1. THE “OWNERSHIP SOCIETY” VERSUS THE VILLAGE: THEMES FOR 2008

Although President Bush will not be a candidate for re-election in the 2008 presidential election, he has already set the Republican domestic agenda for that campaign.  Hillary Clinton may or may not be a candidate for president in the 2008 elections, but she has already set the tone for Democrats.  President Bush’s call for what he has labeled an “ownership society” will be intensely debated over the remaining three years of his presidency.  But barring an unprecedented sweep by Republicans in the 2006 off-year Congressional elections, the current balance of power in the Congress, is just enough to keep the president’s plans, to allow individuals to establish private Social Security accounts and to move Medicare beneficiaries into private health savings accounts, from being enacted.  Senator Hillary Clinton has staked out the Democratic opposition, rather than finding individual solutions to the nation’s social policy needs, her best seller, “It Takes a Village,” is fast becoming the Democratic playbook.  The showdown looms for 2008.

Whether the 2008 Republican candidate is Florida Gov. Jeb Bush, Senate Majority Leader Bill Frist, the maverick Arizona Sen. John McCain or someone not yet on the horizon, Republicans will have a hard time moving away from the clarion call issued by the president for an “ownership society.” And why would they want to?  Making everyone in America a stock-holding capitalist would seem to be a Republican dream come true.  People who own stocks traditionally have voted overwhelmingly Republican.

But they have some roadblocks to overcome.  The nation has spent itself into a bind with annual budget deficits extending beyond the horizon.  Without raising taxes, there is simply not sufficient funds to maintain many if not most existing domestic programs without dramatic cut backs. Many suggest that this was exactly the plan for many of the neocons all along, to spend the nation into near bankruptcy where it would have no choice but put an end to many of its most cherished social programs, including Medicare and Social Security.  But perhaps we shouldn’t be that cynical, although its is tempting.  These programs needed reform even before the tax cuts of 2001, 2002 and 2004.  But is privatization the best solution? 

Privately-Owned Healthcare

Should Americans purchase healthcare much as they do groceries or automobiles -- on their own, without any interference by government or employers? This concept, tossed around for years, goes roughly like this: Because people have unique healthcare needs, they should be free to buy insurance policies tailored for themselves. Consumers should also pay more out of pocket, so they would be motivated to do research and get the best deal for health services, which would help drive down prices.

The Bush concept of an “ownership society” applied to healthcare has taken the form of high-deductible "catastrophic" insurance policies, with consumers paying out of pocket -- with tax-free savings -- for keeping expenses under the deductible. The idea is shopworn and will do nothing to reduce overall healthcare costs, but rather will line the pockets of the healthy and wealthy, much as the earlier Bush tax cuts have done – at the expense of America’s middle class.  Further, the idea that people can make purchase decisions for healthcare the same as they buy frankfurters or Fords, just make sense.  That’s not how it’s done or how healthcare decisions are made.

Congress has already laid the keystone to the president's "consumer-directed" healthcare plan: health savings accounts, which are tax-exempt accounts similar to 401(k) plans in which people can deposit up to $5,150 a year before taxes. There is a built-in unfairness in these accounts, in that only a minority of taxpayers are wealthy enough to profit from the full tax savings. There is also danger in making people decide between their savings and their health, because deferred healthcare is more costly than prevention. How would patients balance the price and quality of chemotherapy?

Among the problems with the president's plan is that though the change would free consumers to purchase health coverage individually, it could also deprive them of the collective clout that helps employers, unions and other large groups score deep discounts in the medical economy. The administration has yet to explain how it would compensate for -- or retain -- group bargaining power. 

And for the healthcare industry as a whole, these HSA’s will add enormously to the administrative overhead. They will drive much of healthcare back to the pen and pencil days, imposing a tremendous administrative burden on providers, many of whom have spent tens of thousands of dollars on paperless billing systems which won’t be of much help with individual accounts requiring individual billing, follow-up and collection from patients and their families. I would be remiss if I didn’t refer to this as the “collection agency full employment act.”

Mr. Bush's ownership society may offer increased individual choice and responsibility as an answer to the financial needs of the modern age, but with increased freedom comes increased risk.  And therein that's lies the rub of the debate over Bush's programs. What's the proper role of Washington in ensuring the security of US citizens? How much should Americans simply depend on themselves?  Is every man an island unto himself? Or do we owe obligations one to another to assure a fairer society that benefits all and not just a more fortunate few?

So it is that the 2008 Democratic presidential candidate, be that Sen. Hillary Clinton herself, John Kerry running again, John Edwards coming back, or someone not yet on the boards, will have to counter the intuitive appeal of, “I can make it on my own.” One thing is certain, they have to come up with their own alternatives.  While Democrats would love to just sit back and let Republicans take the heat with their proposals to upend the traditional Medicare and Social Security systems, they have to recognize that the status quo is no longer working. Democrats need to be building a bigger and more vibrant village but so far the Democratic village seems to be on hiatus.  Their silence is beginning to rumble and if they expect to counter the intuitive appeal of “private ownership,” even with all its drawbacks, they have to begin offering real solutions for the very real problems our healthcare system is facing.  After all, 2008 is just around the corner

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Bait and Switch: Privatized Medicare at Work 

Bait-and-switch is time-honored marketing scam wherein potential customers are lured into purchasing goods or services which appear to be very good bargains but where the purchasers end up not getting what was promised.  The Bush Administration’s drive to privatize America’s Medicare program is a classic example of just such a bait-and-switch scam.

President Bush has built his plan around the argument that the government can’t do anything right, see the Post Office.  The theory is that the private sector, with open competition among players, will always deliver higher quality, lower-cost care than the government. Competition, it is argued, will hold costs down while the various providers innovate and compete for market share over both price and quality. But if the free-market in healthcare is so good at delivering cheap high-quality care, why is the Bush Administration priming its pump with lavish subsidies and extra payments? Is the consumer – the Medicare beneficiary – being lured into privatized coverages by promises too good to be true in the long run? What happens when the subsidies are phased out, as the Medicare Modernization Act passed in 2003 requires?

How the Medicare Advantage System Works

Already over 20% of America’s seniors have taken the bait and enrolled in private Medicare Advantage (“MA”) plan, many of them privatized fee-for-service plans, that are receiving federal payment subsidies averaging 12% but with some of the plans getting “bonus” payments upwards of 20 percent.  The idea is that the extra money will be used to create a competitive marketplace for Medicare services, with MA plans competing among themselves and with traditional Medicare over benefits, deductibles and co-pays. The higher payments to MA plans was felt necessary in order to “guarantee” a profit to the private plans, and encouraging them to offer coverages in rural and less-profitable areas.  According to the Medicare Modernization Act, eventually these “bonus” payments are to be phased out and replaced by a system of county-by-county “benchmarks” based upon actual costs and benefits. Beneficiaries, choosing plans which cost more than their benchmark, would have to pay the difference out of their own pockets.  Lower to moderate income Medicare beneficiaries would be forced to choose among the lower cost and most limited plans. Ironically, because of the impact of this “bait-and-switch” mechanism, the only people who will be able to afford traditional Medicare would be the wealthy.

Under Medicare Advantage, seniors often pay lower out-of-pocket costs than they would in traditional Medicare. They also may get coverage for items like eyeglasses and routine dental care that traditional Medicare doesn't pay for. However, most Medicare Advantage have limited networks of doctors and members have to pay more out-of-pocket if they go out of network.  There's another tradeoff: a higher bill for Uncle Sam. Congressional Budget Office economists estimate the average person in Medicare Advantage will cost the government $8,691 in 2007. If the same person stayed in regular Medicare the government would spend only $7,617, saving $1,074 per beneficiary, an estimated $54 billion over the next five years. Ouch!

A Few Cracks in the Plan 

Already a few cracks have started to surface in the well-laid scheme, with accusations of marketing fraud cropping up in markets across the country. The Oklahoma State Insurance Commissioner ordered health insurer Humana to take corrective action against the use of improper sales practices to enroll Medicare beneficiaries in plans offered by the company.  The Oklahoma situation is but one of literally thousands of situations festering over the issue of abusive selling tactics for Medicare Advantage and private Medicare fee-for-service plans.  The U.S. Senate Special Committee on Aging is on the prowl and has sent its investigators out to get the dirt.  Senate investigators released to Congress interviews and documents that indicate sales agents in at least 39 states have used unethical or illegal practices. Such practices have included the enrollment of dead or mentally incompetent Medicare beneficiaries, the impersonation of Medicare representatives and the use of personal information stolen from federal records, according to Senate investigators. In addition, Senate investigators have found that improper sales practices inspired by insurers offering high commissions have drawn civil and criminal cases, damaging the credibility of a program that many Republicans have cited as a model for revamping the Medicare system.

In Oklahoma, the state found that Humana agents in some cases enrolled Medicare beneficiaries in comprehensive Medicare Advantage plans, rather than the stand-alone prescription drug plans that they sought, and in others used "bait-and-switch tactics to secure the initial invitation" into the homes of beneficiaries. In some cases, Medicare beneficiaries who enrolled in Humana plans experienced confusion because they had dementia or other mental impairments. Humana investigated a number of complaints about the sales practices used by agents, but in many cases "the investigation was conducted more to mitigate, justify and defend the actions of the agent and the company," rather than to help Medicare beneficiaries, Oklahoma found. The report also found:  Humana paid agents $250 in commission for each Medicare Advantage plan sold, five times the commission for the sale of each stand-alone prescription drug

And now Congress is struggling with ways to finance expansion in needed health care programs, especially the S-CHIP program to expand coverage to America’s children. In the zero sum world of “pay-as-you-go” the new Democrat majority is taking a long hard look at these MA subsidies. The subsidies will cost the U.S. taxpayer and Medicare beneficiaries, whose monthly premiums are roughly $2 higher to help pay for the MA subsidies, $54 billion over the next five years.  The subsidies also erode the long-term solvency of Medicare, which needs to rein in costs, not increase them with handouts to insurance companies. Democrats are looking for $50 billion over the same 5-year period to protect and expand the health insurance for low-income children, you do the math.

Congress ought to eliminate the subsidies completely unless it is willing to subsidize the same benefits — at enormous cost — for the far greater number of people enrolled in standard Medicare. It is time to level the playing field and force private plans to really compete with traditional Medicare.

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Privatizing Social Security: Can Medicare Be Far Behind?

I can’t help but wonder how many people, particularly America’s seniors, who voted in the 2004 election for George W. Bush, realized they were voting to privatize Social Security?  Rarely mentioned during the campaign and never once suggested during the debates or public forums, George Bush wasted no time in announcing on November 5, 2004, just three days after his narrow election victory over John Kerry, his plans to privatize the nation’s most fundamental social program, the Old Age and Survivors’ Benefit program, Social Security, on the books since 1936.

While still skimpy in unveiling the details, the president’s minions in Congress are preparing to introduce enabling legislation by the end of January, putting their plans on an accelerated legislative schedule to minimize the time for public opposition and hurry enactment during the first 90 to 120 days of the new 109^th Congress.  With strong conservative Republican majorities in both Houses, the handful of moderate Republicans and Democrats can do little to stop the juggernaut.  By moving quickly, proponents of privatization hope to have the change a fait accompli before any effective opposition can be formed.  Watch for millions of dollars to be spent, some of it our own tax money ostensibly required as part of “consumer education,” on a public relations campaign stampeding the nation into a change.

Basically what the president is proposing for Social Security is to allow individuals to set aside a portion of their current Social Security “contributions” (read: “taxes”) into private investment accounts untouched and untouchable until the beneficiary reaches the age of Social Security eligibility.  [Note: Accompanying the privatization proposal are additional amendments raising the age of eligibility for both Social Security and Medicare to 70 and then to 72 for individuals under the age of 50 today.]

The problem with the private investment account option, as opponents see it, is two-fold.  The transition will be enormously expensive and there is no guarantee that these new accounts will actually increase the level of “national savings,” the cumulative amount that is left after counting up everything the nation spends. This pool of money goes to investing in the expansion and modernization of business. It is a vital component of the nation’s economic health. 

The transition costs, assuming no reductions or cost-of-living cut-backs in the current Social Security system, are conservatively estimated to be at least $2 trillion (yes TRILLION!) over the first ten years and perhaps another $1 trillion or so over the next 5 years, before any savings might be realized.  These transition costs result from the sad fact that the so-called Social Security “trust funds” don’t really exist and that current FICA tax revenues are being used to make payments to current beneficiaries.  If these taxes actually went into private accounts for future beneficiaries, there will be a transitional shortfall in payments to current beneficiaries that would have to be made up from general tax revenues: at least $2-3 trillion over the next generation.  With a federal budget deficit already growing at record levels and predicted to reach $10-12 trillion by 2012, the first year Baby-Boomers reach age 66 and become eligible for Social Security, the national debt goes off the scale -- $14-15 trillion!. 

But what about the future savings?  Even those may be illusory say critics.  If “national savings” remains unchanged and if we simply finance the increased benefits by robbing Peter to pay Paul, by borrowing the $2-3 trillion transition costs, we will have exacerbated the nation’s economic woes.  If people see their private Social Security accounts as their “savings” and do nothing to curtail their other growing indebtedness and nothing to rein in the national debt, we are in trouble.  If the foreign governments who own our debt, including our largest debt-holder China, decide to call in their notes, Katie bar the door.

And we haven’t even gotten to the issue of Medicare.

Back in November of 2003, when the new and improved Medicare with prescription drugs was being approved by the 108^th Congress, only a last minute threatened filibuster by the Democrats kept the new law from setting Medicare on its own privatization slippery slope. The House version of the law contained a provision that would have established regional “benchmarks” for Medicare payments based upon the costs of care on a county-by-county basis.  In effect, future beneficiaries could choose from any of a wide selection of newly-established “Medicare plans” offering different benefits and coverages, but if the costs of that plan exceeded the regional “benchmark,” the beneficiary would have to make up the difference out of his or her own pocket.  Ironically, given its costs, traditional fee-for-service Medicare would quickly become the most expensive plan, pricing itself out of the market except to the wealthiest of beneficiaries who could afford the higher out-of-pocket costs.  Moderate income Americans would be limited to finding a Medicare HMO or PPO they could afford with their private funds.

Given the new GOP majorities in Congress, the Republican leadership is sure to re-visit the issue.  In order to get the MMA approved in 2003, House conservatives reluctantly compromised and agreed to make their privatization proposal a narrow 3-year, 6-city “demonstration” project beginning in 2008.  Already, bolstered by their 2004 election victory, conservatives are chomping at the bit to re-visit their “compromise” and make the “demonstration” permanent policy.  Watch for that in the first 90-120 days of the new 109^th Congress. 

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Rationing Health Care

(May 2004) One of the high voltage third-rails of U.S. healthcare has always been the idea that one day the nation would have to resort to a system of rationing in order to preserve the country’s health network.  Across the spectrum, from voter-wary, poll-driven politicians to less circumspect, but equally wimpy academics, health policy professionals have conspicuously avoided touching that rail in describing what now looks to many as the inevitable future course of American healthcare history.

But for all of its flaws, (and there are so many, some of which should be fatal), the “new and improved Medicare” (“NAIM”) signed into law last year by President Bush is to be credited with suggesting for the first time officially that the nation needs to be looking at how it spends it healthcare dollar and to eventually make decisions limiting whether these dollars should be spent when the prospects for a “good” outcome are limited.  Okay, okay, I admit the new law doesn’t come right out and use that word, “rationing!” It hides it intent around a whole bunch of euphemisms, “allocation of resources,” “outcomes management,” and “variations in utilization.”  But the bottom line is clear, in the very near future, decisions will be made that will deny third-party payment for health services based upon cost-benefit analyses including a review of whether or not the marginal benefit to the patient is worth the cost to nation.  This is “rationing,” by any other word.

Section 1013, Title X, subtitle B of the new law, buried in the bowels of the 681-page NAIM law, authorizes the Secretary to conduct a demonstration into:

• “the appropriate use of best practice guidelines by providers and services by beneficiaries”
• reducing the “scientific uncertainty in the delivery of care through the examination of variations in the utilization and allocation of services, and outcomes measurement and research”
• achieving the efficient “allocation of resources,” and to
• analyze “the financial effects on the health care marketplace of altering the incentives for care delivery and changing the allocation of resources”

At last a study! It’s about time! 2011 is only 6 and half years off.  Have no bones about it, 2011 is a watershed year.  That’s the first year the vanguard of the baby-boomer generation starts turning 65, and under current rules at least, they become eligible for Medicare.  Expressions like “tidal wave,” “tsunami,” and “onslaught” don’t do justice to the full impact this surge of “young seniors” will have on America’s social infrastructure.  Combine this demographic Armageddon with the nation’s exponentially growing budget deficits and it’s no wonder that Fed Chairman Alan Greenspan has called for draconian changes in the nation’s only two broad social entitlements, Social Security and Medicare. There is no way on God’s green earth that the U.S. can continue to pay for the same level of benefits to all of those who will be demanding their share of the social contract.  We either break the contract, or we re-write it – and in fairness to our children and grandchildren, re-write it now rather than later.

And speaking of Greenspan, the Fed Chair’s pronouncement has thrown a monkey wrench into the well-laid plans of President Bush for coasting to re-election this fall on the coattails of having passed a Medicare prescription drug benefit, assuring world peace and harmony, all while cutting the taxes of most Americans, albeit with the mega-rich getting the lion’s share of the pie.  Greenspan says in effect, we can’t have that pie and eat it too.  Just three years ago, the Fed Chair said we could cut taxes; we could provide for Medicare prescription drugs; and we could secure Social Security.  We could have it all.  Now, if we want to save the tax cuts, it looks like we will have to cut future generations out of the social contract.  Is this a great country or what!

Democrats have been falling all over themselves in glee. In one fell swoop, Alan Greenspan gave them back the Medicare issue for this fall’s election.   President Bush reluctantly endorsed the Fed Chair’s ideas, as long as they are phased-in in order to give younger generations time to adjust to the new circumstances. Combine the Greenspan bombshell with the earlier reports that the new and improved Medicare would cost at least $139 billion more than originally projected by the White House, throw in the findings from the Medicare trustees suggesting that Medicare would be completely out of funds by 2019, and you have a recipe for electoral conflagration.

So it is all the more important, both for the nation – and perhaps for Republicans trying to salvage what they can of the Medicare issue – that the issue of “rationing” be addressed head on.  The studies to be conducted under the new and improved Medicare law offer at least a trickle of hope that ways van be found to continue Medicare as we have all come to know and love it without having to sacrifice future generations at the altar of political expediency.  Study after study has indicated that as much as 30-35% of the healthcare dollar is being misspent.   Either wasted on unnecessary and ineffective services or spent on care which in the long run proves less than efficacious.  If we can through the use of better information technology get a better grip on what works and what doesn’t work in helping people deal with illness, injury and infirmity, how much can we save.  As a nation we spent upwards of $1.7 trillion dollars on healthcare last year.  If we could save 30% of that by “rationing” healthcare through the more efficient allocation of resources, the more efficient outcome management, and better control over utilization variations, might we “save” both Medicare and Social Security for future generations?  Healthcare financial managers have their work cut out for them.

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The "New and Improved Medicare" (NAIM): What's in it For You and Me

O.K. They did it!  We have a “new and improved Medicare” (“NAIM”), now what do we do?   What happens next?  Let’s look at the some of players.

The American Association of Retired Persons

AARP, selling out seniors once again as it did in 1988-89, when it orchestrated a “senior rebellion” against the first Medicare prescription drug law, has invested a good chunk of its goodwill and political clout into NAIM.  [See side bar, below] “The law is not perfect,” AARP seems to say, “but it’s a start. We’ll fix it later.” The only problem with that argument is that faced with the enormous federal budget deficits that seem to go on forever, there will be little hope of fixing the law and even fewer prospects for change.  With the new law in hand, most commentators see Republicans having an enormous political advantage in the 2004 elections.  Many are predicting a virtual sweep by the GOP in the House and Senate, leading to “veto-proof” majorities.  Conservatives in Congress have already put seniors on notice that they will “cap” Medicare spending to keep the entire program, not just the new prescription benefit, under a pre-set cost limit.  With broader control in Congress and a President who agrees with them, any changes in Medicare are far more likely to narrow the program than to expand it.  AARP will have a greater visibility in a Republican-controlled government, but it will be virtually toothless in stopping these inevitable cutbacks.

President Bush and Republicans

The Bush administration, with the ink hardly dry on the presidential signature signing NAIM into law, has already taken the first steps to begin to “privatize Social Security.”  Having now “reformed” Medicare and having already eliminated overtime pay and the 40-hour workweek for millions, dismantling the rest of the “New Deal” and “Great Society” is only another election away.  By making the effective date of NAIM 2006, the White House hopes to defuse any “election backlash” from seniors over the limited benefits and high premiums that will have to be paid.  Seniors won’t even begin to feel the pain until well after next year’s elections, far too late to take their wrath out on anyone. With $100 million already in his campaign chest, and a blank check from corporate America for anything more he may need for the 2004 elections, the airwaves and the print media will be inundated with “issue ads” overwhelming America’s seniors with information about NAIM.  Having co-opted the major senior lobbying group, AARP, getting it to spend even more money supporting the new law, senior opposition should be sporadic at best.  It’s a rout for the President and Congressional Republicans.

Democrats

Democrats are reeling.  The seven-member conference committee, which hammered together the final version of NAIM, had only two Democratic members, one conservative and one moderate. The bill was effectively a GOP product with little or no Democratic input.  Expected Democratic opposition simply never materialized. The only real opposition came not from Democrats but from uberconservative Republicans opposing the bill because of its massive costs and new entitlement provisions. Rocked by a couple of unexpected Senate retirements and facing radically redistricted House campaigns in several states, Democratic prospects in the 2004 congressional elections are dismal to bad. At the presidential level, Democrats have the unenviable task of facing a popular wartime incumbent with an unlimited campaign chest.  Prospects are not good, no matter who their nominee may turn out to be.

Providers

Urban area hospitals took it in the ear.  Rural healthcare won a lot.  Physicians won some temporary relief.  In the zero sum balancing act that is today’s Medicare, if one provider group wins another provider group must lose.  Rural healthcare will gain upwards of $25 billion in additional reimbursements over the next ten years by recalculating the wage index and equalizing payments.  Urban, high-Medicare use hospitals lose the most as hospitals face almost $12 billion in new cuts.  Physicians won a roll back in the Balanced Budget Act-mandated 2003 and 2004 scheduled Medicare payment reductions.

HMOs and PPOs:

Big time gains were achieved by the managed care industry.  NAIM calls for “incentives” to be paid to new health plans to encourage them to offer coverage and keep it.  Trying to avoid the pitfalls of the old Medicare+Choices programs, Congress has added upwards of $87 billion in “overpayments” to HMOs and PPOs.  In addition, the law provides for up to $32 billion in “rebates” to help hold new plan premiums down, making them more attractive to seniors. Traditional Medicare gets no incentives but will have to compete against these new plans.

State Medicaid Plans:

State governors are celebrating a decision to transfer “dual-eligible” seniors from Medicaid to Medicare.  According to researchers at the Commonwealth Fund, states spend $6.8 billion annually for the drugs used by seniors eligible for both Medicare and Medicaid. That burden is now shifted from the states to Medicare.  Medicaid recipients may not be celebrating though.  The coverage offered by NAIM is far less than available under almost every state Medicaid plan.

Seniors:

Those who already had broad drug coverages through their employment retiree programs may end up being losers as employers dump their retiree drug coverage, letting the government pay for it.  To head off this possibility, NAIM includes an estimated $58 billion over 10 years in “incentives” to employers to bribe them to maintain their current retirement policies. Low-income seniors and high-end users of drugs will benefit somewhat from the new law.  The average senior will have to spend almost $840 dollars out-of-pocket each year on drugs before seeing dollar one in new benefits.

Pharmaceutical Manufacturers:

The drug-makers, at least for now, have walked away from the table with heads held high. The federal government is explicitly denied the opportunity to negotiate prices for the drugs it will have to pay for. Drug reimportation was given the back of a Congressional hand.  Only on the generic and drug patent issue did the industry take a small hit.  But the handwriting is on the wall.  The day will come when Congress has to choose between raising taxes, cutting back on drug benefits for seniors, or finally dealing with the drug companies. Which will they do? The answer is easy: Come down hard on the drug companies. No amount of political power will stand in the way.

Healthcare Financial Managers:

The new law will mandate massive changes in the Medicare payment formulas and healthcare financial managers who maintain their professional education will win, those who don’t will fall by the wayside.

Healthcare Lobbyists:

I have a job for the next ten years.

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TWO AMERICAS: MANY DIFFERENT HEALTH SYSTEMS

“There are two different Americas in our country today - one for those at the top who get everything they want, and another for everybody else who struggles just to get by.”

-- Former Senator and Democratic Vice Presidential candidate, John Edwards, on the widening gap between the rich and the poor in America

***

"Medicaid has been expanded so much it includes a lot of people who could afford private coverage."

-- Michael F. Canton, director of health policy for the libertarian Cato Institute, suggesting that poorer people are simply taking advantage of the system.

***

"Medicaid is under the gun. If we have more people on poverty, we have more people straining the safety net.”

 -- Diane Rowland, executive director of the nonprofit Kaiser Commission on Medicaid and the Uninsured.

It took a Hurricane Katrina to bring home to many Americans the vast gulf between the haves and the have-nots in this country. We had to have our noses rubbed in it before we saw the consequences of public policies that have accentuated the gap and thin the line is, between having our cake and being able to eat it too.  Far too many Americans are simply one pay-check, one natural disaster, one illness, away from finding themselves and their families a part of the nation’s underclass. And now for many of us we have a clearer picture of exactly what that might mean: a daily and frequently losing struggle for adequate housing, educations for our children, clean water and air, health care for our families.

According to the U.S. Census Bureau’s 2004 report[1], 45.8 million Americans have no health insurance at all. That’s 15.7% of all Americans, almost one out of every six of us.  And this doesn’t count illegal aliens and those who have only limited insurance with exclusions for pre-existing conditions or significant unaffordable deductibles. Since 2001, the number of uninsured has risen 4.6 million, rising dramatically among those with family incomes under $25,000 a year as state after state has tightened eligibility requirements for Medicaid and set limits for children’s health insurance. Today 12.7% of all Americans are living below the poverty level with that rate increasing each year for the past four years. These are not families sitting around on their duffs all day, these are working families struggling to get by on minimum wage jobs.  The real (adjusted for inflation) median income for all families headed by adults under age 65, actually fell 1.2% in 2004.  The Bush administration claims we are in the midst of a substantial economic recovery from the post 9/11 recession, but that recovery is very shallow and extremely narrow in its impact.  Katrina brought that message home.

Healthcare in America is an embarrassment for the world’s most powerful nation.  Undoubtedly the USA has the best quality healthcare … for those that can afford it. Where do the Middle-Eastern sheiks and emirs come for their care? To the Cleveland Clinic, to Johns Hopkins, to Mass General! Where do the uninsured in America go? Well in some cases to emergency rooms at these same places, but also to other emergency rooms across the country, to Grady Hospital in Atlanta, to Charity Hospital in New Orleans when it was open, to facilities overwhelmed by poverty, understaffed, and under-financed. The emergency room as the healthcare delivery point of last resort is always more expensive, and sadly, frequently too late.

The USA spends almost 16% of its gross domestic revenues on healthcare. No other nation, save Switzerland, spends more than double-digits of its GDP on healthcare.  And what are we getting for this $2+ trillion in annual spending? The 37^th most “effective” healthcare system in the world, says the World Health Organization.  Some second and third world countries rank ahead of us.  Costa Rica’s infant mortality rate is better than the USA. And the poor of America, disproportionately African-American and Hispanic, suffer the most. Diabetes among blacks is 70% higher than for whites; their infant mortality is twice as high. Hispanic-Americans are three times less likely to be insured than white Americans.  Like blacks, Hispanic-Americans suffer disproportionately from diabetes and heart disease when compared to whites; and because of their lack of insurance, they haven’t access to appropriate and continuing care.

Despite cut-backs in state Medicaid eligibility rules, the number of people covered by the “safety net” program continues to rise … and with it deficit-driving costs to both federal and state governments.  President Bush’s FY2006 budget called for $60 billion in cuts in federal Medicaid spending over the next five years.  After Katrina, facing $200+billion in re-building costs, the Republican House leadership laid out plans for an additional $50 billion in Medicaid spending reductions.

The most talked about way of cutting Medicaid is to allow states to treat so-called categorical coverage groups differently than “optional” coverage groups, or to eliminate it altogether.  Basically Medicaid requires states to provide Medicaid coverage to individuals and families living at or below the poverty line.  In practice, states have traditionally offered expanded care to the so-called “working poor,” those individuals and families with incomes at 115%, 125%, 133% and in some states 150% and even 200% of the poverty level.  In effect, these proposals would establish multiple tiers of healthcare coverage under Medicaid depending upon income.  Katrina virtually guarantees that this will be part of the “solution” in cutting Medicaid costs and reducing the federal budget deficit. What can’t be done is rolling back almost $125 billion in approved but not yet implemented tax cuts primarily benefiting the top one-half of one percent of Americans income families.  That would be a tax increase something anathema to the 109^th Congress.

Combine these Medicaid developments with the continuing collapse of the US system of employment-based insurance. and a rise in what I like to call the “Sam Walton Corollary” to the “Ray Kroc Paradigm,” and we have a perfect storm for USA healthcare financing.  Ray Kroc, the builder of today’s McDonald’s fast food chain, is celebrated in American industrial history for having convinced Americans to bus their own tables, something never done before in the restaurant business, saving McDonalds billions and creating the fast food industry. Sam Walton and his heirs at Wal-Mart have taken Ray Kroc one step further, getting Americans to pay for the health insurance of their workers. In state after state, Wal-Mart employees and their families are found disproportionately on the roles of state Medicaid and S-CHIP children’s health insurance programs.  Other companies faced with rising health insurance costs are trying to compete, discontinuing affordable employee health insurance programs and driving more and more working Americans into the ranks of the uninsured.  The percentage of employers offering any health insurance to their employees has fallen below 60% for the first time since statistics of this type were first kept in the 1960’s.  Thus as state Medicaid programs are tightening their eligibility requirements, more and more working Americans are finding themselves uninsured.

Today, the healthcare financial manager is caught in the maelstrom. Your job is to find ways to continue to keep the doors of the American healthcare system to all. Stratified, economically tiered healthcare, multiple healthcare systems to the two Americas, may be the only solution for now.  Whether that becomes the American model or whether we find other solutions remains to be seen.  And, oh, did I mention, that Congress also wants to cut and additional $80 billion from Medicare to help cut the US budget deficit? No, well that can wait for another day.

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.Privatizing Medicare

Not since the halcyon days of Lyndon Johnson’s Great Society, has so much fundamental change been suggested in what have become the three pillars of the American social contract: Social Security, Medicare and Medicaid. Riding a wave of confidence following last year’s election sweep and believing his popularity in the aftermath of September 11 will remain strong, President Bush has begun the most ambitious effort to reinvent these three programs and perhaps forever change their guarantee of benefits to the nation’s elderly, disabled and the poor. He is offering the nation a fundamentally different vision for our future and for the backbone of U.S. social welfare policy.

This is a vision wherein individuals would control more of the investment — both in money and in energy — in the maintenance of the nation’s social safety net. In the Bush vision, citizens would be given the option of investing some of their Social Security taxes in the stock market. The elderly would be encouraged to rely more on private health plans, and less on the government, for their Medicare health benefits. The states would have far more power to determine who receives what benefits and for how much under the Medicaid program. Mr. Bush would have the nation move away from the egalitarian philosophy that has governed the nation’s social fabric in the past; the philosophy wherein everyone, regardless of their income or social status, would be treated the same. Today, Bill Gates will get Social Security and Medicare when he is eligible just as the bag lady who sleeps over the grating at Union Station in Washington, DC gets her benefits. Tomorrow, under the Administration’s vision for Medicare and Social Security we will have moved away from the notion that everyone should be in the same government-managed system with the same benefits.

These are fundamental changes of the highest magnitude — and yet the nation seems slow to realize what is happening. Buried as these proposals have been, in the war rhetoric with Iraq, the search for terrorists in our midst, and the ever-changing colors of homeland security alerts, their impact is only gradually dawning on the body politic. Unlike Bill Clinton’s 1400+ page 1993 health plan or Newt Gingrich’s “Contract with America,” the Bush White House has been almost mum about its intentions. It has piecemealed out its proposals, a little bit at a time. And each item standing alone is debated as if it was an isolated proposal. But taken in their full context, the outlines of this social revolution are becoming very clear.

Administration officials and their allies in Congress, including some centrist Democrats, say such changes are essential to “modernize” these teetering old government programs and to stem the growth in entitlement spending. Medicare, Medicaid and Social Security accounted for 42 percent of
all federal spending last year, and that share is expected to grow significantly, especially after 2011 when the first baby-boomers start becoming eligible. But critics worry that these proposals will also mean less security, fewer guaranteed benefits and more financial risk for beneficiaries. The Bush plans, they say, are essentially an effort to limit the federal government’s financial responsibilities and to cap what is now an open-ended guarantee of specific benefits — an effort to move from a defined benefit to a defined contribution. Just as several major U.S. corporations have or are proposing to restructure their employee benefit programs to a defined contribution model, the Bush Administration is following the same course.

Medicare: Change is Necessary...and Inevitable

Mr. Bush’s State-of-the Union Medicare proposal is being taken back to the drawing board after being thoroughly lambasted by almost everyone, including members of the President’s own party. That plan would have encouraged many beneficiaries to leave traditional Medicare and join private health plans in order to receive prescription drug benefits. Traditional Medicare is one of the last bastions of fee-for-service medicine, but most politicians, Democratic and Republican, see that it cannot last in its present structure if a drug benefit is added. Democrats may try to milk the dissatisfaction any change will create for political advantage, but even they recognize the handwriting on the wall for redesigning the program — both from a financing and delivery standpoint.

Medicaid: Bailing out the States?

And when it comes to Medicaid, the current financial state of the states is abysmal. Forty-five of the 50 states are facing budget deficits, reaching in to the billions, with a substantial part directly linked to rising Medicaid costs. Citing the model of the 1996 welfare law, Health and Human Services Secretary Tommy G. Thompson says states can be trusted with far more authority to decide who receives what benefits. The Bush Administration’s proposal would offer states vast new power to reduce, eliminate or expand health benefits for low-income people, including many who are elderly or disabled. In return for the flexibility, and a temporary increase in federal assistance, states would eventually have to accept a limit on the federal contribution to the program’s cost. The choice would be up to the states; they could stay with the existing program. Administration officials say the plan would allow states to stretch scarce resources during fiscal crises. Critics assert it would replace the poor’s entitlement to health care with a block grant to the states, just when the number of uninsured is rising.

Mr. Thompson argued that the administration proposal would preserve comprehensive insurance for most of the poorest beneficiaries. But states would have “carte blanche,” he said, “to alter Medicaid coverage for about 15 million recipients.”

States are not required to cover these people, but once they are on the Medicaid rolls, they have legally enforceable rights to benefits.

At the Crossroads

Both sides in this debate have a strong sense that the nation is at a crossroads — politically, philosophically and demographically — as these long-established entitlement programs are strained by an aging society. Both sides agree that the coming debate over these proposals will be a fundamental clash of political philosophies — over the obligations of government, the rights of the individual and the role of the private sector. Because they are so fundamental to the basic social infrastructure — the social contract — that has bonded our people for most of the last century, the debate about changing that social contract will be long and contentious, but also very, very necessary and perhaps overdue.

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.Medicare Assailed Over Poor Quality: No Good Deed Goes Unpunished
 

"It's the exact opposite of what you would expect. The way Medicare is set up it actually punishes you for being good."

-- Mary Brainerd, chief executive officer of HealthPartners, a nonprofit health plan. Her Medicare HMO ranked among the top 10 in the nation last year for quality but was paid thousands of dollars less per patient by Medicare than lower-performing plans.

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"We have to develop systems that address the problem and certainly not pay people for bad care. … You don't want to be too drastic until we know what we're doing."

-- Dr. Barry Straube, acting chief medical officer for the Centers for Medicare and Medicaid Services, on Medicare’s plans to improve the quality of care.

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"Some say billions, some say tens of billions."

-- Dr. Barry Straube, responding to a question about how much money Medicare might save if it really built quality into its reimbursement system.

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"Only the most cynical among you will not be surprised, when I tell you that the greatest current threat to this congressionally mandated demonstration is Congress itself."

-- Bryan Dowd, a professor of health care policy at the University of Minnesota, on Congressional delegations putting the kibosh on Medicare quality demonstration projects in certain areas of the country.

Medicare, or at least the managers of Medicare, are finding themselves more and more cornered by critics these days – and not just over the usual subjects of the program’s pending bankruptcy and its apparent lack of preparedness for the start up the new prescription drug benefit come January 2006.  Not this time, Medicare is being assailed over its failure to assure the quality of the care being rendered.

Medicare has always been the proverbial 800-pound gorilla. It influences the entire health care system. Virtually every commercial insurer, large and small, follows its lead. And if Medicare doesn’t manage its quality, most of them don’t either.  Researchers at Dartmouth Medical School have been collecting Medicare data for more than 20 years and recently reported that as much as $1 in every $3 in Medicare spending is wasted on unnecessary or inappropriate care. Other analysts put the figure as high as 40 percent. 

In too many incidences, hospitalized patients develop fevers, pneumonias and infections requiring readmissions and follow-up care.  Because Medicare pays for each admission separately, hospitals with poor infection care, for example, actually end up being rewarded with additional payments.  In Medicare's upside-down reimbursement system, hospitals and doctors who order unnecessary tests, provide poor care or even injure patients often receive higher payments than those who provide efficient, high-quality medicine.

Quality Enforcement Lags

But it’s not like Medicare officials are unaware of these problems, but the program’s enforcement systems are fragmented, underfunded and marred by conflicts of interest. For every $1,000 that it pays to hospitals and doctors, it invests less than $2 to oversee and improve patient care.  And even with that, simply spending money doesn’t mean better quality. Medicare is plagued by widely varying costs of care in different regions and areas of the country. But the higher spending areas often have the lowest quality. Louisiana ranked 50th in quality yet first in Medicare spending in 2001, the most recent year where statistics were available. New Hampshire was first in quality but 47th in spending.  In 2001, the typical Medicare patient in Los Angeles cost the government $3,152 more than a comparable patient in Washington DC.  In 2001, a traditional Medicare patient in Miami used $10,113 in services, on average. A Medicare patient in Minneapolis: $4,888.

Medicare collects tons of data like this, but the information is rarely analyzed and most of it remains locked inside the agency’s outmoded and incompatible 20-year-old computers where it is mostly irretrievable and made for all practical purposes useless. The result is that Medicare hasn’t used the information for real change, at least not until now.  A fledgling movement is underway to change to Medicare emphasis to a pay for quality system. 

Paying for Quality

And Medicare is trying … and trying.  Medicare has a pilot program to reconfigure how it pays for patients with chronic conditions such as diabetes, heart disease and kidney failure. While relatively few Medicare patients have these diseases, those that do eat up almost half of Medicare’s spending. Medicare is testing the idea of paying doctors a single, all-inclusive fee for managing each patient's care, linking the payment to whether the patient gets better.  Another initiative is studying the effect of paying doctors and hospitals small bonuses when they provide preventive treatments such as annual eye exams for diabetics.  By linking payments to performance, Medicare hopes to shift the culture of medicine away from automatically doing more. In theory, that could lead to savings and improved care.

But theory it will remain unless and until Medicare starts using its clout to penalize underachieving providers. Today hospitals continue to be rewarded for simply reporting how they do on specific measures of quality, but not for their actual performance. Those posting superior results are still paid the same as underachievers. To obtain more ambitious savings, Medicare will have to take a more aggressive stance. But that requires confronting the powerful lobby of hospitals, doctors and nursing homes.

Congressional Mixed Messages

And this lobby has managed to stymie some of the efforts, rolling back DHHS demonstration efforts in Phoenix and Kansas City when affected hospitals and physicians called upon their Congressional delegations to intervene.  Despite this lobbying, however, Congress remains infatuated with “pay-for-performance” (P4P) as at least a partial solution to the Medicare crisis.  One problem however, most members of Congress see P4P more as a means to save costs rather than as a system to improve quality.  To them, the solution is to pay all providers less across the board; giving some of them back what was taken away but only if they meet certain quality requirements. Pay-for-performance becomes a penalty for non-performance.

And therein lies the rub, advocates of quality and P4P, using evidence-based medicine and outcomes measurement as resources to improving the quality and efficacy of healthcare, so close to achieving their goal, may see their efforts co-opted by the nation’s budget deficit.  Congress has found that it can hide behind the “quality” mantra in its efforts to rein in Medicare costs. 

And the provider industry has to be prepared.  Quality penalties are coming, first for Medicare, soon for Medicaid, and inevitably for commercial payments as well.  The healthcare financial manager needs to be a player at the provider’s quality table.  It can’t simply be left to the clinicians.

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"SINGLE-PAYER": WORDS, I NEVER THOUGHT I WOULD HEAR AGAIN

“Canadian-style single-payer” – I thought I had heard the last of these words when the infamous Clinton health plan of 1993-94 came crashing down in ignominy, costing the Democrats control of Congress after nearly 40 years.  And yet, just this year, new legislation has been introduced by none other then Massachusetts Senator Ted Kennedy that would bring a Canadian-style single payer system to those of us south of the border.  And there’s more, just last fall, Oregon voters beat back an initiative referendum that would have made that state the first in the nation to move to a Canadian provincial-style system of universal health insurance. This year Massachusetts, Maine, Vermont and New York have seen proposals to move to a single-payer system for their citizens.  Democratic presidential candidate, Howard Dean, a physician, and the former governor of Vermont, has made the issue of universal healthcare his campaign theme, resurrecting the issue and forcing a new debate.  Physician associations in Wisconsin and Texas (yes, Texas!) have called for the adoption of universal health coverage, including mandatory employment coverages and/or what is called “play or pay” under which employers would either buy health insurance for their employees or pay into a statewide insurance pool that would help the uninsured pay for health coverage.

Touching the Third-Rail

With all this renewed attention on moving the nation toward some sort of single-payer system, it behooves us to take a look at our neighbors to the north.  Canada may be considered by some as a member of the “Axis of the Not-So-Nice” because of its national reluctance to support Mr. Bush’s Iraqi war, but on the domestic front at least it has some lessons to offer the USA.   Long heralded for providing all Canadians essentially free health insurance and paying for almost all medical expenses, the Canadian national healthcare system founded in the 1960's has taken on a mystique and has become like the US Social Security and Medicare systems, the “third rail” of Canadian politics; touch the system and die politically!

But is their system really so popular?  Growing complaints about long lines for treatment and surgery, as well as widespread "line-jumping" by the affluent and connected, are eroding public confidence in Canada's national healthcare system.  Just as healthcare may dominate next year’s US presidential election, Canadians are standing on line to debate their national system in their national elections, also scheduled for 2004. 

Queuing For Care

A recent government study indicated that 4.3 million Canadian adults — or 18 percent of those who saw a doctor in 2001 — reported they had difficulty seeing a doctor or getting a test or surgery done in a timely fashion. Three million Canadians are unable to find a family physician, according to several private studies.  Canada spends $66 billion a year on healthcare — only the United States, Germany and Switzerland spend more as a proportion of total economic output — but budget cutbacks since the early 1990's have impeded efforts to keep healthcare up to date. A recent report by the Canadian Senate's Standing Committee on Social Affairs, Science and Technology indicates that well over 30 percent of the country's medical imaging devices are obsolete.

Overworked technology is one reason for the long lines; others include a shortage of nurses and inefficient management of hospital and other healthcare facilities, according to several studies.  Waiting times have also increased because an aging population has put more demands on the system, while the current generation of doctors is working fewer hours than the last.   Waiting can occur at every step of treatment. One conservative study concluded that in 2002, patients across Canada experienced average waiting times of 16.5 weeks between receiving a referral from a general practitioner and undergoing treatment, a rate 77 percent greater than during 1993. The recent Canadian Senate report noted that waiting times for MRI, CT and ultrasound scans have grown by 40 percent since 1994.

Defenders of the Canadian system note that only patients waiting months for non-emergency care, like treatments for cataracts and hernias, skew the waiting time statistics. And they argue that with a life expectancy of 79 years, Canadians still enjoy one of the longest life expectancies in the world, slightly higher than the United States where more than 41 million people have no health insurance at all, and upwards of 75 million went without coverage for at least part of the year in 2002 (according to a recent Kaiser Family Foundation report). Still, recent polls show that while Canadians want to keep their national system, they are worried about its future effectiveness.

So at the same time that we in the US are hearing renewed calls for a national single-payer system patterned at least in part on Canada’s system, many in Canada see a growing opening toward privately managed medical services and user fees in return for quicker service. A hospital in Montreal has begun charging fees for some surgical procedures and renting operating rooms to patients for several hundred dollars an hour. A Vancouver hospital has begun selling full-body CT scans for $660.   In an effort to reduce waiting lists, the provinces of Alberta, Nova Scotia and Ontario have established about 30 private MRI and CT clinics, some of which offer non-emergency services to be paid for by private insurance.

Lessons for America

Undoubtedly the US has little choice but to begin moving toward some sort of universal coverage commitment.  But whether that will take the form of a government single-payer, expanded private systems, state-sponsored mandatory insurance programs, or something as yet not offered, remains to be seen.  Like in Canada, the American electorate in 2004 will have a great deal to say about the direction our universal health system will take. The lessons already learned, or in the process of being learned, by our Canadian friends will stand us in good stead.  But as always in America, we seem bound and determined to do it our way – and make all our own uniquely American mistakes in the process.

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 Boutique Health Care: A Change in the Way America Looks at Health Care

The growing phenomenon of “boutique health care” — in which people pay more money for more care and attention from their doctors — has become debate fodder for the nation’s pundits. Some view it as a threat to the very fabric of the American healthcare system. Others view it as simply the natural outgrowth of our society’s materialistic enterprise. From either perspective, it represents a new dynamic that will play a growing role in the future of the US healthcare political debate.

According to those who see disaster looming ahead, a healthcare system that allows individuals with higher incomes to effectively opt out of traditional insurance systems, including Medicare, and purchase fancy private services can only lead to increased societal tensions — and ultimately cause great damage to our nation. According to them, the United States, a nation based on the belief that everyone has a shot at prosperity, the incipient elitism of boutique healthcare will feed a growing class consciousness in America. It will undermine many of our basic social values at a time when these values are being challenged elsewhere along a wide spectrum, both domestically and internationally — including the threats of terror from class and religious fundamentalists.

For others, boutique medicine seems only natural in an America, where education is based on a person’s ability to pay and the health care of millions of Medicare beneficiaries and uninsured children is already being “rationed” by income. According these economic purists, boutique medicine is perfectly in keeping with the sacred tenets of economic theory that hold that a person’s position in our nation’s income distribution largely reflects that person’s marginal contribution to society. From this theory it is but a small step to the ethical doctrine that wealthy persons “deserve” better health care than do persons of lesser means — a sort of Darwinian approach to the issue. Other, more pragmatic proponents, suggest that the movement toward boutique, or “concierge” medicine, is really just an outgrowth of the growing opposition and dissatisfaction our society is having with managed care. According to them, boutique practices allow doctors to get to know their patients better and enjoy a return to “old-fashioned medicine.” They suggest that the critics must recognize that the United States has never had anything approaching egalitarian healthcare service. They argue that advocates for low-income recipients are barking up the wrong tree in opposing boutique care, suggesting the “real” issue is the number of people having no access to health insurance at all — not that someone else who is better off is getting to use his or her hard-earned or inherited dough to buy extra care.

A Price to be Paid

Now, don’t get me wrong. I greatly admire Professor Reinhardt. When I grow up, I want to be just like Uwe. But, the suggestion that one-tier, two-tier, or multiple tier healthcare is simply a natural progression on the free market highway, leaves a lot of potholes to be filled. Although it is easy to understand why a growing number of doctors have begun to offer boutique care to patients who can afford to pay the extra thousands of dollars, it seems a bit much for them to depict their actions as motivated by solicitude for their patients or as a principled protest against the high-volume demands of managed care. There will be a price our society — and its healthcare system — will have to pay.

As a starting point, just how many doctors do you think can limit their practice to people who can afford several thousand dollars in additional medical expenses each year before the system as a whole starts to suffer? Most of these “gold-plated” medical practices refuse to accept Medicare beneficiaries allowing them to charge a top dollar for their services. There is already a growing shortage of Medicare participating physicians in many markets. Admittedly the days of the family doctor who made house calls and charged two-figure fees for services are gone, but that does not mean patients who cannot afford the extra thousands required to share in the boutique care, should receive less — or find their access to care more limited.

“Physicians have an obligation to meet the needs of a community. You could do that with 10% of physicians in the area practicing boutique medicine, but if it gets much more than that then I think you really have to question the process.”

— Dr. Frank Riddick, chair of the AMA council on ethical and judicial affairs, expressing his concerns.

The American Medical Association has not yet taken a stance on this growing phenomenon, but it is under review. Medicare officials in Washington have also worried and are looking closely at the specifics to assure that Medicare beneficiaries participating in these plans are not being illegally charged for Medicare services. It is almost an axiom, but poorer people do die younger and are sicker than richer people; indeed, mortality and morbidity rates are inversely related to many correlates of socioeconomic status such as income, wealth, education, or social class. But is that an acceptable societal norm? Something our society should accept as being the standard? Or should we be seeking something more?

If a new category of “insurance-plus” healthcare takes root, it will exacerbate what some patients and doctors already believe is a multi-tier medical system. Concierge practices underscore the growing gulf between medicine’s haves and have-nots and fosters a three-tiered medical system: one for the rich, one for the middle class and one for the poor. In practice, it represents a failure of the costliest health system in the world to meet our society’s healthcare needs. Sadly, boutique medicine simply stands as proof that America already has a three-tiered health system, we’re just too ashamed to openly acknowledge it.

So what do we do? We may wish to argue that a special tax should be imposed on premium care, with the proceeds dedicated to covering the uninsured, or that each boutique doctor also be required to take on a number of disadvantaged people — or we can increase the pressure on our elected officials to finally address the issue of the nation’s un- and under-insured. However just bemoaning the issue is an unproductive and misdirected outlet for the critics’ well-justified concerns about elementary social justice in health care.

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Medical Information Privacy

The clock is running. In addition to the October 16, 2002 deadline for complying with the HIPAA transaction standards, we now have a new deadline of February 16, 2003 for HIPAA’s privacy rule. And what a rule it is!

When former Secretary of Health and Human Services Donna Shalala unveiled her draft privacy regulations in November, 1999, the industry was actually quite surprised at several of the apparent concessions that the Democratic Administration had made which might have eased the regulatory burden of the new rule. Seemingly the Secretary recognized the highly complex world of modern “managed health care” and allowed several exceptions to the patient written authorization requirements for what the draft regulation described as “business operations.” In addition, there was a pass through on the convoluted patient consent process for treatment and payment-related actions. The Secretary waxed prolific about one of her five principles upon which her final rule would be based: public responsibility, eloquently, “Individuals’ claims to privacy must be balanced by their public responsibility to the public good…” While the health care industry focused its guns on some of the other aspects of the draft rule, it was the privacy advocates who complained most bitterly about alleged “loopholes” in the consent process.

So it was that when the first inklings of the “final” rule started leaking out in mid-December, that the industry was caught short by the dramatic changes between the earlier draft rule and the final version announced on December 20. Gone was any semblance of a shared public responsibility for the common good. Gone were any patient consent exceptions for “business operations,” including the very benign and highly important uses for utilization review, quality control, and peer review. Instead of presuming patient authorization for necessary treatment, providers will now have to obtain specific, detailed written consents for every aspect of the treatment cycle, including approvals for internal referrals and consultations. And don’t even think about the payment process. That’s been screwed up royally.

According to the final rule, the really bad guys in the process must be those of us who work in the healthcare financial management area, especially managed care reviewers and third-party payers. In reading the quote from the White House press statement about benign family doctors guarding our patient records. One is struck both by its naiveté and the disingenuous view of history that it presents. It seems to presume that third-party payers are something new to the process and that they were never previously involved. The last time I looked, third-party employment-related health care coverage has been part of US economic history for more than 60 years. The alleged “privacy evils” of this system have been with us at least as long. Where are the scandals? Where are the abuses?

I have had the opportunity on several occasions over the nearly four and a half years since HIPAA was passed in 1996, to comment in public forums and even to testify before Congressional committees on the issue of medical privacy as a representative of the healthcare electronic information industry. In every instance I have been confronted with the sad tale of the late, great tennis star, Arthur Ashe, whose HIV status was made public through tabloid sensationalism. I am challenged to respond to this horrific example of patient confidentiality abuse, with the suggestion that somehow the healthcare EDI industry is to blame. I have adopted the tactic of looking bewildered, glancing around wondering where the paper manufacturing company is? Where the photocopy company is? Where the pencil-maker is? You see, in the Arthur Ashe debacle, Mr. Ashe’s paper medical records were taken out of that benign family doctor’s file cabinet, photocopied and sold by a irresponsible employee in the doctor’s office to the tabloids. No computers were involved. No electronic transmissions took place. No third-party payment records were misused.

The fact is that there are abuses of medical privacy. They occur far too often; there should be limits and penalties need to be imposed to deter the worst offenders. But there has been a pre-occupation with the horrific. Secretary Shalala was right when she talked about public responsibility in her earlier pronouncements. Somehow that message was lost. We can — we must — use patient information in a variety of benign and controlled ways to better our healthcare delivery system. According to study after study, the US spends upwards of 20 percent, some argue more, of its health care dollar on “administrative overhead.” That’s more than $200 billion dollars annually. What’s worse, we are spending another 20-25 percent of the dollar, perhaps as much as $300 billion on unnecessary and ineffective healthcare. We don’t know what works, so we do everything. We order 20-30 tests when 2-3 would have given essential results, in part because of defensive medicine and fear of being sued if we miss something.

We need to be using information to develop better outcome management tools. We have to use information for the design of patient protocols and patterns of treatment. We need patient information to more effectively spend the healthcare dollar — more wisely, and for far better quality care. That was the plan for HIPAA when Congress enacted the law in 1996. The nation would get its hands around healthcare information and improve the delivery system. We would all share in that responsibility, giving up a modicum of our privacy, but gaining far broader and better healthcare in the process. The baby-boomers are soon to be flooding Medicare; we have 42+ million uninsured despite the greatest peacetime economic expansion this country has ever seen. How many more will we have if the economy hiccups just a little over the coming months.

The “final” privacy rule published in the Federal Register does nothing to further the Congressional intent of HIPAA. It throws new roadblocks in the way of using electronic information systems to save money and improve care. It seems to be driven by some sort of bucolic vision of past medical practices with country doctors behind their horse and buggy paying house calls on their patients and accepting payment in the form of a chicken or perhaps a couple of jars of grandma’s preserves. We deserve much better and the industry has to work to see that the rule is amended and workable solutions put in its place. No one’s privacy need be compromised. No one’s personal information should be abused. But we won’t accomplish this through building walls of bureaucracy that will limit innovation and increase the paperwork burden of us all.

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.Incremental Health Care Change: The Short Way to No Way

The U.S. healthcare system is in deep trouble. At least 45 million have no health insurance, and millions more suffer from pre-existing conditions that limit their coverage. Costs are soaring, and America’s once finally tuned system of employment-related coverage, “get-a-job, get-health-insurance,” is no longer working.  The Kaiser Family Foundation estimates that caring for the uninsured and underinsured is costing the U.S. at least $115 billion a year in transferred costs to care for these people in our hospital emergency rooms always more expensively and all too often, too late.  This is a hidden tax that we all our paying because of our inefficient healthcare financing system. 

Healthcare “reform” has been an issue that has been on the fringe of American domestic politics ever since the failed Truman national health plan in 1948. Following passage of the federal Medicare and Medicaid programs in 1965, when President Johnson gave away the farm in order to enlist the industry’s support, efforts to rein in runaway costs and “reform” healthcare have been part and parcel of the nation’s quadrennial political debate, that is until defeat of Bill and Hillary Clinton’s Rube Goldberg plan for universal coverage in the 1990’s. Since then politicians of every stripe have tended to avoid the issue of healthcare reform like the plague. But this decade’s renewed healthcare crisis -- employers struggling with soaring premiums, workers and unions facing cutbacks in coverage, governments confronting deficits, and a sharp upturn in the number who are uninsured -- has re-opened the debate. Democrats have jumped on the issue. In the first of what will be a seemingly endless number of presidential debates, healthcare emerged as the Democrats number one domestic policy issue. Their candidates are falling over one another in a rush to up the ante and raise the healthcare flag. But for Republicans, the issue remains virtually non-existent. During the first two GOP presidential debates, Ronald Reagan was cited 39 times, healthcare just 13, and 11 of those were from Mitt Romney backing away from his Massachusetts “individual mandate” plan.

Finally, maybe, true national reforms in healthcare will get the attention they deserve. Oh, we have had attempts at incremental reforms -- mostly failures. Health Maintenance Organizations (HMOs) and diagnosis-related groups promised to contain costs and free up funds to expand coverage. Billions have been allocated to expanding Medicaid, the State Children’s Health Insurance Program, and similar state-based insurance programs for poor and near-poor citizens. Medicare and Medicaid have pushed managed care. Oregon essayed rationing; Massachusetts and Hawaii passed laws requiring all employers to cover their workers; TennCare once promised Tennesseans nearly universal coverage; and several states implemented risk pools to insure high-cost individuals and insurance regulations to protect consumers. Senators Kennedy and Kassebaum lent their names to insurance market reform legislation. And for-profit firms pledged that market discipline and businesslike efficiency would fix health care.

 Those who believe only incremental changes are possible are dismissive of universal national health insurance. To them it is a hopeless home run swing when a bunt -- small steps toward universal coverage -- would do. But such pragmatism aside, the small victories described above have failed to slow the relentless onslaught of disasters facing the nation’s health system. Since President Nixon’s own abortive healthcare reform initiatives of pre-Watergate 1973, the number of uninsured has increased by 20 million, healthcare’s share of the gross domestic product has risen from 7.9% to nearly 16% with no end in sight. The nation’s industrial base is being eroded as more and more employers move their businesses off-shore in large part to escape the burden of paying the healthcare costs for their American workers.

How many more strikes before the health care system is out?

Simply addressing the problem incrementally won’t work. Under present conditions the more people insured, the more costs will go up. U.S. health costs are already nearly double those of any other nation and pulling ahead. Incremental strategy relies on massive infusions of new money. Proposals to offer tax credits for the purchase of coverage would cost about $3500 annually per newly insured person. Insure the estimated 32 million of the uninsured who are poor or lower income and you added over $150 billion to costs. Both employer and individual mandates, as in California and Massachusetts, would boost public spending by between $4000 and $10,000 per newly insured person while also increasing employers’ costs.  Absent new money, patchwork reforms can expand coverage only by siphoning resources from existing clinical care. Advocates of managed care, consumer-responsibility and market competition argue that their strategy could accomplish this end by trimming clinical fat. Unfortunately, new layers of corporate bureaucrats managing managed care and new players in healthcare -- banks and financial institutions to manage health savings accounts for a “fee”-- have invariably raised administrative overhead and eaten away at the savings, which may have been illusory in the first place. All such incremetalism has done is antagonize the medical profession and frustrate the patient population while lining the pockets of a handful of insurance executives who have walked away with literally billions of dollars that formerly had been available for clinical care.

The nation’s healthcare bureaucracy now consumes upwards of 30% of the $2 trillion plus the nation is spending annually on healthcare. This enormous bureaucratic burden is a peculiarly American phenomenon. Our biggest HMOs keep 20%, even 25%, of premiums for their overhead and profit; U.S. Medicare takes less than 4%. HMOs have inflicted mountains of paperwork on clinicians and institutional providers. The average U.S. hospital now spends one sixth of its budget on billing and administration. American physicians spend far more time and money on paperwork and billing than their colleagues anywhere else in the world. While HIPAA was supposed to help control much of this paperwork burden, the argument can be made that is has contributed more than it has resolved.

So is a single-payer style national health system for the United States inevitable? Will these past failures finally bring the system to its knees? Will healthcare ever be the “political” issue -- a “winner” in electoral parlance -- that it has long aspired to be?  Sooner or later, Republicans will have to break their silence on the issue and join the Democrats in getting down to the nitty-gritty. Healthcare financial managers have to recognize that they will either be part of the solution or ominously part of the problem. I urge the HFMA and its members to be problem solvers

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 Medicare, Born 1965, Died, 2011

As this is being written (late November 2003), virtually every healthcare lobbyist in Washington has made his or her way at least a dozen times to “Gucci Gulch,” the hallway outside the House Ways and Means committee room, so named because of all the expensive leather shoes and accessories that are worn or carried by the big-money lobbyists that frequent the environs. This is where the “new and Improved” Medicare conferees have been meeting to discuss the fate of one of the nations’ most cherished social pillars.  Each of these lobbyists has a special interest, a cherry to be picked or an axe to be ground, and wanders the hall hoping to catch the flag-pinned lapel of one of the conferees for a brief moment of one-on-one persuasion. The conferees are not just debating, as the popular media would have us believe, how to add a prescription drug benefit to Medicare, they are debating the very future of the program we have all come to know and love.

At the heart of the debate about the survival of Medicare is a provision in the House bill that would require “traditional fee-for-service” Medicare (FFS) to compete with newly established alternative “private” Medicare HMO and PPO plans starting in the year 2010.  FFS Medicare would have to offer free choice of providers, expanded Medicare benefits, including prescription drugs – and it would have to do so within the dollar caps set by Congress and whatever regulatory agency replaces the Centers for Medicare and Medicaid Services.  CMS is effectively disembodied under both the House and Senate versions of the “new and improved” Medicare and is interred along side the Interstate Commerce Commission, the Atomic Energy Commission, the Civil Aeronautics Board, and others in the graveyard of former regulatory agencies.

Please get this straight, none of the advocates for open competition among the various Medicare plans of the future, expect FFS Medicare to survive.  The cards are stacked.  Both the House and Senate versions offer significant premium incentives to the new plans and tax credits and other benefits to employers and plans to encourage them to offer expanded programs.  The “old” FFS Medicare gets none of this.  All the economic models predict that traditional Medicare will simply be priced out of the market to wither and die.  The old Medicare has died; long live the new “whatever-replaces-Medicare!”

Just how serious is this threat to the future of Medicare. Will Congress really take this ultimate step?  Let’s face it, Medicare is in dire straits. The demographic handwriting is on the wall.  After 38 years of, “I worked for it, it’s mine, and I want more” lobbying from Americans growing numbers of seniors, the program simply can’t survive much longer in its present format without massive infusions of new cash.  America’s senior lobby is formidable. Over the relatively brief lifetime of Medicare, it has succeeded time and time again in adding benefits and expanding services, far beyond what’s its eligible beneficiaries contributed to the Part A trust fund. Part B premiums have been artificially suppressed so that today they constitute only a fraction of what the government actually pays for outpatient and physician services.  Younger generations have been underwriting the older generations, but the trough may be more difficult to fill in the future.

The nation is facing massive deficits, beyond most of our financial comprehensions.  Even the most creative of healthcare financial mangers has to admit that he or she has difficulty in grasping the full import of a trillion dollars.  Now try to understand $10 trillion.  The presently constituted Congress may be able to find a couple of hundred billion to re-build Iraq and Afghanistan, but is at a loss as to adding any significant amounts of money to Medicare.  And 2011 is just around the corner, the year when the first baby-boomers start turning 65 and becoming eligible for benefits.  Then presidential candidate George W. Bush backed quickly away from his early 2000 election year suggestion that the age for Medicare eligibility might have to be raised to 67, or even 70.  Current presidential candidate Howard Dean is back-pedaling from his own similar off-the-cuff remarks. Not that raising the age would solve the problem.  Most people 65-75, while using more healthcare services, are not part of the problem.  It’s those darn 85+ years old that really use up the dollars.  But not since former Colorado Governor Richard Lamm’s “doom-and-gloom” remarks has anyone had the temerity to suggest that the real solution might be to cut off benefits at the back-end rather that the front.

No, the solution, if there is one, is either to change the way Medicare services are delivered, using lower-cost alternative sources of care and rationing some benefits through a variety of new methodologies; or finding new sources of funding for Medicare.  This latter alternative means coming to grips with possible new taxes, or treating Medicare not as a vested entitlement program but as a stopgap welfare program for our nation’s poorer seniors.  More affluent seniors would pay more for less, in order to fund their poorer neighbors.  Yeah, that’s going to happen.

So for now the debate is being carried on in Gucci Gulch and elsewhere.  And the rhetoric is getting strident.  Leading Democrats, who still hold a filibuster ace-in-the-hole, have put the nation’s Republican leadership on notice that they will not stand for the full privatization of Medicare. They are unalterably opposed to many of the precepts that seem almost articles of faith to conservatives. And even among Republicans there is a growing division. In September a group of very conservative Republican House members sent their leadership what amounted to an ultimatum. They will not support any “new and improved” Medicare legislation that doesn’t promote full and complete competition among all Medicare health plans, new and old. In addition, these uber-conservatives are demanding further restrictions and more tax cuts as the price for their vote.  Above all they want to place a cap on Medicare spending that can only spell one of two things; the program will collapse for lack of funding in the face of growing demands, or the program will collapse because no providers will be left to accept the limited payments the program can afford.  In either case, they get what they want: the end of Medicare.

We have to remember, the House version of the bill only passed the House by a 216-215 vote, with several of these strident conservatives actually joining liberal Democrats in opposition, albeit for different motivations, but a no vote is a no vote. With liberal Democrats backed to the wall and threatening boycott and conservative Republicans feeling their opportunity to at last undo the Great Society and the New Deal is here, unless something very dramatic happens, the “new and improved” Medicare is dead for this year and probably for 2004 too.  The 2004 election is shaping up to be a doozy!

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