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HMO Redux: Doc Shock Is Here

obamacare

So far, coverage about the Affordable Care Act has focused on rate shock and policy cancellations. But the next wave of bad news is coming, and it could wind up being even more fatal to public support for the law. Supporters of Obamacare can fight back against the rate shock stories by pointing to examples of people who have gotten cheaper premiums through the ACA. But in many cases, the ACA’s cheaper premiums are the result of restricting provider networks. It’s a phenomenon pundits are calling doc shock, and WaPo reports it’s already affecting the insurance agency:

In one closely watched case, Seattle Children’s Hospital has filed suit against Washington’s insurance commissioner after a number of insurers kept it out of their provider networks. “It is unprecedented in our market to have major insurance plans exclude Seattle Children’s,” said Sandy Melzer, senior vice president.

A number of the nation’s top hospitals — including the Mayo Clinic in Minnesota, Cedars-Sinai in Los Angeles, and children’s hospitals in Seattle, Houston and St. Louis — are cut out of most plans sold on the exchange.

This will sound very familiar to anyone who remembers the backlash against HMOs in the 1990s. Then, as now, people react very aggressively to have limitations put on health care choices. Rate shock could ultimately been less politically explosive than doc shock. This is one reason we believe the ACA may have long term consequences for liberalism: the current problems the law faces are not one-off challenges, but the first of several waves that will hit again and again over the next year. Obamacare’s worst days could still be ahead of it.

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  • Corlyss

    I’m having some difficulty fitting this doc shock into the current landscape. Correct me if I’m wrong, but hasn’t it always been that ins. cos. routinely draw the line at Cadillac care from a prestigious hospital like Mayo Clinic because of cost? Batchelor refers to these as prestigious research and teaching hospitals, but I’ve never understood that access to them was unlimited by some kind of cost calculation.

    • wigwag

      You are right; the Cadillac care provided at academic medical centers in general and health care Meccas like Mayo come at a steep price. In some cases, the price is worth it; if you are suffering from a rare disease or have unusual complications from a common disease it’s probably worth the cost; in other cases, it often isn’t.

      The only way to realistically hold costs down, at least over the long-run, is to force the component parts of the health care system to operate more productively for less money. This is true for academic medical centers; it will ultimately be true for pharma, the biotech industry, physicians, nurses, hospital orderlies, health care administrators, medical and nursing schools and their faculties, nursing homes, biomedical researchers in academic settings and health insurance companies, should they continue to exist.

      One way to do this is too simply nationalize (socialize) the system; most countries have done this with varying degrees of success. But nationalizing the system is a highly imperfect system; it will create inefficiencies of its own and it won’t give Americans what they want; unlimited but cheap care.

      Everyone of the components of the health care system that I mentioned above employ legions of lawyers and lobbyists who work on exactly one thing; to insure that whatever component of the health care system has its ox gored, it won’t be theirs.

      Professor Mead is right about something; it’s the numerous “guilds” that govern various parts of the system who drive up costs. Breaking the back of these guilds is critical but there’s no evidence it’s happening. Both political parties are attached at the hip to several of these health care “guilds.” Think back to the debate about Obamacare; no matter your perspective it was disheartening. Most of the Democrats were focused like a laser beam on protecting the perogatives of the academic medical centers, the nurses and hospital unions; the GOP was focused relentlessly on maintaining the perrogatives of health insurerers and big drug companies.

      Then there are the problems neither political party has shown any inclination to address. America’s health care costs are so much bigger than those in the rest of the world for many reasons. One big reason is that drug costs are astronomically higher here than in the rest of the world. Europeans, Canadians, etc pay less for medicine because their nationalized systems set a price they will pay for drugs and pharma has to take it or leave it.

      Manufacturing medicines cost very little; developing medicines is hugely expensive. Pharmaceutical companies are happy to charge cheap prices in Europe as long as they can make up the difference by charging Americans through the nose.

      This isn’t the fault of the drug companies; on average it costs more than $1 billion to bring a new drug to the market. The business is hugely risky and incredibly resesrch intensive. But it is the fault of the American Government. Our leaders have, for three generations tolerated a system where American premium payers and tax payers subsidize Europeans and others every time a European pops a pill in his mouth. When was the last time you heard either a Democratic President or a Republican President insist that this inequity must stop? The Democratic answer is to ignore the problem; the GOP’s answer is to fight drug reimportation which makes the problem worse.

      If only this part of the health care conundrum was solved, it could reduce American health care costs by five percent. Obviously a five percent solution addresses only a small part of the problem, but five percent of what Americans spend on health care is a lot of money.

      It is disheartening to realize that our political system is not only incapable of fixing the problem, it doesn’t even seem able to identify the real issues.

      • Doug

        Very thoughtful post, thanks.

        • wigwag

          The United States spends close to 20 percent of GDP on health care costs; the runner up is France which spends about 12 percent of GDP. In plain English, this is nuts. Democrats blame health insurance companies; Republicans blame malpractice attorneys; lies, lies and more lies. Both the profit motive and defensive medicine practiced by doctors afraid of being sued are widely exaggerated problems harped on by people with ideological and political motives. If we argue about things that hardly matter, the system will never be fixed; ever.

          On average, Americans pay two to five times as much for prescription medicines as patients anywhere else in the world; the disparity is even greater for medical devices.

          Almost everywhere else in the world the government sets the prices; usually they are based on a small profit on top of manufacturing costs. Then the drug company recoups its enormous R&D costs plus a healthy profit by charging American premium payers and tax payers (who often foot the bill) an enormous mark up. Americans and foreigners are both eating steak, but they’re paying for hamburger while we’re paying for the steak and a glass of champaign that the waiter never delivered.

          If the U.S. stopped playing this game unilaterally, medical innovation would grind to a halt. What we could do is insist that the rest of the world pay its fair share or impose consequences for a failure to do so.

          But that would take an act if national will that we can’t summon up because we are so busy arguing about things that don’t matter.

          • drkennethnoisewater

            Going to a cash-based system for routine/chronic care, paid for by tax-free HSAs, and having high-deductible catastrophic insurance is the way to go. There are already practices in the US that are defecting from the Medicare-industrial complex and have seen fees for common procedures drop by as much as 80%. There is so much cost-shifting, waste, fraud and abuse in the government-managed system we have now that the entire cost of some procedures could be paid out of what folks pay in deductibles now!

            Get rid of Medicare/medicaid, and put the dollars accrued in those plans into restricted HSAs in a lump sum, repeal all special protections and requirements that healthcare gets (EMTALA, restrictions against interstate competition, etc), and (for the only interventionist policy I support) force all pharma and medical tech companies to sell products to US citizens at the global lowest price, so that there’s no more free-ridership. Either drop the price in the US or don’t sell to other nations at a discount. If those nations then decide to infringe on US patents, then retaliate against those nations.

      • teapartydoc

        The only way to get rid of the guilds is for the government itself to be blinded to credentials, and to abolish govt licensing. A guild cannot operate legally without overt or tacit consent by the government. Without that they are simply another form of organized crime, a racket. With government support, they are a legalized racket. Chicago-style.

        • Corlyss

          “The only way to get rid of the guilds is for the government itself to be blinded to credentials, and to abolish govt licensing.”

          Agreed. It’s the collusion between the guilds and the government, who assumed the customers’ obligation to vet providers with even a minimal show of concern about expertise, that create the constipated rule-making and oversight behemoths like FDA. The government’s caretaker role here is part of the problem: vast lumbering rule-making departments would go *poof* if the rationale on which they are based – i.e., the consumer is a callow idiot without sense enough to come in from the rain – were destroyed once and for all. Too many times people who are often victims of their own stupidity call the media and their legislators demanding “there outta be a law . . . ” when there should be smarter consumers and no quarter for the deliberately incurious.

        • wigwag

          As you know, another major problem is that American doctors are too highly compensated. American primary care providers are the highest compensated of their kind in the world; by a lot. American specialists make more money than specialists anywhere except for Holland.
          Fees that physicians charge patients make up a full 20 percent of U.S. health care costs; there is now way to reduce health care costs without reducing physician compensation.
          Of this 20 percent; half (or ten percent of U.S. health care costs) represents physician take home pay; the rest includes the cost of running a practice including rent, staff, malpractice insurance and amortization of medical school costs.
          How can physician compensation be reduced? One way to do it is to adopt the French system; make physicians government employees and set compensation by government fiat. It works well in France but there is no need to discuss it because it Is politically not feasible in the United States.
          The best way to reduce physician compensation is by dramatically increasing the number of physicians. As long as an increasing supply of physicians outpaces the demand for their services, the fees that they charge will inevitably decline.
          There are several ways to accomplish this. We could allow lesser-skilled professionals like PAs and Nurse Practitioners to provide more care. We could also empower pharmacists to do more as they do in several other countries.
          We should also make it dramatically easier for foreign physicians to practice in the United States. As you know, right now we place numerous barriers in the way for exactly one reason; to prevent foreign physicians from working in the U.S. and offering price competition to licensed U.S. physicians.
          The biggest criminal in all of this is the AAMC (American Association of Medical Colleges). America’s medical schools could easily admit twice or three times as many students and educate them for half the tuition that they charge. Medical schools are fat, lazy and bureaucratic and their faculties are often pampered, brats. Trust me; I know. The AAMC deliberately limits the number of students that are admitted in order to limit the supply of physicians to keep fees high; it’s a disgrace.
          The Government could fix this if it was so inclined. There’s not a medical school in the United States that doesn’t receive millions (and often tens or hundreds of millions) of grant support from the Federal Government. Medicare pays basically 100 percent of the costs of all residency training.
          The Federal Government could insist that medical schools dramatically increase the number of students they admit and keep tuition from rising or risk losing Federal support. Unfortunately, the AAMC is too politically powerful (with both parties but especially Democrats) to allow that to happen.
          Alternatively the Government could just operate its own medical schools and offer free tuition. For about ten billion dollars the Government could operate its own physician training programs that would graduate far more doctors than currently graduate in an average year.
          Some items that are talked about a lot would only have a marginal effect. Reducing bureaucracy might allow physicians to higher fewer staff, but it is highly likely that they would keep the savings not rebate it to patients. The same thing is true with reducing medical malpractice rates. If those rates declined; physicians would just keep the difference.
          To dramatically impact U.S. health care costs we need to dramatically increase the number of practitioners licensed to offer care. It’s a supply and demand thing; more doctors dispensing the same amount of care means lower prices for everyone.
          Do you think the medical guild will ever permit this to happen?
          I think its highly unlikely.

    • Doug

      I think that the traditional way that insurers dealt with this problem was by only paying the “reasonable and customary” portion of the doctor’s fee. So if you insisted on having the best doctor around treat you and he charged more, you paid the excess.

    • Boritz

      “It is unprecedented in our market to have major insurance plans exclude Seattle Children’s,” said Sandy Melzer, senior vice president. -VM

      This line is the key. Especially the ‘unprecedented’ part.The limit is far below the Mayo Clinic level and is affecting providers that have never hit this kind of limitation before.

      The latest effort in promoting ACA is to ‘rebrand’ it and change the lexicon. ‘cancellation notice’ is now ‘renewal notice’. They need a new term to cover this one. ‘Doc Shock’ could become ‘enhanced physician access’ perhaps.

      • Corlyss

        You’re a hoot, Boritz!

  • Bruce

    VM is doing a nice job of digging deep in to ACA. These problems are caused primarily because our freedom was taken away by a usurping central power. We can only hope that Dr. Mead and Dr. Krauthammer are correct – that this is the beginning of the end for liberalism. I’ll get back to you in about a year on that.

    • catorenasci

      It’s great that WRM has gotten religion on ObamaCare – it’s too bad he and the other brillian people like him didn’t see this coming like the rest of us who warned and warned that ObamaCare would be a fiscal and actual care disaster. Of course top hospitals are cut out and top doctors – they cost more and do a better job. If they were included as a ‘freebie’ everyone would want to use them. Can’t have that – now only the very rich or the politically connected will have top care.

  • iconoclast

    Well of course top hospitals are kept out of the networks. They keep more sick people alive–can’t have that!

    More seriously, this is merely the harbinger of how the government meddling reduces the overall quality of care.

  • Rick Caird

    Way too many people on the left are trying to defend ObamaCare based on fixing the broken web site. But, this “doc shock”, the premium shock, the canceled policies, and the huge deductibles and copays will not go away and will overwhelm the web site problem. As people find out more and when the employer policy shock hits, ObamaCare will be lucky to have a 20% approval rating.

  • InklingBooks

    This is chilling news. Seattle Children’s Hospital is among the top ten children’s hospitals in the country. For an illness such as leukemia, being treated there can spell the difference between life or death for a child.

    Of course we all know that the insurance plans for the Washington insurance commissioners will include Children’s and those other top, nationally ranked hospitals. We also know that their insurance will be covered by our taxes. The same will be true for those who oversee Obamacare at the national level, again with their solid-gold coverage paid by our taxes.

    Obamacare isn’t about providing better care for all. It’s about a small cadre of people dictating the sort of care the rest of us get, often in ways that will reduce the quality of care we get while (as in the UK) substantially increasing the health bureaucracy to which they belong.

    –Michael W. Perry, author of My Nights with Leukemia: Caring for Children with Cancer

  • Dantes

    The unstated goal of Obamacare and CMS for the last 5 years has been to drive private practice doctors out of medicine and into hospital employment, because it is easier for the government to control 5000 hospitals (and eventually far fewer) than 500,000 doctors.

    The purpose of the much vaunted Electronic Medical Record System is not to enhance patient care, but to control health care costs by protocol and fiat using population based statistics. This is done with the EMR by tracking physician expenditures and punishing the doctors if they fall out of arbitrary guidelines in diagnosis or treatment.

    That approach works “most” of the time, if your disease bothers to follow the books, or if your doctor hasn’t happened to have the misfortune of seeing several sick people in a row who don’t fall into an easily diagnosed category.

    Once your doctor works for a hospital, they cease to work for you and by definition, become beholden to their employer…a hospital CEO who has a fiduciary, but not patient care responsibility. This is an inherent ethical conflict of interest and is essentially Corporate Practice of Medicine.

    Finally, dumbing down medicine by upqualifying-by-legislative-fiat lesser trained individuals (PA, NP, etc.) whom we are assured…by them!…are equivalent to doctors. Not. 2 years of training is not equivalent to an MD. Anyone who says so is completely ignorant of what they don’t know.

    • cubanbob

      Vets are better qualified than these two year wonders. Forward!

      • Lucas

        Come on now. No need to be insulting. We nurse practioners and PA’s know we aren’t physicians. We also all have baccalaureate undergrads in hard science disciplines, and two years of radiate level study, with the great majority of our education coming from our colleges in medicine. We work within a collaborative framework, guided by physicians in specialized areas of expertise. And lets face, it, medicine isn’t getting dumbed down; if anything there’s a global information overload facing providers at any level. With the rapid advances in technology and the vast amounts of information available via modern EMR systems, I have a hard time understanding why anyone would want *less* professional eyes trained on target to ensure safe, effective, science based healthcare delivery.

        • cubanbob

          Thats all very nice but vets are still better educated and trained in the underlying fields of biology and medicine and are much more capable of getting up to speed in trading humans.

          • teapartydoc

            The reason mid-level practitioners exist is beause of the contradictions built into a systemic monopoly that exists because of medical licensing by the government. Because there is no actual market in medicine there is no price competition, and without price competition the usual signals that indicate what the actual demand and supply relationships do not exist. This leaves everyone guessing as to what these are, and since it takes so long to train a physician, the need to fill in gaps makes the training of mid-level practitioners mandatory. This is much like the “barefoot doctor” program that existed in Communist China under Mao.
            If you want a market in medicine, and affordable care, you need to get rid of the licensing monopoly. Read chapter nine of Capitalism and Freedom by Milton Friedman.

  • cubanbob

    This will end with concierge care for those who can afford it and factory care for everyone else.

    As for new patented drug pricing we can either continue with what we have and continue to see innovation or force the drug companies to charge the average price of those drugs based on the average cost of them in the top 20 counties in the world. The rest of the world will love that.

    The ACA is life support for Medicaid, Medicare, VA care and SCHIPS. Without it they are all on a death spiral. But the ACA only delays the spiral for a while but does not stop it. The only way to stop the spiral is to limit the most expensive treatments and care for those who are on government paid or subsidized care. It’s going to get ugly.

    • willbest

      Don’t be silly. It takes roughly 6 concierge doctor’s to cover the work load of a typical doctor now, and they have a substantially higher quality of life in addition to making more money. There won’t be any doctor’s left to run the factory care for everybody else.

  • George Purcell

    In the end I think these doc restrictions and the stabilizer bailouts to the insurance companies next fall are going to end up being the most unpopular parts of this mess.

  • catorenasci

    And just think, the entire problem with the health care system is primarily the result of having most people covered by insurance tied to a particular employer! And done in a way that it’s deductible for the employer, but not income to the employee. It’s the root of most of the problems, except providing care for the very poor.

    And to what do we owe this abomination? A GOVERNMENT decision to help employers evade GOVERNMENT IMPOSED wage and price controls during World War II.

    In short, a Democratic Administration FUCK UP!

    The Blue Model was never good, it simply deferred problems and created new ones.

  • http://www.facebook.com/kidsbright Steve Gallup

    For routine health care, access to top providers/facilities may not be important, but when there is a complex problem–especially one that is poorly understood–it’s vitally important.

    When covered by an HMO, I learned what it’s like to seek insurance approval for the kind of care that I knew was urgently needed. The only recourse was to go off plan and pay for it out of pocket. That wasn’t easy. It may be the new norm.
    http://its1776.com/health-care/

  • Bandit

    WebMD is going to get the big payoff for pimping Obamacare as it will be getitng millions of hits because people will all have to treat themselves

  • teapartydoc

    This is the story of progressivism. Someone has a great idea and tries to make it come about by writing laws to put it into effect, and when difficulties arise, they build on the mistakes of the past to make even bigger, more destructive mistakes.

  • willbest

    I suppose these hospitals could get back in the networks by figuring out a way to charge less. I don’t feel particularly sorry for organizations that set list prices on Tylenol at $10/tablet and watching it get cut down to $2.70/tablet after negotiation with the insurance company.

    You would think over the counter meds would come with the $7k per night list price on the room fee the way soap and shampoo come with a hotel room.

    Truthfully a lot of these “not-for-profit” Hospitals have been price gouging insurers in the same fashion that ESPN does cable providers. I don’t feel all that sorry that some insurers decided to cut ties. The question is if the pricing requirements dictated by the ACA forced the insurer’s hand, or if they took the opportunity on their own.

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