Legislature(2019 - 2020)BUTROVICH 205

03/18/2019 01:30 PM HEALTH & SOCIAL SERVICES

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01:32:00 PM Start
01:32:12 PM Presentation: Health Care Costs
03:03:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Health Care Costs by Charles Silver & David Hyman
-- Testimony <Invitation Only> --
                    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                                                                
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                                                                
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                                                               
^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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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