Tuesday, July 7, 2009

How Big is 1 Trillion?


That’s 12 zeros. I heard a mathematics professor on NPR once explain, “imagine your kid’s first grade class, 1 teacher, 15 kids, comfortable but not spacious room; chalkboard at the front, ABC’s on the wall above. Consider that the number 1,000.”

Now we have to make the journey of multiples of 1,000. Imagine that same room, and that teacher, but now with 15,000 kids. That’s 1 million. Imagine that room with 15,000,000 kids. That’s 1 billion. Imagine that room with 15,000,000,000 kids (15 billion kids, wow!). That’s a trillion. Crowded, eh?

So I have to chuckle at today’s big news story: “Hospitals Reach Deal with Administration - $155 Billion in Health Savings Offered.” To quote, “The nation's hospitals agreed last night to contribute $155 billion over 10 years toward the cost of insuring the 47 million Americans without health coverage, according to two industry sources.” Contribute? They make it sound like a tax-deductible sponsorship for some PBS programming. Where’s it to come from? Medicare and Medicaid reimbursements and $40 billion in compensation for uninsured patients.

There’s an old joke about morals and prostitution that points out once you’ve established that you’re the latter, what’s left is quibbling about the price. “Hospitals” (“Agreeing to the plan were the American Hospital Association, the Federation of American Hospitals and the Catholic Health Association”) have bought a ticket to the party for $155 Big. So, if 155 is the 15 kids in that classroom, all we need is to get 6.5 more kids into that classroom to pay for the public plan (estimated cost $1 x 10 to the 12th power).

Apparently the hospitals have agreed to swallow hard if the final legislation includes a public plan and will take Medicare-or-less rates without a fight. And you thought the recession hurt hospital perfomance...seems like they’ve put $155 billion on the roulette table in hopes they can pressure the Administration to find a not-a-public-option.

By coming to the roulette table now, hospitals allegedly saved themselves $45 billion in cuts (the Administration’s threat was $200 billion) and they got to the table before the docs and the insurance industry. It seems everyone has to take a number and, when called, take a few lashes.

Jeff Goldsmith recently posted about the dangers of the public plan as the pathway to universal coverage. Quoting at length:

“The idea that you can simply insert a new public plan into the existing insurance market without the presently insured noticing any difference is political fiction, not market reality. Think of the private health insurance market as a $900 billion pool of money held back by a vast earthen dam consisting largely of provider/payer contracts. This pool has shrunk by some estimates by as much as 9 million lives due to the recession, due to people losing employer provided coverage.

Obviously, some of those newly insured through health reform will choose private plans and the size of the lake behind the dam could thus grow. Even with no public plan, it is absolutely appropriate for health reformers to demand concessions from private insurers for creating all these new customers.

However, if you also drill, say, a 3 foot wide hole in the dam, (the width of the hole depends on the cost difference between the new public plan and existing private offerings) both lives and dollars will gush out. Depending on the width of the hole, many previously private health plan enrollees will defect to the public plan, and the composition of the risk pool remaining behind the dam will change in completely unpredictable ways. Health plans will have to lower their premiums to avoid being run out of business, and many will gush red ink until they can revise their existing network contracts, many of which contain multi-year rate guarantees.”

Clearly there is an imperative for reform. The stress of the Baby Boom generation on the federal budget is soon to be overwhelming, nearly doubling Medicare Part A expenditures between 2000 and 2030—a burden that, if unchecked, will make it hard for the government to do much else and force a heavy tax burden onto American workers. The growth health costs is certainly impacting small business’ ability to fuel economic recovery and sustain long-term growth. I personally try to avoid being suckered into the “moral imperative” debate often tied to the uninsured but I do believe there are macroeconomic impacts to personal bankruptcies tied to medical care. Add to all this the matter of the US’s overall poor health for the dollar and certainly there is little basis for opposition to reform.

But is $155 billion a necessary Faustian bargain for American hospitals? Here’s one where I would have liked to seen more of a fight. Getting behind real payment and delivery reform in return for a slow, phased path to universal coverage – but only after the fixes suggested by the Health CEO’s for Health Reform parameters were implemented. Let the Government wield a heavy axe of deadlines on those recommended changes as the cost of patience. Hospitals, submit to overall cuts only after having failed to work with Medicare/Medicaid and the private insurance community to make real cost reduction systemic. Otherwise, signing off on $100 billion in cuts is essentially negotiating future update factors without changing anything that will actually improve the system.

Enough on this topic for now. There’s more to our business than reform. Stay tuned for a new theme later in the week.


  1. In my opinion, it's really unfortunate that we continue to look at reform as individual entities and not as an alliance. This should not be a political debate in which bipartisan popularity or power wins by default. This is not a game of cat and mouse in which the winner is the one with the biggest cheese. All stakeholders should be willing,no let me change that,should be required to participate in a forum on reform and openly discuss their interests and state their areas of concern. For profit, not for profit, private, public and governmental entities owe this to the people so that we can understand this complex dilemna. We need to stop discussing arbitrary figures and really start (charges, cost, reimbursement, cash, insurance) equating realistic outcomes for all stakeholders. We all stand to lose and eventually all of us will be in one of the buckets of people who are adversely affected by the current system and a future one that is no better or worse. Moreover, I dont know why we are in such a rush to fix a problem that has eroded over decades.Don't get me wrong, I understand that reform requires some expediency but this should not mean putting things in place only for the short-term without consideration for unintentional consequences. What is our government's vision for healthcare? Is reform true to this mission; what is the strategy and is it transparent? I would pose this question to all stakeholders...Maybe I am way off base but this is what comes to mind as I read this and other articles.


  2. This comment has been removed by the author.

  3. Sorry about the delete - mistake :).

    I have so many concerns (and no answers by the way). The more I understand about the state of our national health care, the more I become convinced that there may not be the Holy Grail answer for universal coverage for which we all seem to be searching.

    I'm concerned about the impacts universal coverage could have on those 5/6th's that currently have healthcare coverage. Will there be a future for the traditional healthcare insurance providers in this nation? Will current providers use the 'US plan' as a benchmark for care? I know I don't speak for everyone, but I don't personally envy Medicare or Medicaid beneficiaries and wouldn't want them used as a benchmark for my family's care.

    Will current insurers be able to compete with the 'US plan'? Will the changes push more and more private-carrier enrollees to the public plan skewing the current population? I'm very concerned that covering the 1/6th of uninsured Americans will send the US into a worse predicament than Social Security, as enrollment and costs balloon together.

    Some thoughts about lowering costs to the system (public and private combined)?
    Cost cutting / Lean initiatives: for sure this would help, but how much?
    Cutting unnecessary testing/diagnostics: probably won't happen in my lifetime.
    Public reporting of outcomes: this has been linked to improved outcomes (which are also linked to lower costs) in some states with mandatory reporting, but it also increases costs through activities of gathering and reporting information.
    Tax the Cadillac health policies: might help.
    More taxes: obviously this would help offset costs, but will they tax 'enough' or will they have to continually raise taxes, lower the income thresholds for the taxes, etc? (Article today about house bill proposal - http://www.modernhealthcare.com/apps/pbcs.dll/article?AID=/20090714/REG/307149995&AssignSessionID=273356046046985)

  4. Mike's thoughts on were to begin reform hit the theme everyone asks. I'll add one more thought.

    Can we agree on what the goal of reform. One could say reform is for the uninsured. Another can say the whole system needs to be fixed. The impasse in fixing healthcare has lasted decades. building the momentum empowering Congress to act now. I don't want Congress deciding.

    I would look to the healthcare industry to be in the forefront in offering solutions. But I don't see that leadership. Rather I see reaction to the regulatory threat by offering $155 billion in cuts over 10 years. I think the opportunity is there for healthcare experts to take the lead in reform. I want the professionals decide what is best.


  5. Conceding $155 billion over ten years in reimbursement further below cost does not seem like a step that is moving our health care system in any positive direction. The fact the nation’s hospitals are proposing such an agreement is even more puzzling. From a strategic standpoint, I understand the Hospital Associations’ objective in being among the first to suggest potential cost cutting. Any government public-plan currently in the works seems as it may certainly lead to reductions in reimbursement well above the $155 billion. However, I did not believe prudent reform would begin with our hospitals coerced to take a large hit over the next ten years that will most certainly adversely affect delivery in health care. The viability of our hospitals at a time when many are closing and consolidating will remain an issue if such a step is taken. What good is any targeted effort at lowering costs and subsequent large scale reform if our provider organizations are burdened further to manage more financial issues that takes away from their mission in providing quality care?

  6. I am –although not an American citizen- very disappointed when I read or watch any readable or seeable media regarding healthcare reform. It seems like everyone now is desperately trying to push their agenda rather than seeing and understanding the bigger picture. Like Michele said, it feels like a very unhealthy debate. What happened to; defending your interests but on the other hand putting yourself in other shoes to reach some common grounds?

    I think this administration views healthcare as a human right not as a commodity that can be despaired at some certain time. That’s why they are very keen on providing it for all Americans which is a very legitimate goal. On the other hand, it seems that the insurance companies are dead scared of the “public plan”, maybe the government will offer better coverage with lower premiums? Maybe the government is gradually introducing universal coverage? All of these questions are legitimate also. The general public also has their legitimate worries; are we going to be stuck with a commercial plan with higher premiums, higher deductibles and worse coverage than the public plan?

    Some say that this is “anti American” government controlled healthcare. I completely disagree. This is the only illegitimate argument –in my opinion of course. “Whatever the solution; we shall pursue” I thought that is the American way. Healthcare is a very sensitive issue; it’s not your income, education, house or work, it’s your life and your beloved ones’ lives that are at stake. So let’s start by reading the details of the suggested healthcare reform before saying what it will impact. I know its 1000 pages but what’s that time and effort –spent reading it- in return of your health and your family’s health. I am absolutely sure that not all the people that are discussing it on the web, TV, radio, newspapers have read it. Then let’s have a healthy debate, agreeing that we have a major healthcare problem and it cannot wait for some other time. As President Obama said on the 24th of February 2009:

    "I suffer no illusions that this will be an easy process. It will be hard. But I also know that nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year."

    My open ended question; what if the public plan is better than commercial insurance? Would that be an incentive for the commercial insurance to lower premiums, spread coverage or get out of the business?

    And one last thought, a wise man (W. L. Bateman) once said “If you keep on doing what you've always done, you'll keep on getting what you've always got” so let’s do things different than the last 50 years.

  7. I was quite puzzled by the $155Bn offer when I first read about it. While it could be considered somewhat impulsive, it was clearly planned, not necessarily thought out. I liken it to buying a home online without ever seeing it in person and without an inspection before the closing. You really don't know what you purchased and there may be lots of problems with what you just bought. Like an old victorian home, this could only be the beggining of a money sink.

    Why do I suggest this? Although the first ones "in" to help the health care situation may have initially engendered good will, it has become clear that congress will need to find lots and lots of money and likely will come right back to the sources with the deepest pockets. Thus, watch out hospitals, likely only the beggining.

    I agree with Mohamed that there should be a more global approach. Easier said than done, but essential to have a good plan, then figure out the funding. Thus, it remains unclear what was really accomplished by the Hospital offer.

  8. t seems like the majority of this group disagrees with the proposed $155 billion so I will take a stab at devil's advocate for the sake of conversation.

    I think that we can all agree that healthcare reform, in any shape, will result in cost cutting. It makes sense when you consider the amount of waste in modern healthcare (preventable errors and defensive medicine for example). Everyone (payers, patients, physicians, even hospitals) will have to cut somewhere. The hospitals are simply the first to the plate and are pledging to cut their costs by $155 billion over the next 10 years. I don't see physicians making any promises to cut cost or insurers promising to lower premiums.

    When hospitals are faced with the potential of being reimbursed at Medicaid rates under a single payer public insurance plan then cutting cost by $155 billion starts to look pretty good.

  9. All of the stakeholders should be willing to come to the table to get this reform a real chance at working, it shouldn't be left up to just the hospitals. In fact, is this $155 billion even coming from all hospitals in the U.S. or just the ones who are members of American Hospital Association, the Federation of American Hospitals and the Catholic Health Association? That could potentially leave a large number of hospitals without partaking in the cuts but possibly reaping the benefits later on. However the reforms end up taking shape, it’ll be important to ensure that the quality of the care that is provided does not suffer or even better is improved.

  10. It’s not really defined on what it really is; the gov’t hasn’t really broken it down so no really knows.

  11. I used the $155 billion as an example where concessions are being made in the face of political pressure.

    Then WalMart came out endorsing employer mandates but they did so with the guarantee the mandate did not require employers to maintain their current benefit plans. Leaves WalMart the option to drop the benefit plan then pay the tax if they see net lower labor costs.

    We see Pharma is on the band wagon offering 80 billions in savings over 10 years. I think $30 billion is already set to cover the Med D donut whole ($4,350 in 2009) seniors pay for drug costs.

    I've read several of the fact sheet on the House web site with interest for what is being offered. I've talked with underwriters who are amazed promises of fixed premiums are made with sizable minimum benefit plans. We know the moral hazard insurance deals with that having insurance provides access that predictably will have additional costs that have to be paid by higher premiums. The insurance companies are pointing out the economics that the government can offer artificially lower premiums than the private or commercial carriers. Consumers will migrate to the lower cost plans as employers reduce benifits or eliminate existing plans. Whether an unintended consequence or planned we will eventually have a single payor system.

  12. I would think mandated health care would be a good thing for WalMart.
    It would take the long standing health care insurance heat off of them, while maintaining their cost advantage.

  13. There is a difference between WalMart and those smaller employers WalMart wants to have mandates. WalMart doesn't pay insurance premiums. They are large enough to self insure their health care benefits. Having the exchange available they can transfer their higher costs to the government program that can reimburse providers at lower rates than WalMart's administrators currently do.

  14. The hospital deal is completely bombastic and I liken it to my dog Duncan marking his territory on a long walk through the neighborhood. Throwing money at the system to preserve your stake doesn't address the underlying problems. I find it fascinating that the private stakeholders are so threatened by a public insurance option. I think with the right regulations competition will thrive, crowd-out insurance migration will be kept to a minimum, and those in need will have an affordable government insurance option.

  15. One of the challenges we face for this healthcare reform is a lack of agreeance amongst all the stakeholders in the healthcare industry. It seems like no matter what solution or solutions we come up with, there is always going to be some part of the industry that is not going to be too happy about the decisions, due to the different visions of each stakeholder. I propose that the leadership in every sector of healthcare industry come together and form a shared vision, and then plan accordingly.

  16. Health care is like clean water; a human right that should be available to all. The overhaul of our system will require time and perhaps study of systems that do work albeit not perfect. It should include all stakeholders. This is not about personal or corporate gain. It is unethical to allow any human to live in a "diseased" state and call ourselves a society. Safe, accessible, cost efficient care is a must. A robust public insurance option is a plus. One way or another, we will pay.

  17. I do not understand why all hospitals should take the hit of paying the $ 155 billions. I think the for profit hospitals are more responsible in contribution as the non-for profit hospital has been always providing free care of the uninsured. Also the private insurance and the pharmaceutical companies who are making billions should also be involved in this payments. It sad how the system works that makes the rich richer and the poor poorer. There are too many things that need to be reformed but as a physician I think tort reform is essentinal to eliminate the practice of defensive medicine that makes clinicians order too many unnecessary testing and that money wasted on law suits could be diverted to more useful ways such as research, investing in information technology and mosy improtantly caring for the uninsured.

  18. There have been many sound arguments for and against the suggested $155 billion cuts hospitals are proposing over the next 10 years. But let's think for a minute. How would we truly feel if some of us did not have access to Healthcare? For some it's a choice for others it's not an option. How do we really reform the health system and do we really care? That’s the question.

  19. To my understanding, the insurers, hospitals, and big pharma have all made concessions through their trade associations. These consessions have allowed them to "horse trade" to get something in return from the White House and Congress.

    What intrigues me is that physicians have not weighed in -- at least in a unified way. It seems that the AMA does not favor reform, in part because of the impact on specialists (who are expected to take lower fees) and in part because of a tax on the highest income earners (often specialist physicians). It seems that the primary care disciplines, especially family practice, are in strong support for reform, in part because primary care physicians will not see decreases in payment that the specialists anticipate. By being divided, the physician community has lost the opportunity to influence reform to the extent others have. When health reform was proposed in the Truman administration, it was the physicians (through the AMA) who dictated what, if any, changes in the system there would be. Who would have thought that in 2009, the physicians would be so powerless in this debate.

    I know we have physicians on this board, what do you think?

  20. I agree physicians are not unifed not only because subspecialty practinioners do not want to cut their paycheck but also most of my collegues who makes comments about their job will be the following: I am happy with my job as long as I am not involved in policies, I just want to practice medicine not law or business. unfortunatelly medical schools does not provide basic knowledge about policies.
    where do we start from as physicians?

  21. Paul, I agree with your comments. Specialists and Primary care physicians have different vested interests in health care reform. No matter how you look at this, both groups will end up paying more in taxes and both groups will work harder to recoup their income. That is what every other group is doing, protecting their turf.

    It is getting very interesting now and President Obama is showing the wear and tear of this haggling.