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The Flawed Logic of Brute Force

June 23, 2011
8:59 am

Today’s recommended reading is a column, if you haven’t seen it already, is a column in the  Washington Post by Geoff Colvin, a senior editor-at-large for Fortune Magazine, headlined, “Why Can’t We Fix Medicare – Once and For All?”

In Colvin’s take, there are essentially two policy directions for addressing Medicare’s well-documented fiscal problems.  One is the Brute Force concept – forcing Medicare spending downward by simply paying healthcare providers less money.  The other is the People Aren’t Dummies approach, which involves giving Medicare beneficiaries a greater degree of consumer choice to select between competing private health plans, thus forcing those plans to compete on the basis of both cost and quality.

The problem with Medicare policymaking today is that People Aren’t Dummies, even though it has worked quite well in the Medicare Part D program, hasn’t been applied to Medicare as a whole, which means Brute Force has been the default reform mechanism despite the fact that it’s simply a bad idea.

I always have to laugh when those who advocate the government command-and-control approach to healthcare say that Medicare is more “efficient” than private plans, with efficiency defined as spending less money for care.  Of course, Medicare can spend less money because the program pays health providers less than private health insurance plans, thus forcing a significant shifting of costs over to consumers of those private plans.  What some call “efficiency” is really just squeezing the toothpaste from one end of the tube to the other.

And now along comes the newest concept in Medicare reform, the Independent Payment Advisory Board (IPAB), which is just Brute Force in different packaging.  IPAB gives 15 presidential appointees the mandate to slash Medicare budgets whenever spending exceeds an arbitrary level.  With the restrictions upon which IPAB can aim its ax, the inevitable result will be – you guessed it – sharply reduced provider payments.

This isn’t the right way to make Medicare a better, more sustainable program.  Making it more difficult for seniors to find a doctor, because fewer physicians will be seeing Medicare patients when those payments are reduced, is not a noble policy goal.

But what if we explored Colvin’s People Aren’t Dummies approach?  Colvin espouses the plan offered by Congressman Paul Ryan (R-WI), which has aroused sharp criticism over its stringent subsidy levels for seniors.  But there are other ideas out there.  Former Clinton budget director Alice Rivlin, former Senate Budget Committee chairman Pete Domenici and others have recommended Medicare reform that would give seniors the ability to choose between private plans or stick with conventional fee-for-service Medicare if they so choose (but those private plans would be able to offer better benefits and greater value) and would tie increases in subsidies to healthcare inflation.

We’ve learned from extensive polling that seniors have no difficulty with making the right choices under the Medicare Part D program.  With proper information available to them, they select from among a number of private plans and successfully pick the offering that provides the best coverage for their medications.  And they don’t hesitate to change plans if there’s a better option in the market.  The end result has been high consumer satisfaction ratings and a Part D program with spending levels well below original budget projections.

We’ve learned from experience that Brute Force doesn’t make for a better Medicare program or put the program on a sustainable path.  Maybe it’s time to try something different.

Desperate to Diminish “D”

June 16, 2011
10:26 am

There is a concerted effort taking place right now among pundits and bloggers on the left to demonstrate that the success of the Medicare Part D prescription drug program is an illusion.  Contrary to conventional wisdom, they say, consumer choice and market competition have little or nothing to do with the cost savings the program has achieved.

So, why is this line of argument taking place right now?  The next open season for Medicare Part D beneficiaries is still months away and, consequently, this program is usually not on Washington’s radar screens during the summer months.

In fact, the struggle to define the success of Part D is really all about the political battle over Medicare reform.  You see, those who advocate moving toward a Medicare premium support model, one in which beneficiaries would have the opportunity to choose from a menu of private health plans, regularly cite the cost-effectiveness of Medicare’s prescription drug program to make their case.  After all, by 2013, the exceedingly popular Part D program will still have costs 32 percent less than the Congressional Budget Office originally estimated.

It’s a pretty compelling case for choice and competition.  Therefore, those who want to stop any movement toward a premium support model have to first destroy the Part D storyline.

So, in May, the left-leaning Center on Budget and Policy Priorities issued a paper saying that it’s not competition between private plans driving Part D savings.  Instead, fewer beneficiaries than expected had enrolled in the Part D program, resulting in lower costs.  And on top of that, there was a decline in growth for pharmaceutical sales throughout the healthcare system, and Part D was a fortunate beneficiary of this trend.  Not surprisingly, liberal pundits picked up this baton and ran with it.

This week, though, Joe Antos of the American Enterprise Institute dug a little deeper into the numbers and found that the storyline being trumpeted by premium support opponents is, in fact, fatally flawed.

In his column on the website Real Clear Markets, Antos looked at the number of Part D beneficiaries and pointed out that, even if you increase that enrollment number to the level anticipated by CBO and multiply those additional individuals by the estimated federal cost per enrollee, that still only accounts for 17 percent of the Medicare Part D cost savings.

He also looked at the claims that Part D benefited from the national slowdown in pharmaceutical spending and found that the drop in drug spending was far greater in Medicare than it was in the overall health market.  Antos further pointed out that, if Medicare Part D had been structured like fee-for-service Medicare and each prescription was paid for individually the way Medicare pays for other health services, costs would go up because the Medicare bureaucracy would have no incentive to encourage generic medications over brand-name drugs.  Competing private plans have an incentive to reduce costs while still retaining the loyalty of their beneficiary customers, thus leading to Part D’s substantial savings.

As Antos writes, “Health plans freed from excessive regulation and perverse payment incentives are capable of finding better ways to provide the care patients need.  And seniors, given the proper information, can navigate a system that offers them choices of competing plans.”

Medicare Part D has demonstrated that seniors can, in fact, successfully utilize a system that offers them multiple options for coverage.  And contrary to the revisionists trying to rewrite Part D’s brief history, the program does serve as a model for using choice and competition to generate value.

The Theoretical Bad-to-Worse Roadmap

June 13, 2011
9:42 am

There is a growing consensus in health policy circles that the Independent Payment Advisory Board (IPAB), a provision of the Affordable Care Act, is an ill-conceived idea.  Empowering 15 unelected government appointees to slash Medicare spending, if expenditures exceed an arbitrary level, will likely result in lower provider payments, fewer physicians seeing Medicare patients and increased healthcare access problems for beneficiaries.  Congressional Democrats and Republicans alike are wisely urging a repeal of the IPAB provision.

In a sense, I suppose we owe thanks to the liberal-leaning Center for American Progress (CAP) think tank for showing us how a bad idea can be made dramatically worse, and why it’s urgent that IPAB repeal move forward before the concept can take effect and become entrenched in healthcare policymaking.

CAP took part in a project initiated by the Peter G. Peterson Foundation, in which several advocacy groups and research organizations were asked to present their own deficit reduction proposal.  In its plan, CAP demonstrated how IPAB can be made to resemble Godzilla with an injection of steroids. This is from pages 43 and 44 of the Peterson Foundation document:

“Our failsafe would be triggered if, starting in 2020, total economywide health care expenditures grow at a rate faster than the economy. Should that happen, we would empower the IPAB to extend successful reforms in Medicare and other public programs to insurance plans offered in the health care exchanges and then potentially to all health care plans, such that the target is met. This will ensure that costs are constrained across the health care sector, preventing cost-shifting and maintaining access for all.”

Let’s be sure to understand this.  Under this proposal, these 15 unelected bureaucrats, instead of simply having budget-cutting influence over Medicare, would have expanded domain over private health insurers and their rate negotiations with healthcare providers.  That’s a genuinely disturbing vision of the future, made more so by the fact that CAP has established itself as a valuable resource for liberal policymakers.

The statement that cost-shifting would be prevented through this expanded IPAB authority is the same Orwellian logic that says Medicare is more “efficient” than the private sector because it keeps provider reimbursements artificially low through executive fiat.  Government simply decreeing that cost shifting can’t occur is not the same as addressing the factors that lead to cost shifting.

In fact, the only logical move here is to repeal IPAB before patients and health care consumers are hurt by this kind of government “efficiency.”

Yes, Virginia (and 49 other states) There is Healthcare Reform Beyond the Beltway

June 09, 2011
6:29 pm

It’s easy to get so caught up in the battle over whatever healthcare legislation is before Congress, or the newest set of regulations to come out of the departments and agencies, that one can make the mistake of thinking that all healthcare reform has its genesis within the confines of Washington, D.C.

The truth, though, as spelled out in forceful detail by McKesson Corporation CEO John Hammergren (a Healthcare Leadership Council member) in a Forbes blog post this week, is that genuine, system-changing reform is taking place up and down the healthcare spectrum outside of the Washington Beltway.

His sound advice to his counterparts in the healthcare industry is simple and compelling:  Don’t wait for Washington to enact change.  Make it happen yourselves.

Mr. Hammergren cites hospitals and insurers that have reduced costs and improve the quality of patient care through sound use of information technology, adherence to evidence-based medicine and innovative delivery approaches and management techniques.  As he writes, “Disciplined leadership and visionary planning turn intractable problems into exciting opportunities.”

Actually, the Healthcare Leadership Council is bringing that argument to government policymakers.  Our HLC Value Compendium cites numerous examples, with the metrics to back them up, of private sector healthcare companies and organizations taking steps to improve the value of healthcare and improving patient outcomes.  We believe these success stories can be a springboard for the Center for Medicare and Medicaid Innovation’s efforts to develop successful payment and delivery reform demonstration projects. 

In the meantime, the next time we get caught up in the latest health policy political spat that has everyone inside the Beltway talking, we should remember the message in Mr. Hammergren’s Forbes post.  What’s happening everyday in healthcare venues throughout the country, he writes, “is the kind of reform that no one will want to repeal.”

Oversimplification to the Point of Distortion

June 03, 2011
12:04 pm

There was an interesting court case in Alexandria, Virginia this week.  It seems that a personal injury attorney from Maryland had established a creative relationship with a Virginia chiropractor.  The two of them would hire ‘runners’ who would recruit people willing to pose as accident victims and seek care from the chiropractor.  They would then extract insurance settlements to compensate for their ‘injuries.’

Now, it would be wrong to use this case in describing the debate over tort reform as being between those interested in a fair judicial process versus lawyers looking for a quick and unethical payday.  That would be tremendously unfair to the many attorneys who represent their clients conscientiously and abide by the highest ethical standards.

Yet, in debates over and coverage of healthcare issues, we frequently see one side or another depicted in ways that don’t fairly describe their behavior or point of view.

Patient privacy is a prime example.  I can’t begin to count the number of news stories that have portrayed debates over the confidentiality of medical records as being between “privacy advocates” and the healthcare industry, as if health providers weren’t committed to protecting the rights and interests of patients.  On this issue, both sides of the discussion are “privacy advocates,” with the disagreements being over how to achieve both confidentiality and the essential flow of information to medical professionals.

What brings this matter to mind is an Associated Press article published yesterday about President Obama and congressional Republicans being at odds on the issue of medical liability reform.  The article characterizes the pro-liability reform position as being all about placing limitations on the damages an injured person can receive.  It isn’t until near the end of the article that it’s mentioned that the law in West Virginia – the state focused upon in the story – places a cap on noneconomic damages.

That’s what is not made clear in this article, and so often when this issue is discussed.  Those of us who support medical liability reform don’t want to impose a strict cap on damages in general.  In states where medical liability reform has been enacted – not only West Virginia, but Texas, California and others – there is no ceiling on the economic damages a plaintiff can receive.  Reformers are trying to bring some sense to the question of punitive damages, reining in those multimillion dollar verdicts that juries can award on a whim, and that have an effect on healthcare costs and patient access to care.  That distinction all too often doesn’t make it into news coverage.

There’s another interesting bit of oversimplification in that AP article.  It mentions that trial attorneys and consumer groups oppose liability reform because it would “lessen the incentive…for healthcare providers to act responsibility.”  Of course, this obscures the fact that the vast majority of physicians and hospitals do act responsibly and with the highest degree of professionalism, and that there is a sizeable gap between the number of malpractice suits filed and actual incidents of negligent care.

I could retaliate by talking about Maryland attorneys and Virginia chiropractors, but that would be wrong.