we've described above are with mainstream providers who cater to the middle class. What we have not seen yet is the impact on the health care supply chain, which accounts for 40 percent of health care dollars and which are also tremendously over-valued.

The Opportunity
Instability in systems that are directly connected with important societal benefit is never good, because powerless people suffer disproportionately according to caprices of fortune and the system's rules. American health care certainly fits that bill at the moment. A majority of the American people are very unhappy with the system, and nearly every sector of the health care industry is under increasing and unsustainable stress. American health care's storm clouds are gathering. It's very ugly right now, and getting worse.

The good news is that, as the system becomes becomes increasingly unstable, the opportunity also increases for a full scale overhaul of health care, as well as for the development of both policy- and market-based solutions that build on experience and that can have lasting utility. If our leaders are unwise and susceptible to special interest influence, it could also go the other way. But times like this are our best shot, because the problems are so glaring and the solutions that are in the common interest so straightforward.

Whatever path we go down, health care is certainly poised for significant change. Part of our national effort for that change must include a transition plan that consciously seeks to reduce to a minimum the turmoil involved.

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

The Obama Health Care Budget Cost Cuts Pretty Small

In conversations with members of the press the last couple of days, it is apparent the scope of President Obama's proposed federal health care cuts is not well understood in context.

Is the President really making hard choices to bring America's health care spending under control?

You decide.

Here are some facts from the Obama budget message spreadsheets (pages 117-127):

• In 2012, three years into the plan, federal health care spending is reduced by $18 billion--to still 97.7% of what it would have been without the cuts.
• In 2019, the Obama budget reduces federal health care spending by $51 billion--to 96.3% of what it would have been.
• Half of the administration's proposed health care spending cuts come from reducing Medicare HMO payments by $177 billion.
• Separating the HMO reductions, looking at just cuts to what we would consider the traditional health care providers--doctors, hospitals, drug companies, home health care--the Obama budget calls for just $6 billion in cuts in 2012 which is less than 1% of what the Medicare and Medicaid budget would have been.
  
• The total spending cuts to these traditional providers (other than Medicare HMOs) totals $19 billion in 2019, about 1.4% of what the budget would have been.
  

The Obama budget did not tackle physician payment reform or call for any physician payment cuts but said, "The Administration believes that the current physician payment system, while it has served to limit spending to a degree, needs to be reformed to give physicians incentives to improve quality and efficiency. Thus, while the baseline reflects our best estimate of what the Congress has done in recent years, we are not suggesting that should be the future policy. As part of health care reform, the Administration would support comprehensive, but fiscally responsible, reforms to the payment formula. "

The Congress has overridden the physician payment cuts called for by the Sustainable Growth Rate Formula eight years in a row--the most recent time this past July when the Congress overrode the pending 10% physician fee cut by eliminating private fee-for-service Medicare in 2011 to pay for it.

"Five Recommendations for ONC Head Who Understands Health IT Innovation"

The team of David Kibbe and Brian Klepper are at it again with some advice on who best understands the health IT challenge in America:

Five Recommendations for ONC Head Who Understands Health IT Innovation

by DAVID KIBBE and BRIAN KLEPPER

Now that the legislative language of the HITECH Act -- the $20 billion health IT allocation within the economic stimulus package -- has been set, it's time to identify a National Coordinator (NC) for Health IT who can capably lead that office. As many now realize, the language of the bill can be ambiguous, requiring wise regulatory interpretation and execution to ensure that the money is spent well and that desired outcomes are achieved. Among other tasks, the NC will influence appointments to the new Health Information Technology (HIT) Policy and Standards Committees, refine the Electronic Health Record (EHR) technology certification process, and oversee how information exchange grants and provider incentive payments will be handled.

Previously we have described our concerns with US health information technology and the policy agenda that has grown up around it. In the case of EHRs specifically, the tools that have been developed to date are often non-ergonomic, excessively costly, non-interoperable, and interruptive of practice work flows. They continue, in many cases, to use client-server rather than Web-based technologies, creating barriers to lower cost and easy data exchange. Most important, these issues are obstacles to the organic, market-driven development of a nationally compatible health IT platform. In large measure, they have resulted from the protectionist influence of powerful health IT firms whose interests would be best served by approaches that build on proprietary and pre-Internet health IT designs rather than upon innovation that would move health care closer to e-health.

We believe the key question for the Office of the National Coordinator (ONC), as the Secretary of HHS' principal Health IT adviser, is centered on whether and how health policy encourages innovation. Will the NC promote desperately-needed progress in the development, implementation and use of health IT, or constrain it under well-meaning but often over-zealous certification and standard setting? Will we buy innovative tools that let both providers and patients achieve better quality and lower cost, or buy yesterday's expert systems that resulted in our current problems? Will we facilitate and build on incremental solutions, or continue to delay action through endless expert panels, meetings, and rules-setting exercises?

The aperture of innovation can be opened much wider than it has been. Here are five individuals each of whom, we believe, as National Coordinator, would encourage innovation and change from the status quo. All of these people have demonstrated a vision of health care connectedness, quality, and efficiency that are in the common, rather than the special, interest, and each has the administrative skills and savvy to bring that vision to fruition.

Farzad Mostashari, MD MPH
Assistant Commissioner
Primary Care Information Project
New York City Department of Health
and Mental Hygiene

Dr. Mostashari chairs the Primary Care Information Taskforce, whose goal is to bring about the adoption of public health-oriented health information technology in underserved communities. He is a primary care physician with the unprecedented experience of having rolled out EHR technology to physicians and medical practices serving over 30 percent of New York City's Medicaid and underserved population. Among the largest and most successful EHR implementations in the country, this effort has included 1,500 public and private sector medical practices, rather than simply one large enterprise. An epidemiologist, Dr. Mostashari understands data and has the statistical expertise necessary for decision making at the individual, community, and population levels.

Dr. Mostashari has hard-won hands-on experience with implementing EHR technologies in the small and medium-sized medical practices that make up 75 percent of America's medical community, as well as knowledge that extends to public health and preventive services. He would bring a pragmatic vision of connected health for all Americans.

Carol Diamond, MD, MPH
Managing Director, Health Program
Markle Foundation

Dr. Diamond chairs Markle's Connecting for Health program, a public-private collaborative working to realize the full potential of information technology in health and health care. Among other significant achievements, she led the multi-year collaborative that produced the Common Framework for Networked Personal Health Information, the widely-endorsed (and current default) set of principles and practices that govern the exchange of personally identified health data among health care institutions, and between health care institutions and lay people. Dr. Diamond works with many private sector groups, government agencies, and health information technology bodies. She played a role with federal agencies and the health IT community in the development of www.KatrinaHealth.org, a secure web site that made prescription medication histories available to doctors and pharmacists caring for evacuees whose medical records were destroyed in the hurricane.

If the new NC must possess particular skills, it will be those of mediator and coalition builder. With a deep understanding of the challenges and opportunities ahead, Dr. Diamond has led national health IT collaboratives that actually produce results people, provider organizations, and health IT companies, can use.

Peter Basch, MD
Medical Director for Clinical Ambulatory Systems
Medstar Health System

Dr. Basch, DC area MedStar Health's medical director for e-Health, has been a leader in applying IT to the needs of physicians. An early EHR adopter in his own practice at MedStar Health, Dr. Basch now is directing EHR implemention throughout all of MedStar's ambulatory practices. He is a frequent writer, speaker and expert panelist on EHRs, interconnectivity, health care's transformation through IT, and the sustainable business case for information management and quality. Dr. Basch served as the chairman of the Maryland Task Force on EHRs that recently issued its final report. He has co-chaired the Physicians’ EHR Coalition, is a board member of the eHealth Initiative, and a member of the American College of Physicians’ Medical Informatics Subcommittee and Medical Services Committee.

With Dr. Basch, we'd get deep technical expertise, direct experience with implementation, credibility among practicing physicians and their membership organizations, an a voice that can represent primary care within large enterprises.

Carolyn M Clancy, MD
Director, Agency for Healthcare Research and Quality
Washington, DC

Prior to Dr. Clancy's appointment on February 5, 2003, Dr. Clancy was Director of the Agency's Center for Outcomes and Effectiveness Research (COER), then AHRQ's Acting Director. A general internist and health services researcher, she was a Henry J. Kaiser Family Foundation Fellow at the University of Pennsylvania. Before joining AHRQ in 1990, she also was an assistant professor in the Department of Internal Medicine at the Medical College of Virginia in Richmond. Dr. Clancy holds an academic appointment at George Washington University School of Medicine (Clinical Associate Professor, Department of Medicine) and serves as Senior Associate Editor, Health Services Research. She has served on multiple editorial boards (currently Annals of Family Medicine, American Journal of Medical Quality, and Medical Care Research and Review). Dr. Clancy has published widely in peer reviewed journals and has edited or contributed to seven books. She is a member of the Institute of Medicine and was elected a Master of the American College of Physicians in 2004. Few people in DC have the credibility and respect that Dr. Clancy deservedly enjoys.

Carolyn Clancy has grace, patience, vision, and deep knowledge of health care processes. She hung on at AHRQ throughout the Bush years, clear demonstration that she understands and can skillfully negotiate DC's landmines. And perhaps as well as anyone, she understands the opportunities that lie ahead for evidence-based medical care in the United States. That background would allow her to foster effective leadership and innovation throughout health care.

Adam Bosworth
CEO, Keas, Inc.
San Francisco, CA

Mr. Bosworth joined Google in July 2004, having left BEA Systems, and earlier, Microsoft. In early 2006, he gained widespread attention as being "architect, Google Health." Bosworth is widely recognized as a pioneer and key figure in the evolution of extensible markup language, or XML, the standard upon which e-commerce most depends. Bosworth was a senior manager at Microsoft, where he drove the company's XML program from 1997 through 1999. He was then named General Manager of Microsoft's WebData organization, a team focused on refining the company's long-term XML strategy. While at Microsoft, he was also responsible for designing and delivering the Microsoft Access PC Database product, and he managed the development of the HTML engine used in Internet Explorer 4 and Internet Explorer 5. He is one of the most successful software engineers of the past 25 years, chief product manager for numerous well-known products that have changed our every day world, including Internet Explorer, Microsoft Access, extensible markup language XML, and Google Health's Personal Health Record.

Over the last couple years, Mr. Bosworth has impressed health care audiences with the scope of his knowledge and vision for how more broadly conceived health IT could positively shape the supply, delivery and financing of health care. An outside-the-box candidate par excellence, he has complete fluency in how software and standards for data exchange work. Although relatively new to the health care sector (compared with our other recommended candidates), Mr. Bosworth's unparalleled technical expertise, history of consistent innovation, and his fresh approach to health care's structural problems might be just the infusion the industry needs.

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.

A Detailed Analysis of the Obama Health Care Reform Budget

Speaking about the imperative to bring America’s entitlement spending under control last December, Barack Obama said, "What we have done is kicked this can down the road. We are now at the end of the road and are not in a position to kick it any further. We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's.”

Right-on!

But in his first budget message, President Obama hasn’t made anywhere near the hard decisions that need to be made. In 2019, for example, when his proposals are all in, his budget would shave only about 3.5% off our Medicare and Medicaid bill, and half of his health care funding comes not from spending cuts but from new taxes—hardly examples of “seriousness” in making “hard decisions.”

Read the rest of this post on the Health Affairs Blog

A Commission on Entitlement Reform--A Good Idea

The Kaisernetwork reported the following today:

On Sunday, White House Office of Management and Budget Director Peter Orszag during an appearance on ABC's "This Week" said that Obama might establish a commission on entitlement reform, or broader health care reform, to take some of the authority over the development of legislation from Congress. Under such a commission, the Obama administration and lawmakers would reach an agreement on legislation, and Congress would vote on the bill without amendments. Such a commission "would move a lot of the decision-making away from ... Congress ... towards a group of more politically insulated and technically skilled people," Orszag said, adding, "We will be exploring all of these ideas with the Congress"

This is a good idea.

As I have posted, when they released their budget last week it was clear to me that the Obama Administration was not able to make the "hard decisions" the President himself has called for in order to reform entitlements.

That is not to say this administration does not know what needs to be done--starting with their very competent budget director.

But the Obama health care budget cuts hardly make a dent.

In 2012, the Obama "down payment" on health care reform only reduces Medicare and Medicaid spending by 2% of what it would have been without their proposed cuts. In 2019, with the proposed reductions "all in," the federal health care bill for these entitlements would still be more than 96% of what it would have been anyway. The Obama budget didn't even attempt to deal with the huge challenge of reforming physician payment. Half of these cuts alone come from one place--cutting the Medicare HMOs--and spreads the rest across a number of health care providers.

For the Obama administration to essentially punt the big and politically problematic health care spending decisions to the 535 disparate members of Congress isn't going to get us sustainable health care reform.

Health care reform is unlikely if the process is left to the traditional Capitol Hill "sausage factory" because the special interests would cut good policy to pieces.

The commission on entitlement, or overall health care reform for that matter, idea Orszag has floated is the best chance we could ever have