On Health Care Costs, Trust Consumers, Not Bureaucrats

Published July 23, 2012

Consumer Power Report #336

Last week the Washington Post had an extensive write-up about how an anemia drug cost taxpayers billions of dollars without making much of a difference for those receiving it. The piece is available here. It shows that far from being arbiters more sensitive to costs, bureaucracies are warped by industry and lobbyists all the time.

Unlike medications that a patient picks up at the store, drugs administered by a physician, as these were, can yield a profit for doctors if there is a “spread” – a difference between the price they pay for the drug and the price they charge patients.

In this case, drugmakers worked diligently to make sure that doctors had an incentive to give large doses – that the spread was large. They offered discounts to practices that dispensed the drug in big volumes. They overfilled vials, adding as much as 25 percent extra, allowing doctors to further widen profit margins. Most critical, however, was the company’s lobbying pressure, under which Congress and Medicare bureaucrats forged a system in which doctors and hospitals would be reimbursed more for the drug than they were paying for it.

The markup that doctors, clinics and hospitals received on the drugs given to Medicare patients reached as high as 30 percent, according to the Medicare Payment Advisory Commission, a group that advises Congress.

As research about the drugs showed new side effects, Congress modified the rules to eliminate these markups. But as Chris Jacobs writes here, this story illustrates why we can’t trust the left’s solution to the problem of rising health care costs.

But the real scandal here involves far more than anti-anemia drugs. It’s about the system that allowed this fiasco to happen for years – a system which Obamacare did very little to change. Friday’s story was entirely predictable – Harvard’s Regina Herzlinger predicted it in a work five years ago, in fact. And Herzlinger and others have identified the real culprit: Third party payment empowers bureaucrats, not patients. In Medicare’s case, it gives federal officials at CMS, Members of Congress – and the high-priced lobbyists that try to influence both – a disproportionate impact on the health care decisions of millions of seniors.

Obamacare does nothing to change this government-centric culture; all it does is set up yet another board of bureaucrats to oversee the same centralized health system. In the wake of Friday’s news story, liberals argued that the law’s new board of bureaucrats will succeed in wringing these kinds of abuses out of Medicare. It’s a predictable response from the Left – government created the problem, so more government will “fix” it. But any system fundamentally controlled by government is almost by definition subject to the political and lobbying pressures that created the scandal profiled by the Post. The real solution is to empower patients, not bureaucrats.

The ultimate solution to health care costs involves empowering consumers within a transparent marketplace, not leaning on big government – which big business can always afford to buy.

— Benjamin Domenech



This should give this argument legs:

Ken Cuccinelli, the first state attorney general in the nation to sue over the federal health care law, has hit upon a new strategy that is much easier than going to court: Do nothing.

Virginia and other states can shield businesses from hefty fines for not providing adequate health insurance for employees, he contends, simply by refusing to set up their own state-based insurance exchanges.

Cuccinelli bases that legal theory on a quirk in the law, one variously attributed to sloppy drafting, political miscalculation or both: It includes a provision to impose those fines under state-based exchanges, but not under a federal one.

“In the law, it says those penalties don’t apply if the federal government sets up the exchange,” he told a tea party gathering in Henrico County last week. “Whoops!”

Supporters of the law acknowledge the wording glitch but say the matter has been clarified through regulations subsequently issued by the Internal Revenue Service. They dismiss Cuccinelli’s line of attack as wishful thinking or willful distortion.

“That argument is effectively null and void, but it’s not stopping people from making it,” said Chad Shearer, deputy director of Princeton University’s State Health Reform Assistance Network.

Crafted by a Cato Institute scholar about a year ago, the theory started quietly making the rounds among conservative think-tank scholars, attorneys general, lawyers and bloggers while the matter was before the Supreme Court. It has picked up steam since the court upheld the law in June.

For Affordable Care Act foes who first tried to kill the law in the courts and now aim to do so by electing Republican Mitt Romney president, the do-nothing approach is a long-range Plan C.

“This could bring down the entire law,” said Michael F. Cannon, the Cato Institute’s director of health policy studies who crafted the argument and urged Cuccinelli, a longtime friend, to pick up on it. “If Virginia just sits on its hands and does not implement ‘Obamacare,’ then state officials will protect Virginia employers from a $2,000-per-worker tax.”

Even the law’s most ardent supporters admit it was hurriedly and inartfully drafted. It was riddled with errors that would have been cleaned up if, after the U.S. Senate passed what was supposed to be a draft, the Democrats hadn’t lost their filibuster-proof majority in the upper chamber with the election of Scott Brown, R-Mass., in January 2010.

Some of those supporters acknowledge that a plain reading of the text Cuccinelli points to would seem to support his argument about the exchange, an online marketplace to shop for health insurance provided by law. But they also contend that given the broader context of the law, and how the IRS has interpreted it, it’s clear that businesses cannot escape the fines no matter who runs the health care exchange.

As Cannon writes here, this was not a glitch. It was an intentional policy, which supporters of the law only now recognize to be a mistake.

SOURCE: Richmond Times-Dispatch


Republican Gov. Robert Bentley is weighing the options:

Alabama ranks 14th in the country for the number of people who likely would be added to the Medicaid rolls if the program were expanded, according to estimates from the Henry J. Kaiser Family Foundation.

Alabama also is one of five states where more than 60 percent of the state’s uninsured population could become eligible for Medicaid if the expansion were implemented, according to the Urban Institute.

But those gains in insurance – while mostly paid for by the federal government – wouldn’t be entirely free to the state. The federal government would pay 100 percent of the cost of services for new enrollees for the first three years, but that eventually would drop to 90 percent.

The U.S. Supreme Court decision to make the Medicaid expansion optional sets up a debate among officials who question the state’s ability to afford the expansion – particularly since the state is struggling to pay for Medicaid now – and advocates who say the state can’t afford not to expand the program.

Gov. Robert Bentley, a doctor, said he has not decided whether to expand Medicaid. “There are many unanswered questions,” he said.

“We’ll have to look at how it affects the people of our state, how it affects our budgets. We’ll make the decision at the proper date,” Bentley said.

In Alabama, about 744,000 people – or about 16 percent of the state’s population – are without health insurance. Many of those live on incomes close to the poverty line.

The suggested expansion would open Medicaid to adults younger than 65 with an income of less than 133 percent of the federal poverty level, which would be $14,404 for individuals and $29,326 for a family of four.

In Alabama, 351,567 people would be added to the Medicaid rolls in 2019, Kaiser estimated based on assumptions about how many people who were eligible would sign up. The number could go as high as 455,952, Kaiser estimated. The numbers include some people who have insurance now, but who might drop it to go on Medicaid.

SOURCE: Al.com


Which may not be doable, given Republican opposition:

Twice, Gov. Mike Beebe has won three-fourths votes to raise taxes, among the most difficult of legislative hurdles. To expand the state Medicaid program, he would have to reach that mark again – in a much-changed political climate.

Beebe, a Democrat, pushed an increase in the state severance tax on natural gas through the Legislature in a 2008 special session. In the 2009 regular session, he pushed through an increase in the state tobacco tax to support a statewide trauma system and other health programs.

The severance tax hike passed 82–17 in the 100-member House and 32–1 in the 35-member Senate. The tobacco tax hike was a tougher sell, passing 75–24 in the House and 28–7 in the Senate – with exactly the number of votes it needed in the former and only one vote to spare in the latter.

Earlier this month, Beebe said he is inclined to pursue adding between 200,000 and 250,000 Arkansans to the Medicaid rolls under a provision of the federal Affordable Care Act that the U.S. Supreme Court has ruled must be optional. The federal government would pay the entire cost of the expansion for the first three years and most of the cost in later years, but appropriating the federal money would require a three-fourths vote in the Legislature.

Last week, the governor said his position was bolstered by the state Department of Human Services’ estimate that the expansion would ultimately cost the state about $4 million a year instead of previous estimates of up to $200 million.

Beebe acknowledged that getting a three-fourths vote for anything is difficult.

In the 2008 and 2009 sessions, Democrats held sizable majorities in the House and Senate. However, Republicans made significant gains in the 2010 election and are pushing for control of both chambers in this year’s balloting.

Republican House Caucus leader Brice Westerman, R-Hot Springs, said last week that Republican opposition would make it tough to get a three-fourths vote in the Legislature to fund the Medicaid expansion now, and “I think it may be even harder after the election.”

Republicans now hold 46 seats in the House and 15 seats in the Senate, as opposed to 25 in the House and eight in the Senate in 2009.

SOURCE: Arkansas News


Another silver lining?

Texas’ health and human services commissioner says the state may get a boost in its fight to exclude Planned Parenthood from a key women’s program, courtesy of the U.S. Supreme Court’s decision on health care reform.

The federal government has said it will end funding for the Medicaid Women’s Health Program in Texas because the state banned clinics affiliated with abortion providers, even if the clinics themselves don’t provide abortions.

The state’s also being sued by Planned Parenthood, which won a court stay of the ban while it pursues its case.

But Executive Commissioner Tom Suehs of the Texas Health and Human Services Commission recently told lawmakers the Supreme Court ruling that upheld the federal health care law may work in the state’s favor in the Planned Parenthood case.

That’s because the court said states can’t be penalized with the loss of traditional Medicaid funding for failing to expand the Medicaid program to cover more low-income people. Gov. Rick Perry has said Texas won’t expand Medicaid.

“We believe it may help us with our position on the Women’s Health Program. We don’t think that the threat of the feds withholding federal money would hold up,” Suehs said at a recent budget hearing. “I think the ruling by the Supreme Court helps the state of Texas’ position.”

Commission spokeswoman Stephanie Goodman said last week that the Supreme Court “said the federal government can’t coerce a state into a particular policy decision. But that’s what Washington has tried to do in requiring states to include abortion providers in their Medicaid programs.”

SOURCE: My San Antonio


Government knows more than you think.

Since it went online, the database has received more than 167,000 queries from 4,700 medical professionals and 2,400 pharmacies, according to the state Division of Consumer Affairs.

“The prescription-monitoring program is part of our multitiered strategy” to stop the epidemic of prescription-drug abuse among young people, which can be a gateway to heroin abuse, state Attorney General Jeffrey S. Chiesa said.

“Our initial results, just six months after its launch, include cases in which prescribers and law enforcement have been able to identify problems and effectively address them – either by limiting the amount of drugs prescribed to a given patient or by moving forward with criminal investigations to stop the illegal diversion of powerful medications.”

For a system that’s just getting off the ground, the monitoring program has had its share of success, said Eric T. Kanefsky, acting director of the consumer-affairs division. Since January, it has received and responded to 64 grand jury subpoenas, 14 information requests from New Jersey Medicaid and 30 internal requests from the Division of Consumer Affairs Enforcement Bureau.

It has flagged cases like that of a homeless man who was being paid $50 a pop by a man in a BMW to fill fraudulent prescriptions and a woman whose addiction to painkillers led her to fill prescriptions at several pharmacies, officials said.

SOURCE: NorthJersey.com


This could be the first test of NFIB v. Sebelius‘s impact on state decisions:

Disagreement about what a recent U.S. Supreme Court ruling, which upheld key provisions of the federal Patient Protection and Affordable Care Act, means for Maine could end up in federal court.

Ana Hicks, a senior policy adviser with the advocacy group Maine Equal Justice Partners, said Wednesday her organization could be among those that sue the state government if it proceeds with reductions in Medicaid programs. The cuts are part of a budget-balancing bill passed by lawmakers earlier this year.

Hicks’ organization, which has sued the state in the past when it believed Maine was not meeting requirements of federal law, is waiting to see whether Gov. Paul LePage’s administration proceeds with Medicaid cuts, which Equal Justice Partners says are illegal.

Hicks said she was waiting for direction from the U.S. Department of Health and Human Services on what states should do. She hopes Maine will wait for that guidance before implementing reductions.

In question is whether the state needs to apply for a federal waiver to make the changes, or whether the state can simply make amendments to its existing Medicaid plan and move forward with the reductions.

At stake are state programs, including MaineCare, the state’s Medicaid program, which covers about 24,000 income-eligible 19- and 20-year-olds. Dropping that coverage would save the state about $4 million.

SOURCE: Bangor Daily