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Cost Containment

Cuts in Health Care May Undermine Role in Labor Market

Per this New York Times article, “even during months of stubborn unemployment, the health care industry has provided a solid underpinning, reliably adding jobs in an otherwise dismal environment.”

Is this good news? Generally “reliably adding jobs” sounds nice. But the article concludes by quoting Joshua Shapiro, chief United States economist at MFR, Inc. (Global Economic Consultants): “If spending on health care continues at its current pace, it will choke out other vital sectors and end up hurting the rest of the economy. I think the path that we’re on now is clearly unsustainable.”  

One of the justifications for the high cost of health care as a component of GDP in the US is that it creates jobs. On a macroeconomic level, this may be the case, but at what cost. And what will the outcome be if and when costs moderate due to political or budgetary mandates. How many hospitals are built on the funds provided by Medicare and what power does this spending yield? A recent posting  on MCNTalk focused on tremendous discounting and write-off from list price of a Medicare bill. Presumably this example precedes additional pending Medicare cuts under consideration.

Not discussed in the article is the impact of cost shifting  to the private sector, including most significantly the private group health insurance market, as well as other systems including workers’ compensation, accident related care and other areas that are not under Federal pricing guidelines. If cost shifting is inevitable and significant, as we predict it will be, rational employers and payers will continue to decrease their contributions to their employees’ healthcare, leading to a higher likelihood of a national health payment scheme, as many are hoping for but significant constituencies have to date defeated.

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It’s nice to have friends in high places

To quote Berkshire  Hathaway Chairman and Chief Executive Officer Warren Buffett in an Op Ed piece in The New York Times this week, “We mega-rich continue to get our extraordinary tax breaks…These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.”

Specifically what Buffett suggests is: “for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate. ”

His reasoning? Buffett notes, “Our leaders have asked for ‘shared sacrifice.’ But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

“While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as ‘carried interest,’ thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.”

With regard to his own taxes, Buffett notes: “Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”

Buffett explains this variance: “To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.”

Given that Buffett is one of the world’s wealthiest people and most successful investors, his is a very interesting perspective indeed. Read more…

Our Absurd Payment System Personified – A personal anecdote

In early 2011 my mother passed away. She was 94 and developed evidence of a metastatic cancer in her abdomen. She wisely elected to receive palliative care in her final months. She had marvelous care via a hospice team in Portland Oregon but did need a few procedures. Various billings have drifted in over the months. This posting is about the most recent one.

Those of us who are insured are likely aware that there are billed charges – retail, and the actual paid charges – wholesale and that providers who participant in various public and private insurance plans are accustomed to writing off the difference between the two. These differences are often impressive, but this most recent case was to me rather startling.

A bill came in from the non-profit Providence St. Vincent in Portland. It was for a non specified ‘outpatient procedure’. Total charges were $1,519.50. Insurance paid $320.08. Adjustments totaled $1,119.40, leaving a patient balance due of $80.02, which I paid.

Noteworthy in this matter includes the fact that the bill did not name the procedure, or indicate the insurance payer. My mother had both Medicare and a Blue Cross supplement from her prior employment as a teacher. Most noteworthy was the 74% reduction in allowed charges in this bill through the insurance carrier. It is reasonable to assume that an uninsured person would be expected to pay the entire amount of $1,510.50, or a person with another carrier would have a different percentage reduction.

What to make of the original amount? Is it reasonable or is it an amount that has built-in excess to allow for cost shifting due to the reductions in the bill my mother and others paid? Or does what was paid for my mothers procedure, a total of $400.01 more accurately reflect the work and value received? What should the cost of this unnamed procedure be assuming that every patient paid the realistic cost of their care in a given facility? What would this procedure pay in Canada, Australia, Germany or any number of industrialized countries with a private provider system and a nationally enforced payment scheme?

What about the startling lack of detail in this substantial bill? Would we tolerate a bill from the grocer for $100.00 that says ‘food’? Yet we routinely receive bills for far more that are equally uninformative from health care facilities and providers. As individuals and employers, how does this sort of scheme impact us and what is likely to  occur assuming threatened Medicare cuts in the near future?

Assuming considerable cost shifting took place and is the norm, is this a rational and sustainable system and what direction is it heading? The other day, an appeals court overturned the mandated coverage component of Obamacare. Does this mean that many will continue to gamble with no insurance, and shift the cost to the rest of us?

What happens when an uninsured person comes into a facility like Providence needing care? They get the care and are not turned away. Then they get a bill for the retail cost. They either pay it, often at significant financial hardship, negotiate a reduced rate if they are savvy, or default on all or some of the payment. If the latter, it may be due to medical bankruptcy, indifference, or poverty. The cycle continues and the institution justifies further cost shifting to the private payers and commercially insured populations. This is a form of hidden tax on responsible companies individuals who buy coverage and on businesses who choose to insure their employees.

A system that routinely writes off 75% of the price of treatment for certain individuals is a sick system that is not being straight with us. Providence is a mission driven non-profit, which is not to suggest that they don’t generate serious cash flow and surplus, and pay significantly to their executives like the for-profit sectors. But alone, they are not capable of changing this situation even if they wanted to. How many of us would wish to work for or create a business where customers pay vastly different bills for the same service and what would our responses be. Airline costs come to mind here, but the difference is that in most cases we can decide not to take a given flight, and at least prices are posted for every flight option, leading to some real competition and relative price transparency. Health care costs are opaque and rarely considered or known in advance of treatment.

Those who think that our current health care payment system is working and should be left alone need only look at their next personal treatment episode to see the truth.

And one other lesson here: I have often made the point to the young healthy uninsured person who thinks that they can go bare on health insurance – that they can’t afford to; that one episode of hospital care would easily cost them in the 5 figures and that they would be expected to pay 100% of charges. I have suggested that they buy a high deductible lower cost policy, which nonetheless imposes a PPO discount on the first dollar of care, resulting in a marked discount on the ultimate bill they receive.

Companies Get Tougher with Employees Who Smoke

Smoking costs the U. S. more than $193 billion a year according to the Centers for Disease Control and Prevention, per this Bloomberg Businessweek article.  For employers, a smoker is 18 percent more expensive than a nonsmoker, says Cathy Tripp, a consultant at Aon Hewitt.

That cost gap likely will widen beginning in 2018 when, under a provision of health reform legislation passed last year, companies with health plans that spend way more than average will have to pay an additional federal tax. That may push some to reduce employee coverage. “Employers have two choices: cut benefits or cut the trend” of rising medical costs to avoid the levy, Tripp says. “It has made all of them a lot bossier when it comes to employee lifestyle choices.”

Health-care companies have been among the most active at tackling smoking. The Cleveland Clinic banned the use of tobacco in 2005 and stopped hiring smokers two years later. Job candidates, including doctors, must have their blood tested for nicotine. Says Toby Cosgrove, chief executive officer of the clinic network: “If we want to be a model of health care, then we as an organization need to show our patients what a healthy lifestyle means.” Read more…

Affordable, High-Quality Health Care

4,000 patients in the Seattle area buy their primary care directly from a group of three clinics called Qliance Medical Group, as noted in this Bloomberg Businessweek article. In exchange for monthly fees between $50 and $130—depending on age—Qliance patients can see their doctors as often as they want.

After 10 years of running his own small practice, founder Garrison Bliss opened the first Qliance clinic in Seattle in 2007, which he envisioned as the start of a national network. Now his three clinics have eight doctors and two nurse practitioners. None handles more than 800 patients.

  • The model eliminates the cost of collecting money from insurers, which Qliance says can eat up $16 of a $60 payment for an office visit, or more than a quarter of a practice’s revenue.
  • Qliance doctors’ income isn’t tied to the number of procedures they do, so they see fewer patients and spend more time with them.
  • Patients’ monthly fees cover preventive care, basic tests, advice, treatment for chronic conditions, and simple emergency procedures such as stitches and X-rays.
  • Patients still have to pay for prescriptions, specialists, and hospital expenses. Most have insurance to cover at least some of those costs.
  • According to the company, Qliance patients make fewer trips to hospitals and specialists because of the more attentive primary care and incur 22 percent less in medical costs annually than average.
  • Qliance has raised $13.5 million from the likes of Jeff Bezos and Michael Dell to bring its brand of affordable, high-quality primary care to cities across the country.

Bliss believes the model could help reduce health-care costs nationwide: “We see this as an enormous, almost unlimited marketplace,” he says. Read more…

Most violent job in Washington? Nurse’s aide

The most violent job in Washington state isn’t being a police officer or a security guard. It’s working as a nurse’s aide.

Seattle public radio station KUOW-FM made that finding as part of an investigative series on workplace safety airing this week, as noted in this Seattle Times article. The station found that violence strikes health care workers in Washington at six times the state average, and frontline caregivers in emergency rooms and psychiatric wards get assaulted even more than that.

The single most violent workplace in the state is at Western State Hospital, where criminal defendants are taken when they are found incompetent to stand trial. Workers at psychiatric hospitals are assaulted on the job more often than anybody else – 60 times more than the average worker in Washington state.

How many is that? James Robinson, president of the union for many workers at Western State Hospital, says there were 313 assaults there last year – a drop of nearly 30 percent in assaults per patient-care hour, though union officials also note that many incidents go unreported because of the time required to fill out paperwork about assaults.

Nan Yragui, a psychologist with the Department of Labor and Industries, studies workplace violence. She said budget cuts to the health-care safety net have made emergency rooms nationwide more violence-prone.

“When patients can’t get services they need, they end up going to the emergency department,” she said. “So more of the severely mentally ill are going to the emergency department and then that makes that group of nurses more at risk because they’re getting more exposure.” Read more…

Breast Cancer & Avastin Approval

This is fascinating New York Times article that underscores a number of challenges:

While drug use should be based upon data, interest groups and patients are trying to influence public policy and drug approval in a heart-wrenching set of personal appeals.

The FDA has a mandate to respond to data. In this situation they appeared to hurry approval and study the data later. Such study did not support the approval for this application of a very expensive drug. The cost of this and other treatments is predominantly not paid for by the patient or their family but rather by taxpayers and employers and employees who fund private insurance, Medicare, Medicaid, the Veterans Administration – the major payers for health care.

Should we collectively pay for the wishes of hopes of others when quality data does not appear to support such expenditure? And how much of the price of such medications and other treatments is influenced by the disconnect between the payer and the consumer? How many treatments of questionable value would be deferred if individuals felt the impact personally, and how would prices differ paid for by the consumer/patient rather than someone else?

The moral hazard dilemma of insurance if evident in stories like this: Originally intended to help people afford unexpected expenses due to significant health matters, health insurance has evolved or devolved into payment for normal expenses like eyeglasses, routine physicals, contraception and the like. Health inflation is markedly impacted by the market disconnect between buyer and payer, and legislation has forced payment of questionable services and professionals in many jurisdictions. Whether this was envisioned when insurance became common is not clear, but it certainly is what we now have. Read more…

Panel urges crackdown on excessive MRIs

As noted in this Seattle Times article, an influential independent congressional advisory group is urging lawmakers to crack down on doctors who order too many MRIs for seniors, setting off a battle with physicians and patient groups that argue that Medicare beneficiaries might suffer significant delays in treatment.

The recommendation by the Medicare Payment Advisory Commission, or MedPAC, would require some physicians who order a lot of MRIs, CT scans, nuclear-medicine studies and other imaging tests to obtain pre-approval from Medicare.

In its latest report, sent to Congress this week, MedPAC takes aim at doctors who order these tests inappropriately and concludes that Medicare costs for such tests are surging partly because physicians are buying their own high-tech equipment. When they can perform diagnostic tests in their offices, they pocket the profits.

How much do imaging costs impact Medicare? Imaging is one of the fastest-growing Medicare costs, rising from $6.5 billion to $11.7 billion from 2000 to 2009, according to federal figures. Industry groups say the use of imaging services declined from 2008 to 2009, but MedPAC disputes that data and counters that usage is on the rise. While a 1989 law prohibited physicians from referring patients to testing centers in which they had financial interests, it didn’t stop them from performing tests in their offices.

As a side note to this article, MCN does not own any X-ray or imaging facilities and must approve such studies when performed by consultants. Imaging and X-rays are needed in fewer than 5% of orthopedic and related IMEs performed by MCN. If you find that a particular IME physician or provider orders studies at a higher rate, questions are warranted. Does the provider have a financial interest in testing facilities or equipment and is the study truly necessary to render a credible report?

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Under an Arizona Plan, Smokers and Obese Would Pay Fee for Medicaid

Arizona, like many others states, says it is no longer able to adequately finance its Medicaid program. As part of a plan to cut costs, the state has proposed imposing a $50 fee on childless adults on Medicaid who are either obese or who smoke.

In Arizona, almost half of all Medicaid recipients smoke; while the number of obese people is unclear, about one-in-four Arizonans is overweight, according to the Centers for Disease Control and Prevention. The state’s plan must ultimately be approved by the federal government. Monica Coury, spokeswoman for Arizona’s Medicaid program, discusses in this New York Times “Asked and Answered” piece.

As Ms. Coury notes, “We’ve talked about $50 once a year. We haven’t done the math, but it’s not about how much we would collect. It is totally about testing the efficacy of this strategy. Obesity is costing us billions in health care costs, so our thought is ‘let’s test some of these strategies.’”  Read more…