What I'm Telling the Health Care Business About the Future

Last week I did a post, The Chance for Major Health Care Reform in Either 2009 or 2010 Is Now Zero.

I made the point that the bailout the Congress is now voting on is on top of a 2009 projected federal budget deficit that the White House has already estimated to be $500 billion. Add to that the $300 billion in deals the feds have done for the likes of Freddie, Fannie, and AIG. Then we have the $200 billion expiration of the Bush tax cuts in 2010 the new Congress and President need to deal with next year.

On top of all of this, the notion we are going to spend billions more on health care reform is unrealistic.

I have been reminded that the $700 federal bailout would be "off budget." That is this would all be accounted for not as an expenditure but as an asset purchase and therefore not added to the deficit. That accounting point is true--although about $25 billion in interest on the bailout will add to the annual deficit.

I am also optimistic that the AIG bailout, and the up to $700 billion purchase of "toxic" mortgages, would ultimately at least come close to paying for themselves. I actually believe taxpayers will make a good profit on AIG. The $85 billion loan in exchange for an 80% stake in a company, whose insurance businesses are likely worth far more than that, should end up to be a good bet. The discount paid for the mortgage debt and recourse that buyout is based upon will at least come close to allowing us to make out there.

But, what I have been telling my clients this past week is that we will face a major economic correction because of the more permanent changes that will come to the credit system.

The U.S. economy has been on one incredible run--all based upon unrealistically easy credit. With or without the bailout, that is now coming to a hard end and there will be an adjustment.

To buy a house you will now need good credit and a solid down payment--house sales will rebound but at a more modest level.

In a more reasonable credit environment--the kind we should always have had instead of the foolish credit environment we did, there will also be fewer car loans and credit card limits and interest rates will all change in response.

We will now have to ratchet down to an economy that can be sustained by more reasonable and prudent credit rules. That means less housing construction, fewer cars sold, and less use of credit cards in restaurants and big box stores. That means lower employment in these businesses and at the manufacturers and distributors that supply them.

That means fewer insured lives and it means less tax revenue at the state and federal levels. That will mean less money for Medicare and Medicaid.

This is all bad news for private Medicare. You heard Barack Obama at Friday's debate--Medicare Advantage is where the money is. Even if McCain is President, look for that private Medicare money to be used as needed to cover any Medicare or Medicaid provider cuts on the table--the January 1, 2010 21% Medicare physician fee cut right on top of the list.

Even after taking the "extra payments" from private Medicare, I doubt that will entirely insulate the other providers--docs, hospitals, pharma, device, or others like durable medical equipment providers. The upcoming "food fight" I have been talking about between all the providers about how to divide the Medicare and Medicaid money is only going to intensify. With it, will come the likelihood of cost shifting from public to private programs in the way providers bill commercial health plans.

I do not see this as a pessimistic view. I see this somewhat hard landing as the best view. It presumes our economy begins to respond to all of this restructuring in a relatively orderly way as it ratchets down to a more sustainable level based on a prudent credit market.

The pessimistic outlook, in my view, is that this will be more than a rational economic adjustment. That's the view to really be afraid about.

As the economy adjusts itself to this new reality, there will be no money for big health care reform plans--although what will likely be a growing number of uninsured will create an imperative for it to happen. An imperative that will be stymied by budget issues driven by the economic adjustment.

If you want to be told the financial crisis is not going to have a fundamental impact on the business of health care, or health care reform, you won't hear that here.

Health 2.0 in San Francisco October 22-23

Matt Holt is getting ready for his upcoming Health 2.0 conference and asked that I pass along his personal invitation:

The next Health 2.0 conference will be held in San Francisco, California from October 22nd - 23rd at the San Francisco Marriott. The theme will be a return to the focus that made our first conference a resounding success: Web 2.0 technologies, healthcare and all points between. We'll provide a sweeping overview of the things that are happening in this exciting area. Covering everything from innovations in search to healthcare-focused social networks and consumer sites as well as the exciting trends in wellness and personalized medicine taking shape on the horizon.

Health 2.0 User-Generated Healthcare will be a much larger event than our pervious conferences with nearly a thousand guests, appearances by the top names in technology and healthcare, and a lineup of carefully picked startups active in the area.

Presenting at Health 2.0 will be the senior leadership from technology and service companies including: Google, WebMD, Midrosoft, athenahealth, HealthGrades, Sermo, PatientsLikeMe, Navigenics, MedHelp, American Well, HealthLine Networks, Yahoo!, HealthCentral, Cisco, A.D.A.M., DrGreene.com, 23andme, MedHelp, Gaming4Health, and about 100 more.

Matthew Holt of Health 2.0 (and THCB) offers my readers $50 off the
registration fee. To get that offer click here.

The Chance for Major Health Care Reform in Either 2009 or 2010 Is Now Zero

A couple of weeks ago I did a post, The Pretend Presidential Debate on Health Care--The Health Care Press Needs to Force the Presidential Candidates to Get Real on Health Care "Change".

In it I made the point that facing a $500 billion budget deficit next year, the sunset of the Bush tax cuts in 2010, fixing the alternative minimum tax problem once again, and the cost of the Freddie and Fannie bailout, the presidential candidates needed to get real about health care reform. Instead of giving us their rote health care talking points, I said they needed to start telling us how they were really going to deal with health care reform in the face of all of these challenges.

Just when you think things can't get any worse....

Two weeks later you can add the AIG bailout and as much as a $700 billion bailout of the financial system now being considered by the Congress to the reasons why the health care plans of both candidates are no longer relevant.

On top of that $500 billion deficit in 2009, the Congress is now being told it must take on a total of almost $1 trillion in government long-term costs to try to turn the financial system around.

I would suggest that lots of things have changed since each candidate offered their health care reform plan.

Obama's health plan will cost at least $100 billion a year. That's now a non-starter.

McCain's health plan counts on deregulation of the health insurance industry. Do I even need to explain to you why that is a political non-starter in this environment?

I don't know about you, but watching both Obama and McCain I feel like they are living in a parallel universe from the one the rest of us are in. We are living in the midst of the greatest financial crisis to face this country since the Great Depression--the outcome unknown and able to tip either way--and these guys are out there on the hustings as if this is all just another partisan reason to beat up on the other guy. I'm not seeing a lot of leadership here. Instead of making meaningless political speeches in the Heartland, why aren't they on the Hill this week leading their respective party--and the country--to a solution?

These guys have the greatest opportunity of any presidential candidate ever to demonstrate to voters why they should be President by taking their seats in the U.S. Senate and showing us their leadership skills.

On health care, they need to get just as real.

What are their plans to reform health care that actually make sense and can be implemented in the face of all of the things this crisis has changed?

AIG and Regulation Versus Deregulation

As I posted earlier today, I believe the feds did the right thing in making sure AIG did not fall.

But as the dust settles, that takes us to another big question--the question of more or less regulation generally and, more specifically for readers here, more or less regulation for the health insurance industry.

The first thing to note is that the existing state regulation of the insurance industry generally worked well in AIG's case. AIG's mainstream insurance business is in great shape.

AIG's problems were in its bond wrap business--the financial side. That said, those were financial products offered by a sub of an insurance giant and the regulators blew it in letting them so leverage the company where they essentially guaranteed the housing bubble. My 20-something son passed on buying his first house in 2004 and 2005 because he was smart enough to smell a bubble--but the AIG guys weren't and that is unforgivable.

The nation's perspective on the regulation of business will now very correctly focus on getting our financial regulatory systems back to what they should have been. Even Palin and McCain are calling for the regulators to do their jobs!

This is also a reminder that there needs to be a very even balance between government regulation and private enterprise. A balance that has clearly gone too far in favor of greed.

John McCain has called for a more vibrant and more unregulated health insurance market as a core solution to our health care problems. Whether or not he is elected, I expect those ideas are now incredibly out of step with voters more than wounded in recent days by the unfettered market.

I also call your attention to Joe Paduda's post today, "Implications of the AIG bailout"

AIG--The Feds Did the Right Thing and Only They Could Have Done It!

There is that old saying: "There are the bears, the bulls, and the pigs--and the pigs get slaughtered."

This past weekend I witnessed the most incredible thing I had ever seen in the insurance industry with the demise of the world's largest insurer--AIG. AIG was not just a company--it was a legend in the industry.

Now, a couple of days later, that has been trumped--in spades--by the United States Government taking over AIG.

If a year ago, or ten years ago, you would have predicted the demise of AIG no one would have believed you.

That the feds would, for all practical purposes, seize AIG is nothing short of science fiction coming true.

But I have to tell you the feds are right-on.

It will be an orderly unwinding and resturucturing of the company. That is the only possible good outcome for our economy and our financial system.

The reasons go way beyond the problems AIG has caused in the financial system with its insuring "credit default swaps"--the height of greed and stupidity. In the end, AIG bet the American housing bubble had no limit.

Sure they could have gone into Chapter 11. The problem is you can't put an insurer into Chapter 11 and avoid a run on the bank. When the run hits there is no orderly reorganization. The whole thing would fall like a bunch of dominoes in a matter of days.

Yes there are regulatory structures in the states that would protect policyholders. But never has a company with as many businesses in as many places failed. The regulatory safety net spread across all 50 states and any number of nations might have been overwhelmed by the enormity, and worse the complexity, of the failure.

The run would have come in the form of corporate and personal lines customers all rushing to get their business moved away from the company. Who would have wanted to be the last policyholder?

With the company's failure to raise capital at the top of the headlines, that run was maybe a day or two away at most.

I have no problem with AIG failing. It is the destiny they made for themselves.

But their failure had to occur in an orderly way or the rest of us would be among its victims--a part of the slaughter--not something we deserved.

The federal takeover will enable the company's many businesses to be sold off and merged into other companies operations that can continue their work and pay out their obligations--or remain as part of a restructured AIG. The millions of claimants, insureds, and tens of thousands of innocent workers can make an orderly transition.

Only the U.S. federal government was large enough to do this. The fact that there was no one else who had the $85 billion and could come forward made that point in the days leading up to the rescue.

The downside was something I don't think any of us can even contemplate.

The upside is that AIG is filled with literally dozens of very good businesses, that when they are sold off or remain in a smaller AIG, will likely yield a profit for taxpayers.

We are in territory we have never ever seen before. There are no precedents. A new book is being written.

I think the feds dodged one huge bullet for all of us in a way that wipes out 80% of the company's value for the people who screwed up what was an impressive company. 100% would have been better.

Paulson and company got guts. I'm glad their guts trumped any ideology.

I am also sure they would tell us this was the best out of lots of bad options.

I just hope they don't run out of money before the mess all of these pigs have created is over.

The Pretend Presidential Debate on Health Care--The Health Care Press Needs to Force the Presidential Candidates to Get Real on Health Care "Change"

Let's pretend that either Senator Obama or Senator McCain will be able to implement their respective health care reform plans if elected. Should be easy--we've been doing it for months now.

Or, we can get real and expect them to do the same.

For all the arguments both are making that they are change agents, including over the candidates' competing health care reform proposals, is this dirty little secret––neither Senator's health care plan has a chance of being implemented.

Senator McCain is not going to get a likely Democratic Congress to pass a health care reform plan that eliminates the deductibility of employer-based health insurance and pushes millions of consumers into a wide-open and less regulated insurance market.

Maybe the Congress should pass it--but they won't.

If Obama is elected he will not get even a Democratic Congress to pass his health care plan which will cost at least $100 billion a year. The 2009 deficit is now projected to be in the $500 billion range--and that is before the huge cost in 2009 to extend the Bush tax cuts even Obama favors and the cost of the Freddie and Fannie bailout.

Maybe the Congress should pass Obama's health care reform plan in the face of these overwhelming fiscal realities--but they won't.

So this presidential debate over "my health plan versus your health plan" is interesting but it's actually pretty irrelevant.

The real question that needs to be put to these candidates: Just how will you achieve bipartisan health care reform in the face of the reality of needing to deal with a Democratic Congress (McCain) and a crippling budget challenge (Obama)?

Bipartisanship means reaching out to get enough of the other guys onside. Political leadership means finding the place a deal can be made. So, just how would these candidates get the job done?

Let me suggest that it is more important for voters to hear from these candidates about how they will handle the real world of health care reform rather then the pretend one they seem to be debating.

Let me give you a for-instance.

There is one bipartisan health care reform plan that takes from both sides and the CBO says is cost neutral. It has 16 Senate sponsors--8 Republicans and 8 Democrats.

Senator Ron Wyden (D-OR) and Senator Robert Bennett (R-UT) have crafted a health care reform plan that gives both sides the most important things each are looking for:

• For the Republicans, it gives them a plan that moves away from the third-party employer-based payment system to one of individual responsibility and the promise of a more vibrant market.
• For the Democrats, it provides a plan that assures everyone will have access to coverage and provides the financing to get about everyone covered in the short-term.

But here's the big one: The Congressional Budget Office and the Joint Committee on Taxation have said the Wyden-Bennett plan could be operational by 2012 and would be budget neutral by 2014! In health care terms, parting the Red Sea would be an easier accomplishment.

I'd ask McCain and Obama just how they would accomplish health care reform--in the real world not in the pretend one they are in now. I'd go further and ask each of them if he would sign the Wyden-Bennett plan if it came to his desk.

If I had the answers to these questions then I would really know something about just how they would be "change" agents and accomplish health care reform!

Update on the financial crisis and health care reform: What I'm Telling the Health Care Business About the Future

Earlier post:
Watch the Wyden-Bennett "Healthy Americans Act"--It Could Be the Place Health Care Reform Compromise Takes Place in 2009

"Lipstick on a Pig"--The McCain Campaign is Defining the Fight

The quickest route to a political loss is to let the oppostion define the fight.

Anyone who listened to just 10 seconds of the Obama "lipstick on a pig" sound bite knows he wasn't talking about the Alaska governor.

But what this whole dust-up tells us is that the McCain campaign is defining the debate and the Obama side can't get their message out.

Not that long ago the Obama campaign was complaining about remarks McCain's campaign manager made when he said that this election was going to be more about personalities than issues. Apparently, the McCain people believe they have the best ground on that score.

Well so far the McCain people are succeeding with personalities over issues. Palin has been their biggest win on that battleground.

The press used to refer to President Reagan as the "Teflon president." Bad news just didn't seem to negatively impact his approval ratings and it drove the press nuts. I believe the reason was that so many people simply had a sense of how Reagan felt about things and that he thought like they did. As a result, the policy details were not so important. People could overlook the daily bumps in the road knowing they had confidence in the general direction President Reagan was heading.

A recent poll shows that Palin scores a point higher than Obama, and a lot of points higher than McCain and Biden, over the question of "which candidate understands my problems."

Palin has struck a cord. Lots of Republicans and, more importantly, independents view her as seeing the world as they do and they are comfortable with that--and that has so far been a boon to the Republican ticket. When that happens, just like Reagan, the complex over-your-head details on things like health care reform aren't so important. You just know she'd fix it like you would.

There are still almost two months to go to election day.

Attacking Palin personally--which Obama did not do on the "lipstick" issue--will backfire.

Ironically, Obama was the beneficiary of a personality-driven contest with Mrs. Clinton. Now, he's on the other side of that one.

But he will now have to regain his lost momentum by making this an issue campaign.

If Obama thinks his approach to health care reform, and all of the other issues, is what most voters want, then he better make it clear where he stands versus where Palin, and her running mate, I think his name is McCain, stands in the starkest detail.

For his own sake, Obama better rattle the notion that "Palin thinks like I do" or this is going to be an even more surprising campaign season.

Comparing John McCain's Health Care Plan to Barack Obama's Health Care Plan

Now that the political conventions are over we are in the final weeks of the presidential campaign. Here is my primer on both of the candidates' health care reform plans and the the big idea difference between them.

Comparing Barack Obama's Health care plan to John McCain's health care plan:

What's the Big Idea Difference?

A Detailed Analysis of Senator John McCain's Health Care Reform Plan

A Detailed Analysis of Barack Obama's Health Care Reform Plan

Neither Obama or McCain (his emphasis on individual responsibility aside) has a lot of cost containment teeth in their health care plans. In fact, both plans contain the same relatively uncontroversial and incremental cost containment ideas such as disease management, wellness, and patient medical records that are already underway in the marketplace:

Would Either Barack Obama's Health Plan or John McCain's Health Plan Contain Costs?

The Long-Term Viability of Medicare Advantage--Why Aren't the Analysts Asking for the Numbers to Add-Up?

I have been struck by the optimism regarding private Medicare presented by health plan executives during the recent earnings season and the analysts failure to press them on just how their numbers will add-up to sustain the long-term viability of a private Medicare strategy.

The typical private Medicare health plan operates on a medical cost ratio in the mid-80s. Let's assume 86% for medical costs and the remaining 14% for overhead, profit, and taxes.

Government-run Medicare operates on about 3% overhead. One can argue that many federal Medicare costs are paid for elsewhere but that is the number the private plans have to compete against.

So private Medicare plans spend 14% on overhead and Medicare charges itself 3%--that's an 11% disadvantage for the private market right out of the box.

Private plans have to offer better benefits in order for seniors to want to buy the private plans. Let's use 6% as the amount health plans spend for the extra benefits needed to attract seniors to their plans.

So, in this example, the disadvantage for private Medicare is not only the 11% overhead shortfall but another 6% for the benefits needed to keep selling the plans to seniors--or a total burden of about 17%.

Today, the government pays private Medicare plans an average of 13% more than it does the government-run plan--17% more for the private fee-for-service (PFFS) version that will sunset in 2011.

These extra payments are what make private Medicare so attractive to seniors and HMOs today.

Let's say our HMO has half of its private Medicare growth in PFFS. Their average payment above what standard Medicare gets would be about 15%. So this hypothetical HMO gets 115% of what Medicare pays itself for the same senior population. Take the 11% overhead disadvantage from that as well as the extra 6% they spend on attracting seniors with better benefits and the HMO would have a medical care cost of 98% of what Medicare spends (115%-11%-6%=98%) in order to balance the books today.

So, today my hypothetical HMO is managing its medical costs at about 98% of what Medicare spends for the same senior population.

But what happens if the extra Medicare payments to private Medicare go away? It is almost certain that is going to happen--presuming the Democrats increase their majorities in the fall.

Private Medicare will always need to offer seniors something extra to get and keep their business--that extra 6% our hypothetical HMO spends today. Why would seniors buy it if there wasn't an incentive to do so?

The whole private Medicare experiment is about the notion that the market can manage Medicare costs better than government-run Medicare. If the private market cannot get a better long-term cost outcome the whole strategy simply is not viable.

The day private Medicare gets the same payments as public Medicare the private sector is going to have to make up for that higher overhead level (11%) and better benefits (6%) by managing to a lower medical cost outcome than government-run Medicare.

Instead of private Medicare operating at 98% of the medical cost level of public Medicare, as our hypothetical HMO does today, my HMO will need to have medical costs at 83% of public Medicare in order to sustain a medical cost ratio 11 points higher than Medicare and 6% in better benefits (100%-11%-6%=83%).

For any private Medicare strategy to be viable post-excess payments to the private plans, the private plans have to beat Medicare's costs. In my example, which I will suggest is a pretty fair approximation of the market reality, no health plan can sustain its private Medicare business plan unless it can ultimately get its medical costs to about 83% of the government-run Medicare plan. And, that would just be a tie with the public program's costs. To prove the private market is better than government-run Medicare the result would have to be even better than that.

Most private plans are in the 95% to 100% range today. And, some of the markets they are in have much better payments than the average extra government payment of 13% and 17%.

During this past earnings season about every health plan manager has boasted that Medicare is in their future and they can achieve their earnings objectives while competing head-to-head with the public program.

But for that to happen, the typical HMO needs to reduce its Medicare benefits ratio from 95% - 100% today to about 83% to just match the performance of the government-run plan.

Not a single investment analyst challenged HMO managers on any conference call I heard on just how they are going to get from here to there before the Democrats zap the extra payments private Medicare plans now get.

It would seem to me that would be at the crux of whether their private Medicare strategy had any long-term viability.

The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season

The Cost of the Massachusetts Health Insurance Law is "Less Than Expected"

That was the conclusion in a recent New York Times editorial, not to mention the growing spin coming out of Massachusetts, regarding the state's new health plan.

As I have said before on this blog:

• Massachusetts finally took a first big step in health care reform--something no one else has been able to do in Washington, DC or elsewhere and that is to be commended.
• The Massachusetts Health Insurance Law would appear to have solved the uninsured problem in that state for two-thirds of the people who were previously uninsured--a big part of the growth in the insured amounts to a significant expansion of the state's Medicaid program.
• But the Massachusetts Health Insurance Law did not deal with health care costs head-on and we shouldn't kid ourselves that this plan is sustainable in its current form. Recent legislative claims to deal with costs by ending free meals for docs from drug companies and the like are hardly serious efforts at cost containment.
  

In an earlier post I called the Massachusetts health reform program an incomplete result for an unsustainable cost.

Beyond the controversy for just how much this plan will cost in the second full year--most defenders say $869 million even though the Governor has already told Wall Street it could well be more like $1.1 billion--there are two things that bother my about the Mass health plan's costs:

1. The cost trend rate for both Commonwealth Choice and Commonwealth Care is at least 10% per year--well above the state's ability to sustain. In the good years one can expect a state's economy to grow 5% and this trend rate is twice that.
2. The plan is unaffordable to those in the middle--those with too much income for full or significant premium subsidies and too little to really be able to afford to pay on your own.

On that second point, I have posted the state agency's (The Connector's) own affordability chart for families. The state uses this chart to tell families which of them are exempt from the state's mandate to buy health insurance because the policies offered by the program are by their definition (as well as by common sense) unaffordable.

I know the political season is underway and Barack Obama's health plan is pretty much the same as the Mass plan. For that reason, partisans have to spin the Mass plan as a great success or see their candidate suffer.

But look at the chart. A family making $110,000 a year, with the parents over the age of 29, would not be able to afford any of the health insurance plans offered by the program--and that's The Connector's conclusion.

The Connector's chart tells a story--the Mass health plan is unaffordable for the very people it was designed to help--those between public program eligibility and enough income to have taken care of themselves in the first place.

Until Massachusetts is ready to deal with that reality head-on the Massachusetts Health Insurance Law is not a solution––it is an incomplete result for an unsustainable cost.

Related posts:

First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy

Comprehensive Health Care Reform and Massachusetts--Are We On Our Way To a Very Different Debate?

Do Certificate of Need Programs Reduce Costs? Governor Palin Says "No" But Lots of Data Say "Yes"

Republican vice presidential candidate Sarah Palin hasn't done a lot on the health care policy front during her short time as Governor but one thing she has called for is an end to Alaska's Certificate of Need (CON) program requiring preapproval for any new health care facility.

CON programs are about government management of health care capacity and it should be no surprise that a conservative Republican would be against them.

But do they work?

Governor Palin cites a recent paper by the Federal Trade Commission that says they do not.

But Joe Paduda, posting on Managed Care Matters today, says there are more studies than this one authored by the Bush administration that support the use of CON programs:

• "Turns out that the FTC (then and now) may have missed something - a 1998 Duke University study found 'Mature CON programs are associated with a modest (5 percent) long-term reduction in acute care spending per capita, [emphasis added] but not with a significant reduction in total per capita spending."
• "The big three automakers all compared costs in CON v non-CON states, and found that states with substantial CON programs had significantly lower health care costs. In fact, when considering locating plants and facilities, the big three consider CON 'as a positive factor'. Chrysler found that their per-employee health care costs were substantially lower in CON states than in non-CON jurisdictions, with costs as much as 164% lower in CON states. GM found its health care costs were nearly a third less in CON states in a similar analysis."
• "A study published in JAMA found that the quality of outcomes in coronary artery bypass surgery was directly linked to the CON process. Those who had CABG in non-CON states were significantly more likely to die (5.1% chance v 4.4% in CON states) due primarily to the higher volume per facility in CON states. Notably, in states that repealed CON laws, the percentage of patients undergoing CABG in low-volume hospitals tripled."

You can see Joe's entire post here.

Related post:
Sarah Palin on Health Care--A Free Market Republican

Sarah Palin on Health Care--A Free Market Republican

Republican vice-presidential candidate Sarah Palin has very little on her health care policy resume from her short time in office as Alaska's Governor but what she does have fits right in with Senator McCain's strategy to use the market more effectively in bringing down America's health care costs and improving access to the system.

Her health care efforts have focused on two things in Alaska:

• Eliminating the 1970s era strategy of requiring providers to file Certificate of Need (CON) applications before being able to build more health care facilities.
• Providing consumers with more information.

On the Certificate of Need issue she recently wrote in an op-ed:

Health care: Do we have too much government or too little? Should we have regulated markets or open markets?

Those are the perennial questions.

And that's what makes the state's proposal to repeal the current Certificate of Need (CON) program so contentious. Yes, there are solid arguments on both sides. But after much consideration, we believe that the program has not accomplished what it set out ultimately to do more than 30 years ago -- lower costs for the consumer. It is time to end Alaska's program in its present form. Doing so will not only reduce the cost of health care, it will also improve the access to health care, allow more competition and improve quality of care for patients.

Certificate of Need programs were required in all states in the mid-1970s by federal mandate. The goal was to make sure that health care facilities matched community need and provided access and quality care, which in turn would help reduce health-care costs. The federal mandate was repealed in 1987 -- 20 years ago! -- along with its federal funding.

The basic assumption in those days was that excess capacity, in the form of overbuilding, directly results in health-care price inflation. However, after more than 30 years of such programs, the National Conference of State Legislatures has found that there is no solid proof that the state-sponsored CON programs have actually controlled health-care costs. In fact, in 2004 the Federal Trade Commission and the Department of Justice both asserted that these programs actually contribute to rising prices because they inhibit competitive markets.

Many opponents of CON programs have argued that health-care facility development should be left to the economics of each institution, in light of its own market analysis, rather than being subject to political influence...

As I said recently in my State of the State Address to the Legislature, "Under our present Certificate of Need process, costs and needs don't drive health-care choices -- bureaucracy does. Our system is broken and expensive." Eliminating the CON program, with certain exceptions, will allow free-market competition and reduce onerous government regulation.

Governor Palin has also been calling for more price transparency, openness and competition as a solution for rising health care costs in Alaska.

A task force set up by the Governor on health care issues in Alaska recently concluded that consumers needed more information to be able to compare costs.

As a result, Palin introduced the Alaska Health Care Transparency Act to provide consumers with information on quality and cost which would be provided by a new government-run health care information office.

Both of these relatively minor forays into health care policy could hardly be described as heavyweight attempts at health care reform. But both are consistent with the McCain market-based strategy to remake America's health care system.

I expect Governor Palin will have no trouble fitting right in with Senator McCain on the health care issue.

Related posts on the presidential candidates' health care plans:

Comparing John McCain's Health Care Plan to Barack Obama's Health Care Plan--What's the Big Idea Difference?

A Detailed Analysis of Senator John McCain's Health Care Reform Plan

A Detailed Analysis of Barack Obama's Health Care Reform Plan

"US Healthcare on the Edge: A Prescription for Cure"

Jonathan Lorch and Victor Pollak, two physicians with plenty of experience and accomplishments in America's health care system, have suggested the steps they think will go a long way toward making our system work.

I am pleased to post a brief description of their plan and a link to the full proposal.

US Healthcare on the Edge:
A Prescription for Cure
by Jonathan Lorch and Victor Pollak

The US Healthcare system has many problems. At its heart are three that prevent better outcomes, waste vast amounts of money and hinder understanding of optimum cost effective treatment: (1) misaligned risk, (2) ineffectual infrastructure, and (3) minimal leverage with the pharmaceutical industry. All three need be changed simultaneously, or in very rapid succession.

Misaligned risk

The Problem:
For long-term outcomes in chronic disease, that account for 75-80% of costs, the objectives of insurers and employers differ from those of physicians and hospitals. Costing relatively little when first diagnosed, diabetes, hypertension, and vascular disease become increasingly expensive as complications mount. Caregivers try to prevent long-term complications, but payers have no motivation to provide the resources to do so. This misaligned risk represents lost savings from preventable complications. If the savings are only 5% a year this represents $125 billion.

The Solution: A single defined insurance policy

• Defined minimum benefits, credible, applicable over a lifetime.
• “Belongs to” the individual and stays irrespective of good times or bad.
• Competition based only on cost of the policy not its quality.
• With a single policy, and all covered, insurers will have a single vast risk pool including healthy individuals.
• Obviates the need for Medicaid and SCHIP .

Infrastructure

The Problem:
A currently balkanized process wastes $60-100 billion on billing, collecting and administration. Briefly, insurers strive to keep from paying claims, so the more complex and difficult the billing process, the more money providers and patients will be unable to collect.

The Solution: A single claims processing and administrative system

• A uniform medical practice code set and a known set of application programming interfaces.
• This system will be the start and finish of every claim processed.
• Payments will be routed directly from payers to the provider’s bank.
• Claims will be settled electronically and instantly, as by American Express.
• Elimination of back-office provider employees who try to pry funds from insurers, and of insurer employees whose job it is to deny payments.
• The cost will be borne through small transaction fees.

The Pharmaceutical Industry

The Problem:
The third core problem is minimal leverage with the Pharmaceutical Industry, which as of 2005 represented 10% or $200 billion a year of the US Healthcare system.

The Solutions: Increase leverage and independently evaluate new medications

• To bring greater market power to bear, payers and providers should be allowed to organize purchasing organizations.
• Development of ongoing studies on the optimum utilization of drugs and on whether or not new drugs are better than existing treatments.
• A modest tax on pharmaceutical industry sales to be used entirely to study the additional value actually provided by new medications and how best new medications can be used. NIH could be charged with this responsibility.
• Change in, and capping of, the marketing costs of pharmaceuticals, allowing for bringing them to market but excluding direct-to-patient advertising, high honorarium to physician speakers, etc.

This is a summary of an in depth prescription for the US Healthcare system. The full text is available here.

The authors:

Jonathan A. Lorch, MD, FACP
Associate Professor of Clinical Medicine
New York Presbyterian Hospital-Weill Medical College of Cornell University
Director, Medical Informatics. Director, Nocturnal Dialysis, Co-Medical Director
Hemodialysis. The Rogosin Institute, New York, NY
lorchj@mail.rockefeller.edu

Victor E. Pollak, MD, FACP
Emeritus Professor of Internal Medicine, University of Cincinnati
Professor of Clinical Medicine, University of Colorado
Senior Vice-President & Medical Director. MIQS, Inc. Boulder CO
vpollak@miqs.com

McCain-Palin

Who?

Well the self-described maverick surprised everyone this morning.

While many kept saying it would be Romney, I never believed it. First, they don't like each other. Second, a Romney pick would have flown in the face of the McCain health care strategy ( If McCain Picks Romney He Will Never Again Be Able to Criticize Obama's Health Plan).

Governor Palin would seem to be a conservative Republican who walks her talk. The lady has grit!

But what is puzzling about the pick is that the 72 year-old candidate has been criticizing Senator Obama for his inexperience. Then what does he do? He puts a 44 year-old newcomer, with 18 months experience as Governor of Alaska, a "heart beat" away from being Commander-In-Chief.

Go figure.

One thing is certain. We will break a barrier this time--either an African American President or a woman as Vice-President.

This campaign just gets interestinger and interestinger.

Health Wonk Review is Up

Julie Ferguson hosts the latest edition of Health Wonk Review over at the "Workers' Comp Insider."

She has a great list of recent posts from the world of health blogs suitable for beach reading. Just turn up the brightness on that screen!

What Happened to the Health Care Issue?

An interesting article in today's Chicago Tribune.

Readers of this blog know we've been having a spirited debate recently on the question of just how likely health reform will be in 2009. Brian Klepper and Maggie Mahar have added to this discussion with some interesting posts and comments.

The Trib headline:

Health care no longer primary ailment
Economy, price of gas, war in Iraq have surpassed insurance as top election issue for candidates

The article laments the way health care has once again fallen off the top of the national agenda replaced by the issue d'jour--this time gas prices and the economic slowdown.

Recently I pointed out on this blog that I was not surprised to see health care once again slipping in the polls since the vast majority of people who vote in this country continue to be shielded from the high cost of health care by employers who continue to be willing to pay the ever higher cost.

In my mind, that is what needs to change before we will have the political juice to really tackle this issue.

Recent posts:

The Voters Aren't Upset Enough About Health Care--And Why Should They Be?

"Chastened and More Sober, Harry and Louise Return"

Will the Lobbyists Make Meaningful Health Care Reform Impossible?

"Chastened and More Sober, Harry and Louise Return"

Brian Klepper joins us again today on the subject of just how realistic health care reform will be in the coming year.

Chastened and More Sober, Harry and Louise Return
by Brian Klepper

Yesterday Ron Pollack of Families USA led a call with bloggers - unfortunately, I couldn't be on it - to discuss a new health care reform campaign sponsored by 5 prominent organizations: the American Cancer Society's Cancer Action Network (ASC CAN), the American Hospital Association (AHA), the Catholic Health Association (ACHA), Families USA and the National Federation of Independent Business (NFIB).

The goal of these collaborators is to get the next President and Congress to focus on meaningful health care solutions. Beyond that - and of course all those experienced with the policy-based reform process are aware of this - the motivations and objectives of the participating organizations diverge. To get an idea of the degree of their differences, look at the ASC CAN, Families USA and NFIB sites.

The first three groups are all provider organizations. Naturally, they're concerned that money is evaporating for their services, and they want to make sure they'll get paid for any services they provide.

Families USA is an idealistic consumer advocacy organization that believes the US should provide universal coverage because its the right thing to do. (They tend to pay less attention to the structural problems in health care that have created runaway cost.) While its an admirable perspective, it also willfully ignores the fact that Congress hasn't passed any major social-justice-based laws for more than 40 years, and that as long as special interests continue to be allowed to exchange financial contributions for influence over policy, it is unlikely we will return to policy in the common interest.

It's the fifth organization that's interesting and unexpected. The National Federation of Independent Business is the generally conservative association representating small business. Here they join with past adversaries, though NFIB's mantras - affordable, stable coverage with choice guided by knowledge of price and performance - is at odds with some of their current pals.

The ad itself has a winning earnestness. Go here to see the new one, and here to see the one from the Clinton period. Like the country, now chastened and more sober after its indulgence in patriotic zeal during the early Bush years, Harry and Louise, older and wiser, aren't so cavalier about Congress making decisions without their input. The health care crisis is all around and they need help. The punchline has Louise, with heartfelt concern (against a plaintive musical score), saying, "Whoever the next President is, health care should be at the top of his agenda, bringing everyone to the table, and make it happen!"

It seems so straightforward! When I was working day-to-day on national health care reform people would call to tell me what needs to happen. As it turns out, knowing what needs to be done isn't the hard part. Most everyone inside and outside of health care who's thought about it even a little knows most of those answers.

No the hard part is making it happen within a policy framework that's controlled by money and power. Displacing the status quo isn't easy at all. And as it turns out, its pretty clear that, while each of the organizations at this table dearly want reform, they, like all of us, want it on THEIR terms.

I attended and blogged Family USA's big meeting some months ago in DC. The had a range of terrific speakers, but the politicians among them - Ms. Pelosi included - pretty much told them what they wanted to hear, that health care reform can happen if people like them just stand up for it. Feeling empowered, the audience LOVED that message. It didn't particularly matter that it wasn 't true.

The truth is that unless the nation's most influential power brokers mobilize to make changes in policy, it's not likely to happen. Consumers certainly aren't galvanized around any specific health care reform agenda or project that I'm aware of, so they don't have a significant power base on this issue. The good news is that a range of non-health care Fortune organizations ARE working, quietly but forcefully, on the problem, through the Patient Centered Primary Care Collaborative and other efforts.

More on that soon.

This is What a Real Cost/Quality Decision Looks Like

The UK's National Institute for Health and Clinical Excellence (NICE) has decided in a preliminary ruling that four drugs used for the treatment of advanced kidney cancer are not effective enough and they won't be paid for by the National Health Service.

Now before someone just claims this is what single-payer health care plans do all the time, let me be clear that NICE is an organization that has largely gained the respect of the world health community. Andrew Dillon, NICE's director, participated in a conference on technology evaluation I chaired a few years ago and the domestic audience from business and policy was more than impressed with their work.

These guys are trying to do the right thing and using extraordinary means to do it. They don't make arbitrary and bureaucratic decisions--they follow the science.

But here's the crux of their decision.

NICE concluded that the drugs extended some patients lives but not enough to justify their high price.

Using clinical trial results that were imputed into complex financial models, NICE concluded the drugs cost between about $150,000 and $350,000 for each year of life they gave patients. Britain's standard says that the Health Service shouldn't pay more than about $60,000 for a year of healthy life gained. They call that their "quality adjusted life year" (QALY).

The chief doc at Cancer Research UK, a non-profit, responded that, "These drugs have shown a small but definitive improvement in an illness where there are few alternative treatments."

Two things:

1. If this was someone in my family, I would expect my U.S. health insurance to pay (today) or I would find the money to get them the drugs.
   
2. This is what real cost/quality decisionmaking looks like.

The next time any of us suggest that making better cost/quality decisions is an obvious next step to take we should remember this example of a real cost/quality decision.

The Voters Aren't Upset Enough About Health Care--And Why Should They Be?

The health care issue has a history of being named by voters as one of the biggest problems we face--until the problem de jour comes along and pushes it off the list. In 2008, that seems to be happening again with the economic downturn, the mortgage mess, and $4 gas surpassing health care as the big issues.

When asked to name the most important financial problem facing families today by the Gallup organization:

• 29% said energy and gas prices
• 18% said the high cost of living and inflation
• 14% said a lack of money and low wages
• 9% said health care costs

Policy experts can point to the high cost of health care but Joe and Mary Middle-America are still clearly sheltered from the real impact of these costs largely by the employers who still provide so many of us with affordable health care.

True the ranks of the uninsured are growing with the unemployment rate and the number of people getting health insurance from small employers has been on a long decline. But the fact is the vast majority of Americans still get very good health insurance from mid-size and large employers. And, what cost shifting has occurred has been relatively modest.

Last year's Kaiser Family survey of employer-provided health insurance found:

• Health insurance coverage at larger employers is stable - In 1999, 99% of employers with more than 200 employees offered health insurance--that number was also 99% in 2007.
• Cost shifting has been only modest - In 2001, workers at larger firms (over 200 employees) contributed 4.4% of the cost of their coverage as a percent of their income--in 2007 they contributed an average of 6.9% of the cost of their coverage as a percent of their income.
• Consumer-driven plans remain a very small part of the market. More than ten years after MSAs became available, and five years after HSAs were expanded by the MMA, between 3% and 5% of workers are in various forms of these and high-deductible plans.
  

Most workers are still sheltered from the reality of health care costs and equate health care quality with access to whatever they want.

Conservatives, including John McCain, argue that we need to move away from third-party pay to a health care system that stresses individual responsibility so consumers can better understand the problems of high cost and respond with more efficient choices. Makes sense.

But to get that kind of far-reaching change it will take a groundswell of major support from voters.

Ironically, voters aren't going to be interested in supporting that kind of change if they remain sheltered from the problem.

It's a "catch-22"--conservatives believe we need voters to realize they need to be more sensitive to health care costs but to sensitize them voters have to be willing to let policymakers take their rich benefits away.

Voters sure don't have a lot of incentive right now to give up those still rich employer plans.

Recent post on why health care reform will be very difficult in 2009: Health Care Reform, the Federal Deficit, and the Bush Tax Cuts--A Very Counter Productive Combination

Health Wonk Review

It's my turn to host Health Wonk Review--a synopsis of some of the best recent posts from the world of health blogs.

HWR founder Joe Paduda starts things off with a post critical of investment analysts handling of a recent Coventry Health earnings conference call with his assertion that "the analysts blew it." First the analysts helped HMO stocks hit historic lows this year and now seem to be supporting their resurgence. But are they asking the right questions in the first place? In a related post, I pointed out the Coventry stock rallied after the same conference call where Coventry management used the term "sort of" 63 times to explain the company's performance while the analysts gave them almost a free pass.

And you thought you had challenges in your business. Julie Ferguson at Workers Comp Insider reports that in Florida, Georgia, and Louisiana, an employer's right to establish and enforce health and safety policies on private company property has been abridged by recent laws that give employees the right to keep loaded guns in their parked cars on work property. She discusses this issue and the legal challenges put forth by several large employers such as Disney and Georgia-Pacific.

Merrill Goozner weighs in on the headline anthrax story telling us, "The FBI doesn't have a slam dunk case against Bruce Ivins, the bioterror weapons researcher at Ft. Detrick, Maryland who committed suicide last week after becoming the prime suspect in the 2001 anthrax letter-bomb attack that killed five. But once again it appears that all roads lead back to home in this seven-year investigation, including the fact that Ivins co-owned patents on an anthrax vaccine. Merrill uses the latest wrinkle in this ongoing saga as a springboard to a discussion on the impact that the War on Bioterror has had on infectious disease research.

Jason Shafrin always asks great questions and provides even better answers at "Healthcare Economist." Do people value additional income more when they are healthy and can use it things such as travel, dining out with friends, and athletics; or do they value additional income more when they are sick and can use the money for things such as additional health care, home nursing care? He reviews some arguments from a paper by Finkelstein, Luttmer and Notowidigdo in his post, "The Marginal Utility of Consumption and Health."

Roy Poses suggests that, "The current COO of a Florida hospital resigned after questions were raised about financial management of the hospital he previously ran, including allegations of diversion of more than $1 million into his personal accounts. It also turned out that he spent time in the brig for theft in and then received a bad-conduct discharge from the US Navy. This is another case suggesting, given the rising power of managers and executives of health care organizations, there should be some licensing process to ensure they have some relevant knowledge and background, and follow some ethical standards." See the details in his post, "Another "Rising Star" Health Care Executive Implodes."

Maggie Mahar, over at "Health Beat" takes Roy's post another step asking, "Should More Hospital CEOs Be Physicians?"

But over at "Amateur Economists" they're posting on, "Why Doctors Are Not Good Businessmen." This post discusses "the poor business model of a private practice and compares it to the business model of other types of businesses."

David Hamilton, at "BNET Healthcare,"warns us that, "The increasingly widespread dissemination of individual health data is a double-edged sword, offering patients the benefits of more integrated healthcare (the Health 2.0 view) and potentially disadvantaging them as insurers use the information to risk-adjust premiums or to deny coverage altogether" in his post, “Health 2.0″ vs. Health Insurers: The Looming Clash."

But, Brian Klepper gives us reason for optimism as he sees us on the cusp of a "breathtaking" breakthrough in usable health care information for both the patient and the clinician in his post, "From Description To Action: The Future of Health 2.0 Tools" at "The Health Care Blog."

While Jaan Sidorov, at the "Disease Management Care" blog, discusses the limits of HEDIS-based wellness and prevention measures. He suggests the successful HEDIS approach needs to be integrated with activities in employer settings, communities and even the PHR in, "Physician-Focused HEDIS Is Not Enough."

Matthew Holt gives us a comprehensive review of the UK's technology assessment program, NICE, in his post, "NICE job. Cost-effectiveness in the UK." Under Andrew Dillon's leadership, NICE has created an example for all of us to learn from.

According to some, there's a new "problem" looming: the "underinsured." But is there, really? InsureBlog's Henry Stern is skeptical, but takes a look in his post, "Moving the Goal Posts."

Louise at "Colorado Insurance Insider" suggests that the problem of the uninsured could get even worse. "If McCain's plan results in any decrease in employer group plans, we're going to see an increase in the number of people without health insurance, simply because of the underwriting rules that individual health insurance carriers use" in her post, "McCain Health Care And Individual Health Insurance."

What to do about Medicare and its many challenges? Joanne Kenen gives us a summary of the Medicare Conference recently ran in Washington in her post, "REFORM: Medicare versus Cassandra" at the "New Health Dialogue" blog.

At the blog, "Home of the Brave," Annie suggests that emergency departments which experience inpatient boarding may find using the Joint Commission's Leadership Standard and the regulation which demands that the appropriate inpatient standards of care and practice be enforced from the time of admission was ordered to be the key which unlocks effective strategies to address staffing, care and mechanisms of care provision to patients who are boarding "off-service." You can get the details at, Emergency Department Overcrowding Revisited: It’s The Care And Not The Geography.

Lisa Emrich continues to keep a sharp eye on drug pricing. This time she reports on a Senate Joint Economic Committee meeting she attended which examined extraordinary price increases for drugs used in rare-disease small populations in, "Price Gouging in Extremely Vulnerable and Captive Market" as well as "Small Patient Population - Big Drug Prices."