Legislature(2019 - 2020)BUTROVICH 205
03/18/2019 01:30 PM Senate HEALTH & SOCIAL SERVICES
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| Presentation: Health Care Costs | |
| Adjourn |
* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE HEALTH AND SOCIAL SERVICES STANDING COMMITTEE
March 18, 2019
1:32 p.m.
MEMBERS PRESENT
Senator David Wilson, Chair
Senator John Coghill, Vice Chair
Senator Gary Stevens
Senator Cathy Giessel
Senator Tom Begich
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION: HEALTH CARE COSTS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAVID HYMAN, M.D., Co-author
Overcharged: Why Americans Pay Too Much for Health Care
Law Professor
Georgetown University
POSITION STATEMENT: Presented on the cause of high health care
costs.
CHARLES SILVER, Co-author
Overcharged: Why Americans Pay Too Much for Health Care
Law Professor
University of Texas
Austin, Texas
Adjunct Fellow Cato Institute
POSITION STATEMENT: Presented on the cause of high health care
costs.
ACTION NARRATIVE
1:32:00 PM
CHAIR DAVID WILSON called the Senate Health and Social Services
Standing Committee meeting to order at 1:32 p.m. Present at the
call to order were Senators Giessel, Stevens, Begich, and Chair
Wilson.
^Presentation: Health Care Costs
Presentation: Health Care Costs
1:32:12 PM
CHAIR WILSON announced the presentation Health Care Costs by
Charles Silver and Dr. David Hyman. He noted that many people
thought that Alaska was so different, but the presentation might
show why health care in Alaska is not so different in many
aspects.
1:33:12 PM
DAVID HYMAN, M.D., Co-author, Overcharged: Why Americans Pay Too
Much for Health Care, Law Professor, Georgetown University, said
the views are his own. He is not representing Georgetown
University. The Pacific Coalition Health defrayed some of the
travel expenses and the book was published by the Cato Institute
in 2018. It is a reasonably comprehensive treatment of why
health care in America is so expensive and explains the ever-
increasing costs.
Dr. Hyman said the book is hundreds of pages. He is not
presenting himself as an expert on Alaska. Every state is unique
and faces different challenges because of the specifics of their
health care market and the broader economics within each state.
He was hired as an expert on behalf of the State of Alaska in
its Medicaid suit against the pharmaceutical companies that
resulted in a recovery for the state of about $45 million a few
years ago.
DR. HYMAN shared slides of news articles about shockingly high
bills: "Family outraged, billed $800 by hospital to use sink."
"$12,000 for bee sting? Emergency room visits get even pricier."
"A baby was treated with a nap and a bottle of formula. The bill
was $18,000." "Life-threatening heart attack leaves teacher with
$108,951 bill."
DR. HYMAN showed a story with the headline, "To fight high drug
prices, Utah will pay for public employees to go fill
prescriptions in Mexico." Utah is a conservative state but
facing high pharmaceutical costs for state employees for
specialty drugs. Even very conservative states have gotten
creative to deal with spiraling increases in costs.
DR. HYMAN shared another story from last week with the headline,
"Walmart is so desperate to fix health care, it flies employees
to top hospitals in other states for treatment."
DR. HYMAN said these show the degree to which the health care
system is not doing a great job for patients or people paying
for health care.
1:41:03 PM
DR. HYMAN showed Martin Shkreli, the face of Pharma Greed. He
raised the price of Daraprim from $14.50 per pill to $750. A
representative comment from potential jurors was, "I could be
impartial to which prison he goes to."
DR. HYMAN said the reality is that even if Shkreli had doubled
the price increase, it would just be a rounding error in the
total pharmaceutical spending in this country. The most
important point is that Shkreli followed a path that had been
well established with generic drugs. Generic drugs historically
had been a success story in terms of affordability, but lately
there have been a variety of examples of dramatic price
increases in generics, some of a thousand percent. They see the
same thing in branded drugs as well with dramatic increases,
with insulin, for example. Harvoni is a miracle treatment for
hepatitis C. It is a cure, but a very expensive cure. Many state
agencies are struggling with whether to cover it. Prisons face
this issue.
DR. HYMAN said drugs for the treatment of cancer are coming into
the market with very high cost points with marginal evidence of
effectiveness. The Office of the Inspector General in the U.S.
Department of Health and Human Services stated in 2018, "Total
reimbursement for all brand-name drugs in Part D increased 77
percent from 2011 to 2015, despite a 17-percent decrease in the
number of prescriptions for these drugs."
DR. HYMAN said health care spending can be thought of being
composed of a volume effect times a price effect and total
spending equals volume times price. One issue is about volume--
are they overproviding certain kinds of treatment relative to
what the best medical evidence suggests (sometimes
underproviding a treatment is also an issue), but a lot of
issues faced in multiple states is about the price effect, the
price per unit more than volume.
DR. HYMAN said branded drugs have high fixed costs to develop
and test for efficacy and safety and then low production costs.
Biologics have a much higher manufacturing costs, so the
disparity of pricing between branded and generic biologics is
not as big.
DR. HYMAN said that Shkreli became so notorious that the Lown
Institute in Massachusetts named its annual award for egregious
price the Shkreli Award. Pharmaceutical companies set their
prices high because they can and society has chosen to pay for
what they ask, particularly for Medicare Part B.
DR. HYMAN said the book has a litany of all challenges and
problems with the health care system: "Open-ended reimbursement
for patented pharmaceuticals, regardless of price. Excessive use
of medical treatments. Providers' conflicts of interest. The
routine delivery of ineffective and unproven treatments. Games
that providers play to maximize their revenues. Charges that
bear no relation to costs. Surprise bills and other out-of-
network rip-offs. Widespread quality problems tied to
dysfunctional business models. Political corruption. And an
ocean of fraud." The basic difficulty is that everywhere one
looks in the health care system one finds problems relative to
what people want out of the health care system, which is high
quality care, doing the right thing right, and delivered at a
price that people can afford.
1:47:53 PM
CHARLES SILVER, Co-author, Overcharged: Why Americans Pay Too
Much for Health Care, Law Professor, University of Texas,
Austin, Texas, Adjunct Fellow Cato Institute, said dysfunctions
are everywhere in health care. Most of those dysfunctions cost
money, meaning the services are more expensive than they should
be, or the money is not spent on services at all, or the quality
is variable. The situation in the health care sector differs
from the private sector. In general, there are too many things
to police. America has an administered system administered by
government agencies, Medicare/Medicaid, TRICARE, and private
insurers. There are enormous agency costs when third parties are
used to administer a system, rather than the consumers who are
purchasing and benefitting from the services. Those agency costs
appear in every single relationship. Every relationship between
a provider and a patient has agency costs. Every relationship
between an insurer and a provider. Between the government and
provider. Between the government and a supplier of medical
devices. These are all interactions where there needs to be
incentives for the service provider to do a good job at
reasonable cost. Those incentives are created automatically in
market transactions where consumers look for value and good
quality at a reasonable price and have options. In an
administered system, those incentives are not created
automatically. Consequentially, there has to be monitoring and
oversight, but there are too many interactions to oversee. There
are billions if not trillions of interactions every year in the
health care system. There are more than a billion visits to
doctors' offices ever year.
DR. HYMAN reviewed different dysfunctions on slide 12. They
range from some simple overutilizations of services to outright
fraud. Medicaid and Medicare are large pots of money that are
not policed effectively. Fraud involves mainstream providers,
high-end academic medical centers, and Fortune 500 companies.
The standard estimate is that about 10 percent of health care
spending is lost to fraud and abuse; if waste is added, the
numbers start to get up to the low 30s.
1:52:50 PM
SENATOR COGHILL arrived.
DR. HYMAN said he is often asked why organized crime is on the
list of those who commit fraud. He quoted Louis Freeh, who was
the FBI director in 1995: "Cocaine distributors in Southern
California and southern Florida are diversifying into Medicare
abuse because the profits are greater, the chance of detection
is slimmer and the penalties are minor."
DR. HYMAN said examples of apparently-reputable mainstream
providers show how agency problems and the lack of policing can
result in patients being harmed and large amounts of money being
stolen from programs paid for with tax dollars. He gave the
example of Dr. Jacque Roy who was a primary care doctor in
Texas. Dr. Roy took the federal government and home health care
agencies for $375 million for services that were not provided to
anyone. Because the paperwork was in order, the Medicare program
assumed services were being provided. It was a was a simple
scheme. Dr. Roy signed a piece of paper certifying that a
patient needed home health care. A physician usually certifies
four or five people per month. Dr. Roy wrote 5,000 in a year. If
anyone was paying attention, he would have stuck out like a sore
thumb, but no one was paying attention.
1:55:42 PM
SENATOR STEVENS called the Dr. Roy story shocking. He asked if
ethics are taught in medical schools.
DR. HYMAN said ethics were taught to him in medical school and
he is confident they were taught to Dr. Roy as well. However,
being taught ethics is not a sufficient constraint when large
pots of money are available if someone breaks the rules. The
rules are only meaningful if they are enforced.
SENATOR STEVENS said that is shocking.
1:56:41 PM
SENATOR GIESSEL commented on the importance of utilization
review. A dentist told her that the state has a sudden epidemic
of lip tie and tongue tie procedures by dentists. Babies have to
be able to move their lips and tongues to speak appropriately.
Occasionally a sheet of tissue extends too far on the tongue and
the physician must clip it. The same is true for the upper and
lower lip. Suddenly the state has an epidemic of this and
dentists are performing them right and left. This particular
dentist had seen these children before they went to other
dentists who says they are pediatric dentists but aren't.
Suddenly children are having these procedures which she was told
bill to Medicaid $1,100 and Medicaid reimburses $500 for the
procedure, but the procedure was not needed. That was one
example from one clinician in the state. If Medicaid did
utilization reviews, these procedures would be flagged and these
would stop to save money and prevent unneeded procedures on
children.
1:58:29 PM
MR. SILVER responded that Alaska is not alone in having an
epidemic of unnecessary tissue snipping. They have read of this
in other states as well. The problem with monitoring this kind
of behavior is that they cannot rely on paperwork to determine
if the procedure is needed. The paperwork will say whatever it
needs to say in order to qualify for treatment. An actual review
of the patient and underlying medical information is needed.
That is incredibly expensive and imagine doing it on procedures
performed hundreds of thousands of times. When people buy
services themselves, they will not pay for tissue snips they
don't need. They need built-in incentive not to get unnecessary
treatments. Whenever that incentive is taken out, monitoring has
to be substituted, which is costly.
DR. HYMAN said the book has a discussion of exactly this type of
problem, which they call billing-related epidemics. California
had an epidemic of kwashiorkor, a protein deficiency disease
seen in sub-Saharan Africa during famines because one prominent
provider in California discovered that it could juice its
billings by coding Medicare patients as if they had protein
deficiency.
MR. SILVER said they should be careful talking about ethics and
the lessons not sinking in. It doesn't take a high percentage of
unethical providers to milk the system for billions of dollars.
There are about a million-and-a-half physicians in the United
States. If three or four percent of physicians are willing to do
these things, that would be 40,000 to 50,000 doctors out there
doing bad things. No one can police that many people. He is a
lawyer and could say the same of his own profession, but
attorneys don't have access to the public treasury. It is the
death of a thousand cuts. Every time physicians have an
opportunity to treat a patient or submit a bill, they face a
temptation created by the payment system to do something
slightly wrong, to overtreat, to recommend a scan a patient
doesn't need, to code a procedure one level higher than
delivered because every one of these little steps increases the
payment the provider receives. Over time they come to see these
things as normal. He doesn't want to say people have bad
characters. There are some, but for many people it is just the
way they are accustomed to doing things and getting rewarded for
it, so nothing changes.
DR. HYMAN said that although the book focuses on bad apples and
problems, this is not to suggest that all health care providers
should be presumed guilty. There are lots of wonderful doctors.
Most do their best for their patients, but they don't create
problems the regulators need to deal with. For obvious reasons,
he and Mr. Silver will focus on the bad apple problems.
DR. HYMAN said an example of a bad incentive is treating wet
macular degeneration. Off-label use of Avastin is a success
story for treating wet macular degeneration. Avastin has a low
price for treatment of wet macular degeneration of $60 a dose.
The company created the exact same drug, Lucentis, that carried
a price of $2,300 per dose.
MR. SILVER said the difference between Avastin and Lucentis is
how the dose is labeled.
DR. HYMAN said it is the same medication but depending on which
drug is used to treat wet macular degeneration, the patient
faces a very different cost. The patient pays 20 percent of the
drug cost. Because of the way Medicare structures reimbursement
for physician dispensed drugs, the doctor gets 6 percent of the
cost of the drug. (It is now 4.3 percent of the cost of the
drug.) If the physician uses Lucentis, physician gets much more
money. If patients paid out of pocket, physicians could never
use the more expensive drug if they knew the lower-priced drug
was available. The good news is that many ophthalmologists used
Avastin, but some did not, enriching themselves.
2:08:21 PM
SENATOR STEVENS asked if all doctors receive a kickback.
DR. HYMAN said the Medicare program must figure out a way to pay
physicians for the services provided to Medicare beneficiaries.
For Medicare Part B, they pay physicians a fixed percentage of
the cost of the drug dispensed. That is the way the Medicare
program compensates physicians. It is not a kickback payment for
providing services. It is designed in a peculiar way. It is not
about the value of the service being provided. It is not a
sensible way of structuring payment for service. This is how
Medicare pays for physician-administered drugs with Part B, not
for drugs obtained with a prescription at a drug store.
DR. HYMAN gave the example of another bad apple, Dr. Salomon
Melgen. He was an enthusiastic user of Lucentis. Almost every
patient of his was diagnosed with wet macular degeneration. He
quadruple billed Medicare for Lucentis and was paid $135 million
by Medicare. Medicare wanted some of the money back. Dr. Melgen
made large campaign contributions. Senator Menendez of New
Jersey went to bat for him with the Centers for Medicare and
Medicaid Services. A senior staff member for Dr. Melgen said,
"Bad medicine is not illegal. Medicare should pay these claims."
Politics will intervene to continue the flow of funds to someone
not providing the quality of medicine people would like.
MR. SILVER said health care was one of the main issues in the
2016 election. People are very worried about many different
things when it comes to health care, but according to at least
one survey, surprise medical bills is the thing people worry
about the most. People receive surprise medical bills from
providers who are out of network. These are balance bills, bills
to the patient for what remains after insurance pays. Many come
from emergency rooms. Hospitals contract out the management of
emergency rooms to independent companies that do not belong to
the same network that they do. Every patient who thinks the
hospital is in network is at risk of receiving one of these
surprise bills. Another common service that is not part of the
network within hospitals is for anesthesiologists who are
typically independent contractors, not doctors on the hospital
staff.
MR. SILVER said the question is why people see balance billing
so often from health care providers. He uses the metaphor of an
auto body shop. The hospital repairs bodies. He said to imagine
if someone took a car to an auto body shop and six months later
got a surprise bill from someone who had painted the bumper on
the car because that person was an independent contractor. Most
people would react with outrage. The shop is supposed to bundle
the services and charge one price. He asked how hospitals can
get away with a practice that does not exist anywhere else in
the service sector. The answer is a lack of competition.
MR. SILVER said an auto body shop who did this would not remain
in business. In the medical sector, hospitals don't face this
problem. They don't lose business when sending out surprise
bills. They did see one study recently that showed hospitals are
starting to lose business because of this practice. Until now,
hospitals have been able to let independent contractors send out
these surprise medical bills without fear of losing any
revenues. If hospitals had more competition, patients could go
to places that protect them against this financial risk. Some
hospitals refuse to allow contractors who are not in network to
balance bill their patients. They would love to see hospitals
who do this advertise this.
MR. SILVER said if they can get prices to matter to patients,
patients can shop for health care and the problem will take care
of itself.
DR. HYMAN said the study Mr. Silver referred to was published
last week in Health Affairs. The study focused on mothers who
had given birth at a hospital and whether they returned to the
hospital for subsequent births. That is different from typical
emergency use. People don't want to go to emergency rooms, and
they don't have much choice about what emergency room to go to.
It is not the same circumstance as a mother choosing a hospital
to give birth a second time. He noted that he has a white paper
coming out this week about surprise medical bills that expands
on some of the ideas in the book.
DR. HYMAN said they would ask the broader question of why the
health care system is so dysfunctional.
MR. SILVER said the dysfunction stems from the payment system. A
large chunk of what is wrong is traceable to the dominance of
third-party payment arrangements. The health care system differs
from everything else. People don't use insurance to buy a car or
fill it up with gas. America is using insurance the wrong way.
Americans don't use insurance to pay for many things. Americans
reserve insurance for catastrophes. That is the way insurance
works best. Insurance works best when it deals with low-
probability events with catastrophic effects. When those
accidents do happen, insurance imposes a substantial out-of-
pocket payment on the insured in the form of a deductible, so
someone always has skin in the game to do whatever is
appropriate to reduce the likelihood of a catastrophe happening.
2:23:55 PM
MR. SILVER said insurance is used very differently with health
care. Insurance pays for relatively small, predictable costs,
such as a routine doctor visit. They have a network of
comprehensive insurance rather than catastrophic health
insurance where predictable costs are paid for. In effect,
insurance companies are used as prepayment schemes. People pay
them a bunch of money and then the companies pay a bunch of
money out for things people will predictably and regularly need.
The problem is that insurance companies are not good shoppers.
They are simply there to pay the bills.
MR. SILVER described the associated tax subsidies. For employer-
provided insurance, the premiums are paid with pretax income,
which makes it extremely desirable to buy in that way. It is
making insurance cheaper. When there is a tax exemption for
something, people want to maximize the value of the tax
exemption. With health insurance they do it by making insurance
more comprehensive. The more that can be under the umbrella of
insurance, the more the tax exemption can be used for insurance
premiums for someone's advantage. People want insurance to cover
as many things as possible, so there is a network of
comprehensive insurance. Comprehensive insurance is expensive.
Most people are paying $20,000 a year or more for family
coverage through an employer. They want to consume services
worth at least some of that. When that insurance coverage is
used to buy things, people don't have to pay much at the point
of delivery. The average recipient pays eleven cents on the
dollar for medical services, so there is a low threshold to
using the services as well. The whole arrangement is structured
to maximize the amount of insurance benefit and thereby, the
amount of health care consumption. It keeps growing upon itself.
People who benefit from the network who want the exemptions
continue to funnel money into the political system. Then there
are insurance mandates and limitations on market entry. All of
these things either cause demand to go up or supply to be
constrained. The net effect is that prices go through the roof.
MR. SILVER said that for diverse reasons, prices in the American
system are far higher than in any other country. It is possible
to untangle them to see how the system keeps driving demand up
and up and therefore escalating prices. This is not a not a new
thing. He and David did not discover this. As seen in the book,
the work on "this vicious cycle" is traceable back to the 1970s.
With the creation of Medicare and Medicaid, hospitals and
doctors immediately started raising prices by significant
amounts. Previously the price of health care had risen at the
rate of inflation, just like everything else. Then it started
tripling and quadrupling compared to the rate of inflation. It
was simply that demand was increasing with essentially an
unlimited supply of money to pay for services and no one was
forcing prices down. As private insurance spread, the situation
became worst. The country is reaching the crisis part of the
cycle. The famous economist Herb Stein said that if something
can't continue forever, it will stop.
2:30:03 PM
MR. SILVER said he thought they were at that point. They are
seeing large increases in insurance prices and in taxes that
have to pay for this. States are reaching the point where they
can't afford the medical services they are providing through
Medicaid. People are being forced to opt out of the system
because they can't afford to buy the coverage they need. The
country must figure out what comes next because other people's
money to spend on health care will run out.
DR. HYMAN said on what comes next, a chapter in the book is
called "Blind Alleys and Lost Causes." They discuss a variety of
strategies they think are unlikely to work out as their
proponents hope. One of the most prominent politically at the
moment is single payer. They do not think it offers an effective
long-term solution. The first question is which single payer.
There are a variety of federal and state programs that are very
different. Medicare for all is very different from Medicaid for
all which is quite different from Veterans Affairs for all. It
is useful any time people speak about single payer to ask which
one do they mean and how well do they understand the tradeoffs
in the choices.
DR. HYMAN said another point is that regardless of which one
people choose, they have high on-budget costs for doing it. The
best-case scenario for scoring a single payer scenario like
[Vermont] Senator Sanders' proposal is that it will result in an
additional $33 trillion in new spending over the next ten years
in addition to the amounts already being spent on health care.
This is doubling the cost. The money must come from somewhere.
In fairness, it will be viewed as a replacement for the current
amount people are spending, but this is a sizeable increase,
roughly doubling the tax rate to where the country is now.
Advocates are willing to envision a policy based on that, but
three states have flirted with a single payer proposal, Vermont,
California, and Massachusetts. These are deep blue states with
favorable politics, but all three states gagged at the cost of
single payer. Although advocates are willing to increase
taxation and government spending, it is not obvious that voters
are.
2:33:48 PM
DR. HYMAN said the book goes into detail about the standard
argument that single payer is more efficient than insurance. The
typical basis is to divide the administrative costs for Medicare
into the total Medicare budget and say and it is only one-and-a-
half to two percent compared to ten to 15 percent for private
insurance. A lot of money will be saved on administrative
overhead. The book points out that this is not a good measure of
program efficiency. One difficulty is that if Medicare overpaid
twofold for every service, this measure would make Medicare look
more efficient. Their measure is how much does Medicare spend to
get a dollar in appropriate care to a beneficiary. If they take
seriously the estimate that fraud and abuse is a third of
Medicare spending, Medicare does not look good on efficiency
grounds [52 percent to deliver $1 in care]. The expected
reduction in administrative overhead to fund the proposal will
not materialize.
DR. HYMAN said the retort is if all other countries can do it,
why not the United States. There are a number of reasons, but
one reason is the representative democracy that is uniquely
responsive to voter interests and voter concerns who say why
can't they be covered for x. Other countries are harder nosed
about rationing. He showed a quote from the book:
"Relative to governments in other developed countries, the
U.S. government appears to be unusually subject to pressure
from special interests and uniquely incapable of rationing.
It also often behaves as though it is run by idiots."
(Silver & Hyman, 2018)
MR. SILVER said some of the difficulties in fixing the system is
because of the divided levels of government. Medicare is a
federal program and changes to that would be at the federal
level, not state. Some of these changes are politically unlikely
to occur because of interest group pressure to maintain them,
for example, the tax subsidies for employer-provided health
insurance. They have to ask, realistically, what can be done
within the existing political constraints to make the situation
better. They have to take advantage of the system's weakness,
which is it cannot cover everyone. Things are so expensive that
people are opting out of the system. People can't afford to buy
comprehensive health insurance, so they are going without. That
was supposed to be fixed by the Affordable Care Act, which was
going to force everyone into the exchanges. Now they know that
is not happening.
MR. SILVER asked so what can be done to take advantage of the
problem. The Affordable Care Act (ACA) over the exchanges leaves
people with high deductibles. The typical deductible for a
family of four is $12,000. They are spending a lot to get
insurance, but before they take advantage of it, they have to go
through $12,000 worth of health care. That means that they will
be looking for value. They need to take advantage of people who
are spending their own money on health care by turning them into
a driving force for health care reform by making it as possible
as they can for them to get good services at reasonable costs.
They should be trying to facilitate the development of the
retail health care sector. It is already surprisingly large. It
is growing and it is innovative. Amazon, Berkshire Hathaway, and
J.P. Morgan have bonded to create a new organization called
Haven. It is supposed to explore innovative ways of delivering
health care. It has not done much yet, but some watches have
different health care features and minute clinics have
reasonable hours and posted prices. A search online shows many
services available at retail. Lasik is not covered by insurance.
It is sold the same way ordinary products are sold. People can
find the prices. Web sites will even tell the average cost by
area. Over the past decade, the cost of Lasik has declined and
it has gotten better. The market is delivering the service.
2:41:13 PM
MR. SILVER said some might remark that the market can't deliver
complicated services, but it can. Groupon ads can be found
online for cosmetic surgery, which has gotten cheaper and the
volume has increased. It includes anesthesia, so it is
complicated. The Surgery Center of Oklahoma is the future of
health care. The Surgery Center does not operate with insurers.
It operates on a cash pay basis, sometimes by the patient and
sometimes by the employer. Its pricing is totally transparent
and reasonable and has a straightforward relationship to its
costs. The price for the joint in a hip replacement procedure is
what the Surgery Center pays for it. The center does not make a
profit on the mechanics. An ordinary hospital buys something for
$100 and sells it for a $1,000. Goods are profits for hospitals,
but not the Surgery Center. The cost is about one-third cheaper
than other hospitals in the area that take insurance.
MR. SILVER said that as he sees it, this is the way of the
future. There are many services out there delivered at retail.
They have ideas about how to encourage the growth of the retail
sector through the Medicaid program, for example. Medicaid could
direct patients into the retail sector and give them more
control. Those will develop a norm of purchasing at retail. Once
the norm is developed that is very big. People will think it is
normal to spend their money on health care the way they do
everything else, and then the retail sector will really take
off.
CHAIR WILSON said they brought up the Surgery Center of
Oklahoma. Several different hospitals and other groups have
visited his office this session and told him that if surgery
centers are allowed, the hospital will go under because the
surgery centers don't have to deal with EMTALA [Emergency
Medical Treatment and Labor Act], with emergency rooms, and will
take the profit center away from the hospital and close the
hospital. He asked how that would work.
2:45:13 PM
DR. HYMAN said that to frame the objection in a more candid
fashion, they are saying you must overpay us in this area for us
to provide services in another area. The best response is that
if they are purchasing health care services, they should buy the
highest quality at the lowest price, regardless of who is
delivering those services. If there are other services that
people want provided that patients cannot pay for, the providers
should be subsidized to deliver those services. Or better yet,
give the money to the patients and let them decide where they
will receive those services. This is exactly the same argument
used by the Bell system as to why they should overcharge for
long distance calls in order to subsidize local calls. That
argument as an antitrust matter was not successful, which is why
everyone is walking around with a fancy cell phone in their
pockets. If they want services to be provided for people who
can't pay for them, then they should subsidize either the
delivery of those services for the patients who need them, but
they shouldn't allow people to overcharge a significant chunk of
the customers or to perpetuate inefficient business arrangements
merely to deliver some subsidized serviced elsewhere. The
hospitals are subsidized to provide those services through a
variety of other mechanisms. It doesn't follow that that they
should be allowed to overcharge all comers.
2:47:04 PM
SENATOR COGHILL said that is the dilemma in his community. The
profit centers subsidize the others. They say the Medicaid rate
can't cover the costs and they can't turn anyone down by law.
Those are the struggles they have. The ER can't turn anyone
down, so that is the loss center. Putting the rest of the
enterprise aside, the ER is a losing business that the
government has put on them. It illuminates the dilemma in his
town. In his town they have become more things to all people,
which makes it even tougher to get out of.
DR. HYMAN responded that it is a challenge. People want
everything but balk at the cost. The current arrangements are
unsustainable. They need different strategies for addressing it.
One strategy is to keep writing bigger checks. When people find
themselves in a hole, they should stop digging rather than
finding a bigger shovel. Their argument is that the way services
are delivered should be changed, which will change the cost
profile of the hospital. If it has to compete, it will have to
reengineer in its own processes and decide what it ought to do.
They should not assume that the way the hospital behaves is
unaffected by the mix of patients it sees. If it loses money on
every ER patient, it may change the size of the ER, the extent
to which it is conveniently located, and whether it is perceived
as friendly or hostile. In large metropolitan centers people are
more likely to go to different hospitals because they've gone
there in a lot. In many communities in Alaska, there is only one
hospital. They need to decide what they want to subsidize and
then write checks for doing that. The problem with the Emergency
Medical Treatment and Labor Act (EMTALA) is that the federal
government imposed a mandate, but it declined to fund it. That
is reckless and disingenuous. He hasn't been able to get
Congress to revisit the issue. Some hospitals face huge costs
because of EMTALA and other face little costs.
SENATOR COGHILL said they have to live under that mandate. In a
small town like his, there is one hospital that wants to have
surgery centers and other things. They are struggling along and
growing. In Anchorage, their capacity at the front door is a
problem because they can't turn anyone away. That creates a huge
problem. That is going to be a continual thorn in their side as
they try to figure out how to get the consumer closer to the
payment. He said he agrees that they need to get there, but they
are starting with a directive from the federal government. It
makes it difficult. It is going to take some creativity.
2:51:46 PM
MR. SILVER said he hates to say it, but pain is coming, no
matter what. The local hospital that Senator Coghill is
describing is already having to compete with hospitals out of
state. He was reading about medical tourism from Alaska. The
situation is that they overpay the local hospital for surgical
procedures because of the ER losses. That is not a sustainable
solution in a market where people can go other places. Rather
than go to the local hospital, someone who is paying for the
surgery will go elsewhere. There is a limit on how much of the
subsidizing can occur. As the vicious cycle excludes more and
more people from coverage, this kind of activity will increase.
There are people who want to profit on these overpayment
arrangements. They are physicians who realize they can make
money because Alaska is willing to pay too much. There are
places in Florida where lap band surgery or other weight loss
procedures are a third of the cost in other places. People are
starting to figure out they can go to Florida and have a
vacation and still save money. As people get smarter and there
are more surgery centers, these hospitals will face pressure
anyway. The question is whether they want to be in front of it
and figure out how to handle the problem of EMTALA or be on the
back end. Even the emergency room thing is worth thinking hard
about. One of the problems with emergency rooms is that people
use them for nonemergencies. He would like to see triaging at
the local level. Hospitals will send people elsewhere for
nonemergencies. As competition develops, hospitals will be
pressured to direct people to the correct places. Focus on the
problem to be solved, which is uncompensated true emergency care
and figure out how to pay for that.
SENATOR GIESSEL said she is hearing that the U.S. Senate Health
Committee is looking at actual profits at nonprofit hospitals.
Senator Coghill was talking about Anchorage and hospitals being
unable to provide services for people who cannot pay, but in
fact, Anchorage has a large nonprofit hospital that has the
highest profit margin in its West Coast system and is increasing
its footprint on its nontaxed property. She asked if it is
correct that Congress is looking at that.
DR. HYMAN answered that Congress has an ongoing interest in
whether nonprofit hospitals are earning their exemption as 5013c
tax-exempt organizations. Local tax exemptions can be a large
amount of money. There have been a series of studies about
whether hospitals earn their tax exemption by providing charity
care. There is a wide variation among nonprofits and how many
earn their exemption. Some are out there doing God's work and
some of them considerably less so. The average nonprofit
provides a percentage point more of charity care that a for-
profit hospital, but there is substantial overlap in the
distributions of the two types of hospitals. The ACA had a
provision to compel nonprofit hospitals to disclose what they
were doing to provide community benefit. Data is starting to
emerge on what hospitals think they are doing to justify their
tax exemption. Individuals senators are interested in looking at
this, particularly with the surprise medical billing dynamic.
2:58:38 PM
CHAIR WILSON remarked that some of the examples suggested the
only way to change this was through public shaming of the
process. The medical system is incentivizing people who use
superbills. There is now medical tourism and providers won't see
those patients. He related that his mother-in-law had heart
surgery out of state and her doctor would not do follow up care.
Local providers are starting to push back. He asked what tools
are available to commandeer bad actors and to lessen fraud.
DR. HYMAN responded that there are many things to do. Public
shaming is not the most important. In well-functioning markets
bad actors are not nearly as common, and news media brings
attention to those problems. They ought to create incentives for
providers through the payment system to serve the interests of
their patients. Part of that is increasing competition in health
care market by making it easier to obtain care and making it
easier for people to enter the market to provide services. Well-
functioning markets protect consumers. Encouraging market entry
and competition is the most important thing to do. The emphasis
on self-pay is to get patients interested in the cost and value
of the care they are receiving. When people are spending their
own money, they evaluate their decisions differently than when
they perceive they are spending someone else's money.
CHAIR WILSON stated that there will be follow up legislation
working its way through the body. He offered to share copies of
the white papers with the committee.
3:03:26 PM
There being no further business to come before the committee,
Chair Wilson adjourned the Senate Health and Social Services
Standing Committee meeting at 3:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Alaska Presentation 2019_03_15[2] EDITED2.ppt |
SHSS 3/18/2019 1:30:00 PM |
Health Care Costs |