Financing Healthcare—Some Basic Questions
The cost of health care has been an issue since I started medical school in 1970, and as we enter the 2016 campaign season it remains a contentious issue. I normally don’t try to address issues such as this, since the questions are either political, which I want to avoid, or very technical in an area where I have no expertise. However, I have read three recent items that prompted me to think about the basic questions involved. As always, there are only great questions, not great answers.
The Affordable Care Act, which is really more about insurance reform than health care reform, was passed with the idea that it would reduce inequities in access to health care by making insurance more uniform and mandatory. John Hsu has published an analysis of insurers losses in the first couple of years of the program. In the original proposal, all health plans in the United States would have to meet certain pre-specified conditions, but under political pressure, the administration decided to allow state insurance commissions to waive this requirement. As would be expected, some (39) did and fewer (12) did not. Analysis of financial results show that insurance plans in the 12 states that did not allow a waiver generally broke even, whereas those in the majority, which allowed waivers, showed substantial losses. Hsu makes the point that making insurance affordable requires making every one participate. Of course, this has not proved politically acceptable.
The second article examines the current CMS proposed trial of payment reform for Part B drug expenses. These are drugs that require parenteral administration in the office or clinic. Currently, a physician wishing to administer these drugs purchases them and when their administered, allows the physician average sales price plus 6% for the costs of acquiring and administering the medication. In the new experiment, half will receive the average sales price plus 2.5% and a flat fee of $16.80 to give the drug. Part B drug charges have grown rapidly, and CMS is trying this experiment to curb the growth in expenditures. Obviously, they believe profit motive is driving physicians to give these drugs.
Schrag notes that prior to instituting the current formula in 2005, there was profit in drug administration if a practice was able to obtain volume pricing from the manufacturer, but she also notes:
“Although some of this profit elevated incomes, it was systematically used to compensate for inadequate Medicare reimbursement for such services as symptom management, psychosocial support, and end of life planning.”
“Physicians object that the model targets the bird (the 6% or 2.5% margin) on the back of the hippopotamus (ASP). It may nudge physicians to choose lower-cost medications but doesn’t address the sky-high prices set by manufacturers.”
Some patient organizations are in favor of this experiment, some are not. It is not clear at this time if the plan will be implemented as proposed, but suffice it to say, it has major impact on the practice of oncology. Our clinic has had oncologists for more than 35 years, and we ran our own infusion center. When the 2005 changes came along, we elected to fold the infusion center into an operation run by the hospital. The net effect is the co-pays and the charges have increased. I doubt anyone would be able to show that this change impacted physician decision-making in any material way.
While the government experiments with payment changes, commercial insurers have tried other approaches. The most popular is the use of high deductible health plans. Goodman did an excellent summary of the pros and cons of these plans. He noted that the average deductible in 2015 for single coverage was expected to be $1,217, which was about double that in 2006. He also noted that the deductibles in the plans offered on the insurance exchanges under the ACA were nearly double these levels. In favor of high-deductible plans, he notes the following points. A good measure of the true cost of health insurance is the premium you would pay for comprehensive first dollar coverage. The last dollars of insurance are the most expensive. He also notes that another option is to self-insure. More people are choosing this option as reflected in the growth of the plans and range of options.
Finally, the Gallup organization has released a poll showing that 58% of people favor replacing the ACA with a federally funded healthcare system. However, the population was evenly split between those who would favor keeping the ACA as is and those who would favor repeal. Not surprisingly, the respondent’s political orientation was correlated highly with their responses to the questions asked. Their conclusion:
“The current survey used shorthand descriptions to describe the alternatives for dealing with the ACA, and it's possible that not everyone understands the implications of each approach. Instituting a universal healthcare system, in particular, would be one of the most significant overhauls of a major part of American life in modern U.S. history, and would create huge consequences and challenges. Additionally, other research shows that when given a choice, Americans are philosophically more inclined to favor a private healthcare system than one run by the government. Americans are generally satisfied with their personal healthcare, something that also could slow down the process of adopting a major overhaul of the healthcare system. Still, the general idea of a single payer system seems to play well with the majority of Americans, something both the presumed Democratic nominee Clinton and the Republican nominee Trump will need to keep in mind as they debate healthcare in the months to come.”
So what are the great questions? First, do we want a payment mechanism that is going to provide first or last dollar coverage? Right now, government insurance (Medicare/Medicaid) is closer to first dollar coverage, whereas commercial insurance is skewed more toward last dollar coverage. But in both cases catastrophic illness can lead to financial ruin for the unfortunate patient. We really don’t have the ability to purchase “insurance” against such outcomes.
Second, is profit good or bad? CMS clearly believes that profit motives drive expenditures and has instituted a variety of changes designed to make it difficult for physicians, in particular, to “profit” from their decision-making. On the other hand, commercial insurance plans believe making the patient sensitive to cost will allow them to “profit.” Drug companies and insurance companies are also profit-making businesses. Wall Street believes this is good—the American way—and drives innovation. Main Street asks why the cost of standard medications that have been around for years have gone up in price quickly since the introduction of Medicare Part D.
I suspect most citizens are also split on what they want at a personal level. When the illness is minor, they are opting for urgent care at WalMart, but when they get really sick, they want the Mayo Clinic. They want to get change from a $20 when they go to the doctor, but they are complaining about the doubling of deductibles in the past 10 years. They also complain about the mandatory insurance coverage requirements of the ACA and their tax rates.
As I said at the outset, we are faced with great questions, but not great answers. Some may expect a grand solution to emerge, but after 45 years of watching the issue with a personal interest, I predict we will continue to muddle along. What has changed, it seems to me, is that in 1970, the “profit” went to the providers. Now the profit goes to the businesses and everyone is trying to manipulate the providers to behave in a way that looks out for their interests. I wonder if I am naïve to hope that the old adage, “doing well by the patient is the best way to do well” still applies?
12 June 2016
 Hsu J. The ACA and Risk Pools—Insurer Losses in the Setting of Noncompliant Plans. N Engl J Med 2016;374(22):2105-2107. doi: 10.1056/NEJMp1602981.
 Schrag D. Reimbursing Wisely? CMS’s Trial of Medicare Part B Drug Payment Reform. N Engl J Med 2016;374(22):2101-2105. doi:10.1056/NEJMp1603735.
 Goodman JC. What Every Family Should Know About High Deductible Health Insurance. 14 Oct 2014. Accessed 10 June 2016 at http://www.forbes.com/sites/johngoodman/2014/10/14/what-every-family-should-know-about-high-deductible-health-insurance/#2244fbdc4803.
 Newport F. Majority in U. S. Support Idea of Fed-Funded Healthcare System. 16 May 2016. Accessed 20 May 2016 at http://www.gallup.com/poll/191504/majority-support-idea-fed-funded-healthcare-system.aspx?g_source=Politics&g_medium=newsfeed&g_campaign=tiles.
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