Feeding at the Trough
Why much of the health-care industry is backing Obamacare.
12:00 AM, Oct 7, 2009 • By STANLEY GOLDFARB
Did you ever wonder why there are so many elements of the health-care industry supporting Democratic health-care proposals? Doctors, hospitals, pharmaceutical companies, academic medical centers, and Bill Frist are all pro-"reform." Certainly there can be truly admirable instincts at work here: helping the sick, providing high quality care to the disenfranchised, improving the overall quality of our health care system. People being people, however, it is also worth considering another basis to understanding their motives: "Follow the money" and you will find good reasons for their support. In addition, you can find the seeds of conflicts that will develop between these various entities and the federal government as more intense efforts at reining in health care spending develop in the future.
Doctors- Every year for the past 10 years or so, Medicare is supposed to reduce the amount of money paid for each unit of medical work carried out by physicians. These units are called RVU's or relative value units. The reason that this reduction is mandated is that the amount of money Medicare pays out to doctors is limited by a rate of growth in costs that is said to be "sustainable". But every year, under intense lobbying pressure, Congress has canceled this reduction and actually voted an increase in payment. Next year, unless something changes, the reduction will be 20%. One of the "deals" worked out in the new proposals is that this annual reduction in Medicare payments will be permanently eliminated.
This is not to say that many doctors are not philosophically aligned with the Democrats' health-care reform, many are. But most have not really contemplated the reality of a single-payer system, surely the "end-game" of the health care overhaul. In such systems, physicians have no bargaining power. While they do not generally like health insurance companies since the companies have been difficult payers of the health care bill, at least the physicians could decide either not to accept the subscribers to a given insurance plan or not to accept insurance at all. The government will be pretty difficult in any negotiations. In fact, there will be no negotiations. Since all the patients will be in one plan, all the doctors had better be in the plan as well. One plan, no negotiation.
Hospitals- Hospitals have complained for many years about providing "free care" to the uninsured. In the new world of universal coverage, there will be no free care so hospitals will nicely benefit. Again, there are those hospital leaders who philosophically favor the Democrats' reform, often in the name of equality and justice. However, one wonders what will happen when communities in which the hospital, often the leading employer in town, contemplate the lack of business tax and real estate tax revenues from their non-profit hospitals and start to reassess the utility of the not-for-profit status. Heretofore, the freedom from the burden of taxation was based on the fact that the hospitals provided free care to the poor and uninsured and hence benefited the community. But with health care reform and universal coverage, there will be no need for free care and no rationale for non-taxed status. Oops.
Pharma- The deal with Pharma has been well described and has infuriated many House Democrats. The Medicare "donut hole" for seniors will be reduced by 50% as drugs will be re-priced to allow that outcome. The deal has been cut to allow Pharma to maintain exclusive control over certain types of biological drugs such as anti-cancer antibodies for a dozen years and a promise that the government will not negotiate drug pricing in Medicare. This benefit will be worth billions. However, if the federal government recants and decides to negotiate drug prices as do European countries, then one of the nations most profitable industries will be a lot less profitable. Less profits, fewer jobs.
Health insurance companies- It is pretty obvious that the insurance companies, if they survive, will have more potential subscribers and hence their acquiescence to the general proposition of universal coverage. They know they cannot compete with the federal government on price, as the government has the capacity to subsidize premiums. They also understand something that most physicians and other health care providers have not understood: It is very difficult to administer health care payments if you are interested in a variety of benefits like variable co-pays and deductibles. Since there is universal understanding that Medicare will be bankrupt in the next 5 or so years, Medicare will have to start managing care and not simply paying whatever bills are submitted. Only the insurance companies know how to do this. They will be hired to do so. They wisely but cautiously support reform because the truth is that a country as large and diverse as ours and a health care system that needs to manage costs cannot get along without them.
Integrated delivery systems-Organizations like the Mayo Clinic and the Cleveland Clinic have been cited by President Obama of examples of how to reduce health care costs, in part, because they pay physicians a salary and therefore do not have an economic incentive to perform as many tests or procedures. This latter idea is truly absurd because that is the current means by which hospitals and physicians generate revenue. The money that pays the salaries comes from performing tests and procedures and seeing many, many patients. At this time, there is no other important source of revenue. The salaries are based on how much revenue the physicians generate. There can be no other way, unless there is a large endowment that subsidizes activity.
So what is in reform that benefits these integrated systems? Partly it is the fact that most of their revenue comes from their hospitals and the benefits to the hospitals are noted above. I also think there may be another issue at work here. These systems often are composed of hundreds or even thousands of physicians, most employed but some independent. The so-called demonstration projects embedded in HR3200 and in the Baucus bill will lead to the incorporation of doctors and hospitals into a single, pre-paid, risk-bearing entity called an "Accountable Care Organization". These are also advocated by many foundations and think tanks that are from the progressive side of the ideological spectrum. If these ACO's become widespread, physician autonomy will be a thing of the past. The hospitals will dominate any physician group given their relative size and administrative resources.
Many might welcome such a development but patients may not be among them. It will be the most clear-cut example of implicit rationing of care as those ACO's that spend the least on care will be the most economically successful. This may be the way the curve of the growth of health care costs may "be bent" but there should be a bit of transparency around this proposal.
Large-for-profit Health Care Companies- Hospital Corporation of America, recently in the Fortune "100" until acquired through a leveraged buyout, was started by the Frist family although the former majority leader of the Senate, Dr. Bill Frist, has sold his stock in the once public company. Companies like HCA have the same incentives as the hospitals described above. If the tax advantages of the not-for-profit hospitals disappear, then these for-profit entities will be perfectly positioned to dominate the entire hospital sector in the United States.
Medical Device Manufacturers- This group may have the most to lose. They actually benefit very nicely from our current health care system. Any reduction in hospital spending will dramatically reduce the dollars now spent on maintaining a hospital's technological capabilities. Since they are not directly in the stream of dollars from the payers such as Medicare and the private insurance companies to hospitals and other health care facilities, the device makers will only be secondarily affected. Congress has asked them to simply make a big donation to the health care reform effort, some $40 billion.
If all these entities are in synchrony with health care reform as outlined in HR3200 or the Baucus bill, it is either the right thing to do and all its critics are mistaken, or it is a set of proposals that each of the entities has decided is in their economic interests and therefore they have joined the parade of supporters. I think the latter is always worth considering when it comes to government programs.
Stanley Goldfarb MD is associate dean of clinical education at the University of Pennsylvania School of Medicine and a nephrologist.