The Hippocratic Math

Dr. Donald M. Berwick, Formerly of CMS: an Exit Interview Worth Considering

It is received wisdom amongst Human Resource professionals that the exit interview–that which is had when an employee is departing –is an invaluable tool in understanding and improving an organization.

That said, Dr. Donald Berwick has left the Centers for Medicare and Medicaid Services, after 17 months of serving as its head.

His parting assessment?

According to the New York Times Dr. Berwick says

that 20 percent to 30 percent of health spending is “waste” that yields no benefit to patients, and that some of the needless spending is a result of onerous, archaic regulations enforced by his agency.

The official, Dr. Donald M. Berwick, listed five reasons for what he described as the “extremely high level of waste.” They are overtreatment of patients, the failure to coordinate care, the administrative complexity of the health care system, burdensome rules and fraud.

“Much is done that does not help patients at all,” Dr. Berwick said, “and many physicians know it.”

According to the U.S. Census Bureau, in 2009 we spent $2.4863 trillion on health care.

I’m going to write that out because as I’ve long maintained, most people (myself included) have difficulty understanding what a billion dollars is (ten, one hundred millions, or a thousand million), no less a trillion (ten, one hundred billions or a thousand billions )–nor 2.4863 of them.

That’s

$2,486,300,000,000.

Let’s just think conservatively for the moment and suppose, hypothetically, that contrary to all that Human Resources talk about frankness in departure, Dr. Berwick was disgruntled and doubled his numbers:

So instead of 20 to 30% waste we’re looking at 10 or 15%

10% = $248.63 billion or $248,630,000,000  in waste.

15% = 372.945 billion or $372,945,000,000 in waste.

And if he’s approximately right? If somewhere between “20 percent to 30 percent of health spending is ‘waste’ that yields no benefit to patients”

25% = $621.575 billion or $621,575,000,000 in waste.

Some context is in order. What can you do with a wasted (10%) 248 or (25%) 621 billion dollars?  This below, is from the Congressional Budget Office. The 2009 numbers are actual, the rest of the years are outlay projections– in billions. And no, that’s not a typo– Social Security cost $678 billion, Medicaid $251 billion.

Investing in Time Banks: More than Just Feel-Good Potential

What distinguishes the time bank concept from established volunteer service organizations? Not much, really, since time banks — over 300 total in existence within 23 countries– allow individuals to join and indicate what service they would like to provide: ranging from home repairs, child care, visiting the incapacitated, and accompanying patients to the doctor. Anti-poverty activist Edgar Cahn, is often viewed as somewhat of a time bank pioneer; he wrote about the concept early, and has attributed the rise in time banks to the cuts in social programs during the Reagan years. The currency of time banks is, not surprisingly, measured in hours rather than dollars, and members may accumulate credits and use them on those services offered by other time bank members. The barter/exchange system is seemingly win-win, since individuals are able to provide services they feel comfortable providing, and may receive like-time in services they want. With time banks, all work is equally valued– as such, it is said to be deemed non-taxable barter.

While the social benefits and altruistic aspects of time banks can be clearly inferred, the health payoffs may not be as explicitly recognizable but are seemingly also present– perhaps evidenced by just how many time banks are sponsored by healthcare providers. According to the New York Times, “The largest one in New York City is the Visiting Nurse Service of New York Community Connections TimeBank.” Also according to the Times:

Elderplan, a New York health insurance company, also runs a time bank for members.   Hospitals such as the Lehigh Valley Health Network, based in Allentown, Pa., run time banks.  In Britain, even private medical practices have established time banks.  At Rushey Green Group Practice in London, Dr. Richard Byng was convinced that what many of his patients needed wasn’t medication, but friends, social connections and a way to feel useful and valued.  Now doctors there routinely prescribe that patients join the Rushey Green Time Bank.

Importantly, time banks often provide simple practical aid that may not be directly medical-related and might not be covered by Medicaid or Medicare: an elderly woman, for instance,  who was just released from the hospital but is still too frail to purchase her own groceries or get to a follow-up appointment receives these services. These not directly medical challenges, if not navigated, can easily land such patients right back in the hospital. Importantly, re-hospitalizations are monetarily disincentivized through Medicare and Medicaid. As such, hospitals are seemingly incentivized to facilitate such simple ancillary care which can decrease the recurrence of re-hospitalizations and the lack of reimbursement for repeat hospital stays. Time banks may be one way to offer those solutions for many.

Time banks have been shown to make people feel better and improve members’ health– in particular, they have shown benefit for those with  low-incomes and living alone. They are also, at least anecdotally, economically beneficial; but in order for more health care organizations and providers to actually invest in time banking efforts, quantitative data showing proven cuts in the cost of health care resulting from time bank initiatives is seemingly needed. But there is some. A briefing published by the New Economics Foundation (NEF) provided the following:

• Volunteer Caregiving in Richmond, Virginia, where asthmatics are enrolled in a telephone time bank and befriend other asthmatics: the experiment cut the cost of treating those involved by 73 per cent — a total of $80,000 saved in the first year of the asthma program, rising to $137,500 in the second year.

The Times also reports that

A study published by the Transportation Research Board, an organization funded largely by state and federal transportation agencies, found that providing rides to non-emergency medical appointments was cost effective for every condition studied - especially for asthma, pre-natal care, heart disease and diabetes.  Regular visits from neighbors can also catch early signs of serious problems.  One time bank, for example, asked people who worked with diabetics to pay special attention to early signs of glaucoma.

UK studies provide more evidence. In Britain, the Nu Social Health Organization (NUSHO) found a cost savings of £250,000 within its first year. An economic model by the London School of Economics (LSE) concluded that the cost of each time bank member would average £450 per year, but the economic value of each member’s contributions would exceed £1,300.

The relative lack of published quantitative evidence on the projected savings that time banks will create may have something to do with them not being yet widespread. But with the urgency our nation faces to cut health care costs, there is, seemingly, great potential in time banks. But as the Times writer noted, the evaluations of time banking perhaps need to focus more on monetary value outcomes so that the case for the economic impact of time banks can be more convincingly made.  With this kind of information, if available, perhaps a push can be made and the potential of time banks can be effectuated.

CLASS Agonistes

This week the Obama Administration formally abandoned the CLASS Act, a component of the ACA designed to provide long-term care. Robert Reich explains why it was doomed from the start:

First, it required beneficiaries to receive at least $50 a day if they had a long-term illness or disability (to pay a caregiver or provide other forms of maintenance). That $50 was an absolute minimum. No flexibility on the downside.

Second, insurance premiums had to fully cover these costs. In budget-speak, the program was to be self-financing. Given the minimum benefit, that meant fairly hefty premiums. Third, unlike the rest of the healthcare law, enrollment was to be voluntary. But given the fairly hefty premiums, the only people likely to sign up would know they’d need the benefit because they had or were prone to certain long-term illnesses or disabilities. Healthier people probably wouldn’t enroll.

The failure of CLASS has led to a flurry of proposals for alternatives to long-term care insurance. Some want a purely private sector solution. Maybe a new Rube Goldberg financing scheme could be implemented as a part of 401(k) plans. Perhaps Wall Street could sell disability derivatives and ability default swaps, engineering away the “risk of non-use” that keeps people from enrolling in programs like this.

In thinking about these proposals, my mind turns back to Robert Bork’s Antitrust Paradox. For Bork, antitrust law was “at war with itself” because it professed to promote simultaneously 1) a cutthroat competitive process that would encourage firms to maximize efficiency and 2) the threat of penalties for any firm that succeeded in being so efficient that it outcompeted all or nearly all of its rivals, if its efforts to do so stepped over the line into monopolization. Of course, one could resolve the so-called paradox if one recognized that the Sherman and Clayton Acts were passed not merely to maximize “consumer welfare,” but also to prevent concentrations of economic power from exercising excessive influence. But as the judicial interpretation of antitrust law took on more of the assumptions of the Chicago school, the paradox loomed ever larger in efforts to characterize antitrust as futile in an era of consolidation.

So what’s the CLASS paradox? There are actually several. Those who are not so well off (such as the 50% of American workers who made less than $26,000 last year) are likely to be the most in need of the program, but have the least amount to spare for premiums. Those in the top 1% (that is, those who make over $506,000 annually) will probably want to use their own savings and investments, rather than an insurance program, to pay for LTC. That leaves a middle 49%, making between $26,000 and $506,000, who are the most likely participants. But among that group, the more healthy, well-connected, wealthy, and younger you are, the less likely you are to buy in because the benefits are speculative, distant, and/or unneeded. And by and large, the sicker, more isolated, poorer, and older you are, the less likely you are to have the resources to participate now.

The question finally becomes: are we serious about social insurance in this country, or are we content with treating the very frail elderly like possessions in the home, to be insured as need and whim allow? The solution to the LTC crisis is a right to basic care and residence, funded by general tax revenues. Sure, we can have extensive and difficult debates about the obligations of individuals and families to contribute to long-term care, particularly in order to make better-than-basic options available. But the general focus needs to be on redistribution from the currently well-to-do to the currently needy, rather than an ownership society mirage of individuals anticipating distant futures that may never materialize (and that many or even most can’t very well prepare for even if they do materialize).

We should also consider funding more of Medicare out of general tax revenues, rather than from dedicated payroll taxes and premiums. Richard Kaplan has argued that this shift could better serve both equity and cost-control goals:

The use of general tax revenues, moreover, would make clear that financing the health care needs of the Medicare population is a societal undertaking, much like the Medicaid program, which targets low-income individuals of any age. At a minimum, eliminating the separate taxes for Medicare would simplify the lives of employees and employers alike and would additionally reduce the cost to employers of adding new employees. Perhaps changing the financing of the Medicare program along the lines just suggested might also make its beneficiaries less inclined to protest every proposed programmatic restriction and to understand that their benefits are indeed coming from a communal funding source. The resulting change in budgetary debates can only be salutary for the republic as a whole.

Health care finance in general must adopt to a world of massive and growing income and wealth inequality. From 1947-1980, when Americans’ incomes more or less grew together at the same rate, there was some justification for modeling the purchase of long term care as an investment that individuals would manage one by one, to reflect their tastes and preferences. Since 1980, the divergence in fortunes has become so great that such choices far more reflect ability-to-pay rather than taste for risk or comfort. It is unfair to expect struggling middle and lower class individuals to continue with such burdens. And to the extent tough choices need to be made, they ought to better reflect the collective wealth of the nation, rather than the tragic choices that can befall an individual forced to choose between preparing for bleak penury in old age or investing in present purchases that could make that neediness less likely.

Inspirational Healthcare In(ter)ventions

The New York Times has an excellent section on “low-cost innovations that can save thousands of lives.” A conversation today focuses on Dr. Paul Polak, a 78-year-old former psychiatrist.

[Dr. Polak] has focused on creating devices that will improve the lives of 2.6 billion people living on less than $2 a day. But, he insists, they must be so cheap and effective that the poor will actually buy them, since charity disappears when donors find new causes.

His greatest success has been a treadle pump that lets farmers raise groundwater in the dry season, when crops fetch more money. He has sold more than two million, he said. He also helped develop a $25 artificial knee and a $400 hospital lamp to save newborns with life-threatening jaundice.

Dr. Polak’s work reminded me of an inspirational conference in Boston, organized by Kevin Outterson, the Ewing Marion Kauffman Foundation, the Rhode Island College of Pharmacy, Universities Allied for Essential Medicines & Mind the Health Gap. Una Ryan, President & Chief Executive Officer of Diagnostics for All, gave a powerful presentation on her company’s quest to bring tests to individuals for pennies. Developments like these indicate that conditions for the world’s poorest can actually improve.

X-Posted: Concurring Opinions.

The Hippocratic Math: Bioethics, Choice, and the Bottom Line

How does American society address the vulnerability of the body? We rarely stop to think about how quickly a disease or accident can derail even the best of lives. For the hundreds of millions of people who live on a few dollars a day, medical care is rare and haphazard. The US has gradually put in place a vast infrastructure of law and institutions designed to provide its citizens with quality, affordable, and accessible care. The proper limits of such care are hard to discern. Gregg Bloche’s book The Hippocratic Myth gives some excellent examples to reflect upon as the Affordable Care Act slowly begins to influence the health care delivery system.

Not many policymakers or scholars can write with the authority of Gregg Bloche. Bloche is not only a law professor, but also a physician, who knows his way around a hospital. Throughout The Hippocratic Myth, Bloche cements his authority in the mind of the reader by relating stories of his experience as a clinician. In each of these stories, his humane and insightful approach as psychiatrist shines through. I do not say this to imply that block uses his book to brag about his own abilities. Rather, these fluently written passages strike one as the work of one of those rare practitioners who manages to care deeply about the patient at hand while simultaneously contextualizing the encounter in a larger framework. Thus The Hippocratic Myth should take its place among other well-received books by physicians with a sense of the big picture (including Atul Gawande’s Checklist and Better and Jerome Groopman’s How Doctors Think.)

In The Hippocratic Myth, Bloche leverages this authority to advocate for a more cost sensitive health care system where individuals frankly acknowledge that they should expect trade-offs between cost and access to certain forms of care. My concern in this review is that Bloche the caring and expert physician would have a tough time in a health care world too deeply influenced by Bloche the cost-conscious author. To be sure, Bloche consciously shies away from proposing particular limits to care, and sets forth a surprisingly wide array of topics his work will not cover:

What does it take to make a health plans cost-benefit balancing principles so vivid and clear to consumers when they sign up that we can say they have consciously chosen to abide by them? Should the health plans be required by law to adopt a single, shared way of declaring their trade-off policies— say, maximum dollar amount per expected life year that they’ll spend on tests and treatments? How about a checklist of representative services, ranging from urgent care services to screening tests, that are or aren’t covered? And how much choice between health plans (and trade-off rules) is enough to make for a decent menu of options? Finally, what should be done about disparities in wealth? is there a decent minimum of buying power (and public subsidies) below which real choice between trade-off rules isn’t possible? these are matters of policy and politics, beyond my scope in this book. But they’ll need to become the focus of public attention, leading to agreements, if we are to enlist the nation’s support for limit setting by health plans and their doctors. (107)

Nevertheless, it is clear throughout the book that Bloche is deeply concerned about cutting costs. The question is whether we can, in good conscience, rally behind his crusade for cuts based on individual choices without coalescing beforehand on the types of specific mechanisms or redistributive measures that would cushion the blow of a transition to more restrictions on care in America’s comparatively market oriented healthcare system.

Mrs. Pearson’s Dialysis Appointments

Dialysis is a thorny issue in American health care. The US guarantees payment for dialysis care for anyone with kidney failure. Robin Fields at ProPublica has exposed massive failings in our system: “the United States continues to have one of the industrialized world’s highest mortality rates for dialysis care,” even though the “two corporate chains that dominate the dialysis-care system are consistently profitable, together making about $2 billion in operating profits a year.” Fields notes that, “if our system performed as well as Italy’s, or France’s, or Japan’s, thousands fewer patients would die each year.” Thus dialysis has become for many a case study in both the pathologies of a profit driven health care system and the willful weakness of a national government that guarantees payment for care, but fails to ensure that it is high quality or up to international standards.

Few people realize how tiring and stressful life can be for those subject to dialysis sessions. In an excellent article on racial disparities in kidney transplants, Vanessa Grubbs discusses the travails of one dialysis patient she is close to:

The weekends were hardest for Robert. Without functioning kidneys, he struggled with limiting his liquid intake in the face of constant thirst. The stretch from late Friday morning to Monday morning, his longest time between [dialysis] sessions, was the worst. Without fail, Monday mornings I would wake to the sounds of Robert vomiting, even though he shut the bathroom door, ran the exhaust fan, and turned on the shower to drown out his retching as he prepared to leave for dialysis. His body was ridding itself of the excess fluid the only way it could.

In Bloche’s book, we get another intimate look at dialysis, through the eyes of a Mrs. Pearson (a pseudonym), who has been undergoing the treatment for several years. Narrative matters in bioethics and health policy, and Bloche is a master at evoking critical details in Pearson’s story. Described as a “trim African-American woman in her late 50s,” Pearson decided at one point to discontinue dialysis. Her doctor called Bloche, a psychiatrist, to interview Pearson to assure that she was competent to make a decision that would result in her death within a few weeks. Bloche conducts a routine mental status exam, and quickly determines that Pearson is fully mentally competent to discontinue treatment. She states that she simply cannot continue to be jabbed with thick needles, often leading to painful wounds, to endure hours of blood filtration day after day. She is neither agitated nor depressed, but rather appears to be quietly resigned to the fatal consequences of giving up on the treatment. As Bloche observes,

From an ethical point of view, my duty was clear. If Mrs. Pearson grasped the stakes, and was alert and oriented, she had a right to refuse treatment. She passed these tests easily. The dialysis would have to stop. It was my job to write the note saying so. Without a competent patient’s informed consent, no test or treatment is ethical – at least none more intrusive than a needlestick or Tylenol at bedtime.

Bloche then adds the requisite note to Pearson’s file. But he has lingering doubts about her decision, articulating his unease in a question—was her response to her predicament “too rational?” This question reminded me of literature on the pathologization of shyness—do we need an emotional performance nowadays to have evidence of a sound mind? But Bloche is the psychiatrist, not me, and it’s a good thing he was in charge of this situation: his hunch panned out. In a follow-up interview, Bloche finds that a scheduling decision by the hospital sparked Pearson’s desire to quit dialysis.

She had been going during the day; they wanted her to come at night. Pearson felt powerless and angry. To Bloche, the decision to discontinue dialysis was the only way in which she could register a protest against authorities who were distant and arbitrary. Behind the scenes, Bloche arranges to keep the daytime scheduling, despite the extra costs it may incur.

Archimedean Points for Health Care Debates: Cost-Containment or Equity?

Here Bloche puts into action a conviction he had raised earlier in the book. It’s worth quoting the context in full, to give a sense of the minefield of advocacy contemporary health policy encompasses.

That distrust, and the trials and humiliations that many experience when making their way through our health system, depresses the level and quality of the care that African-Americans receive. . . . [But] it’s been urged that African-Americans and others who don’t seek the best, life-prolonging care for themselves and their loved ones act irresponsibly and have themselves to blame. . . . Clark Havighurst, a retired law professor at Duke who was once Ronald Reagan’s health policy advisor, complained to me that [those who complain about health disparities] missed the real unfairness: blacks who prefer less care pay the same insurance premiums as whites and thus subsidize whites’ higher use of health services. The remedy, he told me, is cheaper health plans for those who want less care.

Whether clinical judgment should corporate these purported African-American “preferences” for less care or aspire toward therapeutic equity is a political question. It’s my belief that we owe black Americans— and members of other disadvantaged groups— an effort to address the fear and distrust that have led so many to miss out on life extending care and clinical relationships. (92-93)

Bloche is right to state that, given the endless series of studies documenting health disparities, the US as a society owes underprivileged minorities special efforts to provide care.

But Bloche chooses a strange locution for this call to justice. Whereas he has apodeictic certainty that health care costs must come down, he treats his commitment to equality as merely one “political” view. I believe that precisely the opposite is the case: we can engage in endless political arguments about the overall level of health care spending, but these debates must be grounded in a social commitment to a certain baseline of care for all. Nevertheless, I greatly appreciate the careful and sensitive attention that Bloche gives these topics.

The Demographics of Illness and Cost: or, An Old Story About Chronic Conditions

We’ve reported on the distribution of health care costs among populations on numerous occasions here at Health Reform Watch. Over the last decades, our own Professor John V. Jacobi has been espousing reform, at times as almost a voice in the wilderness, as a matter of dealing in caring and cost conscious ways with chronic conditions.

In January of 2009 I noted, quoting HHS reports:

Twenty-five percent of the U.S. community population were reported to have one or more of five major chronic conditions:

• Mood disorders
• Diabetes
• Heart disease
• Asthma
• Hypertension

Spending to treat these five conditions alone amounted to $62.3 billion in 1996. Moreover, people with chronic conditions tend to have other conditions and illnesses. , according to 1996 MEPS data. On an individual level, treatment for the average patient with asthma was $663 per year in 1996, but when the full cost of care for asthma and other coexistent illnesses is taken into account, the average cost was $2,779.

When the other illnesses are added in, total expenses for people with these five major chronic conditions rise to $270 billion, or 49 percent of total health care costs.

Expenses for people with one chronic condition were twice as great as for those without any chronic conditions. Spending for those with five or more chronic conditions was about 14 times greater than spending for those without any chronic conditions. Persons with five or more conditions also have high hospital expenditures. In New York State during 2002, of the 1.3 million different persons admitted to the hospital, the 27 percent with five or more chronic conditions accounted for 47 percent of all inpatient costs.

I have also noted in July of 2009 that

…32% of Medicare costs are attributable to diabetes. It is no stretch to say that if we have a Medicare cost problem in this country (we do), what we really have is a diabetes problem (and, considering Halvorsen’s “we only get it right 8% of the time” figure, a diabetes treatment problem as well).

But first things first. 32% is a mere scooch (yes, that’s the technical term) away from ONE THIRD. That’s an enormous number. If one were to relate this portion of Medicare expense to houesehold expenditures, it occupies a place similar to a mortgage– but an expensive mortgage in a house that no one wants to live in.

And now a further health cost demographic from NPR’s Marketplace in conjunction with WHYY’s Health Desk, Gregory Warner. And yes, it’s about chronic conditions:

Tess Vigeland: Take everything this country spends on health care — the government, employers, patients — and it rounds out to a little over $8,000 per person on average.

But averages don’t really tell the whole story. A study by the National Institute for Healthcare Management found that in 2009, 15 percent of us had no health care costs at all. While at the other end, 5 percent accounted for almost half of all health care costs: $1.2 trillion.

….

Gregory Warner: Maybe you picture this high-cost patient as someone at the end of life, confined to a hospital bed and hooked up to expensive medical devices. But more likely, you’ll find this person at home or in a nursing home, living with five or more chronic conditions.

Why Reduce Health Care Costs?

One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.

Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:

King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.

But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.

I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.

Terrible Tax Expenditures and Suspect Subsidies?

Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.

I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.

Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.

Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.

Is Anyone Underpaid in Health Care?

Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more

It’s Not the ‘Shared Savings’, Stupid: Why ACOs Under the Proposed Rule Will Change Medicine As We Know It

CMS got the Medicare Shared Savings Program (MSSP) proposed rule largely right, but not because of the actual “shared savings” that the ACO model is commonly associated with. Rather, the MSSP will usher in a shift from the practice of medicine as primarily an art, to the practice of medicine as primarily a science.

The explosion over the last 50 years of drugs and devices — and the studies and guidelines concerning their effectiveness — is staggering. Couple this explosion with the lack of effective means for physicians and health care providers to make sense of the information, and it’s not surprising that we have a bloated, inefficient, and costly system that fails to provide value commensurate with our health care budget.

This systemic problem is no secret. The HITECH Act attempts to target the health information technology (HIT) problem with an incentive program, and PPACA attempts to increase evidence-based medicine (EBM) with projects like the Patient-Centered Outcomes Research Institute. But a piecemeal approach does not ensure the necessary integration between HIT and EBM, nor sufficient incentives for industry to embrace them.

Why such faith in the MSSP?

Because if ACOs want to participate in the shared savings they must meet the dual requirements of EBM and HIT. It’s this double-envelopment — combined with the ‘carrot’ of shared savings — that will finally usher in a medical revolution.

Thomas Kuhn, a trained physicist who is better known for his contributions to the philosophy of science , introduced the idea of “paradigm shifts” that occur as science evolves. In “The Structure of Scientific Revolutions,” Kuhn posits that instead of a linear evolution of scientific discovery, the discovery of anomalies can force traditional explanations of natural phenomena to be questioned. If enough anomalies accrue that seriously undermine an accepted explanation, a “crisis moment” occurs. In this circumstance “a scientist’s world is qualitatively transformed [and] quantitatively enriched by fundamental novelties of either fact or theory and a scientific revolution is born.” But as Kuhn notes — with import to our discussion of the MSSP — prior beliefs and experiences can make accepting a new paradigm difficult for scientists.

Kuhn’s theory of the evolution of science helps to explain health reform, or the lack thereof. Our health care paradigm — the spending of significant resources on health care per capita — has accrued significant anomalies, most notably outcomes that do not match up with our spending. We have tried HMOs, PPOs, and every many other types of arrangements, but to no avail. We are in a “crisis moment.” And we have a new paradigm: health care decision making that utilizes EBM at the point of care.

And that, my friends, is where the savings will ultimately be found.

A 2004 study demonstrated that following evidence-based guidelines for the treatment of hypertension in the elderly would save $1.2 billion annually.

There is no shortage of similar studies showing billions of dollars, and better health outcomes, waiting to be unlocked. So why isn’t it occurring?

A new review by Stanford University’s Adam Elshaug, M.P.H., Ph.D., and Alan Garber, M.D., Ph.D. demonstrates that recent studies on complex vertebral spinal procedures point have “cast doubt on the magnitude of any benefits from these procedures and at worst established their ineffectiveness.” The studies have caused payers like Blue Cross to limit or withdraw coverage of the procedure. After analyzing the data, the authors found that a conservative estimate of the savings of scaling down the costly and ineffective procedure would yield between $450 million and $725 million depending on the continued use of the procedures.

But the authors make a crucial point at the end of their piece:

Of course, savings will be derived from [comparative effectiveness research] CER only if practice changes. In the United States, it’s unclear whether these studies are powerful enough to overturn coverage decisions or cut utilization of established procedures. . . ACA features such as bundled payments, shared savings programs, and outcomes-based payments offer mechanisms for stimulating the adoption of practices that are supported by CER and the abandonment of practices that CER calls into question.

I interpret this as an acknowledgment that we have enough data to start saving money and increasing care, but that we are stuck in a rut where the practice of medicine itself is having troubling embracing science, and we are relying on the payers to pick up the slack.

This is not to say that medicine can ever — or should ever — become entirely science-based. There are embedded values in the process of health care decision making that science cannot determine, such as a patient’s desire for aggressive treatment and the risks or costs they are willing to incur. Regardless, there is a baseline degree of science-based medicine that will improve quality, afford greater patient (and physician) autonomy, and decrease cost. Moreover,  studies have shown that better informed patients make more cost-effective choices.

The problem is our inability and/or our unwillingness to embrace the inevitable paradigm shift to a greater science-based medicine even during a crisis moment. That is where the MSSP double-envelopment strategy comes in.

CMS’s Double-Envelopment Strategy: Attract with the Savings, Surround with EBM and HIT

The MSSP allows an ACO, each year, to recoup some of the savings that they have realized in reference to a benchmark cost. There is a fairly complicated procedure for determining the actual savings that the ACO can collect, but the idea is simple: incentivize the health care providers to reduce the cost of care. Health care organizations are racing to form ACOs, but while doing so they are being surrounded by EBM and HIT requirements that will drive a shift in health care delivery.

With respect to EBM, the proposed rule requires ACOs to implement evidence-based medicine or clinical practice guidelines and processes in an effort to improve individual care, improve the health of the population, and lower the growth of health care expenditures. The guidelines and processes must cover diagnoses with “significant potential” for the ACO to achieve quality and cost improvements, taking into account the circumstances of individual beneficiaries. All ACO participants and suppliers/providers must agree to abide by these guidelines and processes, and must be evaluated for their compliance. The rule also states that remedial actions must be a possibility for non-compliance, and ACOs must have policies and procedures for ACO expulsion of participants and/or providers/suppliers.

On the HIT side, ACOs are required to have an infrastructure, such as information technology (which may include EHR technology that is certified for CMS’s incentive-based meaningful use program). This infrastructure must enable the ACO to collect and evaluate data and provide feedback to ACO participants and ACO providers/suppliers across the entire ACO, including providing information to influence decision making at the point of care. Moreover, fifty percent of the primary care providers of an ACO must be “meaningful users” as defined by the HITECH Act by the second year of their ACO contract. As others have noted, the meaningful use requirement is extremely aggressive when considering that the proposed rule allows ACOs to come online as soon as Jan 1st, 2012. Industry has seen the writing on the wall, and has responded with nothing short of an ACO arms race.

The ACO-driven Paradigm Shift

Thus, the proposed rule requires ACOs to leverage HIT to evaluate data and provide feedback to others in the ACO, and do it in such a way that the feedback influences decision making at the point of care.  In other words, it is setting the stage for informed decision making for both physician and patient alike. This is the holy grail of health care reform: that is, an HIT network with users that are reporting data that can be leveraged to enable providers to suggest treatments that are proven to have better outcomes for their specific patient, and to do so at the point of care.

This is in contrast to the current paradigm of managing costs by relying primarily on ex post decision making at the payer level. Often, however, the consumer who has their desired procedure or drug denied (for reasons often opaque to either the physician, insurer, or patient) will decide to pay out of pocket, and can go bankrupt in the process. In this case, no costs have been reduced, rather, they have been shifted to the consumer. While some insurers create and use HIT and EBM, their behind-the-scenes decision making has not been embraced by physicians or patients. That’s because patients trust their physicians, not their insurers. The locus of reform must be on the decision making at the physician-patient level, and that is precisely where the proposed rule places it.

The proposed rule also clearly addresses the fact that you can’t get new practices adopted if physicians have to, for example, minimize their EHR application, fire up their web browser, and start searching the Cochrane Collaboration or some other site for possibly relevant data. They are going to have to do it from within the HIT system.

There is an added benefit politically to this paradigm shift: if the focus is on data-driven doctor-patient decision making, we bypass the political push and pull often associated with determining what treatment is “medically necessary.” This would satisfy the progressive ideal of providing high quality care without overbearing cost-control, while also satisfying the conservative refrain that the doctor-patient relationship remains independent. If the process of creating EBM decision making is HIT-focused, it also encourages the antithesis of cookbook medicine by tailoring the process to the individual patient.

The Long View

Too much focus has been placed on the short term issue of how much money the ACOs can recoup. This is a valid worry for the industry, particularly the smaller practices that can’t afford setting up an ACO. The federal government must do whatever it can to allay these worries so that industry further strives to create the HIT-EBM framework that the shared savings program envisions. If it means increasing the percentage of savings that the ACOs can receive, then so be it. Or perhaps ACOs should come online a year later after the meaningful use stage of EHRs has progressed.

Regardless of how the final rule mitigates industry difficulties, the ACO model is our best chance at creating a true paradigm shift that will better provide the medically necessary and efficient delivery of health care resources. It may take 5, 10, or 20 years to robustly develop the systems and the data, but nobody said a medical revolution would be easy.

New Year’s Resolution #1: Preventive Care and Negotiated Costs

Happy 2011, folks!  It’s a new year of reformed eating, exercising, spending, and no-smoking habits.  It’s a new Congress with promises or threats (depending on your view) of healthcare repeal.  And with the help of U.S. Preventive Medicine, Inc., it’s a new year for Sam’s Club shoppers to reach their health goals with the “The Prevention Plan.”  Or is it?

For $99 a year, Sam’s Club shoppers can access:

a personalized, step-by-step health management program designed to help people take control of their individual health.  Via an online health assessment and at-home blood test [measuring cholesterol, blood glucose, and Hemoglobin A1c levels]… members can take the first steps in identifying potential individual health issues.  From there, a personalized plan is created to address risks.  Personal health coaching, ongoing support, a variety of tools and a plan-wide health challenge are provided through The Prevention Plan to keep members motivated to maintain a healthy lifestyle.

Although the Plan includes a 24/7 nurse line, 20 online education programs, recommended prevention screenings, and a detailed member report, it isn’t a substitute for regular health insurance… or for a primary care physician.  In a CNNMoney report, U.S. Preventive Medicine CEO Christoper Fey suggested that shoppers “[t]hink of it as what a financial planner does.   He takes all the information you provide, assesses the risk and gives you a plan on how to improve your financial health.  The prevention plan does a similar thing, but for your health.”  In the same report, a director of health policy at Families USA, a consumer advocacy group, said that she “worr[ied] about people thinking of this prevention plan as a substitute for an annual checkup at a doctor’s office.”

Participating in preventive care and services makes a lot of (dollars and) sense.  Okay, a little lame joke.  Seriously, though, why sit around when you can take measures to try to maintain your health and to prevent certain diseases from occurring?  The Patient Protection and Affordable Care Act recognizes the benefit of preventive care and services — remember, there’s that provision concerning free access to important screenings, tests, vaccinations, and the like.

Yet I’m somewhat skeptical about the benefits of paying $99 to enroll in this Sam’s Club Plan.  For starters, it sounds like the same kind of educational information and health tips can be found on other sites such as WebMD… and at no cost to the consumer/patient.  Okay, well, maybe WebMD doesn’t come with a 24/7 nurse line.  Yet after you take the at-home blood test, upload the results, and figure out your health summary, you’ll still need to consult a doctor to figure out whether any additional screenings are required.  So take that $99 and add to it the cost of your co-pay… or whatever you might pay out-of-pocket if you don’t have insurance.

Speaking of which, be sure to check out a recent New York Times article which reminds us how (most of) everything in life is negotiable, including healthcare and prescription costs.  Similarly, a NPR blog post discusses how some drug manufacturers offer coupons or subsidy cards to reduce prescription costs–but as Kate Matos mentioned the other day here at HRW, that too comes with a cost.

Of Phones and Dogs and Wonders

In yesterday’s post we talked about the recent conference convened by Health Affairs entitled “Innovations Across the Nation in Health Care Delivery.” More specifically, we looked at the keynote address of Dr. Richard Gilfillan, the acting director of the Center for Medicare and Medicaid Innovation, and a decidedly low-tech example he gave of a program which produced marked savings in hospitalization costs for patients suffering from chronic disease (the patient in his specific example suffered from diabetes and COPD), while also improving the quality of life for the patient. The innovation in that instance involved not much more than providing the patient (and the patient’s daughter) with a hotline phone number to a particular nurse familiar with the patient’s case history. Simple, but effective. The particular patient quoted attributed to the service, sine qua non, her life– and her hospitalizations, and the major expense which accompanies such, were down. A phone and someone who knows– go figure.

If that’s not low-tech enough for you, the Wall Street Journal ran an article on the benefits of the use of dogs in doctors’ offices– surgeons, neurologists, pyschiatrists, psychologists, therapists and even hospital staff are said to have all have derived benefit from the use of dogs. The Journal writes:

Research shows that a few minutes of stroking a pet dog decreases cortisol, the stress hormone, in both the human and the dog. It also increases prolactin and oxytocin, hormones that govern nurturing and security, as well as serotonin and norepinephrine, neurotransmitters that boost mood. One study found that five minutes with a dog was as relaxing as a 20-minute break for hospital staffers.

“It’s chemical, not magical,” says Rebecca Johnson, who teaches a popular course in animal-human interaction at the University of Missouri and has conducted much of the research.

and that

Experts speculate that people give off tell-tale scents under certain physical or psychological conditions that only dogs can detect.

That acute sense of smell also enables specially trained service dogs to recognize when seizures, diabetic comas or heart attacks are imminent in humans. Some dogs can even detect the presence of cancer cells in lab specimens—much like detecting traces of contraband or explosives in luggage.

Regular readers of this blog and others like it in the health reform world are regularly treated, by necessity, to the complexity of medical science as it intersects with law– often in an attempt to ascertain ways to enhance patient well being while implementing cost control and what one hopes ultimately amounts to a sustainable health care system. Can some of the answers really be this easy? A phone line and a dog?

On a personal note, having lost our Great Pyrenees, Molly, two years or so ago, the picture above is of the newest addition to our family– a six month old female Eskimo Spitz named by my son (it’s at least nominally his dog), “Doctor Wiggles.” I’m not all that happy about the name, and it can be somewhat arduous to acclimate a puppy–but it is somehow superbly comforting to live again with a dog. And if nothing else the name affords me the opportunity to walk into the house after a long hard day and say “Paging Doctor Wiggles. Paging Doctor Wiggles.” And she comes. Happy as can be to see me as we prepare get down to the most serious business of rubbing her belly and throwing her ball.

I’d be lying if I said I wasn’t better for it.

Heckuva Job, OIRA

Remember the massive 500 million egg recall back in August? At least 2,000 people reported illness from the eggs; countless others may have mistakenly blamed their misery on some other source of food poisoning. We are now beginning to understand how regulatory pathologies beyond the usual capture story allowed this entirely preventable outbreak of salmonella.

Lyndsey Layton’s article on salmonella-tainted eggs offers an excellent case study of the toxic consequences of deregulatory ideology and a broken “cost-benefit analysis” apparatus. Layton describes years of controversy over bad eggs, which appeared to finally resolve in the late 1990s as the most responsible egg producers realized the terrible reputational consequences they were suffering because of their wild west competitors:

In the spring of 2000, a deal was struck. The egg industry agreed that the federal government would for the first time set rules for egg farms. At a private meeting on the eighth floor of a sleek office building overlooking Washington’s Union Station, Klippen, representing the egg farmers, shook hands with Richard Wood of Farm Animals Care Trust, who was negotiating on behalf of consumer groups. The regulators looked on, approvingly.

“This is how government and industry are supposed to work together,” Judy Riggins, a policymaker at the USDA, whispered to Klippen. And then, nothing. For the next nine years, the government failed to deliver the rules.

Old battles between the USDA and FDA explain some of the lethargy. But I found most remarkable this intervention from the OMB, whose Office of Information and Regulatory Affairs performs cost-benefit analysis on proposed regulations:
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Two Proposals to Reduce Health Care Spending

In the past few weeks, two bipartisan groups have made deficit reduction proposals that address national health care spending.  The nation faces a trillion dollar-plus budget deficit, and health care spending is a large proportion of ongoing spending.

National Commission on Fiscal Responsibility and Reform

On November 10, the chairmen of the bipartisan National Commission on Fiscal Responsibility and Reform released an initial draft proposal to reduce the deficit.  The panel consists of ten Democrats and eight Republicans, “charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”

Several commission members have praised the proposal, but will seek changes before endorsing a final version.  The chairmen, Erskine Bowles, former chief-of-staff to then President Clinton, and Alan Simpson, a former GOP senator held a closed-door meeting this past week to discuss modifications before the panel presents its final recommendations on December 1.

Although the drafted proposal addresses a broad array of fiscal problems and objectives, it makes dramatic changes to health care spending.  In the medium term, the chairmen propose the following:

• Pay doctors and other providers less, improve efficiency, and reward quality by speeding up payment reforms and increasing drug rebates. Specifically:
  • Replace cuts required by the Medicare Sustainable Growth Rate (SGR) through 2015 with modest reductions while directing CMS to establish a new payment system, beginning in 2015, to reduce costs and improve quality.
  • Require rebates for brand-name drugs as a condition of participating in Medicare Part D.
• Pay lawyers less and reduce the cost of defensive medicine by adopting comprehensive tort reform.
• Expand cost-sharing in Medicare to promote informed consumer health choices and spending. Specifically:
  • Eliminate first-dollar coverage in Medigap plans.
  • Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
• Expand successful cost containment demonstration.
• Strengthen the Independent Payment Advisory Board (IPAB).
• Identify an additional $200 billion savings in federal health spending, for instance:
  • Expand ACOs, Payment Bundling, and Other Payment Reform
  • Cut Federal Spending on Graduate and Indirect Medical Education
  • Convert The Federal Share Of Medicaid Payments For Long-Term Care Into a Capped Allotment

In the long term, the chairmen propose to set a global target federal health spending after 2020 and limit growth to the gross domestic product (GDP) plus one-percent.

Centripetal Accountability in Health Care: Accountable Care Organizations, A Legal and Practical Overview

Legal scholar Kevin Werbach once observed that the internet has been centripetal, “pull[ing] itself together as a coherent whole.” For Werbach, network formation theory both explains these centripetal tendencies, and some of “the pressures threatening to pull the Internet apart” into balkanized units. Werbach counsels that governments need to “catalyz[e] network formation, and moderat[e] the forces that push towards excessive concentration of power.” These recommendations should also govern new efforts to create “virtual networks” of care in the wake of the new health reform legislation (the ACA).

Critics of the ACA have frequently complained that the legislation does not do enough to improve quality or to cut costs. However, the act did create incentives for new alliances of hospitals and doctors, known as “Accountable Care Organizations.” Now provider lobbies are demanding some pretty dramatic changes to health care regulation in order to implement ACOs. In this post, I want to explain what ACOs are, and why they challenge traditional health care regulatory models.

What’s an ACO?

Elliott Fisher, director of the Center for Health Policy Research at Dartmouth Medical School, describes the “three key attributes” of ACOs: “organized care, performance measurement, and payment reform.” Fisher has argued that insurers are not well-positioned to improve the quality of health care because they “have largely focused on negotiating favorable prices within relatively open networks of providers” instead of trying to improve the health care their members received. (Private insurers have little incentive to keep current subscribers healthy over the long term, since at least half of subscribers on average churn into different plans within three years of signing up with a given plan.) He believes that a “virtual network” of physicians could do a better job, if they teamed up with hospitals. ACO refers to this legal alliance, which would be entitled to receive payments in exchange for cutting costs or improving quality.

In an ACO, an “extended hospital medical staff” (or “a hospital-associated multi-specialty group practice”) can join forces with a hospital and agree to be compensated via a lump sum payment. If the group manages to keep overall costs beneath the lump sum payment, it can share the gains among its members. Each part of the team also has an incentive to work together to keep those they care for healthy. In an ideal world, the ACO responds to the concerns about fragmentation discussed in last month’s symposium on the Elhauge-edited volume recently released by Oxford University Press.

ACO Skeptics

But there are skeptics. Jeff Fisher worries about shadowy new pressures on providers that patients won’t be aware of:

Consumers would not be aware that they were being treated by ACOs. Rather, they would be “attributed” to them: virtual patients of virtual organizations. Aggregate health spending for attributed patients would be tracked, and increases in that spending would be capped using a form of “shadow capitation.” ACOs that lived within the caps would get their fees increased. Those that overspent would see their fees reduced or frozen.

Gail Wilensky believes that hospitals may dominate ACOs, predicting that “if they are the only entities receiving the payment, it will have a bad imbalance between groups of physicians and the hospitals.”

Robert Pear has also reported that a “frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings” worries consumer advocates and antitrust scholars.

“In an environment where health care providers are financially rewarded for keeping costs down,” [a lawyer for the Consortium for Citizens with Disabilities] said, “anyone who has a disability or a chronic condition, anyone who requires specialized or complex care, needs to worry about getting access to appropriate technology, medical devices and rehabilitation. You don’t want to save money on the backs of people with disabilities and chronic conditions.”

“The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,” said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.” Lobbyists and industry groups are bearing down on the Federal Trade Commission and the Justice Department, which enforce the antitrust laws, and the inspector general’s office at the Department of Health and Human Services, which ferrets out Medicare fraud.

Those agencies are writing regulations to govern . . . accountable care organizations. They face a delicate task: balancing the potential benefits of clinical cooperation with the need to enforce fraud, abuse and antitrust laws. . . . [According to one insurer strategist,] “In some markets, the dominant hospital is like the sun at the center of the solar system. It owns physician groups, surgery centers, labs and pharmacies. Accountable care organizations bring more planets into the system and strengthen the bonds between them, making the whole entity more powerful, with a commensurate ability to raise prices.”

Why do ACOs implicate fraud, abuse and antitrust laws? At a recent government workshop on ACOs, participants addressed “circumstances under which collaboration among independent health care providers in an ACO permits ACO providers to engage in joint price negotiations with private payers without running the risk of engaging in illegal price fixing under the antitrust laws.” HHS also explored “the different ways in which the Secretary may exercise waiver authority or create new exceptions and safe-harbors related to the physician self-referral law, the Anti-kickback statute and the CMP law in order to encourage the creation and development of ACOs.” The AMA has pushed for “explicit exceptions to the antitrust laws” for participating doctors. And, as Pear reports, the president of the Federation of American Hospitals says “the fraud and abuse laws should be waived altogether.”

Evolving Fraud, Abuse, and Antitrust Laws

What is one to make of all this? Many health law scholars have been skeptical of fraud and abuse laws for some time. For a taste of the scholarship, consider this excerpt from Mark A. Hall’s 1988 article in the Journal of Health Politics, Policy, & Law:

Someone uninitiated to the intricacies of health care financing would find it startling to learn that it is potentially a felony punishable by five years imprisonment for a rural hospital to recruit a badly needed specialist to the community, for a doctor to discount his services by waiving insurance deductibles and coinsurance, or for a health care institution to pay its doctors a bonus as a reward for efficient practice. A case can be made that each of these activities falls within the literal terms of the broadly worded Medicare and Medicaid referral fee statute. Enticing a physician to join the medical staff necessarily involves implicit or explicit incentives to refer the physician’s patients to that hospital. Price discounts can be characterized as payments to refer one’s patients to one’s self for treatment. And efficiency bonuses can induce doctors to admit patients to a particular hospital or encourage them to direct patients to a particular insurance plan.

Because these and other absurd applications of the referral fee concept are within a plausible reading of the federal referral fee statute, the statute has been a constant thorn in the side of the health care industry since the 1977 enactment of its current form. However, some relief is now in sight. The Department of Health and Human Services (DHHS) has issued a series of ‘‘safe harbor’’ regulations specifying payment practices that are deemed legal despite their potential referral incentive.

Over the past 20 years, regulation of fraud and abuse has waxed and waned. In 1996, James F. Blumstein concluded that “the modern American healthcare industry is akin to a speakeasy—conduct that is illegal is rampant and countenanced by law enforcement officials because the law is so out of sync with the conventional norms and realities of the marketplace.” Nevertheless, as Joan Krause has shown, there are important public purposes behind these laws, and it’s troubling to see a hospital leader simply advocate for them to be swept away tout court in the case of ACO’s.

Antitrust issues are also complex here, and perhaps help demonstrate the wisdom of delaying the implementation of at least this part of the ACA for a few years. As Tim Greaney has demonstrated time and again, providers have had little to fear from antitrust laws over the past decade. His 2007 article on physician cartels memorably summarizes the situation for doctors:

For over thirty years the United States Department of Justice and Federal Trade Commission (“Agencies”) have confronted bands of businessmen who have steadfastly refused to pay attention to legal precedent, repeated governmental pronouncements, and administrative sanctions imposed on their colleagues. The conduct revealed in these cases evidences a willingness to blatantly disregard the law by repeatedly undertaking arrangements already deemed illegal by the enforcers or by concocting schemes that raise untested but dubious justifications.

[T]hese cases involve physicians, some grouped in associations numbering in the thousands and almost always proceeding with the advice of business consultants and counsel. The conduct challenged by the government involves the formation of loosely-structured organizations, ranging from Independent Practice Associations to Preferred Provider Organizations (PPO) to other kinds of loose “networks” that collectively bargain with employers or managed care organizations for provider contracts.

It’s hard to read Greaney’s work on the topic without concluding that a toxic mix of “doctrinal shortcomings, political pressures, and institutional constraints” have severely compromised antitrust enforcement already. Greaney’s 2004 article on antitrust in health care, Chicago’s Procrustean Bed, also suggests that health care antitrust has, for years, been biased “strongly [in] favor defendants” due to the persistent failures of Chicago-inspired doctrine to reflect “market imperfections” in health care.

Reduced Regulation Should Be Conditioned on Better Calibrated Payments

One could draw two lessons from these trends. Perhaps policymakers should be cautious about granting overly broad antitrust exemptions to ACO’s in a field where competition law’s prerogatives have already been whittled away.

Or one could call health care antitrust a largely failed project, and start regulating dominant ACO’s as veritable health care utilities, as critical to regional infrastructure as roads, electricity, or water. The logic of concentration seems inevitable in the field: insurers and providers have long been in an arms race for bargaining power. Joe White has explained the dynamic:

One might wonder why consolidation among insurers [in the US over the past 20 years] did not allow them to resist the providers’ demand for increased payments. The simple answer is that there were two concentrated parts of the market and one fragmented part. The insurers had to choose between fighting a full-pitched battle with the providers or exploiting their own market power vis-à-vis the employers. Raising premiums to employers was a lot easier.

In theory, employers could have demanded restrictive networks (at lower prices). But since everyone had agreed that employees did not like restrictive networks, and providers (especially hospitals) were not willing to discount much to get into such networks, there were not many available for purchase. Individual employers could not invent such a product; they could only shop around and find the relatively best deal by customizing other contract terms, such as cost sharing. The system left substantial room for entrepreneurship, but this entrepreneurship did not serve to improve health care values.

What can be done in a health care marketplace that’s increasingly looking like the “clash of the titans?” Perhaps inspired by the utility model, Maryland has implemented a hospital payment system where “all payers—public and private—pay the same rates.” If ACO’s deliver a coup de grace to insurers’ efforts to control provider prices, it’s only fair that the same governmental authorities behind the ACO movement condition its rewards on the responsibility to provide affordable care.

ACA stands for Affordable Care Act, not Accountable Care Organizations Above All Else. ACOs may work, but only if policymakers can replace classic instruments of health care regulation with calibrated financing decisions that reflect new industry realities.

CPI Says CMS Got RUC-rolled

Earlier this month, Ian Ayres questioned Medicare’s procurement auction rules. The Center for Public Integrity recently released an article that suggests Medicare’s process for deciding physician payments may also need a second look. Just as critics have charged that HHS relied excessively on a physician-allied group (the Council on Graduate Medical Education) in determining future health care work force needs, the CPI report makes a case that too much responsibility has been devolved from governmental decisionmakers to a private sector group, the American Medical Association/Specialty Society Relative Value Scale Update Committee (RUC). RUC’s dominant role in suggesting payment levels raises hard questions about price-setting in the health care sector.

Administered pricing can be a important tool of health care cost containment. However, the process of setting prices for various health care services is always at risk of capture by those who would profit from overpayments. By way of background, here is an excerpt on the resource-based relative-value scale [RB-RVS] that gave rise to committees like the RUC:
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