We have a new contributor, Tom Hilliard, over at www.signalhealth.com. He describes himself as "a former health care policy wonk, former political hack, former labor consultant for health care unions, former Washington DC political activist."
He's already published a couple of well-written, thought-provoking posts. Come on over and take a look.
And for those of you who've never visited www.signalhealth.com, though inspired by this site, it offers much, much more.
In It's Only a Matter of When, we set the stage a bit with our discussion of subsystems overwhelming the systems of which they are a part and which support them, especially with financial resources and how that triggers system responses. The example we used was of the loss of coverage. Let's now discuss the implications for universal coverage generally and single-payer, in particular.
The system structures and associated dynamics in It's Only a Matter of When help explain the rising numbers of uninsured, which are themselves much of the political impetus for some form of universal coverage. But, unless we're foolish, the leap to some form of universal coverage also requires that we create the structures in a new system to counterbalance those forces. Otherwise, we will simply transfer the associated problems from one coverage system to another.
Growth in healthcare costs at rates greater than the rest of the economy will continue to cause more people to become uninsured - the gap that universal coverage would fill. But a one-time jump in transfers from the rest of the economy to healthcare that would accompany a political move to universal coverage would not, by itself, change the system structures that create these dynamics. Thus, any move to universal coverage must take those inflationary structures into account and deal with them as part of reform. Certainly no reform should weaken the counterbalances that exist today, much less create new inflationary incentives.
Contrary to the rhetoric of many single-payer advocates, we cannot do this by relying solely on reduced administrative costs. Perhaps politically and rhetorically attractive, that's a dangerous distraction. Instead, we must face up to core healthcare costs and their continual rise and we must find effective means of counterbalancing them.
The rejection of the Clinton plan, in part, because of the canard that it would have limited consumer choice, marked the beginning of a consumer revolution that rejected all limits on choice, thus virtually all cost-control mechanisms. So discussions of how we'll reshape the delivery system under a particular universal health care system to control costs probably miss the point, which is that the American public may not allow costs to be controlled under any model. (which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.)
One of Tom's implicit assumptions is that only by limiting choice can we control costs. I'm not sure that's true. I've certainly seem mechanisms that had the effect of reducing costs without limiting choice. Indeed, I've even seen cost reductions result by giving the patient more choice leverage (through deeper education about their options), but I don't want to dwell on that here.
Rather, momentarily granting Tom's assumption about unfettered choice, let's look at his next point, "the American public may not allow costs to be controlled under any model." Yes, they will. They may hate it. They may resist. They may claw and scratch, but, even under a single-payer system, ultimately they will have no choice but to allow cost controls politically. Why?
Because continual and accumulative healthcare cost growth that exceeds the rate of growth of the economy that pays for it and supports it will sooner or later, but inevitably run into a "Decision/Behavioral Change Threshold" such as we discussed and depicted here. At that point the larger system (the rest of the economy in this case) will push back and say, "no more." (More likely the wording would be a bit more aggressive.) The healthcare sector will have to live and content itself with X percent of the nation's economic resources. Pick your own percentage threshold. Fifteen percent? A bit over where we are today. Twenty? Maybe. Fifty? You must be kidding. The American public which had previously rebelled over "lack of choice" would have long before furiously rebelled over the tax burdens associated with that level of economic commitment. Why would it be otherwise? The point here is not to argue what the trigger level would be. Rather it is to simply say that structurally, such a trigger level will be an intrinsic part of the system and pulling the trigger is a matter of when, not if.
Tom, then using the single-payer advocate argument, goes on to say:
... which is why I think it makes sense to target administration and marketing costs, since those may be the only excess costs truly on the table.
Over the last few years, the administrative costs argument has become the centerpiece of the rationale for single-payer advocates. This is dangerous. Whether large or small, administrative costs are an "add-on" to core healthcare costs. They rise with the increases in core healthcare costs, which the single-payer proposal does nothing explicit to address. All the systems we're discussing, reformed or otherwise have and will have some form of counterbalancing mechanisms. Whether in the present system or embedded in a single-payer system, the same generic system structures will produce the same generic system behaviors. It's best to think about the nature of these counterbalances consciously in advance of reform and to discuss them openly.
The administrative savings rhetoric is more than a distraction. The rhetoric of many single-payer advocates supports at least implies more dramatic, perhaps radical controls on core healthcare costs:
Assume for the moment, that we could have a single-payer solution and universal coverage with zero administrative costs. We would have received a one-time savings. But would we still have a healthcare cost problem? Would healthcare costs continue to rise faster than the rest of the economy? Clearly yes. And therein lies the problem. Because as this new administration-free, single-payer system consumed an increasing share of gross domestic product, eventually the rest of the economy, the taxpayers would limit the resources available to healthcare
As I discussed before, I've never found the administrative cost argument compelling except in the extreme short term. If single-payer advocates were actually able to make the sale to the American public, they would shortly thereafter find themselves accused of a "bait and switch" because the core costs, for healthcare services would continue to grow faster than the rest of the economy and there would be little alternative but to impose administrative controls on service, both raising administrative costs and creating exactly the sort of problems they had promised to avoid. Not a pretty picture.
Any credible reform proposal must include the means by which core healthcare cost growth will be constrained to some fixed percentage of our society's economic capacity or it will necessarily fail.
Even my own discussion of the importance of finding the Mama Bear "just right" levels of healthcare service use does not yet address how. But we must openly and directly address how we would do this
Any universal coverage system must directly face up to how the core costs will be controlled. This can be done bureaucratically or it must leave individuals and families the ability to choose among different systems of care and financing and do so with a financial incentive that creates a counterbalance to healthcare's core inflationary forces. Individuals and families must play an active role in the choices that affect them and their decision making must include personal trade-offs regarding service choice and cost. Even more than in the present system, in a healthcare system with universal coverage, core healthcare costs will be controlled by the rest of the economy. This can be done arbitrarily to patients and physicians and I fear that arbitrary means will be the only ones available in a single-payer system. We must find functional and politically acceptable means of restraining growth in core healthcare costs. At best, tinkering solely with administrative costs avoids finding a solution to the more serious problem, even worse, it's a distraction. Worst of all, it may undermine our ability to confront the greater challenges.
Oh! We should be so relieved. Healthcare spending growth has slowed to a mere eight percent. Our last post suggests not.
The news from the Center for Studying Health Systems Change is that healthcare spending growth has slowed a bit. The report is published in Health Affairs.
Our prior post was a jumping off point to a larger discussion the central point of health economics in the US today. So long as growth in healthcare spending exceeds the rate of growth in the rest of the economy, which pays for healthcare, the day of reckoning is inevitable.
June 21, 2005
Health Affairs, Web Exclusive (June 21, 2005)
Bradley C. Strunk, Paul B. Ginsburg, John P. Cookson
Health care spending increased 8.2 percent in 2004. This was virtually unchanged from 2003, which suggests that health care cost trends have stabilized. Hospital spending grew 10.1 percent in 2004, also virtually unchanged from 2003, reflecting a small increase in the hospital utilization trend and a small decline in hospital price inflation. Meanwhile, growth in prescription drug spending continued to fall as a result of slower growth in prices. Growth in health insurance premiums slowed again in 2005, likely reflecting earlier years’ slowing in cost trends and signaling that a turn in the insurance underwriting cycle might be under way.
So why isn't the slowdown in healthcare cost growth satisfying? Because healthcare cost growth, as it has almost every year in the past decade (there were two early exceptions before the managed care backlash), and essentially for decades has exceeded growth in the rest of the economy or GDP overall and that only takes us closer to trouble. Most immediately, as we discussed below, it forces people out of the coverage system. The more recent source data are here.
So headlines and links (here and here too) that even modestly celebrate this slowing of healthcare cost growth largely miss the point. Unless the slowdown is to a growth level less than the economic rate of growth, then we have not reversed our race to the day of reckoning. We might have slowed a bit, but not reversed.
Moreover, these trends have a direct bearing on our discussions of universal coverage and why single-payer is a less than satisfactory response. That will be the subject of my next post.
This post is about behavioral change, particularly as it relates to health economics and the healthcare system. The essentials, the mechanics if you will, apply similarly to individuals, organizations, and the place of healthcare in general economy.
The next couple of posts will be based on it and I'll likely refer to it many times in the future.
Before we get started, answer the following questions:
Put your answers aside for a moment. We'll return to them shortly.
Some of this may look fairly complex, but it's not really. Just follow it step-by-step and you'll see what's going on both in the post and, more importantly, you will see how trouble is inevitable or perhaps why we're already in trouble. So don't bail out on me quite yet.
The economy grows and healthcare costs grow. When healthcare costs grow, premiums, employer burdens, and taxpayer burdens grow in parallel as well.
We see economic growth E (with the random ups and downs taken out for simplicity). As is typically the case, it curves upward, representing exponential or compounding growth. We see D "$ at Some Percentage of the Economy" which parallels the economy itself. For example, this curve might represent 10 or 20 percent of the economy. Because it's a percentage, it grows at exactly the same rate as the economy. We also see H, Healthcare Spending. Note that, consistent with a lengthening history in the US, the rate of growth is faster than the economy (E) and faster than at $ at Some Percentage of the Economy (D). Because it grows faster, eventually it overtakes and crosses D at a point we have labeled "Decision/Behavioral Change Threshold." Then something changes.
Now what might that "Decision/Behavioral Change Threshold" be? Let's return to the questions you answered at the beginning. (You did answer them didn't you?) Let's assume that you answered that at 15 percent of your family income you would have to drop coverage. Beyond that, regardless of the risk, it would be just too expensive to pay the monthly premiums. Your family circumstances and decision behavioral change are represented in Chart 1. Here's how. Your income is represented by Economy (E). Your 15 percent personal decision threshold is represented by "$ at Some Percentage of the Economy" (D). Premium growth is represented by Healthcare Spending (H). You drop coverage where the lines cross and at time T1.
You may use the same chart to think of movement to more restrictive coverage. Assume that as the cost of coverage approached your 15 percent threshold (say at 12 or 13 percent), straining to maintain some form of protection, you might seek less expensive coverage. The chart will work in exactly the same way.
Now what happens if economic growth slows, healthcare costs accelerate, or you ability to devote a set percentage of your economic capacity to healthcare diminishes?
Chart 4 shows a lower Decision/Behavior Change Threshold. For example, if you would be forced to drop coverage at five or 10 rather than 15 percent of your family income as would generally be the case for lower income families, then the Threshold would be lower relative to the family Economy. What Charts 2 through 4 have in common is that all produce a change in behavior at an earlier time. Slower economic growth, faster healthcare cost growth, or a lower percentage of your economic resources that can be devoted to healthcare all cause you to drop coverage earlier.
Pick your own markets of economic growth. Pick your own measures of economic capacity. Consider this at the most macro-economic level or at the personal level. The same effects result.
If a system consistently grows faster than a larger system in which it resides, eventually an intersection is reached at which the behaviors of one or the other, or both change less the larger system be overwhelmed. But even being overwhelmed will generally yield a behavioral change (think uncontrolled cancerous cells overwhelming an organ or body and eventually killing it).
What has been happening is that healthcare costs consistently outgrow the rest of the economy - which pays for healthcare. Increasingly individuals, families, employers, and governments capacity to carry the cost are being overwhelmed. So their behavior changes. In some cases, they seek increasingly stronger means of maintaining a financial relationship with the healthcare system. But in other instances, their behavioral change is to simply walk away. Thus, increasing numbers of uninsured.
We don't all reach the intersection at the same time or at the same rate. The same is true for employers and governments. But, sooner or later, given the underlying structural relationships and dynamics, the vast majority of individuals and the economy overall will arrive at that intersection. Tennessee and other states arrived at it earlier this year with their Medicaid programs. General Motors appears to be at the doorstep right now. In contrast, for the time being, it appears that the Federal government has chosen to spend a higher portion of its economic capacity (tax revenue plus debt) on Medicare. Yet, when we consider projections for the Medicare Trust Fund, clearly the day of reckoning is not that far away.
I'm going to make a brazen assertion here: If you want to understand what is happening in healthcare and if you want to anticipate what will be happening, then the single most important measurements to track are overall healthcare spending, the carrying capacity of the economy that's paying for it (whether family, regional, employer, governmental, or macro-economic), and their relationships to one another. With healthcare cost growth rates exceeding economic growth rates, the larger the gap between growth rates in healthcare spending and economic capacity, the closer the day of reckoning.
New York's highest court, the Court of Appeals, today rejected the suit brought by Consumers' Union regarding the conversion of Empire Blue Cross/Blue Shield to for-profit status.
With a 4-2 vote, the Court dismissed the Consumers Union suit that challenged the transaction as unconstitutional. Empire did its IPO in late 2002, while creating a parent, WellChoice. Under the conversion plan approved by the State 95% of the funds (about $1 billion, was for salary supplements for healthcare workers, with the remaining 5% going to create a healthcare foundation. Arguing that salary increases were not a proper use of funds which had been amassed by virture of Empire's tax-exempt status, Consumers Union won a restraining order barring spending the money until there was a ruling on the conversion's legality. They favored other forms of community health initiatives.
For those concerned about the public policy issues involved in such conversions, this pretty much ends the debate in New York.
For those concerned with NYS finances and the age-old question, where's the money going, this means that the resulting funds the State was counting on for its own purposes are now secure. Hospitals and 1199 will get a substantial portion of the money. It also likely clears the way for the next conversion, that of HIP.
I'm actually relieved.
DASNY, New York's public authority which does health care financings did not do the Cabrini deal. So, at least the State isn't involved in making its own work more difficult.
Had a short, but useful conversation with a DASNY staff person who reminded me that the law creating the Commission lists a number of factors besides debt to be taken into consideration. And of course, very few hospitals have no debt. So, if that were the most important criterion, there wouldn't be many potential targets left.
But the truth of it is that the folks at Cabrini aren't the only ones who think that way. Far, far from it. And, if you're running an institution that's a potential State target anyway, you may as well make it as challenging as possible.
Well despite my description of this decision as outrageous, it is rational.
The reason it's unsurprising is that we have a system at work in New York in which such behavior is rational. That's the larger and much more important problem. This decision is symptomatic but it's not the disease itself.
Somewhere in the files is a presentation I used to do on "The Regulatory Loop," on how many regulatory behaviors (in any industry) lead the regulated to shift their focus from improved efficiency and improved quality to reduced competition, regulated price fixing, and regulatory compliance as a proxy for true quality, and ultimately to view the regulator as the customer. These behaviors, perfectly understandable lead to higher costs and lower quality and then more regulation and oversight. And then?
Rinse and repeat. Endlessly.
From Crain's by way of HANYS e-Clips Daily News:
Cabrini survival plan details unfold
Crain’s Health Pulse, 6/17/05
Cabrini Medical Center has refinanced its mortgage, after the loan was nearly paid off, Crain’s says. Crain’s calls the refinancing “part of a two-pronged approach to surviving the machinations of the hospital-closing commission,” because hospitals that have mortgages “are less likely to be candidates for closure.”
How unsurprising and how outrageous.
The "regulatory mindset" doesn't just exist in the minds of regulators. Its more insidious form exists in the minds of the regulated. It manifests in decisions that are designed solely to influence the regulatory system and are often otherwise unhealthy, even self-destructive. We've seen it with debt; we've seen it with indigent care subsidies; we've seen it with deliberately weakened balance sheets designed to become eligible for extra subsidies as "financially distressed hospitals."
And, by the way, which hospitals in New York don't have mortgages? They've been doing projects and taking on debt for decades in order to increase their cash flow from the reimbursement system (the excess of depreciation over amortization during the earlier years of mortgage life) as well as to protect themselves in exactly the manner that Cabrini has done.
When the debt is small the debtor is in trouble. When the debt is mammoth, it's the creditor that's in trouble.
I've sent a note off to the DASNY, the State's public authority for such financings, asking whether it did this financing. If DASNY rather than a private entity, did the financing, then Cabrini's position is even stronger because the State will have a bigger stake in their survival. Its already on the hook for about $10 billion in healthcare debt in New York. Perhaps there should be a moratorium on new financings until the Commission's work is done.
The analytical test for the Commission will be to ferret out similar cases that have not been so blatant. The test of its courage will be whether it resists gaming the system like this and resists itself being manipulated so blatantly.
In relation to the single-payer discussion, Tom asks where is the evidence that Medicare overpays for services.
Actually I was coming from a different angle that does not have much to do with benefit design or program operation. It has everything to do with the way the medical system actually works. My experience has been that government agencies assume that uniform policies produce uniform results and they are ill prepared and have no incentive to deal with variation in results, especially when that variation itself is the result of a wide variety of factors that require careful localized analysis, patient targeted interventions and are the result of factors that are not within governmental control.
Or put another way, I was focused on use of medical services. That's where the action is. Single-payer advocates focus on administrative overhead. That's simple and easy to understand. Regulatory types tend to focus on prices. That's simple at first blush and it can work in the short term, but once the regulatory process is captured by those regulated, it's just a lot of politics that produces no financial benefit to anyone but lobbyists and it may produce higher prices. More subtle, more complex, and harder to explain are the bell curves of medical service use. At the high end, they produce nothing but expense and the potential for patient harm. At the low end, they indicate inadequate care. In the equation of total costs ((service use X price) + overhead) = total cost, the longest lever is service use. And no, this does not lead me to having clerks deny care over the phone.
But since you asked Tom, here's a long one and since you asked you have to promise to read it all and think about it and its relationship to what we've been discussing.
Here goes ...
When Medicare and Medicaid were established in 1965, based on what most everyone involved thought they knew about mainstream, privately insured, medicine, they took for granted three key assumptions. These assumptions were so deeply embedded, that they weren't even discussed. This was just the way the world was:
All three assumptions have turned out to be incorrect with significant implications for for patient care, clinical quality, and spending. What we've learned in the 40 years since is profound, but we still have a very long ways to go in taking advantage of it. This is relevant to the single-payer discussion because while a single-payer system might be centralized, medical care is not. I'll discuss that tie-in further below.
Medical care is not uniformly provided
Where's the evidence?
Read anything by John Wennberg, MD. (If you do a search at the New England Journal alone, you'll find well over 100 citations.) Here's a recent one in the British Medical Journal that focuses on end-of-life care. In the late 1970s, Wennberg began to apply epidemiological methods to medical care. The first study I read was in Scientific American in 1979 as I recall, but that's not online. What Wennberg and his colleagues found was that there is substantial variation in medical care from one community to the next. They have also found what they characterize as a "practice pattern" effect, that physicians in one community develop a rough consensus on the best way to handle particular types of cases, but that their consensus differs from the next community and will produce care patterns that are stunningly different from those in other communities, even within the same state or region.
For a quick introduction, start with the Dartmouth Medical Atlas, published by the Center for Clinical Evaluative Studies, which is one of the offshoots of Wennberg's work.
These variations also exist within similar populations and in some cases very homogeneous populations. For example, a colleague studied variation in hospitalization patterns among Nebraska Blue Cross subscribers for conditions that can be managed on an outpatient basis (diabetes, asthma, CHF, COPD, etc.) As another example, in the late 1980s and early 1990s, my own work focused on variation in hospitalization patterns of Medicaid clients in New York. Here's a quick and dirty update that I did in 2003. The earlier work was much more rigorous and I'll be happy to send a copy to anyone who asks.
Wennberg and his followers also learned that the variation itself varies from one condition to another. For example, appendectomies are always performed in hospitals and there is no known relationship of appendicitis to age, gender, race, socio-economic status. So there is very little variation and, from what I've seen, it's just random. Other conditions, however, are quite different. For just a tiny sample take a look at these:
There is much, much more.
This leads to "what difference to these differences make?"
Medical care does not provide uniform results and spending more does not necessarily produce better results
Where's the evidence?
Start in the Annals of Internal Medicine with two papers by Elliott S. Fisher, David E. Wennberg, Thérèse A. Stukel, Daniel J. Gottlieb, F. L. Lucas, and Étoile L. Pinder. The first is "The Implications of Regional Variations in Medicare Spending. Part 1: The Content, Quality, and Accessibility of Care" where they conclude that Medicare patients who live in areas that spend more on Medicare do not necessarily get better care than those who live in regions that spend less. The second, "The Implications of Regional Variations in Medicare Spending. Part 2: Health Outcomes and Satisfaction with Care," where they conclude that Medicare enrollees in higher spending regions receive more care than those in lower-spending regions but do not have better health outcomes or satisfaction with care.
Or even more recently, take a look at Baicker and Chandra who "find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care."
Fisher wrote an op-ed for the New York Times, More Medicine is Not Better Medicine (fee required for full article) December 1, 2003. He pointed out that additional service provided in higher spending regions are largely discretionary. He estimated that as much as 30 percent of Medicare's service spending was unnecessary. For you New Yorker's he also pointed to spending in NYC being double a community in the Pacific Northwest with no additional benefit. Here's Fisher's slide show, "Is More Better?" (Quicktime required.)
You can also look at the numerous studies that have come out of RAND on excessive and inadequate care. For example, take a look at Assessing the Appropriateness of Care, How Much is Too Much?.
If care is not of uniformly high quality or does not produce uniformly good results, there's nothing that can be done about it
Where's the evidence?
Start here at the Institute for Healthcare Improvement, founded by Don Berwick. In January of 1989, Berwick wrote "Continuous improvement as an ideal in health care," the seminal paper in the New England Journal of Medicine on the use of industrial quality control methods, statistical process control and other similar methods in medical care. (That paper is not online, but it's worth tracking down if you're interested in the history.) The Institute was founded two years later (with a grant from a health plan by the way) and it has expanded each year. Their annual meetings now get thousands attending.
IHI is just an organizational manifestation of many efforts to measure performance, understand clinical processes, and improve them. You can go into many hospitals today and see graphs of their performance on a wide array of issues hanging near the offices of department chairs and sometimes even in public places. That simply wasn't true 20 years ago. And in many healthcare organizations, it's still not true.
What's necessary to deal with all this variation?
Here's a starter list:
Comparative data must be collected centrally or at least in accordance with a standardized design. That would be simpler with a single-payer plan, but certainly feasible in a multi-option universal system.
Beyond that, it seems to me that most of the advantages are with alternatives to a single centralized system. There's economic incentive and local involvement on scales that don't exist for Medicare, much less the entire US population.
And what does this have to do with single-payer?
The most politically compelling rationale for single-payer is that it would instantly provide a large savings in administrative expense. It quite likely would. But where would we go from there? Nothing I have personally seen or read gives me confidence that a large centralized system would be capable of effectively dealing with variations in care. In my experience with New York's Medicaid program and with the exception of some legislators and local officials, there has been nothing but resistance from government officials. Perhaps that's biased my view of the potential, but let's remember that New York is one of the states that is most intrusive into medical care and certainly, given the cost of its Medicaid program, it would seem that there should be an adequate incentive. For government agencies this requires too much subtlety and long-term commitment.
What's required is a system that includes a significant incentive such as economic competition for example. And it requires lots of people working on it in different organizations with different perspectives. That's where innovation comes from. Innovation slows when you have to ask for governmental permission.
It may also require the ability to be selective in ways that government agencies just can't be. I'm reminded of the multi-decade stalemate over Medicaid physician fees in New York. The state had stopped updating the fees in the same manner that it updated institutional rates. So here's what happened. First, physicians dropped out of the Medicaid program at increasingly rapid rates until there only a few left and many of them were practicing in the so-called Medicaid mills. Second, the patients recognizing reality rather than what the law said about what Medicaid covered moved to emergency rooms and hospital outpatient departments for care because there was no alternative. Third, the hospitals paid political attention to the regulators and the physicians largely did not. When the state finally recognized the imbalance it had created, it was unable to fix it because to raise physician fees would have been to reward the Medicaid "mills." The log jam was only broken with the large scale use of Medicaid managed care which brought physicians back into contact with Medicaid clients by way of intermediary health plans. As a result primary care access has significantly improved for Medicaid clients. Docs may hate the health plans, but at least there's a working relationship. That was long past for Medicaid.
You need an ongoing, permanent economic incentive, local working relationships (which admittedly some of the national health plans may be fairly weak on) and the ability to work with medical professionals targeting local patterns everywhere. I just don't see the Federal government doing that. Certainly if it attempted to, much of the administrative savings would be lost.
If, as Fisher argues, 30 percent of Medicare expenditures for service today produce no medical benefit, then it is likely to become worse as medicine becomes more complex and involves more with each patient. Ignoring that for the cheap win of killing off the health insurers would leave us with no where to go and relying on the Federal government to find a new direction.