Tuesday, March 23, 2010

Will These Reforms Set Back Democrats?

Finally, the health reforms bill passed by the Senate and now the House has been signed into law. Paul Krugman calls it transformational and a triumph over fear-mongering even though it is far from ideal and a parallel legislation to fix some flaws is going through contentious reconciliation. This legislation is also expected to clear. With all the Democratic missteps along the way, this is a historic moment.

Reformers had wanted President Obama to do much more and earlier in time, but his final push was key in getting enough Democratic Congressmen to sign on. Among the side shows the Catholic nuns commendably came forward to support the health reforms bill even as the Conference of US Bishops opposed it on tangential abortion issues. More worrisome are possible accommodations made to get the support of the AMA and the pharmaceutical industry. That's because this bill does little to fulfill the other vital imperative of lowering costs, that will require follow on action affecting the interests of these providers.

The most credit goes to House Speaker Nancy Pelosi, whose quiet resolve and deft dealing with Democratic colleagues has been highlighted by the WSJ.

What about the dire Republican warnings of Democrats paying the price in the 2010 mid-term elections? Obama and other Democratic leaders have publicly accepted this assessment. It's a wise move showing their pro-reform lawmakers in shaky seats as sacrificing their political future for doing the right thing. This paradoxically may help these very Democrats come November.

Anne Kornblut in an MSNBC discussion also rightly opined that the health care issue may well recede from center stage come November, with some other issues driving voter decisions. In any case the Democrats would have lost a lot more if they failed to accomplish health reforms.

In a rational world the reformers should face no downside. The vast majority of Americans either benefit or (for those insured through employers) lose nothing while having the security net of affordable coverage even if their circumstances change. The people who pay more through higher taxes are a small minority of tax earners and some businesses on whom the mandates are accompanied by some offsetting (may be even over-compensating) concessions.

With the increased number of Americans covered the providers all gain up to this point. It is definitely a mixed bag for private insurers whose practices on pre-existing conditions, lifetime caps, rate hikes and recissions will be banned. But even they may benefit in the net, and the stock prices of Aetna and other insurers have risen after passage of this bill.

Still, the voters haven't always been rational in the past - they did elect GWB to a second term in 2004. There's also the uncertainty injected by 13 Republic state attorney generals challenging the law that will take over a year to wend its way and be decided by a Republican leaning Supreme Court. So I'll allow Republicans their hopes and the Democrats their nervousness, though I wouldn't bet with the many pundits on Democratic reversals as a result of these health reforms.

Monday, March 8, 2010

Simplified, Compromise Health Reforms?

I've quoted my brother Viranjit's friend Jonathan Starr before, as he's an avid and thoughtful health reforms enthusiast. To break the health reforms impasse he's acted on President Obama's call for "any other ideas."

Here's his compromise, simplified "Starr Plan" for health-insurance reform, sent to his California Senators and Congressman:

1) Increase Medicaid coverages and reimbursement rates to equal those of Medicare.
2) Allow everyone to buy into Medicaid coverage, at rates scaled by income (still starting at $0 for very low income people).
3) Pay for this program with a combination of participant premiums and a Medicaid tax similar to the present Medicare tax.
4) Exempt employers from their share of this Medicaid tax if they provide health-insurance to their employees (that meets federally-established quality standards).
5) Require all Americans to obtain health-insurance that meets federally-established standards, whether provided by an employer, purchased from a private insurer, or purchased from Medicaid.
6) Prohibit denial of coverage due to pre-existing conditions, as long as the person has previously consistently complied with the requirement, above, to obtain health-insurance.
7) Prohibit rescission of coverage for any reasons other than non-payment of premiums.
8) Prohibit federal Medicaid funds from being used to cover abortions, but allow state Medicaid funds to be used for this, at the discretion of the individual state.

That is basically it. Other issues (e.g. Medicare reforms, medical malpractice tort-reforms, insurance anti-trust exemptions and cross-state sales restrictions, prescription-price negotiations, taxing health-insurance employee-benefits, etc.) would be handled separately, in their own debates and legislation.

This approach has many advantages, including:
A) It would bring health-insurance coverage within reach of all Americans.
B) It is simple. It would involve far fewer changes to American society than the present proposals, and would entail a much shorter bill.
C) It is self-funding. It does not require modifying other programs to try to gain offsetting savings.
D) The cost of supporting the program is distributed largely by ability to pay.
E) It takes advantage of existing infrastructure and existing programs, reducing the cost of implementation and administration.
F) It avoids involving the American government in directly facilitating the transfer of funds to private insurance companies.
G) The question of funding abortions is handled according to the long-standing compromise embodied in the present Medicaid program.

So what do you think of this? Overall, I think this is an excellent approach and outline for effective legislation. The "compromise" here is with the holdout Democrats, as the Republicans collectively have pretty much dug in to oppose any reform package that meaningfully covers the uninsured.

Adopting Starr's proposals needs to be in conjunction with the House also passing the bill that was successfully cleared by the Senate last December. That way all the needed changes look as if they can clear the Senate through reconciliation. This is important, since reconciliation requires only 51 Senate votes, otherwise an all but impossible 60 votes are needed to overcome an expected Republican filibuster.

This proposal reintroduces the public option, in much more potent form than the House bill H.R. 3962 passed on Nov. 7, '09. Cost containment is more effective than anything else being seriously considered by Congress. That's because Medicare and Medicaid already have the infrastructure in place so incremental administrative costs are low. Moreover they enjoy the purchasing power and simpler payment process to be able to pay providers much less than what private insurers can negotiate, thus saving money.

Of course the very inclusion of this robust public option is the reason these proposals won't be liked by private insurers and their supporters in Congress. Point (2) of Starr's proposal can be refined so that the same subsidy on basis of low income is available to the recipients if they choose private insurers over Medicaid. Private insurers will still find it hard to match Medicaid's cost efficiency, leave alone have something left over for profit. Keep in mind though that much of Medicaid is outsourced to private HMOs and over a third of Medicaid beneficiaries are served in this way.

Starr's proposal also offers some financial flexibility. The total cost of the bill will depend upon the amount and the thresholds for income based subsidy, and that can be bargained over and decided in the legislative process. If Congress wants to limit additional public expenditure to say, a trillion dollars over the next 10 years, then
they can adjust the subsidy levels and the eligibility criteria accordingly. As also recommended by others the proposal envisages the remaining contentious issues to be dealt with separately.

Politics will (naturally) play a big role in the final outcome, but good ideas can show the way forward. For American liking this proposal Starr urges sending it to your Congressman (Representative) and your Senators so they are at least in the know and hopefully act on it.

Monday, March 1, 2010

Doctor Earnings - and Why They Matter

President Obama and the Democrats may salvage something of health reforms using reconciliation to get past recalcitrant colleagues and a united Republican opposition. It's a far cry from what could have been achieved through a better, more proactive approach in the past year, yet a third of a loaf is better than none.

Administrative lapses have heavily contributed to the political stumbles. The Obama administration has failed to compile readily available data and publicize findings that undermine claims by special interests and their political allies who oppose reform. Reforms aimed at drastically curbing costs are bound to hurt some or most industry players, so they are all pointing elsewhere in the race to pin blame for health costs.

While the focus has been overly on insurers, a Feb. 25 study in Health Affairs by authors from a non partisan research group shows how hospitals and doctors bear much responsibility. The negotiating power lies with consolidated hospital chains facing little competition, and physicians increasingly banding together to command yearly double digit payment increases. (The study is limited to California, so it does not touch upon the national scarcity of doctors that contributes to their leverage.)

So how can Obama's administration including the HHS help simply by putting the facts out? One example is making widely available Medicare's true rates data, as described in my Nov. 21, '09 post. Another is shedding light on "true" doctor earnings.

Doctor and clinical services make up 21% of all US health care expenses, or half a trillion dollars annually. And this does not include the significant chunk going to salaried doctors directly employed by hospitals that account for an even larger 31% of total expenses. It is common knowledge that US doctors make much more than their counterparts elsewhere. According to available statistics it is twice or thrice as much as in other industrial countries. There are plenty of surveys on US physician earnings, but even these understate reality as elaborated subsequently.

This information is important for many reasons:

  • It helps justify what are reasonable payments under the existing system, by Medicare as well as other payers who often use Medicare rates as a basis for their own negotiations. Medicare payment cuts to physicians under the Sustainable Growth Rate (SGR) legislation have been threatened since 2002 and amount to over 21% for 2010. Facing doctor protests, Congress has always suspended any cuts after 2002 and the whole formula will likely be scrapped under pending new legislation. Any new system should factor in reliably ascertained doctor earnings.
  • It enables comparison of doctor earnings across specialties within the US, as well as across countries, particularly the first world peer economies. This tells us where the health dollars are going, and high salaries as a group are likely to indicate scarcity in specialties, needing policy corrections.
  • It helps to determine if the problem is one of egregious waste or of egregious overpayment, and to consequently identify appropriate solutions. For example, a diagnostic radiologist drew in revenues averaging $1.46 million while earning "only" $438,000. Where does the remaining $1 million go? (It's not towards equipment and its usage as that is billed separately.) If it's mostly waste then a different model (say of radiologists employed on fixed monthly salary with reasonable performance bonus) can save a lot. On the other hand, the real earnings may simply be much higher than even the reported numbers. That strengthens the case for bringing them down through cutting payments, increasing radiologist supply domestically, and trade options.

While the reported earnings of US doctors have attracted some attention for quite a while, even these figures likely heavily underestimate true earnings for the following reasons:

  • Almost all estimations are based on optional surveys with no penalties or safeguards against incorrect answers by doctors or other respondents. Doctors are acutely aware of public sensitivities about their earnings, and how this can impact Medicare payment rates that largely underpin their entire compensation structure. So they have every reason to under-report earnings.
  • The studies most relied upon like the Occupational Employment Statistics and AMGA survey only include salaried physicians. According to BLS, self-employed physicians overall earn more than salaried ones, thus skewing the results downwards. Even including the self-employed may not help, given the greater propensity and leeway in this category to understate earnings.
  • The response rate in these surveys is very low (e.g., under 9% according to p. 10 and p. 18 of the AMGA 2009 Executive Summary.) If the higher earning practices are reluctant to disclose "inconvenient truths" and shy away from participating, this again skews numbers downwards.

For all these reasons the Obama administration should compile the true doctor earnings statistics and make them public without further delay. This is a purely administrative task needing no legislative clearance and can even be done entirely under the political radar.

What's more, there's a ridiculously simple, quick and cheap way to accomplish this. How? By tapping into the already available sea of past IRS audited data on physician tax returns. Physicians as a higher earning group would have a higher proportion of returns subjected to audit. These audited returns will yield a much better representative, "non-optional" sample, not just for correct earnings but also to study expense patterns to identify waste and scope for reforms.