Cost Increases? Consolidation Makes it Happen

Published August 28, 2012

Consumer Power Report #341

In the Wall Street Journal yesterday morning, a report from the other end of the monopolization of health care services – what happens when a hospital buys out your specialist. Here’s an example:

After David Hubbard underwent a routine echocardiogram at his cardiologist’s office last year, he was surprised to learn that the heart scan cost his insurer $1,605. That was more than four times the $373 it paid when the 61-year-old optometrist from Reno, Nev., had the same procedure at the same office just six months earlier.

“Nothing had changed, it was the same equipment, the same room,” said Dr. Hubbard, who has a high-deductible health plan and had to pay about $1,000 of the larger bill out of his own pocket. “I was very upset.”

But something had changed: his cardiologist’s practice had been bought by Renown Health, a local hospital system. Dr. Hubbard was caught up in a structural shift that is sweeping through health care in the U.S. – hospitals are increasingly acquiring private physician practices.

Hospitals say the acquisitions will make health care more efficient. But the phenomenon, in some cases, also is having another effect: higher prices. As physicians are subsumed into hospital systems, they can get paid for services at the systems’ rates, which are typically more generous than what insurers pay independent doctors. What’s more, some services that physicians previously performed at independent facilities, such as imaging scans, may start to be billed as hospital outpatient procedures, sometimes more than doubling the cost.

The result is that the same service, even sometimes provided in the same location, can cost more once a practice signs on with a hospital. Major health insurers say a growing number of rate increases are tied to physician-practice acquisitions. The elevated prices also affect employers, many of which pay for their workers’ coverage. A federal watchdog agency said doctor tie-ups are likely resulting in higher Medicare spending as well, because the program pays more for some services performed in a hospital facility.

These cost increases should surprise no one, because they’re consistent with everything we see from those who believe in treating consumers – patients – as pieces of meat. It’s the logical outcome of Atul Gawande’s Cheesecake Factory approach. Gawande’s fallacy is that he believes efficiency is the only answer to health care cost problems, creating massive behemoth systems that need to be fed.

Yet this ignores the truth about the health care marketplace: As long as government, not the individual, remains the primary payer, health care will never be as efficient as Wal-Mart or the Cheesecake Factory under such an approach. Instead, it will run into the limits of what the government will pay and beyond – forcing exactly the kinds of price controls we see in Massachusetts as a result of Romneycare’s unintended consequences. This is the end goal of the liberal wonkosphere:

The immediate danger of the Orszag-Gawande-Obama vision is that layer on layer of new regulation will lock in less-than-best practices. This makes the status quo worse, because too-big-to-fail oligopolists have less incentive to innovate to reduce costs and improve quality.

The longer-run danger is that Mr. Orszag’s cost board starts to decide what types of care “work” for society at large and thus what individual patients are allowed to receive. One way or another, health costs must come down. And if Mr. Ryan’s market proposal is rejected, then government a la Orszag will do it by brute political force.

A murderer’s row of liberal health-care gurus – Zeke Emanuel, Neera Tanden, Don Berwick, David Cutler, Uwe Reinhardt, Steve Shortell, Mr. Orszag, many others – recently acknowledged as much in the New England Journal of Medicine. They conceded that “health costs remain a major challenge” despite ObamaCare. That would have been nice to know in, oh, 2009 or 2010.

Anyhow, their big idea is the very old idea of price controls that are “binding on all payers and providers,” much as post-RomneyCare Massachusetts is already doing. When that strategy fails as it always has, and the public denies further tax increases, the Orszag payment board will then start to ration or prohibit access to medical resources that it decides aren’t worth the expense.

These political choices will be unpopular and even deadly, which is why Mr. Orszag worked so hard to insulate his payment board from oversight or accountability.

Doubling down on monopolization as the key to bending the cost curve is fool’s gold. It has not produced better outcomes in Britain, nor will it produce them here. Instead it will result inevitably in rationed care and drive hospital centers to take over as much of the marketplace as they can. The end result is a crony capitalist-only health care system, where the only way to survive is to become too big to fail. And you know how that works: The systems will survive, but only on the backs of the taxpayer.

— Benjamin Domenech



Thanks to government subsidies, health care is the sector of the economy that’s hiring even as demand dips.

In July, 2012, the US economy produced roughly the same volume of goods and services as it did five years earlier with five million fewer workers. Yet, during the first four years of the recession (May 2007 to May 2011), the US health system, despite slowing or declining utilization, added 1.149 million workers. Key sectors, specifically hospitals and physician offices, grew their workforces despite declining admissions and office visit volume. (Employment data in this post comes from the Bureau of Labor Statistics’ (BLS) National 4-digit NAICS Industry-Specific Estimates from May 2007 and May 2011.)

Compared to the rest of the economy, health care seems to exist in an alternate economic universe. This would be good news, rather than a problem, if we were not borrowing roughly half of every dollar of general revenue the federal government is spending on health care and if employers were not robbing their workers of wage increases to fund their health benefits.

Hospitals and physician offices saw declines in their core activity in the past few years. Hospital admissions have been flat the past five years, and have shrunk the past two. Even hospital outpatient volume growth has subsided into the low single digits, only partially offsetting the lost admissions. Yet hospital employment rose by over 220,000 workers, or 4.4 percent from mid-2007 to mid-2011.

SOURCE: Health Affairs Blog


For all the talk of cuts, here’s the reality:

According to updated projections released by the Congressional Budget Office …, Medicare and Medicaid spending are expected to grow to a larger share of the nation’s economy over the next 10 years. And the health care law’s insurance subsidies will add to the federal share of health care spending, too.

The report – an update to CBO’s budget and economic outlook – found that Medicare spending will grow from 3.7 percent of the Gross Domestic Product next year to 4.3 percent in 2022.

That’s despite the health care law’s $716 billion in Medicare savings over the next 10 years. Those savings are accomplished mainly by slowing the growth of payments to providers and Medicare Advantage plans, but Mitt Romney and Paul Ryan have been blasting the cuts as a “raid” on Medicare itself.

Federal Medicaid spending, meanwhile, will increase from 1.7 percent of GDP in 2013 to 2.4 percent in 2022. Those projections factor in the Supreme Court decision that made the health care law’s Medicaid expansion optional, CBO stated.

All together, the three largest mandatory spending programs – Medicare, Medicaid and Social Security – will grow to 12.2 percent of GDP in 2022, or 55 percent of all federal spending.

That doesn’t count the Affordable Care Act’s health insurance subsidies, though, which will grow rapidly into a new source of federal spending. By 2022, those subsidies will rise to $123 billion in federal spending, or 0.5 percent of GDP, according to the budget office.

The CBO report is here.

SOURCE: Politico


Where will the money come from? Taking from one pocket, putting it in the other.

A provision of ObamaCare is set to punish roughly two-thirds of U.S. hospitals evaluated by Medicare starting this fall over high readmission rates, according to an analysis by Kaiser Health News.

Starting in October, Medicare will reduce reimbursements to hospitals with high 30-day readmission rates – which refers to patients who return within a month – by as much as 1 percent. The maximum penalty increases to 2 percent the following year and 3 percent in 2014.

Doctors are concerned the penalty is unfair, since sometimes they have to accept patients more than once in a brief period of time but could be penalized for doing so – even for accepting seniors who are sick.

“Among patients with heart failure, hospitals that have higher readmission rates actually have lower mortality rates,” said Sunil Kripalani, MD, a professor with Vanderbilt University Medical Center who studies hospital readmissions. “So, which would we rather have – a hospital readmission or a death?”

But according to federal government figures, nearly one in five Medicare patients is readmitted to a hospital within 30 days of release, costing taxpayers an estimated $17.5 billion. 

“Readmissions has been a low-hanging fruit for Medicare,” said Jordan Rau, a staff writer with KHN, an editorially independent program of the non-partisan Kaiser Family Foundation. “They’ve been very unhappy that about 2 million Medicare beneficiaries are being readmitted every year between 30 days of discharge.”

Medicare evaluated readmission rates at 3,367 of the nation’s hospitals and will impose penalties on 2,211 starting in October, according to KHN. The analysis shows 278 hospitals will receive this year’s maximum penalty of 1 percent. On the other side of the spectrum, 50 hospitals will receive the minimum penalty of 0.01 percent, KHN reports.

The penalties are intended to create financial incentives for the quality of care hospitals provide, instead of the number of procedures. But physicians debate whether readmission rates are the best measure of outcomes.



More taxpayer money headed to New York:

The U.S. Department of Health and Human Services announced the award Thursday. It brings New York’s total in federal support for the exchange to $183.2 million.

The exchange will provide the public an opportunity to buy health insurance on the open market.

“We continue to support states as they move forward building an exchange that works for them,” HHS Secretary Kathleen Sebelius said in a statement. “Thanks to the health care law, Americans will have more health insurance choices and the ability to compare insurance plans.”

There was no immediate comment from the governor’s office or the state health department.

The grant is designed to provide one year of funding to states that have already started building their exchange, which is part of the federal Affordable Care Act.

With the money, New York will be on track to offer health insurance plans to residents by the federal government’s 2014 deadline, said Blair Horner, vice president for advocacy at the American Cancer Society of NY and NJ.

“There are some unanswered questions that will come up between now and 2014,” Horner said. “But (Gov. Andrew Cuomo’s) administration has gotten the money, so it’s pedal to the metal on the exchange.”

In other words, they haven’t figured out how to spend it yet, but no worries. Minnesota’s Mark Dayton, meanwhile, is asking for only $42 million more.

SOURCE: Democrat and Chronicle


Gov. Snyder says they just can’t meet the deadline:

Michigan has run out of time to create and control a website for purchasing health insurance as required by federal law and “must prepare” for Washington to call the shots, a spokeswoman for Gov. Rick Snyder said Thursday.

The Republican governor sought a state-driven online health insurance exchange so a federal partnership wouldn’t be needed. The program is required under the federal health care law and designed to help individuals and small businesses comparison shop for insurance policies.

The Republican-controlled state Senate approved the exchange last year, but the GOP-led House has balked because members fear such an agreement could hurt them this November with voters who object to government control.

“This is an unfortunate decision as the governor continues to believe that Michiganders would be much better served with our own state-controlled exchange rather than the feds making those decisions for us,” Snyder spokeswoman Sara Wurfel said in an email. “However, given the current timelines and parameters, and since the House didn’t take action on the Michigan health insurance exchange … that’s the path we must take.”

The federal government can step in with its own exchange if Michigan doesn’t create an online marketplace or agree to a partnership by mid-November. Wurfel acknowledged that even if the state agrees to a partnership, the federal government would be “making the decisions and running the show.”

“If there are changes to the federal deadlines or to the law, we can and will reassess,” she said. “But for now we must prepare for a federal exchange.”

States have the option of creating their own exchange, teaming up with the federal government or having a federal system. More than 500,000 Michigan residents are expected to buy private insurance through the exchange once it’s up and running in 2014, including some who already have coverage.

SOURCE: Lansing State Journal