New Prescription Drugs Will Begin To Test Our Commitment To The Socialism That Is Health Insurance: Very Expensive Treatments For Very Few People

Pharmaceutical research and development during the past 30 years has resulted in the paradoxical situation faced by most drug manufacturers today: With the frustrating exception of cancer, the drug therapies that mitigate, manage, or “cure” the diseases that are most common in developed economies are not only available, they are available from “non-original” sources (i.e. generics).  This is why 75% of the number (not the cost) of prescription drugs sold in the USA have lost their patent protection.  Long term drug development success has created an almost-certain reduction in profits coming from “blockbuster” drugs.

High blood pressure, too high/low cholesterol, depression, and diabetes are all very prevalent diseases in developed countries; all of these maladies have multiple choices of generic drugs available for their treatment.  And the generic drugs are attractive to patients and physicians not only because of their comparatively low cost; they are also attractive due to their proven history and well-understood ‘side effects.”

For many years after the “first” generation of drugs used to treat these common diseases were being prescribed, it was possible for drug manufacturers to continue to create “newer and better” version of these drug categories (which was sometimes an accurate description). This trend has continued into the 21st century with many of the “new and better” drugs offering only either slight improvements over their predecessors, or through “reformulations” or slight molecular modifications, purely extended patent rights for the drug manufacturers.  But that “easy” time of either reformulating existing medications (think timed release) or minimal molecular modifications (“me too drugs”) is coming to an end.

Since many of the “big” problems (again, excepting cancer) have been effectively solved through drug research, there is no target for drug manufacturers except diseases that impact smaller populations of people. On the face of it, focusing research on previously neglected diseases is a great circumstance. People who previously had no hope since little research was being devoted to creating drug therapies that would help them now have a spotlight being focused on their conditions. As with the rest of health care, the challenge is in the financing.

It is fairly simple to understand the issue- If it costs about a billion dollars to research and develop a new drug, then the larger the number of people that those R&D costs can be “recovered from” via sales, the lower the cost that the drug to each patient. If a new drug applies to far fewer people, then the development cost recovered through sales to each patient will accordingly rise.  As we continue to experience increasing health care costs across most segments of the population, societies willingness to pay for treatments that apply to fewer and fewer people is likely to be challenged by the people paying for those treatments (employers, individuals, and taxpayers).

Health insurance by its very nature is socialistic. Health benefits are financed by spreading the costs that are experienced by few people across the larger population: ten percent of the population is responsible for seventy percent of health care costs.  This “Pareto Curve” (known by common-sense observers as the 80/20 rule) of health care utilization is actually a great reality. It means most of us aren’t sick; most of us don’t incur high health care costs. And it is great that our society has been able to support a socialistic structure to finance the care experienced by a minority of people.

The question we are facing is whether the broad society at large is willing to pay more and more for treatments that impact fewer and fewer people. And whether society willing to pay shareholders in drug manufacturers the high rates of investment return they have been used to when those profits must be extracted from fewer and fewer people.

We should not stop developing drugs that treat diseases that have few therapeutic options. But we should probably stop investing in treatments that are very similar or identical to existing medications as a method of subsidizing the profit requirements of the new drugs that treat smaller populations.

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Ryan and Rivlin are right: a “Draconian” shift to a defined contribution Medicare benefit structure may be the only “fair” way to reduce the difference between how much government funded health care people want and how much we are willing to pay for. aka addressing The Long-Term Deficit

Ryan and Rivlin are right: a “Draconian” shift to a defined contribution Medicare benefit structure may be the only “fair” way to reduce the difference between how much government funded health care people want and how much they are wiling to pay for. The difference between “want” and “willing to pay for” is the primary issue driving our long-term level of unsustainable government debt.

Yet, as recent polls demonstrate, however, the American democracy seems to be ill suited to the task of implementing a solution. Last week’s NBC/WSJ 3/3/11 poll shows a scant 18% of Americans “get” that Medicare expenditures are at the root of the long-term deficit challenge; and, 75% of us don’t support reductions to Medicare spending (see http://online.wsj.com/article/SB10001424052748704728004576176741120691736.html ).

It would be easier to think that any other approach to reducing Medicare and Medicaid costs than shifting to a defined contribution structure could have a meaningful impact on deficit reduction. It would be great if the “cost curve could be bent” by decreasing the annual increase in average costs per beneficiary through increased productivity within the medical care system. And while it is a fact that tiny dents in the deficit might be able to be made through fraud reduction and better coordination of care, the most optimistic impacts of those programs project their impact as minimal (see http://healthinsuranceandotherthoughts.wordpress.com/2010/12/29/).

Politicians can’t acknowledge that the only “way out of this” is to fundamentally change the  “circa 1965 social contract” associated with American government financing of health care for people older than age 64.  We can’t afford the amount of taxes it costs to provide unlimited state of the art health care services to every “eligible person” 65 and older for the rest of their lives.

If the above “tea-party” House Republicans were willing to voice this reality, then that would mean my theory that American Democracy is ill suited to address this issue is false. But the “taxed enough already” people seem content to focus on cutting programs that are political targets rather than deficit targets like the National Endowment for the Arts, Planned Parenthood, and the Corporation for Public Broadcasting.

Five years ago, before the Republicans aggravated the Medicare cost increase problem by adding a defined benefit for prescription drugs, the average amount Medicare paid out per beneficiary was about $8,300. The total each beneficiary spent was a little over double that amount.

At a less than real 6% annual inflation rate in payments per beneficiary, Medicare will pay out about $11,100 during 2011. That’s $11,000 each for the 35 million people in “traditional Medicare.”  And its’ even more than that on average, for the other 12 million people enrolled in various “alternative” Medicare programs like “Medicare Advantage.” As an aside, the actual Medicare payments per beneficiary inflation rate has been closer to 7% since 2006.

Actually, enrollment in Medicare Advantage (or other programs where the average amount the government pays per beneficiary is paid as a monthly “premium” to private insurance companies) isn’t inherently a bad idea. It is actually a great vehicle to shift to a defined contribution Medicare structure.

The two problems with Medicare Advantage today are: that it only applies to about a quarter of Medicare enrollees; and, that the private insurance companies are being paid, on average, more than the average cost paid for a beneficiary enrolled in “traditional Medicare”). By requiring 100% enrollment in Medicare Advantage, there could be a limit set on the growth in the average cost per beneficiary versus relying on never-implemented “cuts” in Medicare payments to health care providers.

Such a system would create an understandable discussion of a relatable number. Few people can conceive of the concept of a billion dollars, much less a trillion dollars. It all blurs after some number of millions for most folks. But numbers like $11,000 or $20,000 or $31,000, etc. are graspable by most people. And the Medicare conundrum is strategically about one issue: what will that average payment per person be, and how different will that number be from the average beneficiaries total costs?

The political problem in shifting to a defined contribution structure is that such a shift means that the health care services available to Medicare beneficiaries will vary significantly dependent upon the assets of each beneficiary; people over age 64 who have high incomes will, perhaps, continue to access any medical services they need, for the rest of their lives, as under the 1965 “whatever you need for however long you live” social contract.

But… The vast majority of people will no longer be able to have access to “state of the art medical care,” since the government will no longer “cover” the 57% of costs paid for today by Medicare and Medicaid for the average enrollee.  How much of that average cost will be paid for under a defined contribution/limited annual per beneficiary premium is the political issue of the early 21st century:

  • Can we accept that our society’s technical and scientific ability to develop medical technology and treatments far exceeds our financial ability to fund the application of that care to all people who could benefit from them?  If not, then solving the American long-term deficit threat is impossible under our democratic system.

Today, the average Medicare enrollee pays about 25% of the total annual average cost “out of pocket.” About 10 % of annual out-of-pocket costs are for  “Medigapinsurance premiums, and the remaining 15% of costs are paid out by Medicare enrollees as they experience medical events (i.e. cost-sharing and payment for non-covered services). So the real challenge is what average per beneficiary payment can we support as a society? How much are we willing to continue taxing the young to support the endless demands for medical services of the old?

Average Medicare Cost Proportional Payment Chart

In a time of wage stagnation, increasing income inequality, and global competition with societies that spend far less per person on healthcare, can we really afford to support the taxes necessary to pay the projected-and-on-target-to-reach the $19,000 average beneficiary cost in 2020? Less than nine years away? Will our society support the taxes necessary to pay for the costs (under a 6% inflation rate) resulting in an average cost per beneficiary of $32,000 when the last of the Baby Boomers, including me, enter the program in 2029?

By 2029, there will be almost double the number of people enrolled in Medicare as there are enrolled today. So instead of $32,000 average being multiplied by 45 million, it becomes $32,000 multiplied by about 80 million. Actually, the most recent rosy projection report from the Medicare Trustees (which assumes a significant reduction in the annual average increase in the per beneficiary payout due to “productivity increases”) projects 2029 as the year the program becomes insolvent.

The last time the Medicare Trustees projected the date of insolvency was less than 5 years away, in 2017. Why the change? Doubtful projections included in the 2010 Healthcare Reform Act that assume things that have been tried before, but didn’t work, (“quality improvement” programs that may improve quality but seldom reduce real cost drivers, primary care coordination; medical homes; HMO-like structures; fraud reduction, etc. etc. etc.) will magically work because “yes we can,” or whatever. Requiring high-asset people over age 64 to pay for more of their medical costs is a politically appealing idea that should be implemented. But there just aren’t enough rich people for that change to have an appreciable impact.

The fact is that we’re at a tipping point in about five years. We like to believe that our society is based on fairness. We like to believe that “health care” is a right versus being a privilege. Now, about paying for that right. Is burdening people under age 65 with the taxes necessary to support unlimited health care services for people over 65 “fair?” What is the limit to the payroll tax we are willing to impose in order to support the 1965 “unlimited” social commitment?

For sure the idea of rich people getting “better,” or simply more “sophisticated”, or ultimately more costly medical care than the rest of us seems anathema to the concept of fairness. Yet if “equal treatment by the government” is valued, then the idea of having the government pay for the “same amount of expenditures, on average” for all eligible Americans over age 64 (as would be the case with a defined contribution-everybody-enrolls-in-Medicare-Advantage Federal policy) seems like the only “fair” way to distribute the tax dollars. Unbeknownst to most people, this is the exact structure of the Medicare D prescription drug coverage program the Republicans put into place 5 years ago.

Which brings my policy thinking on solving the long-term Medical cost driven deficit crisis into what is striking me as a peculiar alignment with the thinking advanced by the fascinating bedfellows team of Republican congressman Paul Ryan of Wisconsin, and Alice Rivlin, an economist and a CBO director under President Clinton. I find it difficult to accept that the Ryan-Rivlin team has proposed something that I think will eventually happen, whether I like it or not.

What Ryan-Rivlin doesn’t admit is that a person’s personal financial status will begin to dictate more and more, their access to certain medical technology. Counting on “the market” to empower consumers to find the best value possible for their defined-contribution payment which will “unleash a productivity revolution in health care” sounds great. What it means, though, is that rich people will get medical stuff that most people won’t be able to afford to get- aka just like the rest of our lives. But don’t think I’ve fallen for the “vast low medical care system productivity conspiracy,” I haven’t. Yet Ryan-Rivlin is a harder sell without the “productivity increase” happy-talk, so it is understandable why the “break the social contract” talk isn’t at the top of their talking points.

Economists, pundits, health care finance experts, and even politicians understand that there is no “good, happy, keep the 1965 social contract in place” solution to the Medicare cost growth conundrum. So the question becomes, what’s the most equitable and fair way to divide up the amount of money we are willing to commit to the average annual cost per Medicare beneficiary?

Devoting fewer resources to intractable wars is a good idea, but it won’t solve the Medicare cost problem; Eliminating farm subsidies to growers of low-cost high-fat agricultural products and paying subsidies that will reduce the price of healthy food is a good idea, but it won’t do it; Providing “incentives” (i.e. more money) for “keeping people well versus treating them when they are sick” is a wonderful, if hard to implement, idea, but it won’t stop the cost escalation; Practice protocols, checklists, electronic medical records, are all good ideas that should be implemented. But all that stuff can’t fundamentally change the trajectory of Medicare costs.

If we face up to the truth, Ryan-Rivlin is just a matter of time. And it’s probably nowhere near as bad as some people surmise. People don’t hate the Medicare D program. And it is basically a version of Ryan-Rivlin. Then again, for now, the defined contribution paid by the government for the drug benefit covers a high proportion of drug costs. If that number decreases, then the Republican engineered Medicare drug benefit would likely lose its popularity. Because of all the patent expirations, drug costs aren’t an immediate cost-driver, anyway.

Whatever your politics, however, the relatively near future means we will have to accept limits and we will have to accept inequality in access to medical care for our over age 64 population if we want to fix the long-term deficit problem that is threatening our solvency as a nation. See http://www.kaiserhealthnews.org/Columns/2010/November/112210capretta.aspx for a Henry J. Kaiser foundation take on Ryan-Rivlin.

Some people think Ryan/Rivlin is only palateable to the “get rid of the new deal right wing crowd.” But I think it’s the only centrist solution on any “table.”

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Great Recession? Not if you’re in the hospital business: Just look at the palatial new hospitals in your community.

Driving across the country lately, a consistent sight has been evident in the buildings near the populated highway exits: Wal-Marts (What percentage of Americans live 30 minutes or less from a Wal-Mart? It must be above 80%) and new shiny hospitals and medical service buildings. And while the Wal-Mart buildings are “nice,” they aren’t anywhere near as “fabulous” as the new health care facilities.

Coming from Cleveland, Ohio, a city that has shifted from an economy dependent on a private sector industrial and manufacturing base to one heavily skewed towards revenue from Federally funded health care, I thought that the rest of the USA would look different. Yet newly constructed towering medical-industrial complex edifices are being built throughout the hinterland.

What people who “don’t want the Federal Government involved in their health care” fail to understand is the fact that about 50% of the revenue supporting their local new Taj Mahal level hospital comes from the Federal Government (mostly Medicare and Medicaid). Do the walls really need to be walnut? Is all that marble in lobby necessary for good medical care?

While the medical-industrial complex needs to be maintained and expanded to prepare for the demands of the 80 million strong Baby Boom demographic cohort, the money for that growth has to come from somewhere. Without the funds coming from Medicare (i.e. our tax dollars), little of this investment would be occurring…So if you’re looking for evidence of the Great Recession in your community, it’s probably best to ignore your local health care delivery businesses.

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The Nature of the Often Cited “Adult Conversation” Is Politically Impossible: It’s the Medicare, Stupid: A Memo From Uncle Sam To Baby Boomers

Medicare and Medicaid as % GDP

Image via Wikipedia

The Nature of the Often Cited “Adult Conversation” Is Politically Impossible:

It’s the Medicare, Stupid:

A Memo From Uncle Sam To Baby Boomers

 

All the politicians of both parties have been using the phrase “adult conversation,” as in last week’s headlines of “Obama Asks for ‘Adult Conversation’ on the Budget” and “Boehner Calls on Obama to Have ‘Adult Conversation’ about Wisconsin.”

But the reason why neither party is willing to start that conversation is because of the instinct of political self-preservation.

Baby Boomers were “promised” something they aren’t going to get, and boy are they going to be pissed off. And Baby Boomers vote. Here’s the nature of the “adult conversation,” in the form of a “corporate memo-

Memorandum

To:       Baby Boomers

From: The United States Government

Re:       Necessary Reductions In Health Insurance Benefits (aka Medicare)

The purpose of this memorandum is to inform you that, due to unforeseen circumstances, the United States taxpayer can no longer afford to provide you with state-of-the-art health care services for the rest of your life.

Because of your failure to have enough kids, there just aren’t enough people in the generations that follow yours to support paying for all the health care you were promised during your working years.

We’ve known we couldn’t keep the promise of devoting unlimited resources to you for your health care for a long, long time. But we really didn’t have the heart to tell you that you’ll probably need to take care of your heart on your own dime, so to speak.

Wasn’t it nice to think that you’d be able to get the same kind of health care services as your parents? We thought it better to hold-off on telling you we couldn’t keep the promise for as long as possible. So we did. But time’s up.

To reduce the risk of a war between generations and until further notice, here are a few key realities that you will now have to accept:

  • Everyone who qualifies for Medicare should not expect unlimited health care services at little cost to you;
  • The availability of advanced and proven medical technology no longer means that you will be eligible to have your access to that technology paid for by the Federal Government; and,
  • Since Medicare no longer covers the cost of the most advanced medical technology for every eligible beneficiary, some beneficiaries will be able to afford health care that most beneficiaries probably won’t. In other words, people who have financial resources will get more advanced medical technology than people who don’t have the money.

The United States Government regrets any adverse effects of the new policy defined in this memorandum, and there’s really nothing you can do about it anyway. Please accept our apology for breaking this promise.

Thank you.

CC: Your kids and grandkids (who you previously expected to pay for this stuff)

 

 

 

 

 

 

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Simple, Real, and Pragmatic Approaches to Fixing ObamaCare (Richard Thaler of Univ. of Chicago Nailed It)

Last weeks NYT included a column in the Business Section by Richard Thaler, a professor at the University of Chicago that succinctly and simply significantly improve the PPACA/ObamaCare.

The Republicans and Democrats should enact legislation to accomplish the enhancements below, particularly in light of today’s Florida Court opinion about the mandate…

For your edification, Professor Thaler’s ideas are presented below (from last Sunday’s New York Times):

Now that House Republicans have voted to repeal health care reform, in full knowledge that their bill has no chance of passing in the Senate, much less avoiding a presidential veto, it is time for constructive action. There is an opportunity to improve health care and reduce uncertainty, a Republican mantra.

Perhaps the most unpopular feature of the health care legislation now in place is a provision that requires nearly everyone to buy insurance. It is known as the mandate, and it is the aspect of the bill that could end up before the Supreme Court. In contrast, nearly everyone seems to approve of the provision ensuring that pre-existing medical conditions won’t prevent you from finding affordable insurance, as well as the rule that prevents insurers from dropping you if you get sick.
Unfortunately, it is hard to have the popular features without some version of the mandate. A health insurance system cannot work unless most healthy people participate.

The major source of uncertainty arises not from the bill itself, but rather from the lawsuits filed by states that object to the mandate. The legal issue is subtle, given that states have long imposed mandates of various kinds themselves, including those requiring children to go to school or requiring drivers to have liability insurance. So the states are not questioning the legality of mandates but whether it is constitutional for the federal government to foist one on state governments.

The Supreme Court may make the ultimate decision in the next year or two. If it rules the mandate unconstitutional, the viability of the rest of the plan is not clear. Until the legal issues are settled, the status of health care reform will be uncertain.
In this light, here are three thoughts about constructive steps we might take now:

SEAMLESS ENROLLMENT The first step is not really a substitute for mandates, but rather a supplement to whatever system we adopt, including the law as now written. The goal of having nearly everyone insured requires two steps. We have to get most people to enroll, and we have to keep them enrolled even if they move in and out of the labor market.

To address that second goal, we need to make it as easy as possible for people who lose jobs to remain insured. The setup I propose is that as soon as an employer submits a form notifying a laid-off worker that she has been dropped from its health insurance coverage, she would be automatically enrolled in a plan offered by her state insurance exchange, and directly billed at a rate that reflects her now-reduced income. Ideally, the default option would be an inexpensive, catastrophic policy that provides real insurance for major events.

Of course, she could choose another plan, or she could opt out of insurance altogether, but she would have to take some specific action in order to do so. And once she landed another job, she would be automatically enrolled in a plan from her new employer, again with the ability to opt out.

In a perfect world, all of this would be seamless, with one insurance ID number and no change in how claims are filed. If the Internal Revenue Service can keep track of you when you move from one job to another, the health care system should be able to do the same.

FORFEITURE, NOT FINES After 2014, when the main components of health care reform kick in, the important question will be what happens to people who do not enroll initially, or do not stay enrolled. Under the current law, they will be fined an amount that depends on their income, payable when income taxes are filed. Fines are what differentiate a mandate from a suggestion.

But fines are not the only way to give people an incentive to join. One alternative is based on a proposal by Paul Starr, the Princeton sociologist and health care expert. Instead of facing a financial penalty for not buying health insurance, people would lose some of their insurance rights. For a stretch of time — say, five years — people would no longer have the right to buy insurance at rates subsidized by the government, nor would they be protected from price discrimination based on pre-existing conditions.
Under these rules, waiting until you become sick to buy insurance would have substantial risks. If the details are set properly, this arrangement could provide as big an incentive to join as a cash penalty. And because that cash penalty is imposed only when income taxes are due, the alternative plan may be easier to enforce.

MY “REAGAN PLAN” If you don’t like that idea, here’s another. In 1984, President Ronald Reagan signed a bill encouraging all states to adopt a minimum drinking age of 21. To nudge states into going along, the plan said that any state that didn’t join would have its highway funds cut by a certain percentage. Although Mr. Reagan initially had misgivings about the plan, he would later come to embrace it, saying that the harm caused by teenage drunken drivers was “bigger than the individual states.”

All of the states ended up complying, although some were reluctant — and South Dakota, in fact, sued. But in that case, the Supreme Court ruled 7 to 2 that the law was constitutional.
Here is how the Reagan plan could apply to health care: Adopt a new bill that says that if a state doesn’t want to accept a mandate — or some alternative like the one described above — it may opt out of health care reform. But a state that chooses this course would lose a percentage — or perhaps all — of the federal funds that the health care bill would funnel to state governments. In other words, states would be permitted to turn down the health care program, but they would then give up a share of the revenue, as well as other features of the law that are popular.

BOTH political parties could benefit from a civil discussion of these issues. By creating a viable alternative to mandates, Democrats could ensure that an adverse decision by the Supreme Court would not create legal chaos. Republicans could get a seat at the table if they engaged in a constructive way — and they might try to make progress on tort reform, which has the potential to help reduce health care costs.

As the recent tax compromise has shown, negotiations between the parties offer the potential for gains. In this situation, we can learn more from Ronald Reagan than from the slogan popularized by his wife, Nancy. It is not always the best policy to “just say no.”

Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.

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Tuscon Tragedy Happens Ten Times Every Day

It is heartening that America seemed shocked by what happens when insane people get guns and are compelled to murder multiple people. “6 dead and 19 wounded,” read the headlines…

But why are we so immune to the daily toll of individual gun violence? There are about 38,000 gun deaths in the USA each year. Half are suicide. That means about 50 people a day, every day, are murdered through gun violence.

Why don’t the headlines reflect “50 murdered today” every day? That seems a worse indicator of violence in our society versus the terrible tragedy in Tuscon.

Maybe we are jaded…

 

 

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Medicare “Accountable Care Organizations” (ACOs): “Invisible Enrollment & Invisible Cost Reduction” ($5 billion Savings on $6 Trillion Cost Isn’t a Viable Plan)…

Thoughts About ACO’s (As Summarized/Defined In “Health Affairs” 8/2010)

• The assertion (and regulatory definition) that ACO’s can be “successful” under any organizational structure (i.e. the five formats described in the article) means that they are everything and nothing. Being everything and nothing has rarely been a formula for successful ventures of any kind.

• The hardest and most complex part of financial realignment, the definition of “savings” as compared with other ACO’s or non-ACO’s has been the conundrum of health care cost improvement policy since the 1970’s. There is no advancement in the intellectual, clinical, or financial basis of “paying for quality” or “paying for outcomes” as a result of a new name for old vague ideas.  How to measure and then reward “savings,” or “quality,” or “outcomes,” has been the challenge for forty years. Nothing about the ACO concept makes these ideas any more practically feasible versus past names for what is the same idea.

• Scaling the degree of financial risk/reward based upon the “preparedness” or state of  “integration” is obvious, except for the fact that it hasn’t proven to be an indication of success in past attempts, and the most integrated systems are also often the most expensive (albeit perhaps the highest “quality).  Capitation hasn’t worked for large integrated systems any better than it has for IPA’s. If scaling financial risk mattered, capitation would have worked better for large integrated systems; it didn’t.

• Getting private payors to be excited about anything other than selling their administrative capacity to support ACO’s (i.e. endorsing them because they think ACO’s will actually slow cost increases) isn’t supported in the summary of the pilot program success with Medicare. “Mixed results,” with excuses/explanations why it didn’t result in cost-savings isn’t a glowing endorsement that provides private payor rationale for investment in ACO development.

• Private payors will never:  “…cooperate in promoting ACOs. Since the 1970’s, it has been obvious that: “Providers may be more likely to modify their practices if most of their patients—not just those with one type of coverage—are included in the ACO population. Efforts to improve care may be more effective if several payers are using uniform performance measures and quality standards. And a multipayer ACO may have enough patients to allow a meaningful focus on populations with special needs.”
This is so obvious as to be trite. Duh. But it ain’t gonnahappen. Never has; never will.

• CMS says Medicare payments in 2009 were $502 billion. At a 4% annual increase rate, this means annual costs will be $565 billion in the first years of Medicare’s ACO promotion. ACO advocates claim “…$5 billion in savings over the first eight years of ACO implementation.” That’s 2012 through 2020. Using the 4% annual growth rate in Medicare expenditures, those eight years of benefit payments will total nearly $6 trillion dollars. So the proponents of ACOs project that their implementation will reduce Medicare expenditures by 0.08%. Not very exciting, is it? Everett Dirksen may have been correct in the 1960’s, but “a billion here and a billion there…” doesn’t add up to real money when dealing with Medicare costs of the early 21st Century.

• All health policy followers universally accept that without risk adjustment, the 1980’s “Medicare HMO” shared savings formula (pay the HMO 95% of per capita average costs, thereby saving 5%) is very flawed, and likely actually increased costs in the system. Thirty years later, ACO proponents want to implement the same thing: “A spending benchmark will be set for each ACO, based on its assigned beneficiaries’ past Medicare expenditures. The ACO will be deemed to have achieved savings if it keeps spending growth for its population be low average per capita spending growth for all Medicare beneficiaries.”

• It’s hard to fathom that the following is being advanced as a new idea: “an arrangement under which highly integrated care systems would assume the full financial risk of providing some range of Medicare services (such as all physician services, or all services under Medicare Part B) in return for a fixed monthly payment per beneficiary. Another option would be “risk corridors,” under which the ACO’s potential for profit or loss would be limited.” What is new about this concept? “Invisible enrollment?” Yeah, that will make ACO’s work much better than Medicare HMOs/Medicare+Choice/Medicare Advantage. Sure. Right. And I can sell you the Brooklyn Bridge…

• In my opinion, intellectually honest healthcare delivery system and policy wonks would see ACO’s (at least as summarized in Health Affairs as of July, 2010) as lipstick on a pig. What’s going to make this idea work better now than in the past? On-line data access? Remote chronic disease monitoring? The Dartmouth Center thinks ACO’s are a new approach?

At least their proponents seem to be honest in savings projections. $5 billion savings out of $6 trillion in costs. Break out the Champagne; we’ve solved the Medicare fiscal crisis with a new three-letter program: Accountable Care Organizations…Not.

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