Tagged Health Care Costs

Atul Gawande Says U.S. Health System Is ‘Very Expensive Pile Of Junk.’ As Head Of Billionaires’ Initiative, Will He Be Able To Fix It?

The health world has been closely watching to see who Amazon, Berkshire Hathaway and JPMorgan Chase would choose to lead their health care initiative geared toward reining in astronomical costs. Atul Gawande, a highly respected doctor and writer on health care policy, is a “well-known luminary” in the field, but the pick was also a surprise to some because he lacks hands-on experience running a large organization.

‘Holy Cow’ Moment Changes How Montana’s State Health Plan Does Business

Marilyn Bartlett, the director administrator of Montana’s Health Care and Benefits Division, recalls thinking “holy cow” when she got an urgent directive from state legislators in late 2014: “You have to get these costs under control, or else.”

Increasing health care costs in the state workers’ health plan were helping hold down workers’ wages. The plan’s financial reserves were dwindling, heading for negative territory.

So began Barlett’s high-stakes game of chicken designed to change how the state did business with its 60 hospitals, which accounted for 43 percent of employee health care costs, turning the normal purchasing process on its head.

Instead of starting with the hospital’s list price and negotiating down for discounts, the state began telling these facilities how much it was willing to pay — a “reference price” — for each type of hospitalization. State officials used generally conservative Medicare rates as a baseline and starting point for the discussion.

Before the plan took effect, hospital charges for state employees for the same service had varied widely, with some hospitals charging three to six times the Medicare rate for some services.

To even out the disparities and save money, the state decided it would pay an average of 234 percent of Medicare rates — a level of payment that hospitals indicated they would accept and an amount the state calculated would allow an efficient hospital to deliver high-quality care and still profit.

While other states and some private employers have set prices they are willing to pay for some standardized procedures — such as a colonoscopies or hip replacements — Montana’s experiment is more sweeping, covering all hospital services, and it uses Medicare as a common yardstick.

Two years in, the state calls the effort a success, saving $15.6 million this year over the estimate of what it would have paid without the change. Meanwhile, its reserve fund has grown and is so healthy the state dipped into it for other needs.

Did The State Get The Payments Right?

“A centralized price-setting model has danger. It can overpay or underpay,” said Glenn Melnick, director of the Center for Health Policy and Management at the University of Southern California.

Lawmakers directed Marilyn Bartlett, the director administrator of Montana’s Health Care and Benefits Division, to get employee health costs under control, so she changed the way the state pays hospitals.(Courtesy of Marilyn Bartlett)

Like some other cost-control efforts, the Montana approach might lead to smaller numbers of hospitals that agree to participate in the state plan, he noted.

So far, there’s been no sign of that, said Bartlett: “No hospital has gone broke.”

But resistance is natural, said Damon Haycock, head of Nevada’s public employees’ benefits plan, because, ultimately, money saved for state workers is money hospitals don’t get.

There could be a ripple effect, as others in the community will want parity.

“If a state takes a hard line and says, we’re not paying more than X, then cities and counties and large employers would want the same deal,” he said. “And that becomes a massive political hurdle.”

To get buy-in, the state settled on the 234 percent, which many economists consider a relatively generous mark-up from standard Medicare payments.

Medicare doesn’t negotiate prices with hospitals or use hospital-set charges in its calculations. Instead, Medicare sets reimbursement through a complex formula that includes the cost of providing the service and the type of diagnoses. By its calculations, the government program pays hospitals enough to cover their services as well as a small profit.

Hospital officials, including many of those in Montana, disagree.

“When you look at total costs, Medicare probably pays 75 to 80 percent,” said Jay Doyle, president of St. James Healthcare in Butte. The facility, part of the SCL Health system, reported losing $9 million on its Medicare patients in 2016, the latest data available.

But economists say the prices are adequate if the hospitals spend the money wisely.

“Hospitals will say Medicare pays 90 cents on the dollar,” said Zack Cooper, an assistant professor of health policy and economics at Yale, which makes their argument sympathetic “for the first 15 seconds.”

In fact, for most hospitals, Medicare covers their costs, he added.

Reaching Out To The Holdouts

The Montana effort took aim at hospital-set prices, often called “chargemaster rates,” which to Bartlett were seemingly “going up and up.” She and the third-party administrator the state hired gathered data and dove into the new negotiations.

At some hospitals, Montana was shelling out more than three times what Medicare paid for inpatient care. Outpatient services showed an even wider range. Some hospitals were paid more than six times the Medicare rates.

When Bartlett’s team settled on paying an average of 234 percent of Medicare for inpatient and outpatient care, the decision involved a delicate balance: Set the bar too high and some hospitals would raise prices; too low, and some could cut back services or refuse to sign on.

As the July 1, 2016, deadline approached, five hospitals were holding out — and the state didn’t want huge gaps in its hospital network.

“I was absolutely freaking,” said Bartlett.

Four of the five remaining agreed before the deadline. The last major holdout was Benefis Health System in Great Falls, which argued that it was already one of the lower-cost hospitals in the state and that it should save its biggest discounts for its biggest customers.

Benefis declined requests for an interview.

At the time, state workers and their unions began a classic public relations arm-twisting campaign. Workers were told they might get hit with out-of-network bills from Benefis if it did not sign on. Such bills represent the balance between what the state pays and what hospitals charge.

Employee unions urged members and other interested groups to call or write Benefis, urging it to get on board.

The hospital is “kind of a monopoly, used to calling their own tune,” because it is the only major hospital within 90 miles, recalls Keith Leathers, an investigator with Montana’s Department of Public Health and Human Services. He was among those employees who picked up the phone, left messages and wrote notes.

By the end of July, Benefis finally signed on.

Will Others Follow Suit?

“A lot of states could learn from Montana,” said William Kramer, executive director for National Health Policy with the Pacific Business Group on Health, a coalition of employers. Within the state, companies and cities in the state are watching the experiment as well.

There are discussions underway about expanding Montana’s program beyond 35,000 state workers to cover city, county and university employees.

“If you want to get at pricing abuse by hospitals, why wouldn’t every single employer do that,” said Francois de Brantes, an independent benefits consultant and former director of the Center for Payment Innovation at Altarum, a Washington, D.C.-based nonprofit research and consulting firm.

That, of course, makes hospitals nervous since they have traditionally compensated for low reimbursement from some insurers by charging others more.

“If [that] happened, it would have huge economic impact,” including layoffs at his hospital, said Doyle of St. James Healthcare.

But Cooper, the Yale economist, suggested that hospitals paid based on multiples of Medicare will be fine if they deploy their earning wisely rather than on duplicative services, additional MRI machines or gleaming, marble-filled lobbies.

For many, he said, “it’s a function of investment decisions, not that Medicare doesn’t pay enough.”

‘Holy Cow’ Moment Changes How Montana’s State Health Plan Does Business

Marilyn Bartlett, the director administrator of Montana’s Health Care and Benefits Division, recalls thinking “holy cow” when she got an urgent directive from state legislators in late 2014: “You have to get these costs under control, or else.”

Increasing health care costs in the state workers’ health plan were helping hold down workers’ wages. The plan’s financial reserves were dwindling, heading for negative territory.

So began Barlett’s high-stakes game of chicken designed to change how the state did business with its 60 hospitals, which accounted for 43 percent of employee health care costs, turning the normal purchasing process on its head.

Instead of starting with the hospital’s list price and negotiating down for discounts, the state began telling these facilities how much it was willing to pay — a “reference price” — for each type of hospitalization. State officials used generally conservative Medicare rates as a baseline and starting point for the discussion.

Before the plan took effect, hospital charges for state employees for the same service had varied widely, with some hospitals charging three to six times the Medicare rate for some services.

To even out the disparities and save money, the state decided it would pay an average of 234 percent of Medicare rates — a level of payment that hospitals indicated they would accept and an amount the state calculated would allow an efficient hospital to deliver high-quality care and still profit.

While other states and some private employers have set prices they are willing to pay for some standardized procedures — such as a colonoscopies or hip replacements — Montana’s experiment is more sweeping, covering all hospital services, and it uses Medicare as a common yardstick.

Two years in, the state calls the effort a success, saving $15.6 million this year over the estimate of what it would have paid without the change. Meanwhile, its reserve fund has grown and is so healthy the state dipped into it for other needs.

Did The State Get The Payments Right?

“A centralized price-setting model has danger. It can overpay or underpay,” said Glenn Melnick, director of the Center for Health Policy and Management at the University of Southern California.

Lawmakers directed Marilyn Bartlett, the director administrator of Montana’s Health Care and Benefits Division, to get employee health costs under control, so she changed the way the state pays hospitals.(Courtesy of Marilyn Bartlett)

Like some other cost-control efforts, the Montana approach might lead to smaller numbers of hospitals that agree to participate in the state plan, he noted.

So far, there’s been no sign of that, said Bartlett: “No hospital has gone broke.”

But resistance is natural, said Damon Haycock, head of Nevada’s public employees’ benefits plan, because, ultimately, money saved for state workers is money hospitals don’t get.

There could be a ripple effect, as others in the community will want parity.

“If a state takes a hard line and says, we’re not paying more than X, then cities and counties and large employers would want the same deal,” he said. “And that becomes a massive political hurdle.”

To get buy-in, the state settled on the 234 percent, which many economists consider a relatively generous mark-up from standard Medicare payments.

Medicare doesn’t negotiate prices with hospitals or use hospital-set charges in its calculations. Instead, Medicare sets reimbursement through a complex formula that includes the cost of providing the service and the type of diagnoses. By its calculations, the government program pays hospitals enough to cover their services as well as a small profit.

Hospital officials, including many of those in Montana, disagree.

“When you look at total costs, Medicare probably pays 75 to 80 percent,” said Jay Doyle, president of St. James Healthcare in Butte. The facility, part of the SCL Health system, reported losing $9 million on its Medicare patients in 2016, the latest data available.

But economists say the prices are adequate if the hospitals spend the money wisely.

“Hospitals will say Medicare pays 90 cents on the dollar,” said Zack Cooper, an assistant professor of health policy and economics at Yale, which makes their argument sympathetic “for the first 15 seconds.”

In fact, for most hospitals, Medicare covers their costs, he added.

Reaching Out To The Holdouts

The Montana effort took aim at hospital-set prices, often called “chargemaster rates,” which to Bartlett were seemingly “going up and up.” She and the third-party administrator the state hired gathered data and dove into the new negotiations.

At some hospitals, Montana was shelling out more than three times what Medicare paid for inpatient care. Outpatient services showed an even wider range. Some hospitals were paid more than six times the Medicare rates.

When Bartlett’s team settled on paying an average of 234 percent of Medicare for inpatient and outpatient care, the decision involved a delicate balance: Set the bar too high and some hospitals would raise prices; too low, and some could cut back services or refuse to sign on.

As the July 1, 2016, deadline approached, five hospitals were holding out — and the state didn’t want huge gaps in its hospital network.

“I was absolutely freaking,” said Bartlett.

Four of the five remaining agreed before the deadline. The last major holdout was Benefis Health System in Great Falls, which argued that it was already one of the lower-cost hospitals in the state and that it should save its biggest discounts for its biggest customers.

Benefis declined requests for an interview.

At the time, state workers and their unions began a classic public relations arm-twisting campaign. Workers were told they might get hit with out-of-network bills from Benefis if it did not sign on. Such bills represent the balance between what the state pays and what hospitals charge.

Employee unions urged members and other interested groups to call or write Benefis, urging it to get on board.

The hospital is “kind of a monopoly, used to calling their own tune,” because it is the only major hospital within 90 miles, recalls Keith Leathers, an investigator with Montana’s Department of Public Health and Human Services. He was among those employees who picked up the phone, left messages and wrote notes.

By the end of July, Benefis finally signed on.

Will Others Follow Suit?

“A lot of states could learn from Montana,” said William Kramer, executive director for National Health Policy with the Pacific Business Group on Health, a coalition of employers. Within the state, companies and cities in the state are watching the experiment as well.

There are discussions underway about expanding Montana’s program beyond 35,000 state workers to cover city, county and university employees.

“If you want to get at pricing abuse by hospitals, why wouldn’t every single employer do that,” said Francois de Brantes, an independent benefits consultant and former director of the Center for Payment Innovation at Altarum, a Washington, D.C.-based nonprofit research and consulting firm.

That, of course, makes hospitals nervous since they have traditionally compensated for low reimbursement from some insurers by charging others more.

“If [that] happened, it would have huge economic impact,” including layoffs at his hospital, said Doyle of St. James Healthcare.

But Cooper, the Yale economist, suggested that hospitals paid based on multiples of Medicare will be fine if they deploy their earning wisely rather than on duplicative services, additional MRI machines or gleaming, marble-filled lobbies.

For many, he said, “it’s a function of investment decisions, not that Medicare doesn’t pay enough.”

Must-Reads Of The Week From Brianna Labuskes

President Donald Trump’s summit with North Korean leader Kim Jong Un may have stolen a bit of the spotlight from health care this week, but there’s still plenty of news to go around in our corner of the world. Here’s what you may have missed.

Republicans are cringing at the administration’s decision not to defend the health law’s preexisting condition provision. The move is likely to serve as a tailor-made soundbite for Democrats as lawmakers hit the campaign trail for the midterms. In fact, Dems are already going after the decision as “a sick joke,” while Senate Majority Leader Mitch McConnell (R-Ky.) is doing damage control. “Everybody I know in the Senate — everybody — is in favor of maintaining coverage for preexisting conditions,” McConnell told reporters in the Capitol. “There is no difference in opinion about that whatsoever.”

Politico: Trump’s Latest Health Care Move Squeezes Republicans

The New York Times: A ‘Sick Joke’: Democrats Attack Health Secretary On Pre-Existing Conditions

Politico: McConnell: ‘Everybody’ In Senate Likes Pre-Existing Condition Safeguards


Insurers are less than pleased with a court’s decision that they are not owed billions of dollars from the government under the health law’s risk corridors program. The program was designed to entice insurers into the marketplace with promises of covering their financial risk. But the panel said the government doesn’t have to pay insurers the money because Congress had taken action — after the health law’s passage — requiring the program to be budget neutral year after year. Insurers complain the rug was pulled out from under them.

The Wall Street Journal: Federal Government Doesn’t Have To Pay Billions To Health Insurers, Court Rules


The big dogs in the insurance industry are slowly inching toward a model where they could deny emergency room claims — and hospitals, doctors and lawmakers are all livid imagining a world where patients worry about whether their visits are going to be covered before seeking emergency care. The companies, though, argue that unnecessary ER visits are a huge factor in driving up medical costs. They’re not wrong, but the subject has always been taboo before.

Politico: Insurers Spark Blowback By Reducing Emergency Room Coverage


CRISPR is so hot right now it even spawned a (canceled) TV show. But a report that found genes edited by the technology could essentially be cancer “ticking time bombs” sent stocks spiraling this week.

Stat: CRISPR-Edited Cells Might Cause Cancer, Two Studies Find


Lawmakers are gearing up to consider a whopping 57 measures in an opioid package that is sure to win both Democrats and Republicans political points — conveniently just before the midterms. But advocates say the bills may still fall short of what’s needed to battle the country’s epidemic.

Stat: Can Major Opioids Legislation Make A Dent In A National Epidemic?


And in the miscellaneous file this week: A report confirms that sexual harassment is rampant in the academic sciences (“Most of that harassment is not the Harvey Weinstein harassment. It’s the everyday put-downs, and exclusions and belittlings,” said one woman); an ALS scientist who was diagnosed with the disease after he started researching it says he finds reason to live by helping others fight the condition that has ravaged his body; a nationwide survey reports that the kids are not all right, with sadness and hopelessness on the rise in teens (they’re also drinking less milk for what it’s worth); and how being black in America can deeply affect your health.

The Washington Post: Half Of Women In Science Experience Harassment, A Sweeping New Report Finds

The Washington Post: Devastated By ALS, Trying To Save Others

The New York Times: Sex And Drugs Decline Among Teens, But Depression And Suicidal Thoughts Grow

The Atlantic: Being Black In America Can Be Hazardous To Your Health


As you’re planning your weekend, you should probably know the oft-touted Mediterranean diet report has been retracted as flawed. But if you’re a fish, olive oil and nuts person, don’t worry, experts still think the diet is beneficial to heart health. Meanwhile, I’ll be over here worrying about my DNA’s digital footprint.

Legal Prescriptions Getting Caught In Dragnet As FDA Tries To Catch Opioids Flooding In Through International Mail

Americans who have been buying cheaper prescribed medications internationally for conditions like Crohn’s disease are now paying a price. In other pharmaceutical news: generic drug legislation, trade tariffs, and a pill for women’s libido.

Podcast: KHN’s ‘What The Health?’ California Here We Come

 

Health care is a big political issue, but no place more than in California. In San Francisco last week, voters overwhelmingly approved a ballot measure upholding a ban on flavored tobacco products — over the vehement objections of the tobacco industry.

And the state’s activist attorney general, Xavier Becerra, is leading a group of Democratic officials from more than a dozen states defending the Affordable Care Act in a case filed in Texas. That is important given that the Trump administration’s Justice Department decided not to defend the law in full from charges that changes made by Congress in last year’s tax law invalidates the health law.

This week’s panelists for KHN’s “What the Health?” are: Julie Rovner of Kaiser Health News, Anna Maria Barry-Jester of FiveThirtyEight.com, Carrie Feibel of KQED San Francisco and Joanne Kenen of Politico.

Among the takeaways from this week’s podcast:

  • Republicans and Democrats had been gearing up for a midterm election debate on who is responsible for higher health insurance costs. But that shifted last week to an argument over whether consumers with preexisting conditions should be guaranteed coverage following the Justice Department’s brief saying changes to the ACA invalidated those protections.
  • In California, there is widespread support among Democrats for a single-payer health system. But the term is somewhat amorphous. For some officials, it is a catch-all phrase that seems to suggest strong efforts with current programs to get the uninsured rate down to zero, while still keeping much of the current insurance system in place.
  • Becerra has filed a suit against Sutter Health, a giant in the hospital industry in Northern California, alleging that consolidation has resulted in anti-competitive pricing practices.
  • San Francisco’s adoption of a referendum to ban flavored tobacco products could lead other local governments to follow suit. The measure included not only products with flavors allegedly geared to young people, but also menthol cigarettes, which make up about 30 percent of the market.

Plus, for “extra credit,” the panelists recommend their favorite health stories of the week they think you should read, too:

Julie Rovner: The New York Times, “Elizabeth Warren And A Scholarly Debate Over Bankruptcy That Won’t Go Away,” by Margot Sanger-Katz.

Anna Maria Barry-Jester: The Atlantic, “Being Black In America Can Be Hazardous To Your Health,” by Olga Khazan.

Carrie Feibel: KQED, “In The Land Of Legal Weed, Drug Education Moves From ‘Don’t’ To ‘Delay,’” by Carrie Feibel.

Joanne Kenen: The Miami Herald, “She Dreamed Of Getting Plastic Surgery In Miami. Three Days Later, She Was Dead,” by Sarah Blaskey, Sonia Osorio, and Daniel Chang.

To hear all our podcasts, click here.

And subscribe to What the Health? on iTunesStitcher or Google Play.

Must Reads Of The Week From Brianna Labuskes

A distinctly sad and sobering week: days of suicide stories follow the deaths of Anthony Bourdain and Kate Spade. The events, and a devastating report about spiking suicide rates across the country, threw self-harm and mental health awareness into the spotlight. Advocates took to social media to spread the message: Depression “doesn’t discriminate.”

Here’s what else you may have missed this week.

The Justice Department is refusing to defend the health law in court, leaving a coalition of blue-state attorneys general to do the heavy lifting. It’s a political gamble for the administration as it could rattle an already unstable marketplace as the midterm elections creep up on us.

“Of all the things the Trump administration has done to destabilize the market, this may be the most major,” said Timothy Jost, a professor emeritus at Washington and Lee University and a health law supporter. Also, meet the Texas plaintiffs at the heart of the case who feel compelled to follow the letter of the law, despite the lack of penalty.

In a compelling profile, they’re likened to people who don’t “take a tag off of their mattress” because of the legal warning.

The New York Times: Justice Dept. Says Crucial Provisions of Obamacare Are Unconstitutional

Politico: Texas Plaintiffs Personalize Uphill Legal Challenge to Overturn Obamacare

And, these insurers say they don’t expect to lose customers next year, but they’re still planning on raising premiums by the double digits. At first that might warrant a “huh?” moment, but it all comes down to a business calculation. The insurers know when one company loses customers that can have a ripple effect though the marketplace. So, they’re all in a defensive crouch.

Modern Healthcare: Insurers Downplay Mandate Repeal’s Effect, But Still Raise Premiums


Other big news is the grim outlook for Medicare’s trust fund — it’s now expected to be depleted in 2026 instead of 2029, as was projected last year. To be clear, though, the money that’s running out is used to pay for hospital visits. Other services are supported primarily through general funds.

The New York Times: Medicare’s Trust Fund Is Set to Run Out in 8 Years. Social Security, 16.


Single-payer, single-payer, single-payer. You’ve probably heard that phrase a lot in the past year or so, especially this week when the California gubernatorial race was at center stage. But Democrats are being warned not to actually utter those words on the trail, leadership being worried that it could divide the party and make progressive candidates vulnerable to attacks from the GOP. That doesn’t mean talk about universal coverage is verboten, it’s just that the hot buzzword won’t be on too many candidates’ lips this summer and fall.

Politico: The 2 Words You Can’t Say in a Democratic Ad

The New York Times: In Fight for California Governor, Candidates Head to Ideological Corners


Thanks, but no thanks: Pharma companies aren’t all that interested in taking advantage of the relaxed provisions included in the “Right-to-Try” legislation that lawmakers passed recently after a series of fits and starts. It turns out, Big Pharma likes to go through the FDA anyway … which opponents have been saying all along.

The Wall Street Journal: The ‘Right to Try’ Law Says Yes, The Drug Company Says No

And, you think it’s hard to control drug prices for popular, lifesaving medications? What about when the treatment is for a problem no one wants to talk about?

The New York Times: Prices Keep Rising for Drugs Treating Painful Sex in Women


In our miscellaneous file for the week: In somewhat-rare good news, a study found that many women with a common form of breast cancer can skip chemotherapy; a court is weighing whether punishing an offender for having a drug relapse counts as “cruel and unusual punishment”; marijuana addiction is surging, but experts are having a hard time convincing people it even exists; and remember Brazil’s Zika babies? They’re growing up.

The Associated Press: Many Breast Cancer Patients Can Skip Chemo, Big Study Finds

The New York Times: She Went to Jail for a Drug Relapse. Tough Love or Too Harsh?

Stateline: Yes, You Can Become Addicted to Marijuana. and the Problem Is Growing.

The Associated Press: From Shrieks in Bucket to Laughs, Brazil Zika Baby Improves


I also feel duty-bound to point out that the U.S. has now issued a health alert over the unexplained brain injuries that have cropped up in diplomats serving in China. The mystery — make of it what you will — continues! Lots to read this weekend!