The Profit Motive in Health Care

In case there was any doubt, Gapenski and Pink's textbook Understanding Healthcare Financial Management spells out the decision drivers for profit and not-for-profit hospitals. They're specifically referring to capital budgeting, but the principles hold across the health care financial board:

Projects that will contribute to shareholder wealth should be undertaken, while those that will not should be ignored. However, what about not-for-profit businesses that do not have shareholder wealth maximization as a goal? In such businesses, the appropriate goal is providing quality, cost-effective service to the communities served. (A strong argument can be made that investor-owned firms in the health services industry should also have this goal.) In this situation, capital budgeting decisions must consider many factors besides a project's financial implications. For example, the needs of the medical staff and the good of the community must be taken into account. In some instances, these noneconomic factors will outweigh financial considerations. [Emphasis mine.]

What does this mean? Simply put, when it comes to the for-profit sector, health care is no different than any other business: Maximization of shareholder wealth trumps all other considerations, including the good of the community and medical staff needs. For not-for-profit health care institutions, conditions are the opposite: freed of the responsibility to shareholders, they may make decisions based on the needs of the community.

Champions of privatization contend that the very nature of the profit motive dictates that maximizing shareholder wealth and community good are congruent, and that decisions based on the former will lead inevitably to the latter. Skeptics point out that given a choice between the two, the community good will always come in second and therefore suffer. One might also ask that if decisions based on profit are inherently good, what exactly prevents decisions driven by community good from producing maximized profits?

Country Profile: Canada

I felt that no boy should have to depend either for his leg or his life upon the ability of parents to raise enough money. I came to believe that people should be able to get...health services irrespective of their individual capacity to pay.

Tommy Douglas, father of Medicare, Canada's National Health Insurance system

Population 32,000,000

Government Constitutional monarchy based on parliamentary democracy

Health Care Model National Health Insurance

GDP 1.335T (2010 est)

% GDP Spent on Health Care 10.0%

Per Capita Income $39,600

Health Care Expense Per Capita $3,672

Health Care Expense Per Capita Normalized to Income of 50K $4,636

Life Expectancy (m/f) 78/83

Healthy Life Expectancy (m/f) 70/74

The health care writer T. R. Reid (The Healing of America) has described Canada's health care system as the paradigm for the national health insurance model. Its genesis goes back to 1910, when the Douglas family migrated from Scotland to Canada. A Winnipeg doctor chose young Tommy Douglas as the beneficiary of a new technique in orthopedic surgery, and a boy who had expected to limp through life suddenly had a normal stride.

But even then, the boy was troubled. Why him? Was it right that chance blessed one boy with health and left another crippled? The question gnawed at Douglas, and when he became governor of Saskatchewan in 1944, he instituted a hybrid form of the single payer model in which the government served as insurer while providers remained private. By 1961, every province and territory in Canada had adopted Saskatchewan's model. The Republic of Korea and Taiwan later followed suit, and in 1965, the U. S. Congress adopted the name of Douglas' model for the legislation that established Medicare. In 2004, a national poll named Tommy Douglas as the "greatest Canadian of all time."

Overview

• Goals: Universality, public administration, comprehensiveness, portability, accessibility
• Thirteen provincial and territorial single-payer systems varying approaches to financing, administration, delivery, and range of service
• Eligibility for national funding dependent on meeting the five goals listed above
• Heavy emphasis on equality of access regardless of income
• High level of population health
• Challenges: Aging population, medical inflation (especially pharmaceuticals), waiting times, shortage of health human resources

Structure

Canadian health care is organized around the federal government, provincial and territorial governments, and intergovernmental cooperation. Provinces fund hospitals, negotiate with physicians' association to determine remuneration, oversee public health, and may fund health research and evaluate new technologies. Intergovernmental councils and committee play a largely facilitative role, coordinating cross-provincial advisory committees and various national foundations and institutes.

Financing

Canada finances 70% of its health care services via a group of federal and provincial taxes, including an income tax, corporate taxes, consumption taxes, and targeted supplementary taxes called "premiums." The bulk of the remaining 30% comes from out-of-pocket payments and voluntary supplementary insurance.

Delivery
Canada's primary care physicians serve as gatekeepers to the rest of the health system. Canadians are free to choose a PCP, and most choose based on long-standing family relationships. Recent reforms have extended selected primary care responsibilities to nurse practitioners. While the physicians typically work on a basis of fee-for-service, provinces are experimenting with alternative payment contracts based on such modernizations as 24/7 availability and telehealth applications for rural and remote areas.

In general, care has trended toward a discrete model wherein family physicians and community health facilities provide provide primary care, hospitals provide secondary and emergency care, and nursing homes provide long-term care.

Federal and regional authorities provide public health services, as defined by these six categories: population health assessment, health promotion, disease and injury control and prevention, health protection, surveillance (i.e., collection of health data to guide public policy), and emergency response.

Challenges
The chief challenge facing Canada's health care system is well-known: Lengthy waits for diagnostic tests and non-acute surgical procedures and -- in some areas -- primary care physicians. In 2005, Canada's Supreme Court determined that the country's prohibition on private insurance limited access was therefore dangerous. The long-term effect on Canada's single-tier system remains to be seen.

Beyond that, Canada faces the vexing, worldwide issue of medical inflation. Its decision to address this by stinting on expenses has aggravated the issue of lengthy waits.


Overall
Despite issues with waiting times and mediocre survival rates on some chronic diseases, Canada ranks high in such aggregate indicators as healthy life expectancy, potential years of life loss, and survival rates from stroke. The 2005 court decision notwithstanding, Canada's commitment to equality of access remains the signature statement of its health care system. And it has provided an object lesson that Vermont may be taking to heart: Single-payer need not start at the national level. As T. R. Reid observes,

Universal coverage doesn't have to start at the national level. Once [Tommy] Douglas established free hospital care in a poor rural province and made it work, the demonstration effect drove other provinces to do the same thing. And once Douglas established his taxpayer-funded Medicare system to pay all medical bills in the province, the demonstration effect quickly turned Saskatchewan's idea into a national health care system that covers everybody.

WHO Ranking 30 (U.S. 37)

Click here to read more about Canada's health care system.  T. R. Reid's book The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care, includes a chapter on Canada.

State Profile: Vermont

Last November, Vermont voters elected Peter Shumlin as the state's 81st governor. Shumlin ran in part on a platform of health care reform in the state, which has absorbed one of the highest rates of medical inflation in the country. Since Shumlin's election, the Vermont General Assembly passed Act 128, which sets forth four goals for health care reform

1. Universal health insurance coverage;
2. Provision to every Vermont resident of an adequate standard benefits package and equal access to health care;
3. Control of the rapidly escalating health care costs in Vermont; and
4. Establishment of a system that prioritizes community-based preventive and primary care, as well as integrated health care delivery.

Vermont turned to Dr. William Hsiao to develop alternatives based on these principles. Hsiao designed Taiwan's health care system and has led or advised eight other nations on health care reform. He is one of the world's leading experts on health care economics and the implementation of health care reform. 

Vermont's health care issues are acute: The medical inflation rate of 8% exceeds the national rate of 5%, with a predictable impact on employment, wages, and quality of care. While Vermont has a relatively high coverage rate of residents (93%), the state estimates that 15% of Vermonters are underinsured. Combined with the 7% uninsured, over a fifth of the state lacks adequate access to health care.

In designing a plan for Vermont, Hsiao and his team operated within the parameters of six design factors:

1. We must maximize federal funds for Vermont;
2. There must be no increase in overall health spending and therefore all funding for the options must derive from savings;
3. No option could result in an overall increase of the health care cost burden faced by employees or employers;
4. No option could yield a reduction in the overall net income received by physicians, hospitals, or health care providers;
5. The implementation of any option must move Vermont toward an integrated health care delivery system that allows for a transition to global budgets and risk-adjusted capitated payments;
6. No option would entail changes for Medicare efficiencies in Vermont.

Guideline 5 in tandem with the first and fourth goals of Act 128 form the crux of a successful universal coverage: Elimination of fee-for-service replaced by capitated payments that finance a delivery system based on primary care and preventive health.


Hsiao has recommended that Vermont make significant structural changes in the way it delivers health care by adopting a single payer system funded by an employer-employee payroll deduction. Hsiao stated to the General Assembly that moving to single payer would by a conservative estimate save Vermont 25.3% in otherwise expected health care costs between 2015-2024. According to Hsiao, single payer in Vermont will

• yield administrative savings because there will be one standard benefits package and one common system for payment and adjudication of claims;
• significantly reduce instances of fraud and abuse within the system;
• allow providers to share information about their patients more efficiently, resulting in considerable savings and reduce overuse of services, tests, duplicative procedures, as well as the negative impact of overtreatment and drug interactions. 
• result in a favorable environment to reevaluate how medical malpractice claims are litigated and paid out. The opportunity to design tort reform, including the possibility of a no fault system, would reduce the practice of defensive medicine.

(Note: Strictly speaking, the recommendation is single payer for that portion of Vermont's population that is not on Medicare or Medicaid.)

As requested by the General Assembly, Hsaio's team designed packages of essential and comprehensive benefits based on these three principles:

1. Reduction of financial barriers to provide access to all levels of health services;
2. Emphasis on the need for prevention and primary care;
3. Protect Vermonters against the risks of poverty and bankruptcy brought on by health care expenses.

The comprehensive benefits package covers a range of services including prevention, primary and specialty medical care, mental health, other allied health services, prescription drugs, vision care, dental care, nursing home care and home health care. The essential package does not include nursing home care and home health care. For both packages, the cost-sharing burden on patients is light and based on co-payments. They also encourage employer-based incentives for a healthier workplace and preventive care, as well as a statewide initiative to promote healthier lifestyles. Hsiao estimates that the savings produced by changing systems will be more than adequate to finance either package of benefits.

In terms of provider payment, the proposal recommends a transition to Accountable Care Organizations by first establishing a uniform payment method and uniform rates for all insurance plans. Eventually, the ACOs will negotiate payment rates for providers; the proposal recommends that primary care providers be paid on the basis on risk-adjusted capitation (wherein the providers receive a premium for each person in a population as opposed to charging fee-for-service to individual patients) and pay-for-performance. Specialists would receive a salary and bonus.

The General Assembly anticipates passing some version of Hsiao's proposal. Vermont must also apply for a waiver from the Affordable Care Act, which the Obama Administration is expected to grant. Vermont would be come the first state to adopt single payer, and the second entity (after the Veteran's Administration). Meanwhile, Governor Shumlin's office released the following statement:

Healthcare reform is tremendously important. The current system will bankrupt us, and bankrupt small businesses. In just 10 years Vermont has gone from spending $2.5 billion to spending $5 billion a year on healthcare. Yesterday the best Congressional delegation in the country joined Governor Shumlin to talk about how they will help Vermont get a federal waiver to make single-payer a reality. We are not asking for a penny more than we would otherwise get from the federal government, we are simply asking to be able to distribute that money to providers in a way that is more fair. The current reimbursement is not sensible. It is not fair to patients. It is not fair to providers.

We are committed to moving as quickly as we possibly can. It is an ambitious goal but we need to get it done. And we will.

Dr Hsiao's statement to the General Assembly is here. His team's complete report is here. Click here and here for reactions to the proposal.

Conservative Health Care Proposal

I came across this comment recently, which is a response to a question asking for a conservative alternative to federally based health care policy. I've been looking for a community-based conservative perspective to round out some of the views I've expressed; the author graciously acceded to my request to publish it on HealthMatters. 

It's hard to lay out a program that will satisfy you given that you want something which deals with all issues better than Obamacare. But that rests on what your opinion if of those issues. For me, liberty is a major issue, for instance, but perhaps for you it is irrelevant to this debate. Still, there is an answer, though I doubt it will help you much.

First is to figure out how we got to the point we have, where most people using medical services use a third party payer to pay the bulk of the cost. Tax code provisions is the answer, along with wage controls, all during WW2. This matters because if any commodity is provided to you at a cost lower than its actual cost (someone else has to pay the difference) then you are likely willing to use more of it (health care services) than you otherwise would if you had to pay the full amount yourself.

So, if you want to control costs, which was a claim of Mr. Obama and which nothing has been done in this "reform" to do so, then you must connect the user of the service more closely to the cost of the service. Ah, but medicine is expensive, you might say. And you are right, but for most uses the costs are within the ability of most consumers to pay. Like regular check-ups, or visits to urgent care for colds, simple cuts, and so on. But you'd also want to connect consumers to those higher cost services more as well. Higher co-pays, higher deductibles, and so on, could help.

Second, eliminate all tax preferences for medical care costs. Employers should get no tax benefit to provide medical insurance for you, OR, you should have to declare the benefit as income. But we should not be able to both deduct the cost as a business expense and not have you declare it as income. It's this kind of irrationality that has helped to lead us to an era where we feel entitled to someone else's money in order to gain some personal benefit with it.

Third, for the millions in the USA unable to afford their own insurance, your state, or mine, but all states in total, should be able to provide intra-state benefits if they want. This is not a federal issue, and about the only thing, imo, that Romney gets right about this subject is that the feds have no constitutional authority to involve itself. How the states do this is up to them, but I would think that wise states might offer a refundable tax credit for state residents to buy their own major medical policy. But for those who want the benefit provided more directly I think there is a way to both help insure more people and cut costs.

Provide a voucher to each person who qualifies that provides to them something slightly less that what a regional policy for their status might cost. And if, during the covered year, those people using those vouchers are able to use less medical care, and so save money for the state, we should reward their frugality with a "savings sharing" policy--for every dollar saved to the state the person in question might get some percentage, say 25%, of that amount. Say a year of coverage costs $5,000 where you live. Give the beneficiary a voucher for $4,200 and let insurers work out ways to provide coverage for less. But say you end up finding a plan for $3,500 that is suitable, so you save $700 for the government. Well, let's reward you with part of that amount, in your pocket.

If taxes can be said to guide behavior, then certainly putting money into your pocket could guide your behavior too. So, everyone who wants coverage can get it, and incentives that would cause people to use less medicine though not punish them if they want to use more would be in place. More people covered, structural cost controls put into place which don't require some form of governmental rationing, and your liberty is not diminished. Add to that the fact that the US Constitution isn't once again peed on, and I think many conservatives would be right there willing to help.

But, and I mean this sincerely, you really didn't want someone to present a valid alternative which solves the problems you claim exist and does it without the oppresiveness of a federal program, did you?

Kaiser Permanente Poll on the Affordable Care Act

"Public opinion on health reform remains dug in this month, with the public roughly divided on the new law and partisans holding opposite views, a pattern that has been in place since passage last March. Overall, 48 percent of Americans have an unfavorable opinion of the law and 43 percent hold favorable views."

"Three in ten say they want Congress to expand the law, not something high on the legislature’s agenda at the moment. And two in ten votel for the status quo – leaving the law to be implemented as enacted. On the other hand, four in ten want to see the law repealed – with half of those (19 percent) hoping to see it replaced with a “Republican‐ sponsored alternative” and the Republicans other half (20 percent) wanting no further action."

"Even as there are ongoing legislative discussions as to whether implementation of the law can be effectively stalled by funding cuts inserted into this year's budget process, most Americans (61%)...oppose using the budget process in this fashion." 

"...while the public in general is divided over whether to keep or repeal the legislation, if they could pick and choose, the large majority (roughly eight in ten Americans) would keep the provisions providing tax credits to small business, and upwards of seven in ten would keep the provisions that close the Medicare doughnut hole, provide coverage subsidies to those of low and moderate income, institute the new voluntary long term care insurance program known as the CLASS Act, and prohibit insurance companies from denying coverage based on pre‐existing conditions. Even among those who want to repeal the law, most say they would like to keep five of the seven provisions queried. The one provision that the public remains happy to repeal: the individual mandate, which 67 percent would be happy to strip from the law, even as many experts say that without it the system may not work as intended."

Click here to read the complete report.