Its enough to make anyone throw up their hands and move to...any place where we can avoid watching health reform head off yet another cliff. But just when you're about to collapse in despair, something that is actually promising comes along.

An intriguing new proposal hit my inbox this morning, authored by the very-well-connected Bob Laszewski.

Bob's idea is to require all healthplans to restrain the rate of increase in health care costs to a level set by an independent board; failure to do so results in that plan losing tax-exempt status (and then rapidly going out of business). Here's the intro:

"Health plan networks made up of insurers and providers would be required to first begin to stabilize and then control their costs. Failure to do so would mean the loss of their federal tax qualification. Premiums for a non-qualified health plan would no longer be tax deductible for individuals or plan sponsors who used these unqualified plans.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control. The Health Care Affordability Model creates unavoidable incentives for health plans and their provider network partners to maintain their tax qualification."

There's a lot more to this, and Bob has thought it through carefully. And knowing Bob, he's been talking with others - influential others in key roles in DC - about this for some time. This is an elegantly simple, yet very effective way to blunt the rise in costs without alienating too many stakeholders.

There's no need for a public plan if the industry constrains costs. Healthplans will find it rather difficult to oppose Laszewski's Affordabilty Model, because by doing so they would admit they can't control costs and increase quality (tough for even marketing types to spin that...).

And there's lots of waste out there, lots of opportunities to reduce costs. (the Dartmouth Atlas has been publicizing this for two decades). Yet to date, no one has made any credible effort to do anything with all this knowledge - we know where the waste is but neither providers nor payers had any incentive to do anything about it.

The problem with the healthplan industry has been and continues to be simple - they have few incentives to restrain much less reduce costs. As costs go up, so too do their top lines, commissions for brokers, and in many cases margins. They add precious little value, acting more as network aggregators and marketing agents for providers than 'care managers'. And without any change in their incentives, private insurers are not going to impact costs.

For some reason the Republicans mindlessly continue to laud the free market, despite thirty years of evidence that private insurers can't control costs. The definition of insanity indeed.

But their Democratic colleagues are equally blind, worried way more about coverage than about long-term cost control. Frankly, the plans coming out of the HELP and Finance Committees to date are recipes for disaster.

Except for the Wyden-Bennett Healthy Americans Act, which promises to actually reduce total health care spending. The HAA was missing an 'enforcement mechanism', some way to force private insurers to get serious about cost control. Laszewski's contribution does just that.

His effort is well worth your consideration.

In a piece published last night, Jonathan Cohn noted:

"CBO says the net outlays are around $600 billion. But that's based strictly on what's in the bill. It doesn't appear to include the cost of the Medicaid expansion...if you want the true cost of reform, you have to account for that Medicaid expansion, too. If my back-of-the-envelope calculations are correct, that puts real price tag somewhere between $1 and $1.3 trillion. Again, that's a rough guess, based on just a few conversations, although it is is more or less what the experts have predicted all along.

(On the plus side, also outside HELP's jurisdiction--and thus not part of the CBO estimate--are Medicare/Medicaid savings. Those would offset some of the price tag, even before factoring in new revenue.) "

That's good - HELP's bill is about $400 billion less expensive than the one authored in the Senate Finance Committee.

But it is still far too expensive and does not cover all Americans (leaving about 13 million without coverage, or three percent of citizens/documented workers). And most troubling it does little to reduce health care cost inflation.

The details are here; key provisions include:

- a strong public option (the Community Health Insurance Option) accessed via a health insurance exchange

- maintains current employment-based insurance system

- requires all employers (including ones with >25 workers) that don't offer heath insurance to pay a $750 annual fee per FTE ($350 per PTE) to help pay workers' health insurance costs.

(the employer mandate got a big boost yesterday from WalMart's announcement that they would support a requirement that employers provide insurance for workers)

The public option all but ensures this bill will be voted on along party lines as GOP Senators continue to hold that the public option is a non-starter. There may be a couple of cracks in the united front, as Maine Sen. Olympia Snowe signaled that she may be open to the public option.

The big difference between the trillion dollar plus cost of the Finance bill and the $600 billion for the HELP bill looks to come from the public option. While I'm not sure exactly how the public option would result in a $400 billion differential, the CBO seems confident that it would.

I'd suggest the HELP bill is best characterized as 'less unaffordable'. I don't see how we can afford either version; deficits are growing dramatically, revenues are down, and further tinkering with monetary policy looks increasingly dangerous.

The American health care problem is straightforward - we cannot afford our current system, and must reduce the rate of inflation if this country is going to have a hope in hell of competing with other developed countries who spend half what we do on health care.

A third of what we spend on health care is waste. Playing with employer contributions and public plan options amounts to deck-chair rearrangement and nothing more; they do nothing to attack that waste.

Note to Republicans - there's an opportunity staring you in the face - get serious about health reform by cutting waste instead of meme-ing on about the threat of big government. Alas, their needle seems stuck in that groove.

Evidently a number of people are buying coverage when they need care, then dropping it when the treatment is over. This is adverse selection from the consumer perspective; they can buy coverage when they need it and insurers are forbidden to do any medical underwriting or charge different premiums.

Before someone way overreacts and says "see universal coverage will never work", understand that the issue here is very specific - the law in Mass allows this behavior. It is correctable (to a large extent) through two mechanisms:

1.) require everyone to have coverage, and

2.) prohibit members from enrolling and disenrolling except during designated times and require them to maintain enrollment with one plan for a minimum of twelve months.

And, no, the answer is not 'health status insurance'.

Let me be even more clear.

No one in the White House or Senate or the House or any staffer or party policy group - mo one even remotely close to the legislative process is in any way shape or form considering, contemplating, evaluating, mentioning or even thinking about workers comp. Comp is not now has never been and will not be part of any health reform program package bill or proposal.

I have no idea where this rumor is coming from, but I've talked with several folks who have heard that there is a task force working on this. If there is, they aren't located inside the Capital Beltway. Ostensibly this is part of some deal involving labor who theoretically will trade giving up on the card check program if the Feds make work comp a national program. I may well have this wrong because labor bosses would sooner give up their mothers fathers and pensions before giving up on cardcheck, much less something as inconsequential as federalizing comp.

And yes, we all know that comp was originally part of the Clinton reform package, known as Title Ten. What you may not know (and I didn't until Bob Laszewski told me) is exactly one (1) person in DC wanted Title Ten. Bill Clinton. No one else, not Ira Magaziner or Jay Rockefeller or Hillary gave two hoots about WC, but the big dog did.

What is also little known is that the person who deleted Title Ten was none other than Ted Kennedy. And the Senator has not had a change of heart.

Could thus change? No.

As Sen. Ron Wyden told me several months ago, when it comes to health reform, no one wants to pick a fight with anyone they don't have to.

Will health reform meaningfully affect workers comp?

Absolutely. If - and it's a big IF - reform passes into law comp will be indirectly affected. I've written on this extensively and will be doing so again shortly.

But comp WILL NOT be part of any bill.

Generally, there appears to be some confusion over the article I cited in the post - specifically about its conclusion that peer review "may have had an impact" on the number of visits.

Here are the key paragraphs:

"It seems that peer review may have had an impact - possibly by reducing the number of claims with more than 24 visits (this wasn't apparent from the article). Complicating the analysis was the underlying data; it wasn't possible to determine objectively if there were jurisdictional differences or claim severity differences (e.g. there is a very wide range of 'severity' associated with lumbago). The article noted that more severe claims were probably more likely to have peer review, but that was based on the assumption (a reasonable one in my view) that lost time claims were more likely to have requests for peer review than medical only claims...if the peer review program did result in fewer cases with more than 24 visits, how many of those were still excessive (the average number of visits for PT in comp is much lower than 24). And what was done during those visits, were the claimants 'shaked and baked' or was there actual work hardening and therapy designed to increase the patient's functionality?"

In actuality, despite a close read of the study itself there was no conclusive evidence that peer review had any impact on the number of visits.

The underlying data did not have enough detail to provide any meaningful comparisons; for example it wasn't possible to determine if a specific claim was a med only or lost time, or how severe the injury was.

And the analysis of a smaller number of claims from one large employer (reportedly UPS) was not directly comparable as the claims may have been in different jurisdiction (or more or less severe).

The net is this. It was not possible from the article to determine if peer review had any impact on duration of treatment. Yet some readers (at least a few who contacted me) drew that conclusion.

As I noted in the conclusion, "more questions were raised than answered." Here are a few:

- why was the article published if the conclusions were so...inconclusive? would it not have been more useful and interesting if some of these issues were addressed more thoroughly?

- the data was not corrected for jurisdictional variations. If that wasn't possible, I'd suggest that another data set should have been sought, as there are huge differences among and between states regarding utilization and cost of PT, as well as changes within a state due to regulatory changes (see Florida, New York, Texas and California). It could be that no other data set was available.

- the severity issue is quite important; the data were evidently not sufficiently robust to make some assessment of differences in severity. Without some measure of severity, it is impossible to make comparisons and draw conclusions about those comparisons, especially as there can be wide ranges of severity for conditions such as lumbago (one of the diagnoses featured in the report).

I applaud the author (Janet Jamieson, PhD) for her research and effort to add to our understanding of this critical issue. While it would be best to wait until all the data are in, and tested, and all follow up questions asked and answered, that's not realistic nor possible. Instead, it is usually more helpful to publish what you have, recognizing that it will likely spur additional research.

It is incumbent on those who read reports and analyses to think critically, and not read more into the results than they should.

That is a disservice to the researcher, and may well lead to inappropriate conclusions.

Medical costs are rising fast, and managed care costs are rising much faster.

Medical expenses climbed 7.9% last year, led by a ten percent increase in hospital expenses. Drug costs were up marginally while physician expense growth was flat.

Hospital costs are approaching a third of all medical expense in the Golden State and are growing despite a tighter fee schedule and all millions spent on 'medical management'.

There are two contributors to this unhappy circumstance. One is the double payment for surgical implants that occurs due to a loophole in the CA fee schedule. HSA clients report their costs for implants in California are much higher than in any other states driven by both price and more frequent usage of devices.

The second driver is the disconnect between utilization review and the bill review and payment function. As noted previously here, many UR determinations don't find their way thru the electronic labyrinth to bill review and payment.

Which is why there is so much frustration among employers forced to pay ever increasing fees for managed care services that, in many cases, do little to 'manage' claimants' care much less reduce costs.

The California reforms have done much to restrain cost growth but the individual rules and regs have often done harm as well as good. The pharmacy fee schedule and associated regs resulted in the explosion of physicians dispensing repackaged drugs at wildly inflated prices. The 24 visit cap for PT etc has resulted in too many visits for some claimants with modest injuries and too much hassle for all parties involved in complex claims. And the implant issue is exhibit one.

The stakeholders benefiting least from the reforms are the physicians.

What's wrong with this picture?

Wrong question.

Have the Senators given up on the real issue, cost control? Or is that subject just too toxic, with lobbyists and interest groups lined up to attack any assault on their respective constituencies?

Instead of worrying about cutting benefits and increasing cost sharing the focus should be on a significant expansion of comparative effectiveness research and an overhaul of reimbursement to incent and motivate providers to better manage chronic conditions.

Sure there's talk about thus, and there's even a bill in the House to drop the SGR process in favor of a more rational approach to reimbursement. And I know these initiatives haven't yet gotten much credit from the CBO. My sense is that is because there isn't much in the way of teeth in the proposals to date. If and when fundamental change in these areas is proposed along with a structured implementation process, we may well see the CBO revise their estimates.

This is going to be very very difficult as many in the health care industry will get their wallets lightened. But without real, meaningful, and measurable cost reduction we can't afford universal coverage.

The HAA is a universal coverage, individual mandate program that delivers significant savings over the current system as well as most of the proposed reform initiatives.

The Committee is comprised of current and former business executives, including representatives from Wall Street, McKinsey, IHS Global Insight, Bausch&Lomb, Avaya, Burson Marseller, the Boston Consulting Group and others.

Notably, in a poll released yesterday by CED, sixty percent of business leaders polled agree that the current employer-based system is unsustainable.

They are right.

While my sense is a 'passable' reform bill will be based on the current system, my belief is that health coverage should not be linked to employment, as this limits portability, leads to job lock, and adds an unnecessary burden to most employers.

I'd add that the current system hasn't worked to either improve health care quality or control prices. So expecting that a 'new and improved' employment based system will do better is rather speculative.

That gap has now been filled.

Work comp managed care firm DiaTri (www.diatri.net) has signed a deal that provides their clients with access at deep discounts to the 5000 Quest lab facilities. The access enables payers to benefit from rates that look to be substantially under most generalist networks, and far less than fee schedule rates.

The deal requires payers to work diligently (my words not their's) to encourage claimants to use the participating labs; payers will have to do more than just take discounts. However, the discounted rates will be applied to retro as well as prospective referrals.

DiaTri has an exclusive deal here; thus is a savvy business move for the company which has been operating in other work comp and group health niche markets.

Note: neither myself nor HSA have any professional or business relationship with DiaTri or Quest.

End of conversation.

I would have been happy to engage further but he wasn't. The rest of the ride in the hotel shuttle was awfully quiet.

The mis- and dis-information spread by pundits and politicians about the Democrats' plans for health reform is having its desired effect, at least on those predisposed to believe their claims. Whether the superficial 'understanding' evidenced by the captain's statement will be affected is anyone's guess but it is clear that reform opponents are ramping up their efforts to 'Harry and louise' the 2009 version of reform.

President Obama and his fellow Democrats have not done a very good job convincing Amerucan voters that they can keep the health care they have today-if they want to. The message discipline that typified Obama's campaign has been noticeably absent in the health care reform discussion; if it doesn't return and fast the chances of major reform becoming law are going to diminish by the day.

Fear is a powerful motivator, and reform's opponents have shown themselves to be masterful in its use in the public discussion.

Now, PR firms are asking bloggers to encourage readers to sign petitions decrying taxation of health benefits, specialty medical societies are fighting to hold onto their high reimbursement, lobbyists for imaging companies want expanded coverage of MRIs (!?), employers are getting increasingly uneasy and budget hawks are amping up the volume.

As I've said for months, comprehensive health reform is a doubtful proposition.

Everyone wants universal coverage, but no one wants their taxes raised or their share of the pie cut.

While the latest polls indicate some willingness on the part of Americans to accept somewhat higher taxes to help fund universal coverage, on the expense side of the ledger there is precious little evidence of belt-tightening. Sure, pharma volunteers to cut $80 billion over ten years (remember the current annual health expenditure is $2.2 trillion); that's a mammoth two-tenths of one percent.

And yes, we all recall the health care/union execs who promised to cut $2 trillion from the nation's budget over ten years - and then stumbled over each other as they backpedaled away from that 'promise.

The draft of the Baucus bill is a clear indication that some of the Senators ostensibly driving the health reform process have very little appetite for taking on the health care industry; the bill is all about coverage with almost no meaningful effort at controlling cost.

And this from the Chair of the Senate Finance Committee. The bill that emerges from the HELP Committee has the weight of Senator Kennedy behind it; that said early indications are it does not exactly take the long knives to spending. Kennedy may be the best hope; in a Nixon-goes-to-China way the ailing Senator has the political weight to win cost concessions that Baucus et al are avoiding like the plague.

As Bob Laszewski has been assiduously noting, all the happy talk will amount to naught if the CBO and OMB can't find meaningful spending reductions.

Without a significant reduction in projected health care spending universal coverage is unaffordable. Fortunately OMB and the CBO are watching our pennies.

So, what could happen?

There are at least three potential results.

President Obama has proven himself capable of achieving the seemingly impossible. Think on this - which is more unlikely - America electing a black man to the Presidency or passage of health reform? Do not discount his ability to deliver.

Incremental reform has already occurred - SCHIP is but one example; there is also a bill before Congress to reform Medicare's physician reimbursement process; ending medical underwriting and requiring community rating would dramatically alter the insurance system (leaving aside the problem of community rating without universal coverage, which should be inextricably linked). Big changes in drug and device approval and reimbursement are also likely, and hospital reimbursement is already on the chopping block. In any other environment, any of these changes would be big news. Together, they make for the biggest change in health since 1964.

There remains one plan that reduces cost, covers everyone, and already has bipartisan support - the Wyden-Bennett Healthy Americans Act.

I've long supported this bill, and believe it is our best chance for meaningful reform that addresses cost and coverage.

Here's how Ezra characterizes the draft:

"The numbers tell the story. In [the original version that was submitted to the CBO] that plan, subsidies reached 400 percent of poverty. In this plan, they've been cut to 300 percent. In that plan, Medicaid eligibility was as high as 150 percent of the poverty line. In this plan, it's 133 percent for pregnant women and children, and 100 percent for childless adults. In that plan, the "gold" coverage was 93 percent of a person's estimated expenses, and "bronze" coverage was 68 percent. In this plan, those numbers are 90 percent and 65 percent, respectively. That means people with a low-cost plan might be covered for only 65 percent of what they're likely to need.

Another way of looking at the plan is that it remains a significant step forward. Subsidies to 400 percent of poverty would be nice, but subsidies to 300 percent of poverty are far beyond anything we offer now. Coverage that protects against 65 percent of anticipated costs is better than no coverage at all. The co-op idea isn't a public plan, but with federal seed money to start new co-ops, it's a good idea on its own merits. There's an individual mandate, state-based health insurance exchanges, and a substantial health and wellness initiative. Insurers are barred from discriminating based on health history and Medicaid is sharply expanded."

Note that this is a draft version, from one committee, from one legislative body. Senator Kennedy's committee will come forward with its own bill shortly, and the bills will have to be merged/compromised into something acceptable to the House and the President.

Rather than get into the details, which are a) in draft form and b) likely to be changed before the bill emerges from the Finance Committee, here's what is missing.

An individual mandate.

To say this is disappointing is to damn it with faint praise. The commercial insurance industry has shown itself completely unable to restrain cost. As I've noted before, I'm not convinced that a public plan is a requirement - BUT - unless there are much stronger cost controls in a health reform bill, the public plan option may be the only way to control cost inflation.

Why? With an individual mandate, there are no incentives for private insurers to hold down costs.

Not true, you say, the market will.

To which I respond, what market?

As I noted in January, There's been so much consolidation in the health plan industry that many markets are dominated by one or perhaps two health plans.

In two-thirds of MSAs, one insurer had market share equal to or greater than 50 percent, and in a quarter of MSAs, one insurer had market share of at least 70 percent.

Blue Cross of Alabama has market share ranging from 67 percent in Tuscaloosa to 95 percent in Gadsden. Blue Cross of Arkansas' share goes from a low of 63 percent in Hot Springs to 97 percent in Texarkana. The two dominant health plans in Ohio have combined share ranging from 46 percent to 80 percent.

THERE IS NO FREE MARKET IN THE HEALTH INSURANCE BUSINESS.

The Finance Committee's effort is a path to financial ruin; without cost controls we're looking at a deficit creator that will make Part D's eight trillion dollar ultimate liability look paltry in comparison.

Recall that Part D relies on the private sector to provide benefits to individuals, albeit without a mandate. Well, after Part D, the largest expansion of government-assisted health care since 1964, went into effect drug manufacturers raised prices by an average of 7.4%. Why? Because they knew there was a large new customer base, eager to get drugs, that was not very concerned about cost.

The passage of Part D was a boon for big pharma, as the industry enjoyed a substantial increase in profits and revenues attributable to Part D. In 2009, the big Part D carriers raised premiums significantly; Humana by 51% and United Healthcare by 18%, with copays also on the rise.

On a national scale, the program is a disaster. The ultimate liability for Part D is $8 trillion, a liability that is unfunded.

This is what we can expect if Congress passes and President Obama signs into law national health reform that does not aggressively, and forcefully, address cost - a deficit explosion that will make the cost of the current bailouts look like lunch money.

The impact of this situation was brought home in the film version of Maggie Mahar's book "Money-Drive Medicine"; I attended a screening of the documentary last week in NYC.

I wasn't sure what to expect; there have been quite a few films on health care, reform, insurance and related topics recently, but none that defined the fundamental problem as clearly and cogently as MDM. Care is fragmented and disorganized, with patients not treated as humans but as discrete and separate body systems; in the film the care appears coldly mechanistic. Physicians' narrow focus on their specialty is part of the problem; this isn't to blame the docs entirely but rather to illustrate how the entire reimbursement process has bastardized health care.

With docs narrowly focused on body systems they ignore issues that affect other systems. Their very deep but quite narrow knowledge seems to stop at the outer layer of the heart tissue for cardiologists or the fluid surrounding the eye for opthalmologists. Of course the body isn't a collection of 'systems' operating independently but a marvelously interconnected and interdependent whole.

Kind of like the health care system.

Maggie's film doesn't offer a solution. Instead it reminds us that the health care system is just that. If reform is to work, it must consider the impact of change on the entire 'body'.

At the top of the list is thinking through the motivations of the players. For profit insurers and health care companies are in business to make profits for their owners. That isn't necessarily a bad thing. But it does mean patient care is of secondary importance. While insurers and hospital chains and Investors may yell 'foul', their charter requires them to work for their owners and to claim they have reordered their priorities isn't credible.

This isn't meant to infer that not for profit entities are entirely different; as the CEO of a regional hospital told me years ago; "no margin no mission".

I've read it, re-read it, discussed it with Paradigm staffers and a couple of their clients, and started to post on this at least twice. Each time other hotter issues popped up, and this got pushed back into the corner of the desk.

This may be similar to how Paradigm has been dealt with by many in the payer community. Sure, those cat cases are important, and yes, we really need to do something about it, but hey, I have a really important meeting on the latest PeopleSoft upgrade to go to, and I really need to review the latest case closure report, and...

So the urgent takes precedence over the important. And make no mistake, catastrophic cases are very important indeed in work comp. According to an analysis by NCCI, half of all medical expenses are for 6.2% of claims.

Six percent of medical dollars are spent on 0.3% of claims. By my calculation, that's $1.8 billion annually on a very few claims. The real dollars are much larger, as cat claims account for a very large chunk of the industry's reserves.

Many payers have set up dedicated teams to handle cat claims. Staffed by senior claims reps supported by legal and medical experts, these are variously known as 'high exposure', 'large loss', or 'complex claim' units. While there's undoubtedly a lot of experience embedded in many of these units, it is simply impossible for a single payer to have the depth if expertise in specific types of cat claims that is resident in Paradigm. No insurer has seen as many TBIs, burns or spinal cord injuries; if they had they'd be long out of business.

Yet despite the demonstrated expertise and documented results of Paradigm, many claims execs refuse to objectively consider referring cat claims to Paradigm (or a similar entity).

Why?

Experience tells me some are threatened by the potential that an outside firm could actually handle a claim better than their own people. Others blindly believe (with inadequate justification) that no one outside their company could possibly do a better job.

Paradigm isn't blameless. The company has stumbled in their efforts to build a succesful sales and marketing program. At times they have been insensitive to the threat they pose to clients' entrenched processes and personnel. That said, there's no question they have far more expertise in cat claims than any single payer, and their financial model is usually compelling.

Note: Paradigm is not a consulting client and has no business relationship with HSA or myself.