Can Health Plans Explain Why They Aren't Re-Empowering Primary Care?

Brian Klepper and David Kibbe offer a post today on the issue of primary care and the role they believe health plans should be taking to encourage greater involvement with PCPs. They ask why health plans are not being more proactive in partnering with PCPs to control costs.

Can Health Plans Explain Why They Aren't Re-Empowering Primary Care?
By Brian Klepper & David Kibbe



Sometimes a whisper is more powerful than a shout. Here's a cartoon from Modern Medicine that shows a Medical Home counseling session between a primary care physician (PCP), a specialist and the health plan. The PCP looks forlorn, while the specialist and the insurer have their backs turned, fuming. It is perfectly true.

Along with changing the way we pay for all health care and creating far greater pricing and performance transparency, we need to turn around the primary care crisis if we hope to substantively improve quality and cost.

Over decades we allowed the combined actions of the AMA, Medicare and the nation's commercial health plans to marginalize primary care, so that now the typical cardiologist makes up to 4 times more than a PCP, and only 7 percent of medical school graduates now enter office-based primary care - not nearly enough to care for the aging boomer population that's growing by leaps and bounds.

Worse, as the most recent Dartmouth Atlas report made clear, the greatest concentration of "unwarranted variation" - waste - is concentrated in the specialties and inpatient arenas. This explosion in services and cost has largely resulted from tying the hands of America's PCPs, preventing their involvement in downstream decision-making. Equally corrosive culprits have been a fee-for-service reimbursement system that financially incents specialists to conduct unnecessary procedures, and a lack of transparency that would allow us to more easily identify the excesses when they occur.

There's hardly any question whether empowering primary care would dramatically improve the system. As Sepulveda, Bodenheimer and Grundy pointed out in a March Health Affairs article, literally dozens of studies show that more primary care in a community is associated with lower costs and better outcomes. More specialists lead to higher costs. In the US, the ratio of PCPs to specialists runs about 30/70, while in other developed countries its typically around 70/30. Their costs are generally about half ours and their outcomes better. Can anyone really argue with a straight face that empowering primary care is an iffy proposition, and that it demands more study before acting?

The entire premise of the Medical Home movement, seen most vividly through the efforts of the Patient Centered Primary Care Collaborative (PCPCC), is based, first, on empowering PCPs to do the things they were trained to do, and second, giving them the tools, programs and authority to optimize their roles. The PCPCC has been built around the power of Fortune firms and business health coalitions, each with considerable stroke, as well as several primary care associations. The health plans are at the table too, busily showing their support through pilot projects that test what happens when PCPs are paid a pittance more.

Even that is critically important, though, because the commercial health plans are the linchpins of change for this aspect of American health care. Unlike public health plans, who must adhere to policy that is dictated by the health care industry's lobby, the commercials can respond to market forces. Health plans also are the only ones who can reach and transform the practices of the 250,000 or so community-based PCPs faltering under the lash of our current reimbursement paradigm. Their salvation is absolutely vital to re-establishing American health care's stability and sustainability.

But so far as I'm aware, not one national health plan has yet decided to move beyond a pilot and unilaterally improve their medical management performance by paying PCPs significantly more. So far, there are no broad-based efforts to empower PCPs to have a say in what happens to their patients once they're referred downstream to specialists. Nor are health plans systematically helping PCPs acquire the sophisticated patient management information technologies that can result in better outcomes at lower costs.

What are they waiting for? Why aren't health plans making this obvious and straightforward adjustment to their medical management models? Skeptics might argue that, despite their protests that they're in business to hold down costs, health plans make a percentage of total claims, so they certainly don't want total claims to be less.

The plans might respond that they don't want greater PCP involvement to antagonize the specialists, who they rely on. After all, it's clear that, interference notwithstanding, collaborative decision making at the specialist level drives down specialty utilization and, with it, specialist incomes.

Or they might argue that they run enormous, complex operations, and big course changes are difficult and take time. Whatever.

Hence the inherent truth of the cartoon.

Still, there's no question that we're at a tipping point and that the time for action has come. Health plans have reported weaker enrollment figures, with reductions in the sales of even their much skinnier High Deductible Health Plans (HDHPs), as more employers and families are priced out of insurance. The coverage market is eroding as health costs continue to spiral upward, exacerbated by a credit crisis that is freezing liquidity. These economic trends are abetted, of course, by a primary care structure that is unable to exert control over the unbridled provision of specialty and inpatient services.

All this would be academic if there weren't a very visible alternative model that performs MUCH more efficiently. Employers with strength and foresight are actively moving around the health plans by establishing worksite clinics, effectively staff model primary care practices that are fully realized medical homes. In general, these enterprises pay PCPs far better than they make in private practices, giving them access to excellent tools, and letting them loose to provide the care they know how is appropriate. The results are dramatic. Clinic companies routinely report significant savings, both on group health costs and occupational health and productivity costs, which are corroborated by their clients.

If the reports from the big benefits firms are right, more than half of all jumbo Fortune firms will have put up worksite clinics by 2010. Because these clinics are scalable, the trend is now catching like wildfire with large and even midsized (down to about 250 employees) firms as well. Several clinic firms are also working to bundle commercial insurance products with clinics in ways that allow smaller businesses and individuals to come together, collaboratively using the clinics to enhance access and drive down cost.

But the core problem remains. We won't have real change in the delivery of care until the health plans either voluntarily change their relationship with primary care, or are forced to do so. As the cartoon suggests, they're not inclined.

So here's a sincere request. If you're a reader of this blog associated with the health plan sector, how about providing us with a lucid explanation of your hesitancy to change. What EXACTLY are you waiting for? Tell us.

If you're a primary care physician and you agree with us on this, then please send this post to your regional health plans and pointedly ask why they're dragging their feet. Pass this along to business leaders you know as well, and ask them to contact their health plans too.

Brian Klepper PhD is a healthcare market analyst. 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.

Health Wonk Review is UP!

David Harlow hosts this week's edition of Health Wonk Review over at his, "HealthBlawg."

It is a very comprehensive sample of some of the best recent posts from the world of health blogs.

The McCain Health Plan's Good Idea for Health Care Reform--Likely Going Down With the Candidate

John McCain would reform the American health care system by providing big tax incentives for it to transition from being employer-based to one built on a system of individual responsibility. He would do this by eliminating the longtime personal tax exemption on employer-provided health insurance and replacing it with a $2,500 individual, and $5,000 family, tax credit for those who have health insurance.

It's too bad this idea will likely recede from the national health policy debate whether John McCain wins or loses the presidency. Even if he wins, the Democratic majorities in Congress will be so large there is little chance we will be able to move away from the traditional employer health insurance base in the next few years. All you have to do is look at the way Obama and all of the Democratic candidates for the Senate and House have railed against McCain's plans to "tax your health benefits" to see how Democrats have willingly painted themselves into a political corner that makes this idea a non-starter in the new Congress.

As I have said on this blog before, I have been largely disappointed in the McCain health plan. He started out with a bold new approach but never closed the loop on so many key elements in his plan. For example, he leaves those with pre-existing conditions to the fate of state-based risk pools--a place no one would ever vote themselves into. See: John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed

It never made sense to me for McCain to ask voters to take a bold leap with him to reform the health care system but do little to make voters comfortable with the consequences of all that he was proposing. As a political proposal, the McCain health plan was a disaster. Who would ever vote themselves into such a system with less health care security than they have today?

It is no surprise that a big part of Obama's advertising budget has been spent zeroing in on the McCain health care plan's tax changes. I am surprised they didn't zero in on even more of it.

McCain's failure to make such a big leap away from our current system of third-party pay something voters could look forward to also makes it harder for more serious proposals to fundamentally redo our health care system on a platform of individual responsibility--the Wyden-Bennett plan for example.

The employer community themselves have amazingly added fuel to the arguments we need to stay with the employer-based system. The U.S. Chamber, the Business Roundtable, The National Business Group on Health, the American Benefits Council, and the NFIB have all had at least cool things to say about McCain's tax credit idea (New York Times, October 7th). The health insurers have gone along with this opposition--most certainly afraid to call for their benefit manager clients' layoffs!

Why are employers so against taking this big benefit cost off their books? They continue to see benefits as an effective way to compete for workers. They are also worried that they are going to get the bill anyway but won't have any control over what it costs in a new system.

As I have also said many times on this blog, I believe that either the employer-based or individual-based approach to health care reform could work. However, my guess is that if most health policy experts could create a clean sheet health care system in America, putting it on an individual platform would be one of the things most--liberal and conservative--would agree to do.

McCain has made such a mess of selling his health plan--and Obama has done such a good job of taking advantage of it--that I fear we have boxed ourselves into the third-party pay employer-based system, that has proven to be so expensive, for a longtime to come.

The only hope for this idea is that, in the face of daunting federal and state budget deficits, a restructuring of the system on an individual platform may be the only way we can achieve health care reform on a pay-as you-go basis--Wyden-Bennett for example, pays for itself in the third year.

But the well has been poisoned over an individual-based system in the face of big Democratic majorities that have so opposed the idea in this election.

The Democrats, in trashing the idea of a tax change for health benefits, and the Republicans in so fumbling the argument, may have taken the one way we could have done pay-as-you-go health care reform off the table.

Or, both sides can take a second look at it--this time complete with the appropriate arguments and policies that give voters the health care security they require.

Update: Speaking of fumbling the arguments for the conservative approach to health care reform, a few hours after I posted this, a leading McCain spokesman was quoted at CNN regarding the McCain health tax credit:

Younger, healthier workers likely wouldn't abandon their company-sponsored plans, said Douglas Holtz-Eakin, McCain's senior economic policy adviser.

"Why would they leave?" said Holtz-Eakin. "What they are getting from their employer is way better than what they could get with the credit."

So just why would Holtz-Eakin expect anyone to vote for the end to the employer tax exemption on health benefits in favor of the McCain tax credits?

Coventry Health Care Stock Down 48%--"Sort of" No Surprise

Readers of this blog will not be surprised to see Coventry Health Care's stock down 48% this afternoon after its earnings call this morning.

That is a 77% drop from their 52-week high.

Last July I commented on their earnings call where senior management used the precise financial term "sort of" 63 times to explain their then earnings and operations situation: Required Reading for Health Care Analysts and Coventry Health's "Sort of" Informative Conference Call

Well, three months later they're "sort of" in the crapper.

Joe Paduda, over at Managed Care Matters, has been following the Coventry problems more closely than I and has a number of recent posts on their problems.

What Impact Do Medical Costs Have on Home Mortgage Foreclosures?

That is the subject of a recent paper by Christopher T. Robertson, Richard Egelhof, & Michael Hoke.

The authors studied homeowners going through foreclosure in four states and found a big impact on their being able to stay in their house because of the health care cost issues these families had to deal with.

Here is an excerpt from their work:

"This preliminary study reveals that the standard account is, at best, an inadequate understanding of the causes of mortgage defaults. We found homeowners that tended to have significant equity in their homes and reasonable ratios between their income and their mortgage debt burdens. Few reported that their loans were unaffordable and only about a third said increasing mortgage payments were a factor in their defaults. From the surface, these respondents appear to be able to afford their homes and have no reason to walk away from them. So why are they in default?

"Our evidence suggests that medical disruptions are a major contributor to mortgage default, often striking in combination with other factors. Half of all respondents (49%) indicated that their foreclosure was caused in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). We also examined objective indicia of medical disruptions in the previous two years, including those respondents paying more than $2,000 of medical bills out of pocket (37%), those losing two or more weeks of work because of injury or illness (30%), those currently disabled and unable to work (8%), and those who used their home equity to pay medical bills (13%). Altogether, we found that about 7 in 10 of our respondents either self-reported a medical cause of foreclosure, or experienced one of these indicia of medical disruptions in the years before foreclosure. In many cases, homeowners were hit with a perfect storm of factors – a few thousand dollars of medical bills, a few weeks of missed work, and perhaps a divorce or rising interest rate – all combined to push them over the edge into foreclosure."

The survey studied homeowners going through the early part of the mortgage meltdown--focusing on families in the first stage of the foreclosure process in November 2006.

The full report: Christopher T. Robertson, Richard Egelhof, & Michael Hoke, "Get Sick, Get Out: The Medical Causes of Home Foreclosures" Health Matrix 18 (2008): 65-105. You can access the entire report here.

Demystifying U.S. Health Care Spending--Some Surprising Information

Paul Ginsburg, of the Center for Studying Health System Change, has just authored a new report, "High and Rising Health Care Costs: Demystifying U.S. Health Care Spending." The report is part of the Robert Wood Johnson Foundation's Synthesis Project.

This paper reviews existing literature in search of a more clear understanding of U.S. health care costs, the drivers, and the trends.

It is an encyclopedia of the research on U.S health care costs and required reading for any health policy wonk!

I found the following notable:

• Technology is the key driver in health care spending accounting for an estimated 38% to 65% of spending growth.
• "Obesity is a significant factor driving health spending, accounting for an estimated 12% of the growth in recent years." However, any gains from reducing obesity would be concentrated in the short and intermediate period "because some of the savings will be offset by increased longevity and the cost of disease that are most prevalent during old age." The irony is that obese people die sooner thereby avoiding the high medical costs associated with living longer.
• If we insure more people our health care system will cost more not less. "The increase in the percentage of people with health insurance accounted for approximately 10% to 13% of the historical growth in spending." The uninsured has not contributed to the recent growth in health spending in the aggregate and will not be a driver in the future unless we find a way to insure more people.
• Aging will not be a major factor in driving health care spending, and will not become one, despite aging baby boomers.
• Medical malpractice is not a major driver of spending trends. Medmal does contribute to health spending at any moment in time, but is not a large factor nor a significant factor in overall growth of health care spending.
  
• "Productivity gains in the health care sector have probably been lower than in other industries."
• U.S. health care cost increases continue to outstrip those in other industrialized nations by a large margin. Excess health care growth in the OECD nations was 0.6% between 1985 and 2002 compared to 2% in the U.S. for that period.
• When compared to the health systems of other industrialized nations, "prices, efficiency, and insurance administration are the most important differences."
• Drug prices are 70% higher in the U.S., physician compensation is 6.6 times per capita GDP for specialists and 4.2 times for primary care compared to 4 and 3.2 in OECD nations, the U.S spends 54% more for the top five inpatient medical devices, and the U.S. spends six times more for administration than the OECD nations.
  
• "Overall our understanding of high and rising costs is fairly solid. Our most pressing needs are not as much on the research side as on the development side, that is, all of the technical work needed to pursue many of the reforms..."

Aging and medical malpractice costs are not major contributors to the cost of health care in America? If we solve our obesity epidemic we will just increase longevity, more people will make it to old age, and we'll have all sorts of other high costs? Covering everyone will cost us more in the aggregate not less--getting them all in the system won't be a money saver?

Are these the "inconvenient truths" in health care reform?

The data would seem to say they are.

So does this mean we should back off on tackling obesity, forget medical malpractice reform, and scrap plans to reduce the uninsured?

No. I'd respond it's fair to say that is not what the author has in mind.

There is a moral imperative to deal with the uninsured. Being obese may save the system some money in the long-term because the person dies a lot earlier--hardly a desirable policy objective. That obese person still costs us a lot more in the near term and typically suffers from chronic disease in the meantime. Our medical liability system needs reform if only to reduce the rate of medial errors and the human toll those take.

But when it comes to health care costs, the real target needs to be productivity--or said another way cost containment.

One finding from this report really struck me: "If the efficiency of the delivery of services could by increased by 20% over 10 years, this would roughly close the gap between health care spending and GDP over that period." The bottom line is that if we want to contain our health care costs we need to find productivity improvement in things like technology use, treatment patterns, and administrative overhead.

Today, most health care reform plans focus on things like expanding the number of the insured and wellness initiatives. Those are good objectives.

But covering more people will cost more not less. Improvements in lifestyle--particularly obesity--can help.

But we cannot afford to stop there. Literally.

The big-ticket play is in productivity--the more discriminate use of medical technology, consistently practicing outcomes-based medicine, and reductions in system overhead particularly in the insurance system.

The problem with the health care productivity issues is that you have to step on some very powerful toes amongst the stakeholders to make any big gains--it's a lot easier to talk about insuring everyone and promoting wellness.

If we only increase access and don't hit the health care productivity issues head-on we will simply craft a system we will never be able to sustain.

HIGH AND RISING COSTS: DEMYSTIFYING U.S. HEALTH CARE SPENDING

I have seen an advance copy of this very comprehensive report on the growth in health care spending. If you are in DC next week, I highly recommend this event to you:

HIGH AND RISING COSTS: DEMYSTIFYING U.S. HEALTH CARE SPENDING

New Report Synthesizes the Literature on the Growth of Health Care Spending

Concern about high and rising health care costs in the United States has increased sharply in recent years. With the increase in costs and the lack of affordability of health insurance for many Americans, health policy experts are discussing whether steps can be taken to expand insurance coverage while keeping costs down.

A new report from the Robert Wood Johnson Foundation’s Synthesis Project sheds light on the driving forces behind health care spending and examines the reasons why health care costs continue to rise.

An October 15 briefing with the report’s author and other leading voices in health care will address:

• What are the historical data on health care spending?
• How does U.S. spending on health care compare with other developed nations?
• What are the primary drivers of the growth in health care spending?
• What options do policy-makers have for restraining health care spending?

SPEAKERS
• Paul B. Ginsburg, Ph.D., President – Center for Studying Health System Change (Synthesis Report Author)
• Robert Galvin, M.D., Director of Global Healthcare – General Electric
• Robert Laszewski, President – Health Policy and Strategy Associates, LLC
• John R. Lumpkin, M.D., M.P.H., Senior Vice President & Director of the Health Care Group – Robert Wood
Johnson Foundation
• David Nexon, Senior Executive Vice President – Advanced Medical Technology Association (AdvaMed)

WHEN/WHERE:
Wednesday, October 15, 2008
9:30 a.m. – 11:00 a.m. (Breakfast available at 9:00 a.m.)
National Press Club
First Amendment Lounge, 13th Floor
529 14th Street, N.W. – Washington, D.C. 20045

TO RESERVE A SEAT:
To reserve a seat, please R.S.V.P. to Erica Garland at egarland@gymr.com or 202-745-5119.

Time to Get Real--On the Economy and Health Care Reform

I just got a call from a reporter at one of the major news organizations to talk about the chances for health care reform.

We both commented on the almost surreal environment we are all in. I'm not sure if my friends and neighbors are in denial or just numbed by the recent cascade of events in the financial world. Up on the Hill and in the presidential campaigns it's business as usual when it comes to extending the Bush tax cuts, spending on alternative energy, or the imperative to do health care reform.

The reality is we are now headed down an unavoidable slope into a recession. The only question is how bad. Today, Dr. Phil told his audience to stop spending money, get their credit card debt paid off, and hold cash--"Cash is king." They are and they will.

General Motors' stock hit a price today not seen since the 1950s because no one is buying cars--and won't be for quite awhile.

A slowed economy means less tax revenue at a time we were already headed for a $500 billion budget deficit in 2009--and that was before we would spend as much as $200 billion to extend all (McCain) or most (Obama) of the Bush tax cuts. (Anybody want to give odds on that?)

The next Congress and the next President are facing unprecedented fiscal challenges presuming the credit crisis starts to work itself out.

Someone recently told me an economic crisis doesn't necessarily mean we won't have important social legislation. After all, Social Security came from the depths of the Great Depression. It did. But it was pay-as-you go--there was no big upfront cost as there is in health care.

This denial--or numbness--in the face of a harsh reality reminds me of the times I have called the airlines in the face of a blizzard looking to get them to rebook my flight without penalty. The usual answer is, "The computer says its on time so far." Of course you know it isn't going to take off in the midst of the terrible storm outside.

Health care reform isn't going to take off in the midst of this huge financial storm either and McCain, Obama, all those offices on the Hill saying it will aren't going to make it so.

The sooner we get real--on health care and everything else--the sooner we can start talking about what is really possible.

Recent post: What I'm Telling the Health Care Business About the Future

The Big Elephant in the Room During the Presidential Debate

Last night Tom Brokaw asked Barack Obama and John McCain to prioritize health care, Medicare/Social Security, and energy. Neither of them backed down from their promises to deal with all of them.

When Jim Lehrer tried to challenge them at the last debate on their ability to do all of the expensive things they want to do he got pretty much the same answer.

About the only two people in America that think we can do all of these things--or maybe any of them--would appear to be the two candidates.

So, why do we let them get away with the notion there isn't any reason why we can't have it all on top of their expensive plans for extending some or all of the Bush tax cuts and all of the bailout costs?

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

Two debates later the press is still letting the candidates get away with their pretend campaign promises as if none of this were happening.

The real issue at hand is just what would each of the candidates be able to do on health care? What's the real health care strategy that each of them have in the face of the greatest financial crisis since the Great Depression.

In all likelihood the most we will see next year is a Medicare bill necessary to deal with the upcoming 21% Medicare physician fee cut. There is money for that in the extra private Medicare payments thereby satisfying the pay-go rules.

If there is any other money the Congress might try some modest expansion of SCHIP and maybe something to stem the enrollment bleeding in the small employer health insurance market. But even those things look like a long shot in the wake of the crisis.

Business as usual isn't an alternative.

Getting these guys to talk about the real world would be helpful!

Rrecent related posts:
What I'm Telling the Health Care Business About the Future

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

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