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When
I turned 50 not long ago, I checked
into Henrico
Doctors
Hospital
for a colonscopy – a “Katie Couric test”, as I
call it, after the NBC news celebrity who
broadcasted images of her innards on national
television – to make sure there was nothing ugly
lurking in my digestive tract. It was a quick
outpatient procedure. I stayed about three hours in
the hospital. My nurse couldn’t have spent more
than an hour with me, and my physician no more than
half that length, although it’s hard to be sure
given the fact that I spent most of my time in a
sedated, amnesiac fog.
Soon
afterwards, I received a bill in the mail. I had no
complaint with the $20 co-pay to my doctor, and
I can’t quibble with the $220 that my insurance
company, Anthem Blue Cross Blue Shield, reimbursed
him for his services. (Hospital charges were extra.)
Two hundred and forty dollars seemed reasonable for
the doctor’s and nurse’s time. But my jaw
dropped when I saw the physician practice’s
“write off” to Anthem: $424.50.
Now,
if Anthem's bean counters can use their heft in the marketplace to
negotiate a 64 percent discount from my doctor, more
power to them. But there’s a dark underside to this
practice. Let’s say you’re unemployed or work
for a small company, and you don’t have medical
insurance. Let’s say you do the Katie Couric
thing. You wind up paying the full $665 -- three
times what Anthem paid!
It’s
a truism of the healthcare industry that private
medical insurance is profitable for hospitals and
doctors, compensating them for marginal or
money-losing reimbursements for Medicare and
Medicaid patients. It follows logically, then, that
treating uninsured patients for triple the actual
cost must be rapaciously, price-gougingly profitable
– unless the patients don’t pay, which many of
them never do.
The
American health
care system is seriously out of whack, and Virginia’s
is no exception. An estimated one
million Virginians lack health coverage of any kind,
exposing them to devastating liabilities should they
be forced to seek medical care. Meanwhile, the cost
of insurance is no bargain for the rest of us.
It’s increasing at double-digit rates again, a
replay of the early-1990s. Small
businesses, the economic engine of the Commonwealth,
consistently rate the lack of affordable health
insurance as one of their biggest worries.
In
sum, health care poses one of the biggest social and
economic crises facing Virginia.
My big question: Where's our political and business
leadership?
Sadly,
the 2004 session of the General Assembly is shaping
up as another budget bruiser -- this time over the
issue of tax restructuring -- and all sides of the debate share a flawed premise. Lawmakers and
pundits act as if the only choices facing Virginians
were raising taxes and cutting services. Absolutely
no one is discussing the possibility that
restructuring some of the more dysfunctional sectors
of our economy, such as education and health care,
might stimulate innovation and productivity gains
that would yield higher quality and lower costs.
Democrats
are stuck in taxes-as-moral-necessity mode. Give
Gov. Mark R. Warner credit for cutting spending
through IT and business-process reforms, but his
penchant for "restructuring" does not
extend outside the government sphere. Furthermore,
his comments about taxes emphasize “fairness”
and “revenue adequacy,” which most observers see
as euphemisms for finding new revenue sources, i.e.
raising taxes.
Meanwhile,
Republicans fall into one of two camps: the
Chichester,
eat-your-broccoli, raise-
taxes-to-invest-in-infrastructure
faction, and the Howell
raise-my-taxes-over-my-dead-body bloc.
Chichester
hasn’t come right out and said he wants to raise
taxes, but it's hard to read his
pronouncements any other way. Infrastructure, like education, is a
laudable priority, but the Senate Finance Committee
chairman has not made a case that the Commonwealth
has exhausted all alternatives to tax hikes. The
Wilder Commission last year identified $750 million
a year in potential savings by applying business
practices to state government, many of which the
governor has put into place. What's the rush about
raising taxes? Why can't we wait and see if the
savings will materialized as advertised? Meanwhile, neither
Chichester
nor Warner have contested Howell’s contention that
Virginia
will generate buckets of new revenue when the
economy cranks up again -- which it will do
if we don’t tax it to death first.
The
trouble with the just-say-no-to-taxes camp is its
monomaniacal fixation on taxes. Small-
government
conservatives act as if taxes are the only
metric of public welfare. They justify low taxes on
the grounds that they promote job and wealth
creation, but they’ve never seen a spending
increase they’ve ever liked – even if it could
demonstrably raise incomes or improve living
standards. Small government conservatives spend all
their energy on blocking taxes and next to none
exploring ways to harness market-driven strategies
to solve the undeniable problems that the Warners
and Chichesters are trying to address.
An opportunity exists to
institute historic reform of Virginia’s
healthcare sector to the immense benefit of all its
citizens -- if only someone would grasp it. Reform
would require both parties to step outside their
comfort zone. Republicans would have to be willing
to pony up an extra $250 million a year for
Medicaid, a program they’ve never liked. And
Democrats would have to trust, much against their
inclinations, the marketplace to operate more
efficiently than the Rube Goldberg contraption we
now have in place.
Before
I draw the outlines of achievable health care
reform, we must detour briefly to summarize the
forces driving inflation in the medical marketplace
today. Inflationary forces are commonly blamed on
the introduction of new technologies and
pharmaceuticals into the medical marketplace. Yes,
these innovations typically come with a high price
tag. But I'm not persuaded that they're the root of
the problem. While a new brain scanner might cost
more than an old one, and a heart drug more than an
old one, they save costs somewhere else in the
health care system, typically by improving
diagnoses, reducing the length of hospital stays or
achieving superior medical outcomes. The accounting issues
are so complex that it's difficult to say with any
certainty what's happening.
Arrayed
against the ambivalent benefit of new drugs and
medical devices is an unalloyed positive: the potential of the
information technology revolution to strip out
billions of dollars in bureaucratic waste. At some
point, when we reach the other end of the rainbow,
every patient's files will reside in electronic
format, eliminating the need to constantly re-enter
data at the doctor's office, then at the hospital, and
then for the insurance company. There will be fewer
redundant tests, and clinical information will be
more readily available to medical decision makers.
Even
more momentous, the potential exists to mine massive
patient-level databases to identify medical
procedures that yield the best medical outcomes at the least cost. Information technology can drive the
rapid dissemination of best practices. The
health care industry has seen the lowest
productivity gains of any economic sector, with the
possible exception of K-12 schools and the U.S. Post
Office. There is no reason health care shouldn’t
see gains in productivity and quality comparable to
those of the manufacturing sector.
The
reason we don't see productivity gains is that there
is nothing resembling a free market in health care
today. Oh, it's "free" in the sense that
not-for-profit and privately owned entities deliver
most of the healthcare -- "free" in the
same sense that the trucking and airline industries
were free but heavily regulated in the 1970s.
Trouble is, health
care, like the 1970s-era trucking industry, is
driven by perverse incentives that perpetuate
unproductive behavior.
Although the federal Medicare
and Medicaid programs deserve their share of the
blame, our very own lawmakers in Richmond contribute
immeasurably to the sorry state of affairs. Look at
how we shoot ourselves in the foot:
Medicaid.
The Commonwealth administers the Medicaid program
for the medically indigent, primarily low-income
families and the elderly, blind and disabled.
Virginia has one of the most miserly Medicaid programs in the
country. With 2.5 percent of the U.S. population,
Virginia covers only 1.5 percent of the total
Medicaid population. While the 50 states spend about
20 percent of their total budgets on Medicaid,
Virginia spends only 13 percent.
You
don't have to be a bleeding-heart liberal to
disapprove. A number of adverse consequences stem
from this excessive parsimony. Poor people lacking
coverage typically avoid seeking medical treatment
until their problem becomes a crisis, at which point
their malady becomes far more expensive to treat.
Furthermore, the uninsured usually seek treatment in
emergency rooms, which are far more expensive venues
than a doctor's office. Hospitals can't deny anyone
treatment, even if the patients can't pay their
bills. But providers still have salaries and bills to pay.
They cover the cost of this indigent
care by building it into the rates they charge
private insurers -- cost shifting that the Virginia
Hospital and Health Care Association refers,
rightfully, to as a "hidden tax."
The
cost of this hidden tax, according to a Fiscal
Analytics, Ltd. study prepared for the Commonwealth
Care Coalition, is an estimated $330 million a year.
About one third of that manifests itself in the form of
higher insurance premiums for private payers.
Mandated
insurance coverage. Like all states, the
Commonwealth of Virginia has power to regulate
insurance carriers. Over the years, the General
Assembly has proven a push-over for special
interests from optometrists to psychologists who
have insisted that their particular services be
included in all health insurance plans. (Only
companies that insure themselves are exempt.)
As
a consequence, Virginia has the second largest
number of mandated insurance benefits of any state
in the union. According to the Virginia Association
of Health Plans, mandates in Virginia inflate
premiums by 20 percent -- making medical insurance
that much more unaffordable to small businesses and
individuals.
Certificate
of Public Need. The state still regulates who
can build new health care facilities and where.
There was a big push several years ago to eliminate
COPN, but hospitals and nursing homes managed to
salvage this regulatory relic on the grounds that
they needed the protection from competition to keep
them solvent in the face of continued Medicaid
shortfalls.
The
trouble with COPN is that the lengthy approval
process gives any hospital or nursing home virtual
veto power over the expansion plans of a competitor
in their territory. Companies offering innovative
methods of health care are frozen out of the market.
The hospital industry is organized much as it was 40
years ago, bundling unrelated
health services -- obstetrics, cancer treatment,
heart surgery, gastroenterology, etc. -- in
centralized facilities. Outside of a handful of
surgical centers and a couple of venerable childrens'
hospitals, there are very few specialized medical
centers in Virginia.
There
is a significant body of evidence that "medical
centers of excellence" focusing on core competencies can deliver health care more
efficiently and with superior outcomes than
generalist institutions. COPN keeps such competitors
out of the Virginia marketplace.
Hospitals and nursing homes resist relinquishing
COPN, and medical professions are loath to lose
their precious mandates. Politically, there's only one way to pry
concessions out of these powerful interest groups:
Compensate them by spending more on Medicaid.
The
Commonwealth Care Coalition argues for a set of
reimbursement reforms to Virginia's Medicaid system
that would plug most of the red ink.
If the state spent an extra $250 million per year,
matched by an additional $250 million in federal
funds, Virginia's health care industry would receive
a half-billion dollar injection. That's a wad of
wampum. It's also a big lever to move a lot of
legislation.
So,
what would comprehensive, market-based health care
reform look like? There are five key elements.
Raise
the state commitment to Medicaid by $250 million.
First off, that would pump $250 million worth of
federal funds into the state
economy, generating thousands of jobs and
significant new state tax revenue. Furthermore,
relieved of a major drain on
their resources, health care providers could afford
to reduce their cost shifting to private payers by an
estimated $110 million, according to the
Commonwealth Care Coalition. Finally, thousands of poor
people would seek medical treatment in a timelier
manner and in more appropriate settings, relieving
another strain on the system.
I'll
concede that
$250 million is a lot of money given current
budgetary restraints. But the money would be readily
available from economic growth if the General
Assembly deferred
the phase-out of the car tax. Of all the many
conceivable forms of tax relief, the car tax
phase-out is one of the most ill conceived. Yes, it
does give money back to taxpayers, a good thing, but
it encourages people to buy more expensive cars --
which is good only if you happen to be an automobile
executive in Detroit or Toyota City. The social
utility for Virginians is minimal, as opposed to the
benefits that would accrue from invigorating our
health care sector.
Eliminate
Certificate of Public Need. The goal would be to
open up Virginia's health care system to
competition. We want to make it easier for investors
to invest in state-of-the-art medical equipment and
facilities. We want to encourage experimentation and
innovation. We want to see the introduction of
specialty clinics that excel at what they do, from
treating cancer to conducting coronary bypass
surgeries.
Eliminate
insurance mandates. Let insurance companies and
employers negotiate which services go into an
insurance plan. Among other options, we want to see more
"bare bones" plans that encourage
preventive medicine and protect against catastrophic
illnesses, but punish frivolous use and abuse of the
system.
Create
insurance pools. The current system is rigged
against individuals and small businesses. Increasing
Medicaid payments and eliminating the "hidden
tax" will help make insurance more affordable.
So will eliminating insurance mandates. But the
biggest problem is that small businesses and
individuals are simply more expensive to insure than
big companies. This is one of those rare instances,
it would seem, where government needs to be more
involved. The state should create a mechanism for
small players to pool their buying power and
negotiate the same kind of discounts that Anthem
obtains for large employers.
At
the risk of redundancy, let me drive this point
home: The more uninsured people we can get signed up
for insurance, the more people we have contributing
premiums into the system, and the less hospitals
have to shift costs onto the rest of us.
Invest
in information technology. Legislators need to
identify and eliminate and legal and regulatory
barriers that slow investment in information
technology, the pooling of patient-level data and
the dissemination of best practices. The Virginia
Health Information Foundation fulfills some of these
functions, but it is an industry-funded,
consensus-driven organization that moves very
slowly. Virginia needs a VHIF on steroids, with the
power to make the industry more transparent and
nurture the development of a strong consumer
movement.
We
Virginians need to think big. We need to set
ambitious goals for ourselves. We should strive for
nothing less than creating the most productive and
most innovative health delivery system in the United
States, and providing the best outcomes for our
citizens. We have the means to make medical
insurance more affordable, extend coverage to nearly
all of our citizens, and stimulate the growth of a
vital industry. But we can't do it by raising taxes
and throwing money at the problem, nor by pinching
pennies and thinking small. We must be willing to
leverage tax dollars into structural reform that
will create the freest market for health care
services in the nation.
--
November 3, 2003
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