Tag Archives: medicare

Medicare and the end of racial segregation in healthcare

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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 FreeDigitalPhotos.net

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

Should Medicare negotiate drug prices? Probably not

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A popular idea, but not a good one

It’s nice that the vast majority of Democrats (93%) and Republicans (74%) have found something to agree upon. Too bad it’s the overrated idea of having Medicare negotiate drug prices.

Prescription drug costs are rising again after years of flat or modest growth. New, expensive products are hitting the market while drug makers have also found ways to boost the prices of older products, even generics. There’s been a lot of ink (and electrons) spilled by people complaining about “the $1000 pill” and other outrages, like bad boy drug exec and price gouger Martin Shkreli. On the other hand, many Hepatitis C patients have been cured and the need for liver transplants and cancer treatment averted. That should be worth something.

Why do people think Medicare would be such a good negotiator? Private sector Part D drug plans already do a good job of price negotiation. Executives’ bonuses and stock options depend on getting good deals from the drug makers. Meanwhile, if Medicare tried to negotiate it would have to be willing to say “no” to certain drugs and to impose restrictions such as prior authorization and high co-pays. No doubt many in the vast majorities cited above would be quick to complain about those tactics, making it hard for Medicare to be the bad guy.

It’s a whole different ballgame if we’re talking about Medicare simply dictating the price it will pay or requiring rebates as Medicaid does. But that’s not negotiation.

In fact Medicare should do something about drug spending. Something more innovative than squeezing unit price. Medicare should develop and test full-fledged value-based medication reimbursement programs that reward manufacturers financially if their drugs work well and lower overall medical costs (not just drug costs). Only Medicare is big enough to get the attention of all the drug makers.

Medicare has done a good job testing out new payment models with providers (think Accountable Care Organizations and bundled payments), which set precedents that private payers can follow and improve upon. It should take the same approach with drugs –setting up innovative programs that can be tested and then implemented widely.

I want drug companies to have the potential to make a lot of money when they cure patients, improve quality of life, or lower medical costs. That’s good for patients, families, investors, private payers and the public purse. Outcomes based payment approaches led by Medicare could get us there. Medicare price negotiation or price regulation just won’t do the trick.

Image courtesy of Master isolated images at FreeDigitalPhotos.net

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

In Medicare Advantage, providers are becoming payers

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Payer, provider or PayVider?

Accountable Care Organizations enable providers of care to take on some of the functions of health plans and to receive some of the financial rewards as well as the risk. But at least on the Medicare side it can be fairly indirect, with patients “attributed” to providers rather than assigned and little formal ability to keep a patient within a single provider system.

So it’s not huge surprise that some integrated provider organizations are going further, and sponsoring Medicare Advantage (MA) plans themselves. That way they are literally both the payer and provider. Setting up an MA managed care plan and running an ACO are not mutually exclusive, since the MA plan applies just to those who sign up for managed care.

Avalere Health has released an interesting report on this phenomenon. Some key takeaways:

  • More than half of the MA plans that started between 2012 and 2015 were provider sponsored
  • Provider sponsored plans are much more likely than other plans to achieve the top star ratings of 4 or 5
  • In a few geographies, provider sponsored MA plans have enrolled the vast majority of MA members and account for more than 10 percent of all Medicare recipients (most of whom are in traditional fee for service Medicare)
  •  Provider sponsored plans are not limiting themselves to the Medicare market. Some are going after commercial patients as well

What does this all mean? A few things:

  • We need to reconsider the boundary between payers and providers; they are starting to overlap more
  • Commercial health plans face even more pressure than before to demonstrate that they can add value –since providers are competing with them and showing better quality results. (The Avalere report was sponsored by Aetna –I’m not exactly sure what they were expecting to hear.)
  • Even if a Republican President and Congress overturn Obamacare, the concept of providers taking risk for Medicare patients isn’t going away
  • Medicare beneficiaries who are fans of a particular provider system should consider checking whether that system offers an MA plan

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

How immigrants help health reform succeed

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Medicare turns 50 today, which has provided an opportunity for all manner of retrospectives and speculation about what the future holds. The Partnership for a New American Economy is publicizing one of my favorite arguments: that immigrants are a key reason that Medicare is still solvent.

Their 2014 study (Staying Covered: How Immigrants Have Prolonged the Solvency of One of Medicare’s Key Trust Funds and Subsidized Care for U.S. Seniors) concludes:

  • Immigrants are subsidizing Medicare’s core trust fund
  • Immigrants played a critical role subsidizing Medicare’s Hospital Insurance Trust Fund during the recent recession
  • Medicare’s Hospital Insurance Trust Fund would be nearing insolvency if not for the contributions of immigrants in recent years

Bottom line: immigrants contributed $182 billion more to the Hospital Insurance Trust Fund between 1996 and 2011 than they received in benefits. Meanwhile, US-born citizens sucked out $69 billion more than they paid in.

But the argument for open integration goes far beyond the Medicare story. As I wrote back in 2011 (We need a liberal immigration policy to support health care reform)

  1. Immigrants innovate and create economic growth. This growth is how the country gets wealthier and better able to support health care expenses without raising tax rates
  2. Immigrants can use their intellectual capital and training –whether acquired abroad or here– to fill healthcare jobs such as primary care physician, pharmacist, nurse that would otherwise go unfilled

We have very stupidly made the US less welcoming to immigrants at the same time that talented people have more opportunities in their birth countries and while other countries have made it easier for educated immigrants to thrive. I partly blame the current state of affairs on the post-9/11 mentality. We’ll pay for it in the long run in healthcare and in the economy at large.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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

From “repeal and replace” to “retain and improve”

From repeal and replace to retain and improve

From repeal and replace to retain and improve

“Repeal and replace” has been the mantra of Affordable Care Act/ObamaCare opponents almost since ObamaCare.  Although the “repeal” part has been tried many times in the House, very little serious attention has been paid to the “replace” part. The recent proposal by Republican Senators Orrin Hatch, Tom Coburn and Richard Burr is still couched in “repeal and replace” terms, but the actual contents of The Patient Choice, Affordability, Responsibility, and Empowerment Act are best described as an effort to retain much of ObamaCare –including changes to Medicare, bans on insurance coverage caps, coverage for children up to age 26 and so on.

There are all sorts of things in this proposal that I don’t like, but in the interest of spurring constructive dialogue to actually improve the Affordable Care Act I will highlight a couple of provisions that I think are improvements.

The first one  is in Title 2, Section 201, which calls for allowing insurers to charge older people up to 5x what they charge younger people.

The second is Title 6, Section 601, which “caps the tax exclusion for employee’s health coverage at 65 percent of an average plan’s costs.” In other words, it limits the size of the tax deduction for employer-provided health insurance.

To reinforce my “retain and improve” label, keep in mind that both of these provisions are essentially tweaks to the ACA. The ACA limits insurers to charging 3x the premium for older v. younger people and the so-called “Cadillac Tax” also limits the deductibility of expensive plans.

In any case, here why I like these two provisions:

  • Older people already get a very good deal from the government. Medicare represents a significant transfer from the working age population to those who are older. While it’s true that people pay into Medicare while working, the amount they pay comes nowhere near the actual costs of the program. It’s a cruel irony that there are many taxpayers without health insurance who pay taxes that subsidize older people on Medicare. The Affordable Care Act exacerbates the transfer from young to old by effectively making younger people overpay for insurance and giving older people a subsidy. The Republican proposal improves intergenerational equity and also helps stabilize the insurance market by bringing the ratio into line with the actual difference in cost.
  • Providing a tax deduction for health insurance provides an incentive to spend more on health insurance and less on wages. It also represents an unfair advantage for those who get insurance through their work rather than on the individual market. I’m in favor of phasing out the deduction completely over time. This proposal from the GOP does a better job than ObamaCare of reducing the deduction

What do you think? Do you agree with the “retain and improve” label? Are there other things you like about the new proposal? Leave a comment on the blog or Twitter @HealthBizBlog

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By David E. Williams of the Health Business Group

If ObamaCare fails are we on to single payer?

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Is Obamacare just a trap set to lead the country toward a single payer system? The answer is no, but opponents of the law might want to think twice before gloating about the rocky rollout. I’ve said before that if Obamacare fails we are more likely to move toward single payer than back to whatever you want to call the status quo ante.

Noam Schreiber has a much more detailed argument to the same effect in the New Republic (How Obamacare actually paves the way toward single payer). To summarize:

  • Loosening of Medicaid eligibility will expand the constituency for the program to include white working-class voters who often vote Republican
  • Relatively low income individuals who get skimpy private plans through the health insurance exchanges will be jealous of their slightly less well-off brethren on Medicaid and will push for bigger subsidies for private insurance or for further expansion of Medicaid
  • Same thing for Medicare. Those who are a little younger than Medicare age will long for Medicare to replace their inferior exchange plans and may end up getting Medicare expanded or their exchange plans improved
  • Overall, once more people have insurance there will be a push for better insurance, and that will be hard for politicians to resist. Remember, one of candidate Romney’s big –and not very fair– points of emphasis was that the Affordable Care Act would make cuts to Medicare. In a few years we may see supposedly conservative Republicans fighting to keep or expand Obamacare

The Wall Street Journal’s letter section had a few interesting submissions from writers commenting on an earlier piece What to Do When ObamaCare unravels, by John H. Cochrane. I had read the original piece but ignored it since it seemed so detached from reality. A couple of the letter writers are in my camp but the other two (both from Connecticut for whatever reason) are not.

What I found funny about the original piece was that the proposed solution “A much freer market in health care and health insurance” was defined as health insurance that is “individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.” That’s a funny definition of a “free” market.

As one writer points out “such a… plan would require its own detailed set of regulations.” Another seems to take Cochrane at his word and asks why premiums aren’t going to go up after policyholders file a claim, just like how it works for other insurance markets like auto. This writer’s simpler solution: Medicare for all.

The last couple letters are pure WSJ fantasy land stuff. The writer from Denver says, “All federal government involvement in health care should be eliminated.” Reason #1? The 10th Amendment, “black letter law” forbidding the federal government from getting involved.

The final writer bemoans the fact that, “Intelligent solutions, market-based calculations, and actuarially sound arguments by Prof. Cochrane cannot compete with the socialist myth system of promises.” Why is it that some on the right are so convinced that there are so many socialists out there in America? Is this the 47 percent in another guise?

In any case, if this is the best Obamacare’s opponents can come up with, the President can rest easy.
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By David E. Williams of the Health Business Group.

Reference pricing and the role of the government

Free market

Reference pricing for medical procedures constrains costs by capping the amount an insurer will pay for a procedure and making the patient pay the extra amount. In California, Calpers has been successful in using reference pricing for knee surgery, as described in a recent Wall Street Journal article  (Comparison Shopping for Knee Surgery).

In today’s letters section, a physician from New York endorses reference pricing and uses the Calpers experience as a cudgel to beat up on a government role:

“Not only is it economically sound in encouraging competition and skin in the game, which always leads to lower prices and better quality like every other commodity and service in the free market, it literally requires zero legislation or bureaucracy. I am certain Calpers saved more money applying this principle than any convoluted scheme Washington has in mind.”

Reference pricing is a great cost-saving idea and I’d like to see more of it. But it’s a pretty poor argument for the superiority of the free market in health care. Consider:

  • Medicare pays somewhat different rates for different hospitals, but those are intentional differences based on geography and teaching status. Meanwhile private payers pay a much wider range of prices –for no explicit reason. Look closely at the wording in the original article: “Calpers was upset after noticing it paid between $20,000 and $120,000 for the same procedure across the state, without commensurate differences in outcomes.” Noticing? Why did it take so many years (decades even) for Calpers to wake up and even notice what was going on? Unfortunately health plans and employers have not shown an interest in price differences nor a willingness to do much about them
  • In reference pricing schemes, the Medicare price is often used as the reference price. In other words, commercial health plans and employers are just trying to copy what Medicare already does! Not only that, but they tend to set the price higher than the Medicare price because they lack sufficient negotiating power, skills, or incentives
  • Reference based pricing only works for a subset of procedures. Knee replacement is a good one because it’s elective and easy to characterize. But there will be problems trying to extend this approach to other big areas of cost where the patient doesn’t have time to decide in advance where to go and where the services to be received are unpredictable. Meanwhile Medicare pays a set price and doesn’t wait around to “notice” that things are out of whack

I do agree with the letter writer that greater patient activation is a positive thing. But it’s naive to assert that applying free-market principles is a panacea. As a country we have chosen a mixed government/free-market model. Both the public and private sectors have a lot of work ahead of them to improve quality and constrain costs. A closer look at the Calpers reference pricing experiment reveals just how poor a job the private sector has done, while revealing some of the advantages of a big payer like Medicare that has the power to dictate pricing.

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By David E. Williams of the Health Business Group.