Rx for Health Care Reform - Softcover

Terry, Ken

Softcover

ISBN 10: 0826515711 ISBN 13: 9780826515711

Publisher: Vanderbilt University Press, 2007

Synopsis

In this readable and well-researched book, Ken Terry analyzes the current state of health care reform and finds it wanting. Instead of tackling the core problems in our failing system, he argues, politicians, insurance executives, and health care leaders have embraced ideologically driven initiatives that pursue impractical objectives or will take too long to bear fruit. Among these are such widely hailed trends as disease management, pay for performance, cost and price ìtransparency,î consumer-directed care, and health information technology, none of which will reverse the rising tide of health spending. What is creating this nightmare scenario, according to Terry, is the sheer profitability of the health care industry. Insurers, physicians, hospitals, pharmaceutical companies, and device manufacturers are all striving to maximize their profits, and there is no effective competition or regulation to restrain them. Only a complete overhaul of our system for financing and delivering health care can get us out of this mess, the author maintains. In the second half of his book, he presents a bold vision of how to do this: First, he says, all primary care physicians should join group practices that are large enough to take financial responsibility for professional services. And second, competition among those physician groups, based on cost and quality, should replace competition among health plans. There should be only one government-regulated insurer per region, he says, and it should have no role in managing care.

About this title

About the Author

Ken Terry, a senior editor of Medical Economics Magazine, the leading business publication for U.S. physicians, has won several journalism awards for his health care articles. In a previous incarnation, he was an editor for Billboard and Variety.

Excerpt. © Reprinted by permission. All rights reserved.

Rx for Health Care Reform

By Ken Terry

Vanderbilt University Press

Copyright © 2007 Ken Terry
All rights reserved.

ISBN: 978-0-8265-1571-1

Contents

Acknowledgments, ix, 
Foreword by Paul B. Ginsburg, xi, 
Introduction, xiii, 
Part I Whither Health Care Reform?, 
1 How We Got Into This Mess, 3, 
2 'Round and 'Round on the Reform Carousel, 16, 
Part II The Emperor's New Clothes, 
3 The Two Faces of Disease Management, 35, 
4 Paying for Performance, 46, 
5 EHRs: Necessary But Not Sufficient, 61, 
6 Can Consumers Direct Their Own Care?, 78, 
7 The Limits of Evidence, 95, 
Part III The Money Machine, 
8 Supply-Induced Demand, 109, 
9 Physicians Go for the Gold, 121, 
10 Hospitals Flex Their Muscles, 132, 
11 Why Do Drugs Cost So Much?, 142, 
Part IV Rx for Health Care Reform, 
12 This Market Needs Regulation, 161, 
13 Putting Doctors Together, 164, 
14 Why Groups Should Take Financial Risk, 174, 
15 A Real-World Model for Reform, 185, 
16 The End of Insurance As We Know It, 197, 
17 Getting Down to Nuts and Bolts, 209, 
18 Universal Health Care, 225, 
19 Toward Uniform Hospital Pricing, 240, 
20 Let "Hospitalists" Take Charge, 249, 
21 Health Planning and the CON, 260, 
22 What Works Best in Practice?, 271, 
23 Must Technology Break the Bank?, 282, 
24 Toward a Rational System of Rationing, 296, 
Notes, 305, 
Index, 355, 

CHAPTER 1

How We Got Into This Mess

Since the nineteenth century, Americans have been divided between those who believe that the purpose of government is to protect individual liberties and those who believe that government should also serve the interests of society at large. This not a simple conflict between advocates of free enterprise and advocates of regulation, or between capitalists and socialists. It reflects the dualism in the very ideals of liberal democracy: The egalitarianism that produced a meritocracy opposed to the old European concept of inherited class also led to the progressivism of the early twentieth century and the social welfare reforms of the 1930s.

In the health care reform debate that has persisted for more than a century, the key difference between these two strains of egalitarianism can be summarized as follows: The conservatives hold that there must be winners and losers in society, and that it's up to the winners to decide how much health care the losers should get. The liberals maintain that everyone is entitled to at least basic health care.

The majority of Americans support the idea of health care as a right. But, as the history of the Clinton health care reform plan shows, the middle class is not willing to spend very much to expand access to health care. The Clinton plan collapsed mainly because middle-class people believed that, if it were adopted, their own coverage would suffer or they'd have to pay more for insurance. So America was and continues to be torn between self-interest and the ideal of universal coverage.

Our current health care crisis is closely intertwined with the peculiar public-private structure of the U.S. health care system, which allows millions of people to be uninsured and permits providers to shift costs between the government and private payers. Other advanced countries don't have these problems, because they have universal coverage. Moreover, their government-run systems provide care that, in many ways, is as good as ours at a fraction of the cost.

Why haven't we adopted national health insurance? The answer is complex, but I believe that three factors are chiefly responsible: entrepreneurial ambition, physician resistance to outside interference, and escalating consumer demand for services. The last factor wasn't important until after 1950, when private insurance became widespread. But the other two factors had a unique and remarkable effect on the early development of the U.S. health care system.

During the first U.S. attempt to enact compulsory health insurance during World War I, for example, unions, employers, and physicians all fought it for various reasons. So did insurance companies, even though they didn't sell medical coverage. Why were they against it? Because the proponents of national health insurance had foolishly included funeral benefits in their package. Since the insurers made a lot of money from funeral benefits, they helped kill the bill.

Doctors and Health Insurance In the early twentieth century, physicians and the American Medical Association (AMA) opposed not only national health insurance—which they said would lead to "socialized medicine"—but also voluntary, private health insurance. They did so mainly because they viewed prepaid care and organized financing systems as intrusions on their right to determine their own fees and practice medicine as they saw fit. So, in the 1920s and 1930s, the AMA fought "contract practices" that competed for a share of workman's comp business and warned doctors not to join the prepaid groups then springing up in the West.

When the Depression arrived, the incomes of both physicians and hospitals fell sharply. Some hospitals responded by forming nonprofit "service-benefit" plans that later became Blue Cross. For a modest monthly fee, employees of local companies could obtain insurance for most hospital services; no matter what these cost, the members would not be liable for any additional charges. Moreover, the early Blue Cross plans charged all of the employee groups the same "community rate"; the healthy subsidized the sick, and workers in small businesses were not disadvantaged compared with those in large firms. Together, these "socialistic" innovations constituted a mighty leap forward for the insured, and millions of people joined these plans.

The AMA took a dim view of the prepaid Blue Cross plans. But consumers were demanding insurance for physician services as well, and some state and county medical societies organized service-benefit plans that would later be called Blue Shield. The AMA cautiously endorsed these efforts, but with a few qualifications: First, it argued that the physician plans should be separate from the hospital plans and under the control of medical societies. Second, the AMA wanted the health plans to reimburse patients, who would still pay cash to the doctors under what is known as an "indemnity" policy. And third, the medical society remained unalterably opposed to compulsory health insurance, which it termed "bureaucratic, inefficient and potentially harmful to the quality of American health care."

The AMA's opposition to national health insurance was the main reason President Franklin Roosevelt did not include it in his package of New Deal social reforms. And the AMA's preference for indemnity insurance helped steer Blue Shield plans toward that type of coverage, which kept the doctors independent of the financing organization. By the 1950s, under pressure from rising costs and competition from commercial insurers, most Blue Cross plans also abandoned their service-benefit orientation and started paying limited cash benefits. And, since the majority of Americans were insured by then, the argument for national health insurance was much weaker than it had been a decade earlier. So the physicians had helped block national health insurance by accepting private insurance, and their endorsement of indemnity policies had staved off the threat of third-party control.

At the same time, the big commercial insurance companies were becoming prominent in health care. While they had initially avoided health insurance because it seemed too risky, the success of the Blues forced them to join the fray. They challenged the nonprofit plans by offering cheaper indemnity insurance and also by segmenting the market into different risk groups. In place of community rating, they used "experience rating" to charge employee groups different premiums, depending on how much health care they used. This meant lower rates for healthier groups; and as the better risks were pulled out of Blue Cross and Blue Shield plans, they had to abandon community rating in order to compete. Once again, entrepreneurial ingenuity won out over social solidarity.

Health Care Becomes Big Business Several factors contributed to the rapid growth of the health care industry in this period. First, during World War II, many employers had begun to offer health insurance to their workers. They did so because of the labor shortage and government controls that prevented them from attracting workers with higher wages. The government accelerated this trend by making employee benefits tax-deductible to the employers. After the war, labor unions began to bargain with companies for health benefits, and some cosponsored plans with employers.

The expansion of insurance was accompanied by rising health costs. Between 1935 and 1946, for example, hospital admissions more than doubled, from 2.2 million to 4.7 million. But insurance was not the only driver of spending growth. New technologies added considerable expense, especially in hospitals. So did federal government programs aimed at spurring medical innovation and the availability of health care to the population.

The discovery of penicillin and other "wonder" drugs in the 1930s inspired a great upwelling of public support for medical research. In 1948, Congress created the National Institutes of Health (NIH), starting with the Heart Institute and soon adding five other research centers. Large sums of money followed, and after the successful trials of the Salk vaccine, which eradicated polio, the NIH was assured of continued political support.

In 1946, Congress also passed the Hill-Burton Act, which authorized federal aid to the states for hospital construction. The goal was not only to build more hospitals but to generate jobs and business. Between 1947 and 1971, the government disbursed $3.7 billion in Hill-Burton funds, generating another $9.1 billion in matching state and local funds.

Together, the medical research and hospital funding laws helped turn health care into a big business. Government-funded basic research provided essential support for the budding pharmaceutical and medical device industries, and the spread of community hospitals greatly increased the number of beds that physicians could fill with patients who might benefit from the new technologies. So, while insurance created demand and a way to pay for new services, the availability of those services gave providers a reason to use them.

Medicare Proves a Bonanza Reformers had been unable to pass national health insurance in the late 1940s, even with the support of President Harry Truman, and their efforts had stalled in the 1950s. But as the 1960s began, a new emphasis on providing insurance to the elderly and the poor started picking up political support. As usual, the AMA opposed this reform and tried to co-opt it with a plan for privately sponsored coverage. But supporters made Medicare politically attractive by turning hospital insurance into an extension of Social Security while patterning medical coverage for the elderly after private policies. At the same time, Congress expanded existing welfare aid to the states into the Medicaid program.

The Blues plans, which already covered millions of seniors, stood to lose from the enactment of Medicare. But they adapted by winning a key role as Medicare intermediaries, processing claims, paying providers, and helping the government do utilization review.

Physicians soon discovered that Medicare was a bonanza, because it guaranteed government payments of the "usual and customary" fees prevailing in their areas. These averages were determined by the Blue Cross and Blue Shield carriers, which were still close to the health care providers that had created them. Hospitals also benefited greatly from Medicare, partly because they'd persuaded Congress to have Medicare pay them on the basis of their costs, rather than negotiated rates.

Nixon Co-Opts the Reformers With the introduction of the government health programs, it might have seemed that the health care reform impulse would subside. But in the early 1970s, the country came closer to adopting national health insurance than it ever had—or would again. Moreover, this movement occurred under a Republican President, Richard Nixon, and his successor, Gerald Ford, also a Republican.

Rapidly rising costs were the catalyst for action. From 1960 to 1970, per-capita health expenditures had more than doubled, and Medicare and Medicaid had greatly accelerated that growth. Nixon predicted that the system would break down unless action was taken, and the majority of people believed that health care was in a state of crisis. In 1970, Senator Edward Kennedy (D-MA) issued his first call for "Medicare for all." Labor unions and some corporate leaders supported the idea of national health insurance.

But in the end, Nixon proposed a free-enterprise plan to subsidize and promote HMOs, which he viewed as a way to contain costs without having the government take over health care. Nixon also countered the Democrats' campaign for a government-run "single-payer" system with a plan that would have required all employers to cover their workers through private insurers. Representing a decisive break from previous proposals for national health insurance, this approach would set the direction for several subsequent efforts to achieve universal coverage.

Kennedy and Representative Wilbur Mills (D-AR), the broker of Medicare, embraced Nixon's plan with some modifications, but Mills was unable to work out a congressional compromise this time around. Not only was the plan too big for the public to digest but many Democrats also continued to favor the single-payer alternative. In the wake of Watergate, they decided to wait for a more commanding majority after congressional elections. So in 1974, the reform effort died.

It is tempting to speculate about what might have been if Nixon had led the reform effort more strongly or if the final bill hadn't been introduced in the shadow of the Watergate scandal. But all that happened was more spending. In 1974, after Nixon's wage and price controls ended, health care costs shot up 12 percent, three points more than general inflation. And by 1980, health care accounted for nearly 9 percent of GDP, compared with 7.3 percent in 1970.

Watershed in Reform As Paul Starr points out in his classic book The Social Transformation of American Medicine, the early 1970s marked a watershed in health care reform. From World War II until then, the government had focused on building the health care infrastructure and encouraging the provision of more care. But starting with Nixon's HMO crusade, the government took measures to control the rate of spending growth. Public alarm over high costs was partly responsible; but so too was the government's newly vested interest in holding down Medicare and Medicaid spending.

This fiscal restraint did not mean that the government cut off support for health care growth. It continued to support the NIH and increased aid to medical schools, which helped raise the number of doctors by 40 percent from 1970 to 1980. But the early 1970s also saw the passage of laws that encouraged the growth of HMOs, established peer-review organizations to evaluate the medical necessity of physician services, and required states to adopt "certificate of need" laws to check the explosion of new health care facilities. All of this legislation had one purpose: cost containment.

In the long run, none of it really worked. One example, which I return to later, is the 1974 health-planning statute that mandated certificate of need (CON) regulations. The consensus of experts is that CON laws have done little to limit industry growth because they are too easy to get around. But in some states, they have prevented overbuilding of certain kinds of facilities, and health planning has recently been revived in Rochester, New York (see Chapter 21).

What's indisputable is that the deregulatory tide that started in the 1980s has swept away most health planning agencies and prompted many states to repeal their CON laws. Over the years, business interests and conservative politicians have managed to block nearly all government efforts to plan the growth of health care so that the supply of resources matches the need for them.

Hospitals Do an End Run Hospitals have also been fairly adept at getting around government regulations. A classic example was their response to Medicare's prospective payment system (PPS). Introduced in 1984 when soaring hospital costs threatened to bankrupt Medicare, prospective payment replaced reimbursement for individual services with prepayment for "diagnosis-related groups" of services.

This change in reimbursement methods was initially effective. The growth in Medicare expenditures, which had averaged 16 percent a year from 1970 to 1984, dropped to half of that rate from 1985 to 1989.28 But the hospitals still managed to maintain their profit margins by charging other payers more, according to the health economist Stuart Altman of Brandeis University. "Hospitals," he wrote in 1994, "have also sought to recoup lost revenues by providing services that pay higher Medicare rates, such as open-heart surgery, and by providing services not controlled by PPS payments, such as expanded outpatient services."

In 1989, Medicare imposed a physician fee schedule based on a complex "relative-value" system. Later, when doctors responded by ratcheting up the volume of services, Medicare began to calibrate annual payment increases to the growth in volume and other factors. But this approach proved to be very crude and contentious, and Congress has had to revisit the issue of physician reimbursement repeatedly.

Employer Self-Funding: A One-Time Fix Back in the 1980s, meanwhile, employers were also trying to mitigate the pain of skyrocketing health costs, which were consuming up to half of their profits. One strategy was to self-insure. Under the federal Employee Retirement Income Security Act, that approach exempted companies from state benefit requirements. Self-funding also gave firms more control over their cash flow and lowered their expenses if they had a healthy workforce. But as costs continued to rise, more and more employers turned to the new managed-care organizations to administer their health benefits. These entities included not only HMOs but also PPOs, which offered networks of doctors and hospitals that had agreed to accept discounts in return for patient volume.

(Continues...)

Excerpted from Rx for Health Care Reform by Ken Terry. Copyright © 2007 Ken Terry. Excerpted by permission of Vanderbilt University Press.
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Edition details

• Publisher: Vanderbilt University Press
• Publication date: 2007
• Language: English
• ISBN 10: 0826515711
• ISBN 13: 9780826515711
• Binding: Paperback
• Edition number: 1
• Number of pages: 344