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Nov
26

Why big reform won’t happen in 2009

In the three and a half years I’ve been publishing MCM, I’ve been labeled a conservative, libertarian, apologist for the insurance industry, socialist, leftist, liberal, and other less printable terms.
It’s nice to be part of so many seemingly diverse groups.
Yesterday the Center for American Progress (a progressive organization) called me out for my statements that we won’t see big health reform any time soon. They make a rather compelling case for health reform, citing all the good reasons for the ‘big fix’.
While I applaud their motives, perspective and logic, I would also note that their piece completely misses the big point, a point they themselves explicitly acknowledge. None of the health care reform initiatives presently before Congress (except for the Wyden-Bennett bill), nor President-elect Obama’s health reform platform address costs.
Folks, wake up! We cannot afford to cover 50 million more Americans unless and until we do something meaningful about costs!
Once people get insurance, they tend to use it. And as we’ve seen with Part D, once the medical/pharma/device/hospital industry figures out there are a lot more people with coverage, they will raise prices, buy more technology, and build more capacity to service those new customers
Obama’s campaign speeches and white papers acknowledged this central issue. Yet he has yet to come out with anything remotely addressing cost savings initiatives. The contention that his plan will save the average family $2500 is simply not credible; there is no backup for that claim.
There’s a very good reason for the absence of cost cutting; politically it would make the Obama plan dead on arrival; or more accurately, dead before conception.
The combination of the political impossibility of keeping every health stakeholder happy, today’s economic situation, the wars in Iraq and Afghanistan, Russian and North Korean belligerence, energy, and the world wide implications of the recession and credit market collapse leave no oxygen for major health reform. Yes, there will be incremental initiatives (see here) and these incremental improvements might actually be big changes.
But anyone who wants to see the whole mess fixed at one fell swoop is going to be sorely disappointed.


11 thoughts on “Why big reform won’t happen in 2009”

  1. Two general pills for pain (standard drug store over-the counter)cost at the emergency, in our local hospital, $40 for two. they made $39.98 profit.So…what else is new.

  2. Joe,
    You bring up excellent points; however, we are talking about politics here. The Government does not do a very good job understanding the causes behind the symptoms, but they do a great job of implementing programs with the idea of fixing things on the back-end. Unfortunately, we are most likely to see an enormous example of the “Law of Unattended Consequences” in spades here.
    Just keep pounding out your concerns, you never know

  3. Austin, TX $18.50 PER PILL for 81mg aspirin. Bottle of “baby aspirin” = $3.00 at local drug store
    If coverage is made universal, hospitals will be writing off less to bad debt. Even a Medicaid-level payment would be better than not getting paid at all. Since hospitals will be collecting more and writing off less (stronger margins) one might think that they will drop their prices and lessen the cost-shifted burden on commercial and comp payors. Not likely. Ripple effect will be no change in pricing, but higher collection rates on outstanding balances. Real question – will hospitals go along with a lower payment and waive their chances at collecting dispro funds…

  4. Joe-
    People who don’t like me call me “Jane.”
    But while I’m a left/liberal, I agree with you. We should take our time and do this right..
    If we don’t contain costs we will wind up with a larger version of the mess we have today.
    And it will take more than one piece of legislation to accomplish what we need to do.
    The battle with the lobbyists who profit form the current, wasteful system will be intense.
    I understand why the insurance industry wants “Universal Coverage Now”–it is desperate for new customers, government subsdies in hand. And the quicker we pass legilsation, the less likely it is that we will take the time to figure out how to regulate the insurers so that they do not continue to gouge sick people while selling others “insurance” that is hardly worth the name.
    What I don’t understand is why so many very intelligent, well-meaning health care reformers want to rush something through in 2009.
    Even before the economic meltdown Obama said that he hoped to achieve universal coverage “by the end of my first term.”
    We elected him because he is very intellgient, deliberatge and calm. Let the man lead.

  5. It is fascinating that clarity on our health system is not forthcoming at least with a general grasp that it is not sustainable. It annually grows in cost well in excess of inflation. We are at 18% of GDP compared to other industrialized countries where metrics of infant mortality, lifespan and other measurements are not in our favor. Yes we can get a hernia repaired or an MRI faster, but is that worth the 6% spread?
    It would take real effort to design a system that is as expensive as the one we currently have. Obama is making the point that we need to be ready for many sacred cows to be gored. Perhaps our health system is one of them. I look forward to seeing if he will address this with the same rigor and creativity as he seems to be putting into his early appointments. Interesting by the way to see the players who fought reform a decade ago, all jumping on the reform wagon early on. This suggests that they are betting on change taking place and they hope to not be left behind. To be sure, if several GDP percentage points are lopped off a future system, that there will be many losers in the new system – but we must reinvent the system to make it rational, transparent and perhaps as universal as K-12 education is.

  6. You are right on . . . identifying the problem doesn’t mean that anyone has identified a workable solution.
    I was in the Federal Government from 1972 – 1980. I was very involved in coordinating a bill that was designed to make a major change in healthcare. The HMO Act of 1973 did have a major effect because it did two very different things: (1) it changed the focus from disease care to preventive care; and (2) it created non-profit health care plans that were community-rated and required that any “profits” be used to reduce premiums or increase benefits. Nice ideas until the bigger organizations successfully worked to permit for-profits.
    Look back 40 years and you’ll see that the circle is now complete. We have a few very large “insurers” that offer coverage with higher and higher premiums, deductibles, co-insurance and copays. And people are once again waiting to obtain health care services because of the impact on the family budget.

  7. It’s encouraging to see more talk and publicity about the need to get the waste out of the healthcare system to reduce costs instead of just continuing to commit much more money to the same failed system in order to approach universal coverage.

  8. Health care costs are unlikely to change unless the controlling parties have a reason to lower them. The federal government, as the largest purchaser of healthcare in the nation, might have the power to force providers into accepting payment increases that only keep pace with inflation. Unfortunately, there is no group interested in lowering the cost of healthcare with the resources to out-lobby the AMA and the pharmaceutical industry.
    Kim, Sparten & BJC – Hospitals aren’t price gouging. The money made for over-charging for percocet and baby asprin in the emergency room still don’t make up for the ER’s huge losses. Hospitals almost universally lose money to their emergency rooms. Without offsetting the costs with higher-than-expected drug charges, the hospitals would be forced to move those costs onto healthcare payers some different way.
    The real solution is a single-payer healthcare-funding system. If the government, or a public non-profit organization paid for all the healthcare in the country, they and the healthcare providers would have no choice but sit down and create reasonable cost-containment plans. A single-payer system would also cut down on much of expensive overhead rampant in the healthcare system.

  9. Nice Post and I couldn’t agree more. And of course the greatest irony in the whole thing is we all know we spend a heck of a lot of money in this country on health care and we all know that as a collective our outcomes are worse than almost anywhere else… and still we cannot solve the issue.
    I tend to liken our situation to that old game theory problem referred to as The Tragedy of the Commons
    http://en.wikipedia.org/wiki/Tragedy_of_the_commons
    all the separate players, maximizing their own personal interests, destroy the collective benefit we all gain from the system’s very existence.
    Of course the problem is that we all have our own personal ‘sacred cows’ in this system which are (well) sacred, and since they can’t be discussed or negotiated (because they are sacred) we can’t reach consensus- for what is sacred to you is not necessarily what is sacred to me.
    FYI- For once I would love to see someone do a post on what health care spending really is- fractal. My own tendency towards anthropology does not see a solution to this problem until we recognize this fact. We can argue that we don’t like the fact that it is fractal, but when the experts finally admit it (my own reading of the data is quite clear that it is), almost by definition, we will realize that it will always be fractal. And how do we reconcile that with our values?
    A link if you have no idea what I am talking about
    http://www.ritholtz.com/blog/2008/11/fractals-hunting-the-hidden-dimension/

  10. David –
    I don’t believe this to be a price gouging issue, but rather one of subsidization.
    If a given hospital has an average mark-up of 800% on its charge master, it would only be gouging if they collected it. Micro-level cost shifting to hit macro level margins is nothing new. What is having a real impact on payors is the growing level of the shifting taking place. Is it fair for one subset of payors to subsidize ever-increasing losses from others? If your answer is yes, then I suspect to see charges rise dramatically in response to the projected low reimbursement from a single-payor system. We then will have effectively shifted the cost curve up with nothing to show for it. I strongly agree with your statement about the need for cost-control, without which taxpayer dollars will be largely wasted on a single-party funding mechanism.
    BJC

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Joe Paduda is the principal of Health Strategy Associates

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