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Monday, April 25, 2011

We need a Single Payer System like a Fish needs an XBox

I used to wear T-shirt that I got from a thrift store that said "It's time for Peace, Jerry Brown '92" while I drank from a water bottle with a Dennis Kucinich sticker. Yet, I don't see how a single payer system can be viable.

Here are the reasons that I hear from proponents of a single payer system:

1. It will provide health insurance for everyone and cover all services.
2. Insurance companies will no longer make huge profits and the money saved will cover health insurance for everyone, the national debt, and an Xbox for every fish.
3. It will make the health care system simpler and more efficient and the money saved will provide Guitar Hero III for every non-vertebrae.
4. It's easy to do, just expand Medicare to cover everyone.

Here are the problems:
1. Health Reform has been working towards preventing the denial of health insurance which is necessary to have a humane society. However, access to health insurance won't solve health care costs that exceed inflation. It won't create more primary care physicians or more care providers. It also won't address the approximstely 33% of the uninsured who make more than $50,000/year and refuse to buy auto insurance, wear motorcycle helmets, and still probably try to smoke on airplanes.

2. With a little extrapolation from this data of the large publicly traded health insurance companies, I see about $12-$15 billion in profits that can be seized. That would cover about 50,000 hip replacements which will probably be needed by the 50 million Baby Boomers or 12,500 very premature babies. In today's health care dollars, that's actually not a lot of money. Health insurance plans have an average profit margin of 3%. Some might argue that we should include money spent on marketing and CEO salaries. However, a single payer system will have to market to explain its system and have expenses developing a large enough system to cover the whole US. If I was feeling really snarky, I would counter that the likely rich benefit packages from unionized government workers would be about the same as large CEO salaries. If I was feeling less snarky, I would point out that $10 million in salaries is 1% of a billion dollar in revenue company so that savings opportunities is closer to 40 more hip replacements.

While ending the existance of evil health plans creates the same delight that one gets when their favorite team beats the New England Patriots, the money would cover the cost increases for the next few years at the most.

3. One claims system, one billing system, one benefit package, and one coverage system is very appealing. I have heard that it would eliminate provider administrative costs by 30%. Oregon had made movements towards consolidating its Medicaid carriers into one carrier per geographic region with this same argument. However, they pulled away because there were not necessarily carriers that could serve all the Medicaid beneficiaries in that region. Some carriers and provider groups that did service a particular county would be eliminated. That approach would award a monopoly to one group. That's the danger of the Highlander (In the end, there can only be one) approach. If one company controls an entire market with no competitors, how do we expect them to behave?

Health care is also very local and segmented both geographically and demographically. The east coast features large academic medical centers while the west coast features the integrated delivery systems while the south has entrants as new as most of its latest round of carpet baggers. In Oregon, you have to cover naturopathic medicine to be competitive while in Boston, you have to include the Partners Health Group.

Some individuals want alternative care covered, some can't afford their diabetic medications unless there is no cost share, and some want the cheapest plan possible and would rather pay 50% when they have to use services. It's not possible to create one universal benefit plan that would meet the needs of everyone and be affordable. Segmentation is a hallmark of successful business ventures. Trying to be all things to all people is a recipe for failure. The banking system and telephone lines lends itself towards a national model. Most other services lend themselves to a state wide model at best.

Creating this simplicity would entail a lot of sacrifice of personal choice. We're not good at sacrificing choice in cell phone plans, let alone health care coverage. Part of growing up as a health care system is figuring out what we really want to be. One universal model is not something that appeals to any characteristic of our nation.

4. The biggest problem is that the only group that is really equipped to offer a universal health plan is Unitedhealth Group. They are the only ones who have the size and scale.

The Medicare program has no experience with any level of sophisticated claims processing, network management, or negotiating for medical services. Network management and even a rudimentery claims processing is necessary for any type of system that pays providers for offering the right level of services and not just lots of services. Their price negotiations involves setting a price and telling people to take it or leave it. The idea that they can negotiate with prescription drug companies on pricing will be undermined by the fact that they have no department that can do it. Currently, they rely on the same companies that private insuracne companies use for prescription drug negotiation. Medicare can barely prevent fraud and abuse let alone managing costs. It has driven disease management programs into bankruptcy.

Someone who provides universal coverage would also need to staff up on customer service and basic communications which are not Medicare's area of expertise. I would offer the image of the DMV running your health plan except that I don't like to drag in the poor DMV. They get picked on enough.

Since Medicare doesn't have the basic expertise, the other option is to contract with private health plans to offer universal coverage. This is called the Medicare Advantage program which has its critics, including President Obama.

The solution: Since I haven't come up with a colonoscopy joke, by my new rule, I have to come up with a solution. Personally, I like Germany's approach. A basic level of services is covered by the government and people can buy private insurance for more coverage. This is basically like our eduction system.

Thursday, April 21, 2011

Are ACO's DOA?

A lot of people have been staking the future of health care on the idea of Accountable Care Organizations (ACO's). President Obama thinks they will reduce health care costs, providers have been reorganizing to take advantage of the opportunity, and bloggers have praised them. Even the event planning industry loves them as it has spawned a whole new line of conference opportunities.

To those who have not been following the ACO's like fantasy league baseball owners follow spring training, an ACO is an old idea that aligns the financial incentives of providers and payers. It provides a global budget for managing the care for Medicare beneficiaries. This rewards providers for efficient health care or keeping patients healthy rather than lots of invasive procedures. Medicare projects that it will save $510 million over a 2 year period. However, the release of the proposed ACO rules by Center for Medicare and Medicaid (CMS) at the end of the March had the same effect on the party as urine in the punch bowl. Or as my blog title foreshadows, it's like Weekend at Bernie's 2 where providers realize that participating in an ACO is like partying with a dead guy. It's a lot of work, not a lot of fun, and starts to smell after a while. In summary:

Lots of work: To participate in an ACO, providers will need more reporting, IT systems, have to develop some insurance functions, and build up the infrastructure to better track patients health. This is not unexpected and was part of the ROI analysis. What pushes the amount of work over the edge is the governance requirement. There must be a separate Board of Directors that runs the ACO that includes patient representation. This is a common aspect of Federally Qualified Health Centers and also the most challenging requirement to meet. Creating a separate governance board with complete control removes a lot of control from the providers who are launching a new venture. It's not easy to give up control of something that requires this much investment.

Not a lot of fun: The fun in ACO's was the opportunity to get paid more treating Medicare beneficiaries through shared savings compared to a benchmark. However, CMS took away the fun or opportunity to make more money by doing the following:
  • The benchmark or cost target that providers have to beat to make additional money is the current Medicare benchmark for the geographic area. For providers in the Northwest where benchmarks are very low because they are historically low cost areas, that means limited opportunity. For providers in Texas and Florida, where the benchmarks are very high because these are expensive areas, there is opportunity. However, these providers get paid enough by Medicare already so there is not the incentive. In other words, providers that are well-organized and poised to form an ACO have little room to get additional money. The wide variation in geographic payment for Medicare has been a continual problem and removes a lot of incentive from the ACO.
  • CMS also keeps the first 2% of any savings. Therefore, providers have to lower costs by greater than 2% in order to get additional payment. Or yet another barrier to participation. That's like having to watch Weekend at Bernie's 2 before you get to watch the first one or just turn off the TV.
Smelling like a corpse: Given the current structure, there is a risk that no provider group will apply to the ACO's. The current rules went over like a fart in a spacesuit to the 10 provider groups that participated in the original Physician Group Practice demo. If those provider groups who are the most likely to be successful aka make additional money in this model don't participate, who will? This would be a large blow to the Obama administration's vision of designing a more efficient health care system.

Hope or Yes we Can:
It's too easy to write a critical blog post about how a new idea in health care might not work. Any blogger who writes such a critical post should either balance it out with a solution or some really good colonoscopy or animal husbandry jokes. Since I don't have any new jokes, I'll pick the solution option.

Despite the fact that CMS has made participation in an ACO as appealing as a colonoscopy, this model represents the best solution to the US health care system. The fee for service model has proven to be unsustainable. Others besides CMS, like large employers or unions will start to demand this type of model from insurance companies and provider groups. While the revenue opportunities in an ACO are not good, there are not any better revenue opportunities elsewhere. Provider groups can no longer compare opportunities to today's payment but should compare it to the future payment opportunities. Provider groups who can organize under an ACO structure and lower health care costs will be more viable in the future. Those who cannot and expect to continue to be paid at today's levels will become just like the main character/corpse in Weekend at Bernie's.

Provider groups best option is still the ACO model. If CMS can't develop a good structure, that presents the opportunity for the health care industry to develop its own.

Monday, April 11, 2011

Ryan's Field of Dreams while Oregon is not just waiting for them to come after Building It

Last week, representative Paul Ryan released a budget proposal that was called everything from "interesting" by Ezra Klein to "bold" and "game-changing" by Fox news. The popular sports analogy was how Ryan changed the playing field on the health reform debate with his hail merry. My mixed sports analogy would be that Ryan punted to the Field of Dreams where he thinks that if he builds it, they will come.

Ryan's proposal specifically "would provide Medicare beneficiaries with lump-sum vouchers to buy private insurance and turn Medicaid into a block-grant system." States would get $11,00 per Medicaid beneficiary and the federal government could cap its exposure to health care costs. In other words, the federal government is turning its health care programs from a defined benefit to a defined contribution program and getting out of the health insurance business.

I used to think that block grants were a good thing because the word block has positive connotations. It makes me think of a block party or playing with blocks. The idea that the government gives you a block of money and a lot of freedom also sounds appealing. However, I have realized that block grants should really be called blockhead grants because they are generally used for programs that the granter doesn't like. That's why block grants won't cover the actual costs of the programs. Calling the programs, "Hey blockhead, how much money do I have to give you to go away? That's it? Great!" would be too honest and the acronym would be too long.

Ryan's idea of vouchers and block grants for Medicare and Medicaid is nothing new. Democratic and Republican politicians have proposed these ideas since 1981. What would make this proposal interesting is if Ryan attempted to design a market that would create an incentive to participate in these programs and provide care. That is the challenging part and why this is just another example of Republicans punting on actually coming up with a solution for the health care system. It will shift costs to employers who will become a main source of health insurance for older workers or beneficiaries who won't be able to cover their health care costs. It does nothing to change a fee for service system that will respond to lower payments with higher volume and more invasive treatments that get higher reimbursement.

The state of Oregon is seeking federal waivers for its Medicare and Medicaid funding in order to design a real system of health care. Waivers doesn't have the same warm and fuzzy feel as block grants. However, it's better because with waivers you actually get the same amount of money as before. Oregon is taking the ball and running with it by designing a care delivery system to support it called Coordinated Care Organizations (CCO's). They are similar to the federal governments Accountable Care Organizations (ACO) with 2 key differences. Patients select their CCO in advance and have a relationship with the providers while patients are assigned to an ACO retrospectively and don't have the same provider relationship. The other difference is that one starts with C and the other stars with A. I really wish Oregon could come up with a BCO acronym since they skipped that letter but the only one that I could think of was Boring Care Organization.

The relationship aspect of the CCO gives the organizations an opportunity to attract patients to join. The CCO's will start by serving the growing Medicaid population (which will become 30% of Oregon's under 65 insurance market in 2015) but will have business steadily funneled to it by the state government bodies like the Oregon Healthcare Authority. For example, the state has indicated that they may only contract with CCO's for the lucrative public employees insurance. That is how the system creates incentives to participate in providing care to difficult populations like Medicaid and Medicare. This is very different from Ryan's plan to have these beneficiaries fend for themselves with a 50% off coupon.

This Oregon proposal is something that I would call bold and game changing.
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