Consumer Power Report #251

Published December 10, 2010

What passes for conventional wisdom in political circles these days is disheartening to say the least.

Richard Reese sent around a snippet from a white paper from Merritt Hawkins, the physician recruiting firm. Dr. Reese notes health reformers would have us think “most doctors do their work in large integrated groups or medical centers,” but in fact, American physicians in clinical practice break down like this –

32% in solo or two-physician practices
15% in groups of 3-5 docs
19% in groups of 6-10 docs
13% are hospital-based
7% in medical schools and universities
6% in groups of more than 50 docs
4% in group or staff-model HMOs
3% in community health centers

The days of the independent practitioner are far from over.

Similarly, the recent tax bill compromise agreed upon by the president and the Republicans. For all the impassioned talk about “tax cuts for the rich,” one might think the country was shoveling money into the vaults of gadzillionaires. But the Washington Post breaks out the $990 billion, two-year cost of the agreement like this –

$280 billion, extension of Bush tax cuts for middle-income earners
$146 billion, capital investment write-offs for businesses
$140 billion, indexing the alternative minimum tax
$120 billion, payroll tax reduction
$80 billion, R&D tax credits
$79 billion, extension of Bush tax cuts for high-income earners
$68 billion, on lower estate taxes
$56 billion, extension of unemployment benefits
$21 billion, extension of refundable tax credits (like EITC)

So the much-despised “tax cuts for the rich” amount to 8 percent of the total package.

— Greg Scandlen



The Great Debate on health reform was driven by a notion that American health care is full of waste and health reform could be done on the cheap by getting rid of all that waste.

This idea was pushed especially by Peter Orszag, Obama’s OMB director, who estimated we could save $700 billion (that’s billion with a “b”) every year by getting every area in the country to replicate the experience of the least-expensive 10 percent of communities. He said we could not only pay for comprehensive coverage for all Americans, but eliminate the budget deficit as well. No problemo!

Orszag, in turn, got the idea from the Dartmouth Health Atlas that published a single study of Medicare claims of people in the last six months of life. Medicare spent a whole lot of money on people who were dying in places like Miami, and a lot less on people in places like St. Paul, Minnesota. They concluded that if every area spent as little as St. Paul, and if the Medicare experience was applied to the entire population, we could lower health care spending by 30 percent (which equals $700 billion).

There are some blatant problems with this analysis, of course. Maybe people in Miami have different socioeconomic circumstances than people in St. Paul. Like, just maybe, they don’t have the family support that could prevent them from being institutionalized at the end of their lives. Plus, is the experience of a dying elderly person really representative of the entire population?

Such objections were dismissed as partisan nit-picking from people who don’t really want to reform health care.

These objections were countered by Dr. Atul Gawande who wrote an article for The New Yorker in 2009 that was considered required reading by the Obama administration and other supporters of Obamacare. In his article, Dr. Gawande compared the experience of Medicare patients in McAllen, Texas to those in El Paso, Texas and found McAllen is vastly more expensive for no reason other than the greed of the local physicians. He didn’t try to explain why physicians in McAllen would be more greedy than their brethren in El Paso. In fact, no explanations are offered at all, other than the conclusion that somehow it all needs to be policed and regulated by bureaucrats in Washington.

Now comes anew study published in Health Affairs that circles back to this issue. The researchers have gained access to the claims data from the Texas Blues and compare the experience of Blue Cross subscribers in McAllen and El Paso. They find, for instance, that “although spending per Medicare member per year was 86 percent higher in McAllen than in El Paso, the total spending per member per year in McAllen was 7 percent lower than in El Paso for the population insured by Blue Cross Blue Shield of Texas.”

So the Medicare experience cannot be extrapolated to the entire population. Duh! But even this statement fails to capture the complexity of the situation. For some conditions, BCBS spending in McAllen exceeded El Paso, even though the number of services was lower. For other conditions spending was lower in McAllen and the number of services was the same. There are variations depending on the type of provider and the location of the services.

Bottom line – health care is a vastly complex web of factors that even Peter Orszag will not be able to control.

SOURCE: A Health Affairs blog explains this new study, though the study itself is available only to subscribers; Atul Gawande tries to spin the results in the New Yorker


Whatever else might be said about Obamacare, it sure has been good for the lawyers. Kevin Sack and Robert Pear teamed up to do an excellent analysis in The New York Times of where the suits stand now. They write, “While many newly empowered Republican lawmakers have vowed to repeal the health care law in Congress, a more immediate threat may rest in the federal courts in cases brought by Republican officials in dozens of states. Not only would an adverse ruling confuse Americans and attack the law’s underpinnings, it could frustrate the steps hospitals, insurers and government agencies are taking to carry out the law.”

They point out that judges in Florida and Virginia seem to be tilting toward ruling in favor of the plaintiffs in the two cases. If that happens, the next question will be whether they will enjoin the government from moving ahead with implementation until the case is finally decided by the Supreme Court.

The question after that relates to the absence of a “severability clause,” which would have protected the rest of the law if one part were ruled unconstitutional. The authors write, “An earlier version of the legislation, which passed the House last November, included severability language. But that clause did not make it into the Senate version, which ultimately became law. A Democratic aide who helped write the bill characterized the omission as an oversight.” So the question becomes “whether Congress would have enacted the rest of a law without the unconstitutional provisions.”

The individual mandate is essential to many other parts of the law such as the prohibition on underwriting, the creating of exchanges, and, one could argue, even the expansion of Medicaid. The article adds, “Lawyers for Virginia have sought to turn one of the federal government’s arguments on its head. They note that the health law explicitly refers to the insurance requirement as ‘an essential part’ of the act’s regulatory scheme, and that Justice Department lawyers — in pressing their point that the law permissibly regulates commerce — have called it the ‘linchpin.'”

SOURCE: New York Times

Writing in the American Spectator, David Catron digs a lot further into the severability clause issue. He writes:

At first, like the journalists who attended the October hearing, the Obama administration didn’t seem to grasp the significance of the severability issue. Even after the Virgina lawsuit highlighted the potentially disastrous omission, the Justice Department still failed to take it seriously. In its motion to have the Old Dominion’s case dismissed, the administration’s defense of the mandate played right into Cuccinelli’s hands by declaring that ObamaCare is unworkable without it. As Virginia’s October filing with the Court phrased it, “Secretary [Sebelius] herself has described the mandate and penalty as the ‘linchpin’ of PPACA’s insurance reforms.” The defenders of PPACA explicitly admitted that, even as a purely practical matter, the mandate isn’t severable from the rest of the law.

He goes on:

By October 18, however, the administration had stopped imbibing its own talking points about Virginia’s “frivolous lawsuit” and decided to address the severability argument head on. Thus, when Justice Department lawyer Ian H. Gershengorn and Virginia Solicitor General E. Duncan Getchell faced off before Judge Hudson, the two had a lively exchange over the issue. But the administration still doesn’t seem particularly sanguine about the impression Gershengorn’s arguments made on the judge. Hudson has promised to make his decision by the end of this month, and the White House is apparently expecting bad news: “[Administration officials] acknowledge that Judge Hudson’s preliminary opinions and comments could presage the first ruling against the law.”

SOURCE: American Spectator

Then, Physician Hospitals of America and the Texas Spine and Joint Hospital filed suit to enjoin the Obamacare restriction on physician-owned hospitals (Section 6001) for being a retroactive law. Keri Bolte sent the following statement around:

Federal Judge finds key provision of healthcare law retroactive and Claims Jurisdiction in PHA and TSJH vs. Sebelius Case

TYLER, Texas (November 30) – In a lawsuit brought by Physician Hospitals of America (PHA) and the Texas Spine and Joint Hospital (TSJH), regarding national healthcare reform, Federal Judge Michael H. Schneider, U.S. District Court Judge, in the Eastern District, of Tyler, Texas gave notice of a forthcoming opinion and ordered the cancellation of the December 9 trial date.

In a brief order Judge Schneider said the Court does have jurisdiction to hear the case and that he did find that section 6001 does have retroactive effect. “We are pleased the Court has decided it has jurisdiction over this case, and has determined that stopping the development of physician-owned hospitals in progress is retroactive in effect. The Supreme Court of the United States has always highly disfavored retroactive laws. We await the Court’s decision about why this one is not legal, said lead council Scott Oostdyk, Partner, McGuireWoods LLP.

Dr. Michael Russell, PHA President and TSJH Partner responded to the notice saying, “We will stand up and fight for our patients and for the future of health care in America. So much is at stake, not only from a Constitutional standpoint, but also regarding patients’ ability to continue to choose the highest quality, most efficient care offered at physician hospitals across the country.”

Dr. Russell said that both organizations look forward to the forthcoming opinion and plan to continue to move forward in their fight to repeal section 6001 through every possible avenue.

SOURCE: Physician Hospitals of America

Finally, the suit Kent Masterson Brown has been bringing against the government continues on its course. You may remember this is the suit against the current requirement that people who refuse to enroll in Medicare Part A must forfeit their Social Security benefits.

Martha DeForest sent out this update from the Fund for Personal Liberty:

Kent Masterson Brown, our lead attorney for the Medicare Lawsuit, was very happy with how the hearing went two weeks ago. He and Frank Northam represented the plaintiffs while two lawyers from the Department of Justice represented Health and Human Services. There were about 15 additional government attorneys in attendance including the General Counsel for the Social Security Administration. This confirms the importance of our lawsuit.

The hearing lasted about one hour, forty-five minutes. Judge Collyer came prepared with a list of questions for both sides. She questioned Brown for about 20 minutes and the balance of the time she spent questioning the defendants.

Next Legal Step
A week after the hearing, Judge Collyer ordered the government to file a supplemental brief with legal and regulatory citations concerning:

“Whether a recipient of SSI benefits in 1967 was required to repay all SSI benefits in order to avoid Medicare, when such a requirement/interpretation was adopted, and by what statute, regulation, or administrative decision.”

This question addresses the core of our legal argument. We have argued that the punitive requirement of retirees to repay or forgo their SSI in order to not participate in Medicare is an act of bureaucratic overreach and has no basis in law, a direct violation of Article. I., Section. 1. of the US Constitution.

Our response to the supplemental brief is due February 11, 2011, after which the outcome will be in the hands of Judge Collyer.

SOURCE: Fund for Personal Liberty


In the past week there have been more stories about what a mess this law has already become. As noted above the authors plum forgot to include a severability clause. Well, they also plum forgot another provision that is having dire consequences for children’s hospitals around the country. That is the subsidy for the enormously expensive drugs to treat rare conditions in children. The Boston Globe and New York Times have had major articles about this. Of course all these hospitals thought this law was just peachy and helped get it enacted.

SOURCE: Boston Globe; New York Times

And we’ve written before about the trouble brokers are in. Now even NPR is reporting on it in an article that predicts they will go the way of travel agents, squeezed between the minimum loss ratio standards and the health insurance exchange. But that’s okay. NAHU’s Janet Trautwein is reported to be optimistic.

Not so optimistic is Tony Ondrusek in Insurance and Financial Advisor. He writes, “Right now, the broker community is the navigator holding the compass and telescope on the ship, ‘USS Purchasing Health Insurance.’ The federal government has decided that it can do a better job for the crew and passengers, and is putting the broker on a life raft and pushing it out to sea, while telling the passengers that the ride will now be smoother and easier.”

SOURCE: NPR; Insurance and Financial Advisor