Making the Case for the Public Plan, Part II: Public Option as Private Benchmark

June 15, 2009 by · 2 Comments
Filed under: Medicare 

Ezra Klein has given a nice explanation of the advantages of public options in our health insurance ecosystem. He summarizes three different types of options that could develop, including a “trigger plan” (which be “triggered into existence [where] the private insurance market” failed), a “weak public plan” (which “couldn’t use the low rates that Medicare sets” and would just act as another insurer) and a “strong public plan” (which would basically be modeled on Medicare). Klein argues that, whatever public plan were adopted, “The existence of another option changes the market. Individuals will have access to private insurers, but they’ll no longer be stuck with them.”

I agree with Klein that a public option can help us achieve the trifecta of health reform–increasing access, reducing costs, and improving quality. Tyler Cowen challenged Klein today, and I’ll try to answer Cowen.

First, Cowen argues that the public plan will be very expensive, for if “public and private plans are to coexist, the public plan must be attracting the higher-cost customers, namely the higher medical risks.” Even if that’s the case, other industrialized nations have used prospective and retrospective risk adjustment to level the playing field between plans. As I noted yesterday, even private health insurance lobbies have conceded that “spread[ing] costs for the highest-risk individuals” is necessary to guarantee coverage for all. Risk-adjustment should not be seen as a subsidy—rather, it’s a way to keep a level playing field between the public and private plans.

Private insurers’ apparent acceptance of risk-adjustment may seem irrational if you think that they are only in the business of trying to gain the healthiest customers and shed the sickest. Tempting as it is, that cream-skimming is only one part of the broad range of things that insurers do. Many large insurers make substantial “administrative services only” revenue–for example, by administering self-insured employers’ plans. (In that way they avoid financial risk from sick insures–that risk is assumed by the employer funding the plan). Risk adjustment would further reduce their incentives to avoid people with pre-existing conditions. In terms of quality, private insurers can compete with the public plan on several dimensions, including identifying good providers, incentivizing best practices, and fairly determining access to treatment and payments for providers.

It’s that last function—coverage and payment determinations—where the public plan really has a chance at improving insurance for everyone. Today’s default for private insurers is secrecy in pricing, and opaque “gotchas” buried in thick plan documents. As Uwe Reinhardt has noted,
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Ezra Klein to Leave American Prospect

May 12, 2009 by · Leave a Comment
Filed under: Uncategorized 

Because, quite frankly, he is simply excellent at what he does, it’s well worth noting that he’ll be doing it somewhere else. Ezra Klein, formerly of American Prospect, has announced that he is moving to the Washington Post.

His parting blog, like almost everything else he writes, is a good read. Lets hope that WaPo affords him the freedom and support that American Prospect so wisely did.


A Shortage of General Surgeons, Rural Hospitals Must Compete

January 1, 2009 by · 2 Comments
Filed under: Physicians 

The Washington Post ran a story today, “Shortage of General Surgeons Endangers Rural Americans,” which, as the title suggests, reported on the shortage of general surgeons. The story describes the sort “jack of all (surgical) trades” existence of a general surgeon and reports that “In 1980, 945 newly trained general surgeons were certified in the United States. In 2008, the number was essentially the same — 972 — even though the population has increased by 79 million. In 1994, there were 7.1 general surgeons per 100,000 people. Today there are five per 100,000.”

WaPo reports

“For the one-quarter of Americans who live outside metropolitan areas, general surgeons are the essential ingredient that keeps full-service medical care within reach. Without general surgeons as backup, family practitioners can’t deliver babies, emergency rooms can’t take trauma cases, and most internists won’t do complicated procedures such as colonoscopies. But various forces — educational, medical and sociological — are making them an endangered species.”

“Many young physicians are opting for non-surgical specialties, such as radiology or cardiology, in which they can earn as much money as a surgeon with less grueling and unpredictable hours. Many young surgeons, in turn, choose to concentrate in fields such as transplant surgery or plastic surgery, in which they can make more money and don’t have to face (usually alone) the wide range of problems a generalist faces.”

Importantly, the article discusses efforts to recruit new general surgeons and relative compensation incentives; it recounts how 57 year old Bob Kuhl, who has spent his entire career as a general surgeon in Creston Iowa, threatened to quit 18 months ago because “When the hospital hired Kuhl’s younger partner, it guaranteed him a salary greater than the $185,000 the older man had been making.” The hospital, however, is said to have made arrangements to assure Kuhl “a higher income, too.”

It is perhaps important to note that the recruitment of general surgeons is said to compete with such lucrative non-surgical specialties such as radiology. As posted recently, the median compensation for a not neural, non-interventionist radiologist is $420,858. As noted in another recent post, this level of radiologist compensation has been ably attributed on Ezra Klein’s blog to advances in technology and antiquated fee for service structures:

“Now because of the explosion of imaging, and practice efficiency, these guys are reading 3x the images they did 15 years, and making three times as much.”

The post on Mr. Klein’s blog assures us that “Eventually, payors and Medicare figures things out and start putting pressures on rates. But it takes a while.” Unfortunately, it seems that as hospitals and other medical providers must compete against such “not yet figured out” largesse for the services of newly minted physicians, the damage has been done– and a benchmark has been set.


Will Specialist Pay Be a Target of Health Care Reform?

December 22, 2008 by · Leave a Comment
Filed under: Physicians 

Health policymakers are well aware of the pay differential between primary care and specialist physicians. Given this disparity, it’s important to recognize how the divergence arose. To the extent that training programs are limited for each specialty, that’s a natural barrier to entry that is hard to remedy without a great deal of investment in specialist education–or broadening of medical education generally. However, Ezra Klein quotes a comment on his blog which suggests a more artificial basis for specialist prosperity:

Specialist salaries aren’t just determined– they are based on volume of procedures and payment rates for their procedures. The “best” specialties are fluid, as are the best salaries (with exceptions, like Neurosurgery) primarily because physician payment reform is not keeping up with the changing practice of medicine.

Specialties typically have a couple of bread-and-butter procedures that change based on changes in technology, diagnosis and clinical practice. Typically, these bread-and-butter procedures start small, are paid well per procedure, and physician groups figure out out they do a ton of those procedures to drive salary.

Opthamologists used to make a lot more money than they do now. Why? Because cataract surge[ons] used to get paid a lot more [two to five times more per case than they is paid presently]. These docs figured out how to be more efficient so they could do more cases per day, and it takes a while for payors to say– you’re doing one every 20 minutes instead of every 90? Then we’re cutting back fees accordingly. In the meantime, Ophthalmologists rake it in and are a “top” specialty for medical students.

Eventually, payors and Medicare figures things out and start putting pressures on rates. But it takes a while. The same story is now true for Gastroenterologists, Radiologists and Dermatologists. Radiology was one of the easiest fields to get into 15 years ago. You work in the dark, have little contact with patients, its frankly a weird field for people who went into medicine looking to help people. You used to have a couple of nerdy introvert types who liked being in the dark that chose the field. Now because of the explosion of imaging, and practice efficiency, these guys are reading 3x the images they did 15 years, and making three times as much.

Payments will eventually come down for them too. But in the meantime, Radiology is now one of the hottest fields for medical students. Fixing this perverse dynamic is a key question. PS: General surgeons are the wrong specialty to pick on. What specialty has had vacant spot in the residency matching process the last few years? General surgery. Its a pretty tough life– in terms of lifestyle impact, they deserve the $75-100K more than the P[rimary Care Physicians]. It’s the Radiologists and Dermatologists that have PCP hours but are making 300-400K that are the problem.

This strikes me as a step toward the truth, but it raises as many questions as it answers. After following Medicare’s struggle from 2005 to 2008 to update rates paid for out-patient procedures performed at ambulatory surgical centers, I can attest to the slowness of federal updating. (There may have been a lag from 1990 to 2008 if I am reading the rulemaking documents correctly there.) Meanwhile, private insurers may not have the purchasing power needed for foist an adjustment on thriving specialists. If specialists are coordinated or powerful enough, they can refuse to be part of a network–and that refusal can be more harmful to the network than to the specialists.

But one of the key questions here is how did the specialists increase the volume of the procedures they were able to complete? We can sketch two scenarios schematically. In one, exogenous technological change simply makes it easier to do more procedures more quickly. In another, innovation by specialists themselves makes their practices more efficient. It seems that payment systems ought to reward the latter type of efficiency gains.

Pondering the difficulty of distinguishing between these two types of efficiency gains may make one long for a more normal market determination of the price of physicians here. However, the idea of a “just wage” has to enter into policymaking. Pay should be reasonably correlated with the amount of work the physician puts in each week, the value of the services rendered, and the investment of time and money the physician put into her or his training. But when inequality is pronounced and a large proportion of citizens is dependent on public aid for their care (as in virtually every developed country in the world, including the US), the pay of physicians must reflect that fact as well.

I predict that the specialist pay conundrum will only be solved by carrots and sticks that lead to compression of physician incomes and life chances generally: greatly increased educational aid to physicians (so that they can be debt free at the end of their schooling), balanced by lifelong obligations to either take on a percentage of Medicare, Medicaid, and SCHIP patients, or pay others to take on their share.