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“Unsatisfying To The Media And Republicans”: Surprise, Obamacare Now Projected To Cost Hundreds Of Billions Less Than Expected

Amidst the dark skies of the launch, some daylight may finally be emerging with respect to one of the critical goals of the Affordable Care Act—bending the cost curve of America’s expensive healthcare system.

According to a New York Times report out Tuesday, the Congressional Budget Office has quietly removed hundreds of billions of dollars from the projected costs of Obamacare, primarily the result of an anticipated decrease in the federal government’s contribution to the Medicaid expansion program along with the projected cost of the subsidy payments to those buying private insurance policies on the healthcare exchanges.

Why the good news?

The more favorable projections are the direct result of the slowing trend in the growth of healthcare spending over the past five years leading to a slowdown in rising costs. While, ten years ago, per-capita spending on healthcare had been growing by an average annual rate of 5 percent, that number was dramatically cut to 1.8 percent during the 2007-2010 period and reduced even further to 1.3 percent in the years following 2010.

Do we have Obamacare to thank for this highly successful “bending” of the cost curve?

Naturally, the answer depends upon who you ask as there simply is no definitive way of knowing—yet.

While most economist believe that the lion’s share of the reduction is due to the sluggish economy—making Americans far more careful when it comes to making decisions regarding when or if to spend money on medical care—others believe that some of the plans built into the ACA designed to get people to spend less may actually be working.

Among Obamacare inventions that do appear to be paying off in lower healthcare costs is the government’s refusal to pay hospitals more when patients are re-admitted within 30 days of their initial discharge. Additionally, new plan designs engineered to reward providers for quality of care rather than for quantity of care may well be paying off in terms of lowering the overall cost of care.

According to the Kaiser Family Foundation—widely regarded as an honest, non-partisan broker when it comes to healthcare issues and analysis—the declining increases in the cost of healthcare is 75 percent the result of economic factors and 25 percent a benefit of the cost cutting measures in the ACA that do, in fact, appear to be working.

Of course, the big question is whether or not these cost lowering provisions of Obamacare will continue to do the job once the economy regains its more typical trajectory.

There are reasons to be hopeful that healthcare spending can be held down once the economy kicks into higher gear.

For starters, while many Americans shopping for new health insurance policies may be decrying the higher deductibles they are discovering in the new offerings, higher deductibles should have a meaningful impact on the decisions people make when determining whether or not a visit to the doctor or agreeing to a given procedure is really necessary. While a $250 deductible will likely not cause a patient to ask how much a suggested CT Scan is going to cost, a $3,000-$5,000 deductible is far more likely to cause the patient to ask a few more questions and make more focused decisions when payment for the test is coming out-of-pocket.

Not surprisingly, there are no shortage of economists and pundits who believe that the ACA will prove inadequate to the task of controlling costs once the economy is in better shape.

Others are more hopeful, believing that the slowdown in costs are very much a result of hospitals and insurance companies understanding that something had to change given the unsustainable trends in rising costs. As a result of a desire to derail out-of-control costs before the costs derailed them, insurers and hospitals became involved in substantial systemic revisions designed to lower healthcare spending  even before the government required them to do so.

Discussing whether the current decreases can last when previous periods of cost-curve bending did not, Annie Lowrey writes in  her New York Times piece

“This time may be more durable. Insurance and hospital executives in Massachusetts, Illinois and California, among other places where reforms have gone the furthest, report a consensus that spending growth had become unsustainable, and that expectations that Washington would force changes to the system spurred them to make changes themselves.”

If this is true—and I believe the evidence reveals that it is—these self-imposed changes, in tandem with the changes brought about by elements of Obamacare that don’t receive nearly as much attention as the more hot button issues, may prove to provide lasting changes to the system; changes that will point our cost trajectory in the right direction.

Like most elements of the Affordable Care Act, these issues and results only go to prove that far more time is required before we can even begin to measure the real benefits or detriments of Obamacare.

While this reality may prove unsatisfying to the media, politicians and those in the public who are so emotionally committed to the failure and ultimate death of Obamacare—whether for political purposes or only so that the opponents can experience the satisfaction of having been right—anyone interested in realistic measurement of this dramatic change in our system better settle in for the long run.

It’s going to be awhile until we know how this story ends.


By: Rick Ungar, Op-Ed Contributor, Forbes, December 4, 2013

December 5, 2013 Posted by | Affordable Care Act, Media, Republicans | , , , , , , | Leave a comment

“$2,229.11 For Three Stitches?”: We Don’t Have To Wonder What The Unfettered Market In Health Care Produces, We’ve Been Living It

Twenty years ago I had my first knee surgery, after tearing some cartilage while skying for a thunderous dunk on the basketball court (or it might have been just falling backward while getting faked out on defense—who remembers the details?). Although I had insurance, I was responsible for a substantial copay, and I vividly recall the one item that stood out among the dozens on the bill. For the two steri-strips that covered an incision—tiny pieces of tape that even today cost about 20 cents retail, and which hospitals buy in bulk so surely cost them just a couple of pennies—I and my insurance company were charged $11, or $5.50 per strip. A miniscule amount in a five-figure bill, but it struck me as the most absurd, since it represented a markup of approximately 10,000 percent, if not more. More recently, I was getting some physical therapy for the same knee, and in what turned out to be a session that wasn’t covered by my insurance, a therapist put a piece of kinesio tape around my kneecap. The retail price for that length of tape is around 40 cents (though again, they buy it in bulk so it’s probably a quarter of that); and there was the therapist’s time to retrieve, cut, and apply the tape, which took about 60 seconds all told. Total tape charge: $75.

My experience is not at all uncommon, as an excellent piece in today’s New York Times explains. The article discusses things like people getting charged thousands of dollars to have a couple of stitches put on a finger, or my personal favorite, the $137 charge for an IV bag that costs the hospital one dollar. There are a number of reasons why they can get away with this, including the fact that nobody tells you what the charges are going to be before you’re treated, and the fact that information is diluted through the insurance system.

But since we’re now talking about what government is and isn’t capable of handling when it comes to health care, allow me to repeat something I’ve argued elsewhere: The government didn’t give us this kind of price-gouging, just like the government didn’t give us 50 million uninsured Americans. Nor did the government give us lifetime and yearly caps on coverage. Nor did the government give us now-outlawed “rescission,” in which your insurer cancels your coverage because you got sick. Nor did the government gave us denials for pre-existing conditions. You know what gave us all that? The free market. Government can certainly cause problems, but just about all the major reasons our health-care system is so expensive and serves so many people so poorly (or not at all) are the result of the free market.

Or more specifically, the health-care market, which is so different from other kinds of markets. The unique features of health care are what makes a far higher level of government involvement than exists in the markets for wristwatches or shoes necessary. If we don’t want to have a system that costs so much more than every other one in the world while giving us crappy results, then we’re just going to have to accept that. In other industrialized countries, the government says, “We can’t sustain a system in which an MRI costs $1,200. So an MRI is going to cost $300.” And guess what? The MRI manufacturers and the hospitals accommodate themselves to that reality, and not only do they manage to survive, but people still get MRIs when they need them.

If maintaining the ability of certain people to suck as much profits from the health-care system as possible is your highest value, you find that unacceptable. But if having a system that serves everyone, maximizes health, and is affordable rank higher for you than making sure there are hospital systems with 28 different executives pulling down salaries of over $1 million a year, you have to make a different choice.

And let’s be clear about this: what conservatives are arguing for is the maintenance of the status quo that gives us the $2,229.11 hospital charge for putting in three stitches. It was their devotion to the primacy of market freedom in health care that put us where we are now. When the government doesn’t work properly, by, say, making a terrible website that took months to fix, the answer is to make it work better. Because we don’t have to wonder whether the alternative is worse. We’ve been living it.


By: Paul Waldman, Contributing Editor, The American Prospect, December 3, 2013

December 4, 2013 Posted by | Health Care, Health Care Costs | , , , , , | Leave a comment

“A Major Obamacare Success Story”: It’s Increasingly Clear That The Affordable Care Act Is Significantly Bending The Cost Curve

The anger over the botched rollout of the Affordable Care Act’s federal health insurance exchange — and over the conflicting explanations about whether people can keep their coverage — has been bipartisan and well-deserved. The administration needs to make personnel and management changes to get enrollment back on track. But the focus on insurance coverage obscures other parts of the ACA that are working well, even better than expected. It is increasingly clear that the cost curve is bending, and the ACA is a significant part of the reason.

The law has two overarching goals: Cover almost everyone, and slow the growth of medical care costs. The goals are equally important. Too little coverage, and premiums in the exchanges will be unaffordable; too rapid a cost increase, and the federal government will not be able to afford the subsidies.

Even as coverage efforts are sputtering, success on the cost front is becoming more noticeable. Since 2010, the average rate of health-care cost increases has been less than half the average in the prior 40 years. The first wave of the cost slowdown emerged just after the recession and was attributed to the economic hangover. Three years later, the economy is growing, and costs show no sign of rising. Something deeper is at work.

The Affordable Care Act is a key to the underlying change. Starting in 2010, the ACA lowered the annual increases that Medicare pays to hospitals, home health agencies and private insurance plans. Together, these account for 5 percent of the post-2010 cost slowdown. Medicare payment changes always provoke fears — in this case, that private plans would flee the program and that the quality of care in hospitals would suffer. Neither of these fears has materialized, however. Enrollment in private plans is up since the ACA changes.

The law also emphasized that payments should be based on the value, not the volume, of medical care. In a value-based system, compensation is made for the patient as a whole, not for specific services provided. As a result, eliminating services that are not needed is financially rewarded. The reaction to this change has been rapid: Hospital readmissions, which used to bring in substantial dollars, are now penalized.

Unsurprisingly, the readmission rate in Medicare is down 10 percent since 2011. Similarly, hospital-acquired infections used to bring in additional dollars, but now they do not. One program to cut infections, encompassing only 333 hospitals, saved more than $9 billion. Both of these changes improve patient health even as they reduce spending.

The accountable-care movement — which aims to make providers more accountable for the cost and quality of care — has blossomed far beyond expectations. There are nearly 500 Accountable Care Organizations (ACOs) nationwide, half in Medicare. Ten percent of Medicare beneficiaries are in ACOs, and many others are in payment systems that put together all reimbursements for a procedure, such as a hip replacement or cardiac stent insertion. Leaders of medical systems routinely report that they expect, and are preparing for, a move to value-based payments.

Evaluations of recent ACO programs show quality improvements among all participating organizations and financial savings for many. This is not a surprise. The Institute of Medicine has been reporting for more than a decade that a third or more of medical spending could be eliminated while increasing patient health. The only surprise is how fast the system has moved in this direction.

The ACA does not account for all of the recent cost slowdown. New medical technologies are coming online more slowly than they used to; none of the 10 best-selling drugs on the market today were developed in the past decade. Similarly, patients with high deductibles are deferring elective procedures. Many insured families today owe more from a hospital visit than they have in the bank. Each of these factors is contributing to the reduction in health-care spending. But noting that factors beyond the ACA are important does not deny the importance of the law.

Cost savings induced by the ACA are particularly beneficial because they could increase quality while they lower spending. The reduction in technology development means lower costs but also fewer ways to treat sick people. People with high deductibles use fewer valuable services as well as fewer less-valuable ones. Only by eliminating unnecessary care can we ensure that everyone benefits from saving money in health care.

Governors and legislators in red states are almost universally opposed to the ACA. But these states are still seeing cost savings from the law — and they are participating in other ways.

Six states, including places as diverse as Arkansas, Massachusetts and Oregon, are using ACA-appropriated funds to help shift medical care to a higher-quality, lower-cost system . Nineteen other states are planning similar changes. And many of these states are solidly red.

States’ successes can feed back to federal policy. A recent Senate proposal, for example, calls for replacing the broken payment system that Medicare uses to compensate physicians with a system of payments based on value.

Before he was criticized for his statements about insurance continuity, President Obama was lambasted for his forecasts of cost savings. In 2007, Obama asserted that his health-care reform plan would save $2,500 per family relative to the trends at the time. The criticism was harsh; I know because I helped the then-senator make this forecast. Yet events have shown him to be right. Between early 2009 and now, the Office of the Actuaries at the Centers for Medicare & Medicaid Services has lowered its forecast of medical spending in 2016 by 1 percentage point of GDP. In dollar terms, this is $2,500 for a family of four.

Looking ahead, there is every reason to believe that costs will continue to grow slowly, maybe even more slowly. A study in Massachusetts showed that ACO savings increase over time as organizations move into more areas that can slow cost growth. An analysis of exchange premiums estimated that insurance costs in the exchanges are 16 percent below what was forecast two years ago; the lower costs were attributed to competition from new entrants in the market.

If cost growth continues at its low pace, the cumulative savings to the federal government would be more than $750 billion over the next decade. Such savings are likely to dwarf anything that comes out of Congress this year.

Many Americans are rightly upset with the Obama administration’s rocky rollout of the insurance exchange. Failing at such a major project is inexcusable. But if the early indications are any guide, we should be pleased with how the new health law is affecting what we pay for care. If the Web site is fixed and enrollment can catch up to expectations, the ACA could yet become a major policy success.

By: David Cutler, The Washington Post, Opinions, November 8, 2013

November 11, 2013 Posted by | Affordable Care Act, Health Care Costs | , , , , , , | Leave a comment

“Cloaked In Secrecy”: The Myth Of The Medical-Device Tax

In the last few days of negotiations in Congress, repeal of the Affordable Care Act’s tax on medical devices emerged as a key Republican demand. The medical-device industry waged an intense lobbying campaign — even garnering the support of many Democrats who favored the law — arguing that the tax would stifle innovation and increase health care costs.

This argument is doubly disingenuous. Not only can the medical-device industry easily afford the tax without compromising innovation, but the industry’s enormous profits are a result of anticompetitive practices that themselves drive up medical-device costs unnecessarily. The tax is a distraction from reforms to the industry that are urgently needed to lower health care costs.

The medical-device industry faces virtually no price competition. Because of confidentiality agreements that manufacturers require hospitals to sign, the prices of the devices are cloaked in secrecy. This lack of transparency impedes hospitals from sharing price information and thus knowing whether they are getting a good deal.

Even worse, manufacturers often maintain personal relationships (sometimes involving financial payments like consulting fees) with physicians who choose the medical devices that their hospitals purchase, creating a conflict of interest. Physicians often don’t even know the costs of the devices, and individual physicians often choose devices on their own, which weakens a hospital’s ability to bargain for volume discounts.

Such anticompetitive practices help generate a wide variation in the prices of medical devices — and contribute to higher prices in general. For example, the Government Accountability Office found that prices for cardiac implantable medical devices in the United States vary by several thousand dollars. And even the lowest-priced devices in the United States are expensive compared with those in other developed countries. According to the consulting firm McKinsey & Company, the United States spends about 50 percent more than expected on the top five medical devices, compared with Europe and Japan. McKinsey calculates that this amounts to $26 billion in excessive spending each year. Medicare, private health insurers and patients end up paying these inflated prices.

Excessive prices fuel enormous profits — profits that dwarf both the medical-device tax and the industry’s investments in research and development. Consider the device division of Johnson & Johnson, which in 2012 had an operating profit of $7.2 billion. By the company’s own estimate, the device tax would amount to at most $300 million, and its investment in research and development amounts to only $1.7 billion.

There are several ways policy makers could lower device costs. The first step would be to end the anticompetitive practices that prevent hospitals from getting the best deals. Senator Charles E. Grassley, Republican of Iowa, has sponsored legislation that would foster transparency by posting online price information for implantable medical devices.

In addition, instead of simply paying hospitals based in part on what they have spent on devices, Medicare should force manufacturers to compete for business based on a product’s price and quality.

Medicare should also pay hospitals a single lump sum for all of the associated costs of a given procedure (like a hip replacement). This approach, known as “bundling” the costs, would create incentives for hospitals to lower device costs. Savings should be shared with the physicians, so that their incentives are aligned with the hospital’s.

Bundling has been used successfully in pilot programs. Under Medicare’s Acute Care Episode Program — which bundled payments for cardiac and orthopedic procedures — physicians worked together to choose high-quality, cost-effective devices. Baptist Health System in Texas, which participated in the program, used clinical evidence to choose devices and negotiated lower prices for both Medicare and non-Medicare patients.

States could adopt similar payment reforms for private insurance and their Medicaid programs. In Arkansas, the Medicaid program and private payers — including Walmart — have collaborated to adopt bundled payments for several procedures, including hip and knee replacements.

To complement these efforts, the new Patient-Centered Outcomes Research Institute, a nongovernmental body created by the Affordable Care Act, should pay for research that compares the effectiveness of devices so physicians can make informed choices. (Three years into its existence, the institute has initiated few, if any, studies of medical devices.) Medicare or the Food and Drug Administration should also require the use of registries that track when devices fail.

Currently, medical-device manufacturers allocate only a sliver of profits to research and development and often focus on “tweaks” to existing devices, without providing any evidence that they are of better quality. Competitive pressures from public and private payers would provide incentives for the industry to become more innovative, producing technologies that actually lowered costs and offered truly advanced breakthroughs.

Instead of using its clout to lobby against the device tax — which helped foment opposition to the Affordable Care Act — the medical-device industry needs to share the responsibility of lowering costs for patients, businesses and taxpayers.


By: Topher Spiro, Op-Ed Contributor, The New York Times, October 16, 2013

October 17, 2013 Posted by | Big Business, Health Care Costs | , , , , , , , | 1 Comment

“The Ultimate Seller’s Market”: How Big Medicine Plays Us All For Suckers

Sometimes the best journalism explains what’s right under our noses. In Steven Brill’s exhaustive Time magazine cover article “Bitter Pill: Why Medical Bills Are Killing Us,” it’s the staggeringly expensive, grotesquely inefficient and inhumane way Americans pay for medical care.

“In the U.S.,” Brill reminds us, “people spend almost 20 percent of the gross domestic product on health care, compared with about half that in most developed countries. Yet in every measurable way, the results our health care system produces are no better and often worse than the outcomes in those countries.”

Obamacare or no Obamacare, ever-increasing prices show few signs of abating. For all the fear and uncertainty the president’s health insurance reform will eliminate from people’s lives, it’s almost incidental to the overall question of costs.

Moreover, had the law attempted to seriously restrain profiteering hospital chains, pharmaceutical companies and medical equipment manufacturers that Brill depicts as largely responsible for the current morass, there’s no way it could have passed.

Yes, it’s a fiscal issue. If Medicaid and Medicare paid the same amounts for health care as, say, Switzerland or France—the economist Dean Baker has repeatedly pointed out—the Federal budget deficit would virtually disappear. (Although the two federal programs are infinitely more frugal and efficient than the rest of the system.)

But it’s an economic and moral issue as well. Brill was inspired to research the article after noticing the gleaming spires of the Texas Medical Center in Houston, of which M.D. Anderson is the brand name. It’s a great hospital, dispensing world-class care (at world-class prices). But how exactly, Brill wondered, had hospitals become five of Houston’s 10 largest employers? It’s a pattern repeated nationwide, as hospital chains have come to dominate local economies.

Essentially, he found, by gaming what the article describes as “the ultimate seller’s market”—an economic realm where buyers (i.e. hospital patients) are normally ignorant, often frightened and sometimes literally helpless. And who often think they’ve got adequate insurance, until they examine the fine print.

Granted, nobody bargains over a cancer diagnosis or heart attack. Even so, Brill wonderedwhy should a trip to the emergency room for chest pains that turn out to be indigestion bring a bill that can exceed the cost of a semester of college? What makes a single dose of even the most wonderful wonder drug cost thousands of dollars? Why does simple lab work done during a few days in a hospital cost more than a car?

Good questions, all. Brill answers them by taking readers on a guided tour of the Alice-in-Wonderland world of medical billing as experienced by ordinary patients for whom getting the bill became an ordeal equal to and sometimes surpassing the illness itself.

Such as “Steve H.,” who never asked the cost of outpatient treatment for his ailing back because his union-sponsored health insurance plan had $45,000 remaining on its annual $60,000 spending limit. “He figured, how much could a day at Mercy [hospital] cost?…Five thousand? Maybe 10?”

The bill came to $89,000—including $45,000 for an electronic stimulator Brill learns that Mercy Hospital bought from the manufacturer for $19,000, which spent roughly 25% of that amount making and shipping it. (An arbitrator persuaded the hospital to settle for $10,000 of the $44,000 it said Steve H. owed.)

Moreover, as medical markups go, Steve H. got off relatively easy. The “chargemaster” computerized system hospitals use to prepare bills routinely assesses patients 10 times and more what commonly used items like gauze pads and surgical gowns actually cost. If baseball teams treated their captive audiences like that, they’d be selling $40 beers.

At times, Brill’s mordant deconstruction of hospital bills can be grimly funny—even if Alice D., left facing a $900,000 bill for her dead husband’s futile cancer treatment, can be pardoned for not laughing. In the end “her losses from the fixed poker game that she was forced to play in the worst of times with the worst of cards,” persuaded Alice she could never afford to remarry.

Even chemotherapy patients who survive can be staggered to learn that a miracle drug cost Genentech roughly “$300 to make, test, package and ship to M.D. Anderson for $3,000 to $3,500, whereupon the hospital sold it to [patient Steve] Recchi for $13,702.33.”

Ultimately, many of these humongous bills are never collected; the industry average is around 35 percent, although prestigious hospitals like M.D. Anderson collect 50 percent of what they charge. Most are “non-profits” only in the sense of having no stockholders; instead, administrators are paid princely multi-million-dollar salaries. They occupy themselves with building empires.

In the end, Brill concludes that Americans pay an enormous price for refusing to admit that “because the health care market deals in a life-or-death product, it cannot be left to its own devices.”

He and Time have done a great public service.


By: Gene Lyons, The National Memo, March 13, 2013

March 14, 2013 Posted by | Health Care, Health Care Costs | , , , , , , , | 1 Comment

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