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Fixing the fixing. Health care Deja vu

by divorced one like Bush

Responding to a couple of comments to my post yesterday, I want to present some history. PARCA. Patient Access to Responsible Care Act. 1997 by Alfonse D’Amato (R-N.Y.) and Rep. Charlie Norwood, a Georgia Republican and licensed dentist who argues: “If we can protect trees and animals, why can’t we protect patients?” (Well there is a long extinct animal!)

PARCA had this in it: PARCA states, “No insurance issuer may discriminate…in any activity that has the effect of discriminating against an individual on the basis of race, national origin, gender, language, socioeconomic status, age, disability, health status or anticipated need for health services.”

The bill was defeated. The bill was part of a response by consumers and providers to what managed care was doing in the late 90’s. People were not happy at all.

From the Frontline article:

According to a recent survey by Robert Blendon at the Harvard School of Public Health, some 48% of Americans say they personally have experienced problems with HMOs’ care, or have close friends or relatives who have run into such difficulties. Complaints include difficulty getting access to medical specialists, problems with emergency care, and excessive red tape when trying to file grievances or appeals.

From: A report from Families USA, April 1998:

…almost three out of five Americans say that managed care plans make it harder for sick people to see medical specialists. Over half say managed care has decreased the quality of care for people who are sick. More than three out of five say managed care has reduced the amount of time doctors spend with patients. And 55 percent say they are at least “somewhat worried” that if they are sick their “health plan would be more concerned about saving money than about what is the best medical treatment.”

Yet, with nothing really changed other than consolidation of the health insurance industry, we hear arguments that people are happy? Bull! Come on people, don’t you remember?

From Duke University, Marc A. Rodwin: Backlash as Prelude to Managing Managed Care, is this summary of the then accepted pro managed care thoughts:

Managed care organizations (MCOs) and the private sector, so the story goes, are not perfect, but the alternative–having legislatures manage health resources and bureaucracies make health care decisions–is even worse. Experts in the private sector should manage health care… Over the long run, however, the market will ensure that MCOs deliver high quality health care. Consumers will leave poorly performing MCOs for ones that respond to their concerns (Enthoven 1993).

A summary of the potential defeat of PARCA presents the arguments against it as this:

Insurers and employers also are lining up to defeat the bill, claiming that its provisions could drive up the cost of insurance by 23 percent to 39 percent. The naysayers argue that if this bill became law, it would cause “thousands” of employers to stop offering insurance. They also maintain that the higher cost of premiums will force millions of lower-income workers to drop their insurance… The insurance companies are obviously concerned because PARCA will hold them liable.

Same story today. Government bad, regulation not needed, don’t worry the market will fix it. Mr. Rodwin’s closing statement:

Backlash is unlikely to disappear until the industry matures and thoughtful regulatory authority protects the public, and the industry from itself.


We even were concerned in 1998 about CEO compensation for the insurers. From the Families USA 1998 report:

In keeping with the industry’s accentuated focus on costs, this report analyzes a very different facet of managed care costs–namely, the costs associated with compensation for high-level HMO executives. The report examines 1996 executive compensation for the 20 for-profit, publicly traded companies that owned HMOs with enrollments over 100,000.7 These 20 companies owned 64 of the nation’s largest HMOs in 1996.
The 25 highest paid executives in the 20 companies studied made $153.8 million in annual compensation, excluding unexercised stock options, in 1996. The average compensation for these 25 executives was over $6.2 million per executive. The median compensation for these 25 executives was over $4.8 million.
The 25 executives with the largest unexercised stock option packages in 1996 had stock options valued at$337.4 million. The average value of unexercised stock options for these 25 executives was $13.5 million. The median unexercised stock option package for these executives was over $7.2 million.
(Go here to see what it’s worth today.)

In fact, we are so having the same debate again, yet, still that, I found this regarding the 1998 congressional timing for the health care issue:

All sides in the Senate debate have used the August recess to push their managed care proposals…

We are soooooooo doing it again that we are right down to the same time of the year! AHHHHHHHHHHHH!

Which brings me to Save the Rustbelt’s comment “…but it is not some conspiracy to drive up administrative costs.” My point was not that there is a conspiracy regarding administrative costs, certainly not by Massachusetts. It is that in order to fix what was fixed they are reaching for more of the same reasoning: Control the cost via administration of the costs. It is the very reasoning that has allowed the insurance industry (just look at the sub corps that UHC owns) to develop an entirely new business that is only expending but is not delivering the product results as advertised as it adds costs. And now, we will shift the cost by shifting the administrative model to the providers via a model that is questionable.

This Massachusetts model of capitation via “accountable care organizations” (ACO) is really just a new twist on the staff model HMO. Only now the insurer will collect the money and just pass it on according to the state fee schedule (yes it is still a fee schedule whether fee for service or fee for head count), and keep the difference. If there is not state setting of premiums, then where is the cost savings to the purchaser of insurance. If there is state setting of premiums, then why go through all this when we could just have a single payer system and cut out the profit and reduce the duplication of claims management to obtain our savings?

Also, to make this work, a patient will have to remain with the same “accountable care organization” at least through to the conclusion of their health problem. Being that the new fix is just a rehash of some old models, it is reasonable to assume that there will be some limiting of the consumer of health insurance to change ACO’s. Bet it will be like the Medicare drug program; one year, which I believe is already part of the Massachusetts insurance program. I doubt that locking a consumer into a program for 1 year is long enough for an ACO to have affected a change in the consumption of health care services by the consumer. In fact, you will not know unless that consumer gets sick in such a way that there are lifetime residuals and then starts ACO shopping. Will the consumer put up with having to be locked into the ACO for more than a year? Consider that health care outcomes are looked at over 3 and 5 year periods to determine success. Can you say “administration of cost”? How will the consumer know which ACO is actually getting the product of health and healing correct for the least price without more administration? How will the consumer come to appreciate value before actually having to purchase?

Which leads me to Vtcodger’s comment: “About the best I can say for this idea is that it is new.” I hope I am making clear that this is not new. Nothing about the current discussion of the health care problem is new. It is just the game of hot potato. It is just a shifting of the costs down the line. (An approach we seem to have been using since “trickle down” theory was created.) I do agree and it is why I believe capitation did not catch on and staff model HMO’s declined, when Vtcodger states: ” I don’t think that your average primary care physician wants to be an insurer…”.

But, let me correct one assumption that like the myth of Reagan lives on regarding managed care. Again Vtcodge: Actually, HMO/PPOs etc did and do seem to work to some extent. When they were first introduced, increases in health care costs did moderate for a while.

Yes, cost did seem to moderate. But there were very specific reasons and it had little to do with manage care actually reducing the “unneeded tests and procedures”. From the Frontline article:

In the mid-1990s, HMOs made some people think that they had vanquished medical inflation — as rates to big employers increased just 0.5% to 2% a year. But the managed care plans “paid dearly for competitive pricing in 1997,” says John Erb, a benefits consultant at William M. Mercer Inc. “Many lost money and margins were slim for most of the rest.

It was the old business model to market share, cut your pricing and hope your competition folds first. It’s the big box store model. It worked. In RI land we were reduced to BC and UHC. Two years ago, UHC undercut BC to win the state contract. Prices are up.

There was a report put out by Muse & Associates for the pro PARCA coalition. In it they noted two other reports when making a conclusion about costs. Quoting from an article from my national association’s journal 4/98 (I have no link):

“Private sector average premium costs, for HMOs, the most tightly controlled form of managed care, are 18.4 percent lower than traditional indemnity plans.
Other researchers have come up with estimates reassuringly similar to the Towers Perrin figure. For example, the Lewin Group, in a 1997 report, estimated direct savings from managed care at 19 percent.
So, Muse & Associates are on sound footing in concluding: “Clearly, overall managed care savings could not exceed 20 percent. The best evidence strongly suggests that 15 percent of the 20 percent savings comes from managed care organizations reducing provider prices…”

We’re talking the same old approach to what really is a problem with the product. At least in the bad socialist health care programs they recognize that a for profit third party only adds cost and thus do not have to account for that part of our problem (it’s called savings). They just need to resolve the product quality issue. It is the only common issue to all nations.

I’m taking bets on the date of the new fix of the newly fixed, fixed system.

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Massachusetts is fixing the fixed health care system: more administration?

by divorced one like Bush

In this debate on how to finance health care, we are hearing about the costs to deliver health care and how to bring them down. Mass is now proposing a capitated payment system that will be government created. It is the latest fix to a herald “fixed” problem. Which begs the question, why do they need to fix it again, yet, still?

The 10-member commission… voted unanimously to largely scrap the current system, in which insurers typically pay doctors and hospitals a negotiated fee for each individual procedure or visit. That arrangement is widely seen as leading to unneeded tests and procedures.
A state commission recommended yesterday that Massachusetts dramatically change how doctors and hospitals are paid…the group wants private insurers and the state and federal Medicaid program to pay providers a set payment for each patient that covers all that person’s care for an entire year and to make the radical shift within five years. Providers would have to work within a predetermined budget, forcing them to better coordinate patients’ care, which could improve quality and reduce costs.
The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval. Primary-care doctors, specialists, hospitals, and home healthcare agencies would have to form so-called accountable care organizations. Patients would choose a primary care doctor to coordinate their care, mostly within the organization. Insurers would pay the accountable care organization a flat yearly per-patient fee to be divided among the providers.

Read the above again: recommended…that Massachusetts dramatically change… to make the radical shift… The plan would require significant restructuring of the healthcare system, and some of its components would need legislative approval… to form so-called accountable care organizations.

Deja vu?

Dramatically? Radical? Significant? Legislative approval? An entirely new thingy called “accountable care organizations? What? IPA, HMO, PPO, POS, EPO, Self Directed, HSA, Capitated, IME, Primary Care, Fee-for-service, PCP, CAM, and for Massachusetts specifically; Commonwealth Connector just didn’t do it for you. We need more? “Doctor”, “insurer”, “patient”, “government” were not enough?

I want to know, just how much in administration cost will this new fix add? Is this the old promise of managed care, that the savings will accumulate enough to pay for the cost of administration plus a profit? Hasn’t worked yet.

It may work I guess, if we just add enough superlatives in our sentences while we present the new and improved Model T. Or maybe not. From the journal, Medical Care: Managed Health Plan Effects on the Specialty Referral Process:

Results. The percentages of office visits resulting in a referral were similar between the two gatekeeping groups and higher than the no gatekeeping group. Patients in plans with capitated PCP payment were more likely to be referred for discretionary indications than those in nongatekeeping plans (15.5% v 9.9%, P The frequency of referring physician coordination activities did not vary by health plan type. The proportion of patients in gatekeeping health plans within a practice was directly related to employing staff as referral coordinators, allowing nurses to refer without physician consultation, and permitting patients to request referrals by leaving recorded telephone messages.

Massachusetts states: That arrangement is widely seen as leading to unneeded tests and procedures. They were referring to the method of paying a doctor. Yet the study shows that the referral patterns don’t change with changing the method of payment. Well, does Massachusetts think the unneeded tests and procedures are happening without referrals?

Pick the approach, it didn’t change the referral pattern and, systems were set up by those being managed to make the referral process more efficient. So, either the patients need the referral (thus tests and procedures) and none of these money managing approaches are going to ultimately stop it, or the PCP finds a way to keep the traffic moving through the office because the more patients served the more money collected. (Deja vu) It’s a solution to a head-count/ piece-work payment system that still does not get the doc to do the job of applying the knowledge of health and healing to a given person’s presentation. (I’m accepting bets on how long it will be before we hear about the next fixing of the latest fixed Mass health care system. Post your bet in comments.)

This gets us to the one area that has been rolled out many times, but is often excused off as not being reliable as to achieving real savings and thus why we really don’t want a government funded single payer solution (other than our pride of not thinking of it first): Administration costs. It is the old medicare is cheaper than private insurance because of administration cost argument.

We’re hearing of the new plan being modeled on the Massachusetts system. It’s not working as noted by the need to fix it again (though past experience with other states showed it would not work). The fix is more administration costs on top of more administration costs. If they keep going this way, soon a medicare modeled administration system’s costs will be comparable to the private insurer, thus defeating the need to fix health care. So lets just accept that health care costs a lot to administrate, stop wasting time trying to reduce the cost and let the private system stay?


From this article: Costs of Health Care Administration in the United States and Canada, NEJM 2003, we learn that administrative costs have been rising faster in the US than in Canada.

We investigated whether the ascendancy of computerization, managed care, and the adoption of more businesslike approaches to health care have decreased administrative costs.

For the United States and Canada, we calculated the administrative costs of health insurers, employers’ health benefit programs, hospitals, practitioners’ offices, nursing homes, and home care agencies in 1999.

In 1999, health administration costs totaled at least $294.3 billion in the United States, or $1,059 per capita, as compared with $307 per capita in Canada. After exclusions, administration accounted for 31.0 percent of health care expenditures in the United States and 16.7 percent of health care expenditures in Canada. Canada’s national health insurance program had overhead of 1.3 percent; the overhead among Canada’s private insurers was higher than that in the United States (13.2 percent vs. 11.7 percent). Providers’ administrative costs were far lower in Canada.

Between 1969 and 1999, the share of the U.S. health care labor force accounted for by administrative workers grew from 18.2 percent to 27.3 percent. In Canada, it grew from 16.0 percent in 1971 to 19.1 percent in 1996. (Both nations’ figures exclude insurance-industry personnel.)

You know, I think maybe administration has become a growth industry for the health insurance industry? Was this part of the plan to shift us to a service economy?
Understand what the authors are saying here. It’s not just administrative costs related to the job of getting the patient’s dollar to the provider (medicare vs private), it’s the overall costs to the entire health care system as a results of the “administrative” systems the private insurance industry has put in place to “save us money”. No one is immune from paying these costs. They are part of the premiums charged, fees withheld, claims refiled, etc. All this administrative labor to control the costs, and yet the cost of health care keeps rising. Well, if the insurance employees can’t stop the rising costs, then what are we paying them for?

This is starting to make me think that Bruce Webb’s “do nothing plan” for Social Security should be applied to fixing health care. In this case the “do nothing” plan would be to get rid of the paper chase and achieve real savings. That is, do nothing regarding active management of health care costs via administrative systems. Don’t try to manage the doc’s, just let them do what they do and save money by eliminating all the systems that try to manage them. Though, there is a way to manage the doc’s that would not cost us in administration: competition among provider types. Let the various algorithms of applying the knowledge of health and healing compete. Thus, research such as this needs to be considered regardless of one’s opinion of the group studied.

Clinical and cost utilization based on 70274 member-months over a 7-year period demonstrated decreases of 60.2% in-hospital admissions, 59.0% hospital days, 62.0% outpatient surgeries and procedures, and 85% pharmaceutical costs when compared with conventional medicine IPA performance for the same health maintenance organization product in the same geography and time frame.

How about that, a reduction in “unneeded test and procedures” without adding administration costs. Let the doc’s be but, use the clinical practice approach that actually cuts the “unneeded” because it is unneeded. I think there is a lesson here? Something along the lines of free market capitalism only the market is not the types of insurance competing for the patient, it’s the types of doctors that need to compete for the patient.

I got side tracked. Lets stay with the one area for cost reductions: Administration. The authors:

The gap between U.S. and Canadian spending on health care administration has grown to $752 per capita. A large sum might be saved in the United States if administrative costs could be trimmed by implementing a Canadian-style health care system.

Despite these imprecisions, the difference in the costs of health care administration between the United States and Canada is clearly large and growing. Is $294.3 billion annually for U.S. health care administration money well spent?

Well, is it? Did they even ask?

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