Government has been a major factor in increasing health care prices.  It increases the prices everyone else pays to health service providers through cost-shifting, and it increases the taxes we must pay to offset the subsidies it ladles out to its favored beneficiaries.

Government demands huge “take-it or leave-it” discounts from physicians and hospitals for the services given to Medicaid and Medicare patients.  This has been going on for decades.  The health service providers recover those discounts by jacking up the “rack rates” paid by individuals and hiking the “wholesale rates” paid by big insurance companies.

E.g. in July 2011, a Medicare beneficiary went to a clinic with severe flu symptoms.  The clinic charged $212.00 for services (its rack rate).  Medicare offered $129.33 which the clinic accepted (39% discount).  The patient’s Medicare “gap insurance” paid another $32.33 (15% of total).  The patient paid nothing.

E.g. in another clinic, in July 2011, the same patient was charged a rack rate of $140.00 Medicare paid $82.62 (41% discount) and the “gap insurance” paid 20.66 (15% of total).

For those who pay nothing for health care, Government’s cost-shifting may feel benign.  For everyone else it means higher out of pocket costs.  In the proposal, government is entitled to a volume discount geared to any documented efficiency it delivers (in administration) for the service providers – but it is not entitled to discounts related to its powers of clout and retribution (interactions with IRS, FDA, DoJ).  Government cost-shifting should be limited to documented efficiency.  Likewise, insurance company discounts should not exceed the efficiency they deliver to providers.   These proposed “green eyeshade” measures will decrease the prices that consumers pay directly.

Malpractice lawsuits are a massive waste of the health care dollar.  Tort lawsuits cost 1% of health spending ($27 billion per year) and are responsible for another 4.7% ($124 billion/year) in “defensive” medicine.  “Defensive medicine” is the ordering of extra tests and procedures that are not required by the patient’s condition but are required to insulate the physician from accusations of medical malpractice or inadequate treatment.  Malpractice attorney talking-points include platitudes about making health treatment safer, but clearly their aim is to become very rich on their 1/3^rd share of lawsuit winnings.  While victims of inappropriate treatment should have a right to sue, awards should be limited to actual damages, court costs (the loser pays) and a cap on pain and suffering (e.g. $100,000 or less).  So far, politicians have not restrained the cottage industry of trial attorneys.

In the proposal, legislators must scrap the malpractice gravy train (cap on pain and suffering, and loser pays court costs), and physicians are not off the hook.  They need to stop wasting 5% of health costs on CYA behaviors such as “defensive medicine,” and at the same time, physicians and hospitals need to address the 44,000-85,000 U.S. deaths of each year from iatrogenic illness, (illnesses acquired as a result of medical error, drug interactions, hospital–acquired infection, etc.).  The cost of iatrogenic illness treatment is $35 billion per year of imbedded costs borne by consumers.  ACA advocates claim 1.8 million of those injuries and 60,000 deaths could be averted.  But those adverse outcomes do not automatically justify invasion by the malpractice pirates.  Instead, the public deserves unbiased review by medically competent specialists.  There’s no value in the deeply emotional frenzy that malpractice attorneys whip up to influence judges and juries.

The AMA conducts medical peer reviews where skilled arbiters assess the care given to the patient.  If the AMA wants to retain its control over the practice of medicine and see malpractice suits brought under control, it needs to do more medical peer review, remove deficient practitioners and most of all, it should publicize the results.

Patents on pharmaceuticals and medical devices offer copycat protection to manufacturers who invested resources to invent or refine new technologies.  The patent allows manufacturers to set a higher than competitive price, but it is not a license to treat American consumers unfairly by setting a higher wholesale in the U.S. than they set for outside the U.S.  In this proposal, U.S. consumers should not be denied access to the lowest “high price” the manufacturer sets for an equal volume.  If the manufacturer refuses to offer U.S. consumers his best price, then the patent protection can be rescinded.  In the wake of patent protection loss, the consumers can benefit from another manufacturer making a competing “generic” version of the product.  The government does not need to set prices, nor should it grant pricing advantages to a firm that discriminates against U.S. consumers.

Electronic health records (EHR) are used by 35% of physicians now and will be the norm for documenting the patient’s treatment plan and history before the end of the decade.  In an EHR, handwriting-error is greatly reduced, medical coding and charging can be automated, and patient records are ready for consults on treatment.  Administration costs can be reduced through EHR, and the costs associated with pursuit of inappropriate treatment plans can be cut.   From EHR gear, there are additional benefits such as faster communication among treatment teams, coordination of referrals, and highly relevant in-service training for health professionals.  If EHRs are required for large institutions that participate in government-paid and insurance company-paid services, the uptake of EHRs can be accelerated and health care costs reduced.  Rand estimated $80 billion in yearly EHR cost savings, but recent studies say that some doctors order more tests because EHRs make that so easy to do – perhaps defensive medicine is showing its ugly head.

An aging U.S. population and the one-in-six who remain uninsured are increasing the demand for health services, but the supply of health professionals does not appear to be keeping pace.   The successful experience with nurse practitioners and other specialized non-physician health care providers suggests a way for the U.S. to add capacity to meet health care demands.  Widespread EHR availability should readily accommodate the physician “supervision” that the AMA arrogantly thinks is needed.  No doubt the AMA will see consumer benefits from increasing the supply of professionals.

And finally, the walk-in clinics sprouting up at Walmart and other big-box stores cut 30% to 40% off the cost of the same service rendered at a doctor’s office.  These clinics are often run by a nurse-practitioner.  Patients seem pleased with the service and delighted with the convenience.

The proposals above are intended to provoke discussion on ways to cut the cost of health care for consumers.  We welcome other perspectives that can promote the same goal.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

In the proposed system, a basic coverage policy is offered by each insurer.  The basic policy limits coverage to just that needed for the treatment of illness and injuries.  Advanced and esoteric services are offered in an optional “extended coverage” policy that some insurers might choose to offer.

In this proposal basic coverage includes: generic drugs, most medical and surgical services provided in a local clinic or general hospital setting; prenatal and childbirth; limited stay in psychiatric or addiction treatment or orthopedic rehabilitation facilities; and other common treatments for illness or injury.  The basic policy is the pathway to essential services and its limits and copays are the main defense against runaway costs.  Since drugs are a crucial part in the treatment of many illnesses and injuries, they are included in basic coverage.  Most drugs under patent protection are priced at nose-bleed levels in the U.S.   Despite some differences in efficacy, an illness can often be treated by either proprietary or generic drugs.  Since generic drugs are much cheaper, they are included in the proposed basic policy.

E.g. in 2011, at a Publix Pharmacy, 30 tablets of Crestor (under patent protection) cost $142.00 and 30 tablets of simvastatin (generic) cost $11.32.  Both are drugs for cholesterol control.

Despite widespread public disdain for ACA, some lobbyists still advocate coverage for every health service or lifestyle want and insist that the public should bear the cost even though they  cynically plead ignorance of the cost.  Long term care was dumped from the original ACA because it could not be made affordable.  At about $60,000 per year over the average stay of 3 years, long term care is unaffordable for most consumers who’d have to pay their own way.

At an insurer’s option, an extended coverage policy may be offered that includes: long term care; advanced reproductive interventions such as IVF; some proprietary drugs (those for which there are no generic drugs with similar curative powers); dentistry, vision and hearing care.     The aim is to make extended coverage as affordable and attractive as possible to people with more sophisticated wants and matching budget.  Beyond “extended,” some insurers may offer “designer” policies that include; a personal DNA map, tattoo removal, cosmetic surgeries, chronic psychiatric counseling and perhaps “new age” cures they find to be marketable.

Prices for medical services should be posted at the point of service delivery.  Those who feel this is crass probably have not had to pay the extortionate rack rates charged.   Some consumers are insulated from knowing the high cost of services they consume because someone else does the actual “paying.”  To force a conscious decision by the patient on whether the service is necessary, there should be a copay for each service delivered, and the copay should be more than just a token amount.

Prudent consumers should not be stuck with the costs of another person’s intentional misbehavior.   So for the cool kids who ride a motorcycle or bicycle or ski without helmet, drive an automobile without seatbelt, overdose on street drugs or alcohol, participate in fight-club, ride Niagara Falls in a barrel, or suffer injuries while committing a felony, the cost of getting patched up should be painfully theirs.  The Emergency Room copay charges for injury and illness due to those misbehaviors should be 100%.  The costs must not be tossed onto the backs of well-behaved consumers and taxpayers no matter how much the cool kids admire high risk behavior.

In the proposal, insurance policy prices (plus copays) should cover the actual services costs.  Policy premiums for each of the basic and extended coverage policies should reflect the insured party’s age (coarse strata such as 18 years or less versus 19 and older) and health condition (coarse strata such as standard risk versus higher risk).  Standard risk may include the lower two-thirds of the risk pool.  Higher risk may include the top third of the risk pool.  The high risk category is where many “pre-existing condition” consumers would be placed.  But, the “higher risk” boundary puts about 100 million people in the category so the premiums will be closer to “reasonable” than to “ridiculously high.”

Covering only the essential services, paying noticeable copays and being very aware of prices are proposal elements that drive costs down.  Paying for what we consume is a topic that tends to awaken our inner-Ayn Rand or inner-Karl Marx.  No doubt there will be strife over what copays are fair.  It is essential that the insurance prices cover actual costs – because that’s what helps align prudent behavior and lower costs.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

Today’s consumers are saddled with a $2.6 trillion health care system that we pay for directly in “out of pocket” installments, indirectly in current taxes and indirectly in future taxes that repay government borrowing for current needs.  The system is unaffordable and cost cutting must precede expanding coverage or new classes of beneficiaries.

The proposed cost-cutting ideas that follow are part of an integrated system that provides consumers with coverage for essential services including some that ACA omitted.

Who’s covered?  In the proposed system, most consumers will choose a health care policy from competing insurers and those policies will be paid for by the consumer or by the consumer’s employer – just as occurs today.  Some consumers will avoid insurance and pay practitioners directly.  Some beneficiaries (e.g. Medicare, Medicaid, or VA) will receive government-paid care.  In the proposed system, the government pays for its beneficiaries insurance bought from private insurers or the government may provide them with medical services directly (as does the VA).

In the proposed system, insurance coverage and who pays are similar to today’s arrangements, but costs are lowered through changes to:  the services covered, copays, health records, government cost-shifting, malpractice costs, drug pricing, and risk-based policy pricing.

In the proposed system, ideally, all consumers would sign up directly or their employer would pay for an insurer’s coverage policy.  An individual can sign up with an insurer from any state.  In some cases government will pay for health coverage.

Members of a family would be eligible individually for basic or basic and extended coverage. There is no “family price” per se.  A family could have parents and one child in the standard risk category and one child in the higher risk category.  Since pricing is per individual, the age of children in the parent’s home is irrelevant, all policies are individual policies.

In the proposed system, those who sign up for health care only after a skiing accident or car wreck (treat as pre-existing condition) are eligible for basic coverage, but if a new signup was not covered by a basic health policy for 91 of the last 180 days, then the minimum signup commitment is 4 years.  This open-entry makes for portable coverage in that anyone can sign up for a basic policy anytime, most preferentially within a few months of dropping coverage elsewhere.   Extended coverage policies are available to anyone who meets the underwriting requirements of the insurer.  A newly motivated skiing victim would make a terrible cost burden for any extended coverage carrier and may be deemed ineligible.

A few lobbyists want health coverage offered for 11 million illegal residents at the public’s expense, but coverage for illegals should require explicit prior approval by a majority of state voters.  The federal government should limit itself to providing basic coverage and only for those American residents as authorized in federal statutes – no new entitlements.

The federal government made longstanding commitments for health care coverage to armed forces veterans, social security tax payers and their dependents, and to those incarcerated.  Recently bureaucrats have extended health coverage to many others, often through games such making a political choice of where poverty “starts.”  While politicians may get a thrill from minting new classes of entitlement among potential voters, other people’s money and patience is now officially depleted.  So a hard edged moratorium is needed – no more additional commitments of federal government-paid health coverage.  Where federal government-paid coverage is in place, it should be set at the basic coverage level.  Congress, not politically appointed bureaucrats, must be in charge of and on the record for “where poverty starts”.

Everyone can be covered, especially if they pay the health policy premium.  This proposal treats everyone as an individual, allowing basic coverage to those with pre-existing conditions; limiting federal Government-paid coverage to Medicare, Medicaid, and VA beneficiaries, and to those that the voters authorize.  In the next part, the service coverage is proposed.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

The public’s verdicts on ACA are not aligned along a single dimension.  Some people dislike government intrusion in health care; some feel ACA is unfair to them.  Most know that the politicians sculpting ACA ignored “low total cost”- an irresistible theme for consumers.  ACA will foster a health system with major omissions and only a token effort to control costs.

In the short life of the ACA, misstatements on cost have been pathetic.  Originally, ACA was touted to reduce the federal deficit by $143B over 10 years.  But when the long term care component of ACA was found to be a financial impossibility, the $70 billion in premiums had to be backed out of the scoring.  The President’s fiscal 2013 budget proposal included an additional $111B for premium subsidy shortfalls in the ACA.  That made it a quarter trillion dollars uglier than when we were first allowed to read it.

U.S. Health Care expenditures in 2010 were $2.6 trillion.  There were 121 million “consumer units” (families and singles) in 2010, so total health care spending per consumer unit was a heart-stopping $21,470.  But the 2010 “out of pocket” per consumer unit was just $3,157.   Although they don’t realize it, most consumers are deeply insulated from the full costs of health care.  Since the average U.S. consumer unit has pre-tax earnings of $62,490, the full cost of health care would be a crushing 34% of a typical consumer unit’s earnings, not just the 5% “out of pocket.”  Most of the U.S. health care costs are paid directly by government, employers, insurance companies or other entities.

The ACA pandered to some voters with its consumer premium subsidies, but it tried to hide the total costs from the majority of consumers.   The constitutionality of ACA is currently being scrutinized by the Supreme Court.  We expect a ruling in June 2012, but many assume that the ACA will be ruled unconstitutional or have its individual mandate ruled unconstitutional.  In either case it would become unworkable, and Americans need replacement legislation that better serves their health care needs and budgets.  In the segment that follows, we will look at some ideas that can reduce total health care costs and provide consumers with coverage for essential services that ACA omitted.  These recommendations are presented as parts of an integrated system.

Alan Daley is a retired businessman living in Colorado who follows public policy from a consumer’s perspective.

Says ESI/Medco Merger Will Increase Health Care Costs and Reduce Competition

WASHINGTON, D.C. — The American Consumer Institute Center for Citizen Research (ACI) today expressed disappointment in the Federal Trade Commission (FTC) decision not to block the merger between Express Scripts, Inc. (ESI) and Medco Health Solutions merger, and encouraged states’ attorneys general to file lawsuits to halt the merger.

“To say that the FTC’s decision not to block this merger – or even to attach conditions that would sufficiently protect patients and consumers – is disappointing, would be a gross understatement,” said Steve Pociask, president of ACI.  “An ESI/Medco merger will undoubtedly increase health care costs and reduce competition, and needs to be stopped.  I sincerely hope that state attorneys general and others will step up now and to do whatever is in their power to make sure that happens.”

Earlier this year, ACI sent a letter to the FTC expressing concerns the PBM industry already poses anticompetitive risks for consumers and that an ESI/Medco merger will only exacerbate the problems that already exist.  In the letter, ACI urged the Commission to oppose the $29 billion deal.

In the letter, ACI said PBMs broker agreements on multiple sides – and profit from each.  Because they always have better and more complete information on costs and prices than other involved parties, PBMs have a lop-sided advantage in dealings with the other parties which enables them to profit from managing the health plans sponsored by corporations, governments and unions as well as by funneling sales to preferred drug manufacturers in return for kickbacks.

“The FTC’s decision does not favor anyone but ESI and Medco,” Pociask continued.  “It is exceedingly important that this merger be stopped before patients and consumers feel the negative effects.” 

It has been reported that attorneys general from five of the largest states in the nation are considering filing suit in the event of FTC approval.  ACI encourages them in their legal efforts to block the merger and hopes others will join.

ACI is a nonprofit (501c3) educational and research institute.  For more information, visit www.theamericanconsumer.org.

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FOR IMMEDIATE RELEASE:

March 13, 2012

American Consumer Institute Distributes Compilation of Documents Expressing Concern about ESI/Medco Merger

Organization Urges People to Stand Up for American Consumers by Adding Voice

Washington, D.C. – The American Consumer Institute Center for Citizen Research (ACI) today released a compilation of documents expressing concern about the proposed merger between Express Scripts, Inc. (ESI) and Medco Health Solutions, two pharmacy benefit management (PBM) companies.  As the Federal Trade Commission (FTC) finalizes its review of the $29 billion merger deal, ACI is highlighting the volume of concerns being expressed and asking people to join the growing group weighing in on this critical issue.

The compilation is nearly 200 pages long and includes letters and opinion editorials from Members of Congress, patient and consumer groups and others expressing concern about the proposed merger.

“When you look at all of the various groups and individuals who have spoken out against this merger in one way or another, it is pretty staggering,” said Steve Pociask.  “If you ask me, it is pretty clear how this merger is viewed by those outside the two companies.  I hope that this is taken into consideration as the FTC finalizes its review.”

ESI and Medco are two of the nation’s three largest PBMs, and last year announced plans to merge.  The deal is currently under review by the FTC and Congress, and a final decision concerning whether or not the deal will move forward is expected soon. 

If the merger is approved, it is clear what would result: pharmacies would be driven out of the market altogether.  That would further encourage PBMs to engage in self-dealing, favoring their own mail-order services over competitive pharmacies.  Thus, consumer choice and access to pharmacies would be diminished.

“We at ACI believe that approving this mega-PBM merger and combining two of the nation’s largest PBMs would only exacerbate the conflicts of interest and concentration of market power that already exist in the PBM industry.  This would in no way benefit consumers,” Pociask continued.  “For these reasons, the Institute is strongly opposed to the Express Scripts-Medco merger, and we encourage people to add their voice to the mix and do what they can do make sure it is stopped.” 

To view the compilation of documents, click here.

ACI is a nonprofit (501c3) educational and research institute.  For more information, visit www.theamericanconsumer.org.

The key question behind health care issues has become; who should pay?   In the U.S., the answer has become political with emotional, vote-buying, and coercive attributes.  And because they can, politicians have entangled “best treatments” and “who pays.”

Budgetary pressures in states such as Illinois, Tennessee, Iowa and Washington are motivating changes in Medicaid payments.  For Medicaid patients in Washington State, there is a list of 500 diagnoses for which the state will not pay doctors and hospitals.  Some are routine care conditions that should not waste ER resources.  But in some instances, a test needs to be done to establish a diagnosis.

In Washington State, if a Medicaid patient falls down a staircase and arrives with a swollen ankle,  an x-Ray may be needed to establish whether it’s broken (Medicaid will pay) or not (Medicaid will not pay).  Washington State standard takes additional uncompensated care from the doctor and hospital and some will think twice about ordering an x-Ray.  Going forward, a higher percentage of Medicaid patients who need broken ankle treatment will be sent home without it and more physicians will face malpractice suits by major contributors to politicians’ election campaigns.

Normally, when you spot a government-rigged game such as that in Washington State, you can refuse to play.  But that’s not an option for emergency rooms and physicians.  The federal Emergency Medical Treatment and Labor Act requires a hospital to provide a medical screening assessment to anyone who requests it, and if the person has an emergency medical condition the hospital must stabilize it or transfer the patient to another hospital that can.

The medical professions and consumers are being victimized by our politicians.  State-level Medicaid shakedowns are being monitored by the feds for effectiveness – no doubt as part of a cost saving model for all consumers under the Affordable Care Act.

Alan Daley is a retired businessman living in Colorado.  He follows public policy from the consumer’s perspective.

Elected representatives seldom have the expertise needed to specify a technical matter such as the minimum “in-flight” separation between passenger jets needed for public safety, or even tradeoffs between jobs and lower prices for consumers.   For such matters, they rely on “experts” in the departments or independent agencies.  When Congress specifies the mission of each department or independent agency it grants authority to write regulations that can accomplish that mission. 

The Administration through its Office of Management and Budget (OMB) sets standards for how those rules are established.  The usual requirements are notice and opportunity for public comment and for any regulation with significant impact on the economy (i.e. more than $100 million/year), a formal analysis of that regulation’s cost and benefit (CB) to the public.  OMB’s Office of Information and Regulatory Affairs (OIRA) reviews the quality and compliance with standards for those regulations.  

Without CB analysis, public comment, and OIRA oversight, the public would be subjected to regulations that merely reflect the whim of the partisan appointees running departments and “independent” agencies (many of whom pretended to be exempt from CB analysis obligations).  Recent Presidents have appointed a scary list of political buddies to steer the departments and agencies.  The quality of their regulations and enforcement is horrible.

A competent CB analysis protects the public and helps pick rules that make the best sense.  CB analysis monetizes costs imposed on the public by a proposed regulation and monetizes benefits from that proposed regulation.  Regulators have found acceptable ways to monetize most concepts – even human lives and human suffering, frequent topics at the EPA and HHS.  A CB analysis should be performed for each reasonable variant of regulation so the regulator can pick the regulation version that presents the best benefit over cost profile.  After the regulation has been in place for some period, a retrospective CB analysis should be performed to validate that the regulation retains an acceptable benefit over cost profile for the public.

Unfortunately, cost benefit analysis has been performed inconsistently, poorly, and sometimes not at all.  The lackluster pattern persists in both Republican and Democrat administrations.  What makes this more alarming is the astounding volume of regulations headed our way due to recent Congressional actions.  

The Dodd Frank bill contains 259 rules “yet to be written” by the existing and new agencies, and another 188 rules Congress recommends.   The Affordable Care Act contains an avalanche of regulations and determinations that will choke the health care industry with reporting and paperwork burdens (e.g. it increases categories of injury and illness from the current 18,000 to 140,000).  Almost everything in these acts has substantial impact, and the regulations will be contested in court.  If consumers are to see benefits from these stacks of regulations, CB analysis must be built-in from the start.

Alan Daley is a retired businessman living in Colorado.  He follows public policy from the consumer’s perspective.