Wednesday, October 19, 2011

Super Committee and GME Funding....

SO, about that super committee. Surely you remember, the gang of 12 that was created by the showdown over the debt ceiling this summer. Well, they’re hard at work but among the proposals out there, is one that is causing some grave concerns.

As a health workforce researcher, I understand implicitly the difficulties that lie ahead and the underlying shortage of physicians that will worsen dramatically by 2025. Current estimates suggest a shortage of over a 130,000 physicians by that time. Many, if not most, do not realize that physician training, at least the post graduate residency phase, is paid for by CMS (Center for Medicare Services).

Currently, as we all know, if the super committee does nothing, there will be an across the board 2% cut to all federal discretionary spending. Some of the other proposals are a little more concerning. In 2010, direct GME expenses totaled 9.5 billion. IME or Indirect Medical Education expenses totaled an additional 6 billion.
IME represents an additional 5.5 % payment to teaching hospitals, as it is understood that they not only teach other health professionals, but that there may be extra costs associated with education. Current proposals are to cut that rate in half (first proposed by Simpson-Bowles) to 2.2%. Among other proposals which include Home Health Co-Pays, SNF (skilled nursing facility) shared payments, raising Medicare eligibility to the age of 67, lies a proposal by the House Ways and Means Committee to cut GME funding by 15 billion over the next ten years, or a 15.7% cut. It is unknown at this time if the Committee will pursue this, but this is problematic.

Adding to the problem is the current GME Cap placed in effect in 1997, when several organizations were predicting an oversupply of physicians. This is not our current concern. This cap is problematic, and with the current budgetary concerns has no chance of changing. By 2015, we will have had over a 30% increase in medical school graduates from 2000. There is significant concern that also by 2015, we will not have enough GME residency slots for all US graduates, without even mentioning the several thousand US citizens who go to foreign medical schools every year.

States have already reduced the amount of money in the GME system, with only 41 states participating, and contributing a little over 3 billion annually. Nine additional states are now likely to opt out as well.

We need a serious look at discretionary spending, but this will only compound and weaken an already distressed healthcare system. I hope that the Super Committee strongly considers this, and looks to other alternatives.

Free Market Mechanics and Healthcare

Now, I hear something all the time in my work in the health policy realm, and that is that the “free market” could lower prices.

I even recently had someone approach me after I mentioned that the PPACA had resulted in an extra million people aged 18-25 having health coverage this year. His statement? “That’s exactly the wrong direction, we need to have less people, far less people with health insurance.” I asked him his reasoning…of course, already knowing what his response would be. He reasoned that it would force people to compare prices, shop around, and would dramatically lower prices through the mythical, magical “free market”….

Of course, this ignores some rather real problems with this line of thinking. For starters, healthcare does not behave like normal commodities for a variety of reasons.

To start with, healthcare does not lend itself to price comparisons, and comparison shopping. The high costs are often related to trauma and emergency care/hospitalizations. It is simply not practical to ask which hospital in the area offers the best rates on cardiac catheterizations while you are being rushed to the hospital in the midst of an MI.

This impracticality also lends itself to probably the biggest problem. That is irrational behavior. Any of us who have taken even undergraduate economics remember the discussions of rational actors, and how prices were sensitive to rational behavior. Much of health care involves emotionally charged, heated, and oftentimes difficult decisions. Most patients and families can hardly be expected to act in a rational fashion about receiving the news of a terrible diagnosis such as cancer. Real world experience reveals this to be true. I wish I could count how many times I have presented various treatment options to patients, only to hear “Do whatever it takes”.

Hayek once wrote that spontaneous order was a result of market economies, and that it was “a more efficient allocation of societal resources than any design could achieve.” This of course, assumes rational behavior, and assumes that a market can be symmetric.

Because of this behavior, and because people view healthcare not as optional, but as a necessity, price elasticity scores generally trend around 0 or -1. This indicates an inelastic market.

Of course, the next time I have a 21 year old kid who comes in after a farm accident without insurance, and is badly injured, I’ll make sure to tell him that perhaps he should have shopped around.

Saturday, April 9, 2011

No Assumptions for a Change

Guest Post- Robert Bowman, M.D. (

Assumptions are often incorrect and the assumptions are incredibly inaccurate in primary care and in basic health access. When one starts with the assumption of more pay, then it is easy to rationalize more training or more complexity of care - even when there is little evidence other than assumption.

Primary care is often more difficult than specialty care. A major reason is that the design of health care in the United States destroys primary care delivery. Reasons for primary care to be challenging are the complexity of the patients, the lack of support staff, the lack of primary care trained support staff, the lack of experienced support staff, the broad scope of primary care, the lack of respect for primary care by those who clearly have little clue regarding primary care delivery, and participating in smaller operations that are neglected by the health care design.

The fragmentation of care with even more fragmentation on the way is a problem. The required context of care includes major care provided by Americans most left out of the designs for health and education – who often cannot access care other than the basics.

The reimbursement for primary care that is less than the rapidly increasing cost of delivering primary care forces primary care practitioners to do additional efforts outside of primary care to support their primary care practices.

The decision to pay more for care other than primary care is arbitrary. This design was set up beginning 100 years ago by those who envisioned domination of all of health care and who assumed their superiority. Even in the 1940s medical leaders still understood the challenges facing generalists – because some generalists still were in leadership positions and other leaders had been generalists prior to their specialization. Once the entire context of selection, training, and practice support was designed subspecialist, this understanding was lost and the current assumptions reigned unchallenged.

The subspecialty and academic forces reached their domination in the last decades, rebounded from the managed care reforms with even greater domination – and the United States has all of the cost, quality, and access consequences now that cripple our nation and its people.

There is supporting evidence for primary care complexity as greater at the current time. This includes the fact that two-thirds of primary care graduates (28,000 from six sources) depart primary care. All types are departing primary care with 55 – 85% of graduates after graduation other than family medicine graduates (who have fewest other options). There is lower national health spending on primary care (5% is all there is) and the locations where primary care workforce is highest percentage also receives lowest health care spending at 5% for rural locations and 5% for underserved locations. Established primary care practitioners have continued to depart primary care even during the 1990s periods of increasing policy support (PA, IM),

Few that are found in direct patient care primary care delivery from nurse, advanced nursing, nurse practitioner, PA, and IM training. Pediatric and medicine pediatric training both now yield less than a majority for primary care as well. In all of these types as well as in family medicine, a minority fraction of the training is spent on primary care. Primary care basics are taught, but it takes a lifetime of dedication to patients and to primary care delivery to even begin to comprehend primary care. Compare primary care and specialty care after a decade of care delivery. Who is worth more - my vote is for a dedicated primary care practitioner in a continuity location with a continuity team? Perhaps many if not most would contest this, but most comparisons are apples and oranges as primary care is so poorly understood.Training that yields primary care as a side effect of specialty care is also apples and oranges as the RN, NP, PA, MD, and DO primary care should be primary care in selection, in training, and in a lifetime of care delivered.

The US needs a foundation of primary care – a balance between primary care and other care. The designs must support this. Even 80% of physicians support more funding for primary care delivery (Leigh) but when asked to give up a few percentage points of reimbursement (that might not even impair pay), physician support melted away.

Once again I would note that nations need designs for care that serve nearly all in a nation nearly all of the years of their life in nearly all locations not a design that serves few for a few years in a few locations.

And there is always a nice video to review such as We're Number 37 in health outcomes, not to mention a health care design that cripples our economy, all levels of government from schools to federal, our children, and our children's children.

The current design insures more graduates from NP, PA, DO, and MD with each passing year as well as higher percentages entering non-primary care as well as higher percentages of primary care graduates entering non-primary care. What we have is more like fantasy as compared to assumption.

Robert C. Bowman, M.D

Friday, April 8, 2011

Primary Care Pay Disparity...

Okay, now this is something that I have talked about at some length for some time.

No one should argue that specialists should earn a little more than primary care due to their longer residencies, fellowships, and training. The question is, and has been how much more?

In 2008 dollars, the average Family Medicine physician earned approximately 148,000 dollars. Meanwhile, a comparison to Neurosurgeons, again using 2008 dollar figures, reveals that the average Neurosurgeon makes about 475,000. That is over a 300% increase over their primary care colleagues. This is not sustainable and is a primary driver of rising healthcare costs. Why?

Cause the specialty lobbies have fought hard for the current reimbursement system which is heavily biased towards procedures. It is far more lucrative for a cardiologist to simply cath a patient with persistent chest pain, than to sit down for an hour, and review all of the patients history, testing, and make a conservative treatment decision.

NOW, NOW, I am not implying that ALL cardiologists do this, however, the incentives are perverse.

This is a great article in the WSJ talking about this discussion.

I remember a year ago seeing a specialist quoted as saying "Sure, primary care deserves more pay, but you cannot take it from us"...

Apparently he is not aware of the pie concept.

Interesting ACO concept....

We've discussed ACO's for some time, both here, and on Angry Bear. There is still a lot of nervousness regarding their implementation based on their pilot project results.

Wyoming however, is coming up with a new, novel concept

Rather than allow hospitals and providers to form smaller, perhaps fragmented ACO systems, they are proposing a state-wide ACO, with adoption, and implementation of the concept throughout the state.

Very interesting take on the ACO concept, and perhaps a great idea. More at the link.

CEO of Aetna speaks out...

This was a great interview with the CEO of Aetna health insurance.

Sounds like Mr. Bertolini has been on both sides of the issue.

Great read.

Wednesday, April 6, 2011

Regional Disparities in Health Spending...

Jason Shafrin, over at the Healthcare Economist, brings up an interesting paper examining the data from the Dartmouth Atlas.

For those that are unfamiliar, the Dartmouth Atlas is a compendium of data examining Medicare spending per beneficiary, and then comparing that spending by geographic region.

The differences are stark. I know. I use the Dartmouth Atlas data in my health policy talks all the time. The data was highlighted in an Atul Gawande article in 2009 on McAllen, Texas.

Jason points us to an article from the New England Journal by Zuckerman...

“Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”

Now, sure, health status may reduce the difference in spending, but it doesn't completely eliminate it. In fact, I would argue that 33% is still a large difference, and one that still needs to be addressed. Comparing the spending in Florida to Minnesota PER beneficiary is quite startling indeed.

Minnesota getting money back...

This has been an interesting story that I have been following lately.

Essentially, health care insurance HMO's that contracted with Minnesota for coverage of subsidized patients (500,000), netted profits of 3.8% in 2010, which was up from 2.6% in 2009.

This resulted in millions in addtional profit. UCare already gave back 30 million last month to the state. It is estimated that if profit caps were in place, the state could have netted 85 million last month alone.

Facing a 5 billion dollar deficit, this comes as good news to the State. Insurers are worried, as profits have varied considerably over the years, although, after being confronted, they finally admitted that perhaps they were making too much in the way of profits, and agreed to a 1% limit on profits for 2011.

Public relations being what it is........LOL.

Tuesday, April 5, 2011

Antitrust and the Department of Justice...

Color me a little surprised, the DOJ is getting serious about addressing some of the gross misconduct by some health organizations.

In this article, there is some discussion about the various efforts of the DOJ to address bad, or anti competitive business practices in the medical arena. One such example is the Texas case listed below.

The Texas case revolved around contracts United Regional offered to insurers starting in 1998, according to the complaint and settlement agreement filed in U.S. District Court on Feb. 25 by the Justice Department and Texas attorney general’s office. The contracts offered insurers steep discounts, but only if they agreed not to contract with other hospitals or outpatient facilities in the area.

At the time, 369-bed United Regional was the only hospital in Wichita Falls, population 100,000. But a group of doctors was working to build a far smaller rival facility, said surgeon Jerry Myers, who led the effort and is now chief executive of the 41-bed Kell West Regional Hospital.

If insurers signed with a rival medical center, the discounts would be dropped and they would have to pay close to full charges.

Such pricing practices aren’t “just about charging higher prices generally, it’s strategically charging prices in a way specifically designed to keep out competition,” said Tim L. Greaney, an antitrust expert and director of the Center for Health Law Studies at St. Louis University.

Within three months of Kell’s opening, United Regional had signed the now-disputed contracts with five health insurers and by 2010 had eight insurers, according to the federal lawsuit. The only insurer in the region that didn’t sign was the largest, Blue Cross Blue Shield of Texas.

Even with the discounts offered to insurers, United Regional became expensive, the complaint alleges. An analysis by a major insurer cited in court documents concluded that payments from insurers for hospital care at United Regional were at least 50 percent higher than average amounts paid in seven other comparable Texas cities. For services offered at both United and Kell, the big hospital’s average per-day rate for care was 70 percent higher.

The hospital disagrees with the way the Justice Department applied the law. “We believe then and now that these contracts were appropriate and legal,” United Regional chief executive Phyllis Cowling said.

Cowling also disputes the department’s cost findings. “We are paid a little bit more by insurers, but I know it’s not 70 percent,” she said. “It’s probably some 10 percent or 15 percent more, based on our numbers.”

The hospital is under orders to remove the exclusionary contract provisions. It will continue to honor the deeper discounts offered to its insurers, even if they sign deals with Kell, Cowling said.

Now, what will be really interesting is to see how the DOJ adapts when the newer ACO constructs begin to become operational. One quite serious concern among many healthcare executives centers around the joining of practices into giant ACO organizations, and whether or not this will be considered anti-competitive practice. The DOJ is apparently under instructions to be more lenient with ACO's, but how lenient may remain a mystery at the moment.

GOP went and did it...

Yep, they did. As Kash is reporting over at Angry Bear..The GOP did it

6.2 trillion in cuts....and none of it addresses health care spending. Not one shred. As I noted yesterday in my rebuke of Michael Cannon's column, this is not cost savings. This does not "save" money at all. This is cost shifting.

Also, what is even more baffling, as Kash notes, is that competition DOES NOT lower premiums in healthcare. I know, I know....this is sometimes hard for our hard core free market types to fathom, but the evidence, as I suggested in my note on Interstate Health Insurance sales, decreased leverage results in higher charges among providers and hospitals.

I will expanding more on this in the coming days. I am currently writing a post for Angry Bear that will be cross posted here that essentially will break down WHY free market mechanisms fail in healthcare. Stay tuned.

Monday, April 4, 2011

Latest from CATO.....

And, Michael Cannon is well wrong.

First, he begins by advocating for repeal by comparing the roughly 500 billion in cost of the program to the overall debt and deficit, never mentioning that the 500 billion is actually over 10 years.

Next he proceeds to Medicare savings, and concludes that there were no mechanisms to constrain Medicare savings...and he's right here. However, then he states: Even if they were, ObamaCare just spends the presumed savings elsewhere. Which comes across snippy, and a little arrogant.

Then he talks about vouchers, and the proposal by Congressman Paul Ryan. Here's what he says:
Second, the budget should restrain Medicare spending by giving enrollees fixed vouchers they can use to purchase any private health plan of their choice. Poor and sick enrollees should get larger vouchers, but the average voucher amount should grow only at the overall rate of inflation.

Because vouchers enable seniors to keep the savings, they will do what ObamaCare won't: reduce the wasteful spending that permeates Medicare. Seniors will choose more economical health plans and put downward pressure on prices across the board. Indeed, vouchers are the only way to contain Medicare spending while protecting seniors from government rationing.

Skeptics worry that seniors will make bad decisions with their vouchers. They should keep in mind that, according to Obama's Council of Economic Advisers, "nearly 30 percent of Medicare's costs could be saved without adverse health consequences." In other words, vouchers come with a huge built-in margin of safety: seniors could consume one-third less care without harming their health.

There are some big problems with this, which Mr. Cannon never addresses, or even acknowledges. To start with, many seniors are living on constricted, fixed incomes. Even with "larger" vouchers, as he suggests, keeping them tied to inflation without addressing the reason for healthcare cost escalation is the same as cutting them out of healthcare least the effect will be the same over time. Healthcare has grown at a rate far above inflation for years (6.2% average over the past 10 years). What this will do, is force low income seniors to skip medications, avoid physician visits, and avoid preventative care. This will end up being more costly down the road. The second problem, is that Mr. Cannon is misrepresenting what the Council of Economic Advisors said about Medicare spending. That 30% represents waste within the system, not necessarily (although likely a small percentage is) over treatment of Medicare patients. It's a dangerous statement to make.

Finally, the block grant idea has some merit, but let's be honest, BOTH of these ideas do not fundamentally change the rapid rise in healthcare costs. They're not cost savings.....they're cost shifting. By removing a percentage of federal funding for this patient population, you are forcing the state to pay for it, which is a problem for many cash strapped states already.

Mr. Cannon knows all of this, however, he is trying to put a rosy face on an ugly dog.

Sunday, April 3, 2011

ACO regulations....

Well, the HHS finally released the new ACO regulations. CEO's and CFO's at numerous hospitals, health care systems, centers, and even large and small group practices finally have some information.

To be honest, the entire ACO concept has been scaring pretty much every health administrator in the country since the PPACA was passed last year.

The reason lies in Section 3022 of the bill, which outlines the ACO concept, and was originally intended for all practices caring for at least 5,000 patients. PA's were included in the original language.

The original provisions called for a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and suppliers.
Enough primary-care providers to handle at least 5,000 patients.
A way of implementing "quality and other reporting requirements".
A leadership and management structure that includes clinical and administrative systems.
Processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies.

Sounds simple right?

Well, it scared everyone because of the history of ACO's. To be honest, we haven't seen an "actual" ACO in existence, but in 2005 CMS sponsored a 10 site pilot project called the "Medicare Physician Group Practice Demonstration", this was the forerunner to the current ACO.

8 of the 10 saw no savings in the first year. This was complicated by high initial start up fees, with 1.65 million needed for the first years costs, and average up front costs of 489,000.

This, while expected, as the real savings inherent in the ACO construct are only realized after several years, obviously scared the living daylights out of almost every hospital or group administrator.

Under the regulations just released (429 pages), those organizations which join or become ACO's and are caring for up to 5,000 patients will still be reimbursed on a fee for service scale, for now at least. There will subsequently be two paths for these organizations to take.

Larger organizations with more tolerance for risk, such as CCF, Mayo, Intermountain Health, etc., can see a bonus of up to 60% of any savings generated through the new model. They can also have to repay CMS for any cost overruns, for starters, up to 10% of what Medicare would have spent on those patients in a NON ACO setting.

Smaller organizations can still participate, though with less risk exposure, and can see a bonus of up to 50% of any savings generated. They can also have to repay amounts up to 7.5% in the form of penalties in the third year.

CMS estimates that organizations could earn bonuses of up to 800 million dollars over the next three years, while spending less per Medicare enrollee, and meeting quality objectives. Conversely, they estimate payments in the form of penalties of close to 40 million over the same time period by organizations that are not able to keep cost overruns under control.

I don't think this will quell many nerves....

Interstate Health Insurance Sales....

This will be cross posted at Angry Bear...

One of the more common ideas often thrown around in health policy is the idea of allowing patients to purchase health insurance across state lines. The idea of course, is to allow patients access to potentially cheaper policies, and that by increasing competition, lower rates will ensue.

While this does not sound like the worst idea, there are several problems with this concept, the first, and most obvious, being regulatory. Insurance plans are regulated by each state, and each state has a mandatory minimum coverage. State regulators have legal authority to oversee all insurance matters within their state boundaries, but do not have the authority to oversee out of state plans. If a patient were to purchase insurance in a neighboring state, and then have a grievance or complaint against that company, the patients legal recourse might be very limited. Additionally, if they buy plans that do not meet the minimum coverage requirements of their own state, are there potential legal problems?

The second issue with this, is that it will create an adverse risk pooling. Out of state insurers will almost certainly offer plans to healthy, young individuals. This will leave in state insurers with a potentially sicker risk pool. What this will do is lower premiums potentially for one group of patients, but concurrently raise rates for a sicker group. Risk pooling, and spreading the risk through a group of patients is the backbone of health insurance, this could possibly interfere with this.

The final issue is fragmentation. In a system that is already badly fragmented, increased fragmentation reduces the leverage of insurers. In a BNET article in 2009, it was noted that the city of Milwaukee, with multiple insurers, and no dominant health insurer on the landscape, demonstrated that on average, providers would not accept less than 200% of Medicare as their reimbursement. Nearby Chicago however, with a dominant BC/BS insurance market demonstrates that on average, providers accepted 112% of Medicare as their reimbursement. The reason is simple. Leverage. Who has it? The insurers? Or, the providers?

Finally, perhaps the biggest issue with Interstate Health Insurance sales is that it fails to address rising costs. It will create a cost shifting onto sicker patients, and lower premiums for younger, healthier patients….but only temporarily. It will not address the continued, unsustainable rise in healthcare costs, and could create a regulatory nightmare.

Thursday, March 31, 2011

Physician Assistant Issues

I do also want to assure my followers, and particularly those who are PA's or PA students that I will still be blogging about practicing as a PA, as well as about legislative and practice issues that are affecting PA's. I have changed the title of the blog only because, as my career has progressed, it has become far more focused on health policy issues. There was no other reason....

Wednesday, March 30, 2011

Fox News and Socialism

Thanks to my friend Bruce Bartlett for pointing this out....

Fox News....Fair and Balanced?????

Start HERE:

In the final stretch of the 2008 campaign, a Fox News executive repeatedly questioned on the air whether Barack Obama believed in socialism.

Bill Sammon, now the network’s vice president and Washington managing editor, acknowledged the following year that he was just engaging in “mischievous speculation” in raising the charge. In fact, Sammon said he “privately” believed that the socialism allegation was “rather far-fetched.”

These remarks, unearthed by the liberal advocacy group Media Matters, raise the question of whether Sammon, who oversees Washington news coverage for Fox News, was deliberately trying to sabotage the Democratic presidential candidate. He has come under fire before for memos he sent to the network’s staff that have seemed less than fair and balanced.

Sammon’s admission came on a 2009 Mediterranean cruise—cabin rates ranged as high as $37,600 per couple—sponsored by conservative Hillsdale College. Here is what he said, according to an audio recording:

MORE at the link...

And, to furthermore make any thinking person trying to simply contemplate the insanity of this feel like it isn't possible, here is some more....

Next Article HERE:

Howard Kurtz contacted Sammon for comment, and here’s how Sammon defended himself:

In an interview, Sammon says his reference to “mischevious speculation” was “my probably inartful way of saying, ‘Can you believe how far this thing has come?’” The socialism question indeed “struck me as a far-fetched idea” in 2008. “I considered it kind of a remarkable notion that we would even be having the conversation.”

He doesn’t regret repeatedly raising it on the air because, Sammon says, “it was a main point of discussion on all the channels, in all the media” — and by 2009 he was “astonished by how the needle had moved.”

That’s pretty remarkable. Sammon is conceding that the idea did indeed strike him as far fetched in 2008, even though he and his network aggressively promoted it day in and day out throughout the campaign. And he’s defending this by pointing out that the idea ended up gaining traction, as if this somehow justifies the original act of dishonesty!

Now, Sammon is also claiming here that Obama’s behavior in office ultimately persuaded him that the original diagnosis of Obama as a socialist turned out to be correct after all. That in itself, of course, is also a ridiculous falsehood. But that aside, the bottom line here is that he doesn’t regret having spread an idea he personally found far-fetched, because so doing helped ensure that the far-fetched idea ultimately gained widespread acceptance. That’s a peculiar attitude for a “news” executive, isn’t it?

So, because you spread a rumor that you didn't believe initially, and people bought into it because you were a "news" reporter, somehow it becomes factual....simply mindboggling.

Angry Bear...

Hi all,

As you've noticed, I have been somewhat lax in my responses, and in my upkeep of this little part of my life. It was not intentional. Over the past period of time, I have been writing extensively, serving on an AAPA council (Leadership and Professional Development), speaking frequently on health policy and reform, conducting 3 different workforce research studies (although, admittedly, two are still in the developmental stage), trying to conceive a mathematical healthcare workforce model accounting for all variables (a request from powers that be), functioning as the guest health policy contributor to "Angry Bear" which is top Wall Street economics blog, and I was recently asked to represent our national Emergency Medicine PA group with respect to legislative affairs.

In short, I've been busy. No disrespect, no excuse. Just an explanation.

(OH, and I've been asked to possibly contribute a chapter to a major economic policy book on health policy this year)

New Look

Decided as I will be here far more often now, that the place needed a new look....hope everyone likes it.


Medical Malpractice Reform: Truth in Advertising Needed (Part three of three)

Crossposted at AngryBear...

So in the first two articles we have addressed the historic effects of tort reform using Texas as an example, and subsequently we reviewed the effects of tort reform on so called “defensive medicine” practices, looking at both the effect of reform measures on physician/provider ordering patterns, as well as the possible effects on patient outcomes or mortality.

Today, we are going to examine the last party in this carousel. The insurance agencies themselves. For starters, I wanted to examine if there was any sort of a relationship between malpractice premiums, and healthcare spending. So, using historic healthcare expenditure rates from the NHE database (CMS), I calculated the rate of healthcare growth, percentage wise, per year from 1995-2008. I then used an ISO database set to examine the growth in insurance premiums per year.

As we can plainly see, there is no correlation, but out of sense of thoroughness, I even ran a simple regression.

But with an R-Squared of 0.021, there is simply little correlation there.

So what causes these random spikes in medical malpractice premiums? Well, according to the AIR (Americans for Insurance Reform) these are due to the economic cycles of insurers and to drops in investment income.

Lastly, I visited THIS article, which found:

1. Inflation-adjusted payouts per doctor not only failed to increase between 2001 and 2004, a time when doctors’ premiums skyrocketed, but they have been stable or falling throughout this entire decade.
2. Medical malpractice insurance premiums rose much faster in the early years of this decade than was justified by insurance payouts.
3. At no time were recent increases in premiums connected to actual payouts. Rather, they reflected the well-known cyclical phenomenon called a “hard” market. Property/casualty insurance industry “hard” markets have occurred three times in the past 30 years.
4. During this same period, medical malpractice insurers vastly (and unnecessarily) increased reserves (used for future claims) despite no increase in payouts or any trend suggesting large future payouts. The reserve increases in the years 2001 to 2004 could have accounted for 60
percent of the price increases witnessed by doctors during the period.

But the real devil, the real devil is in the loss ratios…I’m assuming that we are all familiar with the MLR discussions that raged over the past two years discussing what should be an allowable loss ratio for health insurance. Malpractice also has it’s loss ratios, and oh boy, are they favorable to the insurance industry. 61.1% is the average, in 2007, for the average loss ratios for malpractice insurance companies. To put this another way as per the article: In 2007, medical malpractice insurer profit based just on insurance transactions, that is,just on the premiums they took in, was 24.6%. This was more than double the amount on insurance transactions for the entire industry (11.0%).

If I were a physician who paid my own malpractice, I would be livid over these figures. It is not as though there is a huge advertising market for medical malpractice insurance. 38.9 cents on every dollar are kept as almost pure profit. Surely, administrative costs cannot account for this. Add to this, this last nugget: Inflation-adjusted payouts per doctor not only failed to increase between 2001 and 2004, a time when doctors’ premiums skyrocketed, but they have been stable or falling throughout this entire decade.

It seems, that right now would be a great time to own a malpractice insurance firm. Too bad, that it isn’t so great for everyone else in healthcare.

Wednesday, February 23, 2011

Medical Malpractice Reform: Truth in Advertising Needed (Part TWO of three)

(Cross posted at Angry Bear and Clinician One)

ALSO, picked up by Business Insider, HERE

So in the first article, we discussed the historical implications of tort reform by examining Texas. The take home message being that tort reform failed to curb health care spending, and/or control costs (outside of malpractice premiums which did fall). Proponents of tort reform claim that by enacting aggressive tort reform measures, so called defensive medicine practices could be reigned in. Estimates about the costs of defensive medicine vary, and I have seen estimates in the literature as low as 4%, and as high as 14% of total health care spending. As with most things, the truth is probably somewhere in the middle, with a realistic estimate of 8-9% likely being the real integer. Recently, several studies have attempted to assess two of the most important questions about this topic:

A: Does a reduction in defensive medicine practices occur with the implementation of tort reform measures?


B: If it does cause a reduction in defensive medicine practices, will this affect patient outcomes or mortality?

Three more recent studies are likely the most pertinent, and we will briefly review those. To start with, Currie and MacLeod (go ahead, I had the Highlander flashback too) (2006) reviewed national data on childbirths to examine whether or not a cap on non economic damages would change the types of procedures performed at childbirth. They found that nationally, in those states with tort reform, the rate of C-Sections increased, and the rate of preventable complications secondary to childbirth increased by 6%. They also found, that a change in the “deep pockets rule”, actually decreased them. The paper is HERE: (gated article).

Then Sloan and Shadle in 2009 examined this same issue, using Medicare payments as an index. Their premise was, that if tort reform truly changed physician practices with regards to additional testing and/or defensive medicine, they would find a reduction in Medicare payment rates per beneficiary. They found that tort reform did not alter defensive medicine practices, with one exception. They did find that so called “indirect” reforms (mandatory periodic payments, Joint and Severability reform, and patient compensation funds) may reduce spending when applied to “any hospitalization”, but inexplicably, these indirect reforms did not affect any of the four diagnoses included in the study. Their paper is HERE:

There have been others, and the final one we will discuss is the NBER report done in 2009 by Darius Lakdawalla and Seth Seabury, Working Paper No. 15383. Found HERE: (gated article). Essentially, Lakdawalla and Seabury found that while targeted reforms may be effective, there could be an associated, and this is key… a 0.2% associated increase in mortality for every 10% reduction in medical malpractice liability costs. Why? Because defensive medicine practices DO FIND things. Any physician who has been in practice for any length of time, and who is being honest with you, will admit that they have done a test presuming it would be negative, and “perhaps the patient doesn’t need it”, only to be surprised by the results. We can argue whether or not 0.2% is a significant number, but even we look at the sickest 5% of Americans who are responsible for 47% of healthcare spending, than this group could have an increase of 30,000 deaths annually with a reduction of 10% spending on medical malpractice. I am not going to pass moral judgment on this fact. I will leave that up to the reader. The reason I bring this up, is that this is an important, and poignant discussion, but we need to be honest about the data that is out there now. Let’s have a discussion, but let it be an honest, and fact based one.

I tend to think that the Sloan and Shadle findings are important in the fact that I don’t think that physician practices are going to “magically” change overnight. The Texas evidence from the last article, would suggest that testing expenditures may actually increase. Yet, in the face of overwhelming evidence, proponents continue to cling to a disproven ideology regarding direct malpractice cost containment, IE; Non economic caps.

Tuesday, February 8, 2011

Medical Malpractice Reform: Truth in Advertising Needed


(Crossposted at Angry Bear)

Medical malpractice liability reform (Tort Reform) has been a hotly contested item for years, as the GOP, with physician support, has continued to market this as a health reform measure that can contain costs.

I think to start, we need to examine results in states where tort reform has already been tried. We need look no further than Texas.

Politicians tried to claim that Texas was a success, Rep Bachmann stated ““The state of Texas did a wonderful job of lawsuit reform and actually saw medical costs come down. We know it works.” Others have touted the Texas experiment as a success..but empiric data is a powerful thing, and as we will see, contradicts this sentiment.

In 2003, they passed the most aggressive tort reform measures in the country by placing a 250,000 cap on malpractice awards. It is true that this reform, after 2003, lowered malpractice premiums. But malpractice settlements and awards have dropped even farther than premiums, suggesting that the main benefactors so far, have been insurance companies. (See Table 1).

Also, the same report found that Medicare spending per patient had doubled between 2003 and 2007, in contrast to the decline in Medicare spending that was noted prior to the laws enactment. (See Table 2)

Additionally, one of the strongest arguments that tort reform supporters claim is a reduction in “defensive” medicine expenditures, or unnecessary testing… unfortunately, between 2003 and 2007 testing expenditures per Medicare enrollee grew at 50% greater than the national average…

They also found that Texas has the highest rate of uninsured patients in the country, both prior to the law, and accelerating after the law was passed.

The additional physician presence has only increased because of an increasing population as well, and when it was analyzed, there was only an increase of 0.4 physicians per capita after the law was passed.

These tables and data were all obtained and detailed in this study HERE, and there is much more information at the link. HERE

The short version is that medical malpractice reform should be a topic for discussion, but we need to be honest about this. In this article we reviewed what actually happened in Texas after the most aggressive tort reform measures were created. Costs (outside of settlements, payments, and premiums did NOT go down), and healthcare spending was at best unaffected, and may have even increased.

The next article will focus on the effects of reducing defensive medicine practices on patient mortality. The final article will focus on the association between medical malpractice premiums and healthcare spending.