Healthcare Expert Stuart Altman speaks in the Tri-Cities

When Richard Nixon made the first national foray into health care he chose an economist who knew little about health care to head the effort. That person was Stuart Altman.

Dr. Altman opened his remarks by describing himself as a radical moderate and noted that his remarks would probably support whatever bias any member of the audience may have had when they came in. At the time that Nixon appointed him to that commission health care spending was 7.5% of GNP. The thinking was that if it got above 8% the nation would be in trouble. The spending is now at 17.5%. Is there a correct answer for what the spending should be? Should our spending be limited? There is no right answer and anyone who tells you they have the answer is stupid. But there is no doubt that this level of spending is causing problems.

Healthcare has been an issue for a long time. Truman ran on a platform plank of public healthcare. He won but he was never able to bring that policy into fruition. Nixon almost got a public healthcare policy in place but was side-tracked by a third-rate burglary and the public embarrassment of Congressman Wilbur Mills. Bill Clinton tried it. Clinton’s original plan was undercut by a person Altman chooses to call Rasputin. Altman’s team proposed a plan that would cover everyone plus prescription drugs but would cost at that time $100 billion. Clinton’s jaw dropped. Rasputin countered that he had a plan that would cost nothing. But Rasputin’s plan would be a radical change to the way healthcare was paid for and delivered. Altman objected that people would not accept such a radical change. Altman’s days in the Clinton administration were terminated.

Now we have a new president who has made healthcare a key priority. Altman was one of Obama’s advisors during the campaign. There should not be 50 million people in this country with no healthcare coverage. But there are some big obstacles to changing that.

There are three major options:
1. An all-government program like the systems in Europe on Medicare here.
2. Restructure the current mixed system and make it work better.
3. Eliminate the tax exemption on employer-provided insurance and provide tax credits for people to buy their own insurance.
Altman thinks that most Americans prefer option 2. This is the sort of thing that has been proposed by both Obama and Hilary Clinton.

There is a precedent for this kind of plan in the state of Massachusetts. There are critics of this kind of plan at both extremes so that is an indicator that it is a decent moderate choice. In Massachusetts, that moderation was arrived at as a compromise between the Republican governor Mitt Romney and a Democratic legislature. In the plan everyone has a share of the responsibility, be they the government, individuals, or employers. It was a shift from a subsidized safety net to universal insurance. The idea was to get everyone covered then decide how much to pay for that coverage. At the state level there is an advantage that isn’t available at the national level. Much of the money the state was able to use came from the federal government. At the national level there isn’t a higher power that can assist in the funding.

Obama has already made some down payments on a mixed plan. SCHIP was funded. Money has been provided for health information technology. Money is proposed for research on effectiveness. (What most people don’t realize that is that governmental regulatory bodies are not tasked to determine what products are cost effective. They only determine whether the product works or not. They don’t determine whether products make economic sense. Effectiveness research takes that next step to determine whether the cost of the product is justified by its effectiveness.) Money is proposed for the unemployed and the disadvantaged on Medicaid.

But when Obama came to Washington the pressures came to bear. Massachusetts was able to get a compromise. Such a compromise just may not be possible in D.C. $2.5 trillion is being spent each year on healthcare. Over the next ten years that number will be over $30 trillion. This is a great deal of money with which to work. Adding the uninsured is not going to break the bank. There are those who advocate single-payer. There are those who advocate an individual mandate. The problem with an individual mandate is how to deal with the individuals who refuse to get insurance. Obama would like to avoid that issue. Because employer-provided insurance is not considered as income for tax purposes there is an incentive to overuse the insurance. Furthermore, a number of unions have negotiated contracts in which they have accepted lower wages in exchange for secure healthcare.

The two most contentious issues are whether to create a public plan to compete with private insurance and how serious should we be about cost containment. Altman considers the public plan in competition to be a distortion and distraction from a more important issue. He thinks that getting universal coverage is much more important. Serious cost containment is going to hurt some powerful lobbies. It will be difficult to achieve.

Cost containment has several issues. Why should the government be stuck with paying for the high administrative costs in the private system? What exactly is government going to pay to providers? Currently the government tends to only pay 70% of what private sources pay. How will that shortfall be made up?

Already the original proposals have morphed. Original the people who qualified was a limited set. Now the proposal has been extended to everybody. There are a number of other versions going around the Hill. The Ways and Means Committee has a plan that requires everyone one to be in it. Ted Kennedy has a plan that defers the payment level decision to the administration. Some are championing a plan based upon Group Health of Puget Sound.

Whatever happens, the fact is that providers now lose money on Medicare and Medicaid patients. Currently that money is made up by private payers. So either the Medicare and Medicaid payments must go up or the quality of care must go down.

In 1983 Medicare was changed from cost-based to diagnosis-based payments. The cost-based system was good for small rural hospitals but the diagnosis-based system hurt them. Many began to close. Altman was interviewed on the TODAY show to defend this. There were cases where the extra travel required resulted in unnecessary deaths. He was asked, “Why are you killing people in America?” He went back to Washington determined to fix the problem. That fix was the Critical Access Hospital program. The diagnosis-based system with Critical Access Hospitals has become a gold mine for consultants because it is so complicated that specialized knowledge is needed to use it smoothly. Today hospitals have a difference of opinions on public plans. Some will do well and others will not.

A real question is, “Why are costs raising so much?” Are we just using too much care? Altman’s basic answer is that we just pay more than other countries pay. Obama’s proposals will not be successful in serious cost containment because they are political plans. All the options may make slight improvements in costs but there is no “silver bullet” out there. All the ideas have some merit but there is no big idea that will solve the problem. The basic way to spend less money is to have the discipline to just spend less money. That is what other countries do. They set the budget for healthcare and the system simply has to live within that budget.

Altman’s Law is this. Most every major healthcare constituent group favors universal coverage and healthcare reform BUT if the plan deviates from their preferred approach they would rather stay with the “status quo”.

He believes that we will eventually do something but it will fall short. Some will not be covered and costs will continue to go up. The big debate will be about expanded and modified Medicare. The status quo on Medicare is not sustainable. We will have to either cut it, make people pay more, cut payments to providers, and/or make rich people pay more. If we significantly improve the delivery system and reduce the demand on Medicare we can maintain the quality of care. We must wean ourselves from fee-for-service and get to a state of integrated and coordinated care. Currently providers get paid more for doing more. Systems are encouraged to aggressively compete against one another instead of collaborate well. We need to pay them more for doing less if doing less gets the job done. We need to be willing to pay more for appropriate care instead of paying more for just any care at all. In the end the healthcare communities need to come up with their own solutions.

This concludes Altman’s formal remarks. Additionally in the handout materials there are the following points.

There are 4 options for changing the payment system:
1. Bundled or Case Payments
2. Significant pay-for-performance add-ons or penalties
3. Value-base payments
4. Permit wider use of “gain-sharing” between hospitals and doctors
The following payment reforms are likely to be in the Congressional bill:
1. Bundled payment for acute and post-acute care
2. Penalties for excess re-admissions
3. More extensive pilot or demonstrations for bundle payments including ambulatory care (with special emphasis on chronic conditions)
4. Extra funding to expand primary care workforce
a. Medical Home
b. Additional funding for primary care residencies

Questions and Answers
Q: Will taxing healthcare benefits reduce costs?
A: Economists like this because it makes sense in free markets. But healthcare doesn’t always behave according to free market rules.

Q: Much of the private costs are in administration. Explain how we could recover those costs without a single-payer system.
A: Insurance companies are often bad actors. Generally the government should be able to administer thing cheaper. But there may be problems with a government system as well. With Medicare a person gets Cadillac care for Chevy prices. The real answer is to get tougher on the insurance companies.

Q: If drug makers can’t make money, how will we be able to fund new drug research and development?
A: Drug companies also skew their development toward profit-making drugs instead of needed niche drugs that may not be as profitable. Altman acknowledges this as a tough problem.

Q: There are revolutionary plans than can be quite cost-effective.
A: It’s my contention that any revolutionary plan will not be adopted.

Q: What are the future and political challenges of Medicare managed-care systems? Oregon has an efficient system. Can that be duplicated elsewhere?
A: That apparent efficiency is a political fluke. Politicians from Washington and Oregon noticed that Florida was receiving really high payments because of the large number of procedures being done there. They banded together and got a special political dispensation to get more money from Medicare. In typical bureaucratic behavior, areas with high efficiencies are exposed to being cut more than areas with low efficiencies.

Q: This sounds like we are just arguing about different ways to pay the same sets of bills. When will we get more serious about prevention?
A: We should be paying for things that actually make us healthier instead of for just procedures.

Q: If we were able to match the Massachusetts program on a national scale could we achieve the same kinds of statistics?
A: I don’t know. The experience just may not transfer. And there are some real problems with the Massachusetts system that may not be reflected in the statistics. One of those is a real shortage of primary care physicians.

Q: What do you think of the plusses and minuses of the Maryland system?
A: Maryland is the only state with an all-payer regulatory system. It is a complex system that has some problems. There is much friction between hospitals. It does enable the state to get more federal money. But it does generally work. However, the complexity of it all keeps plenty of consultants in business.

End of presentation.