Learning to live on Medicare margins

https://mailchi.mp/0ee433170414/the-weekly-gist-february-14-2020?e=d1e747d2d8

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“If Democrats take back the Senate and win the White House, there’s a good chance they’ll implement some version of a public option or Medicare buy-in, and that would be devastating for the fragile economics of our health system.” That was the message delivered by the CEO of a system we were visiting recently, in her report to the board of directors.

That kind of alarmist message might seem career-limiting, but given the way the politics of healthcare are playing out at both the national and state levels (see Colorado and Washington State), it’s past time for executives to get beyond the rhetoric and begin to prepare for the real financial consequences of public option proposals.

That’s what this CEO had done—what followed the dire warning was a detailed analysis (which we helped assemble) of what would happen in various scenarios—what if one percent of our revenue shifted from commercial rates (around 250 percent of Medicare) to possible public option rates (somewhere between 140 and 180 percent of Medicare)? That’s a knowable number, and you can begin to make assumptions about how much business would shift under different scenarios, and how quickly.

The reality for health systems is that most of the margin comes from the 55-to-65-year-old population—who use more healthcare services but whose care is reimbursed at commercial rates. That cohort cross-subsidizes much of the rest of a typical hospital’s business.

The presentation to the board laid those economic realities out in concise detail—and provided a bracing wake-up call that the system needs to be prepared to live on a different level of margin than they enjoyed in the past.

That means radical cost controls, sharp reductions in “system bloat”, and a laser-like focus on shifting care to lower-cost settings. For years, hospital leaders have tossed around the notion that “we have to learn to live on Medicare margins”.

Given the rising popularity of public option policies (67 percent of Americans support the idea according to a recent poll, as do 42 percent of Republicans), that lesson may need to be learned sooner rather than later.

 

 

 

Private insurance is health care’s pot of gold

https://www.axios.com/jp-morgan-2020-private-health-insurance-prices-costs-1e92f969-bffc-4584-a3c9-e8c4072b5144.html

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Private health insurance is a conduit for exploding health care spending, and there’s no end in sight.

The big picture: Most politicians defend this status quo, even though prices are soaring. And as the industry’s top executives and lobbyists gathered this week in San Francisco, some nodded to concerns over affordability — but then went on to tell investors how they plan to keep the money flowing.

 

Where it stands: More than 160 million Americans get private insurance through an employer or on their own, and per-person spending in that market rose by almost 7% in 2018, the highest annual growth rate in 14 years.

  • “Prices are definitely going up,” Owen Tripp, CEO of health tech startup Grand Rounds, told me this week during the annual J.P. Morgan Healthcare Conference.
  • His company’s vast amount of commercial health data shows big increases in what companies are spending on hospitals, doctors, specialty drugs, devices and out-of-network services.

 

What they’re saying: Many in the industry admit price inflation has been hammering the commercial markets for years.

  • “Cost per unit is the primary driver,” Cigna CEO David Cordani said. He did not mention the exploding costs of administering health insurance.
  • One hospital system at the conference acknowledged that “the number one cause of personal bankruptcy is our industry” — before going on to tell investors about the hospital’s strong margins.

 

Multiple hospital executives claimed they charge commercial plans higher prices to make up for the lower rates they get from Medicare and Medicaid.

  • “Every health system I know of loses money on every Medicaid and every Medicare patient,” Amy Compton-Phillips, a top clinical executive at Providence St. Joseph Health, told me.
  • But the evidence overwhelmingly shows that hospitals’ explanation doesn’t hold water.

 

Drug spending has risen at a slower rate than hospital and physician spending.

  • But in the commercial market, drug companies also have tripled their spending on programs that cover all or part of patients’ out-of-pocket costs, then bill insurers for the full freight.
  • “It’s an intriguing theory,” said Stephen Ubl, CEO of PhRMA, the pharmaceutical industry’s main lobbying group. “But I would be shocked if we were a significant contributor” to the increased private spending.

 

The bottom line: The private market is the main pot of money that everyone is chasing at the J.P. Morgan conference, and most in the industry don’t see the ballooning spending within that market as a problem.

 

 

 

 

The health care debate we ought to be having

https://www.axios.com/what-matters-2020-health-care-costs-7139f124-d4f7-44a1-afc2-6d653ceec77d.html

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Americans worry a lot about how to get and pay for good health care, but the 2020 presidential candidates are barely talking about what’s at the root of these problems: Almost every incentive in the U.S. health care system is broken.

Why it matters: President Trump and most of the Democratic field are minimizing the hard conversations with voters about why health care eats up so much of each paycheck and what it would really take to change things.

  • Instead, the public debate focuses on ideas like how best to cover the uninsured and the relative virtue of health care “choice.”

The U.S. spent $3.6 trillion on health care last year, and almost every part of the system is pushing its costs up, not down.

 

Hospitals collect the biggest piece of the health care pie, at about $1 trillion per year.

  • Their incentive is to fill beds — to send as many bills as possible, for as much as possible.
  • Big hospital systems are buying up smaller ones, as well as physician practices, to reduce competition and charge higher prices.
  • And hospitals have resisted efforts to shift toward a system that pays for quality, rather than volume.

 

Drug companies, meanwhile, are the most profitable part of the health care industry.

  • Small biotech companies usually shoulder the risk of developing new drugs.
  • Big Pharma companies then buy those products, market them aggressively and develop a fortress of patents to keep competition at bay as long as possible.

 

The money bonanza is enticing some nontraditional players into the health care world.

 

Insurers do want to keep costs down — but many of their methods are deeply unpopular.

  • Making us pay more out of pocket and putting tighter restrictions on which doctors we can see create real and immediate headaches for patients.
  • That makes insurers the most convenient punching bag for politicians.

 

The frustrating reality: Democrats’ plans are engaging in the debate about possible solutions more than the candidates themselves.

  • It’s a tacit acknowledgment of two realities: That controlling the cost of care is imperative, and that talking about taking money away from doctors and hospitals is a big political risk.

 

What they’re saying: The top 2020 Democrats have actually released “insanely aggressive” cost control ideas, says Larry Levitt, executive vice president at the Kaiser Family Foundation. “But they don’t talk about that a lot.”

  • Medicare for All, the plan endorsed by Sens. Bernie Sanders and Elizabeth Warren, would sharply reduce spending on doctors and hospitals by eliminating private insurance and paying rates closer to Medicare’s. Estimates range from about $380 billion to nearly $600 billion in savings each year.
  • Joe Biden and Pete Buttigieg have proposed an optional Medicare-like insurance plan, which anyone could buy into. It would pay providers less than private insurance, with the hopes of putting competitive pressure on private plans’ rates.
  • The savings there would be smaller than Medicare for All’s, but those plans are still significantly more ambitious than the Affordable Care Act or most of the proposals that came before it.

 

Yes, but: The health care industry has blanketed Iowa with ads, and is prepared to spend millions more, to defend the very profitable status quo.

  • The argument is simple: Reframe the big-picture debate about costs as a threat to your doctor or your hospital. It’s an easy playbook that both parties, and the industry, know well. And it usually works.

 

The bottom line: “Voters want their health care costs reduced, but that doesn’t mean they would necessarily support what it would take to make that happen,” Levitt said.

 

 

 

 

The top 10 questions from the 2020 J.P. Morgan Healthcare Conference that every CEO must answer

https://www.beckershospitalreview.com/strategy/the-top-10-questions-from-the-2020-j-p-morgan-healthcare-conference-that-every-ceo-must-answer.html

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As we enter a new decade, everyone is searching for something to truly change the game in healthcare over the next 10 years. To find that answer, an estimated 50,000 people headed to San Francisco this week for the prestigious J.P. Morgan Healthcare Conference. Every one of them is placing big bets on who will win and lose in the future of healthcare. The shortcut to figuring this out is actually a question — or 10 questions to be more precise. And what matters most is whether or not the right people are asking and answering those questions.  

While the prophets are ever present and ever ready to pitch their promises in every corner of the city, the pragmatists head up to the 32nd floor of the Westin St. Francis Hotel to hear from the CEOs and CFOs of close to 30 of the largest and most prestigious providers of care in the country. Why? Remember, this is an investor conference and if you want to understand any market, the first rule is to follow the money. And if you want to understand the future business model of healthcare, you better listen closely to the health providers in that room and take notes. 

What providers are saying matters to everyone in healthcare

Healthcare is the largest industry in our economy with over $4 trillion spent per year. Healthcare delivery systems and healthcare providers account for over $2 trillion of that spend, so that feels like a pretty good place to start, right? For that reason alone, it’s critical to listen closely to the executives in those organizations, as their decisions will affect the quality, access and cost of care more than any other stakeholder in healthcare.

Some will say that what they saw this year from healthcare providers was more of the same, but I encourage you to ignore that cynicism and look more closely. As the futurist William Gibson once said, “The future is already here — it’s just not evenly distributed.” The potential for any health system to drive major change is certainly there and the examples are everywhere. The biggest blocker is whether they are asking the right questions. One question can change everything. Here’s proof. 

The stunning power of and need for good questions 

Last year I titled my summary The #1 Takeaway from the 2019 JP Morgan Conference – It’s the Platform, Stupid.” The overwhelming response to the article was pretty surprising to me  — it really resonated with leaders. One example was Jeff Bolton, the chief administrative officer of Mayo Clinic, who told me that the article had inspired their team to ask a single question, “Does Mayo need to be a platform?” They answered the question “yes” and then took aggressive action to activate a strategy around it. Keep reading to learn about what they set in motion. 

Soon after, I had a discussion with John Starcher, CEO of Cincinnati-based Bon Secours Mercy Health, one of the largest health systems in the country, who shared with me that he is taking his team off site for a few days to think about their future. It occurred to me that the most helpful thing for his team wouldn’t be a laundry list of ideas from the other 30 healthcare delivery systems that presented, but rather the questions that they asked at the board and executive level that drove their strategy. Any of those questions would have the potential to change the game for John’s team or any executive team. After all, if you’re going to change anything, the first thing you need to do is change is your mind. 

The wisdom of the crowd 

So, I set out to figure this out: If you were having a leadership or board retreat, what are the 10 questions you should be asking and answering that may change the future of your organization over the next 10 years? I didn’t have the answers, so I decided to tap into the wisdom of the crowd, listening to all 30 of the nonprofit provider presentations, spending additional time with a number of the presenters and reaching out to dozens of experts in the market to help define and refine a set of 10 questions that could spark the conversation that fires up an executive team to develop to the right strategy for their organization. 

A special thank you to a number of the most respected leaders in healthcare who took their time to contribute to and help think through these questions: 

  • Mike Allen, CFO of OSF Healthcare (Peoria, Ill.)
  • Jeff Bolton, CAO of Mayo Clinic (Rochester, Minn.)
  • Robin Damschroder, CFO of Henry Ford Health System (Detroit)
  • JP Gallagher, CEO of NorthShore University HealthSystem (Evanston, Ill.)
  • Kris Zimmer, CFO of SSM Health (St. Louis) 
  • Wright Lassiter, CEO of Henry Ford Health System (Detroit)
  • Mary Lou Mastro, CEO of Edwards-Elmhurst Health (Warrenville, Ill.)
  • Dominic Nakis, CFO of Advocate Aurora Health (Milwaukee and Downers Grove, Ill.) 
  • Dr. Janice Nevin, CEO of ChristianaCare (Newark, Del.)
  • Randy Oostra, CEO or ProMedica (Toledo, Ohio)
  • John Orsini, CFO of Northwestern Medicine (Chicago)
  • Lou Shapiro, CEO of Hospital for Special Surgery (New York City) 
  • John Starcher, President & CEO, Bon Secours Mercy Health (Cincinnati)
  • Vinny Tammaro, CFO, Yale New Haven Health (New Haven, Conn.)
  • Bert Zimmerli, CFO of Intermountain Healthcare (Salt Lake City)

Here are the top 10 questions from the 2020 J.P. Morgan Healthcare Conference

Based on the wisdom of the crowd including the 30 nonprofit provider presentations at the 2020 JP Morgan Healthcare Conference, here are the Top 10 Questions that every CEO needs to answer that may make or break their next 10 years.

1. Business model: Will we think differently and truly leverage our “platform?” As referenced earlier in this article, this was the major theme from last year — health systems leveraging their current assets to build high-value offerings and new revenue streams on top of the infrastructure they have in place. Providers are pivoting from the traditional strategy of buying and building hospitals and simply providing care toward a new and more dynamic strategy that focuses on leveraging the platform they have in place to create more value and growth. Mayo Clinic is an organization that all health systems follow closely. Mayo adopted the platform model around their ‘digital assets’ into what they refer to as Mayo Clinic Platform, which initially targets three game-changing initiatives: a Home Hospital to deliver more health in the home even for high acuity patients, a Clinical Data Analytics Platform for research and development and an Advanced Diagnostics Platform focused on predictive analytics, using algorithms to capture subtle signals before a disease even develops. Children’s Hospital of Philadelphia, one of the top pediatric hospitals in the world, is leveraging their platform to drive international volume, where revenue is 3.5x more per patient. They are also making investments in cell and gene therapy, where their spinoff of Spark Therapeutics returned hundreds of millions of dollars back to their organization. Both organizations were clear that any returns that they generate will be re-invested back into raising the bar on both access to care and quality of care.

 

2. Market share: Are we leveraging a “share of cup” strategy? Starbucks had dominant share in the market against Caribou Coffee, Peet’s Coffee and Dunkin’ Donuts. Instead of solely focusing on how to grab a little more market share, they reframed the definition of their market. They called it “share of cup” meaning that anywhere and any time a cup of coffee was consumed, they wanted it to be Starbucks. In that definition of the market, they had very little share, but enormous growth potential. Hospital for Special Surgery in New York is the largest and highest volume orthopedic shop in the world. Their belief is that wherever and whenever a musculoskeletal issue occurs, they should be part of that conversation. This thinking has led them to build a robust referral network, which 33 percent of the time leads to no surgical treatment. So instead of fighting for share of market in New York, they have a very small share and a very big opportunity in a “share of cup” approach. NorthShore University Health System in Illinois has taken a similar approach on a regional level, converting one of their full-service hospitals into the first orthopedic and spine institute in the state. The results have exceeded expectations on every measure and they already have to increase their capacity due to even higher demand than they originally modeled. 

 

3. Structure: Are we a holding company or an operating company? There has been a tremendous amount of consolidation over the last few years, but questions remain over the merits of those moves. The reality is that many of these organizations haven’t made the tough decisions and are essentially operating as a holding company. They are not getting any strategic or operational leverage. You can place all health systems on a continuum along these two endpoints — being a holding vs. an operating company — but the most critical step is to have an open conversation about where you’re at today, where you intend to be in the future, when you’re going to get there and how you’re going to make it happen. Bon Secours Mercy Health’s CEO John Starcher shared, “It makes sense to merge, but only if you’re willing to make the tough decisions.” His team hit the mark on every measure of their integration following their merger. They then leveraged that same competency to acquire the largest private provider of care in Ireland, as well as seven hospitals in South Carolina and Virginia. Northwestern Medicine has leveraged a similar approach to transform from a $1 billion hospital into a $5 billion health system in a handful of years. Both of these organizations prioritized and made tough decisions quickly and each has created an organizational competency in executing efficiently and effectively on mergers and acquisitions. 

 

4. Culture: Do we have employees or a team? Every organization states that their employees are their most important asset, but few have truly engaged them as a team. Hospitals and healthcare delivery systems can become extraordinarily political, and it’s easy to see why. These are incredibly complex businesses with tens of thousands of employees in hundreds of locations and thousands of departments. Getting that type of organization to move in the same direction is incredibly challenging in any industry. At the same time, the upside of breaking through is perhaps the most important test of any leadership team. JP Gallagher, CEO of North Shore University Health System, shared his perspective that, “Healthcare is a team sport.” The tough question is whether or not your employees are truly working as a team. Christiana Care provides care in four states — Delaware, Maryland, Pennsylvania and New Jersey. They have taken a unique approach that they frame as “for the love of health,” incorporating the essence of what they do in every communication both internally and externally, in their values and in their marketing. In a multi-state system, it is tricky to create a caring and collaborative culture, but it’s critical and they’ve nailed it. Their CEO shared that, “If you lead with love, excellence will follow.” That’s not only well said but spot-on. Creating a world-class team requires not only loving what you do, but the team you’re part of.

 

5. Physicians: Are our physicians optimistic or pessimistic? There’s a lot of concern about “physician burnout” with a reflex to blame it on EHRs, cutting off the needed conversation to dive deeper into where it really comes from and how best to address it. The challenge over the next decade is to create an optimistic, engaged and collaborative culture with physicians. In reading this, some will react with skepticism, which is exactly why leadership here is so important. One suggestion I was given was to make this question edgier and ask, “Are our physicians with us or not?” However the question is asked, the bottom line is that leadership needs to find a way to turn this into a dynamic, hyper-engaged model. A little while back I spent the day with the leadership team at Cleveland Clinic. At the end of the day, their CEO Dr. Tom Mihaljevic was asked what he would tell someone who was thinking of going to medical school. He said he would tell them that, “This is absolutely the best time to be a doctor.” His answer was based on the fact that there has never been a time when you could do more to help people. He wasn’t ignoring the challenges, he was simply reframing those issues as important problems that smart people need to help solve in the future. Those who adopt that type of optimism and truly engage and partner with their physicians will create a major competitive advantage over the next decade.

 

6. Customer: Do we treat sick patients or care for consumers? Words matter here – patients vs. consumers. Most hospitals are in a B2B, not B2C, mindset. Patients get sick, they try to access care, they check into an ER, they get admitted, they are treated, they get discharged. People get confused, anxious and concerned, then they seek not only care, but simplicity, compassion and comfort. With half of America coming through their stores every week, Walmart is already the largest provider organization that no one thinks of as they provide ‘consumer’ care, not ‘patient’ care. But they are starting to broaden their lens, and health systems will need to make moves as well. Competing with Walmart, CVS and other consumer-centric models will require a different mindset. I think Dr. Janice Nevin, the CEO ChristianaCare, captured this really well when she said, “Our mindset is that our role is to ensure everything that can be digital will be digital. Everything than can be done in the home will be done in the home.” Henry Ford Health System CEO Wright Lassiter commented, “Trust is the fundamental currency in healthcare.” Building that trust will require a digital experience in the future that is just as compassionate and caring as what health systems strive to deliver in person in the past. 

 

7. Data: Will we make data liquid? The most undervalued and misunderstood asset of health systems may be their data. While some at the conference refer to this as having the economic equivalent of being the “oil of healthcare,” the real and more practical question is whether or not your organization will make data liquid, available and accessible to the right players on your team at the right time. Jeff Bolton from Mayo commented that, “The current model is broken. Data and tech can eliminate fragmentation.” In a recent Strata survey, we asked leaders in health systems whether they had access to the information they needed to do their job, and 90 percent said no. For many health systems, data is a science project, hidden behind the scenes primarily used for research and impossible to access for most stakeholders. The call to action is activating that data to improve clinical outcomes, operations and/or financial performance. 

 

8. Cost: Are we serious about reducing the cost of care and delivering value? Affordability is a hot topic, and for good reason, as high deductible plans, price transparency and other factors have accelerated its urgency. As Intermountain Healthcare CEO Dr. Marc Harrison shared, “We have an absolute responsibility to make healthcare affordable.” While the consumer side will be a moving target for some time, the No. 1 challenge for hospitals right now is to lower their cost structure so they can compete more effectively in the future. Advocate Aurora HealthBaylor Scott & White Health, CommonSpirit Health and many others are targeting cost reductions of over $1 billion over the next few years. As most hospitals are now in a continuous process to reduce cost in order to compete more effectively in the future, organizations like Yale New Haven Health in Connecticut have implemented advanced cost accounting solutions to better understand both cost and margins. Yale is using this data to understand variation, supporting an initiative that drove over $150 million in savings. Additionally, they have combined cost data with clinical feeds from their EHR to understand the cost of harm events, which turn out to be 5x more expensive. As more providers take on risk, having a “source of truth” on the cost of care will be essential. Advocate Aurora Health CFO Dominic Nakis shared that, “We believe the market will continue to move to taking on risk.” Many of the presenting organizations shared that same perspective, but they won’t be able to manage that risk unless they understand the cost of care for every patient at every point of care across the continuum every day.

 

9. Capital: Do we have an “asset-light” strategy? Traditional strategy for health systems was defined primarily by what they built or bought. Many hospitals still maintain an “if you build it, they will come” strategy at the board level. Yet, Uber has become the biggest transportation company in the world without owning a single car and Airbnb has become the biggest hospitality company in the world without owning a single room. These models are important to reflect upon as healthcare delivery systems assess their capital investment strategy. Intermountain Healthcare CFO Bert Zimmerli refers to their overall thought process as an “asset-light expansion strategy.” In 2019, they opened a virtual hospital and they have now delivered over 700,000 virtual interactions. The number of virtual visits at Kaiser Permanente now exceeds the number of in-person visits at their facilities. With that said, there will be a balance. I really like how Robin Damschroder the CFO of Henry Ford Health System framed it: “We believe healthcare will be more like the airline and banking industry, both of which are fully digitally enabled but have a balance of ‘bricks and clicks’ with defined roles where you can seamlessly move between the two. Clearly, we have a lot of ‘bricks’ so building out the platform that integrates ‘clicks’ is essential.” 

 

10. Performance: Do we want our team to build a budget or improve performance? The most significant barrier to driving change that many organizations have baked into their operating model is their budget process. The typical hospital spends close to five months creating a budget that is typically more than $100 million off the mark. After it’s presented to the board, it is typically thrown out within 90 days. It creates a culture of politics, entitlement and inertia. According to a Strata survey of 200 organizations, close to 40 percent are now ditching the traditional budget process in favor of a more dynamic approach, often referred to as Advanced PlanningOSF HealthCare leverages a rolling approach, radically simplifying and streamlining the planning process while holding their team accountable for driving improvement vs. hitting a budget. When it comes to driving performance, SSM Health CEO Laura Kaiser captured the underlying mindset that’s needed: “We have a strong bias toward purposeful action.” Well said, and it certainly applies to all of the questions here among the top 10.

 

5 additional questions to consider

As you would imagine or might suggest, the questions above can and in some cases should be replaced with others. Additional critical questions to answer that came from the group included the following:

  1. Competition: Who else will we compete with in the future and are we positioned to win?
  2. Digital health: Are we going to be a “digital health” company, providing tech-enabled services?
  3. Affordability: How are we making care more affordable and easier to understand and access?
  4. Social determinants: Is this a mission, marketing or operations strategy?
  5. Leadership: Have we made the tough decisions we need to make, and will we in the future?

 

Start asking questions

The point here isn’t to get locked into a single list of questions, but rather to force your team to ask and answer the most important and challenging ones that will take you from where you are today to where you want to be in the future. After reviewing these questions with your team, the one additional question you need to consider is one of competency: Do you have the ability and bandwidth to execute on what you’ve targeted? In the end, that’s what matters most. While there are many interesting opportunities, too many teams end up chasing too much and delivering too little.

The next 10 years can and should be the best 10 years for every health system and every healthcare provider, but making it happen will require some really tough questions. “The current path we’re on will leave us with a healthcare delivery model that is completely unsustainable,” stated Randy Osstra, CEO of ProMedica Health System. “We need to take meaningful action toward creating a new model of health and well-being — one that supports healthy aging, addresses social determinants of health, encourages appropriate care in the lowest cost setting, and creates funding and incentives to force a truly integrated approach.”

Strong leaders are needed now more than ever. The rest of healthcare is watching, not just professionally but personally. We are all grateful to you for the extraordinary and often heroic care that you deliver without hesitation to our family and friends every day both in our communities and across our country. But now we all need you to not only deliver care, but a new and better version of healthcare. So, ask and answer these and other tough questions. We know you will do everything that you can to help make healthcare healthier for all of us over the next 10 years.

 

 

 

Every American family basically pays an $8,000 ‘poll tax’ under the U.S. health system, top economists say

https://www.washingtonpost.com/business/2020/01/07/every-american-family-basically-pays-an-poll-tax-under-us-health-system-top-economists-say/?utm_campaign=post_most&utm_medium=Email&utm_source=Newsletter&wpisrc=nl_most&wpmm=1

Princeton economist Anne Case speaks about “deaths of despair” in the United States at the American Economic Association's annual meeting in San Diego this past weekend. (Heather Long/The Washington Post)

America’s sky-high health-care costs are so far above what people pay in other countries that they are the equivalent of a hefty tax, Princeton University economists Anne Case and Angus Deaton say. They are surprised Americans aren’t revolting against these taxes.

“A few people are getting very rich at the expense of the rest of us,” Case said at conference in San Diego on Saturday. The U.S. health-care system is “like a tribute to a foreign power, but we’re doing it to ourselves.”

The U.S. health-care system is the most expensive in the world, costing about $1 trillion more per year than the next-most-expensive system — Switzerland’s. That means U.S. households pay an extra $8,000 per year, compared with what Swiss families pay. Case and Deaton view this extra cost as a “poll tax,” meaning it is levied on every individual regardless of their ability to pay. (Most Americans think of a poll tax as money people once had to pay to register to vote, but “polle” was an archaic German word for “head.” The idea behind a poll tax is that it falls on every head.)

Despite paying $8,000 more a year than anyone else, American families do not have better health outcomes, the economists argue. Life expectancy in the United States is lower than in Europe.

“We can brag we have the most expensive health care. We can also now brag that it delivers the worst health of any rich country,” Case said.

Case and Deaton, a Nobel Prize winner in economics, made the critical remarks about U.S. health care during a talk at the American Economic Association’s annual meeting, where thousands of economists gather to discuss the health of the U.S. economy and their latest research on what’s working and what’s not.

The two economists have risen to prominence in recent years for their work on America’s “deaths of despair.” They discovered Americans between the ages of 25 and 64 have been committing suicide, overdosing on opioids or dying from alcohol-related problems like liver disease at skyrocketing rates since 2000. These “deaths of despair” have been especially large among white Americans without college degrees as job options have rapidly declined for them.

Their forthcoming book, Deaths of Despair and the Future of Capitalism,” includes a scathing chapter examining how the U.S. health-care system has played a key role in these deaths. The authors call out pharmaceutical companies, hospitals, device manufacturers and doctors for their roles in driving up costs and creating the opioid epidemic.

In the research looking at the taxing nature of the U.S. health-care system compared with others, Deaton is especially critical of U.S. doctors, pointing out that 16 percent of people in the top 1 percent of income earners are physicians, according to research by Williams College professor Jon Bakija and others.

“We have half as many physicians per head as most European countries, yet they get paid two times as much, on average,” Deaton said in an interview on the sidelines of the AEA conference. “Physicians are a giant rent-seeking conspiracy that’s taking money away from the rest of us, and yet everybody loves physicians. You can’t touch them.”

As calls grow among the 2020 presidential candidates to overhaul America’s health-care system, Case and Deaton have been careful not to endorse a particular policy.

“It’s the waste that we would really like to see disappear,” Deaton said.

After looking at other health systems around the world that deliver better health outcomes, the academics say it’s clear that two things need to happen in the United States: Everyone needs to be in the health system (via insurance or a government-run system like Medicare-for-all), and there must be cost controls, including price caps on drugs and government decisions not to cover some procedures.

The economists say they understand it will be difficult to alter the health-care system, with so many powerful interests lobbying to keep it intact. They pointed to the practice of “surprise billing,” where someone is taken to a hospital — even an “in network” hospital covered by their insurance — but they end up getting a large bill because a doctor or specialist who sees them at the hospital might be considered out of network.

Surprise billing has been widely criticized by people across the political spectrum, yet a bipartisan push in Congress to curb it was killed at the end of last year after lobbying pressure.

“We believe in capitalism, and we think it needs to be put back on the rails,” Case said.

 

 

 

The U.S. Spends $2,500 Per Person on Health Care Administrative Costs. Canada Spends $550. Here’s Why

https://time.com/5759972/health-care-administrative-costs/

Image result for The U.S. Spends $2,500 Per Person on Health Care Administrative Costs. Canada Spends $550. Here's Why

Whether it’s interpreting medical bills, struggling to get hospital records, or fighting with an insurance provider, Americans are accustomed to battling bureaucracy to access their health care. But patients’ time and effort are not the only price of this complexity. Administrative costs now make up about 34% of total health care expenditures in the United States—twice the percentage Canada spends, according to a new study published Monday in Annals of Internal Medicine.

These costs have increased over the last two decades, mostly due to the growth of private insurers’ overhead. The researchers examined 2017 costs and found that if the U.S. were to cut its administrative spending to match Canadian levels, the country could have saved more than $600 billion in just that one year.

“The difference [in administrative costs] between Canada and the U.S. is enough to not only cover all the uninsured but also to eliminate all the copayments and deductibles, and to amp up home care for the elderly and disabled,” says Dr. David Himmelstein, a professor at the CUNY School of Public Health at Hunter College and co-author of the study. “And frankly to have money left over.”

Closing the Health Care Gap : Ashley Judd, Dr. Raj Panjabi (moderated by Haley Sweetland Edwards)
Closing the Health Care Gap : Ashley Judd, Dr. Raj Panjabi (moderated by Haley Sweetland Edwards)
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Research has long shown that the U.S., which uses a disparate system of private providers and insurers, has higher administrative costs than other developed countries that use single-payer systems. But the Annals study puts a finer point on it: as the first major effort to calculate administrative costs across the U.S. health system in nearly two decades, the researchers found that the gap between the U.S. and Canada has widened significantly.

The U.S. now spends nearly five times more per person on health care administration than Canada does. The U.S. administrative costs came out to $812 billion in 2017, or $2,497 per person in the U.S. compared with $551 per person in Canada, according to the Annals study.

Along with Himmelstein, co-authors Steffie Woolhandler and Terry Campbell examined administrative costs for insurance companies and government agencies that administer healthcare, as well as costs in four settings: hospitals, nursing homes, home care agencies and hospices and physician practices. For each category, the researchers determined which costs were administrative and conducted analyses to adjust comparisons between relative costs in the U.S. and Canada.

Insurers’ overhead, the largest category, totaled $275.4 billion in the U.S. in 2017, or 7.9% of all national health expenditures, compared with $5.36 billion in Canada, or 2.8% of national health expenditures. The American number included $45 billion in government spending to administer health care programs and $229.5 billion in private insurers’ overhead and profits, which covers employer plans and managed care plans funded by Medicare and Medicaid.

This insurance overhead accounted for most of the total increase in administrative spending in the U.S. since 1999, according to the study. While the share of Americans covered by commercial insurance plans has not changed much, private insurers have expanded their role as subcontractors handling what are known as “managed care” plans for Medicaid and Medicare. The study notes that most Medicaid recipients are now on private managed care plans and about one third of Medicare enrollees now have Medicare Advantage plans. Both of these types of plans have higher overhead costs than the publicly administered alternatives.

“We were struck, and frankly hadn’t expected it until we delved into the data, by the huge increase in insurance overhead,” Himmelstein told TIME.

Other reports, including one by the Center for American Progress published last April, have identified ways to reduce administrative costs without moving the U.S. to a single-payer health care system. But Himmelstein says his study shows that a public option that preserves private insurance wouldn’t provide the same savings as a traditional single-payer system. “We could streamline the bureaucracy to some extent with other approaches, but you can’t get nearly the magnitude of savings that we could get with a single payer,” Himmelstein says, adding, “If the Medicare public option includes the Medicare Advantage plans, it’s actually conceivable that the public option would increase the bureaucratic costs.”

Most of the public option plans proposed by Democratic presidential candidates are not detailed enough to determine exact costs, Himmelstein says. But overall, he believes they won’t result in significant cost savings.

In addition to their research, Himmelstein and Woolhandler have been longtime advocates for single-payer health care. They co-founded the group Physicians for a National Health Program, which advocates for a single-payer system. They also conducted the initial health administrative costs study on 1999 data and have published other studies comparing hospital administrative costs in the U.S. and other countries.

Himmelstein says his team’s estimates of total U.S. administrative costs in the Annals study are likely conservative. When estimating physicians’ administrative costs, the researchers relied on a 2011 study of time spent by physicians and their staffs interacting with insurers. And he notes that while 2017 data was often the latest available when they were conducting this study, 2018 health spending numbers have since come out showing further increases in insurance overhead.

“We can afford universal coverage with a single payer plan, not just universal coverage but first dollar coverage for everybody in our country if we adopted a single-payer Medicare for all approach,” Himmelstein says. “If you’re going to cover everybody without getting those savings you’re going to have to spend more or you’re going to have to have big co-payments and deductibles that deter people from getting the care that they actually need.”