Sunday, July 12, 2009
Recommendation
In the context of a discussion on another subject, long-time friend Bob Odean reminded me that in all my blogging, I had not been very forthcoming on my own views on solutions for health care reform.
Summarizing those views in a page or so may be presumptuous, but I’ll give it a try.
I would first recommend that steps be initiated on a national basis to consolidate the professional (i.e., physician) and institutional (i.e., hospital) components of health care into single entities. Mayo Clinic and Cleveland Clinic are examples of such entities. An early step would be the repeal of state laws prohibiting corporate practice of medicine, which prevent corporations from employing physicians, charging for their services, and keeping the money.
The second thing I would recommend is the creation of competitive relationships among the consolidated entities. That would mean breaking up some multi-hospital systems that now enjoy what amounts to monopoly status. It would also mean abolishing Certificate of Need programs that require health care organizations to obtain advance public certification that major construction projects facilities and equipment purchases are “needed” before they can be undertaken.
Third, I would recommend the system of reimbursement known in earlier times as global capitation. Health insurance companies would contract selectively with the consolidated entities with which they are able to negotiate the most favorable terms, and then pay these providers a negotiated fixed amount per subscriber per month. The consolidated entity would then provide or arrange for all the care needed by the subscriber.
The absence of accountability that has so long plagued health care would be resolved by the consolidation of physicians and hospitals into single entities with responsibility for all aspects of a patient’s care. Establishing competition among providers would make it possible to create economic incentives strong enough to cause providers to become serious about cost and quality. The current fee-for-service system adversely incentivizes providers to provide unnecessary care and is expensive to administer. Global capitation, properly designed, induces providers to provide effective care while conserving resources and is easily administered.
This arrangement would also clear the way to addressing the problem of the uninsured. As things now stand, providing coverage for the uninsured adds to the already too high cost of care and bequeaths a financial windfall on the already overfinanced providers who are now providing care to these people without direct reimbursement. In the arrangement proposed, providers who find themselves providing less uncompensated care as a result of universal coverage programs would have an incentive to improve their competitive position by reducing their rates accordingly.
While there would be many details to be worked out, I believe the arrangement I recommend could provide a practical basis for the development of a health care system that addresses the issues of our day.
In the context of a discussion on another subject, long-time friend Bob Odean reminded me that in all my blogging, I had not been very forthcoming on my own views on solutions for health care reform.
Summarizing those views in a page or so may be presumptuous, but I’ll give it a try.
I would first recommend that steps be initiated on a national basis to consolidate the professional (i.e., physician) and institutional (i.e., hospital) components of health care into single entities. Mayo Clinic and Cleveland Clinic are examples of such entities. An early step would be the repeal of state laws prohibiting corporate practice of medicine, which prevent corporations from employing physicians, charging for their services, and keeping the money.
The second thing I would recommend is the creation of competitive relationships among the consolidated entities. That would mean breaking up some multi-hospital systems that now enjoy what amounts to monopoly status. It would also mean abolishing Certificate of Need programs that require health care organizations to obtain advance public certification that major construction projects facilities and equipment purchases are “needed” before they can be undertaken.
Third, I would recommend the system of reimbursement known in earlier times as global capitation. Health insurance companies would contract selectively with the consolidated entities with which they are able to negotiate the most favorable terms, and then pay these providers a negotiated fixed amount per subscriber per month. The consolidated entity would then provide or arrange for all the care needed by the subscriber.
The absence of accountability that has so long plagued health care would be resolved by the consolidation of physicians and hospitals into single entities with responsibility for all aspects of a patient’s care. Establishing competition among providers would make it possible to create economic incentives strong enough to cause providers to become serious about cost and quality. The current fee-for-service system adversely incentivizes providers to provide unnecessary care and is expensive to administer. Global capitation, properly designed, induces providers to provide effective care while conserving resources and is easily administered.
This arrangement would also clear the way to addressing the problem of the uninsured. As things now stand, providing coverage for the uninsured adds to the already too high cost of care and bequeaths a financial windfall on the already overfinanced providers who are now providing care to these people without direct reimbursement. In the arrangement proposed, providers who find themselves providing less uncompensated care as a result of universal coverage programs would have an incentive to improve their competitive position by reducing their rates accordingly.
While there would be many details to be worked out, I believe the arrangement I recommend could provide a practical basis for the development of a health care system that addresses the issues of our day.
Friday, July 03, 2009
Competition vs Competition
We Americans have a strong faith in the potential of competition as an inducer of higher levels of performance. We are less aware that competition can take different forms with correspondingly different results.
The June 21 issue of The Boston Sunday Globe included an article about competition between two health care providers in the Boston area. It seems that Beverly Hospital, a major north shore provider, wants to build a radiation treatment facility. Massachusetts has a Certificate of Need law in effect, so Beverly needs the approval of the state’s Department of Health to proceed.
That approval is being opposed by Partners, a Boston-based institution that recently opened a cancer center in the nearby town of Danvers. The center offers radiation treatment. Partners is arguing that its own facility is sufficient to serve the needs of the community and that the Beverly center would constitute an unnecessary duplication of costly services.
Partners – a merger of the Massachusetts General Hospital and Brigham and Women’s Hospital - is the biggest, most prestigious, richest, and most powerful provider of health care services in Massachusetts. Its market clout is such that it has been able to get health insurance companies to pay it higher rates than those paid to other providers in the area.
One would like to think that health care providers would compete on the basis of cost and quality. But that is not at present the case. As to cost, health insurance will cover services provided to the affluent residents of the north shore regardless of whether they get their care from high-cost Partners or lower-cost Beverly. Prestigious Partners is assumed to provide care of higher quality, though it offers no data to prove it and the assumption might well not be true.
So while Partners’ development of a cancer center in Danvers provided competition to Beverly, the result has been to increase the cost of health insurance in Massachusetts. The effect on the quality of care is not known.
Competition ought to be a good thing, but not the kind of competition that exists between health care providers in Massachusetts.
We Americans have a strong faith in the potential of competition as an inducer of higher levels of performance. We are less aware that competition can take different forms with correspondingly different results.
The June 21 issue of The Boston Sunday Globe included an article about competition between two health care providers in the Boston area. It seems that Beverly Hospital, a major north shore provider, wants to build a radiation treatment facility. Massachusetts has a Certificate of Need law in effect, so Beverly needs the approval of the state’s Department of Health to proceed.
That approval is being opposed by Partners, a Boston-based institution that recently opened a cancer center in the nearby town of Danvers. The center offers radiation treatment. Partners is arguing that its own facility is sufficient to serve the needs of the community and that the Beverly center would constitute an unnecessary duplication of costly services.
Partners – a merger of the Massachusetts General Hospital and Brigham and Women’s Hospital - is the biggest, most prestigious, richest, and most powerful provider of health care services in Massachusetts. Its market clout is such that it has been able to get health insurance companies to pay it higher rates than those paid to other providers in the area.
One would like to think that health care providers would compete on the basis of cost and quality. But that is not at present the case. As to cost, health insurance will cover services provided to the affluent residents of the north shore regardless of whether they get their care from high-cost Partners or lower-cost Beverly. Prestigious Partners is assumed to provide care of higher quality, though it offers no data to prove it and the assumption might well not be true.
So while Partners’ development of a cancer center in Danvers provided competition to Beverly, the result has been to increase the cost of health insurance in Massachusetts. The effect on the quality of care is not known.
Competition ought to be a good thing, but not the kind of competition that exists between health care providers in Massachusetts.
Thursday, June 25, 2009
Cautionary Tales
I’ve been known to characterize single payer (national health insurance) as an arrangement for freezing the existing health care system in place and then slowly starving it to death.
The freezing part was illustrated by President Obama during his recent press conference when he assured those who were satisfied with their current health insurance plans and physicians that they could keep what they have and need not be affected by his proposal for a government-run plan. What he was saying, in effect, was that you could keep your doctor, however incompetent or wasteful he/she might be, and your health insurance would have to pay him/her.
The starving part was shown in the June 24 issue of The Boston Globe, which headlined the decision of the Massachusetts legislature to cut some $115 million from the budget of the celebrated Massachusetts health reform plan as a budget balancing measure. Further back in the same issue, State Treasurer Cahill, who has expressed an interest in running for governor, was quoted as referring to the Massachusetts health plan as “a luxury taxpayers can no longer afford.”
These ought to be taken as cautionary tales by advocates of single payer.
I’ve been known to characterize single payer (national health insurance) as an arrangement for freezing the existing health care system in place and then slowly starving it to death.
The freezing part was illustrated by President Obama during his recent press conference when he assured those who were satisfied with their current health insurance plans and physicians that they could keep what they have and need not be affected by his proposal for a government-run plan. What he was saying, in effect, was that you could keep your doctor, however incompetent or wasteful he/she might be, and your health insurance would have to pay him/her.
The starving part was shown in the June 24 issue of The Boston Globe, which headlined the decision of the Massachusetts legislature to cut some $115 million from the budget of the celebrated Massachusetts health reform plan as a budget balancing measure. Further back in the same issue, State Treasurer Cahill, who has expressed an interest in running for governor, was quoted as referring to the Massachusetts health plan as “a luxury taxpayers can no longer afford.”
These ought to be taken as cautionary tales by advocates of single payer.
Saturday, June 20, 2009
Cost Versus Coverage in Health Care Reform
Health care reform has come down to a contest between two issues, cost and coverage.
Cost is an issue because nearly 17% of our economy is now devoted to health care and that number continues to rise because expenditures for health care are rising faster than the growth of the economy as a whole. Students of the issue foresee the day when the government will no longer be able to pay its health care bill from its own funds or borrow the money to do so.
Coverage is an issue because some 47 million Americans are without health insurance. In the modern era, the lack of health insurance can force a patient to choose between foregoing needed health care and facing financial disaster.
Measures that address the coverage issue provide a benefit for people in need and are therefore politically attractive.
Measures that address the cost issue place restraints on established practices and are therefore politically hazardous.
The contest arises because measures directed at the coverage issue involve new expenditures of prodigious amounts of money, thus exacerbating the cost issue.
Added to that is growing concern over ballooning budget deficits at the federal level.
I have said over the years that the cost of health care continues to rise because the pain of paying is less than the pain of doing something about it.
That may be changing.
Health care reform has come down to a contest between two issues, cost and coverage.
Cost is an issue because nearly 17% of our economy is now devoted to health care and that number continues to rise because expenditures for health care are rising faster than the growth of the economy as a whole. Students of the issue foresee the day when the government will no longer be able to pay its health care bill from its own funds or borrow the money to do so.
Coverage is an issue because some 47 million Americans are without health insurance. In the modern era, the lack of health insurance can force a patient to choose between foregoing needed health care and facing financial disaster.
Measures that address the coverage issue provide a benefit for people in need and are therefore politically attractive.
Measures that address the cost issue place restraints on established practices and are therefore politically hazardous.
The contest arises because measures directed at the coverage issue involve new expenditures of prodigious amounts of money, thus exacerbating the cost issue.
Added to that is growing concern over ballooning budget deficits at the federal level.
I have said over the years that the cost of health care continues to rise because the pain of paying is less than the pain of doing something about it.
That may be changing.
Saturday, June 13, 2009
Process vs. Content In Health Care Reform
Politics is a competitive activity with contests, winners, and losers. One consequence is that it tends to be more concerned with process than with content.
Nowhere is that more clear than in the current effort at the federal level to enact health care reform. The print pundits and the cable talking heads are giving little attention to the legislative provisions being considered and a great deal to questions like the effect of Senator Kennedy’s illness, how much of the detail should be left to the congress, and whether Senator Baucus will be able to persuade Senator Grassley to support a bill.
Although that approach works most of the time, I predict it will cause trouble in this case as it did with the Clinton effort in 1993. The health care issue is a lot more complicated than most people, including politicians, want to admit. In the Clinton case, the failure to recognize that resulted in a thousand-plus page report that proved too much for the Congress to digest. What form it will take in the current situation remains to be seen, but the unacknowledged complexity could well drag the process down again.
One indication is the amount of attention President Obama is trying to focus on the need to contain the cost of care while most of the proposals deal with health insurance, and do so in a way that would cost a ton of money. It doesn’t seem to have occurred to people that you don’t restrain cost by spending more money.
Another sign is the statement by Administration and Congressional leaders that health care reform must be “budget neutral” and not add to the deficit. They are a lot less specific about where the money would come from.
It looks to me as though the process of health care reform is once again going to be swamped by the content. We’ll see if I am right.
Politics is a competitive activity with contests, winners, and losers. One consequence is that it tends to be more concerned with process than with content.
Nowhere is that more clear than in the current effort at the federal level to enact health care reform. The print pundits and the cable talking heads are giving little attention to the legislative provisions being considered and a great deal to questions like the effect of Senator Kennedy’s illness, how much of the detail should be left to the congress, and whether Senator Baucus will be able to persuade Senator Grassley to support a bill.
Although that approach works most of the time, I predict it will cause trouble in this case as it did with the Clinton effort in 1993. The health care issue is a lot more complicated than most people, including politicians, want to admit. In the Clinton case, the failure to recognize that resulted in a thousand-plus page report that proved too much for the Congress to digest. What form it will take in the current situation remains to be seen, but the unacknowledged complexity could well drag the process down again.
One indication is the amount of attention President Obama is trying to focus on the need to contain the cost of care while most of the proposals deal with health insurance, and do so in a way that would cost a ton of money. It doesn’t seem to have occurred to people that you don’t restrain cost by spending more money.
Another sign is the statement by Administration and Congressional leaders that health care reform must be “budget neutral” and not add to the deficit. They are a lot less specific about where the money would come from.
It looks to me as though the process of health care reform is once again going to be swamped by the content. We’ll see if I am right.
Monday, June 08, 2009
Being Distracted by Appearances
A widely noted feature of the health care reform plan being developed by the Democrats is a health insurance agency to be operated by the federal government in competition with private health insurance companies, including Blue Cross Blue Shield.
The proposal speaks to the general perception that health care can be reformed by reforming health care insurance. The source of that perception is not so hard to identify. For most people, the cost of health care is the cost of health insurance, which keeps rising year by year. Attempts to rein in the use of health care services take the form of the health insurance company refusing to pay, which infuriates both patients and providers.
Health insurance companies also get a bad name by trying to hold down their cost by not insuring sick people and by cancelling policies on people who get sick.
It is also true that private health insurance pays providers more than do Medicare and Medicaid. But I have not heard critics suggest that private health insurance should pay providers less.
Unless that is the argument, there is no basis to conclude that health insurance companies are the cause of health care costs being out of control. The health insurance market is highly competitive and any company that can devise a more attractive package of benefits or find ways to operate more efficiently would be quick to do so.
No doubt there are better ways to regulate the health insurance industry so as to mitigate some of its objectionable practices, but people should not deceive themselves by believing that doing so would have any significant effect on the cost of care.
It is the cost of providing the care itself that is driving up the numbers, not the cost incurred by the health insurance companies.
Aside from its merits or lack thereof, the proposal for a federal health insurance company reveals how easily we can be distracted by appearances.
A widely noted feature of the health care reform plan being developed by the Democrats is a health insurance agency to be operated by the federal government in competition with private health insurance companies, including Blue Cross Blue Shield.
The proposal speaks to the general perception that health care can be reformed by reforming health care insurance. The source of that perception is not so hard to identify. For most people, the cost of health care is the cost of health insurance, which keeps rising year by year. Attempts to rein in the use of health care services take the form of the health insurance company refusing to pay, which infuriates both patients and providers.
Health insurance companies also get a bad name by trying to hold down their cost by not insuring sick people and by cancelling policies on people who get sick.
It is also true that private health insurance pays providers more than do Medicare and Medicaid. But I have not heard critics suggest that private health insurance should pay providers less.
Unless that is the argument, there is no basis to conclude that health insurance companies are the cause of health care costs being out of control. The health insurance market is highly competitive and any company that can devise a more attractive package of benefits or find ways to operate more efficiently would be quick to do so.
No doubt there are better ways to regulate the health insurance industry so as to mitigate some of its objectionable practices, but people should not deceive themselves by believing that doing so would have any significant effect on the cost of care.
It is the cost of providing the care itself that is driving up the numbers, not the cost incurred by the health insurance companies.
Aside from its merits or lack thereof, the proposal for a federal health insurance company reveals how easily we can be distracted by appearances.
Friday, May 29, 2009
Health Care Reform in Massachusetts
A reader recently asked that one of my next postings provide an update on health care reform in Massachusetts.
While I claim no inside information, it happens that the lead front page article of May 28 issue of The Boston Globe dealt with the subject. The following is my summary of the contents:
- The article’s headline was “Costs snarling health overhaul.” The opening sentence read “Soaring healthcare costs, combined with the recession, are threatening to undermine the gains from Massachusetts’ 2006 healthcare overhaul.”
- An increasing proportion of the population is reporting problems paying medical bills.
- The program continues to enjoy the support of 70% of the people.
- 3% of Massachusetts residents are uninsured, compared with a national average of 15%.
- 91% of residents say they have a regular health care provider, up from 86% prior to the program.
- Use of hospital emergency rooms has not changed.
The May issue of H&HN, the journal of the American Hospital Association, also had an article on the topic. Here is one quote:
“Original budget projections for the Massachusetts program were $160 million in fiscal year 2007, $400 million in FY2008, and $725 million in FY2009. At $133 million, actual costs came in lower for 2007, but shot up to $625 million in 2008. The state funding request for 2009 was $869 million, with some estimating that actual cost could reach $1.1 trillion.”
One unanticipated effect discussed had to do with so-called safety net hospitals. Certain hospitals in Boston and elsewhere that care for a disproportionate number of the indigent and uninsured used to get support from a special state fund. That support was cut back in the reform program on the premise that those patients would now have insurance from which the hospitals would be able to collect. But many of those patients ended up being covered by insurance that paid at Medicaid rates which are seriously below cost. The result is that the safety net hospitals are in financial trouble.
A reader recently asked that one of my next postings provide an update on health care reform in Massachusetts.
While I claim no inside information, it happens that the lead front page article of May 28 issue of The Boston Globe dealt with the subject. The following is my summary of the contents:
- The article’s headline was “Costs snarling health overhaul.” The opening sentence read “Soaring healthcare costs, combined with the recession, are threatening to undermine the gains from Massachusetts’ 2006 healthcare overhaul.”
- An increasing proportion of the population is reporting problems paying medical bills.
- The program continues to enjoy the support of 70% of the people.
- 3% of Massachusetts residents are uninsured, compared with a national average of 15%.
- 91% of residents say they have a regular health care provider, up from 86% prior to the program.
- Use of hospital emergency rooms has not changed.
The May issue of H&HN, the journal of the American Hospital Association, also had an article on the topic. Here is one quote:
“Original budget projections for the Massachusetts program were $160 million in fiscal year 2007, $400 million in FY2008, and $725 million in FY2009. At $133 million, actual costs came in lower for 2007, but shot up to $625 million in 2008. The state funding request for 2009 was $869 million, with some estimating that actual cost could reach $1.1 trillion.”
One unanticipated effect discussed had to do with so-called safety net hospitals. Certain hospitals in Boston and elsewhere that care for a disproportionate number of the indigent and uninsured used to get support from a special state fund. That support was cut back in the reform program on the premise that those patients would now have insurance from which the hospitals would be able to collect. But many of those patients ended up being covered by insurance that paid at Medicaid rates which are seriously below cost. The result is that the safety net hospitals are in financial trouble.
