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Posts Tagged ‘Medicaid’

Can the Public Benefit Company Structure Save US Healthcare?

Curator: Stephen J. Williams, Ph.D.

According to Centers for Medicare and Medicare Services (CMS.gov) healthcare spending per capita has reached 17.7 percent of GDP with, according to CMS data:

From 1960 through 2013, health spending rose from $147 per person to $9,255 per person, an average annual increase of 8.1 percent.

the National Health Expenditure Accounts (NHEA) are the official estimates of total health care spending in the United States. Dating back to 1960, the NHEA measures annual U.S. expenditures for health care goods and services, public health activities, government administration, the net cost of health insurance, and investment related to health care. The data are presented by type of service, sources of funding, and type of sponsor.

Graph: US National Healthcare Expenditures as a percent of Gross Domestic Product from 1960 to current. Recession periods are shown in bars. Note that the general trend has been increasing healthcare expenditures with only small times of decrease for example 2020 in year of COVID19 pandemic. In addition most of the years have been inflationary with almost no deflationary periods, either according to CPI or healthcare costs, specifically.

U.S. health care spending grew 4.6 percent in 2019, reaching $3.8 trillion or $11,582 per person.  As a share of the nation’s Gross Domestic Product, health spending accounted for 17.7 percent.

And as this spending grew (demand for health care services) associated costs also rose but as the statistical analyses shows there was little improvement in many health outcome metrics during the same time. 

Graph of the Growth of National Health Expenditures (NHE) versus the growth of GDP. Note most years from 1960 growth rate of NHE has always been higher than GDP, resulting in a seemingly hyperinflationary effect of healthcare. Also note how there are years when this disconnect is even greater, as there were years when NHE grew while there were recessionary periods in the general economy.

It appears that US healthcare may be on the precipice of a transformational shift, but what will this shift look like? The following post examines if the corporate structure of US healthcare needs to be changed and what role does a Public Benefit Company have in this much needed transformation.

Hippocratic Oath

I swear by Apollo the physician, and Asclepius, and Hygieia and Panacea and all the gods and goddesses as my witnesses, that, according to my ability and judgement, I will keep this Oath and this contract:

To hold him who taught me this art equally dear to me as my parents, to be a partner in life with him, and to fulfill his needs when required; to look upon his offspring as equals to my own siblings, and to teach them this art, if they shall wish to learn it, without fee or contract; and that by the set rules, lectures, and every other mode of instruction, I will impart a knowledge of the art to my own sons, and those of my teachers, and to students bound by this contract and having sworn this Oath to the law of medicine, but to no others.

I will use those dietary regimens which will benefit my patients according to my greatest ability and judgement, and I will do no harm or injustice to them.

I will not give a lethal drug to anyone if I am asked, nor will I advise such a plan; and similarly I will not give a woman a pessary to cause an abortion.

In purity and according to divine law will I carry out my life and my art.

I will not use the knife, even upon those suffering from stones, but I will leave this to those who are trained in this craft.

Into whatever homes I go, I will enter them for the benefit of the sick, avoiding any voluntary act of impropriety or corruption, including the seduction of women or men, whether they are free men or slaves.

Whatever I see or hear in the lives of my patients, whether in connection with my professional practice or not, which ought not to be spoken of outside, I will keep secret, as considering all such things to be private.

So long as I maintain this Oath faithfully and without corruption, may it be granted to me to partake of life fully and the practice of my art, gaining the respect of all men for all time. However, should I transgress this Oath and violate it, may the opposite be my fate.

Translated by Michael North, National Library of Medicine, 2002.

Much of the following information can be found on the Health Affairs Blog in a post entitled

Public Benefit Corporations: A Third Option For Health Care Delivery?

By Soleil Shah, Jimmy J. Qian, Amol S. Navathe, Nirav R. Shah

Limitations of For Profit and Non-Profit Hospitals

For profit represent ~ 25% of US hospitals and are owned and governed by shareholders, and can raise equity through stock and bond markets.

According to most annual reports, the CEOs incorrectly assume they are legally bound as fiduciaries to maximize shareholder value.  This was a paradigm shift in priorities of companies which started around the mid 1980s, a phenomenon discussed below.  

A by-product of this business goal, to maximize shareholder value, is that CEO pay and compensation is naturally tied to equity markets.  A means for this is promoting cost efficiencies, even in the midst of financial hardships.

A clear example of the failure of this system can be seen during the 2020- current COVID19 pandemic in the US. According to the Medicare Payment Advisory Commission, four large US hospitals were able to decrease their operating expenses by $2.3 billion just in Q2 2020.  This amounted to 65% of their revenue; in comparison three large NONPROFIT hospitals reduced their operating expense by an aggregate $13 million (only 1% of their revenue), evident that in lean times for-profit will resort to drastic cost cutting at expense of service, even in times of critical demands for healthcare.

Because of their tax structure and perceived fiduciary responsibilities, for-profit organizations (unlike non-profit and public benefit corporations) are not legally required to conduct community health need assessments, establish financial assistance policies, nor limit hospital charges for those eligible for financial assistance.  In addition to the difference in tax liability, for-profit, unlike their non-profit counterparts, at least with hospitals, are not funded in part by state or local government.  As we will see, a large part of operating revenue for non-profit university based hospitals is state and city funding.

Therefore risk for financial responsibility is usually assumed by the patient, and in worst case, by the marginalized patient populations on to the public sector.

Tax Structure Considerations of for-profit healthcare

Financials of major for-profit healthcare entities (2020 annual)

Non-profit Healthcare systems

Nonprofits represent about half of all hospitals in the US.  Most of these exist as a university structure, so retain the benefits of being private health systems and retaining the funding and tax benefits attributed to most systems of higher education. And these nonprofits can be very profitable.  After taking in consideration the state, local, and federal tax exemptions these nonprofits enjoy, as well as tax-free donations from contributors (including large personal trust funds), a nonprofit can accumulate a large amount of revenue after expenses.  In fact 82 nonprofit hospitals had $33 billion of net asset increase year-over-year (20% increase) from 2016 to 2017.  The caveat is that this revenue over expenses is usually spent on research or increased patient services (this may mean expanding the physical infrastructure of the hospital or disseminating internal grant money to clinical investigators, expanding the hospital/university research assets which could result in securing even larger amount of external funding from government sources.

And although this model may work well for intercity university/healthcare systems, it is usually a struggle for the rural nonprofit hospitals.  In 2020, ten out of 17 rural hospitals that went under were nonprofits.  And this is not just true in the tough pandemic year.  Over the past two decades multitude of nonprofit rural hospitals had to sell and be taken over by larger for-profit entities. 

Hospital consolidation has led to a worse patient experience and no real significant changes in readmission or mortality data.  (The article below is how over 130 rural hospitals have closed since 2010, creating a medical emergency in rural US healthcare)

https://www.nationalgeographic.com/history/article/appalachian-hospitals-are-disappearing

And according to the article below it is only to get worse

The authors of the Health Affairs blog feel a major disadvantage of both the for-profit and non-profit healthcare systems is “that both face limited accountability with respect to anticompettive mergers and acquisitions.”

More hospital consolidation is expected post-pandemic

Aug 10, 2020

By Rich Daly, HFMA Senior Writer and Editor

News | Coronavirus

More hospital consolidation is expected post-pandemic

  • Hospital deal volume is likely to accelerate due to the financial damage inflicted by the coronavirus pandemic.
  • The anticipated increase in volume did not show up in the latest quarter, when deals were sharply down.
  • The pandemic may have given hospitals leverage in coming policy fights over billing and the creation of “public option” health plans.

Hospital consolidation is likely to increase after the COVID-19 pandemic, say both critics and supporters of the merger-and-acquisition (M&A) trend.

The financial effects of the coronavirus pandemic are expected to drive more consolidation between and among hospitals and physician practices, a group of policy professionals told a recent Washington, D.C.-based web briefing sponsored by the Alliance for Health Policy.

“There is a real danger that this could lead to more consolidation, which if we’re not careful could lead to higher prices,” said Karyn Schwartz, a senior fellow at the Kaiser Family Foundation (KFF).

Schwartz cited a recent KFF analysis of available research that concluded “provider consolidation leads to higher health care prices for private insurance; this is true for both horizontal and vertical consolidation.”

Kenneth Kaufman, managing director and chair of Kaufman Hall, noted that crises tend to push financially struggling organizations “further behind.”

“I wouldn’t be surprised at all if that happens,” Kaufman said. “That will lead to further consolidation in the provider market.”

The initial rounds of federal assistance from the CARES Act, which were based first on Medicare revenue and then on net patient revenue, may fuel consolidation, said Mark Miller, PhD, executive vice president of healthcare for Arnold Ventures. That’s because the funding formulas favored organizations that already had higher revenues, he said, and provided less assistance to low-revenue organizations.

HHS has distributed $116.2 billion from the $175 billion in provider funding available through the CARES Act and the Paycheck Protection Program and Health Care Enhancement Act. The largest distributions used the two revenue formulas cited by Miller.

No surge in M&A yet

The expected burst in hospital M&A activity has yet to occur. Kaufman Hall identified 14 transactions in the second quarter of 2020, far fewer than in the same quarter in any of the four preceding years, when second-quarter transactions totaled between 19 and 31. The latest deals were not focused on small hospitals, with average seller revenue of more than $800 million — far larger than the previous second-quarter high of $409 million in 2018.

Six of the 14 announced transactions were divestitures by major for-profit health systems, including Community Health Systems, Quorum and HCA.

Kaufman Hall’s analysis of the recent deals identified another pandemic-related factor that may fuel hospital M&A: closer ties between hospitals. The analysis cited the example of  Lifespan and Care New England, which had suspended merger talks in 2019. More recently, in a joint announcement, the CEOs of the two systems noted that because of the COVID-19 crisis, the two systems “have been working together in unprecedented ways” and “have agreed to enter into an exploration process to understand the pros and cons of what a formal continuation of this collaboration could look like in the future.”

The M&A outlook for rural hospitals

The pandemic has had less of a negative effect on the finances of rural hospitals that previously joined larger health systems, said Suzie Desai, senior director of not-for-profit healthcare for S&P Global.

A CEO of a health system with a large rural network told Kaufman the federal grants that the system received for its rural hospitals were much larger than the grants paid through the general provider fund.

“If that was true across the board, then the federal government recognized that many rural hospitals could be at risk of not being able to make payroll; actually running out of money,” Kaufman said. “And they seem to have bent over backwards to make sure that didn’t happen.”  

Other CARES Act funding distributed to providers included:

  • $12.8 billion for 959 safety net hospitals
  • $11 billion to almost 4,000 rural healthcare providers and hospitals in urban areas that have certain special rural designations in Medicare

Telehealth has helped rural hospitals but has not been sufficient to address the financial losses inflicted by the pandemic, Desai said.

Other coming trends include a sharper cost focus

Desai expects an increasing focus “over the next couple years” on hospital costs because of the rising share of revenue received from Medicare and Medicaid. She expects increased efforts to use technology and data to lower costs.

Billy Wynne, JD, chairman of Wynne Health Group, expects telehealth restrictions to remain relaxed after the pandemic.

Also, the perceptions of the public and politicians about the financial health of hospitals are likely to give those organizations leverage in coming policy fights over changes such as banning surprise billing and creating so-called public-option health plans, Wynne said. As an example, he cited the Colorado legislature’s suspension of the launch of a public option “in part because of sensitivities around hospital finances in the COVID pandemic.”

“Once the dust settles, it’ll be interesting to see if their leverage has increased or decreased due to what we’ve been through,” Wynne said.

About the Author

Rich Daly, HFMA Senior Writer and Editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Source: https://www.hfma.org/topics/news/2020/08/more-hospital-consolidation-is-expected-post-pandemic.html

From Harvard Medical School

Hospital Mergers and Quality of Care

A new study looks at the quality of care at hospitals acquired in a recent wave of consolidations

By JAKE MILLER January 16, 2020 Research

Two train tracks merge in a blurry sunset.

Image: NirutiStock / iStock / Getty Images Plus       

The quality of care at hospitals acquired during a recent wave of consolidations has gotten worse or stayed the same, according to a study led by Harvard Medical School scientists published Jan. 2 in NEJM.

The findings deal a blow to the often-cited arguments that hospital consolidation would improve care. A flurry of earlier studies showed that mergers increase prices. Now after analyzing patient outcomes after hundreds of hospital mergers, the new research also dashes the hopes that this more expensive care might be of higher quality.

Get more HMS news here

“Our findings call into question claims that hospital mergers are good for patients—and beg the question of what we are getting from higher hospital prices,” said study senior author J. Michael McWilliams, the Warren Alpert Foundation Professor of Health Care Policy in the Blavatnik Institute at HMS and an HMS professor of medicine and a practicing general internist at Brigham and Women’s Hospital.

McWilliams noted that rising hospital prices have been one of the leading drivers of unsustainable growth in U.S. health spending.   

To examine the impact of hospital mergers on quality of care, researchers from HMS and Harvard Business School examined patient outcomes from nearly 250 hospital mergers that took place between 2009 and 2013. Using data collected by the Centers for Medicare and Medicaid Services, they analyzed variables such as 30-day readmission and mortality rates among patients discharged from a hospital, as well as clinical measures such as timely antibiotic treatment of patients with bacterial pneumonia. The researchers also factored in patient experiences, such as whether those who received care at a given hospital would recommend it to others. For their analysis, the team compared trends in these indicators between 246 hospitals acquired in merger transactions and unaffected hospitals.

The verdict? Consolidation did not improve hospital performance, and patient-experience scores deteriorated somewhat after the mergers.

The study was not designed to examine the reasons behind the worsening in patient experience. Weakening of competition due to hospital mergers could have contributed, the researchers said, but deeper exploration suggested other potential mechanisms. Notably, the analysis found the decline in patient-experience scores occurred mainly in hospitals acquired by hospitals that already had a poor patient-experience score—a finding that suggests acquisitions facilitate the spread of low quality care but not of high quality care.

The researchers caution that isolated, individual mergers may have still yielded positive results—something that an aggregate analysis is not powered to capture. And the researchers could only examine measurable aspects of quality. The trend in hospital performance on these standard measures, however, appears to point to a net effect of overall decline, the team said.

“Since our study estimated the average effects of mergers, we can’t rule out the possibility that some mergers are good for patient care,” said first author Nancy Beaulieu, research associate in health care policy at HMS. “But this evidence should give us pause when considering arguments for hospitals mergers.”

The work was supported by the Agency for Healthcare Research and Quality (grant no. U19HS024072).

Co-investigators included Bruce Landon and Jesse Dalton from HMS, Ifedayo Kuye, from the University of California, San Francisco, and Leemore Dafny from Harvard Business School and the National Bureau of Economic Research.

Source: https://hms.harvard.edu/news/hospital-mergers-quality-care

Public Benefit Corporations (PBC)

     Public benefit corporations (versus Benefit Corporate status, which is more of a pledge) are separate legal entities which exist as a hybrid, for-profit/nonprofit company but is mandated to 

  1. Pursue a general or specific public benefit
  2. Consider the non-financial interests of its shareholders and other STAKEHOLDERS when making decision
  3. report how well it is achieving its overall public benefit objectives
  4. Have limited fiduciary responsibility to investors that remains IN SCOPE of public benefit goal

In essence, the public benefit corporations executives are mandated to run the company for the benefit of STAKEHOLDERS first, if those STAKEHOLDERS are the public beneficiary of the company’s goals.  This in essence moves the needle away from the traditional C-Corp overvaluing the needs of shareholders and brings back the mission of the company and in the case of healthcare, the needs of its stakeholders, the consumers of healthcare.

     PBCs are legal entities recognized by states rather than by the federal government.  So far, in 2020 about 37 states allow companies to incorporate as a PBC.  Stipulations of the charter include semiannual reporting of the public benefits bestowed by the company and how well it is achieving its public benefit mandate.  There are about 3,000 US PBCs. Some companies have felt it was in their company mission and financial interest to change incorporation as a PBC.

Some well known PBCs include

  1. Ben and Jerry’s Ice Cream
  2. American Red Cross
  3. Susan B. Komen Foundation
  4. Allbirds (a shoe startup valued at $1.7 billion when made switch)
  5. Bombas (the sock company that donates extra socks when you buy a pair)
  6. Lemonade (a publicly traded insurance PBC that has beneficiaries select a nonprofit that the company will donate to)

Although the number of PBCs in the healthcare arena is increasing

  1. Not many PBCs are in the area of healthcare delivery 
  2. Noone is quite sure what the economic model would look like for a healthcare delivery PBC

Some example of hospital PBC include NYC Health + Hospitals and Community First Medical Center in Chicago.

Benefits of moving a hospital to PBC Status

  1. PBCs are held legally accountable to a predefined public benefit.  For hospitals this could be delivering cost-effective quality of care and affordable to a local citizenry or an economically disadvantaged population.  PBCs must produce at least an annual report on the public benefits it has achieved contrasted against a third party standard.  For example a hospital could include data of Medicaid related mortality risks, data neither the C-corp nor the nonprofit 501c would have to report on.  Most nonprofits and charities report their taxes on a schedule H or Form 990, which only has to report the officer’s compensation as well as monies given to charitable organizations, or other 501 organizations.  The nonprofit would show a balance of zero as the donated money for that year would be allocated out for various purposes. Hospitals, even as nonprofits, are not required to submit all this data.  Right now in US the ACA just requires any hospital that receives government or ACA insurance payments to report certain outcome statistics.  Although varying state by state, a PBC should have a “benefit officer” to make sure the mandate is being met.  In some cases a PBC benefit officer could sue the board for putting shareholder interest over the public benefit mandate.
  2. A PBC can include community stakeholders in the articles of incorporation thus giving a voice to local community members.  This would be especially beneficial for a hospital serving, say, a rural community.
  3. PBCs do have advantages of the for-profit companies as they are not limited to non-equity forms of investment.  A PBC can raise money in the equity markets or take on debt and finance it.  These financial instruments are unavailable to the non-profit.  Yet one interesting aspect is that PBCs require a HIGHER voting threshold by shareholders than a traditional for profit company in the ability to change their public benefit or convert their PBC back to a for-profit.

Limitations of the PBC

  1. Little incentive financially for current and future hospitals to incorporate as a PBC.  Herein lies a huge roadblock given the state of our reimbursement structure in this country.  Although there may be an incentive with regard to hiring and retention of staff drawn to the organization’s social purpose.  There have been, in the past, suggestions to allow hospitals that incorporate at PBC to receive some tax benefit, but this legislation has not gone through either at state or federal level. (put link to tax article).  
  2. In order for there to be value to constituents (patients) there must be strong accountability measures.  This will require the utmost in ethical behavior by a board and executives.  We have witnessed, through M&A by large health groups, anticompetitive and near monopoly behavior.
  3. There are no federal guidelines but varying guidelines from state to state.  There must be some federal recognition of the PBC status when it comes to healthcare, such as that the government is one of the biggest payers of US healthcare.

This is a great interview with ArcHealth, a PBC healthcare system.

Source: https://www.archealthjustice.com/arc-health-as-public-benefit-company-and-social-enterprise-what-is-the-difference/

Arc Health as a Public Benefit Company and Social Enterprise – What is the difference?

Mar 3, 2021 | Healthcare

Arc Health PBC is a public benefit corporation, a mission-driven for-profit company that utilizes a market-driven approach to achieving our short and long-term social goals. As a public benefit corporation, Arc Health is also a social enterprise working to further our mission of providing healthcare to rural, underserved, and indigenous communities through business practices that improve the recruitment and retention of quality healthcare providers.

What is a Social Enterprise?

While there is no one exact definition, according to the Social Enterprise Alliance, a social enterprise is an “organization that addresses a basic unmet need or solves a social or environmental problem through a market-driven approach.” A social enterprise is not a distinct legal entity, but instead, an “ideological spectrum marrying commercial approaches with social good.” Social enterprises foster a dual-bottom-line – simultaneously seeking profits and social impact. Arc Health, like many social enterprises, seeks to be self–sustainable. 

Two primary structures fall under the social enterprise umbrella: nonprofits and for-profit organizations. There are also related entities within both structures that could be considered social enterprises. Any of these listed structures can be regarded as a social enterprise depending on if and how involved they are with socially beneficial programs.

What is a Public Benefit Corporation?

Public Benefit Corporations (PBCs), also known as benefit corporations, are “for-profit companies that balance maximizing value to stakeholders with a legally binding commitment to a social or environmental mission.” PBCs operate as for-profit entities with no tax advantages or exemptions. Still, they must have a “purpose of creating general public benefit,” such as promoting the arts or science, preserving the environment, or providing benefits to underserved communities. PBCs must attain a higher degree of corporate purpose, expanded accountability, and expected transparency. 

There are now  over 3,000 registered PBCs, comprising approximately 0.1% of American businesses.

 As a PBC, Arc Health expects to access capital through individual investors who seek financial returns, rather than through donations. Arc Health’s investors make investments with a clear understanding of the balance the company must strike between financial returns (I.e., profitability) and social purpose. Therefore, investors expect the company to be operationally profitable to ensure a financial return on their investments, while also making clear to all stakeholders and the public that generating social impact is the priority. 

What is the difference between a Social Enterprise and PBC?

Social enterprises and PBCs emulate similar ideals that value the importance and need to invoke social change vis-a-vis working in a market-driven industry. Public benefit corporations fall under the social enterprise umbrella. An organization may choose to use a social enterprise model and incorporate itself as either a not-for-profit, C-Corp, PBC, or other corporate structure.  

How did Arc Health Become a Public Benefit Corporation?

Arc Health was initially formed as a C-Corp. In 2019, Arc Health’s CEO and Co-Founder, Dave Shaffer, guided the conversion from a C-Corp to a PBC, incorporated in Delaware. Today, Arc Health follows guidelines and expectations for PBCs, including adhering to the State of Delaware’s requirements for PBCs. 

Why is Arc Health a Social Enterprise and Public Benefit Corporation?

Arc Health believes it is essential to commit ourselves to our mission and demonstrate our dedication through our actions. We work to adhere to the core values of accountability, transparency, and purpose. As a registered public benefit company and a social enterprise, we execute our drive to achieve health equity in tangible and effective ways that the communities we work with, our stakeholders, and our providers expect of us.  

90% of Americans say that companies must not only say a product or service is beneficial, but they also need to prove its benefit.

When we partner with health clinics and hospitals, we aim to provide services that enact lasting change. For example, we work with healthcare providers who desire to contribute both clinical and non-clinical skills. In 2020, Arc Health clinicians developed COVID-19 response protocols and educational materials about the vaccines. They participated in pain management working groups. They identified and followed up with kids in the community who were overdue for a well-child check. Arc Health providers should be driven by a desire to develop a long-term relationship with a healthcare service provider and participate in its successes and challenges.   

Paradigm Shift in the 1980’s: Companies Start to Emphasize Shareholders Over Stakeholders

So earlier in this post we had mentioned about a shift in philosophy at the corporate boardroom that affected how comparate thought, value, and responsibility: Companies in the 1980s started to shift their focus and value only the needs of corporate ShAREHOLDERS at the expense of their  traditional STAKEHOLDERS (customers, clients).  Many movies and books have been written on this and debatable if deliberate or a by-product of M&A, hostile takeovers, and the stock market in general but the effect was that the consumer was relegated as having less value, even though marketing budgets are very high.  The fiduciary responsibility of the executive was now defined in terms of satisfying shareholders, who were now  big huge and powerful brokerage houses, private equity, and hedge funds.  A good explanation by Medium.com Tyler Lasicki is given below.

From the Medium.com

Source: https://medium.com/swlh/the-shareholder-v-stakeholder-contrast-a-brief-history-c5a6cfcaa111

The Shareholder V. Stakeholder Contrast, a Brief History

Tyler Lasicki

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May 26, 2020 · 14 min read

Introduction

In a famous 1970 New York Times Article, Milton Friedman postulated that the CEO, as an employee of the shareholder, must strive to provide the highest possible return for all shareholders. Since that article, the United States has embraced this idea as the fundamental philosophy supporting the ultimate purpose of businesses — The Shareholders Come First.

In August of 2019, the Business Roundtable, a group made up of the most influential U.S CEOs, published a letter shifting their stance on the purpose of a corporation. Regardless of whether this piece of paper will actually result in any systematic changes has yet to be seen, however this newly stated purpose of business is a dramatic shift from the position Milton Friedman took in 1970. According to the statement, these corporations will no longer prioritize maximizing profits for shareholders, but instead turn their focus to benefiting all stakeholders — including citizens, customers, suppliers, employees, on par with shareholders. 

Now the social responsibility of a company and the CEO was to maxiimize the profits even at the expense of any previous social responsibility they once had.

Small sample of the 181 Signatures attached to the Business Roundtable’s letter

What has happened over the past 50 years that has led to such a fundamental change in ideology? What has happened to make the CEO’s of America’s largest corporations suddenly change their stance on such a foundational principle of what it means to be an American business?

Since diving into this subject, I have come to find that the “American fundamental principle” of putting shareholders first is one that is actually not all that fundamental. In fact, for a large portion of our nation’s history this ideology was actually seen as the unpopular position.

Key ideological shifts in U.S. history

This post dives into a brief history of these two contrasting ideological viewpoints in an attempt to contextualize the forces behind both sides — specifically, the most recent shift (1970–2019). This basic idea of what is most important; the stakeholder or the shareholder, is the underlying reason as to why many things are the way they are today. A corporation’s priority of shareholder or stakeholder ultimately impacts employee salaries, benefits, quality of life within communities, environmental conditions, even the access to education children can receive. It affects our lives in a breadth and depth of ways and now that corporations may be changing positions (yet again) to focus on a model that prioritizes the stakeholder, it is important to understand why.

Looking forward, if stakeholder priority ends up being the popular position among American businesses, how long will it last for? What could lead to its downfall? And what will managers do to ensure a long term stakeholder-friendly business model?

It is clear to me the reasons that have led to these shifts in ideology are rather nuanced, however I want to highlight a few trends that have had a major impact on businesses changing their priorities while also providing context as to why things have shifted.

The Ascendancy of Shareholder Value

Following the 1929 stock market crash and the Great Depression, stakeholder primacy became the popular perspective within corporate America. Stakeholder primacy is the idea that corporations are to consider a wider group of interested parties (not just shareholders) whose positions need to be taken into consideration by corporate governance. According to this point of view, rather than solely being an agent for shareholders, management’s responsibilities were to be dispersed among all of its constituencies, even if it meant a reduction in shareholder value. This ideology lasted as the dominant position for roughly 40 years, in part due to public opinion and strong views on corporate responsibility, but also through state adoption of stakeholder laws.

By the mid-1970s, falling corporate profitability and stagnant share prices had been the norm for a decade. This poor economic performance influenced a growing concern in the U.S. regarding the perceived divergence between manager and shareholder interest. Many held the position that profits and share prices were suffering as a result of corporation’s increased attention on stakeholder groups.

This noticeable divergence in interests sparked many academics to focus their research on corporate management’s motivations in decision making regarding their allocation of resources. This branch of research would later be known as agency theory, which focused on the relationship between principals (shareholders) and their agents (management). Research at the time outlined how over the previous decades corporate management had pursued strategies that were not likely to optimize resources from a shareholder’s perspective. These findings were part of a seismic shift of corporate philosophy, changing priority from the stakeholders of a business to the shareholders.

By 1982, the U.S. economy started to recover from a prolonged period of high inflation and low economic growth. This recovery acted as a catalyst for change in many industries, leaving many corporate management teams to struggle in response to these changes. Their business performance suffered as a result. These distressed businesses became targets for a group of new investors…private equity firms.

Now the paradigm shift had its biggest backer…. private equity!  And private equity care about ONE thing….. THEIR OWN SHARE VALUE and subsequently meaning corporate profit, which became the most important directive for the CEO.

So it is all hopeless now? Can there be a shift back to the good ‘ol days?  

Well some changes are taking place at top corporate levels which may help the stakeholders to have a voice at the table, as the following IRMagazine article states.

And once again this is being led by the Business Roundtable, the same Business Roundtable that proposed the shift back in the 1970s.

Andrew Holt

Andrew Holt

REPORTER

  •  
  •  

SHAREHOLDER VALUE

CORPORATE GOVERNANCE

Shift from shareholder value to stakeholder-focused model for top US firms

AUG 23, 2019

Business Roundtable reveals corporations to drop idea they function to serve shareholders only

Source: https://www.irmagazine.com/esg/shift-shareholder-value-stakeholder-focused-model-top-us-firms

Andrew Holt

Andrew Holt

REPORTER

n a major corporate shift, shareholder value is no longer the main objective of the US’ top company CEOs, according to the Business Roundtable, which instead emphasizes the ‘purpose of a corporation’ and a stakeholder-focused model.

The influential body – a group of chief executive officers from major US corporations – has stressed the idea of a corporation dropping the age-old notion that corporations function first and foremost to serve their shareholders and maximize profits.

Rather, the focus should be on investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities as the vanguard of American business, according to a Business Roundtable statement.

‘While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,’ reads the statement, signed by 181 CEOs. ‘We commit to deliver value to all of them, for the future success of our companies, our communities and our country.’

Gary LaBranche, president and CEO of NIRI, tells IR Magazine that this is part of a wider trend: ‘The redefinition of purpose from shareholder-focused to stakeholder-focused is not new to NIRI members. For example, a 2014 IR Update article by the late Professor Lynn Stout urges a more inclusive way of thinking about corporate purpose.’ 

NIRI has also addressed this concept at many venues, including the senior roundtable annual meeting and the NIRI Annual Conference, adds LaBranche. This trend was further seen in the NIRI policy statement on ESG disclosure, released in January this year. 

Analyzing the meaning of this change in more detail, LaBranche adds: ‘The statement is a revolutionary break with the Business Roundtable’s previous position that the purpose of the corporation is to create value for shareholders, which was a long-held position championed by Milton Friedman.

‘The challenge is that Friedman’s thought leadership helped to inspire the legal and regulatory regime that places wealth creation for shareholders as the ‘prime directive’ for corporate executives.

‘Thus, commentators like Mike Allen of Axios are quick to point out that some shareholders may actually use the new statement to accuse CEOs of worrying about things beyond increasing the value of their shares, which, Allen reminds us, is the CEOs’ fiduciary responsibility.

‘So while the new Business Roundtable statement reflects a much-needed rebalancing and modernization that speaks to the comprehensive responsibilities of corporate citizens, we can expect that some shareholders will push back on this more inclusive view of who should benefit from corporate efforts and the capital that makes it happen. The new statement may not mark the dawn of a new day, but it perhaps signals the twilight of the Friedman era.’

In a similarly reflective way, Jamie Dimon, chairman and CEO of JPMorgan Chase & Co and chairman of the Business Roundtable, says: ‘The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.’

Note:  Mr Dimon has been very vocal for many years on corporate social responsibility, especially since the financial troubles of 2009.

Other related articles published on this Open Access Online Scientific Journal on Healthcare Issues include the following:

Opportunity Mapping of the E-Health Sector prior to COVID19 Outbreak
mHealth market growth in America, Europe, & APAC
Ethics Behind Genetic Testing in Breast Cancer: A Webinar by Laura Carfang of survivingbreastcancer.org
The Inequality and Health Disparity seen with the COVID-19 Pandemic Is Similar to Past Pandemics
Live Notes from @HarvardMed Bioethics: Authors Jerome Groopman, MD & Pamela Hartzband, MD, discuss Your Medical Mind
COVID-related financial losses at Mass General Brigham
Personalized Medicine, Omics, and Health Disparities in Cancer:  Can Personalized Medicine Help Reduce the Disparity Problem?

Read Full Post »

Real Time Coverage @BIOConvention #BIO2019: After Trump’s Drug Pricing Blueprint: What Happens Next? A View from Washington; June 3 2019 1:00 PM Philadelphia PA

Reporter: Stephen J. Williams, PhD @StephenJWillia2

 

Speaker: Dan Todd, JD

Dan Todd is the Principal of Todd Strategy, LLC, a consulting firm founded in 2014 and based in Washington, DC. He provides legislative and regulatory strategic guidance and advocacy for healthcare stakeholders impacted by federal healthcare programs.

Prior to Todd Strategy, Mr. Todd was a Senior Healthcare Counsel for the Republican staff of the Senate Finance Committee, the Committee of jurisdiction for the Medicare and Medicaid programs. His areas of responsibility for the committee included the Medicare Part B and Part D programs, which includes physician, medical device, diagnostic and biopharmaceutical issues.

Before joining the Finance Committee, Mr. Todd spent several years in the biotechnology industry, where he led policy development and government affairs strategy. He also represented his companies’ interests with major trade associations such as PhRMA and BIO before federal and state representatives, as well as with key stakeholders such as physician and patient advocacy organizations.

Dan also served as a Special Assistant in the Office of the Administrator at the Centers for Medicare & Medicaid Services (CMS), the federal agency charged with the operation of the Medicare and Medicaid programs. While at CMS, Dan worked on Medicare Part B and Part D issues during the implementation of the Medicare Modernization Act from 2003 to 2005.

Cost efficiencies were never measured.

Removing drug rebates would cost 180 billion over 10 years. CBO came up with similar estimate.  Not sure what Congress will do. It appears they will keep the rebates in.

  • House  Dems are really going after PBMs; anytime the Administration makes a proposal goes right into CBO baseline estimates;  negotiations appear to be in very early stages and estimates are up in the air
  • WH close to meet a budget cap but then broke down in next day; total confusion in DC on budget; healthcare is now held up, especially the REBATE rule; : is a shame as panel agrees cost savings would be huge
  • they had initiated a study to tie the costs of PartB to international drug prices; meant to get at disparity on international drug prices; they currently are only mulling the international price index; other option is to reform Part B;  the proposed models were brought out near 2016 elections so not much done; unified agenda;
  • most of the response of Congress relatively publicly muted; a flat fee program on biologics will have big effect on how physicians and health systems paid; very cat and mouse game in DC around drug pricing
  • administration is thinking of a PartB “inflation cap”;  committees are looking at it seriously; not a rebate;  discussion of tiering of physician payments
  • Ways and Means Cmmtte:  proposing in budget to alleve some stresses on PartB deductable amounts;
  • PartD: looking at ways to shore it up; insurers 80% taxpayers 20% responsible; insurers think it will increase premiums but others think will reduce catastrophic costs; big part of shift in spending in Part D has been this increase in catastrophic costs
  • this week they may actually move through committees on this issue; Administration trying to use the budgetary process to drive this bargain;  however there will have to be offsets so there may be delays in process

Follow or Tweet on Twitter using the following @ and # (hashtags)

@pharma_BI

@AVIVA1950

@BIOConvention

@PCPCC

#BIO2019

#patientcost

#PrimaryCare

 

Other articles on this Open Access Journal on Healthcare Costs, Payers, and Patient Care Include:

The Arnold Relman Challenge: US HealthCare Costs vs US HealthCare Outcomes

Centers for Medicare & Medicaid Services announced that the federal healthcare program will cover the costs of cancer gene tests that have been approved by the Food and Drug Administration

Trends in HealthCare Economics: Average Out-of-Pocket Costs, non-Generics and Value-Based Pricing, Amgen’s Repatha and AstraZeneca’s Access to Healthcare Policies

Can Blockchain Technology and Artificial Intelligence Cure What Ails Biomedical Research and Healthcare

Live Conference Coverage @Medcity Converge 2018 Philadelphia: Oncology Value Based Care and Patient Management

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The Affordable Care Act: A Considered Evaluation.

Part I.  The legislative act (ACA) and the model for implementation (Insurance Gateways).

Writer and Curator: Larry H. Bernstein, MD, FCAP
and
Curator and Editor: Aviva Lev-Ari, PhD, RN 
This discussion is composed as two distinct chapters.  The first is a clarification of what is contained in the Affordable Care Act (ACA), the model of care it is crafted from, the insurance mandate, the inclusion of groups considered high risk and uninsured, the inclusion of groups low risk and uninsured, and the economics involved in going from a fractured for profit health care industry to a more stable coverage for patients.  The second is taken from selected articles on the care process and the cost and consequences for improving quality at lower cost.   There are inherent problems at looking at this from a systems point of view, mainly impacted by the relationship of providers to hospitals and clinics, and by the relationships of insurers to the patients and providers in an Accountable Care Organization (ACO) model.
This article has the following two parts:

Part I. The legislative act (ACA) and the model for implementation (Insurance Gateways).

Part II.  The Implementation of the ACA, Impact on Physicians and Patients, and the Dis-Ease of the Accountable Care Organizations.

Part I

The legislative act (ACA) and the model for implementation (Insurance Gateways)

A. Access and Coverage of Healthcare Reform Mandate

About 2.5 million young adults from age 19 to 25 attained health coverage as a result of the Affordable Care Act, which took effect in September 2010, according to the U.S. Department of Health and Human Services. Prior to the law’s approval, some 13.7 million young adults were uninsured, nearly one-third of the nation’s total uninsured population, according to the nonprofit Kaiser Family Foundation.
Employer-sponsored health insurance forms the backbone of our health insurance system. This leaves small businesses difficult to provide their workers with comprehensive coverage. In 2007, only 25 percent of employees in small businesses had coverage through their own employers, compared with 74 percent of workers in large firms. Moreover, there are few sources of affordable coverage outside the employer-based system, leaving millions of employees in small businesses uninsured or with inadequate health insurance. In 2007, half as many workers in small businesses were uninsured or underinsured compared to employees in large businesses. Congressional health reform bills to reform the health system include provisions specifically aimed at helping small businesses and their employees gain access to affordable, comprehensive coverage.  Then there is another issue since the “Great Recession” of 2008, that there is no stable coverage for an unemployed workforce and indigent families with competing needs for food and health.  (Kaiser Health News, 2009; 67).
The law created insurance exchanges to close the gap.  Employer interest in insurance exchanges is growing. The Kaiser Family Foundation found that 29% of employers with 5,000 or more employees are considering private exchanges as an option for buying healthcare coverage for their employees. A day later, consulting firm Towers Watson released its Health Care Changes Ahead survey, which found that 37% of employers think private exchanges are a reasonable alternative to traditional employer coverage in 2014.
See Figure.  M. M. Doty, S. R. Collins, S. D. Rustgi, and J. L. Nicholson, Out of Options: Why So Many Workers in Small Businesses Lack Affordable Health Insurance, and How Health Care Reform Can Help, The Commonwealth Fund, September 2009.

Changes in Health Insurance Coverage in the Great Recession, 2007-2010

This issue brief examines changes in health insurance coverage over the last decade, with a focus on how changes in the economy, particularly during the “Great Recession” of 2007 to 2009, have affected coverage and the number of uninsured. The paper finds that the number of uninsured grew substantially during the first recession of the decade, increasing by 5 million people from 2000 to 2004; increased more slowly during the brief recovery, growing by 2.1 million people from 2004 to 2007; and then again rose significantly during the Great Recession, rising by 5.7 million people since 2007.
The paper also finds that coverage, especially for children, through the Medicaid and Children’s Health Insurance Programs helped to prevent even more people from being uninsured. While the number of uninsured children declined in recent years, the number of uninsured adults rose. The only notable drop in uninsured adults was for young adults ages 19-25 in 2010, most likely due to the provision of the health reform law that permits young adults to stay on their parents’ insurance. The paper also considers trends in coverage by work status, race and ethnicity, citizenship status and geographical region.
http://kff.org/medicaid/issue-brief/changes-in-health-insurance-coverage-in-the/

Uninsured adults with chronic conditions or disabilities: gaps in public insurance programs.

Pizer SD, Frakt AB, Iezzoni LI. US Department of Veterans Affairs in Boston, MA. 

Health Aff (Millwood). 2009;28(6):w1141-50. http://dx.doi.org/10.1377/hlthaff.28.6.w1141
http://www.ncbi.nlm.nih.gov/pubmed/19843552
Among nonelderly U.S. adults (ages 25-61), uninsurance rates increased from 13.7 percent in 2000 to 16.0 percent in 2005. Despite the existence of public insurance programs, rates remained high for low-income people reporting serious health conditions (25 percent across years) or disabilities (15 percent). Previous research has established that low-income workers, those facing more stringent Medicaid eligibility requirements, and people employed by smaller firms are more likely than others to lack health insurance. Residents of southern states had even higher rates (32 percent with health conditions, 22 percent with disabilities). Those who did not belong to a federally mandated Medicaid eligibility category were about twice as likely as others to be uninsured overall, and uninsurance among this group increased more rapidly over time.
To address this growing problem, President Barack Obama and leaders in Congress passed health insurance reform legislation that is still taking shape. A common feature of the major proposals at this point is that coverage would be expanded by building on existing arrangements. This approach allows people to keep their current insurance if they wish to do so. The Medicaid program is particularly complicated because it is jointly financed and operated by the federal and state governments and because each state has implemented it differently.
See Table 1.

Ultimately, if Congress decides not to eliminate categorical eligibility restrictions, our results indicate that the preservation of eligibility expansions for people with disabilities or chronic conditions would target a population that is particularly vulnerable to uninsurance and its deleterious effects on health.

How Many Are Underinsured? Trends Among U.S. Adults, 2003 And 2007

Cathy Schoen, Sara R. Collins, Jennifer L. Kriss and Michelle M. Doty
Health Aff 2008; 27(4) w298-w309  http://dx.doi.org/10.1377/hlthaff.27.4.w298
With health insurance moving toward greater patient cost sharing, this study finds a sharp increase in the number of underinsured people. Based on indicators of cost exposure relative to income, as of 2007 an estimated twenty-five million insured people ages 19–64 were underinsured—a 60 percent increase since 2003. The rate of increase was steepest among those with incomes above 200 percent of poverty, where underinsurance rates nearly tripled. In total, 42 percent of U.S. adults were underinsured or uninsured. The underinsured report high levels of access problems and financial stress. The findings underscore the need for policy attention to benefit design, to assure care and affordability.
See Table 1 and Table 2
About seven in ten underinsured adults had annual incomes below $40,000 or below 300 percent of poverty—similar to the income distribution of the uninsured. In contrast, nearly two-thirds of those with more adequate insurance had incomes above $40,000. Underinsured adults were more likely than either of the other two groups to have health problems.
Based on a composite access indicator that included going without at least one of four needed medical care services, more than half of the underinsured and two-thirds of the uninsured reported cost-related access problems during the year. Among adults with at least one chronic health problem, half of uninsured adults and two in five underinsured adults said that they skipped doses of or did not fill a prescription for their condition because of cost—double to triple the rate reported by those insured all year, not underinsured.

Healthcare Costs: Another Top 1% Issue

By Chris Kaiser, Cardiology Editor, MedPage Today  Sep 11, 2013  http://www.medpagetoday.com/TheGuptaGuide/PublicHealth/41539

In the U.S., the top 1% of patients ranked by their healthcare expenses accounted for 21% of total healthcare expenditures in 2010, with an annual mean expenditure of $87,570, according to 2010 Medical Expenditure Panel Survey from the Agency for Healthcare Research and Quality in Rockville, Md.  In addition, the top 5% of the U.S. population ranked by healthcare expenses accounted for half of the total of healthcare expenditures, with an annual mean expenditure of $40,876, wrote Steven B. Cohen, PhD, and Namrata Uberoi, MPH, in the Statistical Brief No. 421.  Both of these figures are down from 1996, when the top 1% accounted for 28% of the total healthcare expenditures and the top 5% accounted for slightly more than half.  The total healthcare expenditures for 2010 were $1.26 trillion.

It is important that policy makers are aware of the the “concentration of healthcare expenditures … to help discern the factors most likely to drive healthcare spending and the characteristics of the individuals who incur them,” the authors noted.

Overall, there was a huge divide between the top and bottom 50% of the population in terms of total healthcare expenses. The top 50% accounted for 97% of total healthcare costs, while the lower 50% accounted for only 3% of the total healthcare expenditures.  In terms of income status,

  • the top 5% of those designated as poor accounted for 57% of the total healthcare expenditures, with an annual mean expenditure of $46,600, while
  • the top 5% of those in the highest income group accounted for 45% of the total healthcare expenditures, with an annual mean expenditure of $40,800.

The report also broke down healthcare spending by the number of chronic conditions, age, race/ethnicity, sex, and insurance. The survey found that chronic diseases take a big chunk of healthcare dollars.

The top 5% of those with four or more chronic conditions accounted for 30% of all healthcare expenditures, with an annual mean of $82,000 — a figure that is

  • seven times higher than those in the top 5% with no chronic diseases and nearly
  • three times higher than the top 5% with one chronic condition.

A report from 2012 found that Medicare could cut up to 10% of its spending if it focused on chronic disease prevention and coordinated care for those with chronic conditions.   Conditioned on insurance coverage status, the uninsured had the most concentrated levels of healthcare expenditures and the lowest annual mean expenses. Regarding public insurance, the top 5% accounted for 56% of the total healthcare expenditures.

Virtually every state experienced deteriorating access to care for adults over the past decade

GM Kenney, S Zuckerman, D Goin, S McMorrow, Urban Institute  May 2012

We use the Behavioral Risk Factor Surveillance System (BRFSS) to examine state-level changes in three key access indicators over the past decade. Specifically, we explore changes in the likelihood of having unmet medical needs due to cost, receiving a routine checkup, and receiving a dental visit for all nonelderly adults and for the subgroup of uninsured adults. We also consider differentials in access between uninsured and insured adults within each state in 2010, and how these differences are reflected in the relationship between access to care and state-level uninsurance rates.

We find that the deterioration in access to care observed in national trends during the past decade was evident in virtually every state in the country. Similarly, consistent with the national trends, the situation deteriorated more for the uninsured than for other adults in most states, which exacerbated the differentials in access and use between the insured and uninsured that had prevailed at the beginning of the previous decade. At the end of the decade, the uninsured in every state were at a dramatic disadvantage relative to the insured across the three access measures we examined. This analysis suggests that the potential benefits of the coverage expansion in the Affordable Care Act (ACA) are large and exist in every state.

We also found that states with higher uninsurance rates have worse access to care for all three measures, which implies that these states have the most to gain from the ACA. In particular, the ACA coverage expansion has the potential to reduce unmet needs due to costs and other cost-related barriers, problems that are more severe in states with high uninsurance rates.

DOCUMENTATION ON THE URBAN INSTITUTE’S AMERICAN COMMUNITY SURVEY-HEALTH INSURANCE POLICY SIMULATION MODEL (ACS-HIPSM)

Matthew Buettgens, Dean Resnick, Victoria Lynch, and Caitlin Carroll    May 21, 2013

We use the Urban Institute’s American Community Survey – Health Insurance Policy Simulation Model (ACS-HIPSM) to estimate the effects of the Affordable Care Act on the non-elderly at the state and local level. This model builds off of the Urban Institute’s base HIPSM, which uses the Current Population Survey (CPS) as its core data set, matched to several other data sets including the Medical Expenditure Panel Survey-Household Component (MEPS-HC), to simulate changes under ACA. To create HIPSM-ACS, we apply the core behavioral components of the base HIPSM to ACS records to exploit the much larger sample size for more precise estimates at the state and sub-state level. The modeling on the ACS-HIPSM produces projections of coverage changes related to state Medicaid expansions, new health insurance options, subsidies for the purchase of health insurance, and insurance market reforms (see Appendix 1 for more detail on HIPSM).

We simulate eligibility for Medicaid/CHIP and subsidies using the Urban Institute Health Policy Center’s ACS Medicaid/CHIP Eligibility Simulation Model, which builds on the model developed for the CPS ASEC by Dubay and Cook.  (Dubay, L. and A. Cook. 2009. “How Will the Uninsured be Affected by Health Reform?” Washington, DC: Kaiser Commission on Medicaid and the Uninsured.)

We simulate both pre-ACA eligibility and the MAGI-based eligibility introduced by the ACA. This allows us to simulate different scenarios for Medicaid maintenance-of-eligibility under the ACA. The distinction between pre-ACA eligible and newly eligible is also important in determining the share of a beneficiary’s costs paid by the federal government.

Using the three-year pooled sample, the model simulates eligibility for comprehensive Medicaid and CHIP coverage or subsidy using available information on the regulations for implementing the ACA, including the amount and extent of income disregards for eligibility pathways that do not change under the ACA and for maintenance-of-eligibility for each program and state in place as of approximately June 2010.

Under the ACA income eligibility is based on the IRS tax definition of modified adjusted gross income (MAGI), which includes the following types of income for everyone who is not a tax-dependent child: wages, business income, retirement income, investment income, Social Security, alimony, unemployment compensation, and financial and educational assistance (see Modeling Unemployment Compensation in the appendix). MAGI also includes the income of any dependent children9 required to file taxes, which for 2009 is wage income greater than $5,700 and investment income greater than $950. To compute family income as a ratio of the poverty level, we sum the person-level MAGI across the tax unit.

Current eligibility is determined based on state rules for 2010. State rules include income thresholds for the appropriate family7 size, asset tests, parent/family status, and the amount and extent of disregards8, for each program and state in place as of the middle of 2010 .

we estimate two separate probit models, each with the following covariates:

  1. Age Category: 0 – 5, 6 – 18, 19 – 44, 45 – 64.
  2. Health Status
  3. Worker Status (Household Level)
  4. Wage (Logarithmic Transformation)
  5. HIU Income to Poverty Threshold Ratio
  6. Number of Children
  7. Presence of a child in Public Coverage
  8. Citizenship Status
  9. Number of Adults in the Family

The dependent variable is an indicator of non-group non-exchange policy holder status. Again we compare each respondent’s predicted probability to a standard uniform random number and assign enrollment in the non-group non-exchange to those observations with probabilities that exceed the random number. Appendix Table 5 shows the overall new enrollment in the non-group non-exchange coming out of our model. It shows that the large majority of non-group enrollees outside the exchange are expected to come from single-person policyholders.

We develop a model, again based on HIPSM output, to predict which single ESI policy holders in the ACS are likely to switch to a family plan. We restrict our model to HIUs in which there is at least one single policy holder and at least one other member of the HIU that could potentially be covered by an ESI family plan. The eligible dependents include those with baseline non-group or uninsurance that had not already taken up coverage in a previous model. Note that we only model moving from an individual plan to a family plan; we did not model adding a dependent to a current family plan. Within the eligible group of single ESI policy holders, we use the following covariates to estimate the probability that they will switch to a family ESI policy:

  1. HIU Type: Individual, Unmarried with child, Married without Child, or married with children
  2. Age Category: 0 – 5, 6 – 18, 19 – 44, 45 – 64.
  3. Health Status
  4.  Worker Status (Individual Level)
  5. •Wage (Logarithmic Transformation)
  6. •HIU Income to Poverty Threshold Ratio
  7. •HIU Income to Poverty Threshold Categories (<138% FPL, 138% – 200% FPL, 200% – 300% FPL, 300% – 400% FPL, 400%+ FPL)
  8. •Number of Children
  9.  Presence of a child in Public Coverage
  10.  Citizenship Status
  11.  Firm Size
  12.  Education Status

These estimates assume that the ACA is fully implemented with the Medicaid expansion in all states and that the same basic implementation decisions are made across the states. At the time of writing, even states such as Massachusetts which have been on the forefront of ACA implementation had not finalized their plans, so any modeling of variation in state decisions would necessarily involve a lot of guesswork. Also, it will take several years for enrollment in new programs such as the exchanges and Medicaid expansion to ramp up so the full effects that are estimated under the simulation model would not be felt until 2016 or later. Enrollment in the initial years would also be affected by state and federal decisions. For example, in the proposed rules released by HHS in January 2012, the deadline for establishing unified eligibility and enrollment between Medicaid and the exchange was pushed back to 2015.

Health insurance status change and emergency department use among US adults.

Ginde AA, Lowe RA, Wiler JL.
Department of Emergency Medicine, University of Colorado School of Medicine, Aurora, CO.   http://www.ncbi.nlm.nih.gov/pubmed/22450213 
Arch Intern Med. 2012 Apr 23;172(8):642-7.   http://dx.doi.org/10.1001/archinternmed
Recent events have increased the instability of health insurance coverage. We compared emergency department (ED) use by newly insured vs continuously insured adults and by newly uninsured vs continuously uninsured adults. Overall, 20.7% of insured adults and 20.0% of uninsured adults had at least 1 ED visit. However, 29.5% of newly insured adults compared with 20.2% of continuously insured adults had at least 1 ED visit. Similarly, 25.7% of newly uninsured adults compared with 18.6% of continuously uninsured adults had at least 1 ED visit. After adjusting for demographics, socioeconomic status, and health status, recent health insurance status change was independently associated with greater ED use for newly insured adults (incidence rate ratio [IRR], 1.32; 95% CI, 1.22-1.42 vs continuously insured adults) and for newly uninsured adults (IRR, 1.39; 95% CI, 1.26-1.54 vs continuously uninsured adults). Among newly insured adults, this association was strongest for Medicaid beneficiaries (IRR, 1.45) but was attenuated for those with private insurance (IRR, 1.24) (P < .001 for interaction). Recent changes in health insurance status for newly insured adults and for newly uninsured adults were associated with greater ED use.

Health Insurance and Access to Health Care in the United States

Catherine Hoffman, Julia Paradise
Annals of the New York Academy of Sciences 2008; 1136.    http://dx.doi.org/10.1196/annals.1425.007 
Reducing the Impact of Poverty on Health and Human Development: Scientific Approaches pages 149–160, June 2008

In the United States, where per capita health care costs are the highest in the world and continue to escalate, health insurance has become nearly essential. Having reasonable access to health care rests on many factors: the availability of health services in a community and personal care-seeking behavior, for example. However, these and other factors are often trumped by whether a person can afford the costs of needed care. Health insurance enables access to care by protecting individuals and families against the high and often unexpected costs of medical care, as well as by connecting them to networks and systems of health care providers.
Health insurance, poverty, and health are all interconnected in the United States. This article synthesizes a large and compelling body of health services research, finding a strong association between health insurance coverage and access to primary and preventive care, the treatment of acute and traumatic conditions, and the medical management of chronic illness. Moreover, by improving access to care, health insurance coverage is also fundamentally important to better health care and health outcomes. Research connects being uninsured with adverse health outcomes, including declines in health and function, preventable health problems, severe disease at the time of diagnosis, and premature mortality.
Most working-age adults obtain health coverage for themselves and their dependents as a benefit of employment. However, this benefit has been gradually eroding as health premiums, in tandem with higher health care costs, grow at a rate far outpacing rates of general inflation and wages. In 2005, 61% of the nonelderly had insurance through an employer, down from 66% in 2000.1 Low-wage workers are far less likely than higher-wage workers to have access to job-based coverage. In 2005, more than half of workers in poor families and more than a third of those in near-poor families had no offer of job-based coverage in the family.2 When it is available, health insurance is often unaffordable for low-income people, whose household budgets are strained to meet food, housing, and other basic needs.

Figure 1. Health insurance coverage of the nonelderly population, 2006.

http://onlinelibrary.wiley.com/store/10.1196/annals.1425.007/asset/image_n/NYAS_1136007_f1.gif    Source: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of Current Population Survey, March 2007.
Those with Medicaid coverage are the most likely to be in fair or poor health because the program’s eligibility requirements include being severely disabled and/or low-income (fig. 2).

Figure 2. Percentage of U.S. nonelderly population reporting fair or poor health, by income and insurance status, 2006.

http://onlinelibrary.wiley.com/store/10.1196/annals.1425.007/asset/image_t/NYAS_1136007_f2_thumb.gif       Source: Kaiser Commission on Medicaid and the Uninsured/Urban Institute analysis of Current Population Survey, March 2007.
The model for healthcare reform was selected from that enacted in Massachusetts. Important statements from the Massachusetts Act are as follows:
to promote patient-centeredness by, including, but not limited to, establishing

  • 1137 mechanisms to conduct patient outreach and education on the necessity and benefits of care
  • 1138 coordination, including group visits and chronic disease self-management programs;
  • 1139 demonstrating an ability to effectively involve patients in care transitions to improve the
  • 1140 continuity and quality of care across settings,
  • 1146 establishing mechanisms to protect patient provider choice,

Individual Mandate

A provision called the individual mandate, requires all Americans to buy some form of health insurance. Whether it is constitutional was in question before the Supreme Court. While the mandate is separate from the provision allowing young adults up to the age of 26 to be covered under their parents’ policies, the court could have decided to scrap the entire law — instead of just the mandate — leaving millions of young adults in the lurch. The mandate was upheld.

For many young adults, affording health insurance on their own will be particularly difficult.  The unemployment rate for young adults age 16 to 24 was 16.4% in March, twice the national average for the population as a whole.  And many of those who do find jobs, often aren’t being offered health benefits.  Less than a quarter, or 24%, of workers between the ages of 19 and 25 were offered health insurance by their employers in 2010, down from 34% in 2000, according to the Employee Benefit Research Institute, an independent public policy organization. Meanwhile, nearly 57% of the rest of the working population between the ages of 26 and 64 were covered.

B. Economics of Universal Delivery of Care – Stakeholders’ Trade offs

There is no question that repealing the Affordable Care Act would cause health costs to skyrocket, particularly for seniors who rely on Medicare to help pay for their healthcare.
According to a new report released by the Kaiser Family Foundation, a healthcare analysis non-profit, repealing the Affordable Care Act would be disastrous for seniors, who would be forced to pay higher premiums, prescription drug costs, and copayments.
According to the report, if health care reform is repealed:
  • Medicare Part A deductibles and copayments would increase.
  • Part B premiums would go up.
  • Savings from closing the Part D donut hole would be eliminated, and the gap in prescription drug coverage would be reopened; under the Affordable Care Act, an estimated 3.6 million Medicare Part D beneficiaries saved an average of $600 each in 2011 once they hit the donut hole, and the donut hole will be closed by 2020.
  • Free preventive services would be eliminated; under the Affordable Care Act, seniors can now get many preventive services for free, including an annual wellness visit, mammograms and other cancer screenings, and other important health services.

U.S. Faces Crisis in Cancer Care

http://www.biosciencetechnology.com/videos/2013/09/us-faces-crisis-cancer-care?et_cid=3474892&et_rid=442219320

Wed, 09/11/2013

Delivery of cancer care in the U.S. is facing a crisis stemming from a combination of factors—a growing demand for such care, a shrinking oncology work force, rising costs of cancer care, and the complexity of the disease and its treatment, says a new report from the Institute of Medicine. The report recommends ways to respond to these challenges and improve cancer care delivery, including by strengthening clinicians’ core competencies in caring for patients with cancer, shifting to team-based models of care, and communicating more effectively with patients.

Adding to stresses on the system is the complexity of cancer and its treatment, which has grown in recent years with the development of new therapies targeting specific abnormalities often present only in subsets of patients. Incorporating this new information into clinical care is challenging, the report says. Given the disease’s complexity, clinicians, patients, and patients’ families can find it difficult to formulate care plans with the necessary speed, precision, and quality; as a result, decisions about cancer care are often not sufficiently evidence-based.

Another challenge is the cost of cancer care, which is rising faster than other sectors of medicine, having increased from $72 billion in 2004 to $125 billion in 2010, says the report.  The single largest insurer for those over 65, the Centers for Medicare and Medicaid Services (CMS), is struggling financially.

The report recommends strategies for improving the care of cancer patients, grounded in six components of high-quality cancer care. The components are ordered based on the priority level with which they should be addressed.

  1. Engaged patients. The cancer care system should support patients in making informed medical decisions that are consistent with their needs, values, and preferences. Cancer care teams should provide patients and their families with understandable information about the cancer prognosis and the benefits, harms, and costs of treatments. The National Cancer Institute, the Centers for Medicare and Medicaid Services, and other stakeholders should improve the develop­ment and dissemination of this critical informa­tion, using decision aids when possible.  Patients with advanced cancer face specific communication and decision-making needs, and cancer care teams need to discuss their options, such as revisiting and implementing advance care plans. However, these difficult conversations do not occur as often as they should; recent studies found that 65 percent to 80 percent of cancer patients with poor prognoses incorrectly believed their treatment could result in a cure.
  2. An adequately staffed, trained, and coordinated work force. New models of team-based care are an effective way to promote coordinated cancer care and to respond to existing work-force shortages and demographic changes. And to achieve high-quality cancer care, the work force must include enough clinicians with essential core competencies for treating patients with cancer. Professional organizations that represent those who care for patients with cancer should define these core competencies, and organizations that deliver cancer care should ensure their clinicians have those skills.
  3. Evidence-based cancer care. A high-quality cancer care delivery system uses results from scientific research to inform medical decisions, but currently many medical decisions are not supported by sufficient evidence, the report says. Clinical research should gather evidence of the benefits and harms of various treatment options so that patients and their cancer care teams can make more informed treatment decisions. Research should also capture the impacts of treatment regimens on quality of life, symptoms, and patients’ overall experience with the disease. Additional research is needed on cancer interventions for older adults and those with multiple chronic diseases. The current system is poorly prepared to address the complex care needs of these patients.
  4. A learning health care information technology system for cancer care. A system is needed that can “learn” by enabling real-time analysis of data from cancer patients in a variety of care settings to improve knowledge and inform medical decisions. Professional organizations and the U.S. Department of Health and Human Services should develop and implement the learning health care system, and payers should create incentives for clinicians to participate as it develops.
  5. Translation of evidence into practice, quality measurement, and performance improvement. Tools and initiatives should be delivered to help clinicians quickly incorporate new medical knowledge into routine care. And quality measures are needed to provide a standardized way to assess the quality of cancer care delivered. These measures have the potential to drive improvements in care, inform patients, and influence clinician behavior and reimbursement.
  6. Accessible and affordable cancer care. Currently there are major disparities in access to cancer care among individuals who are of lower socio-economic status, are racial or ethnic minorities, lack health insurance coverage, and are older. HHS should develop a national strategy that leverages existing commu­nity interventions to provide accessible and afford­able cancer care, the report says. To improve the affordability of care, professional societies should publicly disseminate evidence-based information about cancer care practices that are unnecessary or where the harm may outweigh the benefits. CMS and other payers should design and evaluate new payment models that incentivize cancer care teams to provide care based on the best available evidence and that aligns with their patients’ needs. The current fee-for-service reimbursement system encourages a high volume of care, but fails to reward the provision of high-quality care.

Institute of Medicine Calls for Immediate Reforms in Health Care (2012)

By Kimberly Scott, Managing Editor, G2 Intelligence
A new report from the Institute of Medicine released Sept. 6 calls for a broad range of reforms to make timely changes to the U.S. health care system that would provide high-quality care at lower cost. “Unmanageable” complexity in the science and administration of health care, coupled with costs that have increased at a greater rate than the economy as a whole for 31 of the past 40 years, make the status quo “untenable,” said Best Care at Lower Cost: The Path to Continuously Learning Health Care in America.
“If unaddressed, the current shortfalls in the performance of the nation’s health care system will deepen on both quality and cost dimensions, challenging the well-being of Americans now and potentially far into the future,” the report said.
The report, which follows a series of IOM studies on various aspects of the U.S. health care system, was written by the IOM’s 18-member Committee on the Learning Healthcare System in America. It was sponsored by the Blue Shield of California Foundation, the Charina Endowment Fund, and the Robert Wood Johnson Foundation.
A theme of the report is that “health care now must be a team sport,” Smith said. Physicians in private practice interact with as many as 229 other physicians in 117 practices for their Medicare patients, he said. An elderly patient with multiple chronic diseases can be on up to 19 medications a day, he said. About 30 percent of health care spending in 2009, an estimated $750 billion, was wasted on
  • unnecessary services,
  • excessive administrative costs,
  • fraud, and other problems, the report said.
An estimated 75,000 deaths might have been avoided in 2005 if every state had delivered care at the quality of the best-performing state, it said.
The report is available at http://www.iom.edu

Graphical Excursion into National Healthcare Expenditures

Dan Munro, Forbes
According to the Deloitte Center for Health Solutions, this number has been historically underreported – by a significant amount. In their report (The Hidden Costs of U.S. Health Care), they cite two important components that have not been included in tradtional calculations. The first is out-of-pocket spending by consumers on professional services and the second is the “imputed value of supervisory care provided to a friend or family member.” Using a conservative annual growth rate of 4% (from Deloitte’s baseline year of 2010), here’s what Deloitte suggests is our real NHE.

 NHEbyDCforHS1  NHE annual growth rate of 4%

http://blogs-images.forbes.com/danmunro/files/2012/12/NHEbyDCforHS1.png

The Kaiser Family Foundation also provided a comparison of cumulative increases in health insurance premiums – relative to Workers’ Contributions, Inflation and Workers’ Earnings (from 2000 to 2012).

percentageincreasekff  % increase in HI premiums

http://blogs-images.forbes.com/danmunro/files/2012/12/percentageincreasekff.png

Another annual chart is Medscape’s Physician Compensation Report: 2012 Results (slide #2 – 2011 data).

salaries1  physician compensation  (Medscape)

For those that may be relying exclusively on the transformative effects of PPACA (Obamacare) – this chart highlights the nominal impact of PPACA reform on our National Healthcare Expenditure. It’s from a Commonwealth Fund Issue Brief (May, 2010) – The Impact of Health Reform on Health System Spending (Exhibit #3 – page 5).
NHE-BeforeAfter   nominal impact of PPACA reform on our National Healthcare Expenditure  (Commonwealth Fund)
This last one from Mary Meeker’s landmark report – USA, Inc. (slide #111) – is definitely not new but it is foundational. It compares per capita costs and life expectancy across all 34 OECD member countries using OECD data from 2009.
cost1  per capita costs and life expectancy across all 34 OECD member countries using OECD data from 2009.

C. Political Divisions – Destiny of Healthcare Reform

An Oncology Perspective on the Supreme Courts Pending Decision Regarding the Affordable Care Act

By SK Stranne, MG Halgren, P Shughart. Washington, DC.
Beginning on March 26, 2012, the Supreme Court of the United States heard oral arguments regarding challenges to the recent federal health care reform legislation. The Court scheduled this unusually lengthy series of arguments to last for three days—a reflection of both the high stakes and the complexity of the legal issues involved.  We provide a summary of the questions under consideration by the Supreme Court regarding the health care reform legislation, and we explore how the pending decision on this high-profile matter may impact the oncology community.
Congress enacted the reforms through two separate bills. The two laws, the Patient Protection and Affordable Care Act[1] and the Health Care and Education Reconciliation Act of 2010,[2] have become known collectively as the Affordable Care Act (ACA). The Court is not charged with deciding whether the ACA is good health care policy, only constitutionality.

Issues Before the Court

[1] whether Congress has exceeded its powers with respect to two specific provisions of the ACA
One of these provisions is the law’s requirement that individuals maintain a minimum level of health insurance, which is often referred to as the “minimum coverage requirement” or the “individual mandate.” The other contested provision is the law’s expansion of eligibility and financial support for the Medicaid program, through which the federal government provides grants to state governments to help fund health insurance for the poor.
[2] the Obama administration contended that two powers delegated to Congress each provide sufficient authority for the minimum coverage requirement
[a] Immediately preceding the minimum coverage requirement in the text of the ACA itself, Congress offered its own lengthy justification of why the Commerce Clause, which is a provision in the Constitution that delegates to Congress the power of regulating commerce among the states, authorizes this individual mandate.
[b] the problem is … as much as they say, ‘Well, we are not in the market,’ … [the uninsured] haven’t been able to meet the bill for cancer, and the rest of us end up paying because these people are getting cost-free health care.” Ruth Bader Ginsberg.
[c] the Constitution’s Taxing and Spending Clause also gives Congress authority to enact the minimum coverage requirement and collect a penalty for noncompliance via federal income tax returns.
The arguments in favor of the ACA’s Medicaid expansion relied on the Taxing and Spending Clause and also on the Appropriations Clause, both of which are generally regarded as giving Congress significant discretion in dictating how federal funds are spent. However, the Court has previously indicated that Congress may not use its spending power to unduly coerce the states. The ACA’s opponents argued that the Medicaid expansion is unconstitutionally coercive because it attaches new terms (ie, the requirement to cover more people) to substantial existing funds (ie, the grants the federal government already gives to the states for the original Medicaid program and its various pre-ACA expansions). Due to the size of the Medicaid program, the argument goes, the states have no real alternative but to continue participating in Medicaid under the ACA’s terms.
The severability discussion concerns whether the Court would strike only the provision in question, only the provision in question plus some closely related provisions, or the entire ACA. The arguments on this issue mainly addressed the minimum coverage requirement and focused on the degree to which certain provisions of the ACA are linked with that provision and what Congress would have intended to occur if the provision were found unconstitutional.

Convergence is Coming: A Brave New World

KPMG Report  by Liam Walsh
Healthcare payers, providers and life sciences companies should be thinking beyond transformation and focus more on convergence and the implications of operating in a collaborative and integrated healthcare delivery model.  This has come about because
  • the business of healthcare is changing to an ‘outcomes-based’ system
  • that compensates organizations based on the effectiveness of a product or service, not as a consumable.
The result is a driver of consolidation, and participants will fall substantially over the next decade. It is expected that the evolving system will bring about significant benefits with a more effective system when the dust settles.  However,patients will have less choice in the market, either due to services having been consolidated with one provider or because payer incentives drive patients to more cost-effective options. But the rapid development of a digitalized data handling with introduction of superior analytics, and moving more information onto ‘smart devices’ is already beginning to transform the way we source, deliver and pay for healthcare services.  The restructuring is transforming the healthcare business models.

Transforming Healthcare: From Volume to Value

KPMG Healthcare & Pharmaceuticals  Sept 2012
Over the next decade, all parts of the healthcare services and life sciences industry will need to change, from revenue based on volume to revenue based on value, to be sustainable and cost effective.  The emphasis on sustainability requires
  • contracting for healthcare value and
  • improving the productivity of the healthcare workforce.
Given the current high costs and variable outcomes, the U.S. healthcare system is undergoing an unprecedented transformation.

Bundle with Care — Rethinking Medicare Incentives for Post–Acute Care Services

Judith Feder, Ph.D.

n engl j med  2013; 369(5):400
Although health policy experts disagree on many issues, they largely agree on the shortcomings of fee-for-service payment. The inefficiency of a payment method that rewards increases in service volume, regardless
of health benefit, has become practically indefensible. But replacing discrete payments for each service with bundled payment for a set of services does not simply promote efficiency; it also potentially promotes
skimping on care or avoidance of costly patients.
The Medicare program already has considerable experience not only with capitation payments to health plans for the full range of Medicare services but also with bundled payments for sets of services: inpatient hospital services are bundled into “stays,” skilled-nursing-facility (SNF) services are bundled into “days,” and home-health-agency (HHA) services are bundled into “episodes.”
The tip-off to the risk involved in offering powerful incentives for these providers to keep costs low is the presence of extremely high and varied profits, in a service area devoid of standards for high-quality care. In 2010, SNFs and HHAs earned profits of 19%, on average, and the top quarter earned in excess of 27%.
In theory these high and widely varying profits might reflect variations in efficiency. But two factors other than relative efficiency probably explain these margins. First is that classification of patients into payment categories for rate-setting purposes
  • is not sufficiently precise to eliminate variation in expected costs among the patients within a category.
Second is the long history of patient selection in nursing homes and recent evidence that the HHAs with the highest profit margins
  • provide fewer visits, despite serving patients with greater measured care needs.
Given the weakness of patient classification and quality norms, policymakers would do well to heed previous advice that, in these circumstances, a hybrid approach better balances efficiency and appropriate care.
Rather than replace fee for service with a single-payment system, I believe we should rely ona hybrid approach in which both savings and risk are shared. Providers would receive a share, rather than the full amount, of any excess payments over the actual costs incurred. Similarly, Medicare would pay a share of any provider costs that exceeded the amount of prospective payments. To encourage efficiency, the system would ensure that providers could earn a sufficient share of profits but would also bear the larger share of losses.
Sharing savings and risk would essentially produce for Medicare, which sets payment rates administratively, profit levels similar to those a competitive market would provide. When some providers are earning  excessive profits in a market, others will offer services at lower prices (earning lower profits) to attract more business. Sharing savings and risk gives Medicare a means of keeping profits high enough to maintain access for beneficiaries, while narrowing the range of profit levels closer to those a competitive market would produce.

Study: Bigger hospitals drive cost increases

By MATT DOBIAS | 5/7/12
For everyone out there worried that President Barack Obama’s health reform law will spur monopolies and make it easier for hospitals to raise their prices, a new study says it’s already happening, and it’s not because of the health law.
A study in the May edition of Health Affairs finds that hospitals’ power to win steep payment increases — and insurers’ relative inability to resist — varies quite a bit from one market to another and from one kind of hospital or hospital network to another. Reputation, location and the type of medical services provided play a role.

State Laws Hinder Obamacare Effort To Enroll Uninsured

President Barack Obama has set aside $67 million to make it easier to enroll in his health-care overhaul. Laws pushed by Republicans in 12 states may keep that from happening. Under the Affordable Care Act, the U.S. government plans to pay a network of local groups known as navigators to explain the law’s new coverage options to the uninsured and guide them through its online insurance markets (Bloomberg News: Nussbaum and Wayne, 8/23/2013).

Modern Healthcare: Reform Update: Employers Take Closer Look At Private Insurance Exchanges

With public small-business insurance exchanges opening Oct. 1, two studies released this week show employer interest in private insurance exchanges is growing. …
  1. the Kaiser Family Foundation found that 29% of employers with 5,000 or more employees are considering private exchanges as an option for buying healthcare coverage for their employees.
  2. A day later, consulting firm Towers Watson released its Health Care Changes Ahead survey, which found that 37% of employers think private exchanges are a reasonable alternative to traditional employer coverage in 2014 (Block, 8/22).

D. Looking in on the ACOs

ObamaCare’s Health-Insurance Sticker Shock

By Merrill Matthews and Mark E Litow, Forbes
Thanks to mandates that take effect in 2014, premiums in individual markets will shoot up.
Central to ObamaCare are requirements that

  1. (1) health insurers accept everyone who applies (guaranteed issue),
  2. (2) cannot charge more based on serious medical conditions (modified community rating), and
  3. (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.

Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well).  While ObamaCare imposes a financial penalty—

  • —to discourage people from gaming the system,
  • it is too low to be a real disincentive.

The result will be insurance pools that are smaller and sicker, and therefore more expensive.
How do we know these requirements will have such a negative impact on premiums? Eight states—New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts—enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e., non-group) health-insurance markets.
States won’t experience equal increases in their premiums under ObamaCare.  Ironically, citizens in states that have acted responsibly over the years by adhering to standard actuarial principles and limiting the (often politically motivated) mandates will see the biggest increases, because their premiums have typically been the lowest.
While ObamaCare won’t take full effect until 2014, health-insurance premiums in the individual market are already rising, and not just because of routine increases in medical costs. Insurers are adjusting premiums now in anticipation of the guaranteed-issue and community-rating mandates starting next year. There are newly imposed mandates, such as the coverage for children up to age 26, and what qualifies as coverage is much more comprehensive and expensive. Consolidation in the hospital system has been accelerated by ObamaCare and its push for Accountable Care Organizations.
Unlike the federal government, health insurers can’t run perpetual deficits. Something will have to give, which will likely open the door to making health insurance a public utility completely regulated by the government.

Health Insurance Premiums Will Rise

Merrill Matthews, Resident Scholar at Institute for Policy Innovation, Forbes
Subsidies cover a portion of the cost of health insurance, up to a maximum out of pocket for the family. The amount of the subsidy is based both on the cost of coverage and income. There has been a lot of head scratching over how to deal with the fact

  • that a family’s income can vary significantly within a year, up or down, in ways no one predicted at the beginning of the year.

So how does the government determine the correct level of subsidy? The PPACA has so many unknowns in the mix that actuaries don’t know how much to charge. This is a problem for setting annual rates.

Traditionally in the individual market, where people buy their own (i.e., non-group) health coverage, applicants sign a contract and the insurance company guarantees that premium for a year. No more. Health insurers started sending out notices in January informing insurance brokers and agents that

  • the companies will no longer guarantee that premium rate.

After carefully evaluating its individual market and rates, Aetna decided to discontinue its offer of an initial 12-month rate guarantee. This change applies to policies with a January 15, 2013 or later effective date, in all states where plans are sold. Existing members who are currently in a rate guarantee period will not be affected. Aetna published a notice saying in part, “While the policies will not have a 12-month rate guarantee, we fully expect the rates to stay the same until December 31, 2013.” While that announcement may alleviate the concerns of some, Aetna is not the only company ending the rate guarantee.
While the individual market has been relatively small (about 19 million people, according to the Employee Benefit Research Institute) compared to those with employer-based coverage (about 156 million), most honest analysts expect millions of employers to drop coverage and dump their employees into the individual market.

ACOs Can Save Medicare $$$, Study Finds

By David Pittman, Washington Correspondent, MedPage Today. Aug 27, 2013
An accountable care organization (ACO) established by a private insurer reduced costs of care for Medicare enrollees, a study in Massachusetts found.  Providers participating in the Alternative Quality Contract (AQC) — an early commercial ACO backed by Blue Cross Blue Shield of Massachusetts — reduced spending on Medicare beneficiaries by 3.4% after 2 years compared with enrollee costs at nonparticipating providers, ( Journal of the American Medical Association).

Medicare enrollees served by 11 provider groups in the AQC from 2007-2010 were compared with Medicare patients served by non-AQC providers. The study looked at quarterly medical spending and five quality measures, such as avoidable hospitalizations and 30-day readmissions. The AQC started in 2009 with providers bearing a financial risk for spending in excess of a global budget, gaining from spending below the budget, and receiving rewards for meeting performance targets.
Per-enrollee spending was $150 higher for patients of AQC providers than for those of non-AQC providers before the ACO took effect in 2009. Year-1 savings weren’t significant (P=0.18), but

  • by year 2, the AQC lowered Medicare beneficiary spending by 3.4% and the difference in spending between the AQC and non-AQC providers had dropped to $51 (P=0.02)

Savings came from reductions in outpatient services, including

  • office visits,
  • emergency department visits,
  • minor procedures,
  • imaging, and lab tests.

Also, savings were greater in patients with five or more conditions (P=0.002). Previous research showed the AQC reduced quarterly spending on Blue Cross patients by $27 per enrollee in year two.
ACOs have received sour press of late as nine of 32 pioneer ACOs — Medicare’s first and most advanced ACO provider groups — told the agency last month they want to leave the program. Despite that outlook and ACOs’ struggles to achieve consistent cost savings, Medicare-led ACOs (253) now outnumber commercial ACOs (235), according to a recent report from the consulting group Leavitt Partners.

New Care Models Look at Social Factors in Health

By David Pittman, Washington Correspondent, MedPage Today. Aug 22, 2013
Models such as PCMHs, ambulatory intensive care units, and medical neighborhoods should thrive on connecting patients’ clinical care with broader social services that can help provide better housing and other benefits. (ReportingOnHealth.org)
“The medical neighborhood coordinates care for patients at a community level, working with organizations in the community that can help expand the impact of healthcare and, more specifically, focus on the social determinants,” Manchanda (founder and president of HealthBegins) said. “And this fits more into the model of community-centered health home.” (Medicaid Medical Home)

  • Lack of access to good housing, places to exercise, safe neighborhoods, and health food sources make people more vulnerable to heart disease, diabetes, obesity, and other diseases.

Evidence is growing linking people’s physical environments and social conditions to their health. Three in four doctors wished the healthcare system would pay for the cost associated with connecting patients with needed social services. That aspect of the situation is improving with advent of PCMHs and other delivery models which pay for the care coordination of the most at-risk patients. This will be addressed by electronic medical records (EMRs) will help collect social history if EMR vendors provide an avenue for it to be requested and stored. The facilitation of internet communications will allow clinicians to share data with social services about their patients, and connect with patients themselves.

What Do Employers Want From Hospitals? The Rules of the Road

Aegis Health Group. 2013; 5(7).
Corporate America has long viewed the healthcare system as one of the biggest drains on the economy—and on the profitability of businesses nationwide. With the advent of Accountable Care Organizations as the model of the future for managing overall population health, hospitals are ideally positioned to harness this opportunity

  • to build profitable partnerships with employers.

In this paper hospital executives will learn about new approaches to this challenge along with some simple, tried-and-true rules of the road for attaining mutually beneficial partnerships with employers.

Why does Corporate America think the current state of healthcare is a quagmire – and that they are in the middle of it?

COST OF POOR HEALTH IN BILLIONS

 Medical & Pharmaceutical     $227
Wage Replacement                  $117
Lost Productivity                        $232

They are ready to take control of the issues and turn them from business detractors to business advantages. Consider this:

  • »» According to the 17th annual Towers Watson Employer survey on “Purchasing Value in Healthcare,” employee healthcare costs have increased 42 percent since 2007.
  • »» Total costs average more than $11,600 per employee each year, with employers paying out 34 percent more compared to just five years ago.
  • »» Healthcare now costs employers $576 billion annually.
  • »» These dollars relate not only to insurance premiums and the actual cost of care provided, but absenteeism and lost productivity when workers either do not show up or perform marginally on the job due to illness.

On the flip side workers have felt the sting as well. With more employers scaling back benefits or selecting higher-deductible plans, employee out-of-pocket expenses and payroll deductions for premiums increased 82 percent, averaging $5,000 per year according to the same Towers Watson survey. The escalation of healthcare costs almost mirrors the increasingly poor health of U.S. adults. Only one in seven workers are of a normal weight and free from any chronic health conditions, such as diabetes, hypertension or heart disease.
A full 62 percent of employers want to increase employee wellness and preventive health programs. Hospitals are well positioned to provide

  • the medical talent, best practices and expertise required for a comprehensive workforce health initiative (WHI).

As the country moves toward an accountable care model of healthcare delivery, the timing has never been better for hospitals to take a leadership role in developing population health programs in the workplace and beyond.

Employee View: Who provides the greatest value in healthcare?

Primary Care                  60%
Prescription Drugs        50%
Hospitals                         47%
Specialty Care               46%
Wellness Programs      43%
Health Insurance
Plans                               39%
Retail Clinics                  31%
In a Deloitte Center for Health Solutions survey in 2012, employers ranked primary care and hospitals as providing the most value to the healthcare system. Yet it is not unusual for 30 percent of employees to report they have no primary care physician. These are consumers who may be at significant risk for hidden health problems that may become chronic conditions later on. Employers have a vested interest in linking these employees with a primary care doctor sooner rather than later.

What are the Six Sigma Elements of an Effective Workforce Health Initiative?

The most effective workforce health initiatives take a data-driven approach to enhancing the health of a defined population. The five key steps in the Six Sigma process actually reflect the major tactics of a WHI and population health strategy.

 48-Graph-4-30_2012  Age-Adjusted Prevalence of Cardiovascular Disease Risk Factors in Adults, U.S., 1961–2011

49-Graph-4-31_2012  hypertension, treated awareness

52-Graph-4-35_2012  Total Economic Costs of the Leading Diagnostic Groups, U.S., 2009

278px-Preventable_causes_of_death

8443-exhibit-2-7  nonelderly population uninsured

8443-exhibit-2-8  nonelderly uninsured under ACA with all states expanding Medicaid

8443-exhibit-2-3  increase in medicaid_CHIP all states expanding medicaid

Causes_of_death_by_age_group

correlates of in-hospital mortality

healthprices  time price of HC over 50 years

fs310_graph3  leading causes of death by income class worldwide

FUSA_INFOGRAPHIC_50-state-medicaid-expansion_rev_06-27-13_FACEBOOKCOVER

milliman1   2012 Milliman Medical Index

hhs_medicare_docs   participating in and billing Medicare

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