Today is Thursday, May 17, 2012

Healthcare Providers

13 ways to cut Medicare costs

Over the last 35 years, there have been a lot of attempts to slow the growth in Medicare expenditures, which have continued to soar unabated because of poor policy making by both parties. 

Although the Budget Control Act of 2011 (S. 365) says the Joint Budget Committee that will try to agree on the next round of budget cuts won't be allowed to change Medicare's benefits, I think it should.

Here are some ideas for changing Medicare that would give consumers and providers strong financial incentives to increase access to care and higher quality care at lower costs per patient and per enrollee.

1. Means testing should be introduced to Medicare. 
2. Premiums should be upped 50% to 100% for the wealthiest beneficiaries, provided that they are allowed to buy non Medicare insurance in place of the lousy Medicare plan. That would take 5 million to 15 million of about 47 million beneficiaries out of Medicare and save billions, if not trillions.
3. The WSJ Health Blog reported on a study that estimated that defensive medicine costs $46 billion a year, or $460 billion over 10 years and growing. Tort reform is imperative.
4. Strip the pork and new public sector jobs built into ObamaCare from the budget and save close to $1 trillion.
5. Revamp Medicaid so that it serves the truly poor, and not every special interest group that votes Democrat. Save billions for the states and federal government.
6. Strip useless preventive care from Medicaid and Medicare and save more billions. Provide only the four preventive care services that actually save lives. Note that I've blogged on a Krauthammer column that reported that preventive services increase health care costs 162%. http://tiny.cc/k4hck
7. Stop using Medicare to subsidize over-staffed inner city and teaching hospitals and save more billions.
8. Reduce Medicare/Medicaid reimbursements for providers' payments to GE and its competitors for equipment maintenance contracts and save more billions.
9. Give consumers on Medicare and Medicaid strong financial incentives to buy reasonably-priced Medicare and Medicaid insurance plans and save more billions.
10. Stop all subsidies to people who want and buy Medicare Advantage plans and to the insurers who offer those plans and save more billions.
11. Spend more on fraud and abuse enforcement for M/M and save more billions.
12. Give workers stronger financial incentives to save for their health care expenditures after they reach 65 and save more billions.
13. Reimburse hospitals for only 50% of the health insurance premiums that they pay for employees. Many hospitals pay 100% of their workers' insurance premiums, which are soaring like everyone else's.

People who are smart about money won’t buy health insurance until they become sick

ObamaCare will give working Americans who are smart about money strong financial incentives to become and stay uninsured until they need catastrophically expensive health care. If they recover and no longer need insurance, they’ll drop it until the next time. The number of people who can afford to buy health insurance today but don’t is about 15 million. In five years, it could be several multiples of that.

Economists are just figuring it out here and here. Even liberal bloggers are getting it.

What this means:

What does defensive medicine cost? It depends on your agenda

Democrats who depend on malpractice lawyers for huge campaign contributions do everything they can to down play the cost of defensive medicine. Republicans who don’t get money from trial lawyers do everything they can to show that the threats of malpractice suits cause physicians to increase the cost of health care by 30% to 50% by practicing defensive medicine. When physicians practice defensive medicine, they order more tests and procedures and drugs than they should in an effort to reduce their risks of being sued. Trial lawyers win. Medical supply companies and medical device companies win. Physicians and hospitals win. Patients and taxpayers lose.

A new Gallup poll of physician finds that 25% of procedures ordered by physicians are unnecessary. Jackson Healthcare uses that number to estimate that $650 billion of the $2.5 trillion spent on health services is spent on unnecessary tests and treatments. Click on the hed of this story to see links to several relevant articles.

Catholic hospitals, nuns split with bishops over Nelson’s abortion solution in HR 3590

Catholic hospitals and a group of nuns are splitting with their bishops over Sen. Ben Nelson’s (D-Neb) abortion compromise in the health bill (HR 3590) that the Senate passed on Chistmas eve.

The hospitals are “cooperating with evil” because 

Providers are trying to keep health insurance premiums high by protecting expensive mandates

In Colorado, state laws that mandate that health insurers cover services offered by numerous alternative care providers increase the cost of health insurance by some 50%. These mandates generally are backed by the providers who profit from them and by disease-specific advocacy groups that don’t care that they’re making health insurance unaffordable for millions.

The health insurance reforms in the bill before the Senate (HR 3590) would allow 

Senate dumps public option: Wins for Michael Bennet, Joe Lieberman?

Are Colorado’s Sen. Michael Bennet and Conneticut’s Joe Lieberman both winners as a result of the reported decision by Senate Democrat leaders to dump the government-run public option health plan from the health spend and tax bill (HR 3950)?

Bennet has strongly backed the public option that won’t happen. He has endeared himself to 

Obama, Pelosi HMO gets new life but not there yet

President Obama, Speaker Pelosi and Senate Majority Leader Reid are doing all they can to force working Americans and their families into a Medicare for all HMO/PPO that would sharply cut payments to providers and limit patients’ access to advanced medical technology and quality care. The Wall Street Journal is the only news organization covering this scandal in depth, and it explains in an editorial what the hard left Democrats are plotting. Other media are willingly being sucked in by clever White House distractions designed to hide what’s going on in Congress.

Link

The Public Option Comeback The secret to its budget ‘savings’? Medicare price controls. [Read comments after the editorial.]

Senators Michael Bennet, Mark Udall vote to deceive public on $900 billion health care bill

Colorado’s two Democrat Senators, Michael Bennet and Mark Udall, today voted for a slight of hand accounting measure that would have taken $247 billion in Medicare physician payments out of the Senate Finance Committee’s health bill (S 1796) and added them to the Federal government’s budget deficit. more

Rep. Mike Coffman’s town hall: won’t support HR 3200; wants Congress to deal with jobs, economy

Rep. Mike Coffman (R-CO, CD-6) met in Conifer with more than 30 constituents. His summary of the most pressing issues before Congress and questions and answers that followed are below. Click on the headline.

 

Mandated health benefits in Colorado increase the cost of health insurance up to 50%

Colorado laws mandate that health insurers cover 51 preventive and alternative health care services and providers.  Nationally, the 50 states and Washington, DC, have 2,133 health benefit mandates on their books.  Each mandated benefit increases Colorado’s health insurance premiums by less than 1% to between 5% and 10%, according to a compilation and actuarial calculations by the Council for Affordable Health Insurance (CAHI). These mandates apply to health insurance purchased by small employers and individuals who buy non group policies. Large, multi-state employers are not affected because they are governed by federal laws and regulations, specifically the Employe Retirement Income Security Act of 1974 (ERISA).  Among expensive services that Colorado mandates insurers cover and the amount they add to insurance premiums:

Letting health insurers sell across state lines is not the easy answer

Conservatives and Republicans (there is a difference) repeatedly hammer home the message that the way to reform health insurance regulations is to let insurers sell across state lines.

The argument is that this would let insurers avoid the benefit mandates that high cost states impose on insurers and insurance buyers. And they rightly blame the states’ politicians for the mandates. But it’s not just the states’ politicians who have made health insurance so unaffordable for millions of Americans.

Blame the providers who profit from states’ mandates for the expensive premiums in those states. If the mandates were reduced or eliminated, premiums would be 30% lower.

What the WSJ doesn’t say in its editorial today (see link below) is that

Health insurance public option HMO would win by cheating

Here’s a great explanation of why President Obama’s proposed public option health plan, or Government HMO (Fannie Med), would cheat competitors and customers and drive private insurers out of the market.

Steve Steckler, Chairman and founder, Infrastructure Management Group (IMG):
When Government Competes, It Usually Cheats: Why A Public Option Is A Very Bad Option for Taxpayers

The debate over a public option in health care has exposed a core public policy issue that until now has been seen only at the local level: what services should be provided directly by the government and its employees versus simply having the government ensure access to those services in the open market. Enlightened conservatives like the late Jack Kemp, who respected the power of free markets but wanted to make sure that low- and moderate- income citizens were empowered to benefit from them, have argued passionately that government has a moral obligation to ensure access to these services but a near-equal obligation to stay out of the service business itself. Kemp—and Al Gore, incidentally—once said government works best when it steers rather than rows, otherwise it tends to become bloated and—when competing with private firms—gluttonous. Indeed, in the few opportunities I had to discuss Kemp’s populist ideas with him, he was quick to cite the painful experiences of local service firms and non-profits in their competition against federally subsidized, book-cooking and rule-bending local governments.

Our various levels of government provide many essential services, from the city planning and law enforcement to safety inspection and professional licensing. These particular types of services are direct expressions of the government’s police power, and so are rightfully and for the most part confined to public providers. A second service category is more discretionary, which means they could be provided by the private market but, for both good and bad reasons, the government has intervened as the monopoly provider. These usually include mass transit, water and sewer services, etc. Rarely—as in almost never—has a government allowed private firms to continue to compete for customers once it has established itself as a provider, and truly never on a level playing field.

For example, private jitney services are forbidden in most US cities, especially in densely-traveled bus corridors (i.e., where the customers are). And as President Obama prepares to push billions of new dollars into intercity high-speed passenger rail, Amtrak is already claiming with legislative justification that it has a monopoly to operate the trains in almost every corridor in which the services are being planned, despite the existence of dozens of US and global companies eager to do so. Solid waste collectors are routinely blocked from offering their services in service areas attended to by a public operator. And then there’s K-12 education, where any family using anything other than government schools must pay twice (once through their property taxes and again through tuition), while the poor are economically prohibited from choosing at all. In fact, many public union teacher contracts allow the sale of surplus school property to almost anyone, such as liquor store operators and shopping mall developers, but not to private school foundations that might build a competing facility. Reduce…

Other barriers are less obvious but equally effective. They amount to cheating, and they have a huge and readily calculable cost to taxpayers. Here’s how they work:

1. Cooked Cost Accounting: For a time in the 1990’s, numerous city governments invited private companies to bid against their public in-house operations to provide services ranging from wastewater treatment to city vehicle maintenance. Unfortunately, the cities usually limited the contracts to 3-5 years, too short to allow private firms to recover the cost of the equipment they’d have to buy or to earn back their other start-up costs. Moreover, when comparing their own service costs to the private option, the government usually left out much of its general overhead and long-term liabilities, such as pensions and equipment replacement, arguing that they would have to carry those costs whether the service was contracted out or not. The private competitors, on the other hand, had no choice but to include these costs in their bid. So they often lost. Once the private competition was wiped out or otherwise deterred, the public operator breathed a big sigh of relief and usually returned to its normal cost escalation or lower service level.

2. Debt and Capital Subsidies: Government debt is subsidized by federal taxpayers; that is, the interest on the government’s debt is generally tax-free, while interest on a private provider’s debt is taxed at combined rates of up to 50 percent. This means that, by comparison, taxpayers pays up to half of the debt service cost of public option vis-a-vis private companies. The result is that public operators can borrow at 3 or 4 percent while private service and infrastructure companies—and health insurers—must raise their capital in private debt and equity markets at normal, much-higher rates. Even worse, the equity component of a private operator’s financing is taxed twice: once at the corporate level (corporate income tax) and then again at the individual shareholder level. Government providers almost never include the enormous taxpayer cost of these subsidies in a public-versus-private comparison.

3. Implicit Service and Revenue Guarantees: There are two main types of public service operating agencies: internal enterprise fund units, such as the Chicago Department of Aviation, and independent public authorities, such as the Port Authority of New York and New Jersey. Bonds issued by or on behalf of internal enterprise funds may or may not have the explicit backing of the participating government; that is, the government has varying hurdles (sometimes none) it must clear to backstop one of its financially underperforming business units. This contrasts somewhat with bonds issued by independent (but still government-owned) public authorities, which are usually prohibited by their covenants from being backstopped by general government revenue. But what governments can almost always do fir their captive operators is to direct customers, and therefore revenue, to its business units. It does so by adding additional communities to its client base (e.g., incorporating smaller suburban jurisdictions into its service area, thus improving its economies of scale) or by driving private providers out of the market, either through regulation or temporary or customer-class marginal cost pricing. It can also use its monopolist oligopolist pricing power to simply raise rates to cover bloated costs.

4. Artificial Scale: The government is almost always the largest provider of public-use services in its region. A private company hoping to provide potable water or other infrastructure alternatives therefore finds itself competing against not just the “natural monopoly” aspects of infrastructure, with miles of existing pipe and connections already in the ground, but against the enormous economies of scale that benefit the government in the first place. It’s the same advantage that a handful of private companies like Wal-Mart and Verizon enjoy because of the relative size of their customer base. It manifests itself in enormous, competition-killing way, including input pricing (e.g., Wal-Mart’s power to squeeze its suppliers) and installed service structure, such as Verizon’s numerous cell towers in its Bell-legacy regions. The US health insurance market has a large number of private providers, but state-by-state regulation has kept many of them confined to their regional customer base. A Fannie Med public option, by contrast, would operate nationally and, as Medicare does in many cases, would surely use its scale to force its will on hospitals, doctors and drugmakers while other insurers pick up the real tab.

5. The Fannie Mae Lesson: Fannie Mae and Freddie Mac were supposed to be stand-alone, corporate-like purchasers of home mortgages (this should be sounding familiar already). The authorizing legislation that created them and the language of their founding charters refer many times to their full operating and financial independence from the government and, by exclusion and more, the absence of taxpayer liability for any possible corporate mishaps. In its subsequent competition with other firms offering the same mortgage bundling services, the feds were never supposed to be able to step in. But that’s exactly what happened in late 2008, to the tune of hundred billions of dollars of taxpayer dollars. You can be absolutely certain that the new managers of any public option—and most of its prospective customers—will remember that comforting golden parachute. And while the Congressional Budget Office can tell you how costly it is to taxpayers, Lehman Brothers can tell you how it is not to have had it.

No doubt President Obama will make promises that the House and House-Senate conference committee’s won’t keep when it comes to the financial independence and honest accounting of the public health insurance option. But even if they don’t explicitly empower a new public entity to cheat as it competes with private insurers, and even if they do offer the usual platitudes about ensuring a level playing field, there are at least five big reasons and many billions of dollars of experience to convince you not to believe a word of it.

 

How Obama uses misleading uncompensated care statistics to promote health care reform

Is President Obama lying about ObamaCare or just being given bad information like President Bush got from the intelligence community when he warned about Iraq’s weapons of mass distruction?

This articleby Thomas P. Miller at the American Enterprise Institute shows how the argument that hospitals’ uncompensated care costs are shifted to the privately insured is inflated by a magnitude of about seven. Instead of costing the privately insured $57 billion a year, think about $8 billion.

Hospitals, of course have been misleading the public and policy makers about uncompensated care costs for decades. They’ve inflated their uncompensated care costs to show how they provided “community benefits” that justify their highly inflated list prices, or charges, and what they charge private insurers.

The actuary and health consulting firm, Milliman & Assoc.and its client, Family USA, come off looking terrible in this article because Milliman produced the hugely inflated number used by the president.

Waxman’s attack on Obama’s deal with drug makers depresses pharma and hospital stocks

Rep. Henry Waxman (D-CA) helped depress most drug and hospital stocks Thursday with his warning that the Obama administration doesn’t feel bound by its deal with pharmaceutical companies and that Congress isn’t bound by that deal.

The markets obviously didn’t believe the White House denial that anyone working there said President Obama isn’t bound by the deal he made with drug makers, which made a vague promise to help the government save some $80 billion on drug purchases over the next 10 years.

This sent most drug stocks and health exchange traded funds lower Thursday. Daily charts for drug and medical device makers are here.

If the drug companies can’t depend on Obama and Congress to uphold their ends of the deal they thought they had with the politicians, then the drug makers appear to be more vulnerable to health reformers’ efforts to legalize reimportation of exported drugs, shorten the lives of patents on new biologic drugs and make the companies pay for advertising to consumers with after tax dollars.

Hospital stocks also fell because the industry’s $155 billion deal announced with President Obama and the Senate also is worthless, if it ever was worth anything. That deal supposedly protected hospitals against a variety of attacks under consideration in Congress, but it is being opposed by several state hospital associations that say the deal provides for costly cuts in Medicare payments that hospitals can’t afford.

Congress also is considering making tax-exempt private hospitals taxable. But that would only help publicly-owned hospital companies, because they could grow by snapping up not-for-profit hospitals after Congress made them for profit businesses. This assumes, however, that consolidators could get anyone to finance their acquisitions of more hospitals.

Hospital stocks also are down because speculators think that if health insurance market reforms die in Congress, hospitals won’t get any relief from the cost of serving the 6 million to 8 million uninsured Americans who can’t afford health insurance and aren’t qualified for existing government programs. And they would continue to be obligated to treat some 9 million to 15 million illegal immigrants without getting paid.

Daily charts for major acute care hospital chains are here.

With the major media reporting new splits over health care reform proposals in Democratic Party Congressional ranks daily, this hasn’t been a good week for health care reform or health insurance reform.

Health care reform may not be dead, but it’s in big trouble. In the long run, the death of all of the health reform schemes being considered in Congress would be good for most health stocks.

Daily charts for health insurers’ stocks, which were mixed Thursday, are here.

Disclosure: I own BDX.

Health insurers drop on health care reform’s stall; providers are mixed; health ETFs up

The future of health care reform seems to be so uncertain that speculators in the stocks of health insurers, health care providers, medical device makers and exchange traded funds that track health stock indexes aren’t sure which way to turn.

On Wednesday, as expected, health insurers’ stocks lost part of the gains they made Tuesday when it looked like insurers wouldn’t face competition from President Obama’s government-run public option health plan, or government HMO. Late Tuesday, Obama reasserted his support for a public option, which is why insurers’ stocks fell Wednesday.

But the correction didn’t take away all of Tuesday’s gains. The reason is pretty simple. Chances that a health insurance reform bill won’t make it through either house of Congress by Obama’s August 1 deadline are growing despite what Congressional leaders are promising. Congressional Democrats are so divided on health insurance reform and financing the new health spending bill that they have a lot of work to do before they can agree on anything. That the bill might be delayed through August increases the probability that a bill that means anything won’t pass this year or next.

While insurers’ stocks dropped Wednesday, three ETFs that track health stocks rose a bit even though the stocks of hospitals, drug makers and medical device makers were mixed.

Insurers’ health ETFs’ charts are here. Medical device makers’ and pharmas’ charts are here. Hospitals and other providers are here and here.

Why the mixed returns?

There are several possible answers. If the Government HMO is back on the table, demand for medical devices and some supplies may slip. Members of Congress are again talking about more cuts for Medicare and Medicaid providers, which would hurt providers and their suppliers. That some hospital chains were up could be because speculators recognize that the industry’s deal to take $155 billion in Medicare payment increase cuts over the next 10 years can be and probably will be reversed by a future Congress.

And speculators who are paying attention know that the Democrats again are talking about taxing people making over $250,000 to raise funds for the health spending bill that’s being touted as a health care reform bill. That, of course, would work against a near-term economic recovery. It would be bad for all stocks, including health stocks, which seems to be okay with Obama and most Democrats in Congress.

So, now, all investors have to watch the health care reform circus in Washington, not just patients, workers, employers and speculators in the various health stocks.