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Come see us elsewhere

As regulars know, what we post here also shows up at SignalHealth (though not vs. versa).  With the continuing problems we're having here, for the time being all our posts will originate at SignalHealth. So come on over.

Thanks.

Site problems

Most everything on this site is not working correctly right now. The internal links aren't working properly and it looks (at least to my eye) awful.

Our apologies. We'll get it fixed as quickly as we can.

More NYC hospitals on the brink

And a system of seven more hospitals teeters as St. Vincent's in New York City files for bankruptcy protection.

The largest unsecured creditor is CSC. The largest secured creditors are DASNY and Sun Life of Canada.

Hospital bailout on hold

Westchester County Medical Center, still another hospital to save, but not quite yet. But never fear. The legislative session's is far from over. I'd still put money on some kind of deal being worked out here.

Of course, the local folks want it saved (and assume that requires State money).

Did the Feds just send New York a warning?

What's the relationship between this New York Times story, these GAO report summaries, particularly here (here's the full report) and a related summary here (PDF), and this NYS Health Department RFP?

New contributor

We have a new contributor, Tom Hilliard, over at www.signalhealth.com. He describes himself as "a former health care policy wonk, former political hack, former labor consultant for health care unions, former Washington DC political activist."

He's already published a couple of well-written, thought-provoking posts. Come on over and take a look.

And for those of you who've never visited www.signalhealth.com, though inspired by this site, it offers much, much more.

Cost growth, universal coverage, and single-payer

In It's Only a Matter of When, we set the stage a bit with our discussion of subsystems overwhelming the systems of which they are a part and which support them, especially with financial resources and how that triggers system responses. The example we used was of the loss of coverage. Let's now discuss the implications for universal coverage generally and single-payer, in particular.

The system structures and associated dynamics in It's Only a Matter of When help explain the rising numbers of uninsured, which are themselves much of the political impetus for some form of universal coverage. But, unless we're foolish, the leap to some form of universal coverage also requires that we create the structures in a new system to counterbalance those forces. Otherwise, we will simply transfer the associated problems from one coverage system to another.

Growth in healthcare costs at rates greater than the rest of the economy will continue to cause more people to become uninsured - the gap that universal coverage would fill. But a one-time jump in transfers from the rest of the economy to healthcare that would accompany a political move to universal coverage would not, by itself, change the system structures that create these dynamics. Thus, any move to universal coverage must take those inflationary structures into account and deal with them as part of reform. Certainly no reform should weaken the counterbalances that exist today, much less create new inflationary incentives.

Contrary to the rhetoric of many single-payer advocates, we cannot do this by relying solely on reduced administrative costs. Perhaps politically and rhetorically attractive, that's a dangerous distraction. Instead, we must face up to core healthcare costs and their continual rise and we must find effective means of counterbalancing them.

Let's jump off from part of Tom's comment about this post:

The rejection of the Clinton plan, in part, because of the canard that it would have limited consumer choice, marked the beginning of a consumer revolution that rejected all limits on choice, thus virtually all cost-control mechanisms. So discussions of how we'll reshape the delivery system under a particular universal health care system to control costs probably miss the point, which is that the American public may not allow costs to be controlled under any model. (which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.)

One of Tom's implicit assumptions is that only by limiting choice can we control costs. I'm not sure that's true. I've certainly seem mechanisms that had the effect of reducing costs without limiting choice. Indeed, I've even seen cost reductions result by giving the patient more choice leverage (through deeper education about their options), but I don't want to dwell on that here.

Rather, momentarily granting Tom's assumption about unfettered choice, let's look at his next point, "the American public may not allow costs to be controlled under any model." Yes, they will. They may hate it. They may resist. They may claw and scratch, but, even under a single-payer system, ultimately they will have no choice but to allow cost controls politically. Why?

Because continual and accumulative healthcare cost growth that exceeds the rate of growth of the economy that pays for it and supports it will sooner or later, but inevitably run into a "Decision/Behavioral Change Threshold" such as we discussed and depicted here. At that point the larger system (the rest of the economy in this case) will push back and say, "no more." (More likely the wording would be a bit more aggressive.) The healthcare sector will have to live and content itself with X percent of the nation's economic resources. Pick your own percentage threshold. Fifteen percent? A bit over where we are today. Twenty? Maybe. Fifty? You must be kidding. The American public which had previously rebelled over "lack of choice" would have long before furiously rebelled over the tax burdens associated with that level of economic commitment. Why would it be otherwise? The point here is not to argue what the trigger level would be. Rather it is to simply say that structurally, such a trigger level will be an intrinsic part of the system and pulling the trigger is a matter of when, not if.

Tom, then using the single-payer advocate argument, goes on to say:

... which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.

Over the last few years, the administrative costs argument has become the centerpiece of the rationale for single-payer advocates. This is dangerous. Whether large or small, administrative costs are an "add-on" to core healthcare costs. They rise with the increases in core healthcare costs, which the single-payer proposal does nothing explicit to address. All the systems we're discussing, reformed or otherwise have and will have some form of counterbalancing mechanisms. Whether in the present system or embedded in a single-payer system, the same generic system structures will produce the same generic system behaviors. It's best to  think about the nature of these counterbalances  consciously in advance of reform and to discuss them openly.

The administrative savings rhetoric is more than a distraction. The rhetoric of many single-payer advocates supports at least implies more dramatic, perhaps radical controls on core healthcare costs:

• It does this in comparisons to other nations' healthcare systems which devote to healthcare much smaller shares of overall economic capacity. If the US spends 14 percent of GDP on healthcare and another system spends 10 percent, we must ask of the single-payer advocate, are you suggesting that the US move toward 10 percent? Are you suggesting that we cap the US system at 14 percent while other nations catch up? If two of the 14 percent is for administration and we can eliminate that, will we then cap healthcare's share at 12 percent? And, especially after dismantling the administrative controls, in any of these cases, how would we do that?
• Most single-payer proposals include or imply some form of price controls. Today that's often aimed at the current villain, pharmaceutical firms. But price controls certainly wouldn't be limited to such firms, they would apply to all forms of healthcare included in the benefit package. A single-payer systems would be a monopsony (single buyer rather than a single seller monopoly). Its leverage over hospitals and physicians and most other services would be near total.
• Service use controls would be of two types, implicit and explicit. Price controls will inevitably have a hidden, implicit effect on service. Priced low enough, no one will sell a service. So patients would have complete freedom of choice to seek services ... that no one sells. In part, this is just an extreme version of the waiting line effect. Explicit service use controls would no doubt emerge as well.

Assume for the moment, that we could have a single-payer solution and universal coverage with zero administrative costs. We would have received a one-time savings. But would we still have a healthcare cost problem? Would healthcare costs continue to rise faster than the rest of the economy? Clearly yes. And therein lies the problem. Because as this new administration-free, single-payer system consumed an increasing share of gross domestic product, eventually the rest of the economy, the taxpayers would limit the resources available to healthcare

As I discussed before, I've never found the administrative cost argument compelling except in the extreme short term. If single-payer advocates were actually able to make the sale to the American public, they would shortly thereafter find themselves accused of a "bait and switch" because the core costs, for healthcare services would continue to grow faster than the rest of the economy and there would be little alternative but to impose administrative controls on service, both raising administrative costs and creating exactly the sort of problems they had promised to avoid. Not a pretty picture.

Any credible reform proposal must include the means by which core healthcare cost growth will be constrained to some fixed percentage of our society's economic capacity or it will necessarily fail.

Even my own discussion of the importance of finding the Mama Bear "just right" levels of healthcare service use does not yet address how. But we must openly and directly address how we would do this

Any universal coverage system must directly face up to how the core costs will be controlled. This can be done bureaucratically or it must leave individuals and families the ability to choose among different systems of care and financing and do so with a financial incentive that creates a counterbalance to healthcare's core inflationary forces. Individuals and families must play an active role in the choices that affect them and their decision making must include personal trade-offs regarding service choice and cost. Even more than in the present system, in a healthcare system with universal coverage, core healthcare costs will be controlled by the rest of the economy. This can be done arbitrarily to patients and physicians and I fear that arbitrary means will be the only ones available in a single-payer system. We must find functional and politically acceptable means of restraining growth in core healthcare costs. At best, tinkering solely with administrative costs avoids finding a solution to the more serious problem, even worse, it's a distraction. Worst of all, it may undermine our ability to confront the greater challenges.

Slower, but not slow enough

Oh! We should be so relieved. Healthcare spending growth has slowed to a mere eight percent. Our last post suggests not.

The news from the Center for Studying Health Systems Change is that healthcare spending growth has slowed a bit. The report is published in Health Affairs.

Our prior post was a jumping off point to a larger discussion the central point of health economics in the US today. So long as growth in healthcare spending exceeds the rate of growth in the rest of the economy, which pays for healthcare, the day of reckoning is inevitable.

June 21, 2005
Health Affairs, Web Exclusive (June 21, 2005)
Bradley C. Strunk, Paul B. Ginsburg, John P. Cookson

Health care spending increased 8.2 percent in 2004. This was virtually unchanged from 2003, which suggests that health care cost trends have stabilized. Hospital spending grew 10.1 percent in 2004, also virtually unchanged from 2003, reflecting a small increase in the hospital utilization trend and a small decline in hospital price inflation. Meanwhile, growth in prescription drug spending continued to fall as a result of slower growth in prices. Growth in health insurance premiums slowed again in 2005, likely reflecting earlier years’ slowing in cost trends and signaling that a turn in the insurance underwriting cycle might be under way.

So why isn't the slowdown in healthcare cost growth satisfying? Because healthcare cost growth, as it has almost every year in the past decade (there were two early exceptions before the managed care backlash), and essentially for decades has exceeded growth in the rest of the economy or GDP overall and that only takes us closer to trouble. Most immediately, as we discussed below, it forces people out of the coverage system. The more recent source data are here.

So headlines and links (here and here too) that even modestly celebrate this slowing of healthcare cost growth largely miss the point. Unless the slowdown is to a growth level less than the economic rate of growth, then we have not reversed our race to the day of reckoning. We might have slowed a bit, but not reversed.

Moreover, these trends have a direct bearing on our discussions of universal coverage and why single-payer is a less than satisfactory response. That will be the subject of my next post.

It's only a matter of when

This post is about behavioral change, particularly as it relates to health economics and the healthcare system. The essentials, the mechanics if you will, apply similarly to individuals, organizations, and the place of healthcare in general economy.

The next couple of posts will be based on it and I'll likely refer to it many times in the future.

Before we get started, answer the following questions:

• If you and your family had (or have) to pay for your healthcare coverage directly, at what percentage of your family income would you be forced to seek less expensive coverage, even if it were more restrictive? Answer: __________
• If you and your family had (or have) to pay for your healthcare coverage directly, at what percentage of your family income would you be forced to drop your coverage? Answer: __________

Put your answers aside for a moment. We'll return to them shortly.

Some of this may look fairly complex, but it's not really. Just follow it step-by-step and you'll see what's going on both in the post and, more importantly, you will see how trouble is inevitable or perhaps why we're already in trouble. So don't bail out on me quite yet.

The economy grows and healthcare costs grow. When healthcare costs grow, premiums, employer burdens, and taxpayer burdens grow in parallel as well.

Take a look at the following Chart 1, The Impending US Healthcare Crisis: Why it is Only a Matter of When: What do we see?

We see economic growth E (with the random ups and downs taken out for simplicity). As is typically the case, it curves upward, representing exponential or compounding growth. We see D "$ at Some Percentage of the Economy" which parallels the economy itself. For example, this curve might represent 10 or 20 percent of the economy. Because it's a percentage, it grows at exactly the same rate as the economy. We also see H, Healthcare Spending. Note that, consistent with a lengthening history in the US, the rate of growth is faster than the economy (E) and faster than at $ at Some Percentage of the Economy (D). Because it grows faster, eventually it overtakes and crosses D at a point we have labeled "Decision/Behavioral Change Threshold." Then something changes.

Now what might that "Decision/Behavioral Change Threshold" be? Let's return to the questions you answered at the beginning. (You did answer them didn't you?) Let's assume that you answered that at 15 percent of your family income you would have to drop coverage. Beyond that, regardless of the risk, it would be just too expensive to pay the monthly premiums. Your family circumstances and decision behavioral change are represented in Chart 1. Here's how. Your income is represented by Economy (E). Your 15 percent personal decision threshold is represented by "$ at Some Percentage of the Economy" (D). Premium growth is represented by Healthcare Spending (H). You drop coverage where the lines cross and at time T1.

You may use the same chart to think of movement to more restrictive coverage. Assume that as the cost of coverage approached your 15 percent threshold (say at 12 or 13 percent), straining to maintain some form of protection, you might seek less expensive coverage. The chart will work in exactly the same way.

Now what happens if economic growth slows, healthcare costs accelerate, or you ability to devote a set percentage of your economic capacity to healthcare diminishes?

Chart 2 shows slower economic growth combined with healthcare cost growth the same as in the base case in Chart 1.

Chart 3 shows the base case economic growth and even faster healthcare cost growth.

Chart 4 shows a lower Decision/Behavior Change Threshold. For example, if you would be forced to drop coverage at five or 10 rather than 15 percent of your family income as would generally be the case for lower income families, then the Threshold would be lower relative to the family Economy. What Charts 2 through 4 have in common is that all produce a change in behavior at an earlier time. Slower economic growth, faster healthcare cost growth, or a lower percentage of your economic resources that can be devoted to healthcare all cause you to drop coverage earlier.

Pick your own markets of economic growth. Pick your own measures of economic capacity. Consider this at the most macro-economic level or at the personal level. The same effects result.

If a system consistently grows faster than a larger system in which it resides, eventually an intersection is reached at which the behaviors of one or the other, or both change less the larger system be overwhelmed. But even being overwhelmed will generally yield a behavioral change (think uncontrolled cancerous cells overwhelming an organ or body and eventually killing it).

What has been happening is that healthcare costs consistently outgrow the rest of the economy - which pays for healthcare. Increasingly individuals, families, employers, and governments capacity to carry the cost are being overwhelmed. So their behavior changes. In some cases, they seek increasingly stronger means of maintaining a financial relationship with the healthcare system. But in other instances, their behavioral change is to simply walk away. Thus, increasing numbers of uninsured.

We don't all reach the intersection at the same time or at the same rate. The same is true for employers and governments. But, sooner or later, given the underlying structural relationships and dynamics, the vast majority of individuals and the economy overall will arrive at that intersection. Tennessee and other states arrived at it earlier this year with their Medicaid programs. General Motors appears to be at the doorstep right now. In contrast, for the time being, it appears that the Federal government has chosen to spend a higher portion of its economic capacity (tax revenue plus debt) on Medicare. Yet, when we consider projections for the Medicare Trust Fund, clearly the day of reckoning is not that far away.

I'm going to make a brazen assertion here: If you want to understand what is happening in healthcare and if you want to anticipate what will be happening, then the single most important measurements to track are overall healthcare spending, the carrying capacity of the economy that's paying for it (whether family, regional, employer, governmental, or macro-economic), and their relationships to one another. With healthcare cost growth rates exceeding economic growth rates, the larger the gap between growth rates in healthcare spending and economic capacity, the closer the day of reckoning.

 

NY Blue Cross conversion case

New York's highest court, the Court of Appeals, today rejected the suit brought by Consumers' Union regarding the conversion of Empire Blue Cross/Blue Shield to for-profit status.

Here's the press release from WellChoice, the Empire parent. Here's a general issues page at Consumers' Union.

With a 4-2 vote, the Court dismissed the Consumers Union suit that challenged the transaction as unconstitutional. Empire did its IPO in late 2002, while creating a parent, WellChoice. Under the conversion plan approved by the State 95% of the funds (about $1 billion, was for salary supplements for healthcare workers, with the remaining 5% going to create a healthcare foundation. Arguing that salary increases were not a proper use of funds which had been amassed by virture of Empire's tax-exempt status, Consumers Union won a restraining order barring spending the money until there was a ruling on the conversion's legality. They favored other forms of community health initiatives.

For those concerned about the public policy issues involved in such conversions, this pretty much ends the debate in New York.

For those concerned with NYS finances and the age-old question, where's the money going, this means that the resulting funds the State was counting on for its own purposes are now secure. Hospitals and 1199 will get a substantial portion of the money. It also likely clears the way for the next conversion, that of HIP.

It's not DASNY financing

I'm actually relieved.

DASNY, New York's public authority which does health care financings did not do the Cabrini deal. So, at least the State isn't involved in making its own work more difficult.

Had a short, but useful conversation with a DASNY staff person who reminded me that the law creating the Commission lists a number of factors besides debt to be taken into consideration. And of course, very few hospitals have no debt. So, if that were the most important criterion, there wouldn't be many potential targets left.

But the truth of it is that the folks at Cabrini aren't the only ones who think that way. Far, far from it. And, if you're running an institution that's a potential State target anyway, you may as well make it as challenging as possible.

The Cabrini decision and the regulatory loop

Well despite my description of this decision as outrageous, it is rational.

The reason it's unsurprising is that we have a system at work in New York in which such behavior is rational. That's the larger and much more important problem. This decision is symptomatic but it's not the disease itself.

Somewhere in the files is a presentation I used to do on "The Regulatory Loop," on how many regulatory behaviors (in any industry) lead the regulated to shift their focus from improved efficiency and improved quality to reduced competition, regulated price fixing, and regulatory compliance as a proxy for true quality, and ultimately to view the regulator as the customer. These behaviors, perfectly understandable lead to higher costs and lower quality and then more regulation and oversight. And then?

Rinse and repeat. Endlessly.

More distorted behavior in a regulatory environment

From Crain's by way of HANYS e-Clips Daily News:

Cabrini survival plan details unfold
Crain’s Health Pulse, 6/17/05

Cabrini Medical Center has refinanced its mortgage, after the loan was nearly paid off, Crain’s says.  Crain’s calls the refinancing  “part of a two-pronged approach to surviving the machinations of the hospital-closing commission,” because hospitals that have mortgages “are less likely to be candidates for closure.”

How unsurprising and how outrageous.

The "regulatory mindset" doesn't just exist in the minds of regulators. Its more insidious form exists in the minds of the regulated. It manifests in decisions that are designed solely to influence the regulatory system and are often otherwise unhealthy, even self-destructive. We've seen it with debt; we've seen it with indigent care subsidies; we've seen it with deliberately weakened balance sheets designed to become eligible for extra subsidies as "financially distressed hospitals."

And, by the way, which hospitals in New York don't have mortgages? They've been doing projects and taking on debt for decades in order to increase their cash flow from the reimbursement system (the excess of depreciation over amortization during the earlier years of mortgage life) as well as to protect themselves in exactly the manner that Cabrini has done.

When the debt is small the debtor is in trouble. When the debt is mammoth, it's the creditor that's in trouble.

I've sent a note off to the DASNY, the State's public authority for such financings,  asking whether it did this financing. If DASNY rather than a private entity, did the financing, then Cabrini's position is even stronger because the State will have a bigger stake in their survival. Its already on the hook for about $10 billion in healthcare debt in New York. Perhaps there should be a moratorium on new financings until the Commission's work is done.

The analytical test for the Commission will be to ferret out similar cases that have not been so blatant. The test of its courage will be whether it resists gaming the system like this and resists itself being manipulated so blatantly.

Where's the evidence?

In relation to the single-payer discussion, Tom asks where is the evidence that Medicare overpays for services.

Actually I was coming from a different angle that does not have much to do with benefit design or program operation. It has everything to do with the way the medical system actually works. My experience has been that government agencies assume that uniform policies produce uniform results and they are ill prepared and have no incentive to deal with variation in results, especially when that variation itself is the result of a wide variety of factors that require careful localized analysis, patient targeted interventions and are the result of factors that are not within governmental control.

Or put another way, I was focused on use of medical services. That's where the action is. Single-payer advocates focus on administrative overhead. That's simple and easy to understand. Regulatory types tend to focus on prices. That's simple at first blush and it can work in the short term, but once the regulatory process is captured by those regulated, it's just a lot of politics that produces no financial benefit to anyone but lobbyists and it may produce higher prices. More subtle, more complex, and harder to explain are the bell curves of medical service use. At the high end, they produce nothing but expense and the potential for patient harm. At the low end, they indicate inadequate care. In the equation of total costs ((service use X price) + overhead) = total cost, the longest lever is service use. And no, this does not lead me to having clerks deny care over the phone.

But since you asked Tom, here's a long one and since you asked you have to promise to read it all and think about it and its relationship to what we've been discussing.

Here goes ...

When Medicare and Medicaid were established in 1965, based on what most everyone involved thought they knew about mainstream, privately insured, medicine, they took for granted three key assumptions. These assumptions were so deeply embedded, that they weren't even discussed. This was just the way the world was:

1. That medical care was uniformly provided
2. That when provided, with the possible exception of some oddities, medical care was consistently of good quality. And good quality produced uniformly good results. A related, implicit assumption was more is better.
3. That, where quality was not good, it would be extremely bad and could be weeded out through a regulatory survey process and that aside from that there was not much that could be done.

All three assumptions have turned out to be incorrect with significant implications for for patient care, clinical quality, and spending. What we've learned in the 40 years since is profound, but we still have a very long ways to go in taking advantage of it. This is relevant to the single-payer discussion because while a single-payer system might be centralized, medical care is not. I'll discuss that tie-in further below.

Medical care is not uniformly provided

Where's the evidence?

Read anything by John Wennberg, MD. (If you do a search at the New England Journal alone, you'll find well over 100 citations.) Here's a recent one in the British Medical Journal that focuses on end-of-life care. In the late 1970s, Wennberg began to apply epidemiological methods to medical care. The first study I read was in Scientific American in 1979 as I recall, but that's not online. What Wennberg and his colleagues found was that there is substantial variation in medical care from one community to the next. They have also found what they characterize as a "practice pattern" effect, that physicians in one community develop a rough consensus on the best way to handle particular types of cases, but that their consensus differs from the next community and will produce care patterns that are stunningly different from those in other communities, even within the same state or region.

For a quick introduction, start with the Dartmouth Medical Atlas, published by the Center for Clinical Evaluative Studies, which is one of the offshoots of Wennberg's work.

These variations also exist within similar populations and in some cases very homogeneous populations. For example, a colleague studied variation in hospitalization patterns among Nebraska Blue Cross subscribers for conditions that can be managed on an outpatient basis (diabetes, asthma, CHF, COPD, etc.) As another example, in the late 1980s and early 1990s, my own work focused on variation in hospitalization patterns of Medicaid clients in New York. Here's a quick and dirty update that I did in 2003. The earlier work was much more rigorous and I'll be happy to send a copy to anyone who asks.

Wennberg and his followers also learned that the variation itself varies from one condition to another. For example, appendectomies are always performed in hospitals and there is no known relationship of appendicitis to age, gender, race, socio-economic status. So there is very little variation and, from what I've seen, it's just random. Other conditions, however, are quite different. For just a tiny sample take a look at these:

• Variations in hospitalizations of children in three urban communities, NEJM, May 4, 1989.
• Regional variation in medical care, NEJM, August 31, 1995 where Detsky noted variation in clinical outcomes such as mortality after cardiac surgery. "Once again we have learned that there is substantial variation among regions, hospitals, and even individual physicians."
• Among New York's Medicaid clients the most variable conditions as causes of hospitalization were psychiatric and substance abuse, blood related conditions, and respiratory conditions.

There is much, much more.

This leads to "what difference to these differences make?"

Medical care does not provide uniform results and spending more does not necessarily produce better results

Where's the evidence?

Start in the Annals of Internal Medicine with two papers by Elliott S. Fisher, David E. Wennberg, Thérèse A. Stukel, Daniel J. Gottlieb, F. L. Lucas, and Étoile L. Pinder. The first is "The Implications of Regional Variations in Medicare Spending. Part 1: The Content, Quality, and Accessibility of Care" where they conclude that Medicare patients who live in areas that spend more on Medicare do not necessarily get better care than those who live in regions that spend less. The second, "The Implications of Regional Variations in Medicare Spending. Part 2: Health Outcomes and Satisfaction with Care," where they conclude that Medicare enrollees in higher spending regions receive more care than those in lower-spending regions but do not have better health outcomes or satisfaction with care.

Or even more recently, take a look at Baicker and Chandra who "find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care."

Fisher wrote an op-ed for the New York Times, More Medicine is Not Better Medicine (fee required for full article) December 1, 2003. He pointed out that additional service provided in higher spending regions are largely discretionary. He estimated that as much as 30 percent of Medicare's service spending was unnecessary. For you New Yorker's he also pointed to spending in NYC being double a community in the Pacific Northwest with no additional benefit. Here's Fisher's slide show, "Is More Better?" (Quicktime required.)

You can also look at the numerous studies that have come out of RAND on excessive and inadequate care. For example, take a look at Assessing the Appropriateness of Care, How Much is Too Much?.

If care is not of uniformly high quality or does not produce uniformly good results, there's nothing that can be done about it

Where's the evidence?

Start here at the Institute for Healthcare Improvement, founded by Don Berwick. In January of 1989, Berwick wrote "Continuous improvement as an ideal in health care," the seminal paper in the New England Journal of Medicine on the use of industrial quality control methods, statistical process control and other similar methods in medical care. (That paper is not online, but it's worth tracking down if you're interested in the history.) The Institute was founded two years later (with a grant from a health plan by the way) and it has expanded each year. Their annual meetings now get thousands attending.

IHI is just an organizational manifestation of many efforts to measure performance, understand clinical processes, and improve them. You can go into many hospitals today and see graphs of their performance on a wide array of issues hanging near the offices of department chairs and sometimes even in public places. That simply wasn't true 20 years ago. And in many healthcare organizations, it's still not true.

What's necessary to deal with all this variation?

Here's a starter list:

• Data to identify community-by-community, condition-by-condition, and service-by-service where the high and low rates are and, where at all possible, outcome data
• Peer consulting and other knowledge transfer
• Time and support for dealing with it locally
• The organizational infrastructure to support local efforts
• Financial and organizational incentives for local medical organizations and professionals to participate
• Organizational frameworks for evaluating outcomes when, as it increasingly does, care crosses organizational or practice boundaries.
• Patience

Comparative data must be collected centrally or at least in accordance with a standardized design. That would be simpler with a single-payer plan, but certainly feasible in a multi-option universal system.

Beyond that, it seems to me that most of the advantages are with alternatives to a single centralized system. There's economic incentive and local involvement on scales that don't exist for Medicare, much less the entire US population.

And what does this have to do with single-payer?

The most politically compelling rationale for single-payer is that it would instantly provide a large savings in administrative expense. It quite likely would. But where would we go from there? Nothing I have personally seen or read gives me confidence that a large centralized system would be capable of effectively dealing with variations in care. In my experience with New York's Medicaid program and with the exception of some legislators and local officials, there has been nothing but resistance from government officials. Perhaps that's biased my view of the potential, but let's remember that New York is one of the states that is most intrusive into medical care and certainly, given the cost of its Medicaid program, it would seem that there should be an adequate incentive. For government agencies this requires too much subtlety and long-term commitment.

What's required is a system that includes a significant incentive such as economic competition for example. And it requires lots of people working on it in different organizations with different perspectives. That's where innovation comes from. Innovation slows when you have to ask for governmental permission.

It may also require the ability to be selective in ways that government agencies just can't be. I'm reminded of the multi-decade stalemate over Medicaid physician fees in New York. The state had stopped updating the fees in the same manner that it updated institutional rates. So here's what happened. First, physicians dropped out of the Medicaid program at increasingly rapid rates until there only a few left and many of them were practicing in the so-called Medicaid mills. Second, the patients recognizing reality rather than what the law said about what Medicaid covered moved to emergency rooms and hospital outpatient departments for care because there was no alternative. Third, the hospitals paid political attention to the regulators and the physicians largely did not.  When the state finally recognized the imbalance it had created, it was unable to fix it because to raise physician fees would have been to reward the Medicaid "mills." The log jam was only broken with the large scale use of Medicaid managed care which brought physicians back into contact with Medicaid clients by way of intermediary health plans. As a result primary care access has significantly improved for Medicaid clients. Docs may hate the health plans, but at least there's a working relationship. That was long past for Medicaid.

You need an ongoing, permanent economic incentive, local working relationships (which admittedly some of the national health plans may be fairly weak on) and the ability to work with medical professionals targeting local patterns everywhere. I just don't see the Federal government doing that. Certainly if it attempted to, much of the administrative savings would be lost.

If, as Fisher argues, 30 percent of Medicare expenditures for service today produce no medical benefit, then it is likely to become worse as medicine becomes more complex and involves more with each patient. Ignoring that for the cheap win of killing off the health insurers would leave us with no where to go and relying on the Federal government to find a new direction.

 

 

In my father's day ...

... Conservatives and Republicans were about accepting responsibility. Now except for working stiffs and the poor, most of that credo is by the wayside. He would been appalled.

Well, if you can't get it right the first time ...

From the CMS OIG, without comment:

This inspection found that 20 percent of sequences of three or more consecutive Medicare inpatient stays were associated with quality of care problems and or unnecessary fragmentation of healthcare services across multiple inpatient stays.

Quality of care problems were defined as patient care that did not meet professionally recognized standards, medical errors, or accidents. Unnecessary fragmentation of services involved cases in which care provided across sequences of multiple inpatient stays may have been necessary and appropriate but should have been consolidated to fewer stays.  Medicare paid an estimated $267 million for these sequences of stays in fiscal year 2002. This inspection also found that 10 percent of individual stays within consecutive inpatient stay sequences were associated with poor quality of patient care. OIG recommended that CMS direct quality improvement organizations and fiscal intermediaries, as appropriate, to monitor the quality, medical necessity, and appropriateness of inpatient services provided within this types of sequences of consecutive Medicare inpatient stays that we included in our review. 

CMS concurred with OIG's case findings but stated that periodic reviews are sequences of consecutive inpatient stays are not warranted.

Here's the full report (PDF).

State based universal coverage?

Neil asks: "couldn't US single-payer be a state-based model, like Canada?"

Assuming that, like the Canadian system, there were a minimum Federal standard, it's certainly possible. Here are some of the issues that we'd likely have to deal with:

• What would be the states' financial obligations and to what degree would that lead to poorer or less healthy states' offfering much more restrictive benefit packages.
• How would we handle interstate movement? Would we have to dis-enroll and re-enroll? How would we handle families with multi-state legal residences? If we were using some form of voucher program, this would likely be even worse because different states might authorize different health plans.
• How tolerant would we be of the extra complexity? In contrast to our 50 states and a few other jurisdictions, Canada has 13 provinces and territories.
• Are the risk pools in smaller states smaller than we'd like? Canada seems to do OK, but I don't know how they deal with this or if they equalize the load in any fashion.

And Neil's question raises more questions to which I don't have the answer (yet). They include:

• How does Canada handle its territories, especially those with very small populations? The Yukon barely has 30,000 people. Nunavut has less than that.
• How do they handle interstate movement?
• What are the provincial financial obligations?

As noted earlier, this assumes there were a minimum Federal standard. If there weren't, you'd run into all kinds of extra problems, especially serving as a magnet for high cost patients. Over the past few years, there have been several states that have considered some form of state-only single-payer system. Vermont and California are considering them now. It strikes me as asking for trouble, but perhaps, if it relieved employers of the financial burden of paying for health benefits it would also be a form of economic development. Hmmm. That's actually worth analyzing.

OK, now that I've done the analytical thing ...

I listed some arguments against a single-payer form of universal health coverage. Now let let's get a bit more pointed.

For the life of me I can't understand the disconnect when my liberal/progressive friends support single-payer without so much as a discussion, describe it as Medicare for everyone and then turn around and aggressively attack Republicans and a handful of Democrats for the Medicare pharmaceutical benefit.

With a single-payer plan, this is going to be their full time occupation, because it's all going to be controlled in Washington.

Don't these folks understand that Bill Frist and Tom Delay and their successors will control all of our health care? Are they out of their minds?

That's at the policy level. Operationally, when I have a problem I'm going to call one of thousands of Federal employees or contractors and they are going to have no flexibility and I'm going to have no option.

I just don't get it.

Even more web chatter on universal coverage

Hmmm. There seems to be a recurring theme here. Perhaps folks think GW Bush will pull a Richard Nixon and support universal health insurance. That's why so many are talking about this issue now. Sure. Right.

The buzz started in April. And then there was more last month. And now for another round ...

Kevin Drum of Washington Monthly summarizes Ezekiel Emanuel and Victor R. Fuchs proposal for a universal health care voucher. You'll find the full proposal here in Solved!.

Emanuel then does a series at the Monthly:

• Why Keep Insurance Companies?
• Why Single Payer Won't Work
• Why Single Payer Won't Work, Part 2
• Bashing Health Plans
• Why Universal Healthcare Vouchers?
• Answers to Some of the Questions in the Comments

And then back to Drum in what he calls the Healthcare Cage Match followed by Emanuel's response in Insurance Companies. And back again to Drum in Healthcare and Big Business. And Emanuel responds Big Business and Healthcare.

For those who haven't watched this struggle until recently, Emanuel offers a very brief history of national proposals for universal coverage and what happened to them.

In the midst of the Drum/Emanuel discussion, Phil Glastris points to the Veteran's Administration healthcare program here and Emanuel responds here on whether the VA is a compelling model. Speaking of analogies, Emanuel then points out that his and Fuchs plan is more like the plan enjoyed by members of Congress.

Care in the VA system is much improved and we've talked about the VA comparison before. In my judgment, the apparent quality today is not an adequate argument for single-payer. Here's why.

Five years ago while running for President, Bill Bradley made health care and health care coverage a centerpiece of his campaign. The plan he proposed was based on the Federal Employee Health Benefit Plan and his argument was "if it's good enough for your Congressman, it should be good enough for you. Clearly Gore ran a better political campaign, but the gist of his argument against Bradley was that someone with coverage might lose some benefits or the program was too expensive or both. Hardly the populist argument that we might expect from him today.

Gore also seemed to have over-learned the lesson from the Clinton Health Plan, not so much that it was too complex, but that it was too ambitious. He bought into the "incremental improvement" position. There was just one teensy-weensy problem with the Clinton-Gore incremental improvements: At the end of the Clinton Administration there were many more uninsured than at the beginning. Evidently, they thought rhetoric was enough.

Here's Jonathan Cohn on why he prefers a single-payer plan and specifically referring to Krugman's column yesterday.

And here's Matthew Yglesias arguing that a universal voucher plan is no more politically feasible than single payer. And then Brad Plummer follows up on Yglesias.

The argument against single-payer

We do not need a single-payer system to gain universal health coverage.

Here, I made the argument for universal health coverage. For many, the solution is a single, national, government sponsored, financed and administered program. I emphatically believe that this "single-payer" approach is not the solution, either programmatically or politically. Think of this notion as Medicare for all, or as Canada's system imported to the US (or at least Canada before last week's Court decision).

We should have universal coverage. We will never be able to eliminate many of the inefficiencies much less the inequities in today's system unless we do. Recognizing that we might also eliminate some administrative inefficiencies with a single-payer approach, I think they're worth the cost. Most important, the differences in access to care between those with coverage and those without are so large, so significant, and so tied to racial, ethnic and income disparities, that it raises ethical issues that should disturb us all.

A purely market-based approach won't get us near universal coverage, and an active role for government is essential. However, a single, government operated program won't work either. Too many needlessly take for granted that universal coverage requires a single payer system. But single payer can be separated from universal coverage by distinguishing between the financing and operations of a universal coverage program, and between gathering the necessary revenues and spending them. These functions need not all be located in one governmental organization. For example, we can and do use public money to buy private insurance.

What's wrong with the single payer proposal? I made the following arguments in the late 1990s, but haven't seen anything since that would lead me to a different perspective.

Who chooses? What choices?

Single payer systems rest on the premise that there is a uniform best health benefit plan for every individual, that public officials and organized political interests always can know what this best arrangement is, and that they uniformly will choose it. The weakness of this foundation should be argument enough against single payer.

The health care system will be even more politicized than it is today.

If the revenue of health care institutions and professionals, as well as the rules controlling the institutions and the care providers, are determined by government policies, lobbying by vested interests will be even more fierce than it is today. Key choices will be made by government, political elites and vested interests. This same political process also would determine which medical services are available, to whom and under what circumstances. In today's political environment it doesn't take much to imagine what that might be like.

Single payer systems minimize the involvement and responsibility of individuals and families

The corollary to increasing government decision making and politicization is a diminished role and voice for individuals. In a single payer system, there is no role for the average person except to consume service. Individuals have no place in choosing systems of care and financing, little leverage over institutions that directly and significantly affect their lives, and only a faint voice when dissatisfied.

Once we establish a single payer plan, we cannot easily undo it

Some reform plans can be undone. A single payer system cannot. If we choose a single payer system, we will dismantle organizations and processes such as health insurers and plans. We will not easily or quickly rebuild them if the new system fails to satisfy us.
And single payer offers no guarantees on cost and quality. Some countries that have single payer systems have had lower cost-growth than the United States. However, in order to restrain cost, single payer systems require centralized government control of health care prices and use of services--and the intrusiveness that goes with it. But our experience with heavy regulation on the state level raises questions about whether central controls really are effective.

Organizational vitality and innovation

The structure of single payer systems discourages diversity and thus discourages the robustness and resilience that typically characterize diverse systems. Organizations continually must revitalize themselves lest they become moribund and bureaucratic. Diverse systems usually are better able to adapt, innovate and survive. This is particularly so for innovations in the organization of care across provider's organizational boundaries. Moreover, because it will take Federal permission to do so, only those organizations with enough size and political clout will have a chance to innovate.

Organizational clumsiness

No single payer plan can centrally manage the formal or informal systems of care serving millions of people. No large centralized system can adequately tie together all of the diverse elements of a health care system on behalf of an individual. To do this we need organizations with motivation and means, and that operate at the local level. We can have a uniform system or we can have a system that is responsive to the needs of individuals, but we can't have both simultaneously.

Locking the systems status quo into place

A single payer system would cement into place the worst and most inefficient characteristics of our health care delivery system. It is based on a fee-for-service payment model and it relies on isolated individual institutions, agencies and professionals.

The ugly (political) facts of life

The politics of universal coverage are tough enough. Why we in the United States have never adopted a system of universal coverage is worth a separate post, but it is clear that the individualist preferences embedded in the American psyche, and our ambivalence about the appropriate role of government, play a substantial role. With this as backdrop, getting agreement that everyone should be covered is tough enough. Seeking the consensus necessary to force everyone into a centralized system will leave the problem unrelieved for decades. Even if a single payer system were ideal, we should sacrifice it in order to get even minimal coverage for those who have none.

In sum

There are other, better ways of covering everyone than to force us all into a uniform centralized system. Universal coverage does not demand a "one size fits all" solution, and single payer is not the answer.

Krugman on single-payer

Because of the New York Times new pricing policy, requiring a $50/year subscription to view columnist online, I'm going to stop linking to them. But as a parting gesture, I'll give you one last link, this one to Paul Krugman's One Nation, Uninsured. (If the link dies, blame the Times.)
 

In the column, he endorses a single-payer health plan.

Let's ignore those who believe that private medical accounts - basically tax shelters for the healthy and wealthy - can solve our health care problems through the magic of the marketplace. The intellectually serious debate is between those who believe that the government should simply provide basic health insurance for everyone and those proposing a more complex, indirect approach that preserves a central role for private health insurance companies.

He's right on that point. But we diverge on his next point:

The great advantage of universal, government-provided health insurance is lower costs.

To be more precise, what's lower is administrative costs. But that ignores where we (through insurers, Medicare, and Medicaid) spend the bulk of the money, on medical care. And it assumes that all of that care is just fine or not very expensive, or that even if it isn't the case, governmental action would take care of the problem. That's where I see things differently. We've talked here extensively about unnecessary care and I just don't have a lot of confidence in a single centralized system's ability to find the Mama Bear solution, not too much, not too little, but just right.

Krugman goes on:

Some people, not all of them right-wingers, fear that a single-payer system would hurt innovation. But the main reason these proposals give private insurers a big role is the belief that the insurers must be appeased...

But I think that's the wrong lesson. The Clinton plan actually preserved a big role for private insurers; the industry attacked it all the same. And the plan's complexity, which was largely a result of attempts to placate interest groups, made it hard to sell to the public. So I would argue that good economics is also good politics: reformers will do best with a straightforward single-payer plan, which offers maximum savings and, unlike the Clinton plan, can easily be explained.

Actually much of the Clinton plan's complexity was based on the the need to guarantee that the cost of the program would be within certain budget constraints (boy, those were the good old days, weren't they?).

No question about it, we need to demand more of health insurers. Alternative plans would afford us the means to box them in and we should do just that.

I agree with Krugman with much and particularly that " We need to do this one right. If reform fails again, we'll be on the way to a radically unequal society, in which all but the most affluent Americans face the constant risk of financial ruin and even premature death because they can't pay their medical bills." But I think we can do a better job both programmatically and politically and do so without rolling the dice on a one-size fits all, single-payer solution.

Risk segregation

A couple of years ago in an effort to lure more health insurers back into its market, New Hampshire allowed its insurers to establish premium levels based on subscriber risk, i.e., age, health status, etc.

Here's the Concord Monitor on what happened and why New Hampshire has just reversed direction:

Before SB 110 took effect, the state operated on a "community rating"system that forbade insurers from rejecting an applicant for health reasons or from basing rates on health status or geography. Once community rating ended, insurers began returning to New Hampshire, just as supporters of the change predicted. They came, however, to cherry-pick, signing up the healthy while using exorbitant quotes to drive away those most likely to need care.

Prices dropped considerably for a small group of employers, primarily those with young and healthy workforces that lived in an area where health-care costs were relatively low. But, according to the state's insurance department, 80 percent of the state's small businesses saw increases, and the rates for nearly half rose by 30 percent or more in one year. Some saw rates rise by 80 percent.

Is there any reason to believe that health savings accounts won't have the same effects?

 

Private long term care insurance failing?

So it seems that private long term care insurance is running into trouble.

"Insurers have not hit on the right business model yet in order to help people deal" with long term care needs.

And they're not going to. And, they're certainly not going to solve a Medicaid problem.

If I've told you once, I've told you a thousand times, forget about it. It's a niche product at best and it's certainly not going to fulfill any legislator's fantasy that it will make a dent in Medicaid expenditures.

Before the commission has even held a meeting

So while we're waiting for New York's closure commission to tell us which hospitals and nursing home should close, time marches on. We've just posted on one hospital closing (St. Mary's in Brooklyn).

And now here's another, the Hospital in Sydney on the brink. But what's with the former CEO who had his medical license revoked?

And here's another (gasp) one that would close (Westchester County) except that it looks like the State will bail it out. Note the outstanding debt at Westchester County ($750 million) while it continues to lose money. If it were to fail, the County itself would be on the hook for a big chunk of that debt.

How about a little over/under pool? The Rochester Democrat & Chronicle can't wait for the Commission to get started. Maybe we should keep score while the Commission meets.

Rattling the Canadian system

We can't let the day pass without noting the court decision in the Canadian Province of Quebec overruling the state monopoly on health insurance. For now, the ruling apparently applies only to that Province, but it's caused an immense stir. There's lots of coverage:

• ABC: Canada Court Nixes Health Insurance Ban
• Boston Globe: Court ruling expected to change Canada's health care system
• The London Free Press: Provincial government in Alberta applauds the decision
• Another story regarding the reaction in Alberta from Canada.com
• Bloomberg: Canadian Court paves way for private health insurance

Will this make it harder for the single-payer advocates to point toward Canada? More later.

Why might coverage loss accelerate ... and what then?

In my last post, regarding the loss of coverage and uncompensated care, I mentioned:

As premiums rise - especially in relation to income or other economic resources - coverage falls.

The past decade at least, I've been convinced that this is the primary underlying cause of health insurance loss. Call it what you may, dress it up as much as you like, blame employers or public policy makers, coverage has simply gotten too expensive relative to the economic resources that pays for it. All you have to do is note that health care costs and therefore health coverage costs (both public and private) have been rising consistently faster than economy overall and thus the rest of the economy.

Think in terms of a ratio of coverage costs to other economic resources. Regardless of the specific measures you use, the more that ratio rises, the more people will drop out or be dropped out of the insurance system.

And as that ratio begins to cut at higher and higher income levels, it will affect an increasing proportions of the population. I don't know where the inflection point on the upslope (the left side of the peak) is in this graphic, but until we reach it, each increase in that ratio will affect an accelerating number of people. Then the rate of increase will fall, but the numbers of newly uninsured will continue to increase until we hit the peak.

Think of the Cutting Edge "Coverage Blades" in the graphic moving to the right and slicing off increasing numbers of currently insured.

Of course, when we do hit the peak, we will be deep into the middle class - being uninsured. At some point just to the left of the peak, I expect we will arrive at the political crisis and deal with the issue.

But, like earthquakes in California, while we know this crisis is coming, we don't know exactly when.

 

Care and creation of the uninsured

Lots going on, but only limited time to post. But there are a couple of things that shouldn't wait.

Families USA released a study by Ken Thorpe on the costs of caring for the uninsured that are embedded in health insurance premiums. Here's the press release. Here are the key findings for families and individuals in 2005:

• Health insurance premiums for families who have insurance through their private employers, on average, are $922 higher in 2005 due to the cost of health care for the uninsured that is not paid for by the uninsured themselves for by other sources of reimbursement. In six states, health insurance premiums for families are at least $1,500 higher due to the unreimbursed cost of health care for the uninsured in 2005. These states are New Mexico ($1,875); West Virginia ($1,796); Oklahoma ($1,781); Montana ($1,578); Texas ($1,551); and Arkansas ($1,514).

•  Health insurance premiums for individuals who have insurance through their private employers, on average, are $341 higher in 2005 due to the cost of health care for the uninsured that is not paid for by the uninsured themselves for by other sources of reimbursement. In eight states, health insurance premiums for families are at least $500 higher due to the unreimbursed cost of health care for the uninsured in 2005. These states are New Mexico ($726); Oklahoma ($680); West Virginia ($660); Montana ($594); Alaska ($565); Arkansas ($560); Idaho ($551); and Texas ($550).

Here's the study, Paying a Premium: the Added Cost of Paying for the Uninsured (PDF). It includes state-by-state estimates for all states and projections for 2010 as well.

An extremely important, but usually ignored aspect of this issue is that "the worse it gets, the worse it gets." That's part of the reason the proportion of uninsured is rising.

As more uncompensated care is provided it is subsidized either informally through price increase based cost-shifting or formally through such mechanisms are state indigent care pools, the costs of which are borne by health insurers and/or employers. Of course, as that happens, premiums rise. As premiums rise - especially in relation to income or other economic resources - coverage falls. That in turn, creates more uncompensated care ... take a look at the Self-Reinforcing Coverage Loop - a vicious circle. Insurer/employer based subsidy programs are thus inherently self-defeating.

Virginia creates information tech task force

Virginia Governor Mark Warner has appointed 33 people his recently created Governor's Task Force on Information Technology in Health Care. The Task Force was created in January and an initial report is scheduled for late this year. The Task Force is to evaluate:

• The use of electronic health records
• Additional data collection systems
• Other technologies to improve Virginia's health information structures
• How to ensure that patient privacy and security of health information is maintained.

Only a few of the Task Force members are State officials, the Health Department's CIO (a physician by the way who is also the Deputy Commissioner for Public Health), the head of Medicaid, the Commissioner of Mental Health, Mental Retardation, and Substance Abuse Services, the State's Secretary of Technology, and a member of the House of Delegates.

Hospital price deregulation worked ... in the short term ... for some ...

Jack Zwanziger, a health economist formerly at the University at Rochester and now at the School of Public Health at the University of Illinois at Chicago and Cathleen Mooney a researcher in the Department of Community and Preventive Medicine at the University at Rochester conclude in the latest Inquiry that, with some caveats and at least in the short term, hospital price deregulation led to price reductions for managed care plans in New York. Here's the abstract of their article, "Has Competition Lowered Hospital Prices" (subscription required):

On Jan. 1, 1997, New York ended its regulation of hospital prices with the intent of using competitive markets to control prices and increase efficiency. This paper uses data that come from annual reports filed by all health maintenance organizations (HMOs) operating in New York and include payments to and usage in the major hospitals in an HMO's network. We estimate the relationship between implied prices and hospital, plan, and market characteristics. The models show that after 1997, hospitals in more competitive markets paid less. Partially offsetting these price reductions were price increases associated with hospital mergers that reduced the competitiveness of the local market. Hospital deregulation was successful, at least in the short run, in using price competition to reduce hospital payments; it is unclear whether this success will be undermined by the structural changes taking place in the hospital industry.

For background, here's what we did in New York. And here's a summary of what we (at least some of us) thought was and was not accomplished.

Zwanziger and Mooney conclude that:

However, the key finding is the confirmation of a change in the pattern of prices negotiated between HMOs and hospitals after implementation of HCRA. Mean case-mix adjusted prices declined during this period, and the multivariate regression results showed that this decline in the average prices was related to decreases in prices paid to hospitals located in more competitive markets.

Actually the first real hint was a couple of years ago when Ken Raske, head of the Greater New York Hospital Association called for re-regulation. Why would he have wanted that? The same reason he didn't really want de-regulation, what economists call "regulatory capture," the effective control of regulatory policy by the regulated industry. But nobody bought that idea.

Zwanziger and Mooney also conclude that:

An increase in hospital costs tended to be reflected in the price it negotiated, but with an elasticity that was substantially less than 1; thus some of the cost increase was absorbed either by other payers or by the hospital in reduced profits. Similarly, an increase in the proportion of a hospital's patients insured by Medicaid was associated with an increase in prices. (Emphasis added.) Hospitals that became more heavily dependent on an HMO tended to agree to deeper price concessions.

Little acknowledged and discussed even less is the fact that New York did not change its method of calculating Medicaid prices when it deregulated private sector prices. However, its policies of using a variety of methods to shore up hospital finances have likely led to a reverse of the typical pattern, that of private payers cross-subsidizing Medicaid patients. In New York's case, the contrary appears to be true. Certainly there's been talk the past couple of years that Medicaid has become the "best payer" in New York.

The authors also document:

... this market change also induced hospitals to discover means of reducing their vulnerability to the pressures of price-based competitive markets.

It appears that the enactment of HCRA led many hospitals to become members of systems that included potential competitors. The resulting series of mergers has led to major structural changes in many hospital markets across the state with a concomitant decrease in the competitiveness of many hospital markets. The results of this study provide a preliminary indication that though HCRA may have increased price competition in the short term, in the longer term, the resulting increase in hospital concentration may have counteracted the observed effect on hospital prices.

So hospitals have reduced price competition by merging into systems. And now they've set up the State to further reduce price competition by forcing hospital closures. Nobody bought Raske's idea to re-regulate prices, but they did buy his proposal for the State to reduce competition. Different method. Likely to have the same effect.

 

 

 

The future happens anyway

So New York's hospital closure commission is getting underway.

In the meantime, hospitals are closing anyway. The latest is St. Mary's in Brooklyn. Of particular note in this Newsday story is the following quote:

Particularly frustrating, said some residents, is that they probably will be rerouted to nearby hospitals such as Interfaith Medical Center in Bedford-Stuyvesant, with poorer performance records than St. Mary's

Interfaith is the result of a State supported merger of hospitals the State was already shoring up. One of them, Brooklyn-Jewish, was the very first in a long line of hospitals that New York threw money and political capital at when they ran into financial trouble. That became institutionalized policy with an elaborate infrastructure and organizational bias.

When I asked her how many hospitals the commission would likely recommend closing, a colleague grinned wickedly and said: Oh, five or ten would have closed anyway. So that's what they'll propose and then ... take credit for their closure.

Do they get to take credit for St. Mary's?

National health information network

A while back HHS released a RFI on health care interoperability. Here's a summary of the responses (PDF).

And there's more to come. HHS Secretary Mike Leavitt announced plans for development of a national health information network and creation of a federal advisory commission on standards for health care information technology. Leavitt will select up to 17 members to the commission, known as the American Health Information Community, and personally serve as its chairman. That's a nice symbol. The commission will focus on developing interconnectivity standards for health care IT.

HHS on Tuesday will issue requests for proposals for:

• Architecture and design of a Web-based national health information network.
• Assessment of potential privacy and security problems in a national network and development of solutions.
• A prototype process for harmonizing standards so that different manufacturers' software programs, particularly electronic health records systems, can exchange data.
• Criteria to evaluate features and functionality of electronic health records, including interconnectivity.

We'll link to them when they're up.

HIPAA doesn't cover employees?

What kind of lawyerly logic supports this decision? (Alternative link.)

An authoritative new ruling by the Justice Department sharply limits the government's ability to prosecute people for criminal violations of the law that protects the privacy of medical records.

The criminal penalties, the department said, apply to insurers, doctors, hospitals and other providers - but not necessarily their employees or outsiders who steal personal health data.

      

No lawyers that I know or have read discussing HIPAA support such an interpretation. And it certainly undercuts the Federal government's push for electronic medical records. Strange.

One assumes that it will be reversed somewhere in the Justice Department or (one hopes) by Congress.

Confession is good for the soul

From North Dakota, we have Mark McClellan admitting:

... there exists an institutional bias in Medicaid that often keeps beneficiaries from choosing where they receive long-term care support and services.

John W. Johnson, an advocate for independent living, caught the quote and noted the bias in State policy as well.

This is a pervasive problem. 

Almost there and some good choices already

Here are some of the lucky folks who'll be getting pleading and/or threatening calls at home the next year and a half. They've been selected for New York's hospital/nursing home closure commission.

There are some excellent choices in this group and some political innovation too. A couple of the appointees are not residents of New York State. Politically risky, but suggestive of really wanting to do something.

Note that while the commission is supposed to have 18 members, there are only fifteen listed. The Governor's press release does not mention either the Speaker of the Assembly or the Senate Minority Leader. Seems they haven't made their decisions yet.

From the Governor's press release here are the appointees of the Governor, the Senate Majority Leader and the Assembly Minority Leader:

• Stephen Berger (Chair), Chairman of the Chairman of Odyssey Investment Partners (OIP), LLC, a investment firm that specializes in private corporate transactions. Mr. Berger served as Executive Director of the Port Authority of New York and New Jersey from 1985-1990.
• Leo Brideau, President and Chief Executive Officer of St. Mary's Hospital and Clinics in Milwaukee. Previously, he served as President of Strong Health Regional Network in Rochester New York
• Craig Duncan, former President and Chief Executive Officer of Northeast Health.
• Robert Gaffney, Partner in the law firm of Meyer, Souzzi, English & Klein. Mr. Gaffney after serving as a Special Agent with the Federal Bureau of Investigation, was elected to the New York State Assembly in 1985 and was elected Suffolk County Executive in 1992.
• Robert Hinckley, Vice President of Governmental and External Affairs for Capital District Physicians Health Plan. Prior to joining to Capital District Physicians Health Plan, Mr. Hinckley served as Senior Deputy Secretary to the Governor in January 2003.
• Howard Howlett, Chairman and Founding Member of the Hospital Trustees of New York State
• Darlene Kerr, Former President and Chief Executive Officer of Niagara Mohawk (NIMO). Prior to serving as President and CEO, Ms. Kerr was NIMO's Executive Vice President and Chief Operating Officer.
• Mark Kissinger, is Deputy Secretary to the Governor, and is responsible for policies and operations of the State's health and human services agencies. Mr. Kissinger joined the Governor's staff in 1999.
• Pat Lee, Chairman and CEO of International Motion Control, Inc.  Mr. Lee serves as Director of the New York Federal Reserve Bank, Buffalo Branch and the Empire State Development Corporation, Western New York Region.
• Neil Roberts, former Chief Executive Officer of United Methodist Health and Housing, the parent company of Wesley Health Care Center.
• Teresa Santiago, Chairperson of the New York Consumer Protection Board.  Previously, Ms. Santiago was the Director of Hispanic Expertí, a public relations and advertising firm specializing in the Black and Hispanic consumer markets.
• Ruben King Shaw, former Deputy Administrator/COO for the Centers for Medicare and Medicaid Services. In that capacity, he was responsible for the day-to-day direction of Medicare, Medicaid, Child Health Insurance Programs, Survey and Certification of health care facilities and other health care initiatives.
• Al Simone, President of Rochester Institute of Technology. He was named President in 1992. Prior to leading RIT, he was the President of the University of Hawaii System and Chancellor of the University Hawaii at Manoa.
• Bishop Joseph Sullivan, Vicar for Human Services and Regional Bishop for the 62 parishes of the Brooklyn West Vicariate. He has played various roles in Catholic Charities including Executive Director and Executive Vice President of the Board of Trustees. He is also Secretary to the Ordinary for Charities. In 1980, he was named Auxiliary Bishop by Pope John Paul II.
• Buford Sears, Senior Vice President and manager for health care and not-for-profit banking at Manufacturers & Traders Trust Company in Buffalo. Prior to that, he was Senior Vice President at Citizens & Southern National Bank.

Now we'll see what it takes to fill out the roster.

Hospital closure commission already in trouble?

Busy week and so I'd figured on not posting much, but we've been waiting for the announcement of those selected for New York's hospital/nursing home closure commission and the news is in ... things are breaking down politically over the commission's membership and they've already missed the deadline for appointments. How entirely unsurprising.

In today's Albany Times Union, James Odato writes in Leaders clash over hospital panel  that the Governor and the Legislature are already behind schedule in naming the membership. Pataki's list of nominees was ready last Friday, the deadline, but there's already a dispute over whether to appoint lobbyists and health care trade association representatives to the commission.

Pataki was ready to announce his appointees last Friday -- the deadline. But he and the Legislature's leaders have been struggling over the composition and on whether to allow lobbyists or stakeholders in the health care industry on the panel, according to health care officials.

"Stakeholders." What a euphemism! What a crock! Eighteen members was too limiting anyway. Why don't we just expand the membership of the commission to include the CEOs of every hospital in the State and let them vote to decide who gets thrown off the island? (Just make sure that they all have to wear some sort of garish tropical print shorts and no shirts and force them to eat bugs for a week.)

Read the article closely and what do you see? Virtually everyone quoted says "not me, not me," they don't want such representation. Does this mean they're all being disingenuous or does it mean that the real hold up is Ken Raske, head of the Greater New York Hospital Association?

• Even without the quote, "representatives of SEIU say they don't have to be on the panel," I doubt that it's Dennis Rivera, head of District 1199 (who gets bashed by the Post again here) because he doesn't need a seat at the table. His presence will loom over the entire proceedings anyway. Why only have one seat out of 18?
  
• Doesn't sound like it's Assembly Health Committee Chairman Dick Gottfried who's quoted, "An active issue is whether to appoint stakeholders or not," ... "Appointing stakeholders would be questionable at best." But it could be Assembly leadership
• It's not HANYS, which is quoted saying it "doesn't want any hospital group or worker union on the commission." and  "It would obviously be a conflict.

So it looks like Ken is the culprit, "the Greater New York Hospital Association says its organizations should be included." This was their idea from the beginning anyway.

Carl Young, the head of NYAHSA is a good guy, but his heartfelt desire reflected in the quote at the end of the article

I cling to the hope this commission can be a vehicle for much broader policy thinking, not just closing hospitals

is just asking for way to much. Sorry Carl, this has been raw politics from the beginning and it's only going to get worse.

I still doubt it

For whatever it's worth, as a follow up to a rather jaundiced view of the "emerging consensus" on health care, I tried one of our favorite tests.

Using Google News, I searched on "Uninsured health."

Got 2,860 hits. Six months ago, we got 1,900. What did you get?

More web chatter on health insurance

There's more talk among the bloggers on health insurance and universal coverage

Ezra Klein has posts here on health savings accounts (he found one he liked) here in defense of socialized medicine and a post on his side of a back and forth with Cato's Tim Lee at Bit Bucket on coverage. Here's one of the posts on Lee's side.

Lee was churning it out ... Here for example is his side of a debate with Matthew Yglesias on mandatory private insurance. And here's Yglesias's side.

And here's Lee on HSA's and here's another on the same topic. And another.

And Yglesias also posted and responded to Leif Wellington Haase, the author of the universal health care plan he criticized.

I've barely time to read them all, much less weigh in and it's going to be especially slow posting this coming week.

Strange bedfellows on health care?

The Times is still covering Washington talk of "an emerging consensus" on health care. Here's the latest, this time from Robert Pear (here's a backup link).

This effort holds as much promise as any I've participated in over the last decade, probably more," said Kate Sullivan Hare, the executive director of health care policy at the United States Chamber of Commerce

Well, I've got mixed feelings about this one. Upside? A mixed group is talking. Downside? It's all Washington groupies. I've been part of such "strange bedfellows" efforts at the state level and even brought a couple of them together myself. From time-to-time, they're effective and those are very gratifying, but they're mostly not. Personal good will and scholarly interest are not enough. And think tanks are definitely not enough. There's got to be some real grassroots juice.

Here's what such groups can do:

• Provide cover for elected officials who want to do something anyway. But that certainly doesn't apply in today's Washington
• Push elected officials to act. Works sometimes, but very, very rarely on an issue of this scope.
• Coordinate messages from disparate grassroots groups. Who knows whether that's going on here and how much heft they have.
  

So it's continued discussions are a good sign, but don't get your hopes up.

Moreover, this group is already deep into wonk-think:

People are uninsured for different reasons," said Dr. Mary E. Frank, the president of the American Academy of Family Physicians and a participant in the talks. "No one solution will work for everyone. We need different solutions for different groups of the uninsured."

With all due respect to Dr. Frank and AAFP, which has been quite good on coverage issues, one point does not follow the other. "People are uninsured for different reasons" is true, but only narrowly - within the current mixed bag system. As soon as you begin thinking like this, you've given up universality. And as soon as you begin talking like this, you've given up political ground to those who don't really care about the issue, but don't want to get burned politically and to those who are actively resistant.

Some conservatives may truthfully embrace expanded coverage but due to ideological constraints, confine themselves to limited proposals. Some may use false sympathetic rhetoric to protect themselves politically, but then say that if we fail to reach universality, well that's just unfortunate. The more important principle to them is that there is no legitimate role for government (George Bush, for example, in responding to an uninsured woman during his first Presidential campaign, saying he "wished he could wave a magic wand" but ...).

This is not the first Times article on these discussions. Steve Lohr wrote in the Times business section on December 6 of last year, "The Disparate Consensus on Health Care for All". I didn't buy the headline then which is why I didn't bother posting on it.

Lohr cited Peggy O'Kane, head of NCQA ("no one wants to touch it"), Dr. William McGuire, CEO of UnitedHealth Group (who supports mandatory insurance and focuses more on what's covered), and Dr. David Himmelstein of the Harvard Medical School, who's a single-payer advocate.

Maybe there's a consensus among "experts" (think of the folks who show up at an APHA meeting) on the need for universal coverage of some form, but there's certainly none among elected officials or the public.

The article didn't even keep up with the then current news:

The Bush administration and conservatives say the way to cover the uninsured is to make insurance affordable mainly through tax subsidies (emphasis added) for companies, especially small businesses, and encouraging them to offer high-deductible insurance plans that cost employers less. Individuals, under this approach, are encouraged to set up tax-free health savings accounts to pay for more of their own care.

Hard to make insurance affordable through tax subsidies when you're proposing eliminating tax subsidies.

The inconsistency aside, what was meant by "tax subsidies"? The answer is crucial. Is it the Bush Administration's ever ready solution to everything, tax cuts? Or were they actually talking about something akin to the Earned Income Tax Credit, a refundable credit? Such credits generate, through the tax system, a net transfer to the lowest income people, but they have increasingly been the butt of conservative criticism? (Check here and here.)

Lohr's article goes on:

Newt Gingrich, the former House speaker who is the founder of the Center for Health Transformation, a policy research group, recommends a package of federal and state tax incentives and programs that go beyond the Bush administration proposals. He estimates that his approach could result in more than 95 percent of the population's being insured. "We could radically change the current discussion about the uninsured," he said.

Well maybe. But there there are legitimate questions about the robustness of any approach that leaves a door open to seepage. Yes, there might be an increase in the number of people covered, but absent a structure that's designed to sweep everyone in (or if it's a big deal to you, every citizen), it's not only not going to happen, it's not going to get close.

But assume for the moment that Gingrich is correct. Getting to 95 percent would be a striking change. But why is it that so many Republican leaders are satisfied with that? What's wrong with 100 percent?

We can all speculate and much of our speculation would be about motivation which is always a iffy venture.

And don't get me started tonight on the single-payer proposals.

Now if the Christian Coalition was part of this "emerging consensus," that would get my attention. That would truly make for strange bedfellows.

 

Other people's money

In my too long queue of posts waiting to be finished were several that linked to Paul Krugman's column in the New York Times. As part of my effort to clean up unfinished work, but also to get the those with Krugman links up before the Times starts charging for access to their op-ed columns, here's one of them.

In, Passing the Buck Paul Krugman referenced some World Health Organization (WHO) data, and pointed to the efforts of private insurers "trying to get someone else to pay the bills," as the explanation for why we spend so much more on health care than other developed countries without appearing to get much benefit for it.

According to the World Health Organization, in the United States administrative expenses eat up about 15 percent of the money paid in premiums to private health insurance companies, but only 4 percent of the budgets of public insurance programs, which consist mainly of Medicare and Medicaid. The numbers for both public and private insurance are similar in other countries - but because we rely much more heavily than anyone else on private insurance, our total administrative costs are much higher.

Well trust me, the public sector may pay a smaller percentage, but it's not as if it isn't also trying to shift the costs elsewhere. You can read Paul Castellani's book, From Snake Pits to Cash Cows for example or talk to any number of people who've made their careers in state government by figuring out how to Medicaid (as a verb) new services in order to draw Federal funds. (Using Medicaid as a verb is insider talk and it refers to changing, sometimes distorting, program configurations primarily to draw funds.) Or talk to home care managers who are pressured by Medicaid agencies to bill Medicare first, sometimes pushing them close to the point of being charged with Medicare fraud. It's all the same system behavior, an inevitable by-product of having multiple payers.

Nevertheless, Krugman's larger point is correct.

Palm Pilot and the challenges of interoperability

Take a look here at John Faughn's Slashdot comment on the future of Palm as an indicator of the "complexity of integration" in health care. (The comment is repeated here at Faughn's own site.)

I've used a Palm Pilot for a number of years now and I use the Palm Desktop on my PC to synchronize with the handheld. It's pretty straightforward while working in isolation.

However ...

When I last worked for another company, they used Microsoft Outlook and Exchange and were pretty insistent that certain staff people publish their schedules openly so that others could know where they were and where there were schedule openings. But they did not buy PDAs for staff so we chose and purchased our own.

Synchronizing the Palm with Outlook was a horror. The process lost data or it duplicated data (imagine having to delete, one-by-one, 2,000 duplicate contacts on both the PC and the handheld). Ultimately, I printed my schedule and made copies. Pretty stupid for an IT company, right?

Now this process is dealing with relatively simple data: a contact list, calendar, task list, and notes and relatively simple processes, synchronize one device with another. Right?

Now let's step up to medical records embedded in multiple process organizations and processes. Ohhhh. Maybe that's why things are so slow. Vastly more complex data embedded in multiple vastly more complex processes.

So the next time I'm frustrated with the pace of integration, I'll open up my Palm.

Another form of "clawback"?

A colleague with great expertise in income support policies and programs told me yesterday that he had just learned that the US Department of Agriculture, which administers the Food Stamps program, will be counting the Medicare Part D pharmaceutical benefit as income to low income Food Stamps beneficiaries. More "income" means lower benefits.

He's researching it and I will too, but he's usually got this stuff nailed.

What's it mean? The more Medicare pays for drugs, the less Food Stamps you get. Worse, if true, the Food Stamp benefit will change monthly based on what Medicare spent for drugs in a prior period. Mind you, because of the way Food Stamps work, there may still be a positive net benefit. But this will be an administrative morass as well as making the lives of beneficiaries more uncertain.

The Administration giveth and the Administration taketh away.

Well, since everyone else is talking about it

Well, we've had our fun with Medicaid and Viagra. But I just know that if I don't repeat what everyone else is pointing to today that everybody will think I'm just out of it, namely that New York's State Comptroller, Alan Hevesi, has discovered that not only is Medicaid paying for Viagra and similar drugs, it's doing so for sexual offenders. There's been lots of news coverage, of course. As of this writing, there were already a few hundred links on Google News including the NY Daily News Free Viagra for Pervs, Newsday's Feds try to deny Viagra to sex offenders on Medicaid, and even the UK's Times, US government gives free Viagra to paedophiles.

Great catch, Alan. For you non-New Yorkers, he's a smart guy who, despite his properly serious public demeanor, is probably privately shaking his head on this one.

Couple of observations:

• Hevesi rather deftly tossed this issue to the Feds and they're the ones "scrambling" in most of the news coverage. I wouldn't want to be in Leavitt's office today.
• Hevesi's auditors found the problem by matching the Medicaid claims data they have with the listings of Level 3 Sex Offenders listed on the Division of Criminal Justice Services (DCJS) Sex Offender Registry. Linking Medicaid data with data from other sources is one of the things that's explicitly forbidden by the Department of Health for others who wish to use the Medicaid data.
• Apart from the taxpayer's money that's being used to pay for the drugs, how aware are the physicians who are prescribing of the backgrounds of these patients? If the physicians don't know, should they be and how might they be made aware? Physicians' first ethical obligations are to their patients. How does or should that influence the decision to prescribe in these cases? Are there any instances in which there is a medical justification for the prescription despite or even because of the patient's legal history?
• You just know that somebody is going to take this the next step and suggest that felons, or at least these felons should not be entitled to Medicaid. Let's not go there right now. Just deal with the issue at hand.

Now back to our regularly scheduled programming.

These stumbles are to be expected, but ...

Buried in this HIStalk post from CIO Ed was the following:

One provocative development in the "battle" between the Continuity of Care Record (ASTM) and EHR (HL7). Some will say that the CCR can be a stepping stone towards an EHR and there are many strengths to the CCR concept. Others say that the CCR will be divisive and distract full adoption of the EHR. Lots of pros and cons that must be seriously considered.

Competing standards organizations ... competing standards. Check this from a year ago. (I've not been immersed in this process and don't yet know what the inner dynamics or the latest stories are.)

As I understand the CCR, it's not supposed to be the entire record itself, but the essential elements that can be passed across organizational boundaries. (I'm less familiar with HL7.) Say for example, a patient was in a hospital ICU last year. Whether atoms or bits, the volume of hospital data on that patient is immense. Now say the patient is seeing a physician for a routine visit. Does the physician need all of that hospital data? Not likely. They need to know the patient was hospitalized, was in the ICU, certain essential elements and how to get more data if necessary. So the CCR concept makes sense for interoperability, moving patient-centric information across space, time, and organizational boundaries.

ASTM has been voting on the latest version of the CCR standard. There was enough dissent that they're going to continue thrashing out the issues rather than count it as an accepted standard.

Yes, these stumbles are frustrating. But they're part of a long, hard, often tedious process that is essential to make progress.

TEPR and other IT stuff

Each year, the Medical Records Institute sponsors the conference "Toward an Electronic Medical Record" (TEPR). I didn't go this year, but a couple others did.

Here, here, here and here are Matthew Holt's comments.

Ned Versel posts several news items and links here.

E-Health-Insider covered the mock trial of EHRs. Mock trial? Seems a bit desperate doesn't it?

David Brailer was supposed to be there, but canceled. Another bad sign for the conference? He's been at damn near every other related event.

HIStalk has a couple of posts on the conference starting here and here.

HIStalk also quotes an anonymous conference-goer saying along with other criticisms, 

... it's a dying conference, remnants of medical records staff trying to make way in EMR world.

The same post at HIStalk zings HIMSS Analytics too.

HIMSS Analytics releases its annual report. You can buy it for $60 or, if you want to save the money, here's the first item listed in the summary: "Underinvestment in information technology continues." Franco still dead, full story at 11.

For those of you too young to remember the early SNL bit, it translates as "duh." Funny.

Elyse has a slightly longer and less wry summary here, but the essence is the same.

Medicaid cap followup 3

The Medicaid cap is not just a financial change, it portends an operational change. This is personally symbolized by the return to government service of Brian Wing.

Brian's the former Commissioner of Social Services and then after re-organization, OTDA. He left a while back to work in the private sector.

Brian's returned and has joined the Health Department, specifically the Office of Medicaid Management and his charge is to figure out how to move the Medicaid functions currently administered by localities to the State. This is the administrative/operational change that needs to accompany the cap on local financial responsibility.

That's a change long overdue. The first policy paper I ever had published, Barriers to Medicaid Reform, emphasized the dispersion of policy and administrative responsibility for Medicaid between different State agencies and different levels of government. That was in 1976. Well, we're finally making progress.

Brian's job will not be fun and it's won't be headlines sexy. But it will be important. Best wishes and welcome back.

Medicaid cap followup 2

Newsday has been running a series on Medicaid and I'll try to do a summary later, but this article (editorial?), calling for tightened local controls misses the point of the new Medicaid cap.

But New York City and the suburban counties do have some control over the cost of nonmedical home care and transportation to treatment sites. And, especially in the city and Nassau, they must do a better job at shaving expenses

With the cap in place, such small scale efforts won't make any difference.

Not to argue against local vigilance, but even under the old rules this argument is off base. Take a look at the attached graphic. Historically the big expenses have been fee-for-service hospital inpatient care and nursing home care. Even a small percentage increase generates big expenditure increases.

But the dramatic increases have come from pharmaceuticals and other supplies and from HMO premiums for Medicaid managed care (including Family Health Plus, which will now be entirely a State funding responsibility).

Transportation? Lost in the data haze.

Non medical home care? We assume Newsday is referring to Personal Care and those costs have been growing along with other home health expenses. But this is symbolic of how diffusion of administrative responsibility has not only weakened financial controls, it's distorted program administration. Counties have had much more influence over who gets home care and how much than they've had over institutional care for identical patients. So naturally, when seeking to control expenses anywhere they could, they've limited access to institutional alternatives, directly undermining the State's policy goals and probably their own long term financial interests.

So the Newsday opinion is out-of-date because they seem not to fully understand the implications of the cap and, even if the rules hadn't changed, offbase because they would have reinforced a distortion embedded in the old system.

Medicaid cap followup 1

Rick warns counties in New York about the similarities between the new cap on their shares of Medicaid costs and the Medicare "clawback." There are a couple of differences, one mechanical and one conceptual.

The mechanical difference is that the New York law requires an annual reconciliation. That involves a calculation of what the counties would have paid under the old system. If it's less than the cap, the State is supposed to write a check to the county for the difference. The conceptual difference is that the "clawback" is intended to offset a financial side effect of legislation whose primary purpose is not about the relationship between different levels of government, in this case providing pharmaceutical coverage for Medicare beneficiaries. In contrast, New York's new Medicaid cap is entirely about changing the financial relationship between different levels of government.

Not that, in a financial pinch, New York wouldn't change the rules again but there is a difference. Rick is right though. Remain vigilant. There are many ways in which to play this system. Does anyone doubt that the Department of Health is currently cranking out rate appeals so that the payments can be made this year in order to inflate the base upon which the cap is calculated?

Our condolences

Our colleague and friend Paul Sorum's wife Christie died earlier this week. Christie was the Dean of Faculty at Union College.

Each year, Christie and Paul hosted at their home the final session of  the Capital District Medical Decision Making Group. She was an energetic, interesting and fun person to be around.

Our sympathies to Paul, their daughter and family.

Hope for slower Medicaid growth?

Why did I raise the possibility that Medicaid expenditure growth in New York might slow a bit? Take a look at the trendline. Note that while expenditures actually fell in the last quarter of 2001, the big spike began shortly afterward, after 9/11, when the eligibility standards were loosened considerably.

But note also, that that in 2004 the trendline began to flatten out a bit. There are hints of a "s-curve."

Additionally, from 2000 to 2004 the number of enrollees grew dramatically rising from 2.7 million to over 4 million. (Much of that growth was in Family Health Plus.) The rate of growth was virtually identical in New York City and the rest of the state. At some point, we should expect the pool of potential clients to be exhausted.

Mind you, for now I'd bet against the possibility. But it's worth further exploration.

This will make a difference

Unless it gets cold feet or weasels out of its promise to localities, New York has fundamentally changed both the financing structure of its Medicaid program and its budgetary and program dynamics. It's not obvious yet, but as this change takes effect, it will become increasingly important and evident. This change, a cap on the local share of Medicaid costs will:

• Provide financial relief to counties and New York City. That part is obvious.
• Change State budget dynamics by requiring that the State itself be financially responsible for an increasingly larger share of cost growth.
• Move toward aligning policy, financial, and operational responsibility for the nation's largest Medicaid program.

The cap works like this. This calendar year, 2005, will be used as a base year for Medicaid spending. In 2006, the local share will be the base year (2005) plus an increment of 3.5 percent. In 2007, the local share will increase by an additional increment of 3.25 percent for a total of the base plus 6.75 percent. In 2008, the local share will increase by an additional increment of 3.0 percent for a total of the base plus 9.75 percent or, if the locality chooses, a fixed percentage of local sales tax revenues based. Each year thereafter, the increment will be 3.0 percent. (See the attached table.) The subtlety here is that the local share increases are not compounded.

In 2008, the State will fold the local share into the State budget process and localities will simply make a payment to the State based on the formula. Localities will be engaged in a form of "reverse revenue sharing," whose only relationship to Medicaid spending will be historical.

There are also some insurance provisions for localities. If the Federal share is increased, localities will share in the savings as well as the State. In the unlikely event that Medicaid expenditures fall and the local share under today's rules would have been less than under the cap, localities will reimbursed for the difference.

While basing a financial formula on data which can still be manipulated is risky, the fundamental nature of the change is unmistakable. The local share will be fixed regardless of how quickly Medicaid costs increase.

Since its inception, New York has required its "local social services districts," counties and New York City to share in the program costs of Medicaid. Only North Carolina has had a similar financing structure and now having seen the change in New York, there's talk of change there too. For most services, the local districts pay half of the non-Federal share of the costs. There are exceptions, especially for the costs of long term care, so local governments now pay over $7 billion per year toward the costs of Medicaid while having very little influence on the program's cost.

For State policy makers this financing arrangement has meant that it was easier to spend and politically harder to restrain program cost growth. After all, when taking the Federal and local shares into account, the State budget only had to come up with about a third of the actual costs.

But now this will change. Let's start with next year.

Assume base year local expenses of just over $7.2 billion, about 20 percent of the total. Also assume an overall growth rate of 6.62 percent. It's a relatively modest rate, but it's the same as the overall growth rate from 2003 to 2004. On a calendar year basis, the State will be responsible for over $225 million in 2006 that it otherwise would have left in the laps of local officials. If growth continues at that 6.62 percent, the State assumes responsibility for an additional:

• $500 million in 2007
• $828 million in 2008
• $1.2 billion in 2009
• $1.6 billion in 2010

If the growth rate is eight percent, the State picks up responsibility for an additional:

• $330 million in 2006
• $725 million in 2007
• $1.2 billion in 2008
• $1.7 billion in 2009
• $2.3 billion in 2010

Those figures are on top of the increase what would have been the State's share under the old system. This is a prescription for increasing financial pressure.

Now it's possible that Medicaid cost growth will slow naturally in the next few years. I'll return to that in another post. But clearly the State will be hard pressed to allow rapid growth.

And even more clearly, in New York the cost to the State of Medicaid growth has just gotten much more expensive.