Monday, June 29, 2009

Will Obama Repair A Thwarted Democracy?

First, a rant.

It's true, I'm no fan of Hillary. Never liked her, but I felt I should be fair, so I read Carl Bernstein's book Woman in Charge. Case confirmed. One of the things I remember from it most vividly is the description of "Hillary Land," her part of the White House with aides who were sworn to agree with her and support her, just what you absolutely don't want in a President. Now that is in the process of being reborn in the State Department. Part of the deal for her going to State was her ability to stock the place with Hillary people. One of them is EllenTauscher, 8 term Congresswoman from just east of here, a great friend of the ever more Rightward-leaning Dianne Feinstein. Matter of fact there is a wonderful woman who is a self-made bank president here in Oakland who was an Obama backer. Tauscher and Feinstein really got on her about deserting the woman, Hillary. Big time. And now who gets appointed to be in charge of arms control at State? Ellen Tauscher. Hard to see where her expertise would come from, but you know she would agree with Hillary. Too hard to find an expert who knows something about the field, Hillary?

But that's all a diversion, which I though I need to introduce a small bit of praise for Hillary. In one of the early debates, it was Hillary who ran the flag of election financing reform up the flagpole. I was impressed. Maybe I was supposed to be. After all, I'm exactly in Obama's demographic, and this point would resonate with me. But she did say it. And it went nowhere. Never mentioned again.

In the mid 1980's I think it was, Elizabeth Drew started publishing articles in the New Yorker about the influence of money in the Congress. She totaled up how many nights per week a Congressperson would have to be raising money in order to have enough to be reelected. Her point was that money was calling the tune as never before. She called for reform, again and again. She predicted that democracy would be perverted as never before. Nothing happened.

Everyone talks about the "conservative mood" of the nation since 1980, and the communicating power of Ronald Reagan. I think it's more than that, actually. I think there are two basic factors to consider, rather than the nebulous mood of the country. One, as the great American political theorist Robert Dahl opined at the end of his life, the un-democratic nature of the Senate with its over-representation of rural populations. Look at who is making decisions now - used to be the South's long serving representatives and senators, now it's Wyoming and North Dakota and Nebraska. Along with Oklahoma's star Senators, of course. And two, the super-influence of money in the Congress. You can't reform the banks very well because of their money. The hedge funds owners are taxed at 15%, and they are not giving ground. Health reform has the barrier of entrenched interests with lots of money, as will be coming out more and more now.

No one listened to Elizabeth Drew. In business all participants praise the market and try to avoid it by collusion, oligopoly, or monopoly. In politics, all participants praise democracy and try to avoid it by gerrymandering and using money. It will be pretty tough to break.

Hillary was thinking about public financing of campaigns, I think. That's what I've always thought about, but it has never taken hold. Instead of taking the perversion of money on directly, Obama's fabled internet approach takes concentrated on indirectly. We still hear about his entertaining and being influenced by big money, but the leverage has changed with the internet. That's OK for the presidency, but I think it's doubtful that the same forces will work on Congress. So, I think the influence of money can never really be quelled until we have substantial ease of entry to congressional politics through public financing, and state laws that restrict gerrymandering. That's all long range, and I understand how it's a bit arcane for the general public, as Hillary's sally showed once again.

Not that I'm a populist. Hell, I'm really an elitist. I just want it to be my elite.

Budd Shenkin

In Iran, candidates are chosen by the Theocracy.

Health insurance oligopoly

From today's Talking Points Memo, making the point about a major reason health insurers get away with what they do:

Health-Care Market Characterized By Consolidation, Not Competition
By Zachary Roth - June 29, 2009, 12:50PM

As Congress gets set to take up health-care reform, there's a crucial piece of data that hasn't received nearly the prominence in the debate that it deserves.

Defenders of the status quo on health care like to point out that a public option will destroy the system of robust free-market competition that currently exists.
Sen. Richard Shelby (R-AL), speaking earlier this month on Fox News, called President Obama's plan the "first step in destroying the best health care system the world has ever known." A public option, Shelby added, would "destroy the marketplace for health care."

But the notion that most American consumers enjoy anything like a competitive marketplace for health care is flatly false. And a study issued last month by a pro-reform group makes that strikingly clear.

The report, released by Health Care for America Now (HCAN), uses data compiled by the American Medical Association to show that 94 percent of the country's insurance markets are defined as "highly concentrated," according to Justice Department guidelines. Predictably, that's led to skyrocketing costs for patients, and monster profits for the big health insurers. Premiums have gone up over the past six years by more than 87 percent, on average, while profits at ten of the largest publicly traded health insurance companies rose 428 percent from 2000 to 2007.

Far from healthy market competition, HCAN describes the situation as "a market failure where a small number of large companies use their concentrated power to control premium levels, benefit packages, and provider payments in the markets they dominate."

So extreme is the level of consolidation, in fact, that one former top Federal Trade Commission official working with HCAN has sent a letter to the Justice Department's Antitrust Division, asking for an investigation into the health insurance marketplace.

The problem is most acute in small rural states, according to the report. In Shelby's own state of Alabama, the biggest insurer, Blue Cross Blue Shield, controls 83 percent of the statewide market. There, and in nine other states -- Hawaii, Rhode Island, Alaska, Vermont, Maine, Montana, Wyoming, Arkansas and Iowa -- the two largest health insurers control at least 80 percent of the market. So much for Shelby's "marketplace for health care."

The report doesn't consider how this reality stands to affect the forthcoming congressional battle for reform. But extreme consolidation may actually be making it harder, not easier, to win support from lawmakers for a public option.

That's because insurers who control large swathes of a given market stand to see their bottom lines particularly threatened by the introduction of a lower-cost public option. So, in turn, they'll be particularly aggressive in pulling out all the stops to pressure lawmakers to oppose the plan. Given the healthy amount of campaign dollars that some wavering members take in from the major insurers, that's hardly encouraging.

Of course, the Senate is where the major legislative showdown will likely occur. So in some forthcoming posts, we'll be taking a close look at just which senators have taken money from insurers who control major percentages of the state-wide market -- and where those senators stand on the public option. Stay tuned...

Sunday, June 28, 2009

Electronic Medical Records - Risky Business

This post examines the case for installing Electronic Medical Records (EMR’s) in primary care offices. The Stimulus Bill earmarks billions for EMR development, and politically, savings from installing EMR’s have been cited as a way to pay for health care reform. Many of us in the clinical world think this is all chimerical. Here is the reasoning.

Everyone can see the mountaintop there in the distance: No charts in the office. When you see a patient, little reminders pop up, indicating the need for a screening test at this time, or an immunization update, or medications that interact with each other. Lab tests, X-rays reports, and specialist consultation notes filed automatically in the chart at night while we sleep. The complete chart available at the Emergency Department when a patient arrives. Data can be collected widely so treatments can be evaluated scientifically. No paper no paper no paper. Ojala!

And it is so politically convenient. The problem with reforming health care is, everybody's ox is subject to goring. Your waste is my income. But, talk about introducing electronic health records and a beatific smile appears. Innovation without victims! Efficiency! Theorists, and Obama's early backer who built the Allscripts Company that promotes its own EMR product, say that introducing EMR's will save money that can be reinvested to cover the uninsured.

A tipoff, however, is this --non-clinicians are more enamored than clinicians, theorists over those who practice. Clinicians warn that if there are economic benefits to be had, they will be far in the future. So, beware.

In fact, EMR's have been very slow to be adopted in this country. Some specialty practices have adopted EMR's, with good reason. Their tasks are very stereotypic, so creating templates for their visits is very easy. Also, specialists make a lot of money, so they can spend money rather easily. Hospitals are also prime prospects for EMR's. They, too, have a lot of money to spend. Also, when hospitals invest in this product, they themselves realize the efficiencies, since hospitals are complex enterprises and their departments are integrated in one entity and one budget.

Primary care practices, however, have been very reluctant to invest in EMR’s. There are probably two types of practices where they can make sense. One, a small practice of nerds. Work on it together and intensively, know it intimately yourself, be able to fix it yourself, take pleasure in the geekiness. That makes sense. The other early adopter would be the large, integrated practices, where the top administrators make the decision but don’t personally bear the cost and trouble, and possibly where efficiencies can be realized internally. But aside from these two types, the bulk of primary care has not taken the EMR plunge.

Here are the reasons:

• EMR doesn’t make sense as an investment. They are expensive to buy and to maintain. With EMR, it is a challenge simply to come back up to the level of productivity you were at with paper charts, because the EMR makes the clinician a data entry clerk. The transition from paper to EMR is excruciating, taking over a year of lost productivity in many cases, and costing hours and hours and hours of work, summarizing charts for EMR entry. The savings on paper file clerks is offset by IT and other electronic jobs. So, adopting EMR is investment without financial return.
• EMR is underdeveloped. Many think the current EMR’s are not ready for prime time. They can be cumbersome to enter data and to retrieve. They are reminiscent of early Windows.
• EMR is proprietary. Get into one EMR and if you don’t like it, you’ve got problems. There is no uniformity among EMR’s, so going from one EMR to another is like going from paper to EMR, which you have already done.
• EMR doesn’t necessarily connect with other medical entities. Get one for your office, and the odds are you cannot have reports enter seamlessly into the record. All too often, one still receives paper reports from hospitals and labs and you need to scan it into the EMR, with no improvement in productivity, and in addition, it will sometimes be difficult to find.
• EMR is not set up to do medical research. One of the objectives of EMR is to be able to compare and contrast treatments. The EMR of the future may be able to do that. Not the present.
• EMR data may be useful to others against you. Perhaps paranoid, but no one trusts insurance companies, and the EMR might provide them ammunition, which you have paid for.

Finally, installing an EMR is risky. Here is a real life account of one practice’s trying to install an Allscripts EMR – that’s right, the EMR from Obama’s friend’s company – and associated hospital EMR experiences:

We have a large 2-site pediatrics practice (12 providers, 9FTE, about 45,000 patient visits last year). Workflow changes were the biggest challenge we faced when we converted to EMR 2 years ago, and we are still working through some major changes. We are using Allscripts Healthmatics (with Ntierprise practice management system). Although the EMR conversion team addressed basic workflow issues during the planning period prior to going live, there were many issues that were never addressed in sufficient detail with the appropriate stakeholders. This was espcially true for our billers, advice nurses and our laboratory. We feel that this process was rushed, mostly to save money, but partially because there doesn't appear to be a surplus of EMR employees with clinical experience out there who truly understand workflow issues.

It was frightening to convert to EMR....We found that we had to be MUCH more vigilant during the year following conversion to make sure that things were not falling through cracks with the inadvertent click of the wrong button. This involved every department and employee in the the personnel, referrals manager, care coordinators, advice nurses, medical records, billing, floor nurses and MDs. There are large burdens on nurses for procedure and immunization entry, and the overall management of immunizations turned out to be extremely complex and frustrating. Because of multiple errors that occurred during the rushed coversion, we found many immunization entry errors and We ended up having to HIRE a full time experienced RN to review every single patient coming in for a physical and reconcile differences in immunizations between paper charts, NC immunization registry and EMR records. This process has been going on for over a year. We have recently interfaced with our lab vendor (LabCorp), and once again, we have had to expend unbelievable amounts of time and effort to figure this process out, and have had to hire additional lab help so that our lab director can put full-time effort into this ongoing conversion.

THere is so much cost competition going on between EMR vendors, and the salesmen are not being forthright about what you are paying for in terms of services. The educational and training process for MDs in our office was totally inadequate. You get what you pay for, and we found that out the hard way. I was "On Call" the day we went live, and the EMR conversion team was only able to help me hands-on with ONE patient. This is all the hands-on training I had. The biggest problem was that, of the 4- member training team sent by Allscripts, only ONE knew the product well enough to train us. About two months after the conversion, when everyone was drowning, we had to pay to fly our favorite company consultant down, then pay $180/hour for her to work with each of the MDs to help them customize. We have had to do this 4 or 5 times in the past 18 months.

The time requirements for documentation for MDs has significantly increased with EMR, and has been hugely stressful. We had one salaried physician who resigned shortly after EMR conversion, with the complexities of EMR cited as a reason. Documentation efficiency for mds has begun getting a little better....however, charting times remain unacceptably large part because the successful use of EMR with automatic billing REQUIRES MD INPUT in many more areas than paper charting did. There were many tasks that could be delegated to other personnel with paper charting and billing, then reviewed and signed off by MDs, and this is simply not the case with EMR. I do believe it is necesssary for practices to convert to EMR, and I have found it very useful to be able to chart at home, and to send electronic prescriptions. I expect that we will continue to discover new ways to make our EMR work for us.......but collaboration with other users will be key to doing this efficiently.

In addition to our practice EMR system, we have also experienced conversion to electronic ordering and charting at two hospitals. One hospital did a decent job with CPOE conversion, despite the complexities of trying to train university and community physicians. Their EMR system is basic and relatively easy to use, even without formal training. The other hospital did a decent job with CPOE, but the conversion to EMR in the hospital nursery has been TERRIBLE. The choice of products was poor, and the implementation even worse. Now, When we round on one newborn in the hospital, a task that used to take about 15-20 mintues, we must access several different non-interfaced systems, and the process for ONE newborn takes at least an hour.. After examining the infant and talking with the parents, we have to acceess the paper chart, where many records are still kept, then access the CPOE system for labs and orders, then access the university hospital browser, which then provides access to the EMR systems for mother and baby, where we find charting of vitals, hand-entered lab results and progress notes. There have been numerous examples of incomplete charting, and operator error in entering lab results. It is frightening, and very dangerous for the patients, and we are considering pulling out the hospital.

On reading this account, our Medical Director at Bayside, Rich Ash, who joined us this year after experiencing an EMR installation in his former practice associated with the University of Pittsburgh, said this:

very interesting, and rings very true. ...brought back memories :)

So, EMR? Probably not ready for prime time.

Budd Shenkin

Saturday, June 27, 2009

Health Care Reform (9) - Insurance


It is tempting to think that if we changed our system of health insurance, all the problems of medical care would be solved. Our medical care system problems are too profound and the system too complex for that to happen. On the other hand, it is true that insurance is central enough to the system that changing it would lead to many important solutions, if not all. How should health reform change health insurance, and would a Public Option (PO) competing with private health insurance companies be a good idea?

The Current System

As companies compete for profit in the marketplace, the public is supposed to benefit, courtesy of the “hidden hand.” That has not happened in the health insurance business. To understand why not, we need to understand how health insurance companies make their money. Let us count the ways.

They underwrite. That is, they assess the risk of individuals and groups and charge them accordingly, denying some individuals and groups coverage all together, and excluding “prior conditions” for many. This is called “cherry picking.” Some groups benefit a bit from relatively favorable ratings, but because of the cost of individual underwriting and administration, no individuals benefit.

They reject policies retroactively (this is called “dumping.”). When a patient gets sick the insurance company withdraws the policy on the grounds of an unrevealed preexisting condition. Thus, an insured patient becomes uninsured and the insurance company is not liable for the medical expenses.

They write policies cleverly, exploiting their superior knowledge of policy details. Consumers are confused by the specified deductibles, coinsurance, and exclusions from coverage, and often discover when sickness strikes that they are under-insured.

They market with advertising and extensive individual company contacts.

They use contracting prowess as they assemble provider network. Since the insurance industry is quite concentrated and physicians usually atomized into small practices and forbidden by law from bargaining collectively, the companies can exploit the power difference to extract favorable terms from the practices. Some physicians use overbilling tactics, which the insurance companies combat by delaying, denying, and downcoding payments. The practice-insurance battles are legendary; the overhead of personnel salaries on both sides funding this war is also legendary.

The insurance company – hospital game is different. Many hospitals are themselves in positions of local or regional advantage and can resist poor contracts. Nonetheless, since the insurance companies are few, their competition is muted, as they see each other as unspoken collaborators, driving up prices for all. These wars can also become legendary and entail great expense on both sides.

They reject treatments for patients. There is no national authority that definitely decides which treatments and procedures are valuable, so practitioners make their decisions and the insurance companies get to authorize or not. Insurance companies probably feel more defensive than offensive in trying to curtail the proliferation of tests and procedures, and the authorization battle again piles up overhead.

They neglect customer service. There are only a few health insurance companies and employers rather than consumers generally make the choice, so serving the public well is unnecessary.

The companies build a profit margin into their budgets and pay their executives handsomely. Formerly non-profit entities have become for-profit and benefited accordingly.

They provide administrative services and provider networks to self-insured large companies. In this pursuit they are not insurance companies at all, but network compilers, claims processors, etc.

In sum, as part of a quagmire of a system, health insurance companies have been less insurers and more administrative bodies, only sometimes providing for the public good. But one can see that within this difficult system, it is hard to do the public good.

How The Public Interest Could Be Better Served

Health reform is now set to establish a “Health Insurance Exchange” similar to the current system for Federal employees. The Exchange would basically be a menu of insurance choices, with various levels of benefits specified, and companies having their policies available for purchase at each level. The companies would be required to accept all comers at a common price (called “community rating.”) Riskier groups and individuals would be subsidized (several techniques are available, from private and public sources), so no company would suffer adverse selection. Lower income individuals would be subsidized. The Exchange would be available to individuals and small groups at first, or perhaps everyone from individuals to large groups.

Just establishing this new exchange system would be a marvelous advance. It would:
• Greatly reduce the numbers of uninsured
• Reduce underinsurance
• Protect patients from exploitation by company cleverness.
• Eliminate the overhead of underwriting.
• Eliminate patient dumping.
• Reduce marketing overhead costs.
• Transform competition for patients to price, additional coverage offered, patient service, and choice of provider networks. Competition would thus become an addition to the public good.

What Would Not Be Fixed

This step would not:

• Solve the problem of costliness of American health care. Nonetheless, overhead savings in the health insurance industry would certainly outweigh the costs of establishing and maintaining the Exchange.
• Improve the conditions of negotiating with doctors and hospitals.
• Improve insurance company\provider wars over payments.
• Eliminate insurance company\patient wars over coverage for procedures.
• Eliminate concentration in the health insurance industry.
• Improve coordination and reduce duplication within the system
• Reduce geographical variation in habits of practice
• Improve quality.

Clearly then, establishing an Exchange would be a step forward, but only a step.

What Adding the Public Option Could Do

We do not yet know what a PO – government sponsored alternative(s) in the Exchange menu – would look like. For public/private competition to be more than a sham, the playing field would have to be equal, with the rules for all entities the same, and most probably this will happen. The PO should be considered on that basis.

Advocates say a PO would “keep the health insurance companies honest.” To the extent that industry concentration now produces increased rents, this could indeed be true. On the other hand, it would seem unlikely that a PO would reduce costs by procuring volume discounts. Would a PO greatly reduce the prices of policies, and then use a large patient subscription to drive down provider costs by contract (fiat)? Most probably many providers would then simply exclude or limit their PO patients, as they do now with Medicare and Medicaid. Care would then probably become even more unequal than it is now.

It is also unlikely that a PO would compete with reduced administrative expenses. Even Medicare contracts out its administrative functions.

The medical care system needs a great deal of organizational innovation. A governmental PO would most probably not be terribly innovative in itself. It could be a great support, however, for entities that wished to innovate. If local area providers were to propose innovations with a public spirit, the PO could be their vehicle of patient insurance. If private insurance companies wished to innovate and then failed, having a PO available for patients to enroll in would be of great public benefit. This could be especially true in the high cost geographical areas that are most in need of innovation.

Prevention and health promotion have received short shrift from private companies because long-range benefits will most probably not accrue to them. A PO, with a different ethic, could well be more willing to take such projects on.

A traditional problem of public entities is a failure of incentives, since profit is not one of them, and virtue is notoriously a fleeting sentiment. A suggestion by Mark Pauly that each menu have two or more PO’s, perhaps with different sponsorship, makes sense in that context. With the Medicaid program in Alameda County in California, for instance, two competing managed care entities have kept each other honest!

What to Leave to Other Mechanisms

Changing the insurance playing field cannot cure all ills. There needs to be innovation throughout the very fat system – when a body is fat, fat lodges everywhere, and so it is with our health care system.

Insurance companies cannot increase appropriateness of care without a generally accepted official agency of some sort that makes these judgments with public and professional acceptance. Cost reduction will rely on rationalization of systems, which insurance companies can only support, not create. Quality of care must rest with the medical care system itself, perhaps with the health of insurance incentives, but insurance companies cannot be primary agents. The major work in redoing health care will need to lie with the profession, often locally, and government apart from the payment system.

In sum, the health insurance system needs to be redone, and quickly. Doing so can cure several of our most troublesome problems, and help in the cure of others. Adding a PO to the mix would most probably be a beneficial step.

Budd Shenkin

Tuesday, June 16, 2009

Health Care Reform (8)

So, a year ago I had a hip replacement - going nicely, thank you. On March 30 I had a fall and I needed to be reevaluated. Part of the reevaluation was hip xrays, including lying down and standing up. I just saw the Explanation Of Benefits for that little endeavor -- $1,175 total billed, $763.75 paid.

Outrageous. This is where the money is going in health care, imaging and hospitals, not to mention $250, 7 minute specialty "consults." There is lots of money out there to be saved, none of it in primary care. How long would we in pediatrics have to work to get paid $763.75?

This is why reform is needed.

We hear too much about "unnecessary procedures." Yes, there are lots of them. But what we don't hear enough about, at all, is the price of these procedures. That's the most important element missing from Atul Gawande's New Yorker article. Cut down on price to reasonable levels and we are part of the way home.

Budd Shenkin

Sunday, June 14, 2009

Health Care Reform (7)

The Obama Health Insurance Reform in Perspective & the Relevance of the Public Option

(Let me apologize for and warn you about the length of this post. My explanation - I've been thinking long and hard about this.)

The Obama Health Insurance Reform in Perspective

I’m glad to see that the first step of the Obama Health Plan (OHP) will rest on creation of a health insurance “exchange,” where consumers are presented each year with a menu of alternative plans at predetermined standardized levels of benefits, offered by various companies. Since there will be government subsidies to make at least the basic plan affordable to everyone, insurance will probably become nearly universal, and job mobility should improve. It seems that, after all this time, the problem of the availability of health insurance to individuals will be largely solved. This will mark a good and important first step, tactically very smart to take, in fixing health care and making insurance available.

But it is only a first step. As everyone knows, the whole system needs revision, to make it relatively efficient, fair, less costly, higher quality, and progressively gaining ground in all these aspects instead of losing ground. The basic problems lie in the nature of the insurance system, the cost and organization of hospitals, pharmaceuticals and medical devices, and reliance on specialists instead of primary care. So, while the OHP’s first step is a great one, it needs to lead to bigger changes in the way the system functions as a whole. Which I think it will.

The key to understanding the current insurance system is this: how do the companies make their money? Competition in and of itself is not a good thing if the way they compete doesn’t redound to the benefit of the public. To simply celebrate the existence of competition qua competition is to celebrate ideology rather than what competition is supposed to deliver.

I wish I knew more about insurance companies so I could write with a deeper factual background, but here is the way it seems to me. First of all, they compete by underwriting. In the individual market they assess health and age status; in the group market they assess utilization history and probabilities; in both cases they then price their products accordingly, and deny applications, raise premiums, or restrict coverage. (This is called experience-rating; if a company would give the same price to all comers, this would be called community-rating). The companies that underwrite most artfully make the most money. In addition, since benefits are not standardized, the companies that can write their plans most cleverly also win. Unfortunately, the underwriting enterprise winds up making coverage either unobtainable or exorbitant to many people who thus become uninsured.

Insurance companies also strive for profits in other ways. In the large company sphere they provide administrative services; if they can do this most efficiently, they win. They negotiate with care providers, especially physicians and hospitals, to variable effect, bending to the pressure of hospitals with a lot of market power, making others bend to them when the insurance company is more powerful. Market power is more influential than straight cost-accounting. What a company loses in one market they gain in another. If they lose to hospitals, they make it up by short-changing the atomized physicians.

Insurance companies can also profit by the way they pay providers, or don’t. If they declare some services “included” with other services, they can avoid paying for both, although both might have perfectly valid CPT (service descriptor) codes. They can deny claims on obscure bases. Some insurance companies have been convicted of setting “payment denial” objectives for their staff. They can delay payments and make money on the float.

Unfortunately, what they have not been able to do to a significant extent is to assert control over utilization, nor to improve quality, because they are too far away from the functioning of the system, and too far away from their own expertise, to do so. Overall, the culture of the health insurance companies has been such that none have been described as particularly good citizens, looking out for the health of the nation, coming up with schemes that would advance the health care industry and do better for people. In fact, quite the reverse.

It is clear, then, that when it comes to health insurance, the OHP has more to reform than accessibility to a policy. The first step will be to establish the “exchange.” The second will be to eliminate the ability of the companies to reject applicants, and establish community-rating premiums with governmental subsidies to avert adverse selection. (Hal Luft of the Palo Alto Medical Foundation Research Institute has suggested that establishing a Major Risk Pool is a way of achieving this.) While these changes will save insurance companies the overhead costs of underwriting, they will also mean that a major modus operandi of the health insurance industry will be altered. They can still make money by establishing contracts with providers that rest on their market power; they can still make money by denying claims; they can still make money by being efficient in administrative operations. But they will have to stop making money by experience-rating individuals and groups, and by cleverly designing plans to their own advantage.

The OHP will of necessity solve the insurance accessibility problem. What it then needs to do is to influence the insurance companies to focus their profit motive to add to the public good by making their own internal operations more efficient, and inventing ways that make the system as a whole better. The issue is, would inclusion of the public option make that objective more possible?

The Question of the Public Option

Given that there will be a health insurance exchange, and given that there will be community-rating, the biggest controversy right now is: should there be a so-called public plan on the menu? A public plan would be one sponsored by government – proponents want it to be the Federal government, others would like it to be states, or even other entities such as “cooperatives.” I have called this option the BGP – the Big Government Plan. (Which it wouldn’t be it were to be the ill-advised cooperatives.) All agree that there would need to be a level playing field so that competition between public and private plans would be fair, and there are many suggestions on how to do this. This is the question I pose and answer today. I think we can only answer the question by reflecting on the nature of the health insurance industry, which is why I started this post as I did.

Let’s first look at what is being said. The May 28, 2009 issue of the New England Journal of Medicine contains three invited articles on the subject. One is by Jacob Hacker, a liberal strongly for the BGP; one by Mark Pauly, a free-marketeer from the Wharton School who accepts a BGP to make reform politically viable; and the third by the canny veteran health economist Victor Fuchs, who thinks the BGP would be irrelevant. Two weeks later in the June 11 issue of the Wall Street Journal, Karl Rove stated the hard Right’s objections to the BGP as the pathway to socialism, and the next day in the WSJ Stephen Burd, CEO of Safeway, didn’t address the BGP at all, but gave the preventive medicine approach to fixing America’s health care problem. These are our texts for today.

Hacker strongly supports a BGP, while acknowledging that public entities are generally rigid, and private ones are “more flexible and more capable of building integrated provider networks….” He looks to the BGP “to provide: stability, wide pooling of risks, transparency, affordable premiums, broad provider access, and the capacity to collect and use patient information on a large scale to improve care.” He also thinks the BGP would have lower administrative costs (the government more efficient than private business?); will be able to receive better volume discounts (this would violate the level playing field provision, and just who would these discounts come from, and for what?); and would be non-profit (OK, but what would the incentive be, then? Virtue?)

Pauly, the free-marketeer, thinks that a very wide array of choices on the menu would bring public support, and many provisions to allay the advantages of size and the possible political domination of the BGP, would make the OHP politically viable. Interestingly, he puts forward the idea of having two distinct government plans in each area! I think this is a great idea – it gives a sense of where the incentive to the public plans would come from. We have experience with this format in California Medicaid, where in our counties, for instance, patients can choose either the local initiative (county health department) plan or the private Medicaid plan, and so can providers.

Pauly also brings up the old issue of Any Willing Provider – could the BGP(s) choose not to let a duly licensed physician, say, join the plan? How could a governmental entity do this? Yet, if the BGP had to admit providers and the private plans didn’t, wouldn’t that give an advantage to the private plans? Likewise, if care were to be delivered in networks that contracted with the BGP, how could the BGP choose to contract with one group but not another? I think the answer here would have to be that each provider would have to have access to at least one plan, with the BGP as the contractor of last resort. More could be proposed here, but let’s go on.

Fuchs says that the three biggest challenges of health care are the uninsured, cost, and quality, and he doesn’t see how a BGP would impact any of them. Insuring everyone will require a subsidy and compulsion, and a BGP is not needed for either. Neither cost nor quality have been positively affected by either Medicare or Medicaid, so why should another BGP have any effect?

Moreover, says Fuchs, who would join at BGP? Medicare and Medicaid are already set for the elderly and the poor. 30% of the populace are covered by large companies who self-insure, the administration of their plans contracted out to the health insurance companies for provider network supply and payments. The BGP would have nothing to offer these companies. 25% of the populace are covered by smaller employers that contract with private health insurance companies. Again he argues, what would a BGP have to offer them? Since these contracts for care are generally experience rated rather than community rated (that is, one price or all despite historical medical care utilization), only the high utilizers would want to go to the BGP, thus giving the BGP adverse selection, and taking the bloom off their rose. (I think community-rating is in the works, given the nature of an exchange.) 5.9% are currently individually insured, and these would go to the BGP. 15% of the populace are uninsured, of which three-quarters, or 12%, are too sick or too poor to buy policies, and the remaining 3% choose not to. Fuchs doesn’t see the value of a BGP for these people either.

I don’t agree with Fuchs here. First of all, I think we have to get to community rating for everyone, with risk adjustments made as Hacker suggests. Secondly, even by Fuchs’ analysis tens of millions of people would sign up with the BGP.

Rove asserts that we don’t need a BGP because we already have enough competition. This is a purely ideological argument (surprise!) that doesn’t look at the quality of the companies, nor at the results. Private insurance companies have a terrible history. Their innovations are generally pseudo-innovations, and the ways they choose to make money are not productive to the nation as a whole – underwriting, reusing care, reneging on coverage, gaming providers who submit bills, etc.

His second argument is that the public option will pay providers less than private companies will (not clear this is so), and thus cause others – providers and patients – to subsidize the BGP, the old transfer game that hospitals play.

His third argument is “crowd out,” that in contrast to Fuchs who thinks hardly anyone will choose the BGP, Rove avers that so many will choose it that private companies will be stifled. As both Hacker and Pauly assert, however, if the playing field is indeed made fair, this will probably not be the case. And if it turns out to be as Rove fears, would that not be a testament to the underlying vapidity of the current private companies and their practices? If they can’t beat the government – that’s a pretty low bar.

Rove’s fourth argument is also Fuchs’, that Medicare and Medicaid are too expensive and do not lead to efficiencies, so the BGP would do the same. It’s true that government is not good at innovation and cost control.

Fifth and finally, Rove asserts that a governmental monopoly will be unresponsive and a bad, socialistic option. This is the Trojan Horse or Slippery Slope argument -- BGP today, National Health Service tomorrow. Well, the point is then to make the playing field level, and as Pauly suggests, let there be competing governmental entities.

Burd, finally, makes a non-BGP point, an argument that reminds me of the “Legalize Marijuana” solution to the California state budget crisis in its indirect approach. Burd says that Safeway has kept medical costs stable for the last four years by giving their employees incentives to avoid tobacco, reduce obesity, and keep blood pressure and cholesterol in normal bounds. The better health of the group has led to lower costs. It strikes me that only smaller, private insurance groups could handle this kind of innovative approach, and thus beat the BGP in competition.


So, given that the OHP can make health insurance accessible by simply establishing the exchange, but that it needs to do more to “fix” health care, does there have to be a BGP option? The answer is clearly yes.. In fact, I Pauly’s suggestion of having two BGP’s available on the menu would make the most sense – perhaps one a Federal and one a state program.

If a BMP is on the menu, everyone agrees that the playing field needs to be made level. Community rating and risk adjustment could be accomplished by the Luft Major Risk Pool plan. The NEJM articles have cogent suggestions on other leveling procedures. More specifically for part of the means to this, the BGP needs not to undercut rates. I would suggest that the BGP start out with 130% of Medicare rates for primary care, 100% of Medicare for selected specialists (some, such as general surgery, would need to be higher; some, such as imaging could be lower).

The temptation for health insurance companies would be to continue their operations as they have practiced them in the past. The more the OHP can deny them profit from old, non-productive practices, the more they will have to find new means to make profit. Denied profit possibilities from underwriting and clever plan design, they would be tempted to continue to deny payments and care, and to assert market power where possible to glean profit. The presence of the BGP would blunt their ability to force poor contracts on relatively weaker providers. If properly designed, the BHP would force the private plans to compete for the allegiance of providers by ceasing those practices.

What would be left for the insurance plans to do? They would benefit if they were truly efficient in administration, practiced prevention as Burd suggests, aligned with groups that were themselves innovative in the way they delivered care, etc. We would look for innovation from the private sector as we always have. They would have the advantage over the BGP by not having to contract with all providers; if the insurance company and providers shared their profits, both would have incentives.

In addition, the presence of the BGP would act as a safety net. Everyone in every part of the country would have insurance available in a traditional way. If a private company tried to innovate and failed, the BGP would be there to pick up the pieces for the enrollees with that failed company. Also in addition, if small or large companies chose the BGP over private companies, so be it. And with several BGP entities available, they would themselves have a competitive incentive and measuring stick to work against.

Some say that a BGP is necessary to “keep the insurance companies honest.” Clearly, left to itself, the industry has not been trustworthy. I hope that I have shown to some extent how the BGP would function in keeping the private plans honest.

Finally, it is important to note that the point of the BGP would not be to be innovative – that’s not something the government is good at, at least not for a long time. (See the OEO experience from the 60’s, for instance, on how innovation can begin and then be stifled.) It should be solid even if stolid, the safety net for everyone; honest, straightforward, maybe unimaginative, but present. The BGP should also be a lowest common denominator, in the sense that if the BGP can do something, then there is no reason other plans can’t do it, too.

Budd Shenkin

Wednesday, June 3, 2009

Truth and Politics

As a "goo-goo" (good government) type, I have always been amazed and appalled at "that's just politics." Last Sunday's NYT Magazine's Bill Clinton profile is a case in point. He reflects on calumnies of past campaigns, including his own infamous diminishment of Obama's South Carolina win with the observation that Jesse Jackson also won there, and says "that's just politics." He can easily forgive lies and distortions by others on the same basis, and be friends afterward. Hillary said the same thing when she observed during the campaign that "now the fun part begins." Lies the public will swallow. I just stand stunned, amazing, saddened, and angered. But then, I'm a goo-goo.

Tocqueville observed in the 1830's that the process of electing senators and presidents indirectly - the state legislatures the Electoral College did it in his time - was a good one. The general people will be swayed by demagoguery, he observed; the more sophisticated legislators will be more fact-based.

Enter modern communications, and enter direct elections of senators and the decline of the Electoral College. What we have now is just what Tocqueville feared. Willie Horton and the "values" election of 2004 are a cases in point, but indeed I guess most campaigns are.

One of the things that the media loved about Obama was that he treated the people "like adults." Some of this is probably just the reflection of George Bush, who couldn't help being patronizing as he explained down to people, although it's not unlikely that quite often he was one of the least-nuanced people in the room. But I have to think that much of Obama's strategy was sincere un-demogoguery. I think he really has been just saying what he thinks and explaining complexities and avoiding easy labels, as he did last week in the Guantanamo speech.

In today's NYT Tom Friedman says that Obama's tactic in the Middle East is to tell the truth, and to urge Middle East actors not to say one thing in private and another thing in public. He is not seeking to control events, but to help steer the world's ship in a more positive direction by being truthful, and letting others do what they will with it. It's the better angels of our nature strategy.

Hope it works. There will be lots of nay-sayers pointing to the radical views of Iran, the Taliban, Hamas, the Muslim Brotherhood, and Hezbollah, not to mention the unthoughtful nature of the Arab street. They might be right. But the truth tactic certainly appeals to goo-goo's like me. It makes us a better people.

Budd Shenkin