The AMA Would Make Health Care Unaffordable for Many Americans

The American Medical Association has announced its opposition to a public-sector health plan that would compete with private insurers. Why? Because the AMA fears that Medicare E (for everyone) might not pay some specialists as handsomely as private insurers do now. 

Why do private insurers pay more? Because they can pass the cost along to you and I in the form of higher premiums.  Medicare E has no one to pass costs on to—except taxpayers. And taxpayers will already be helping  to subsidize those who cannot afford insurance.

Everyone agrees that primary care physicians are underpaid. Democrats in both the House and the Senate propose raising their fees, as does the Medicare Payment Advisory Commission (MedPac)---the group that might take over setting fees for Medicare.  Moreover, the House, the Senate, President Obama and MedPac have made it clear that they do not favor the across-the-board-cuts called for under the sustainable growth rate (SGR) formula. Congress has consistently refused to make those cuts and President Obama did not include them in the 2010 budget that he originally sent to Congress.  On that score, the AMA has nothing to worry about.  

Protecting Excessive Fees for Some Specialists’ Services                        

So what does the AMA fear? That either MedPac or Medicare will trim fees for certain specialists’ services.  Keep in mind that Medicare’s fee schedule has traditionally been set –and adjusted on a regular basis, by the RUC-- a committee dominated by specialists.( Private insurers then follow that fee schedule, usually paying somewhat more for each service.)  I have described this group in the past:   They meet behind closed doors. No minutes are kept of their meetings. They rarely suggest lowering fees—even though as technology advances, some services become easier to perform. MedPac has pointed out that a less biased group should be involved in determining fees—perhaps physicians who work on salary, and are not affected by Medicare’s fee schedule.

There is good reason to suspect that the RUC has over-rated the value of some services.. MedPac has suggested taking a look at particularly lucrative tests or treatments that are being done in large volume. Often, this may mean that patients who don’t need the service are receiving it;  if the procedure isn’t necessary, then, by definition, they are being exposed to risks without benefits.  And in fact, experience shows that when high fees are trimmed, volume falls, suggesting that rich fees were, in fact, driving overtreatment.

In testimony before the House Ways and Means Committee in April, Dr. Robert Berenson, a senior fellow at the Urban Institute and a member of the MedPac panel offers an example: 

“One of the more successful cost-containing initiatives Medicare has used in recent years was the 2005 Deficit Reduction Act which said that “fees for imaging services could  not exceed the prices used for reimbursement to outpatient hospitals” when the services were provided in other places (i.e. doctors’ offices).  In the first year under the new pricing structure, the U.S. Government Accountability Office reported that overall costs were reduced by 13 percent.  But, importantly, the decreased costs resulted not only from the price reductions themselves but from moderation in the volume of imaging services paid for; per-beneficiary utilization of imaging services, which has been rising about 6 percent per year from 2000 to 2006, continued to rise in 2007,  but at about half the rate.”

The fact volume was rising by 6% a year suggests overtreatment: it is hard to believe that patient need for imaging was actually climbing at that rate. At the same time, volume did continue to rise after fees were cut. If volume had fallen, one might worry that  because of the fee cut doctors were deciding it wasn’t worth their time to provide the service—and patients were being denied a test that they needed.  But the use of imaging services continued to rise by 3%.

Would Medicare E Go Too Far in Trying to Contain Costs?

 In his testimony, Berenson went on to address private insurers’ fears that a public plan would have the clout to effectively overuse its potential market position to drive down prices to win the competition. “This concern ignores the reality that the public plan in competition with private plans has built-in restraints that limit action to push down prices too low,” Berenson observed. “The Medicare experience is instructive in this regard. As in Medicare, the public plan would have to balance spending-growth restraint with the duty to preserve access to needed care and the quality of that care. If the public plan would aggressively move too strongly on the cost containment side, individuals would be able to select from among the private plan options. Ultimately, having a public plan competing with private plans would promote useful competition. Private plans that offer better services and greater access to providers, even at somewhat higher costs, would likely survive in this competition.”

 Why A Public Sector Plan Would be More Affordable

The Commonwealth Fund’s Karen Davis estimates that a “Medicare-like public plan would cost a family $8,424” (in 2008 dollars) “compared to $12,106 for a typical employer-based  private plan. This 30 percent reduction in premiums would go a long way toward making coverage more affordable for small businesses and individuals,” Davis adds.

Why would Medicare E cost so much less? In part, because it’s likely that while raising fees for primary care physicians, it would follow MedPac’s recommendations and trim fees for some specialists’ services. The partial draft of a plan for health care reform released by Democrats on the Senate Health, Education, Labor and Pensions Committee proposes that Medicare do just that, and probably Medicare E would follow Medicare’s example. Medicare also plans to refuse to pay hospitals for avoidable readmissions in hopes of encouraging hospitals to do a better job of reducing hospital-acquired infections, and making sure that patients understand their medications and have a follow-up appointment with a doctor before they leave the hospitals. This is another example of how MedPac's recommendations for cutting costs focus on protecting patients, and lifting the quality of care. Again, Medicare E would  be likely to follow suit. (For an excellent discussion of readmissions see Wachter’s World  (Bob Wachter is Chief of the Division of Hospital Medicine  and Chief of the Medical Service at UCSF Medical Center.) 

But not all of Medicare E’s savings would come from refusing to pay for unnecessary or poor quality care--not by a long shot. Lower administrative costs also would make Medicare E less costly. The public sector plan would not have to generate profits for investors, invest large sums in lobbying and marketing, or pay executives enormous salaries.

Without a Public Sector Option, Subsidies Won’t Be Sufficient

Today, an employer -based family plan costs the employee and employer an average of $13,000.  Under universal coverage, families who do not have employer-based insurance would be required to buy insurance out of pocket. (Senate Democrats propose allowing for “hardship” exceptions, but it is safe to assume that they would be few and far between.)

Some families would receive help in the form of a subsidy from the government. The Senate Democrats rough draft for reform says that the government would pitch in to help pay the premium if a family’s joint gross income is less  than five times the federal poverty level—about $110,000 for a family of four.  Under the House proposal, a person would be eligible for a subsidy only if he or she earned less than four times the poverty level –for an individual that’s $43,320 a year. A family of four earning up to $88,200, would qualify for a subsidy. A family of three would receive help only if joint income was less than roughly $73,000; for a couple the limit would be $58,000. All subsidies would be on a sliding scale; if you earned only $5,000 less than the limit, the subsidy would be relatively small.

In the end, the less generous House plan providing subsidies on incomes up to four times the federal poverty limit is likely to carry the day.

Massachusetts offers subsidies up to only three times the federal poverty level, and that wealthy state is having a difficult time trying to cover all of its citizens.

So assume, for a moment, that the House formula becomes law. A family of three living on a joint income of $75,000 would be on their own. Meanwhile, the average private sector plan would cost them  $13,000 ---roughly 17% of their  income, before scraping together the dollars to pay a deductible and co-pays.

A family of three earning $65,000 would receive a subsidy, but keep in mind, subsidies would  be set on a sliding scale. Let’s say that family received a subsidy of $3,000—it still would have to come up with $10,000 in premiums.

Of course $13,000 is the “average” cost for a family plan. A family could choose a less expensive private sector plan—which means it would have less coverage than the average American who has a employer-based insurance. How much less? It’s hard to say. The private plans offered under the Federal Employees Health Benefit vary widely—there’s a “plan for every pocketbook,” as they say. Some high-deductible plans carry a deductible of $10,000.  But according to Consumer Reports, steep deductible cause middle-class and low-income families to defer going for necessary treatment. This isn’t what most people have in mind when they talk about “universal coverage.”

If a public sector family plan were  available, carrying a price tag of roughly $8,500, that family of three earning $75,000 would be spending a little over 11% of its income on insurance-- making a comprehensive plan with a reasonable deductible much more affordable. (In Massachusetts, households are expected to spend 10% of their gross income on healthcare before receiving help from the state.)

As these numbers suggest, universal coverage will not be cheap. But Democrats propose providing subsidies not only for low-income households, but for the statistical middle-class (those on the third rung of the nation’s five-rung income ladder.) Some families who are, statistically speaking, upper-middle class (on the second rung from the top) also will receive help. But unless we have a public-sector option, those subsidies will quickly become too rich for taxpayers.

Why? Because we can assume that the cost of private-sector insurance will continue to climb faster than wages--unless the government tells private insurers that they cannot raise premiums without permission from the government (which seems unlikely). The only way to be certain of an affordable option is to  have a government plan that is focused on removing the waste from our healthcare system. No one would be forced to sign up for Medicare E, but without it, many middle-class Americans just won’t be able to afford decent coverage.

 

 

 

 

 

   

 

Comments

[Maggie Mahar]

Hootsbuddy,Christopher George, Pat S.

Hootsbuddy-- Exactly! The
AMA is a Guild. It's goal: to protect the income of doctors.

Christopher George--

For nearly two decades a team of reserachers at Dartmouth have been looking at huge pools of data and Adjusting For the Underlying Health of the Population.

Critics of the DArtmouth reserach spent years trying find holes in the data and methods--and have generally given up.

Pat S.-- Thanks this is all true.
Btw- could you give me a link to the place where "Obama and his people have floated the idea that Part E would pay 110% of Medicare payments. "
(I'm not questioning this, btw, just want to read more about it)

If you read the reserach and the papers that spelled out methodology, you could save yourself a lot of time speculating --
see www.dartmouthatlas.org.

[Pat S]

A few points:

In terms of Medicare and cost shifting, Obama and his people have floated the idea that Part E would pay 110% of Medicare payments. That would convert the program from money losing to money making for most hospitals and systems that don't already make profits on Medicare, and would close the gap between private insurance and the new Part E to less than 10%.

Also: The U of MN is predominantly a local institution, with most of its patients from MN, western WI, or the Dakota's.

However, Mayo is a national institution. It gets patients from all over. It has a fairly large Medicaid population, including enough patients from Illinois Medicaid that it was worth their while to get into a fight with Illinois Medicaid over payments.

In addition, many of the other institutions that are on the Dartmouth honor roll are located in and serve large metro populations. Kaiser in Northern CA, Group Health of Puget Sound, Mayo Scottsdale, and Dr. George's own Cleveland Clinic are located in metro areas with large minority and low income populations, and still attain excellent results, despite the fact that most of the other providers in their areas are poor performers on Dartmouth. Mayo Scottsdale actually outperforms Mayo Rochester.

Data from Britain shows that low income and minority people in Britain, with very poor health habits including heavier smoking and drinking than the US and diets heavy in fats have better health care results than the wealthiest Americans.

Gawande's article points out that El Paso, with as much poverty as anywhere, performs much better than McAllen.

US health care has problems unrelated to health habits, and Dartmouth has put a finger on part of the problem.

Meanwhile, the AMA is in reality a small club with only a minority of doctors as members, and its structure makes it easy to influence by packing its delegate house with people representing a particular view. In many states the AMA is dominated by conservative doctors who have made the effort to get involved, while more typical doctors can't be bothered. The AMA has almost no influence on most doctors' lives. It gets much more attention from news media and the public than it deserves.

[Christopher George]

I get that we are looking for a method to reward good care and discourage over-treatment. I am just skeptical that capitation is going to be the whole answer. Outliers, as your colleague NN Taleb has pointed out, tend to drive the aggregate behavior in unpredictable ways. I would love to see pathways driven by objective data like lab values and test results. These could be pooled nationally, so that like clinical presentations could be compared against a number of clinical strategies.

[Christopher George]

I would love to see exactly how big the group would have to be to average out. The number of people needed to be enrolled into a trial regarding HRT are staggering. The health of the whole state of NV doesn't average out with nearby UT. Under capitation, the truly sick or high risk are always a burden. Success and viability demands recruiting the well. Watch for free health club memberships with this clinic or that. Not too many diabetics with previous amputations are looking for a gym, but plenty of healthy athletes are. It is stealth favorable patient selection; it is risk avoidance, not disease management.

We may discover that Mayo, ( and the nearby, just as effective U. of MN ) can't duplicate their results because medical culture is not as important as the underlying health of their population. Healthy living can't easily be duplicated in East Cleveland or the South Bronx. The patient's healthy lifestyle, in my opinion, is going to prove much more important to outcome than medical care. Education and responsibility, core values in the midwest are not effected by medical clinical pathways. (That is why randomized studies on the same population carry more weight than those comparing different populations.)

The adverse interests of the patient and the medical group is pernicious. How would you address that? Who decides between a bonus for the clinic staff and a second liver transplant for Mr. Jones? ( I like it better when the doctor is fighting for the patient, and the insurance company has to be the bad guy.)

[John Ballard]

Flash!

►The AMA is to health care what the UAW is to auto manufacturing.◄

eom

[Maggie Mahar]

Christopher--

I totally agree that capitation can't work for small numbers.

Though I think it can work for Very Large Numbers. Please see my reply to Dr. Steve right below your comment.

[Christopher George]

The problem with capitation is that it turns the practice into a small insurance company, and the law of small numbers insists that this will spell disaster for a certain number of practices, through no fault of their own. It also places the doctors and the patients as contrary interests, which is deadly. Adverse selection and all the other dirty tricks of private insurance then operate. Many of the nominally university group practices already cater to and market to the employed, worried well.This leaves the truly sick scrambling. Capitation however you dress it up, will always have this feature. No amount of preventative care will make a 450 llb woman financially attractive to any capitated practice. Under capitation, the health of your group depends on attracting a high fraction of subscribers that are already well, and those who are unlikely, to get sick...mirroring the current situation in private insurance today.

[Maggie Mahar]

Dr. Steve--

on capitaation I agree that shifting risk to individual doctors or small practices is a bad idea.

It would indeed cause many to shun "difficult patinets"--poor patients, complicated cases, etc.

But capitation can work in a huge medical practice where numbers are so large that easy cases and complicated cases will even out.

Again, I think that different ways of paying for quality, not quantity, may work in different situations. AT least they need to be tried, and then examined carefully to see how they are working.

Robert--

Yes, the way the AMA has sold information about doctors to drug companies is scandalous.

This is one reason why many doctors do not identify with or trust AMA . . .

[Maggie Mahar]

Nate--

As MedPac points out in its most recent report, a great many hopsitals make a profit on Medicare's payments.

By and large, Medicare is not paying too little-- private insuers are paying too much, and passing hte cost on to all of us in the for of higher premiums.

MedPac points out that hosptials with high scores for efficiency (better outcomes at lower costs, like Mayo) do make a profit on Medicare payments. (The head of Henry Ford Medical Center in Detroit confirmed this with me in a conversation.)

When private insurers pay more they are rewarding inefficient hopsitals for inefficiency-- which includes higher rates of infections and errors, higher rates of readmission, etc.

You're wrong about what happened when we cut fees for diagnostic imaging.
The volume had been rising 6% a year -- when fees were cut, volume grew by only 3% a year-- they reined in overtreatment and inflation. (I quote Berenson on this in the post. Please read the post before saying "this is incorrect."

To say that we want to have higher health care premiums so that states can collect more premium tax is absurd--particuarly at a time when many Americans cannot afford insurance because premiums are so high.

The notion that we shouldn't have a public sector plan because private sector plans couldn't compete--in part because they spend too much rewarding inefficient hospitals for poor care is
beyond absurd.

[Dr Steve]

eek. jus realized prior note subject to misinterpretation:

fyi f/u = follow-up

peace & health

[Dr Steve]

f/u to NG:
I am on flat salary (but only 5% clincial). Most of the doctors I know and work with , including my wife, are on already on a flat salary + incentive bonus, with the incentive bonus combining productivity (some combination of number of patients seen, number of encounters, some mix for severity or RVUs and also quality of care indicators usually from HEDIS).

There is no defense of open-ended fee for service. Whereever it still exists it should be ended.

But for reasons per my comment below, capitation at the provider level, whatever it is called will kill patients and doctors.

But

[NG]

Dr. Steve wrote concerning capitation:

"But putting the disease risk onto the provider level is a bad idea."
--------
Making the providers pay for all testing and costs associated with Dx and their part of treatments is indeed a danger. However, I think capitation could be made more like a salary based on volume if the associated costs of Dx and Tx were paid separately by the larger employer or payment scheme. Sure some providers may have to work longer/harder for a larger total payout from more capitated members in their panel than others if they are less efficient or choose to sign on more member patients, but that would be their choice. They would not, however, be at risk except for their time for disease management/treatments. Also capitated payments could be risk adjusted to help compensate the provider for more difficult cases.

[robertdfeinman]

The dirty secrets about the AMA:

http://wonkroom.thinkprogress.org/2009/06/11/ama-drug-lobby-publicoption/

"AMA derives at least a fifth of its budget from drug companies through an arrangement known as “licensure.” The program consists of AMA selling drug companies its “Masterfile” of doctor profiles, spanning everything from detailed biographic information to an individual doctor’s prescription-writing history. The program is extremely controversial since drug companies in turn use the information to aggressively market their products to doctors. Controversial drugs Vioxx and Avandia, which have subsequently been found to pose significant risks to patients, have been marketed to doctors, in some cases, using information obtained from the AMA.

After an uproar in 2007, the AMA, through a policy of self-regulation, claimed to have stopped selling doctor prescription-writing information. But that pledge must be viewed with skepticism given the AMA’s track record.

During a Senate investigation of abuses of the licensure practice in 1990, the Boston Globe reported that AMA and PhRMA lobbyists came to Capitol Hill to promise Sen. Ted Kennedy (D-MA) that the program was not part of any effort to convince doctors to prescribe PhRMA drugs. This promise to self-regulate was never kept. In 2001 the New York Times reported that the AMA generated $20 million dollars a year from licensure sales to drug companies in a complex scheme to market drugs like Baycol to doctors. In 2006, that number climbed to $40 million, and in 2007 it was reported to be $45 million. "

Read the whole thing to see why it is that nobody opposing universal coverage has clean hands.

[Dr Steve]

I support most all of the changes suggested by proponents of a strong Medicare based public option. But... Capitation to the provider level is problematic. In effect it puts the Pool risk to the provider level. We do need to get away from fee-for-service. And we definitely need to shift provideer incentives from tertiary care, specialist care, non-effective and unnecessary tests, meds and procedures. We definitely need to increase incentives for primary care and for providing serviced in less desirable areas (inner city and rural).

But putting the disease risk onto the provider level is a bad idea. The point of insurance is that nobody can afford to pay for taking care of sick people. That is why the effective pool is best if it everybody (e.g., all U.S.), and why the young, healthy and wealthy have to pay into the same pool as sick and elderly and poor. But anything that is like capitation will result more in risk aversion than leading to improved preventive care or management. Just as the for-profit insurance companies compete on the basis of adverse selection, so will the doctors or whatever provider level is capitated (doctor says: "I wont take care of sick people").

[Nate]

"Medicare E has no one to pass costs on to—except taxpayers."

This si 100% incorrect, I have linked to multiple studies bfore that prove Medicare underpayemnts directly result in higher cost to private insurance. Medicare passes it's cost onto privately insured patients. 100s of hospital administrators and tens of thousands of physicians have said so.

"MedPac has suggested taking a look at particularly lucrative tests or treatments that are being done in large volume."

THis was already tried and failed miserably with diagnostic testing. Medicare reimbursements were slashed upto 40%, instead of lowering spending it actually increased and providers just ordered more test. Manipulating fees does absolutely nothing to prevent unneeded test from being ordered while allowing for ones that should be.

Medciare savings is solely derived from lower reimbursement they dictate to providers. Private plans can not complete with a public plan that can forceproviders to accept 20% less. You also ignore the fact states are goin gto have to make up billions in lost Premium Tax, State premium tax can be as high as 5%, something not paid by Medicare. Are the states suddently just not going to need this money?