Dr. Noseworthy and the AHCA: A Tipping Point

The CEO of the Mayo Clinic, Dr. Noseworthy, was last heard recommending patients fire their physicians suffering from burnout.  While he does not have truckloads of compassion or empathy for colleagues; he is, at least, honest.  Dr. Noseworthy recently confessed “We’re asking…if the patient has commercial insurance, or they’re Medicaid or Medicare patients and they’re equal that we prioritize the commercial insured patients enough so… We can be financially strong at the end of the year to continue to advance our mission.”  The ‘ailing’ nonprofit generated a paltry $475 million last year.  

During his speech, Noseworthy noted the “tipping point” was the recent 3.7% surge in Medicaid patients as a direct result of ACA Medicaid expansion.  “If we don't grow the commercially insured patients, we won't have income at the end of the year to pay our staff, pay the pensions, and so on,” he said.  These are difficult decisions to make by rationing access to healthcare for the poor.  It is a moral dilemma those of us in independent practices have been facing for some time.

Mayo will continue taking all patients, regardless of pay or source, and this policy exempts those seeking emergency care. This move is attempting to shift payer mix and mitigate the financial pressure faced by many health systems as a result of federal health-care reform. Approximately 50% of patients at Mayo Clinic are Medicare or Medicaid. Higher reimbursements for privately insured patients makes up for losses incurred treating Medicare and Medicaid patients. Mayo says these payers reimburse at about 50-85% when compared to commercial insurance.  It is about the same in my office. 

While ACA Medicaid expansion brought the reality of healthcare coverage to millions; it left behind the practicality of providing access to healthcare for those same millions.  As a direct result of the ACA, demand for physicians now overwhelms supply, due to increased closure of independent practices from incentivizing hospital consolidation. Physicians are not mean or spiteful, but we have families to feed, mortgages to pay, office rent, employee salaries, malpractice insurance premiums, and last but not least, student loans payments hanging over our heads.  If my office closes, access further declines.

Throwing millions of additional patients onto Medicaid worsened the quality of care for those who were already on the program pre-ACA.  Four years ago, my payer mix was 50% Medicaid and while never flush with cash, I was able to survive.  Post-ACA, the payer mix must shift to 75% commercial and no more than 25% can be Medicaid in order to mitigate financial pressures. I have been closed to new Medicaid patients for more than a year with more than 70 families on the wait list.

Prior to The ACA, America rationed costs by not covering a portion of the population for preventive services yet mandating provision of emergency care (EMTALA) to everyone in spite of operating at a financial loss.  Our post-ACA healthcare model still rations care by a variety of mechanisms:  price, (copays, deductibles, premiums), capacity (physician shortages, advent of independent midlevel providers, certificate of need for facilities), and utilization management limitations (prior authorizations, referrals.) 

Healthcare has remained a beautiful construct yet dysfunctional machine.  Pricing measures reward error, inefficiency, and poor outcomes, private and public sectors continue to have a love/hate relationship regarding unbalanced cost shifting, and ultimately, attempts to regulate this catastrophic system by the government will lead to worsened outcomes for the poor across the board. 

The American Health Care Act (AHCA) is not perfect, but it is pragmatic.  Limited by the budget reconciliation rules to fast-track for Senate consideration, it was designed to attain 218 votes in the house and 51 votes in the Senate, which will generate cheers as well as jeers on both sides of the aisle.  The bill is an important first step toward compromise and away from the disastrous ACA.

The AHCA would significantly expand health savings accounts, allowing patients to control more of their own health-care dollars, and give those who buy coverage on their own considerably more choice in the kinds of plans they buy.  This change alone will allow lowering of premiums. Its refundable tax credit will be available to low- to moderate-income individuals and will equalize the tax treatment of employer and individual insurance.

The bill would transform Medicaid into a more streamlined insurance program: moving decision-making to the states, permitting them flexibility in dealing with preexisting conditions, provide reinsurance, and trust state insurance regulators to run their markets.  In my opinion, not providing enough assistance to the poor and elderly is a fly in the ointment, however this can be adjusted in the next round, making premiums more affordable for the poor.

The AMA and the AHA oppose this plan; the importance of which must not be overlooked.  These organizations do not represent practicing physicians and have very little interest in supporting the physician-patient relationship.  It is very encouraging to me neither organization was able to garner much in the way of concessions on their behalf. 

When the AMA and the AHA speak out against a bill, one must consider the AHCA as likely to be beneficial for both patients and physicians in the long run. Less than 15% of physicians today belong to the AMA and they pad their pockets by burdening practicing doctors with excessive regulations.  The AMA receives $72 million from licensing the ICD-10 coding system, a restrictive noose around our necks which increases costs of running a practice.

 

The AHA states they will collectively lose $166 billion dollars if the ACA is repealed.  It is worthwhile looking at who profited most from Medicaid expansion.  Patients theoretically stood to benefit from improved coverage, but only when access was coupled with coverage, which it was not.  Of the $3 trillion dollars spent on health care, hospital care accounted for 32% ($1 trillion), while one-fourth of those costs ($250 billion) accounts for salaries and benefits of hospital executives. The annual average hospital CEO salary is $600,000, while the average primary care physician makes $185,000 (for the record, I have never even come close to this amount.) Physicians receive only 8 cents of every healthcare dollar spent. Do any of those expenditures appear to be benefitting patients?  Obviously, the answer is no. 

The AHCA is a very good start, like 100 lawyers at the bottom of the ocean.  It does not seem like much at first, however over time, it will make a positive difference.  Anything is better than the ACA for patients, physicians, and our sacred physician-patient relationship. When you delve further into the details of the AHCA, you will find less coverage on the surface, yet more access for the people. It is time to take the power away from the AMA and the AHA and build a healthcare plan that is pragmatic; knowing there is no perfect and only compromise, but that is something of which we are in desperate need. 

Price Transparency and All Its Warts

Transparency – including price, quality, and effectiveness of medical services is a vital component to lowering costs and improving outcomes.  However, it is imperative transparency go hand-in-hand with financial incentives for patients and consumers; otherwise the quest will be in vain.  The single best way of reducing costs while not worsening health outcomes is to redistribute resources from less cost-effective health services to more cost-effective ones.  Americans are extremely uncomfortable with the idea of making decisions based on cost but we must become fluent in the language of cost and more comfortable making decisions based on price information for healthcare expenditures to stabilize. 

Legislators in more than 30 states have proposed legislation to promote price transparency, with most efforts focused around publishing average or median prices for hospital services.  Some states already have price transparency policies in place.  California requires hospitals to give patients cost estimates for the 25 most common outpatient procedures. Texas requires providers to disclose price information to patients upon request. Ohio passed price transparency legislation last year; however a lawsuit filed by the Ohio Hospital Association has delayed implementation.  The cost of a knee replacement is $15,500 at the Surgery Center of Oklahoma, whereas the national average is $49,500. 

Trends suggest in the future Americans will be more price-sensitive when seeking care as high-deductible insurance plans become commonplace coupled with greater cost-sharing.  For consumers, paying less out-of-pocket costs could be a powerful motivator.   According to an article in Health Affairs, price transparency has helped reduce costs in the long run.  Another study found consumer-driven health plans led to lower use of name-brand medications, less inpatient care, and lower use of specialists. 

Comprehensive transparency is only relevant if packaged in a reliable comparative context.  Information regarding cost, value, and effectiveness should be readily accessible to patients enabling them to make meaningful comparisons across providers and specialists. However, choices must be incentivized properly, so they are not only empowered but also motivated to use the information to make informed choices.

A benign, viral skin infection known as molluscum contagiosum (MC) provides a simple case for transparency because there are a vast number of ways to successfully treat these wart-like bumps (called mollusca.)  They can occur extensively on the face and genitalia, are contagious, and may cause itching or tenderness, yet are not harmful.  Looking at four different treatment modalities can illustrate where transparency, for cost, value, and efficacy might make a difference.  It illustrates perfectly how health insurance can incentivize incorrectly resulting in higher expenditures with no difference in outcome. Molluscum can be treated by application of topical cantharidin or liquid nitrogen, oral cimetidine, surgical curettage, or no medical intervention.  The efficacy of each is roughly equivalent in that the benign lesions eventually resolve. Lesions can last two weeks to four years --the average being two years without treatment.

On average, children have about 15-30 lesions by the time a family seeks treatment.  Liquid nitrogen costs $50 per patient for supplies; Cantharidin, an extraction from blister beetles, is a topical vesicant that costs about $100.  There are two CPT codes for lesion destruction in the physicians’ office:  17110 ($113.75) and 17111 ($134.69.)  A follow-up treatment is usually necessary one time after 3-6 weeks at which point lesions resolve. Total expenditure is approximately $500.  Most insurance plans do not cover this procedure so cost is borne by the patient out-of-pocket. 

Oral Cimetidine is a controversial treatment, because efficacy is somewhat lower compared to topical or surgical methods, but has held up well enough in studies to remain a viable, painless treatment option.  Time to cure is 2-3 months.  Including the physician visit of 9921X x 3 plus the prescription for 3 months ($16/mo), we are looking at a total cost to resolution of approximately $300-$450, with a 20-25% failure rate.  Insurance covers cost of office visit and medication except for applicable co-payments, so out-of-pocket could be as little as $100.  There may be medication side effects and parents must remember to give their children medication twice per day for 3 months, increasing the “nuisance factor” (lowering “value” for some.) 

Some physicians incise and drain each bump individually as the core contains infected cells and if they are surgically removed, the body can “do the rest” to fight the infection.  Lesions often reappear 6 weeks later (as with topical methods) because they represent areas already infected at the first visit but too small to be seen, so a second round of treatment is necessary.  Cost estimates are in the ballpark of $1K-2K per treatment, as cost information was difficult to find.  Total cost to cure is $2000-4000.  Surgical intervention is partly covered by insurance with out-of-pocket costs in the $500 range, though this is an educated guess.

Finally, no medical intervention is safe, low in cost, and efficacious.  However, watchful waiting can be challenging for parents when there are multiple children at home with one contagious infected child during the two year time period until the lesions completely resolve.  Cost of one physician visit for diagnosis: $125.  Cost for google to diagnose: $0.

As an insurance company executive, I would incentivize topical therapy for treatment of molluscum resulting in lower expenditures and less need for specialty care.  Most private insurance companies do not cover codes 17110 or 17111, instead kicking the entire balance to the patient.  Unfortunately, they incentivize the less efficacious oral medication or partially subsidize surgical curettage.  In plain, straightforward language: this is utterly stupid.  If patients are not financially incentivized to choose the lowest cost, most effective option then efforts toward transparency are a waste of time as healthcare expenditures will not decline. 

Not every condition can be easily evaluated as I have done above (though many can.) Redistributing resources from less cost-effective health services to those that are more cost-effective is a winning strategy for patients, physicians, and insurance.  Individual physicians and hospitals should post prices for general well and sick visits (including applicable facility fees), basic procedures, and other services offered whenever feasible, because it is the right move to empower patients to make informed decisions.  Finally, insurance companies should financially incentivize patients to choose the lower cost, equally efficacious treatment methods if they want transparency of cost, quality, and efficacy to have a large impact on driving down expenditures.     

Costs of a Hospital Monopoly in Underserved Counties

In 2009, President

Obama chose to speak in Grand Junction, Colorado to highlight a locality where “health care works” (according to Tom Brokaw.) Their unique model focused on provider-insurer partnerships to reduce Medicare costs and was lauded by policy makers and media outlets as the epitome of efficiency in healthcare but, the devil is always in the details. 

The 50,000 residents of Grand Junction are served by a single hospital; much like Kitsap County, Washington will be soon.  It turns out Grand Junction is one of the most expensive healthcare markets in the country.  The lack of local competition has driven Medicare costs down—Grand Junction had the third-lowest Medicare spending per beneficiary in 2011. However, the monopolistic conditions have driven private prices way up —the city has the ninth-highest inpatient prices in the country.

There is a growing body of evidence that hospital mergers lead to higher prices for consumers, employers, insurance, and government overall.  It is imperative to educate patients and lawmakers as to how the consolidation of hospitals and medical practices raise costs, decrease access, eliminate jobs, and ultimately reduce care quality as a result.  Lawmakers should focus on this “first pillar” of cost control as they go back to the drawing board. 

In 2010, there were 66 hospital mergers in this country. Since the Affordable Care Act went into effect the rate of hospital consolidation has increased by 70 percent. By creating incentives for physicians and health providers to coordinate under accountable care organizations (ACOs), the ACA hindered the ability of regulators to block hospital mergers while incentivizing hospital consolidation. 

In addition, there has been a dramatic increase in hospitals gobbling up independent providers and becoming powerful regional monopolies.  According to a 2012 study by the Robert Wood Johnson Foundation, “the magnitude of price increases when hospitals merge in concentrated markets is typically quite large, most exceeding 20 percent.” Forbes’ Avvik Roy, gave an excellent presentation on this particular subject in 2012.  “You have to get at the errors in public policies which drive the hospitals to merge.” He concluded that government must do more to fight consolidation among hospitals.  He is right.

  

For years, the concern that mergers drove up prices was largely anecdotal.  A recent paper authored by Northwestern’s Leemore Dafny, Columbia’s Kate Ho, and Harvard’s Robin Lee provides some definitive proof that when hospitals consolidate, prices increase substantially.  The effect is actually worsened directly in proportion to proximity of the merging hospitals.  “If you are doing it because you think in the long run it will serve your community well, you should think twice,” Dafny said.  As of right now, cross-market mergers aren’t scrutinized at the state or federal level.  This must change.  A statement issued by the American Hospital Association (AHA) in response to Dafny’s paper said mergers provide patients with access to care and they are not a meaningful predictor of price change.


A study published by the National Bureau of Economic Research, conducted by Zack Cooper of Yale University, Stuart Craig of the University of Pennsylvania, Martin Gaynor of Carnegie Mellon, and John Van Reenen of the London School of Economics, sheds light on the real cost of reduced competition among hospitals: hospital prices are 15.3 percent higher when a hospital had no competition compared in markets with four or more hospitals, amounting to a cost difference of up to $2000 per admission. Hospital prices are 6.4 percent higher in markets with two hospitals and those with three are 4.8 percent more expensive when compared to markets with four hospitals.


The case for hospital consolidation has been supported by the American Hospital Association, the leading industry trade group, which spent $15 million on lobbying in 2015 (a decrease from $20 million in 2014).  Consolidation allows hospital conglomerates to control vast market shares, which has translated into political clout while allowing more leverage in negotiations with private insurers. “What’s been so interesting for me is to see how aggressive the American Hospital Association has been in coming after me,” says Cooper, who claims the American Hospital Association has funded a couple of critical reports about his paper. 


“I have never seen the evidence that consolidation improves quality in the health care space. I have never seen a study that comes out and says that consolidation makes things better,” says Cooper. Neither have I; consolidation does not improve quality.  Cooper, like Mr. Roy, suggests rigorous antitrust legislation, cost control measures, and increasing competition among hospitals as potential solutions.

Harrison Medical Center is the hospital in which I was born and practiced medicine as a new community physician.  It had expanded into two campuses before being “acquired” by CHI Franciscan Health two years ago.  CHI purchased numerous small medical practices, the last independent orthopedic group, and most recently, merged with the largest multispecialty physician group in the county, the Doctors Clinic. 

Prior to these mergers, 65% of physicians in Kitsap County were independent.  That number has plummeted to a dismal 27%.  Both hospitals are currently owned and operated by CHI Franciscan and now they want to merge into one structure for an “ultra” monopoly.  Every cardiologist, oncologist, pulmonologist, urologist, and vascular and orthopedic surgeon in my county are employed or under contract with CHI Franciscan Health. 

In the last two years, Kitsap County has lost consumer choice, employer choice, physician choice, insurance choice and access for healthcare services. Physician groups merging with CHI Franciscan are restricted from using the local ambulatory surgery center (ASC) for outpatient procedures; they are encouraged to utilize the Hospital Outpatient Department (HOPDs) instead.  It is a well-known fact costs at HOPDs are substantially higher when compared to identical procedures done at ASCs.  According to FAIR health, the cost difference (zip code specific) between the two locations is striking:

            Colonoscopy:  ASC - $1250 ($500 out of pocket)

                                    HOPD: $4250 ($1000 out of pocket)

            Echocardiogram: ASC $500 ($200 out of pocket)

                                         HOPD: $4250 ($1250 out of pocket)

            Arthroscopy of Knee:  ASC - $3600 ($1070 out of pocket)

                                                 HOPD: $13,000 ($3900 out of pocket)

            Hernia Repair:  ASC - $2500 ($750 out of pocket)

                                      HOPD: $19,000 ($5700 out of pocket)

The above estimates do not include the physician bill or charges for equipment. 

The more government reduces payments to physicians, the more hospital consolidation is encouraged to decrease cost and leverage market forces.  This drives prices up for patients with private insurance.  Higher prices in less competitive markets results in higher premiums passed on to employers and individuals who see bigger bills under their high-deductible health insurance plans.  Cities with higher premiums on the Affordable Care Act's insurance exchanges tend to be those cities with high priced hospitals. Increased concentration in health care victimizes consumers, as hospitals leverage their market position and drive up prices.

The Justice Department (DOJ) opposed two merger attempts of large insurance companies, Aetna-Humana and Cigna-Anthem, because “competition among these insurers that has pushed them to provide lower premiums, higher quality care and better benefits would be eliminated." It is time to borrow a page from the DOJ playbook and scrutinize hospital consolidations more closely.  Hospitals are obligated to provide primary care and outpatient procedures for the same price (including the facility fee) as that of local centers if they are going to control such a large market share.  Otherwise, hospitals should go back to management of the sick and leave the provision of primary care and simple outpatient procedures to those of us who can provide top quality, achieve excellent outcomes, and contain costs all at the same time. 

We have 3.4 trillion reasons to sit up and pay attention.