Squeezing the needy: a truly flawed financing system for healthcare

In his always-valuable “Quote of the Day” for February 26, 2013, Don McCanne, MD, cites an article by Robert Pear in the New York Times from February 25, “States Can Cut Back on Medicaid Payments, Administration Says”. He quotes from the article that “In a brief filed with the United States Court of Appeals for the Ninth Circuit, in San Francisco, federal officials defended a decision by California to cut Medicaid payments to many providers by 10 percent…. [it] urged judges to uphold those cuts, which are being challenged by patients, doctors, dentists, hospitals, pharmacists and other health care providers in California…[who] said California’s payment rates were inadequate even before the cuts. They pointed to a federal study that said,’ “California stands out because of its very low Medicaid payment levels.’”

 A similar article that he cites from the Los Angeles Times by Anna Gorman, February 25, 2013, “Healthcare overhaul may threaten California's safety net” states that “An estimated 3 million to 4 million Californians — about 10% of the state's population — could remain uninsured even after the healthcare overhaul law takes full effect,” while at the same time the public hospitals and clinics that would provide care to those additional millions are having their funding streams from the state cut.

And this is in a state with a long history of providing care for its medically indigent by having such hospitals and clinics (unlike, oh, say, Kansas) and with a reasonably progressive Democratic governor, Jerry Brown. But it also has a huge budget deficit. At the most narrow level, the state has no choice but to spend less on the programs over which it has control, and these programs are the ones that benefit those whose low-wage jobs (or no jobs at all) make them dependent on public programs to ensure the health of their families.

The key point here is that the huge transfer of funds from the public sector to private control, as a result of tax cuts on corporations and wealthy individuals, has led to the inability for even states such as California, which arguably want to, to provide the basic health and social safety net for its most needy citizens. This is precisely the result that advocates of these programs want, to “choke” government, and precisely the impact on the poor that would be predicted. Meanwhile, at the local, state and federal level, tax “relief”, in terms of both cuts and direct giveaways to major industries, continue to support the least needy.

At the same time (February 20, 2013), Time magazine has published an amazing exposé by Steven Brill of the ridiculous over-pricing and capricious billing done by US hospitals, “Bitter Pill: Why Medical Bills are Killing Us”. It is a long and through article, citing case after case and example after example, of how the current system of billing and reimbursement in health care, and particularly in hospitals costs a fortune, is sapping the economy overall. And, of course, the burden falls hardest on those who are either uninsured or poorly insured, and are billed “list” prices, which are much higher than those paid by either public (Medicare or Medicaid) or private (eg., Blue Cross, Aetna) insurers. MUCH higher. Often dozens of times higher. A few examples that he cites:

• A troponin (blood test for a heart attack) test billed to an uninsured patient at $199. Medicare pays $14; a CBC (blood count) billed $157 when Medicare pays $11.
• A nuclear heart scan for which Medicare pays $554 billed at $8,000.
• A Medtronic spinal stimulator that lists for $19,000 from the manufacturer (if the hospital paid full list) billed to the patient for $49,000.

The article is good investigative journalism, and goes beyond such simple examples to look at the entire structure of the health system’s payment mechanism, including the incentives to do more and more (even when unnecessary or possible even harmful) expensive – and high profit – tests and procedures. It looks at enormous hospital profit margins and salaries of “C-suite” executives: “…in our largest cities, the system offers lavish paychecks even to midlevel hospital managers, like the 14 administrators at New York City’s Memorial Sloan-Kettering Cancer Center who are paid over $500,000 a year, including six who make over $1 million.” (Of course, salaries in the measly low one-digit millions pale before the incomes of those in the pharmaceutical industry!) It helps us to understand both why costs are so high and why programs that limit payment, like Medicare and Medicaid, are so hated/fear/despised by hospital administrators.

The hospitals may well be taking a loss on Medicaid/Medicare reimbursement, because “Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation.”  But while “Hospital finance people argue vehemently that Medicare doesn’t pay enough and that they lose as much as 10% on an average Medicare patient...even if the Medicare price should be, say, 10% higher, it’s a long way from $11.02 plus 10% to $157.61.”  The thing is that they “need” to make more because, although “non-profit” they make big profits – they just don’t share them with stockholders. “…thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.”

What was interesting to me is that most of the patients who received those outrageous bills above were neither unemployed nor uninsured (although the one who was uninsured had the misfortune of being 64 rather than 65, so paid the $199 for her troponin instead of Medicare paying the $14). Rather, they were employed in low wage jobs and had lousy insurance, with very low per-visit, per-year, or lifetime caps and were treated by the hospitals as if they were uninsured (“’We don’t take that kind of discount insurance’ said the woman at MD Anderson [Cancer Center]” when Stephanie Recchi called to make an appointment for Sean; they needed to come up with $48,900 cash up front – and that was just the down payment!). So all estimates about the burden on the uninsured need to be augmented by the impact on the under-insured.
Dr. McCanne’s incisive comment on the two articles notes that while “We have said over and over again that Medicaid, as a welfare program, will never have the political support to fund it adequately. The burden of the additional load of Medicaid patients will surely find the health care resources strained beyond the capacity of willing providers, especially when you consider that California already is not meeting the costs of providing care to this vulnerable population…

"Here's an amazing fact: Low income patients do not have the money to pay for health care. (What an intuitive stroke of genius!) What they need is an affordable system that removes financial barriers to care while ensuring adequate financing of our entire health care delivery system, thereby removing health system disincentives to providing essential care for this vulnerable population. Make that for all of us.”

All of the nonsensical billing and collecting issues that are so horrifyingly reported on by Brill do not need to occur. The simple answer is that there should be a single, posted, price for each item or service and everyone is billed at and pays (or their insurance pays) the same amount. This is the situation in Canada, where fees for physicians are negotiated annually with the provinces and hospitals operate within a global budget. Probably fewer millionaire hospital administrators, but of course creating them should not be the goal of the money we spend on health care.

No poorly-insured, well-insured, uninsured, Medicaid-insured or Medicare insured. Just everyone covered. Simple, clean, elegant, and effective.