04/2003 The Galen Report

Published April 1, 2003

President Bush has fulfilled his promise to propose much-needed changes to the Medicare program, but his delay in providing details has put the White House on the defensive as the debate begins on this first-tier issue.

Political opponents and newspaper columnists around the country have filled the void with criticism of what is known about the plan, charging it will force seniors to lose their doctors and drive them into HMOs. It’s not true, of course, but what does that matter in politics?

The President’s vision is solid: Give seniors the choice of staying with traditional Medicare or selecting a new option that would allow them to join a competing health plan with drug coverage as part of the policy. The new plans would look more like Preferred Provider Organizations, in which seniors could select a plan whose provider network includes their preferred doctor or doctors.

The White House is struggling to keep domestic issues like health care in the spotlight, but it’s extraordinarily difficult with the Columbia tragedy, the threat of war with Iraq, and North Korea dominating the news. The difficulty was evident the day after the President’s State of the Union address. He delivered a speech that was billed as a major Medicare presentation … but the President devoted only three minutes to the topic.

The President also has been criticized for not mentioning the uninsured in either speech, even though his budget devotes $89 billion over 10 years to refundable tax credits for health insurance. The budget is full of other provisions that cheer a free-market heart, like unshackling Medical Savings Accounts and making them permanent, giving states much more flexibility with Medicaid, and ending the use-it-or-lose-it provision for Flexible Spending Accounts so employees can rollover up to $500 a year.

There are a lot of good ideas out there, both inside and outside government, to fuel a substantive debate over health care. For example, in this issue of Health Care News, Tom Miller of the Cato Institute suggests linking Medicare payments to market prices and providing full cash rebates to seniors who choose plans that cost less.

Nevertheless, the debate is off to a rocky start.

U.K. Spin-Off Group

On a brighter note, as many of you know, the Galen Institute facilitates a group called the Health Policy Consensus Group that has been meeting since 1993. It’s made up of the best minds in the market-based policy community and has been crucial in generating ideas that put consumers in the driver’s seat in the health sector.

And now there is a new Health Policy Consensus Group formed in the United Kingdom and chaired by our friend Dr. David Green, director of the Institute for the Study of Civil Society in London. Like ours, the UK Consensus Group is diverse; it includes a mix of experts, from prominent Labour party members to representatives of market-oriented think tanks.

The U.K. group has developed a statement with six principles to guide reform, including advocating that “Patients should have a choice among a range of competing health care providers.” As different as our systems are, we are both struggling to achieve the same goals. Congratulations and all success to this new Consensus Group.

– Grace-Marie Turner


Reforming Medicaid
Michael Bond, John Goodman, Ronald Lindsey, and Richard Teske
National Center for Policy Analysis, February 2003

“It is likely that many taxpayers are paying more in taxes to fund health insurance for the poor than they pay for themselves and their own families,” say John Goodman and coauthors in this paper outlining a pro-patient approach to Medicaid reform.

This year Medicaid will cost almost $1,000 for each person in the United States. Goodman and his colleagues recommend: 1) converting Medicaid into a defined-contribution system; 2) providing Medicaid enrollees with access to private health plans, including employer insurance; and 3) allowing the Medicaid benefit to be converted into private, portable insurance that can continue even after income levels exceed current Medicaid eligibility.

Their key principles for reform are choice, competition, portability, patient empowerment, paying for results, and devolution of control to local communities.

Full text (pdf version): www.ncpa.org/pub/st/st257/st257.pdf

Treatment Denied: State Formularies and Cost Controls Restrict Access to Prescription Drugs
Linda Gorman
Washington Policy Center, February 2003

Prescription drug formularies are a cost containment tool used by health care payers that usually restrict the number and type of drugs covered, often favoring older and generic drugs. Many states have implemented restrictive formularies in an attempt to control Medicaid costs.

But Linda Gorman of Colorado’s Independence Institute says this may actually increase health care costs in the long run. “Because the Medicaid population is sicker than the general population, political attempts to arbitrarily cap prescription drug spending run the risk of sending other health care costs out of control.” A 1999 review of restrictive formularies by the National Pharmaceutical Council found that, “In general, formularies increase costs because overruling physician prescribing decisions increases the utilization of other forms of health care.”

Additionally, physicians in Florida, which has a formulary, reported, “Medicaid patients were not getting the brand name medication that they needed, and that denials had resulted in negative clinical outcomes.”

Full text: www.washingtonpolicy.org/HealthCare/PBGormanTreatmentDenied.html

What Seniors Should Know about Government Restrictions on Prescription Drugs
Susan Horn Ph.D., Frederick Goodwin, M.D., and Robert Goldberg, Ph.D.
Heritage Foundation, November 2002

The revelation that drug formularies limit patient choice of needed drugs, decrease health outcomes, and lead to higher health care costs in the long run is not a new one. Dr. Susan Horn, senior scientist for the Institute for Clinical Outcomes Research in Utah, conducted a study of 13,000 patients from six HMOs, titled the Managed Care Outcomes Project.

This study found that more restrictive drug formularies were correlated with an increase in patients’ use of more expensive medical services, treatment in emergency rooms and hospitals, and visits to doctors’ offices. Horn also recently coauthored a Heritage Foundation paper that found restrictive drug formularies have a greater negative impact on senior citizens than on younger ones, a warning to those who would design a Medicare drug benefit.

Full text: http://www.heritage.org/Research/HealthCare/bg1611.cfm

Material for this report is provided by The Galen Institute, P.O. Box 19080, Alexandria, VA 22320, http://www.galen.org. Grace-Marie Turner is president. The report was produced by Elizabeth Lamirand, who can be reached at 703/299-9550, and edited by Conrad F. Meier, managing editor of Health Care News.