Having said this, our system appears to be in the early stages of changing for the better. For example, Congress included within the Patient Protection and Affordability Care Act (PPACA) language to encourage development of Accountable Care Organizations (ACOs) to help save Medicare money. According to Wikipedia, many healthcare leaders define the three core principles for ACOs as follows: 1) Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients; 2) Payments linked to quality improvements that also reduce overall costs; and, 3) Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care. Living examples kind of look like Integrated Delivery Systems such as Kaiser and HealthCare Partners Medical Group. In other words, in this model, hospitals and specialists within an ACO would be rewarded for positive health outcomes even if they never see the patient.

While Congress had making Medicare more effective and efficient in mind when they incorporated ACOs into PPACA, my bet is that large employers will be watching the development of this model with a great deal of interest. One of the advantages that large groups have over small groups is the fact that they can realize a return on investment (in the form of lower premiums and higher employee productivity) by incorporating chronic disease management and wellness programs into their employee management regimen. And that’s a good step towards lowering the cost of healthcare in our country.

But what about small employers??? Small employers don’t have the advantage that large employers have because of how small group rates are pooled in our markets. An employer with 10 employees who tries to help his employees live healthier lives will not realize a meaningful decrease in his health insurance premiums for his efforts because his company’s rates are pooled with thousands of others. But carriers being sensitive to the escalating cost of the delivery system and the threat this poses to the industry via reduced commercial enrollment are likely to take steps to modify their networks to look more like integrated delivery systems, ACO’s and, yes, even fully capitated HMO’s (remember those?). Furthermore, since the PPACA and its related changes to Medicare and Medicaid became the law of the land, the nature of conversations between providers and insurers appears to have changed for the better. So there is likely to be more productive innovation when it comes to developing future, new healthcare delivery models. Everyone realizes that unsustainable increases in cost are simply that; unsustainable.

Will these initiatives work? I think they will certainly help. All of this equates to more optimism that the healthcare delivery system has the potential to change and that the cost curve can begin to change course and begin to trend downward. But how long it takes to turn our system around and empower it to deliver and finance the level of care we expect for ourselves and fellow Americans for the long haul greatly depends on all of us. If you would like real case examples of the benefits of managing chronic diseases, let me know and I’ll forward you the article. I promise you that it will find it eye-opening and inspirational.

*  Mandate that everyone must have insurance.

*  Result in more than 30 million additional people becoming insured.

*  Provide for subsidized coverage for people that can’t afford it and increase the number of people that will qualify for Medicaid.

*  Make cuts to Medicare Advantage Plans and change their payment formula.

*  Increase taxes and fees to many individual Americans and Corporations.

*  Make many changes to the way Insurance Companies do business from not allowing them to use pre-existing conditions to limiting their rates based on medical loss ratios.

Many of these elements do not phase in for many years. Those that are most immediate and are expected to occur in 2010 are:

*  Tax credits for certain small businesses.

*  Elimination of pre-existing conditions and an increase in dependant coverage to age 26.

*  Creation of a temporary reinsurance program to provide coverage for retirees over 55 who are not eligible for Medicare.

*  The further creation of a temporary national high risk insurance pool.

*  The prohibition of lifetime limits on benefit payments. Closing the so called “doughnut hole” by providing immediate tax credits for Medicare patients who face a gap in prescription drug coverage.

The real impact in the health insurance system won’t occur until the year 2014. During the interim, there will be the phase-in of additional new taxes that will provide added government revenue to pay for these changes. The four most significant changes occurring in 2014 are:

    *  Insurers will be required to take all applicants.

*  Insurance will be mandated for all Americans.

*  Tax credits to help pay premiums will start flowing to middle-class working families. The most aid – including help with copayments and deductibles – will be made available for those individuals and families on the lower end of the income scale.

*  Insurance exchanges will be created to help administer subsidies for those individuals that require them.

    *  When fully implemented, the majority of working-age Americans and their families will continue to have employer-sponsored coverage as they do today.

There are many unknowns at this time and are awaiting government guidance on many aspects of the new law that are still unknown. We expect guidance to slowly become available in about 2 to 3 months.

With the stock market crash, the wealthy didn’t have as much money to donate, unemployment increased and hospitals were having a difficult time.

Baylor University Hospital made a deal with the Dallas School System. They said, “School system, you raise money from taxes. You always have money. Pay us $.50 every other week for each of your employees and when they get sick, they come to us and we’ll take care of them.”

Health insurance started as a mechanism to protect and finance hospital income.

Consumers soon wanted more choice than just one hospital so independent insurance carriers formed to offer a choice of hospitals beginning in the 1930s. Then the doctors, who were in the same situation as the hospitals financially, wanted in too. Blue Cross was for your doctor’s bills and Blue Shield for your hospital bills. Both were organized to protect provider incomes.

The Blues developed a couple of very clever ideas in the 1930s. First they offered a choice; second they began searching for the healthy subscribers so they could lower their rates, spreading the risk, in what became to be known as a community rating.

This insurance financing system has little to do with getting people healthy. That was not its intention. It was designed to protect physician and hospital income.

World War II had a major impact on health insurance development (1939 to 1945). First, many soldiers had health coverage in the military and wanted it in civilian life. Second, the wartime economy stimulated development of new medical technologies. Third, the government fostered the fringe benefit movement through wartime wage and price freezes.

• 1942: 10 million hospital insurance / health insurance subscribers
• 1946: 32 million hospital insurance / health insurance subscribers
• 1951: 77 million hospital insurance / health insurance subscribers

The government decided during the War to freeze wages and prices. But the government allowed employers to offer “fringe benefits” such as health insurance. This was how employers could attract new talent and retain their current employees. The concept of “fringe” meant outside the normal compensation and “benefits” meant advantages of working here.

In 1953, the IRS made fringe benefits tax deductible to the employer and were not considered income taxable to the employee. This was essentially a government subsidy of hospital care – since that’s what health insurance ultimately financed. Essentially, the government stimulated sales of employer based health insurance by subsidizing the price. If you subsidize health insurance in an employer based model, employers provide more and employees get more. The health insurance subsidies – via tax deductibility of fringe benefits – lead to healthcare inflation from higher hospital prices (because more people could afford to use hospitals).

In the mid-1950s, about 45% of Americans had hospital insurance. By 1963, 77% had hospital coverage, and an additional 50% had some form of physician coverage. Over this time period two strange incentives evolved in our healthcare marketplace: an excessive hospitalization incentive and an incentive to cover the unemployed. These two conditions merged in the late 1960s and 1970s. Their combined effect became clear by the 1980s as our health insurance costs skyrocketed and our employer based financing model became even more firmly entrenched.

By the mid-1960s over three quarters of Americans had hospitalization insurance, paid for by employers and subsidized by the government. Hospitalizations became essentially free to patients a not-so-subtle perverse incentive to hospitalize individuals. This was the case even for diagnostic tests that could have been performed on a less costly outpatient basis.

Since medical care became more costly, insurance became more necessary. In turn, the presence of insurance helped underwrite a buildup of resources and an upgrading of technology that added to costs and made insurance even more valuable. Remember the incentives here. Employees liked the system because it appeared free to them. Hospitals loved the system because they received patients and insurance payments – a wonderful recipe for making money.

Hospital insurance stimulated the excess use of hospitals, which created more need for hospital insurance. Two byproducts: First, we used hospitals for almost all medical care, even if less expensive settings existed. Second, we developed fewer outpatient, home based, preventive or non-hospital types of medical care.

It turns out that in the past 40 years or so, many countries in the world were either recovering from World War II or gaining independence and expanding their educational systems.

They were not economic threats to the United States – countries like Japan, India, Korea, China, or Western Europe. We dominated economically; could keep prices high and afford health benefits.

Our big firms in particular were very profitable (i.e., GM, US Steel, ALCOA, AT&T); they didn’t have much foreign competition. They could afford to pay for employee healthcare. They could raise prices because nobody was competing with them to keep prices low. That’s the trend that you see from World War II to about the 1980s. Big firms could set the standard and then small businesses filled in the holes. They had to compete for labor based on offering health insurance, and they could because the big firms were managing the world economy.

All these conditions changed in the 1980s and 90s.

Our ability to generate excess profits, if you will, to afford for the employers to pay for healthcare starts to disintegrate as foreign competition gets going. From World War II until about 1980 or 1990 we could afford employer based health insurance and there was no significant political group that was lobbying or arguing against it. The system worked for most people.

By the 1960s, a large number of non-working Americans needed health insurance. This group could have demanded a national, universal type of health system. But Medicare and Medicaid covered these people and removed a potential political threat to employer based coverage. Ultimately, covering these people on Medicare and Medicaid supported the employer based insurance model.

Year      Number Medicare Enrollees       % of US population

1970              20 million                                            10%

1980              28 million                                            12%

1990              34 million                                            13.5%

2000              39 million                                            13.8%

Medicade covers about the same population size.

The employer based system reaches its peak of 165 million people in 2000 and then it started to decline. It declined because the international economic conditions changed. American firms could no longer pass on benefit costs to their customers.

At the same time, the hospital lobbies and related groups had done such a good job of protecting their constituencies that healthcare became hugely expensive. Healthcare grew from about 4% of US GDP in 1950 to 14% in 2000.

So, by the end of the 1900s, our healthcare costs – primarily hospitalizations due to the government subsidies of fringe benefits – rose far faster than GDP. Meanwhile, American businesses’ abilities to pay for their employees’ health coverage diminished in the face of foreign economic competition. So that is how we got where we are today…

A Look At An Ideal Health Care System and Player Motivation

An ideal healthcare system could be conceptualized having four basic components.

1. You’d have a lot of preventive care to keep people healthy and keep them out of the hospital because that’s cheap and they live longer. This would be done through nutrition, weight control, exercise, and other types of prevention.
2. You would focus on chronic disease care because 70% of healthcare costs go to chronic disease care. You’d have regular monitoring; regular interactions with your doctors and you’d have teams. You would be able to go into the clinic for diabetes, or see a podiatric person, a psychologist, a kidney doctor or a hematologist. You’d see lots of different specialists working together as a team to try to come up with a treatment plan for you.
3. You would have good quality, safe, acute care – not necessarily the cheapest care; 
4. You would have good caregiver coordination with your acute and / or chronic care.

Good health is less expensive than poor health. A system that’s working well, keeping people healthy, would be the least expensive system of all. When people get sick, we return them to good health quickly.

 What motivates health care decisions of different players?

Employers

Employers supply health insurance benefits mainly to attract and retain good employees. Employers don’t, as an economic function of their business, aim to get people as healthy as they possibly can. They’re interested in selling widgets and to do that they need to get good employees. For an employer, “good enough” healthcare is “good enough” because they want to make widgets. Employers are interested in short term healthcare commitments (generally 1 year). The employer often can not predict the firm’s financial health far into the future so they want to avoid committing to long term liabilities. The employee census could change, business conditions could change, etc. So carriers compete for employer business by showing the lowest year-to-year premium increases.

In healthcare, short term cost control always leads to higher long term costs. Remember that 70% of our healthcare spending goes to people with chronic diseases. Short term cost control often means skimping on this year’s preventive or maintenance treatments – resulting in higher costs in the future.

Employees

Employees want excellent healthcare. When diagnosed with cancer, for example, they do not want to hear about cost control issues, or 1 year policy issues, or comparative health insurance premium increases. They want to get cured as fast as possible. Employees want access to the “best” hospitals, not just the “in network”. They also want true prevention. In effect, the employees ask “Why must I wait until prevention fails before receiving medical care?” In economic terms this is inefficient: it adds cost without adding value. It adds cost since this requires the best possible technology even if it only helps a little bit; and a surplus of recourses so there are no wait times.

Carriers

The carriers, who insure or finance our health care costs through premiums, respond to employers because employers buy are the ones buying policies. Carriers compete on short term cost control, not on long term cost control, not on total disease cost controls, not on quality. Carriers do not reward excellence. They only reward short term cost control because they respond to employer purchasing criteria.

The carrier says to the employer “You want one year policies? We’ll give one year policies. You don’t mind out-of-network restrictions? We’ll give you out-of-network restrictions.” They want to put off expenses because maybe the sick person will switch to another carrier before needing expensive care.

When you have the market going after healthy people to reduce adverse selection and try to put off large expenses, the government steps in, with nursing staffing ratios and mandated coverage and other requirements. The government puts a band-aid over the problem that shouldn’t have existed in the first place, adding additional costs and little or no value.

Government

The government enacts mandates to protect patients from abusive short term cost controls. The government says to the carriers “You have to cover these services.” The carriers respond “We don’t want to cover those services. It’s going to raise premium prices.” The government then passes regulations and imposes mandates – in effect saying to the carriers “Now you have to cover these services.” But mandates don’t seem to affect healthcare outcomes very much. Mandates reflect the political power of special interest groups. The need for mandates arises because of inappropriate short term cost controls. Estimates show mandates along represent 10 – 12% of all healthcare costs in some states.

The downside of all this is that the more the government gets involved inappropriately – fixing problems that it shouldn’t be fixing in the first place – the more we raise healthcare costs. 

What are your thoughts?

The 10% heaviest users (30 million people) averaged about $45,000 each;

The 50% lightest users (150 million people) averaged about $420 each.

About half our healthcare spending goes to people with 5 diseases:

1. Mood Disorders
2. Diabetes
3. Heart Disease
4. Hypertension
5. Asthma

Diabetics, for example, consumed an average $13,232 of healthcare in 2002 compared to non-diabetics’ average $2560.

Many believe we should focus our healthcare delivery system on the main cost and quality drivers: the most expensive people and the most expensive diseases. This would simultaneously reduce expenses and improve outcomes.

We spend much more than other countries on medical technology. But we don’t necessarily live longer. Our healthcare system reacts more quickly than a single payer system to technology and treatment changes. This is a mixed blessing. On one hand, American patients are more likely to access the newest technologies available. American hospitals generally update and upgrade their medical equipment more quickly than hospitals overseas. On the other hand, this access to new technologies is extremely expensive, and our lack of coordination among carriers, providers, and the government is wasteful.

Consumer driven healthcare (CDHC) is designed to overcome a number of our healthcare distribution problems according to findings from Gary Fradin, President of Health lnsuranceCE and others.

When consumers apply pressure on an industry, it invariably produces a surge of innovation that increases productivity, reduces prices, improves quality and expands choices. The essential problem with the healthcare industry is that it has been shielded from consumer control – by employers, insurers and the government.

The idea is that under consumer driven healthcare, enrollees can tailor health insurance policies to their specific needs – e.g. insurance for long term care and drugs; easy access to integrated teams that specialize in treating chronic diseases and disability; pre-tax savings accounts for uninsured healthcare needs, such as hearing aids and support in modifying lifestyles; and ‘bonus’ long term policies that reward those who switch to healthy lifestyles.

Insurers indemnify – or pay back – subscribers (people who use the plan) for medical treatment after-the-fact. This traditional insurance has two draw backs:  first it is highly inflationary, and second the results are often poor. Our current indemnity insurance offers little, if any, data collection resources to inform carriers or providers which treatments generate which results. This makes results-based competition among carriers exceedingly difficult to implement. The Consumer driven healthcare differs from indemnity insurance in that CDHC proponents focus on outcomes; indemnity focuses on fee-for-service billing.

Managed care is generally defined as a large multispecialty group practice that provide a comprehensive set of healthcare services at a per capita price set in advance. They decide what types of coverage’s are available to you, what services are covered, and the terms and conditions of access (similar to how our single payer government Medicare is run). CDHC proponents believe that bottom up policies more accurately reflect demand for healthcare services, are more innovative, and respond more quickly to consumer demand and new treatment options.

The continuously increasing numbers of state mandates raise health insurance premiums without much affect on outcomes. Mandated services reflect the political power of healthcare provider lobbying groups at the state level. State mandated benefits have increased from 7 in 1965 to 1823 in 2004 and still climbing (see a listing at Health Insurance Mandates In The States 2009). State mandates exist in a non-competitive healthcare market where the political system allocates resources – regardless the medical need.

Over the past decade there has been a trend toward cost-shifting to the consumer and consumer driven policies. This movement rests on 4 evolutionary legs: (1) commercial carrier plan designs, (2) President Bush’s Health Savings Account legislation, (3) Massachusetts healthcare reform of 2006 and (4) the transparency movement.

Cost shifting, insurance carriers preferred method of inflation control, was an attack on Moral Hazard (see my previous blog  Why Is Healthcare So Expensive? ) and has not been terribly successful. Thus the Feds stepped in with tax incentives in the form of Health Savings Accounts.

Massachusetts had about 6% uninsured so their legislation established two mandates: the ‘individual mandate’ requiring everyone in Massachusetts to have health coverage or face fines; and the ‘employer mandate’ requiring all businesses of a certain size to offer employer sponsored health coverage or face other fines. They also subsidized the lower income groups. They also incentivized carriers to offer lower cost plans. The plans created were made affordable by “cost shifting” by providing deductibles of $1500 to $2000 followed by hefty coinsurance payments. Perhaps this is similar to the US model for insuring the uninsured?

Three evolutionary trends merge. First, in the face of consumer backlash about HMOs due to consumer rebellion against HMO restrictions of the 1980s and 1990s, commercial carriers shifted costs to subscribers while reducing plan restrictions. Second, President Bush provided tax benefits for purchase of high deductible plans. Third, Massachusetts’ healthcare reform adopted high deductibles (rather than limited networks or benefit restrictions, for example) as its cost control mechanism of choice. These three trends led to a demand for transparency, the 4^th leg.

Transparency means making cost and outcome data available to consumers, thus making healthcare just like other consumer goods.

Consumer-driven healthcare

Consumer-driven healthcare advocates see transparency as a necessary condition for value-based competition among healthcare providers – i.e. competition for the consumer’s deductible dollars. A transparent system will allow consumers to choose the best value by comparing costs and outcomes for disease treatments among providers. Some consumers may opt for (more expensive) surgery – others for (less expensive) therapy. Some may chose (more expensive, perhaps state-of-the-art) surgery at a famous national hospital – others (less expensive, perhaps more routine) surgery at a local clinic. Consumers, according to this theory, can make wise purchasing decisions by comparing costs and outcomes by procedure and by provider.

Consumer driven proponents believe that the standard laws of business and economics apply to healthcare and the best type of healthcare system is one based on competition among providers. Market mechanisms, rather than government regulation, are the best way to improve our healthcare delivery system.

Individuals and families will purchase health insurance (not their employer) and act to protect their own health status.

Companies will supply the innovative insurance and information products that consumer driven healthcare programs require and will force status quo medical providers to innovate. Competition among them will continually improve products and reduce costs;

Government will subsidize the poor and oversee insurers and providers, and assure transparency. It must not micromanage them and allow government bureaucrats to stifle innovation and prevent the creation of new consumer driven organizations and health insurance plans.

How would Consumer Driven Health Care address Our Health Care Distribution Issues?

A number of health care distribution issues were defined in one on my earlier blogs,  Why Is Healthcare So Expensive? and many of which are addressed as follows:

The High Number of Uninsured: A consumer-based system can insure everyone. Advocates anticipate that carriers will offer a broad range of products, including many low- or moderate cost plans. The government could offer subsidies for the needy and/or could pass Individual Mandate legislation (National Health Care Reform – Understanding The Issues);

Medical Arms Race: A consumer-based system would induce providers to offer different treatment types unlike our current model where all general hospitals offer the same treatments. Also providers would compete based on results, not treatment inputs;

Moral Hazard:  A consumer-based system would not be a fee-for-service system, thus reducing providers’ motivations to over-treat. Patients armed with price and outcome data could purchase the services they desire;

Ineffective Chronic Disease Care and Prevention: Long term insurance policies would induce providers and carriers to take a long term economic interest in their patients, unlike today;

Uneven Treatment Quality Nationally: Transparency would let the market equalize treatment quality. Consumer advocates assume that all providers would aim for outcome excellence rather than today’s process compliance;

Relatively Low Quality and Safety Investments: Transparency, again, would induce quality improvements and safety investments. Providers would have an economic interest in providing high quality, safe treatments.

Over reliance on General Hospitals: Focused factories offer the potential to aim our healthcare interventions at the key disease drivers of healthcare costs and quality. They offer the potential to improve our outcomes at reduced cost, through better management.

If consumer-based competition among providers actually eliminates the medical arms race, moral hazard and other systemic health care delivery inefficiencies, then healthcare costs will fall. Estimates show that up to 1/3 of American healthcare expenditures go to treatments that provide no discernable benefits.

Reducing healthcare costs by 1/3 would radically reduce health insurance premiums, thus making insurance more affordable. More people would purchase. This would reduce the amount of government subsidies necessary to insure the entire population. Everyone wins…at least in theory.

Consumer-driven advocates claim that more healthcare regulation increases costs without concomitant healthcare improvements. Market competition on the other hand, is the best mechanism to promote innovation, advance medical knowledge and improve the American healthcare delivery system. If Consumer driven healthcare could effectively address our health care delivery system issues, we could reduce healthcare costs by the estimated 1/3, radically reducing health insurance premiums.

A system controlled by the insurance companies, hospitals or government will kill us financially and medically – it will ruin our economy and deny us the healthcare services we need.

What are your thoughts? Consumer Driven Health Care putting control in the hands of the consumer? Managed Care and let others decide what types of coverage’s are available to you, what services are covered, and the terms and conditions of access? Single Payer System that typically manage costs with waiting lists as in Canada, Britin and other counties (see Can a Single Payer Health Care System Work). The facts indicate reasonable change is certainly in order; what should we do to assure coverage for the 3.6% of the nation that are truely unable to obtain insurance and get the costs of health care in control for those who are currently insured?

1. We have about 45 million uninsured Americans (to put this in a more realistic perspective see my blog “National Health Care Reform – Understanding The Issues Of  The Plan”);

2. Our healthcare costs more than any other countries; and

3. Our health outcomes as measured by obesity, longevity and infant mortality are mediocre by international standards.

The following blog is based on findings through Gary Fradin, President of Health lnsuranceCE and others.

Five Pro-Single Payer Arguments

Countries with single payer systems – such as Canada and Britain – have lower healthcare expenses than we do. Most developed countries with single payer systems – such as Canada and Britain – have longer life expectancies than we do. We should then switch to a single payer healthcare system.

 1)  Overhead will be significantly reduced. This includes the cost of underwriting, billing, sales and marketing, huge profits and exorbitant executive pay. Doctors and hospitals must maintain costly administrative staffs to deal with bureaucracy. By eliminating this unnecessary overhead, a single payer system can save $300 billion or more annually. Perhaps overly simple and poorly thought through.

2)  Equality of Care that covers the rich and poor alike. This position equates “same health insurance” with “equal access to treatment” and raises an empirical question:  Do people living in countries with single payer healthcare actually have equal access to treatment?

3) Uniformity of Treatment issues will be resolved, claiming that establishing a national healthcare system will eliminate these discrepancies because the single payer will dictate treatment processes and practices, in a top down management approach to compliance. Medicare is our national single payer system for the elderly and already has over 100,000 pages of regulations and appendices, but still notes significant regional and provider treatment differences. Would more pages of regulations achieve treatment uniformity? This is unsettling. If you can’t achieve it with 100,000 pages of regulation, then perhaps the regulatory approach to uniform treatment quality is inappropriate. Compliance bonuses and penalties are thought to help compliance. Small bonuses may not induce sufficient provider behavioral change, but large bonuses may stifle innovation and physician creativity and skew provider cash flow unintentionally. The top down management approach is about process compliance and not results improvement.

4) The Guild perspective is Insurance carriers and government regulators interfere far too much with a doctor’s ability to practice medicine. The want them to leave them alone so they can use their own training, experience and best judgment to treat my patients. A doctor is a healer, not a businessman. Health Care is not really an economic market in the Single payer mindset. However, if you rule out economics then language, measures or indicators must be provided. However, single payer advocates rarely provide a detailed blueprint explaining how we can move to a single payer system thus fail to embrace American social and economic evolution.

5) Incentives. The incentive argument starts from this base:  Providers structure their treatments around their financial incentives. A system that pays significantly more for inpatient care than for outpatient will probably have more hospitalizations; a system that rewards specialists more lucratively than primary care physicians will generate an excess of specialists, as many argue we currently have in this country.

Our current fee-for-service healthcare financing system pays for discrete medical interventions; providers are essentially paid piecemeal for their work. The more procedures they perform, the more they get paid. As a result we have more medical interventions per capita in this country than elsewhere – with the accompanying higher healthcare costs per capita than any other country.

The fundamental problem with this financial incentive system: some 70% + of our healthcare costs go to chronic disease treatment. Chronic diseases are long term problems that do not necessarily respond well to discrete medical interventions. Carrier cost control programs may run exactly counter to the care necessary for chronic patients.

Five Anti Single Payer Arguments

1) Life Expectancy as an indicator of healthcare system efficacy. Canada believes that the five most important factors to good health and longevity are in order: Social environments (People with friends tend to be healthier and live longer than people without), Psychological environment (mental health influences physical well-being), Productivity and wealth (Wealthier people tend to be healthier, and live longer than, poor), The Healthcare system (The medical system generally only treats people who are sick – it can only make a limited contribution to the prevention of illness by nurturing overall good health) Longevity is not a particularly good indicator of a country’s healthcare system quality. Instead, factors such as social, physical and psychological environments, and wealth, often have more influence on longevity than the medical system.

2) Waiting Lists and Resource Allocations. Whenever national health insurance has been tried, rationing by waiting is pervasive. Waiting is associated with publicly funded healthcare systems indicates the absence of costly excess capacity. National, single payer healthcare systems compete for funds with all other publicly funded activities: defense, education, transportation, environmental control, social security, etc. Most single payer systems limit medical resources. Waiting lists for many medical procedures is a form of rationing.

National healthcare programs tend to overspend on the relatively healthy while denying the truly sick access to specialist care and lifesaving medical technology. This is for political reasons, in an attempt to keep the masses – who are generally healthy – happy. Remember that about 80%+ of the population is relatively healthy and probably more concerned about its tax rate than medical specialist availability. For this group, easy access to primary care and emergency rooms is good politics.

Thus in Canada, over half the physicians are General Practitioners (Primary Care Physicians); in New Zealand, almost half and in Australia almost 2/3. The lack of specialists is apparently a political decision: that it is more important to maintain the existing tax rates / economic status than to allow easy access for all sick people to specialists.

Studies have shown that Canadians visit their primary care doctors about as often as Americans 8 but wait an average 8.3 weeks to see a specialist. The median time in 2003 to see an orthopedic specialist, however, was 13.3 weeks for initial consultation, followed by a median additional wait of 18.9 weeks for treatment, for an average total orthopedic specialist wait of almost 8 months. Uncounted are waits for second opinions.

Some post year 2000 waiting examples in Britain:

• 20% of colon cancer cases are considered curable at the time of diagnosis but incurable at the time of treatment. Roughly the same situation exists for lung cancer patients in Glasgow
• 25% of British cardiac patients die while waiting their turn to receive treatment.
• 1 in 6 people on waiting lists for elective surgery are removed without ever being treated.

Most single payer systems charge nothing – no copayments or deductibles – at the point of service, generally for political reasons. One result: systemic inefficiencies, waste and bed congestion.

Copayments and/or deductibles reduce unnecessary usage. The classic National Health Insurance Experiment conducted by the Rand Corporation during the 1970s concluded:

• Participants who paid for a share of their healthcare used fewer health services than those who did not;
• Cost sharing did not significantly affect the quality of care received; 
• Cost sharing had no adverse effects on participant health.

The Canadians and British, for example, seem to have made their own social decision: they will maintain economic stability and limit medical spending and services. Some – a fairly small number of people – will receive sub-optimal care. But society in general will benefit financially.

Remember that about 5% of the population consumes about half the healthcare. Single payer systems have, in effect, decided to protect the economic and financial interests of the remaining 95% or so. This is a clear, presumably rational and reasonable resource allocation decision for them.

Americans have, to date, rejected this value structure. We believe that each patient should receive all care, regardless the price. One result: we spend more for sick people than single payer countries. Are we right? Are we more compassionate? Or are we being economically foolish?

3) Effects on Outcome. Constraining medical budgets result in less medical high technology available in single payer systems. Less technology results in higher mortality rates. Countries with single-payer health insurance limit healthcare spending by limiting supply. Often there is a separate budget for high-tech equipment, to make sure that high cost procedures are curtailed.

4) Can a Single Payer Systems Innovate? Many technological and treatment innovations come from our competitive medical environment. Trial and error competition – attempting to provide better services at lower cost – has historically been the most effective innovation engine in business.

Single payer systems with its strong administrative controls, with constrained resources and little provider competition, tend to lack our innovative experience and instead, outsource R & D innovation. Rarely a good environment for innovation, but often the source of high cost, low quality products.

5) Should We Build a Single Payer System on Our Existing General Hospital Base? Hospitals provide all services to all people in a community and are quite inefficient businesses.

The Institute of Medicine has stated that our current, general hospital based healthcare system, does not provide consistently high quality medical care to all.

Without significantly reforming general hospitals – our major healthcare suppliers – a single payer system will do nothing to improve healthcare quality. Hospital reform is a huge problem, raising both managerial and political issues.

Some May Believe A Single Payer Healthcare is a Bad Idea

 A national, single payer healthcare system is a bad idea for the following reasons:

Single payer systems restrict access to appropriate care for the sick;

Single payer systems under-invest in medical specialties and technologies leading to inferior outcomes;

Single payer systems will codify treatment processes and reduce medical innovation;

By ignoring general hospital inefficiencies, single payer financing will not improve American healthcare quality or decrease the per unit cost.

Canada Single Payer Health Care

Canada has a single payer healthcare system in which virtually all medical care is government paid. Consumers have no copayments, no deductibles and no medical cost sharing. There is almost no private medical insurance that competes with government programs.

Canada spends about 10% of GDP on healthcare, compared to about 17% in the US. Canadians live about 80.7 years; Americans about 78.2. About 16% of Canadian men are obese compared to 28% of American men.

Canadian Medicare exists to achieve a number of social goals, only some of which are medical. Other goals important to Canadians include promoting national equity, maintaining economic independence, controlling healthcare expenses and sharing a common experience among all Canadians.

Canadians have chosen to make these alternative-type healthcare investments more than Americans. Compare, for example, Ottawa’s (population 1 million) 105 miles of publicly maintained bike paths to Houston’s (population 2 million) 20. Or see Quebec Province’s $88 million investment in 2700 miles of public bike paths during the 1990s. No American region did similarly.

Canadian cities are generally more densely populated than American with less surrounding suburban sprawl. Canadian metropolitan population densities are about 50% higher than American, while Canadian metropolitan job densities are about 60% higher. As a result, Canadians make shorter – more easily walkable or bikable – work, shopping and pleasure trips from home. Canadians bicycle about twice as much as Americans and walk more than Americans in their normal daily routines.

Canada, consequently, developed a better infrastructure to support these physical types of transportation.

Canadian land use and zoning patterns – denser urbanization than America – encourage more walking and exercise in normal daily life. Canadian social investments support this. Exercise acts as preventive medicine. As a result, Canadians are less obese and live longer than Americans, while spending less on healthcare.

In these and many other kinds of investments, Canadians choose to encourage exercise and healthy living; these are Canada’s real healthcare investments.

Interestingly, European countries have even denser urban areas with more mixed use zoning than Canada, due largely to their historical development. European countries also have even higher automobile operating costs than Canada, more extensive public transportation and more inviting walking environments. Europeans walk and cycle even more per capita than Canadians, and thus far more than Americans.

Canadians ask a difficult cost-benefit analysis question regarding purchase of expensive medical technologies and investment in expensive medical specialists. Do they get a higher social and economic return (however measured) by investing $2 million in a CT scanner or in environmental and exercise programs? Should they put money into prevention and wellness programs or disease detection and treatment?

Which healthcare investments generate the highest return? Canadians, traditionally, have invested heavily in the non-medical healthcare arena.

British Single Payer Healthcare

The British National Health Service (NHS) is a single payer system in which the government funds healthcare for all Britons. The NHS mantra is ‘free at the point of delivery, provided on the basis of need. Unlike Canada, however, the British allow private health insurance to compete.

The wealthy and politically connected get the best health care. Within the health care system, the nephrology department may have more political clout and savvy than the neurology department and may thus gain at neurology’s expense, almost without regard to relative need. Patients need to see their primary care physician first to see a specialist.

British physicians now report that their younger patients are becoming more demanding, like Americans. This rigid referral system – developed over many years – is starting to break down.

British waiting lists for medical care have been a huge problem. Twenty percent of colon cancer patients were considered ‘treatable’ at the time of diagnosis but incurable at the time of treatment.

About 11% of the population has private policies that supplement government policies. Most people buy these policies to avoid waiting for medical service. In Britain “You pay to avoid waiting, or wait to avoid paying”.

The British do not value “shared experience” as highly as Canadians. Instead, they value economic stability more highly.

Healthcare resources are not evenly distributed around Britain. The wealthier areas around London get a disproportionate share. Even within London, wealthier areas get better facilities than poorer areas.

The British purchase new medical technologies less aggressively than Americans. They first determine the return on investment from the medical purchase to determine if the new technology is significantly better than a previous technology. Also, their rigid budgetary system and resource constraints reduce resources available for technology purchases.

The British have made a fundamental healthcare finance choice that differs from Americas. The British have decided that financial stability, rather than unlimited healthcare for all, is their key social value. They are apparently willing to trade off waiting lists, technology lags, and inequality for financial stability.

This contradicts the American medical approach which we can summarize as “do everything possible for the individual” even if this includes paying the highest healthcare prices in the world by a large margin. The British have made a fundamental healthcare finance choice that differs from Americas. The British have decided that financial stability, rather than unlimited healthcare for all, is their key social value. They are apparently willing to trade off waiting lists, technology lags and inequality for financial stability. Medical malpractice lawyers, for example, make their livings by showing where providers failed to do everything possible for the individual. American society is far more individualcentric than Britain.

The British healthcare cost control comes from restricting healthcare services that include:

• Number of hospital employees, by the budgetary process, 
• Number of physicians, by budgets, medical school acceptance policies and physician licensing policies,
• Number of procedures, by annual budgets,
• Number of specialist visits, by GP referral power and hospital management procedures,
• Number of medical tests, by waiting lists,
• Technology investment, by budgets

Americans demand more healthcare options. We have voted with our pocketbooks since the 1990s for fewer healthcare restrictions, easier referrals and wider provider access. Though we often complain about health insurance prices, we are generally loath to trade-off lower cost plans for tighter carrier restrictions.

Single payer healthcare systems vary. Canadian Medicare apparently works reasonably well for Canadians; the British National Health Service similarly works reasonably well for Britons.

Both systems evolved in unique ways from unique sets of cultural and social values. Both systems will continue to evolve as both societies evolve.

But the underlying social value question remains. Is high quality care for a small number of very ill people an appropriate national economic investment? The answer depends on our shared values. Americans seem to believe that everyone should have all the medical care they need as exhibited by our current tort system and Medicare regulations and reimbursement mechanisms.

Canadians or Britons answer these questions differently. The Canadians seem to think that other values – equality of funding, easy primary care access and a shared experience – are more important than systemic efficiency and exceptional treatment for the sick. The British seem to think that economic stability is a more important social value than “access to appropriate care for all when necessary.”

By underfunding healthcare, the Canadians and British have decided to protect their economic resources rather than give all citizens easy and unlimited access to medical care. Is this a good decision?

It all depends on the country and its population. Some countries, such as the US, think that offering easy access to healthcare is more important than controlling costs. Others, such as Canada, think that offering everyone the same experience is more important than offering easy access. Still others, such as Britain, think that promoting financial stability is the key social value. Single payer relies on the government to define health insurance, benefits and appropriate treatments. 80% of people are healthy and 5% use 50% of the Health Care budget. Single payor systems keep the voters happy with short waiting periods and cap the costs associate by sick people with tremendous waiting periods during which time some people die. As the Britons say with availably private insurance, “don’t pay and wait or pay and don’t wait”. Britons look at technology ROI before purchasing any new equipment.

What are your thoughts? Can a single payer health care system work in america based on our history and expectations?

If these ideas and plans don’t change, there could be a lot less flying in America and more jobs lost.

As many as 1.2 million General Aviation (GA) jobs would be threatened, critical health and safety services, and the fabric of our national transportation system. It would also mean higher costs or stunted growth for thousands of businesses that rely on general aviation every day. General Aviation encompasses all aviation except commercial airlines and military aviation. What would be affected includes:

• Economy:  General Aviation benefits our economy by enhancing the profitability and competitive strength of U.S. businesses and industries.
• Environment: General Aviation helps protect the substance of life that Mother Earth provides. Small aircraft are used to protect against environmental hazards, prevent poaching, and reduce clear-cutting of forests.
• Business:  Business flying provides American companies with the speed and efficiency to succeed domestically and to compete globally.
• Emergency Service: General Aviation is vital in disaster relief, firefighting, search and rescue, emergency evacuation, law enforcement, and border protection.
• Food:  America’s farmers, ranchers, and fishermen depend on General Aviation to plant and fertilize their crops, protect their livestock, and spot schools of fish to keep the nation’s food supply running smoothly.
• Health and Medicine:  Medical evacuation helicopters, volunteer patient and organ transportation, and doctors rely on General Aviation to provide life-saving transportation and to travel among remote locations.
• Life Style:  Millions of spectators watch airplanes take to the sky every summer at air shows. And hikers, fishermen, and sportsmen use General Aviation to travel to remote locations to enjoy their hobbies.
• Transportation:  General Aviation flies 166 million passengers every year and trains America’s airline pilots. General Aviation airplanes also move goods around the country.
• Media:  Hollywood, the media, and advertisers all use General Aviation (GA) aircraft to get the perfect shot and get their message out.
• Flight Safety: Safety will also be affected by making it more difficult to access the services needed to assure safe flight planning and in-flight safety related services.

Harrison Ford talks about how General Aviation Serves America

Please let me know your thoughts below, ask a question, or learn more and get involved at www.GAServesAmerica.com.

As true for all of my blogs, if I don’t know the answer to your question right away, I will find the answer for you.

The U.S. currently spends about $8,000 per person per year on health care. This is two or three times what countries like Canada, France, Germany or Britain spend. Why do we spend so much? Gary Fradin, President of Health lnsuranceCE and others report the following issues with our health care distribution system:

• High Rate of Uninsured in America

• Moral Hazard

• Medical Arms Race

• Ineffective Chronic and Preventive Care

• Treatment Variation

• Poor Care Quality and Safety

• Inefficient General Hospitals

• Prescription Drug Costs

• Reduce the Cost of Malpractice Insurance (by James J. Scholl)

• Medicare: Pay the Doctors and Stop System Fraud

A summary of each of each report item is included below and a few may be later updated. Note that the high rate of uninsured in America has intentionally been left out as this has already been reported extensively including one of Mark’s Blogs. Briefly, thirty-two percent of the uninsured earn over $50,000 per year and another 34% of the uninsured are currently eligible for a government- sponsored program but have not signed up. Fourteen percent are only temporarily uninsured because they changed jobs, recently graduated or had some event where they temporarily lost their health coverage. That leaves 20% of the uninsured, or approximately 11 million people (3.6% of the US population), who are long-term uninsured. The 11 million or so illegal aliens are additional uninsured.

You are encouraged to use these summaries two ways: First, as a lens through which to view health care reform proposals. Which proposals address all these issues? Which address only some? Do the proposals focus on the root cause of the problem? Second, how you can help improve our health care system. How do your own activities address or ameliorate one or more of these problems? Hopefully you find this informative, interesting, useful, and will stimulate your own thinking. Please let me know your thoughts.

The Medical Arms Race

This describes competition among hospitals for physician referrals and patients. Hospitals compete with each other by offering the latest in medical technologies and most modern facilities, often at great expense and sometimes without indications that the newest technologies significantly improve outcomes.

Why? Physicians want to refer to the most up-to-date facility, patients want treatment at the ‘best’ hospitals, and malpractice lawsuits may be lost for failure to use the latest technologies. No one wants to use a hospital with old machines or old technologies- even if these work perfectly well.

When a new machine or technology becomes available, all hospitals in a competitive environment purchase it for fear that if they don’t and their competitors do their referral sources will dry up and they’ll go out of business.

Interestingly, hospitals do not compete on results, such as mortality rates by operation or by surgical team, 30-day readmission rates after surgery, post-operative infection rates, etc. Rather they compete based on inputs – machinery, technology or staffing ratios, for example.

This type of competition differentiates health care from other parts of our economy. The auto industry, for example, competes on price and quality. We typically purchase a car knowing its miles per gallon and resale estimate – both outcome measures.

The health care industry operates differently. It does not publish outcome measures of medical interventions. As a consequence, hospitals compete on inputs, using these as a proxy for quality.

Robinson and Luft found surprisingly that these competitive hospitals sometimes had higher mortality rates (i.e., poorer outcomes) than non-competitive hospitals. Here’s why: Surgeons, surgical teams and hospitals with the most experience with a particular treatment get the best outcomes, and those with the least experience generate the highest mortality rates. In other words, practice makes perfect in medicine.

In the Medical Arms Race, hospitals compete based on treatment components, machinery, technologies, staffing ratios, etc. – rather than outcomes or cost. This happens to be extremely expensive and makes health care unlike most other businesses in our economy. Increasing medical component costs does not necessarily improve patient outcomes; it may, in fact, worsen them. This form of hospital competition is a huge problem for our health care system. Prices don’t fall when hospitals compete and insurance payments maintain price levels in response to the consumer market demands.

You may read Gary’s entire article here: 

http://www.hiu-digital.com/hiu/200911/?pg=65&pm=2&u1=friend#pg67

Moral Hazard

This identifies how consumer behavior changes when an insurance company pays: We have more doctor visits, tests and procedures than if we paid individually, out of pocket. We shop less wisely or aggressively using the insurance carriers’ money than our own. Health care moral hazard is an elusive, difficult to grasp concept. It’s hard to define but recognizable upon sight: it is health care system inefficiency.

Health care efficiency is: 1) The patient get all care that is worth at least what it costs, but get no care that is worth less than what it costs; 2) The treatment plan your physician would approve, absent any economic considerations; 3) getting the maximum treatment benefit at the lowest cost.

Physicians only get paid if they perform a service. Hospitals get paid only if they treat. The physician or hospital has a financial interest to treat and earns the most by providing the most expensive treatment. Meanwhile, the patient has little or no financial interest in receiving low-cost treatment, or avoiding treatment altogether.

Patients use medical services as long as the probable benefits outweigh their co-payment cost (often $10 to $20). This is classic moral hazard: The patient only pays a small percentage of treatment costs, and thus faces an artificial cost-benefit analysis.

Patients also have difficulty determining which physicians and hospitals provide the highest-quality service, as our medical system provides notoriously poor outcome data. Without outcome data, patients take two positions simultaneously. First, they substitute physician trust and credentials for knowledge of physician quality. Second, consumers demand wide provider choice and few referral restrictions when choosing health insurance. This allows them to change providers should they so desire.

Consumers demand this choice because they lack information about provider quality and treatment outcomes. Carriers want to satisfy their customers. As consumers demand easier referrals and wider provider networks, the carriers comply. They simply determine the underlying medical costs, add their overhead factor (generally about 10%) and provide the product that consumers demand. HMOs—with referral restrictions that help reduce moral hazard waste—have lost market share to PPO plans.

Controlling moral hazard waste can significantly reduce our health care expenses without reducing health care quality. We annually waste some $500 billion to $700 billion on unnecessary care.

But we must control waste appropriately so acute and chronic patients get their necessary levels of service. Designing an appropriate health care finance system is fraught with difficulties.

We’ve implemented dozens of controls – including prospective payment systems, utilization review, treatment guidelines, health savings accounts, pay for performance and others. None significantly reduce moral hazard systemic waste without compromising patient care.

Reducing our current levels of moral hazard waste is a laudable, though an extremely difficult to achieve goal. We have know about this problem at least since the 1960s but, unfortunately, are no closer to a solution today than then.

You may read Gary’s entire article here:

http://www.hiu-digital.com/hiu/200910/?pg=64&pm=2&u1=friend#pg64

Ineffective Chronic and Preventive Care

Medical conditions can usefully be divided into two types: ‘chronic’ and ‘episodic.’

Chronic medical conditions are long-term, often presenting multiple, inter-related medical problems. Diabetes is such a chronic condition, often caused by obesity and requiring a coordinated team of specialists and technicians, including endocrinologists, psychologists, podiatrists, nephrologists, nutritionists, educators and others for proper treatment. The chronic condition is never ‘cured’ – the disease is only ‘controlled’, requiring an on-going, long-term effort.

Episodic conditions are one-off. Once treated and rehabilitated, the patient returns to good health without much need for on-going medical treatments. Episodic conditions and treatments include broken bones, illnesses such as pneumonia, and many coronary procedures.

Our provider payment system is primarily episodically based. Yet the majority of US medical problems today are chronic disease-based. Chronic disease treatment requires multiple healthcare interactions every year to ensure small but steady advances that can prolong life.

More than half of all Americans have at least one chronic illness. The American Diabetes Association estimates the direct medical costs of diabetes in 2002 alone were over $95 billion, more than double the 1997 bill. Today however, perhaps 75% of our healthcare costs go to treating patients with chronic conditions, often a combination of obesity, hypertension, diabetes and depression. Emory University’s Professor Kenneth Thorpe suggests that obesity related (i.e. chronic) conditions alone may account for up to 1/3 of the total US healthcare cost increases over the past 15 years.

In March, 1999, Beth Israel opened its diabetes center, designed as a ‘boot camps for diabetics…The center would teach them to check blood sugar levels, count calories and exercise with discipline, while undergoing prolonged monitoring by teams of specialists.’ In other words, it was a moderately long-term, team approach to a chronic disease.

The program was ‘an unqualified success’ according to the New York Times. Within 5 months more than 60% of the center’s patients had their blood sugar under control. Close to half had lost weight. Competing hospitals directed their diabetic patients to Beth Israel. Patient volumes grew by 20% monthly as success stories spread.

But Beth Israel lost money – $1.1 million. And within 10 month the hospital decided to close its diabetes program. Why?

Carriers pay more for sickness procedures than wellness visits. There is little reimbursement for ‘reducing a patient’s blood sugar level’. Insurers often balked at paying $75 for diabetic’s regular nutrition counseling, but regularly paid $315 per kidney dialysis session – a byproduct of diabetes.

The tragedy: We could save more lives and improve more people’s quality of life by investing in prevention and chronic disease treatment for the masses than for sickness procedures.

What is the economic impact of our current ineffective chronic disease management? The Milken Institute (October 2007) estimated the economic and business costs of the 7 most common chronic diseases – cancer, diabetes, hypertension, stroke, heart disease, pulmonary conditions and mental disorders – at $1.1 trillion annually, due primarily to lost productivity.  Approximatley 70% of the medical expenses in America are due to Asthma, Coronary Heart Disease, Conjunctive Heart Disease, Diabetes and Depression (note cancer is not in the list) – obesity is a common thread.  Obesity is increasing at an alarming rate in America. The Institute also reports that over 109 million Americans have at least one of these 7 diseases, with incidence rising. Better obesity prevention and treatment alone could generate productivity gains of $254 billion annually and avoid $60 billion in treatment expenditures per year…not to mention, alleviate untold suffering by the patients and their families.

Treatment Variation

Medical treatment protocols vary tremendously by region, even for the same demographic and epidemiological population. Some people get appropriately treated; others get undertreated; others get over treated; still others get inappropriately treated. But most insurance plans including Medicare do not differentiate among these categories.

Medicare spends, for example, twice as much on enrollees in Miami as on enrollees in Minneapolis with the same age, socio-economic and health status. The same holds for Medicare beneficiaries in Manhattan ($10,000 in 2003 for example) vs. beneficiaries in Portland, Oregon ($5,000). And in 2001, Medicare paid more than 3x as much for beneficiaries in D.C. ($10,373) as in Iowa ($3051).

We lack national treatment protocols for two main reasons: politics and medical individuality / variability / complexity.

These two issues underscore a key problem in medicine: that it’s a young and extremely complex science. There is enormous individuality and variability among patients and diagnoses. We’re still at an early stage of learning, innovating and discovering processes and treatment plans. We have, for many medical conditions, only identified the easiest to quantify variables – not necessarily the most important.

You may read Gary’s entire article here:

 http://www.hiu-digital.com/hiu/200912/?pg=64&pm=2&u1=friend#pg40

Poor Care Quality and Safety

Preventable medical errors are extremely expensive and lead to many preventable deaths.

The Institute for Medicine issued a report in 1999 indicating that up to 98,000 people die of medical or medical systemic errors annually. These errors include diagnostic, treatment, preventive and systemic problems. The Institute for Medicine believes that faulty systems, processes and conditions, rather than individual physician mistakes are the root causes.

The Centers for Disease Control and Prevention estimate that hospital acquired infections – almost entirely preventable – account for another 90,000 deaths annually.

The RAND Corporation estimates that another 126,000 die due to their physician’s failure to observe evidence-based medicine for 4 common conditions: hypertension, heart attack, pneumonia and colorectal cancer.

The US has no national database of citizen health. Your primary care physician has some information; the hospital that performed your colonoscopy has other, your specialists have still more. Should you suddenly become ill, physicians likely will be unable to review your medical past – putting them at a diagnostic disadvantage and you at unnecessary risk.

Contrasting Information Technologies: A casino, before it processes your credit cards or lends you money, uses advanced but routine information technology to discover details about your life. These details include who is your employer, whether or not you have a history of cheating in casinos and how much money you have in the bank. The casino just needed some basic information about you and a serious investment in up to date computer technologies. The casino made this investment because business required it. Absent the computer technologies, it would lose money or customers. However, when you arrive at the emergency room, in pain, delirious or unconscious, the hospital is usually unable to access similar or necessary types of information about you.

Prescription Drug Costs

Today, 91% of seniors and 61% of nonelderly adults rely on a prescription medicine on a regular basis. Although still only a modest part of total health care spending in the U.S (11% – 14%), with so many people relying on prescriptions, the cost implications loom large for the American public, health insurers, and government payors.  Furthermore, the drug industry’s profits margins have raised considerable attention. Pharmaceutical manufacturing was the most profitable industry in the U.S. from 1995 to 2002, and in 2004 it ranked third with profits after taxes of about 16 percent. Compared to the figures at the beginning of this blog, Return on Equity for companies like Amgen, Pfizer, Merck, Johnson & Johnson have averaged 30% since 2001!

Several factors have contributed to this growth in spending on pharmaceuticals, including:

• Increased utilization and demand for prescription drugs – From 1994 to 2004, the number of prescriptions purchased in the United States increased 68%, while the population only grew 12%.
• Price increases – Retail prescription prices have increased on average 8.3% annually between 1994 and 2004, much faster than the average inflation rate of 2.5%. These prices include, in some cases, those of newer, higher-priced brand name drugs that have replaced older, less expensive drugs, and also the impact of movement from brand name drugs to their generic equivalents.
• Marketing to Consumers and Health Care Providers - Pharmaceutical manufacturers make substantial investments on marketing to consumers and physicians, which may influence consumer demand and physician prescribing practices. Furthermore, the most heavily advertised products tend to be newer, more expensive drugs. This results in overall increases in spending. 

The prescription drug industry is based on the discovery and development of new products and understanding patent laws is necessary to understanding the prices charged by manufacturers for their products. Drug manufacturers obtain a form of legal protection called a ‘patent’ for new chemical compounds and new products they develop, and these patents provide manufacturers with an exclusive right to sell new drug products for up to 20 years from the date of the patent filing. Once the patent expires, the drug may be manufactured in generic versions by any number of manufacturers, thus lowering the prices for the drug. 

Brand name prescription products generally are more expensive in the United States than they are in other countries with developed economies, largely because the governments in those countries play a direct role in establishing prescription drug prices and regulating profits. Rising prescription costs in the United States have led some to call for greater government involvement in regulating the pharmaceutical industry as a way of constraining cost growth. Opponents however, argue that government involvement will not guarantee lower prices, may have unintended consequences for the rest of the market, and would negatively affect patients because regulatory actions would stifle industry incentives to invest in research and development of new therapies.

While there are a number of policy options under consideration for addressing rising drug costs, the two that are currently receiving the most attention from policymakers involve the government’s role in drug pricing for the Medicare program and importation from other countries.

Government’s role in Medicare drug prices:  A major issue currently under debate involves the appropriate role for government regarding drug prices for Medicare beneficiaries under the new drug benefit. The law specifically prohibits the government from interfering in negotiations between the drug plan sponsors and drug manufacturers and pharmacies, establishing any specific list of drugs that will be covered (formulary), or imposing any price controls on drugs. Supporters of this market-based approach believe that the competition for enrollees will cause plans to negotiate with drug manufacturers and pharmacies to offer drugs at the lowest possible prices, while opponents fear that the lack of federal regulation and negotiating power will lead to higher costs for Medicare and for Medicare beneficiaries, many of whom will still face sizable out-of-pocket costs for prescription medications.

Importation:  The significantly lower prices available for common brand name prescription drugs in Canada and other countries has led some individuals as well as state governments to import drugs from those countries. Although it is currently illegal, the FDA generally has not enforced the law banning importation. A number of proposals on importation have been introduced in Congress, varying in scope, the countries from which drugs could be imported, safety standards, regulatory requirements, and fees that would be levied to help pay the costs of increased government regulation. Supporters believe that if importation were legal from other countries, including Canada and the Asian and European markets, there would be enough volume to significantly affect prices in the U.S. market. Opponents question the safety of imported drugs and caution that cost savings would be small if foreign governments were to restrict the supply of drugs leaving their borders or pharmaceutical manufacturers limited the supply of drugs sold to foreign nations that facilitate sales to U.S. purchasers.

Read the entire Article Here:

 http://www.kaiseredu.org/topics_im.asp?id=352&parentID=68&imID=1

Reduce the Cost of Malpractice Insurance  

by James J. Scholl

By far, one of the greatest costs to our health care system is the volume of unnecessary procedures performed for the sake of defensive medicine and the time physicians and nurses need to spend documenting their daily work to protect them from lawsuits. In their paper “Radical Prescription,” Peter Weiss, MD, and Martin Meyer Weiss, MD, say the cost of unnecessary, yet legally warranted, defensive medicine takes up to nine percent of total national health care spending. Others place the figure much higher, at 20% to 25%, when you include the time doctors and nurses spend documenting medical files to protect themselves. The smaller part of malpractice reform, approximately five percent, is the cost of lawsuits, settlements and higher malpractice insurance premiums.

Tort reform is desperately needed to reduce unnecessary tests, reduce malpractice rates and reduce the cost of health care. A large group of doctors recently pegged the cost of unnecessary tests and excessive insurance at over $2 billion dollars. Many, many tests are performed by doctors afraid of the liability if they don’t do them. Doctors in some markets are paying $200,000 per year in liability premiums.

Comprehensive medical malpractice reform would reduce health care costs by a minimum of 15% and as much as 25%. Taxpayer savings in the form of lower premiums and lower costs of government programs would be at least $375 billion annually.

Read James entire article here:

http://www.hiu-digital.com/hiu/200911/?pg=64&pm=2&u1=friend#pg57

Pay the Doctors, Reduce System Fraud

This year, Medicare and Medicaid spending will exceed $900 billion. On May 20, Harvard professor Malcolm Sparrow testified before the Senate Judiciary Committee, “The units of measure for losses due to health care fraud and abuse in this country are hundreds of billions of dollars per year. We just don’t know the first digit. Fraud might be as low as one hundred billion. More likely two or three. Possibly four or five.”

At the same time, Medicare and Medicaid underpay doctors and hospitals. Studies show that hospitals lose about 18% on Medicare and Medicaid because government programs underpay providers by about 25%. To make up for underpayments, doctors and hospitals need to charge individuals with private insurance 15% more than they would pay otherwise. This government cost-shift adds $1,788 per family in additional annual premium costs. If the state and federal government stopped fraud and abuse in Medicare and Medicaid, the amount saved could be used to completely eliminate the cost-shift to private plans.

 So what is Health Care Reform all about?

• Reducing health care costs,
• Increase access,
• Provide coverage for everyone,
• Help the “under insured”,
• Reduce the number of un-insured,

 The un-insured is the number one issue driving reform.

The California un-insured problem looks similar to other states according to www.coverageforall.org. California has 6.7 million un-insured residents of which the latest data show:

• 32% or 2.1 million already qualify for a government subsidy plan that is free or available at a very low cost, yet they have not enrolled.
• 33% or 2.2 million make enough to pay for insurance but choose not to.
• 15% or 1 million are on short term insurance (i.e., in-between jobs, etc.) but are still counted as un-insured.

Bottom Line:  20% or 1.4 million people (3.8% of the California population) are truly un-insured – this is the true magnitude of the problem.

 Why are so many un-insured?

• Some can not access insurance – they are declined due to pre-existing conditions – this needs to be fixed.
• Rates are too high and can not afford insurance.
• Many do not know what insurance is available to them.
• Others just don’t care.

 Current Reform Ideas Being Reviewed

• Expand financial subsidy guidelines; California already raised the minimum limits to qualify for government plans in January 2009 – Good idea.
• Guaranteed issue of insurance (same as small group insurance has been for years) – Good idea and will be coming for sure! The question is how it will be done.
• Portability (take the plan with you from job to job) – Good idea.
• Electronic media health records – Good idea.
• Transparency of  health care costs. For example, in Florida residents can type in their zip to find the stores closest to them with lowest cost medications.
• New national public option – Depends on what the option ends up being.

 Government Run Health Care has been tried and failed in California

Mr. Crosby further added that California had state run health care that began in 1992. The 1992 Public Option was called the Health Insurance Plan of California (HIPC).  Sales were so poor that brokers were asked to sell it. The state could not compete with private industry due to the bureaucracy involved. The State run health care then morphed into a Not for Profit ‘Co-Op’ called PacAdvantage which still costed 30% more than the private sector insurance products.

See my other blogs:

Why Is Health Care So Expensive?

Can a Single Payer Health Care System Work In America?

Can Consumers Save Healthcare?

Evolution of Health Insurance In America

Health Reform Update (Dec 17, 2009)