Consumer Power Report #185

Published July 9, 2009

This is a particularly long issue of Consumer Power Report, made necessary by my travel last week and the fact that health reform is heating up to a boiling point.

The travel has been well worthwhile. We held very successful Roundtable meetings last week in Indianapolis and Grand Rapids, and though I am not there, we are doing one this week in Dallas with more coming up in Atlanta and Philadelphia.

I’m not at the Dallas meeting because today (Thursday, July 9) we are co-hosting with CAHI a Capitol Hill Briefing on the latest evidence about the success of Consumer-Driven Health Care. The presenters will be myself, Mac McCarthy, Roy Ramthun, and Bill Boyles, with Merrill Matthews as moderator. The point is that if Congress followed the evidence, it would be heralding CD Health as the answer to all of the intractable problems in health care.

A reporter asked me if I thought the briefing would make a difference in the deliberations. No, I said, probably not. Congress doesn’t care a whit about the evidence or doing what might actually work. All it wants to do is gain more power and reward its political buddies. Period.

Greg Scandlen



Robert McNamara

The death of Robert McNamara has brought up a lot of reflection in the Washington press. Several columns in the Post remember the glory days when he was brought in to run the Pentagon under President Kennedy, promising a new system of management driven by objective data.

David Ignatius writes, “What a sense of possibility McNamara conveyed in those first years–the audacity, not of hope but of reason. He came to Washington as the ultimate rationalist, believing that he could transform the bureaucratic morass of the Defense Department into something modern and efficient.” But in the end, Ignatius concludes, “Be careful of the certainties that McNamara conveyed; be wary of the notion that smart people can solve any problem if they just try hard enough.”

Similarly, Jim Hoagland writes, “[McNamara] armed himself with data and an aura of arrogant invincibility that shut out the arguments of history, and of national character.” He quotes former war correspondent Ward Just as saying, “Everything had to be justified and explained by numbers and computers. That led him to misunderstand the fundamental reality of the war.” Hoagland concludes that McNamara’s greatest error was in ignoring the people like Paul Kattenburg and George Ball who were presenting other points of view. In fact, not only ignoring them but pretending they didn’t even exist.

SOURCE: Ignatius; Hoagland

Obama’s Whiz Kids

What does any of this have to do with health care? A lot. The Obama administration is crawling with similar whiz kids like Peter Orszag, Ezekiel Emanuel (Rahm’s brother), and outside advisors like David Cutler and Atul Gawande who are similarly convinced of their own genius and think they can create the data-driven management systems to eliminate $700 billion of wasted care in the American health care system. Like Mr. McNamara, they are dismissive of any skeptics–when they are even aware skeptics exist. And like Mr. McNamara, their very hubris causes them to overlook essential factors that may impede their plans.

For example, Dr. Gawande had an article published in The New Yorker about a month ago that laid out in great detail what he viewed as the inadequacies of the health care system in McAllen, Texas and compared them to what he views as far superior systems in Grand Junction, Colorado and Rochester, Minnesota (home of the Mayo Clinic). He concluded that we needed to replicate the management systems (not-for-profit, salaried employees, team approaches to service delivery) of the Mayo Clinic in places like McAllen, and indeed, throughout the United States. Voila! Problem solved.

Well, that’s all very nice, but now comes the Texas Medical Association with a reality check on some of the issues Dr. Gawande missed. Some of the things he somehow overlooked about McAllen include:

  • Its population is the poorest in the entire United States;
  • It has the fewest physicians per capita in the entire United States;
  • It has the second highest uninsured rate in a state that is the Uninsured Capital of the United States;
  • It is heavily reliant on Medicaid and Medicare payments to finance its entire health care system; and
  • It is plagued by very high rates of obesity, diabetes, lack of exercise, and overall poor health status.

The article explains, “Where there is poor availability of outpatient care, patients are far more likely to seek routine care in hospital emergency rooms, where costs are high and diagnostic testing is more frequent. This is also far more likely to result in costly hospital admissions. The data that Dr. Gawande depended on–but did not report–show just this. McAllen has a pattern of unusually high inpatient costs, while outpatient costs are close to average.”

Golly, the data were right in front of him, but he chose to ignore them.

SOURCE: Border Health Caucus

David Cutler

Another example is in the form of a new paper by David Cutler and Judy Feder and published by the Center for American Progress, the think tank that is an extension of the Obama administration. This is titled, “Financing Health Care Reform: A Plan to Ensure the Cost of Reform Is Budget Neutral.” But the authors have already made two errors and we haven’t gotten past the title.

First, nothing in the proposal is “ensured.” The paper is chock-full of caveats and wiggle words, things like “could be,” “might be,” “would likely be,” “presume,” and “assume.” There is no “ensure” about it, and the authors at one point even concede that many of their ideas are “somewhat speculative.”

Second, the paper is not remotely “budget neutral.” It includes a host of tax increases that will increase the federal budget. Now, because of the tax increases, the proposal may be “deficit neutral” but that is a whole other thing than budget neutral.

The lack of intellectual honesty in the title is reflected throughout the paper. It is a mishmash of spending cuts and tax increases. Like Peter Orszag, it hopes these spending cuts will not hurt patient care, but it offers no guidance whatsoever on how that might happen. As an example they say, “Suppose that as a result of administrative efficiencies, operational changes, and better preventive care, hospital costs fall by 15 percent. Imagine that the federal government responds to that 15 percent savings by raising hospital payments by 4 percent. The government will still save 11 percent, reducing the deficit by that amount, and hospital profits will rise by 4 percent.”

Yes, indeedy, just “imagine.” Better yet, let’s imagine that hospital costs fall by 35 percent or 50 percent, or 75 percent with no detrimental effect on patient care! Wouldn’t that be swell?

And this is what passes for analysis in Obama’s New Utopia.

SOURCE: Center for American Progress



A new Rasmussen survey finds 37 percent of the people in Massachusetts think the state’s reforms have been a failure, 26 percent think they have been a success, and 37 percent are not sure. Ten percent think quality of care has gotten better, while 29 percent say it has gotten worse, and 21 percent say health care has gotten more affordable and 27 percent say it is less affordable.

SOURCE: Rasmussen Reports

Stanley Greenberg

Stanley Greenberg is Clinton’s old pollster and was wrapped up in the wars over HillaryCare in 2003 and 2004. He decided to dip into the new aura and writes, “Perhaps I should know better than to have sensed any profound changes in the country. And, when I got the results for the new survey, I looked at each question warily, remembering how it all went badly wrong. As I reached the last of the questions, I exclaimed: ‘Oh no. It can’t be. Nothing’s changed.'” He adds, “If anything, I found on most of these questions that the desire for change and support for reform was slightly stronger 16 years ago.”

In particular, the elderly are opposed to all the proposals out there, he says. They see nothing in it for them–quite the opposite. Most of the “savings” to pay for all this stuff will be coming from cuts in Medicare.

And he says people are a lot smarter than Washington gives them credit for. He says, “The plan that took Ira Magaziner three days to explain to the political advisers and that George Stephanopoulos described to me as a Rube Goldberg monstrosity was unpacked by real people–months before the special interests and politicians would get to caricature it. Judging whether the plan would help or hurt one’s family suddenly became the dominant predictor in our computer modeling of support for or opposition to the Clinton health care plan.”

SOURCE: The New Republic

Kaiser Family Foundation

In a new report, the Kaiser Family Foundation reviews most of the recent surveys on people’s willingness to pay for health reform. The paper says, “A few new surveys have tackled the important question of whether Americans–still fairly foggy on the details of legislation being drafted on the Hill–are going to be willing to foot the bill for an expansion of health care coverage to more of their fellow citizens. In this data note, we try to walk you through the thicket of findings on ‘willingness to pay.'”

Most of the survey results depend on exactly how the questions are worded (and in the case of the CBS/New York Times survey, how representative the respondents are). But the really interesting point is this:

“Then there’s this sobering finding from Kaiser’s tracking poll: Most Americans say that if policymakers made the right changes, they could reform the health care system without spending an additional dime. This feeling that change could come without pain likely makes Americans less likely to back anything with a price tag.”

Sixty percent of respondents think reform can happen without spending more money, while only 34 percent say it will be necessary to either raise taxes, cut existing programs, or increase the deficit.

SOURCE: Kaiser Family Foundation



Tarren Bragdon of Maine’s Heritage Policy Center had an op-ed in the Bangor Daily News last week. In it he warns against the so-called public option and says Maine’s Dirigo Care should serve as a lesson on what not to do in health reform. He says the state has spent $155 million over five years to cover a mere 3,467 previously uninsured Mainers. When the law was passed the state assumed so many people would be insured that hospitals and insurers would no longer have uncompensated care costs, so it was going to pay for the public insurance by assessing those companies. This is the same sort of wishful thinking currently pervading Washington.

Of course, nothing of the sort ever happened and the state had to scramble around for other ways to pay for its ambitions. It enacted a new tax on beer and soft drinks that was promptly repealed by the voters in a referendum. Now it doesn’t know what to do and has frozen enrollment since September, 2007. Mr. Bragdon concludes, “Maine’s Dirigo experiment has been a costly failure. Dirigo’s government option has not covered the uninsured. Dirigo’s government option has resulted in a new tax on the hundreds of thousands of Mainers struggling to afford private coverage.”

SOURCE: Bangor Daily News

More Maine

Of course, Maine is also home to two “moderate” Senate Republicans, so is becoming a hot bed of political lobbying, according to The New York Times. The Left there is trying to dismiss the experience of Dirigo. The article quotes a Bonnie Roberts as saying, “You can’t try to fix this state by state.” Somehow she thinks the federal government will be exempt from these lessons. That view is countered by Mike Marcotte, an accountant from Lewiston, who says, “They (Senators Snowe and Collins) need to vote for free enterprise. Less government is better.”

SOURCE: The New York Times


The Arizona legislature is taking another run at the “Freedom of Choice in Health Care Act” that was on the ballot last year and lost by a mere 8,000 votes out of 1.8 million cast. Last year’s measure was vehemently opposed by Democratic governor Janet Napolitano (now Secretary of Homeland Security), the state Chamber of Commerce, and the state hospital association. They all want to have the right to dictate to citizens how and when to buy health insurance coverage.

Now the legislature has placed a new version on the coming ballot in November. And several other states are looking to replicate it, according to John LaPlante in the St. Paul Legal Ledger. If it passes, it could set up an interesting Constitutional fight over the rights of the states versus the federal government.

SOURCE: St. Paul Legal Ledger


Michigan’s Mackinac Center for Public Policy has released testimony by Michael LeFaive explaining to state legislators how they could save a ton of money by switching the state employee group to HSAs, and even more by doing the same to public school employees. He and CHCC member James Porterfield did estimates in 2007 that showed the state saving $16.2 million the first year and $1.1 billion through 2015. This was with the state paying 100 percent of premium and funding the HSAs at 100 percent.

Now they have updated this estimate and assumed 100 percent payment of premium and 75 percent of the maximum HSA contribution. They write, “Based on these and other assumptions, we estimate first-year savings of $106 million from moving state civil servants into HSAs, and cumulative savings of up to $5.9 billion through 2021.”

The savings for public school employees are even higher–$451 million in the first year and $26 billion through 2121. They add, “in almost every case, employees come out ahead with patient-centered HSA plans. To cite just one of the many advantages, the maximum out-of-pocket expense is an absolute, hard number, while with traditional insurance there is no limit to some of the co-pay amounts.”

Or maybe the state of Michigan can afford to throw its money away. After all, it’s only the taxpayers who are affected.

SOURCE: Mackinac Center


An article in the Hartford Business Journal reports HSAs are making some headway in Connecticut. The article by Greg Bordonaro says, “As the recession and escalating costs of health care continue to plague businesses in Connecticut, enrollment in consumer-directed health plans is growing as state-based employers turn to less-costly coverage options.”

It cites Aetna, where “60 percent of new business sales for small-group employers in Connecticut have been in consumer-directed health plans,” and “two-thirds of middle-market employers, with 50 to 300 employees, are offering some form of consumer-directed health care as an option.” It says Connecticare “is tracking similar numbers for small employers.”

SOURCE: Hartford Business Journal

Executive Director
Physician Hospitals of America

PHA Press Release

Hospital Associations Bargain Away $155 Billion in Medicare Funding in Attempt to Destroy Physician Hospitals

July 8, 2009
Washington DC

Today, the American Hospital Association , Federation of American Hospitals, and Catholic Health Association announced an agreement with the White House and Senate Finance Chairman Max Baucus (D-MT) to reduce Medicare hospital spending by $155 billion. Cost savings is an important goal, supported by Physician Hospitals of America (PHA), the national association representing physician-owned hospitals. As always, physician hospitals will shoulder their share of cost controls and other responsibilities to see health reform become reality.

However, in a desperate move aimed at reducing competition, garnering control of the entire industry, and eliminating patient choice, these associations have bargained for the destruction of physician-owned hospitals as a quid pro quo for the Medicare cost savings.

PHA Executive Director Molly Sandvig states, “To put this anti-competitive issue into the deal between Administration, Congress, and the hospital associations makes no sense and demonstrates the desperation of many hospitals to remove health care decisions from the hands of those who should have the biggest say, the physicians and patients. Ownership of a hospital by any party is simply not relevant to ensuring that every American has affordable access to medical care. Including the destruction of physician-owned hospitals jeopardizes more than 70,000 American jobs. Given the state of our economy and the latest unemployment figures, we cannot understand why the Administration would agree to this part of the package.”

There are more than 220 physician-owned hospitals in 32 states. They are an important part of the health care system and serve rural and inner city areas, military personnel, and in many cases are an integral part of community hospitals.

There are 18 general acute care facilities, 153 multispecialty facilities (children’s, women’s, and multi-specialty surgical hospitals), 19 rehabilitation and long-term care hospitals, 19 cardiac hospitals, and 13 orthopedic hospitals. Over half are joint ventures with community hospitals and other third parties. On average, more than 40 percent of their patients are Medicare beneficiaries. These facilities would wither and die under the deal supported by the Administration and Congress.

In addition, there are 104 new hospitals under development that would not be able to open and the more than $5 billion that has been invested in these projects and more than 20,000 future jobs would be lost.

By the year 2010, physician hospitals will employ over 70,000 Americans. The national payroll currently exceeds $2.4 billion and they spend over $1.9 billion per year on trade payables. As for-profit entities, they each pay on average $2,575,000 a year in taxes. More than 27,000 physicians practice in these facilities and the vast majority of them have no investment interest in the hospital.

Two cases illustrate the problems with the policy to ban physician ownership.

1. St. Joseph’s Hospital in Houston is an inner-city facility serving a large minority, low-income population. Physicians, as the buyers of last resort, invested in the hospital to make sure it stayed open to serve the community. If they cannot participate, the hospital will close.

2. Bellevue Hospital in Bellevue, Nebraska is scheduled to open next year. It will be the only hospital in town and is a joint venture between the University of Nebraska medical center and local physicians. It will serve 180,000 people in Eastern Nebraska and Western Iowa. Most importantly, however, the hospital will serve the 10,000 men and women stationed at Offutt Air Force Base, 20,000 military dependents, and 11,000 military retirees living in the immediate area. The base hospital closed in 2005. Under the hospital associations’ proposal, Bellevue will never open and these military personnel will continue to be underserved.

Ms. Sandvig states, “It is time that the hospital associations give more than lip service to issues such as access, quality care, efficiency, and patient choice. If the facts are truly considered, physician hospitals will be welcome, and the hospital associations’ deal will be seen for what it really is, a ploy to reduce healthy competition in health care.”

Molly Sandvig, JD
Executive Director
Physician Hospitals of America

Founder of Sermo

The Biggest Risk to U.S. Physicians: The AMA

As physicians, our first step in the health care debate needs to be clearing the air about who speaks for us on what topics. Today, I am joining the increasing waves of physicians who believe that the AMA no longer speaks for us.

As the founder and CEO of Sermo, this is a considerable change of heart, given the high hopes that I had when we first partnered with the AMA over two years ago. The sad fact is that the AMA membership has now shrunk to the point where the organization should no longer claim that it represents physicians in this country.

The AMA has drawn its power from the support of the physician community. The waning membership reflects our objection as the AMA has failed us consistently for over 50 years. Make no mistake, the debate within the AMA about how to stop their membership decline is not new. What is new is the lengths to which the AMA appears willing to go to deceive the public on this topic.

The AMA routinely claims that their membership is 250,000 practicing physicians. At best, this is 25 to 40 percent of practicing U.S. physicians and even that claim is based on some stretching of the truth. The 250,000 total includes a number of non-practicing constituencies, including medical students, residents, and subscribers of the AMA’s journals. Paying membership is generally accepted to be far lower. How much lower? Actual numbers are remarkably difficult to come by.

At this critical moment in history, we cannot watch the AMA fail physicians so completely yet again. Nor can we stand by and let false perceptions about who speaks for physicians persist. At the very least, all parties should understand the intrinsic conflicts of interest that are in play, and the AMA should be held accountable to these truths. Better yet, physicians should call for sweeping changes within the AMA.

In the best-case scenario, the AMA will shed its relationships with insurers and abandon tactics that take advantage of physicians to generate millions of dollars in revenue. It is an inherent conflict of interest to claim advocacy for physicians while profiting from a reimbursement system that makes it increasingly difficult for physicians to practice medicine.

The flight from the AMA signals that physicians don’t believe the AMA is willing to make these changes. The longer that the public and our lawmakers cling to the perception that the AMA represents the voice of U.S. physicians (and the AMA succeeds in perpetuating this), the more imperiled the medical profession will be and with it the broader U.S. health care system. It’s time to turn to entities like Sermo where physicians are establishing a new voice to collectively discuss the future of our profession.

There can be no health care reforms that have any chance of succeeding without buy-in from physicians. As a country, we cannot risk another failed reform effort. As physicians, we cannot risk letting the AMA represent our interests. This is our time to educate the public about which voices truly represent us and our commitment to our patients.

For more information, contact Greg Scandlen, director, Consumers for Health Care Choices at The Heartland Institute, or visit the Consumers for Health Care Choices Web site.