Most readers probably don’t follow Medicare Advantage pricing — I know I didn’t until getting educated by one of the HEP portfolio companies (Censeo), which provides services to Medicare Advantage plans. I also occasionally have CNBC on while I’m working in my office in the morning (a habit from my days in the MSNBC business). When I saw the graphic of many health plans up over 6% in early trading, I decided to write this post.
Background: in Feb. CMS announced in a preliminary ruling, that the amount they would reimburse plans for Medicare Advantage (MA) members would go DOWN 2.3%. Yesterday CMS announced their final ruling — and that is MA pricing would actually INCREASE by 3.3%, hence the big gains in stock prices. You can get more detail from CNBC here and the WSJ editorial take on the politics here.
What economic factors have changed in the last 60 days to support a swing of 5.5% on pricing of health costs for nearly 14M Medicare Advantage members? This situation is a clear example of why the country needs to steadily move to more ‘market’ based pricing of health services instead of having them set by government central planners. Let me identify a few of the negatives I see:
- when ‘price’ setting is arbitrary — all the power/energy migrates to Washington DC. Stakeholders all lobby and pressure both the agency (CMS) and Congress for protection. Who pays — we all do! I understand there are many examples of this negative (subsidies for sugar cane, milk, ethanol — you name favorite program) but the fact that Medicare pricing (not just for MA plans) is set by a govt. agency subject to political pressure on all sides and disconnected from the value creation/discovery of the marketplace has pervasive, unintended and negative consequences for the health sector.
- where is the discussion/data of whether Medicare Advantage plans are actually better in terms of quality of care, cost and outcomes than traditional fee for service Medicare? The MA plans are popular with folks eligible for Medicare, which is why enrollment has doubled since 2006 and exceeds 25% of the eligible Medicare population. Apparently, CMS subsidizes MA members (e.g. pays plans more than fee for service Medicare) and this is supposed to decline over time (cuts anywhere?). There is an old policy brief here, which I don’t think tells the real story. Where is the data comparing both cost and quality trends of like populations in MA vs. FFS? Has there been innovation by MA plans to provide better coordinated/managed care for categories of ill people? What have we learned?
- investors in Humana (and others) should be upset — how are investors (and management) supposed to make capital allocation decisions when decisions are set by central planners and subject to political pressure?
- how are physicians and health systems supposed to make investment and capital allocation decisions around providing better ‘coordinated care’ — when it is not the economics driving decision making but some other, unpredictable set of forces?
John Goodman at NCPA has written consistently on the need for innovation on the “supply side” of health — namely how services get packaged, how entrepreneurial physicians would be incented to innovate and how consumers could discover what works for them — but all this can’t happen because “price” and “package” is set by a combo of CMS or health plans.
I want to see more innovation and better quality of care with better outcomes for the same or less cost. I think it is possible. We would get more innovation faster if Washington DC wasn’t the center of all decision making and planning. Health is too important.
I don’t know what is more outrageous:
- the fact that both the VA and DoD have technologically out-of-date and insufficient HIT systems, despite spending hundreds of millions of dollars ANNUALLY to support them
- the fact that after nearly a decade of efforts — interoperability between the systems is still a ‘future promise’ instead of an everyday reality
- that politicians (President, Congress) make grand promises, divert lots of attention and money and have absolutely zero accountability to achieve meaningful results
I sympathize with the hard working and well-intentioned folks within the DoD and VA that build and procure their HIT systems — the context and rules within which they operate are screwed up to say the least. That said, I can’t get myself too excited about the ‘sky is falling’ chorus around the upcoming budget cuts from the ‘sequester’. This is but one example (of hundreds) where current government spending (I’m sorry “investment”) is not increasing productivity, real GDP or infrastructure for the future.
“Not surprisingly, a practicing physician has un-PC thoughts on health care:
“Here’s my solution: When a person is born, give him a birth certificate, an electronic medical record, and a health savings account to which money can be contributed—pretax—from the time you’re born ’til the time you die. If you die, you can pass it on to your family members, and there’s nobody talking about death panels. We can make contributions for people who are indigent. Instead of sending all this money to some bureaucracy, let’s put it in their HSAs. Now they have some control over their own health care. And very quickly they’re going to learn how to be responsible.”
The Johns Hopkins neurosurgeon may not be politically correct, but he’s closer to correct than we’ve heard in years.”
as reported in WSJ from his speech at WH prayer breakfast. Love this guy!
I am less sanguine about their conclusion that ACA framework leads to ‘consumer driven’ care — but it is one possibility.
I respect Don Berwick and Zeke Emanuel as smart, thoughtful and well intentioned policy folks. Yesterday in an Op-Ed in the WSJ they tried to position Obamacare as ‘market-friendly’. The audacity of positioning Obamacare as ‘market-friendly’ vs. the proposals of Romney/Ryan is just so outrageous that it can’t be allowed to stand without comment. They must be subscribing to the theory the bigger the lie they tell — the more likely it is for the public to believe it. From a quick scan of the online comments — at least they aren’t fooling the WSJ online readers.
One should really worry about the diagnosis and treatment plan from their physician when they either don’t see/acknowledge relevant facts or miscontrue the evidence to fit their preconceived notions, as is the case here. Let’s go through some missing facts/evidence:
- Medicare Part D — prescription drug benefits: the market based approach of multiple plans, with different prices/formularies competing – with the consumer able to choose the right fit for them — has been a huge success and been substantially more cost-effective than any CBO or CMS projection at the time.
- Medicare Advantage Plans: super popular with Medicare beneficiaries — over 12M+ enrollees. Again a program where the consumer chooses and the market is competing for their business. Oh wait — maybe they didn’t mention this because Obamacare takes a lot of money from this program. Furthermore — the whole point of MA plans is to encourage a focus on value (not volume) as they say they want (and I agree is critical — see prior post) — but just not in this ‘market-friendly’ approach.
- Their approach is totally top down (ever see a top down, centrally controlled market work?):
- support point 1 — administrative costs lower in CMS vs. private insurance — this is a total red-herring of comparing apples and oranges — but demonstrates clear bias to government centered
- support point 2 — experts have determined that ‘bundles of care’ is critical to payment reform and CMS will help determine what payment models will work. The rate of innovation will be determined by CMS and is again ‘expert-centered’ or government controlled. This isn’t the way most markets work well. Now — I accept that somehow CMS payments have to be reformed. Seems like ‘vouchers’ with consumers choosing and suppliers competing might be a lot more likely to succeed here — even if it is messier.
- support point 3 — IPAB. This is the epitome of government centered without accountability. I accept IPAB might be better than Congress in making recommendations on how to control costs — but to position it as ‘market-friendly’ and innovative — really?
- Ryan Voucher plan: the authors simply assert the Ryan voucher plan is “inadequate” and imply that throwing Medicare members on the ‘private market’ is inhumane….but provide no evidence (see first two facts above). They prefer one size fits all vs. consumers/suppliers interacting in a marketplace to figure it out and drive continuous improvement. The IOM recently released a report that estimated 33% of today’s health spend is waste and does not add to “value” in the form of better health outcomes — that is $750B in annual spend. Here is some evidence to suggest there is no credible reason today to say the ‘vouchers’ are inadequate. It is more like the Chicago Teachers Union saying vouchers and charter schools can’t work — despite all the evidence that they do in the communities that have tried them.
After 60 years of a largely single payer, government run system in England the Cameron government has proposed real reforms that would move their system to be way more ‘market-friendly’, innovative in health delivery and empowering of consumer choice than Obamacare. I prefer their treatment plan tothe authors.
We need a real political dialog in this country about the best framework to get more “value” from our health care expenditures — public and private. The framers and spin handlers of Obamacare did not stimulate that objective debate….which was a huge disappointment and a lost opportunity.
Health care is a critical issue for a bunch of very good reasons:
- the rising cost of health care is squeezing our personal, state and federal budgets. We are spending more and more but don’t seem to be getting the type of health care we want — more convenient, on my terms, with better health outcomes.
- as a rich society — our ability to provide an adequate social safety net is key to how we feel our society is doing — and access to health care is a crucial part of the social safety net — and yet many don’t have access to health insurance. Can’t we do better?
- health care is nearly 20% of our economy. unfortunately a ton of that spending is of little to no or negative value, which hurts our overall economic growth and competitiveness. other industries self correct through markets – but the health industry doesn’t.
- Democrats (price controls) and Republicans (accountability and market forces) have very different approaches and hence want to either talk or demagogue about it, depending on your perspective
- being able to solve both the access and the affordability part of the equation will improve our economic security — both for us as individual citizens and for the nation’s competitive position in the world marketplace.
Paul Ryan said in his convention speech last night that it was time to have a political discussion about the future of Medicare — and he is right on that. I hope we can have an informed discussion. Unfortunately – there are many basics folks need to understand in order to have an informed discussion.
I strongly encourage anyone who wants to have an opinion on what we should do to improve our health system — including Medicare — to read this short pamphlet co-authored by Denis Cortese — former CEO of Mayo Clinic and chairman of the IOM Roundtable on Value & Science Driven Healthcare — where I was a roundtable member. You can download it here, (go to bottom of page for download link).
I don’t want to summarize it – take 20 minutes and read the whole thing — it really will help you be informed on this crucial political and economic topic. Improving Value (Value = Patient Outcomes / Total Cost) and aligning incentives to accomplish is the roadmap. Warning — there is some math and charts in this pamphlet — but don’t let this get in your way.
These NY Times articles are worth reading. The optimist in me sees how medicine is on the cusp of being transformed for many. The pessimist sees how far we have to go.