Category Archives: Policy and politics

Health Wonk Review is up at Healthcare Economist

Healthcare Economist hosts the Short and Sweet Edition of the Health Wonk Review blog carnival. Here you’ll find posts on health insurance, mental health, pharmaceuticals, physician pay and value measurement.

I’ll be hosting the next edition at the Health Business Blog. Have a post to submit? Use the contact link at Health Business Group to send it my way.

Medicare and the end of racial segregation in healthcare


The story of how Medicare ended segregation in healthcare settings is a pretty remarkable one. Temple University Professor David Barton Smith’s  The Power to Health: Civil Rights, Medicare, and the Struggle to Transform America’s Health Care System brings the events of 50 years ago to light.

“In four months [government bureaucrats] transformed the nation’s hospitals from our most racially and economically segregated institutions to our most integrated,”he writes. “A profound transformation, now taken for granted, happened almost overnight.”

In the early 1960s healthcare was even more segregated than the economy as a whole. In Southern states there were separate hospitals for whites and blacks; there were separate waiting rooms in physician offices, with black patients seen last.

The 1964 Civil Rights Act prohibited racial discrimination in programs that received federal funds. But when Medicare was enacted in 1965, no one really took the provision seriously. After all, the Brown v. Board of Education decision a decade earlier had not led to rapid progress in school desegregation.

And yet Wilbur Cohen and a small team from the Social Security Administration and Public Health Service put together rules that prevented hospitals that discriminated from receiving Medicare funding. Learning their lesson from the failure of Brown’s “all deliberate speed” language, which had let school segregation fester, the team decided to enforce the rules from day 1.

Since hospitals couldn’t afford to forego Medicare, desegregation was achieved in a matter of months. Imagine that.

Image courtesy of podpad at

By healthcare business consultant David E. Williams, president of Health Business Group.

Smoking and the ACA


The Affordable Care Act (ACA) has created a wonderful laboratory for studying the impact of changes in healthcare policy. One of the more interesting papers on the topic appears in the latest Health Affairs (Evidence suggests that the ACA’s tobacco surcharges reduce insurance take-up and did not increase smoking cessation). (You’ll need a subscription to read the full article.)

Health plans can’t charge higher prices to people who are sicker, but they can tack on surcharges of up to 50 percent for tobacco users. States can limit or ban the surcharges, and some do. Not surprisingly, people subjected to high surcharges are a lot less likely to purchase insurance, especially because the way the surcharges work has a very significant impact on their out of pocket costs.

Beyond the headlines, there were several additional findings:

  • When smokers faced no, moderate or high surcharges rates of smoking cessation were unaffected
  • Low surcharges significantly reduced the degree of smoking cessation
  • Young smokers were much more likely than older smokers to be deterred from health insurance coverage by the imposition of surcharges
  • Surcharges were typically higher than the extra medical costs incurred by smokers

These findings have some interesting implications:

  • If the goal of the surcharge policy is to get people to quit smoking, then it doesn’t seem to be working very well. The least effective approach of all is to impose low surcharges. The authors speculate that the low surcharge smokers may feel they are being fairly charged and therefore don’t have an incentive to change. This is like the parents who are more likely to pick up their kids late from day care when a small fine is imposed
  • Surcharges knock younger people out of coverage disproportionately, which may destabilize the risk pools since younger people are generally more profitable than older people
  • The rising penalties for not purchasing insurance may not have much effect on smokers who face surcharges. Many low or moderate income smokers will be exempt from the penalties because the premiums –with surcharges– are deemed unaffordable
  • Patients with mental health problems are being discriminated against because they have much higher smoking rates than the general population. (I have been making similar arguments since 2007)

The authors mention in passing that high surcharges may encourage people to quit in order to obtain affordable coverage. They also note that the smoking surcharge isn’t always apparent on the exchanges, so smokers may not understand that they are paying more or how much.

I’d like to see the law tweaked to make the financial consequences of smoking more apparent to smokers. Surcharges could be displayed more explicitly, and the bar for being exempt from the insurance coverage requirement could be raised. Exceptions could be made for those with a mental health diagnosis.

These changes won’t necessarily be easy to achieve. Congress so far shows no signs of being willing to improve the law –though that may change if the Democrats retake Congress. Another issue is that tobacco use is generally self-reported for exchange customers, so we don’t know how many people are classifying themselves as non-users when in fact they are not.

By healthcare business consultant David E. Williams, president of Health Business Group.

Dialysis and its discontents


For the good of the patient, of course!

If you want to understand what ails the US healthcare system, look no farther than the dialysis industry. A recent New York Times article (UnitedHealthcare Sues Dialysis Chain Over Billing) provides a pre-made case study.

In brief, a chain of dialysis clinics (American Renal Associates), pushed poor people out of government coverage and into private insurance with UnitedHealthcare so that the clinics could bill $4000 per treatment rather than $200. A patient advocacy group (American Kidney Fund), paid the patients’ insurance premiums using funds donated by American Renal. United is suing American Renal for overbilling.

So who are the good guys and who are the bad guys here?

From what I can see in the article (and there’s always more to the story) it looks like both American Renal and American Kidney are to blame. But to understand the motivation for their behavior, we have to look at the politics and economics of dialysis.

Dialysis is a life-saving treatment for people with impaired kidney function, but it’s expensive. Medicare is mainly a program for the elderly, but it also covers the disabled and people with end stage renal disease (i.e., dialysis patients) regardless of age. That entitlement was added way back in 1972 to make sure patients didn’t drop dead for lack of funds for dialysis. Medicare coverage kicks in over time, so people with commercial insurance use their plans first before shifting over to Medicare. Once on Medicare they are still responsible for a portion of their costs unless they are poor enough to qualify for Medicaid.

So officially the government pays for dialysis, but does it really do so in practice? In fact what happens is that government reimbursements from Medicare and Medicaid are so low that clinics would go out of business if they had to rely solely on those payments. The clinics make up for the losses by charging high –or even extortionate– rates to private insurers, hence the 20x difference in reimbursement cited in the article. As a result, the clinics make more than 100 percent of their profits on their few commercial patients. From a financial standpoint, the commercial patients are the only patients the clinics cares about.

Meanwhile, the clinic business is essentially a duopoly between Fresenius and DaVita, which is why commercial rates can be so high. Interestingly, the few remaining independent players like American Renal are sometimes even more aggressive than the big boys. (There is an interesting analogy here with Martin Shkreli, who got into trouble for taking big pharma pricing tactics to their logical extreme.) Interestingly if you look at the American Renal website you can see that their real customer is the nephrologist; patient-centric they are not.

What about the American Kidney Fund? It seems like a good guy for paying the insurance premiums for ESRD patients. But its funding overwhelmingly comes from the two big dialysis companies who get a fantastic return on investment, since insurance premiums are much much lower than the reimbursement the companies get back for dialysis treatments. The two big boys basically split the market, so they are certain to benefit from their own contributions. More ESRD patients with commercial insurance means a lot more profit. In fact, if you want to understand just how closely American Kidney is tied to the dialysis business, it’s instructive to learn that patients who get kidney transplants and hence no longer need dialysis are not eligible for American Kidney subsidies!

For a small player like American Renal it’s a different story. They can’t just donate to American Kidney and expect to get a benefit, since most of the value will flow to their big competitors. American Renal’s strategy appears to have been to target specific patients for insurance coverage who would then become American Renal patients. That’s an obvious no no. But hey, they probably figured their own intent wasn’t really any different from what their big competitors were doing and they thought they could get away with it.

Incidentally, analogues to American Kidney operate in other disease areas, particularly for diseases where there are just one or two expensive drugs available. The drug companies pay the premiums and more than recoup their investments via reimbursed drug sales.

So I say good for United for taking on American Renal and American Kidney. But I also note that they –and the other health plans– are still too scared of retaliation to go after the industry heavyweights.

Image courtesy of Sira Anamwong at

By healthcare business consultant David E. Williams, president of Health Business Group.


Staying away from substance abuse on campus


Safe at home

The opioid epidemic is truly devastating. Drug overdoses (mostly opioids) are a leading cause of death in the US, topping guns and car crashes. People don’t want to become addicted to drugs or die from overdoses, so why does it happen so often?

It often starts with a doctor writing a prescription for someone complaining of chronic or acute pain or following a surgical procedure. Little thought is given to the number of pills prescribed; extra pills are either consumed by the patient or left lying around in the medicine cabinet where they may be taken by family members or house guests who have developed a habit. When prescription pills run out and the cost of buying them on the black market is too high, users shift quickly to heroin, which is cheap, potent and readily available. The downward spiral can be steep.

Thankfully, the country is starting to get a grip on the opioid crisis. Health insurers are tightening up on opioid coverage, doctors are trying alternative therapies (like massage) or being more conservative in their prescribing. TV and newspaper stories are pointing out the perils.

Awareness is spreading, including to the younger generation. I’m really pleased to see that some colleges are offering “sober dorms” for students committed to a substance-free lifestyle. The idea is not brand new –a Rutgers program dates back to 1988—but it seems to be gaining traction as more schools try out the approach.

A number of schools offer housing for people in recovery, designed to prevent relapse. New Jersey has a new law requiring any college with more than one quarter of students living on campus to offer sober housing. Other schools are starting to offer sober dorms to students who are looking for a clean lifestyle, whether they are in recovery or not.

It’s also my impression that college administrators are doing more than they used to to enforce alcohol and drug laws, regardless of a dorm’s official designation.

Image courtesy of Stuart Miles at

By healthcare business consultant David E. Williams, president of Health Business Group.