NBR Transcripts - February 21, 2005
Monday, February 21, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Polls show that rising medical costs are among Americans top concerns, but what can be done about them? New evidence shows that managed care may no longer be the cure and the traditional Medicare program may be losing its ability to hold the line. But could new approaches, such as putting healthcare spending decisions into the hands of consumers, succeed where others have failed? Stay tuned as we try to find out.
KANGAS: Good evening, everyone. The American financial markets were closed today for the president's day holiday, so we present this special edition of NIGHTLY BUSINESS REPORT. And speaking of presidents, President Bush has pledged action during his second term on what he considers one the nation's top economic problems, the continuing rise in medical costs. He reiterated that in his state of the union address to Congress.
The American financial markets were closed today for the president's day holiday, so we present this special edition of NIGHTLY BUSINESS REPORT. And speaking of presidents, President Bush has pledged action during his second term on what he considers one the nation's top economic problems, the continuing rise in medical costs. He reiterated that in his state of the union address to Congress.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: To make our economy stronger and more productive, we must make healthcare more affordable and give families greater access to good coverage and more control over their health decisions.
KANGAS: To bring that about, the president asked Congress to take a number of steps, such as making tax credits available to help low-income workers buy health insurance, equipping medical facilities with improved information technology, allowing small businesses to join health plan associations, expanding health savings accounts and instituting medical liability reform. We'll be examining some of those proposals later in the program. But first, why has the price of health insurance gone up by two-thirds over the past decade? Experts say one reason is the declining effectiveness of one method of controlling medical costs: managed care. By limiting employee choices of doctors and hospitals through managed care, employer health costs actually went down between 1990 and 1997. But those days are over. As correspondent Jeff Yastine reports, in recent years, members of many HMOs and other managed care plans have seen their costs rise sharply.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Meet the Bernard family. That's Amy on the piano, dad Steve and mom Alice and their youngest, Jake. An ordinary American household, except that Jake was born with a cleft lip and palate. That's meant extensive surgeries and other medical treatments almost since the day he was born. Steve's HMO covers a large portion of Jake's medical costs, but the Bernards find themselves with ever-larger co-payments. And the premiums Steve and Alice pay for his employer-provided health coverage have also been rising sharply in recent years.
STEVE BERNARD, FATHER: It's not a maybe. I know a car payment is definite and a mortgage payment is definite and groceries and gas and everything else is definite. But it never used to be, hey, I have to allocate 10 percent of our income to medical. I mean that's not the sort of thing that we've ever had to consider, but that's where we're at now.
YASTINE: Rising health care costs are a nationwide problem, jumping sharply in recent years at the same time that health care costs as a percentage of employers' payrolls have also been rising. Managed care was supposed to fix or at least slow down that trend. But some studies suggest managed care companies are fighting a losing battle to keep costs down. For one, managed care companies are no longer denying as many claims as they once did for expensive treatments and medicines.
MICHAEL CARTER, VICE PRESIDENT, HAY GROUP: A couple of years ago in Congress there was a patient care bill of rights which would have basically, among other things, not permitted HMOs to limit care in that way and it didn't pass. But HMOs would rather do the easing up themselves than to have the government regulate it. And also another major factor is that in some cases care was denied and it had a negative medical impact for the individual and then they sued.
YASTINE: Hospitals and doctors' practices have also undergone a round of mergers in recent years. Analysts say that's given them more bargaining power with managed care providers, who cannot call the shots the way they once did.
PAUL GINSBERG, PRESIDENT, CTR. FOR STUDYING HEALTH SYSTEM CHANGE: They couldn't have as credible a threat to say a hospital, saying, if you don't come to terms with us, you're going to be out of our network because today, with so much emphasis on having all the major hospitals in a network, the hospital knows they need me more than I need them. So I'm in the driver's seat. I can get the rates that I want.
YASTINE: And a third reason: rising costs for improved medical technology and prescription drugs.
CARTER: With these new drugs available, the good news is that it creates new options for people with needs for these drugs. But the bad news is from being able to afford it. It's putting a significant pressure on the health plan and therefore the employer that's sponsoring that health plan and therefore the employee who has to cost-share on that health plan.
YASTINE: No one knows that more than Steve Bernard, whose son has the cleft lip and palate or Steve's boss, Ira Giller, who is dismayed that the cost of offering managed care to his architectural firm's employees just keeps going up.
IRA GILLER, ARCHITECT, GILLER & GILLER: It's one thing to expect a 3 to 5 percent increase. It's another thing to see 10 and 15 percent increases, 20 percent increases depending upon where. And obviously that's more money I have to bring in just to break even with the previous year and that's not always easily done in a small business.
YASTINE: The problem for managed care providers is how to bring costs back into line without alienating customers like the Bernards. That's not easy, but experts say finding a way to reduce costs for patients with chronic problems is the key to any solution. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
KANGAS: The nation's largest provider of health insurance, covering 40 million people, is the Federal government's Medicare program. But Medicare costs have also been going up at a rapid pace, leading the head of the Congressional Budget Office to warn that the growth of Medicare spending is simply unsustainable. Let's turn once again to Jeff Yastine to find out what's behind Medicare's cost crunch and what's in the works to deal with it.
YASTINE: Mac and Vicki Rosen are living a quiet and healthy retirement. Whether it's a game of Scrabble or visiting with friends, they have no complaints about their lives. But there is one thing they see that could spell trouble in the years ahead: the rising costs of Max's Medicare coverage.
MAC & VICKI ROSEN, RETIREES: This is the largest increase monetarily that we have experienced since Medicare has started. I was looking at old reports that we had gotten because he's been on Medicare for a few years. Originally, it had gone up 8 percent, 8 percent. Then, all of a sudden, it went up 13 percent. But this year, it's 17.5 percent.
YASTINE: For now, the Medicare cost increases don't represent a problem for people like the Rosens, but the same can't be said for millions of retirees living on fixed incomes, nor for the millions more baby boomers destined to retire in the decades ahead. It represents a troubling challenge in public policy. Policy experts say Medicare is plagued by many of the same trends that contribute to rising costs in private health plans, but some observers point to the fact that Medicare is one of the last health plans to still offer the fee-for-service payment system, where patients can go to any doctor or hospital that accepts Medicare without restriction. Some critics say that's an anachronism, while others say the agency needs to find more efficient ways to use medical resources.
GAIL WILENSKY, SR. FELLOW, PROJECT HOPE: There's a lot of interest to see whether we can't find ways that will target the better use of devices or expensive therapeutics with the people who really need them. There's a lot of interest in trying to use pay for performance, where you would reward the providers -- physicians or hospitals or nursing homes or homecare providers -- who do it right the first time and who do it with a conservative practice style.
YASTINE: To do this, the government is counting on a program called Medicare advantage, which lets private, managed care providers compete for Medicare patients. The provider gets a flat fee for each Medicare patient enrolled and aims to make a profit over the cost of care. The benefit for seniors, supplemental coverage such as mammograms and colonoscopies not covered under standard Medicare.
DR. MARCIA GOMEZ, MEDICAL DIR. OF HEALTH SVCS., HUMANA FLORIDA: Medicare advantage allows for a much more coordinated effort. For example, we could look at programs anywhere from preventive medicine programs, programs such as healthy lifestyles, which is a program we're developing here, really geared for the mature man and woman.
YASTINE: But in taking Medicare advantage, the recipient is essentially signing on to a managed care program. That means healthcare is restricted to the doctors and facilities set by the provider. And some say the program does not do much in terms of its main objective in cutting the government's costs.
MARSHA GOLD, SR. FELLOW, MATHEMATICA POLICY RESEARCH: They've given people better benefits. They had a little bit of a drug benefit when Medicare didn't. They had low premiums when Medigap had a high one. They picked up a lot of Medicare's cost-sharing. And so it's been a good deal for beneficiaries. It hasn't saved the government that much money.
YASTINE: In Florida, with its heavy concentration of elderly, the race to sign up Medicare patients for Medicare advantage is heating up. The question now is whether it will hold down costs enough to do much for Medicare's bottom line. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: To talk more about the issues facing Medicare, we're happy to have with us Dr. Mark McClellan, administrator of the center for Medicare and Medicaid services. Dr. McClellan, thank you for joining NIGHTLY BUSINESS REPORT.
DR. MARK MCCLELLAN, ADMIN., CENTERS FOR MEDICARE & MEDICAID SERVICES: Susie, good to be with you.
GHARIB: As we've just heard, we know that Medicare is having its own problems in dealing with rising medical costs. What do you see as the key reason that medical costs are going up faster than inflation?
McCLELLAN: There are a couple of reasons why Medicare's costs are going up. One is that we've got an aging population, more people joining the program and that means higher costs. In addition, there are new medical technologies coming along that are making it possible to cure and treat many diseases that were either death sentences or led to much lower quality of life for our beneficiaries before. But the third problem is that Medicare's benefits are not up to date, so Medicare doesn't support delivering modern, effective care in the most inexpensive way possible. And this is a couple of examples of that. Until now, Medicare hasn't covered preventive benefits like screening for heart disease or diabetes and Medicare hasn't covered prescription drugs. Those are essential parts of avoiding costly medical complications today. And as a result, Medicare is spending more than it needs to on chronic diseases and their complications.
GHARIB: Certainly, though, your agency has the power to approve medical treatments, to set the fees for doctors and do other things to hold down the costs. So what are you doing to reduce costs?
McCLELLAN: Well, what we've found is that just setting fees for doctors by itself isn't an efficient way to get enough... isn't an efficient way to get a healthcare program that's providing up-to-date, modern coverage at the lowest cost possible. We've been moving, since the new Medicare law was passed a year ago, to support more coordinated care and to really try to create a business case for delivering high quality, low cost care. So we're doing less of paying doctors and other healthcare providers simply for providing more and more medical services and more intensive services and we're trying to move our payments to reward more coordinated care, better results and lower total costs of care.
GHARIB: I'd like to get your thoughts on the Medicare advantage program that we just reported about. If the private companies involved in the program are allowed to pocket the savings, which increases their bottom line, how does that help Medicare?
McCLELLAN: Well, they're not allowed to pocket the savings. We've got a strong system of competition coming into Medicare and that means that the plans that people are going to join are the ones that enable them to get the lowest cost possible. Today in Medicare advantage, beneficiaries who sign up for these plans save almost $800 on average in their healthcare costs compared to the traditional Medicare plan. And I think to have an efficient healthcare system for the future, one that keeps total costs down, we need to find ways to reduce beneficiary costs as well as program costs, and care coordination can help us do that. That's what we're implementing with the new Medicare advantage steps, is to get better coverage at a lower cost for our beneficiaries.
GHARIB: The other question about the advantage program that I have for you is why should a Medicare recipient voluntarily agree to be in a managed care program that has so many restrictions?
McCLELLAN: Well, the Medicare beneficiaries have the choice of staying in our traditional Medicare plan or they can join one of the Medicare advantage plans. The reason that a growing number of beneficiaries are joining Medicare advantage is because it's giving them better coverage at a lower cost. Medicare advantage plans cover many kinds of technologies and treatments beyond what traditional Medicare covers. The plans are required to cover all the services in traditional Medicare, but in addition, they offer care coordination. They offer extra preventive benefits and wellness benefits. They offer services like dental care and other treatments that are not covered by traditional Medicare.
GHARIB: You mentioned earlier that... about prescription drug payments and I understand that Medicare is going to pick up paying those payments next year. Given that President Bush is saying that he wants to cut the budget deficit, how do you propose to keep Medicare costs from going up at double-digit rates?
McCLELLAN: The best way to keep Medicare costs down in the long run is to have a Medicare program that delivers care in a modern way. You cannot have effective healthcare today without prescription drug coverage and without preventive benefits. By including these new benefits in Medicare, we're going to avoid some of the costs that come along with waiting to deal with health problems until after they occur. We'll be in much better shape to have a strong foundation for up-to-date medical coverage for the future, coverage that will be sustainable, coverage that will meet seniors' needs at the lowest possible cost.
GHARIB: Dr. McClellan, we really appreciate your thoughts. Thank you for joining us.
McCLELLAN: Susie, thanks. It's been great to be with you. Thank you very much.
GHARIB: We've been speaking with Dr. Mark McClellan, administrator of the center for Medicare and Medicaid services.
KANGAS: Because of the difficulty in controlling medical costs through conventional means, some new approaches are now being tried. For example, managed care companies are experimenting with a better way to deal with expensive chronic conditions. And the Bush administration is pushing an attempt to bring market forces into the healthcare system by letting consumers decide how to spend their healthcare dollars. Let's turn once again to Jeff Yastine for more details.
YASTINE: For Deana Kirtman, a long time sufferer of asthma, it's time to have her breathing power measured on this computer. She developed asthma as an adult and as had some scary episodes.
DEANNA KIRTMAN, ASTHMA SUFFERER: It was a challenge even to know how to manage myself and I was just learning how it do that and it would be to the point where when I would go home to California to visit, I would have breathing problems and it would terrify my parents and my in laws and my friends and they'd be like, should we go to the emergency room? No, I can manage it.
YASTINE: But getting a real handle on her condition didn't occur until she was enrolled in a care management program by her health care provider Kaiser Permanente. Care management sometimes called disease management elsewhere, is an effort to keep health problems like asthma or diabetes from becoming acute. The idea is that by having closer contact with a patient, that person can learn to manage his or her condition better and avoid the most expensive option, going into the hospital.
DR. AMY COMPTON PHILLIPS, CARE MGMT. DIR., KAISER PERMANENTE: By doing the right things for people, we will actually ideally in the long run save costs. If one heart attack costs roughly $50,000 to take care of, we save significant dollars if we keep people healthy and keep them from having heart attacks.
YASTINE: Disease management is just the latest of ongoing efforts to try to contain their rising cost of medical care without sacrificing the quality of the care people receive. Another is something called consumer driven health care. The idea is to let people shop around for the best health care at the best prices and this would happen by having individuals do their own spending for routine health care costs. To make this a reality, the Bush administration wants more people to put money into new HSAs or health savings accounts. These let people who buy high deductible insurance policies set aside money tax free to cover their out of pocket costs. The president says by encouraging that, insurance and health care itself should become far more affordable.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our view is that if you're a consumer of health care and you're in the marketplace making health care decisions, it is more likely that there be more cost control in health care than a system in which the consumer of health care has his or her health care bills paid by a third party provider.
YASTINE: But there are drawbacks. Because the HSAs are linked to the purchase of health plans with high deductibles, it's likely to mean extra costs for the less healthy and while the widespread use of high deductible insurance may help control spending for routine health care visits, experts say it would have little impact on costs for catastrophic health care.
PAUL GINSBERG, CTR. FOR STUDYING HEALTH SYSTEM CHANGES: A lot of health spending is for patients who are very sick who actually are not going to be experiencing financial incentives in the new benefit structures because they will have exceeded their deductibles or their out of pocket maximums and so in a sense, this is a tool that clearly can work, but there's a question of how far can it go?
YASTINE: Major insurers are already marketing health savings accounts to the public, but the big question is whether Americans will welcome a route where decisions on health care quality and costs are left solely in their hands. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
GHARIB: Joining us to discuss the implications of consumer-driven healthcare and HSAs is Professor Uwe Reinhardt, professor of economics and public affairs at Princeton University. Uwe, nice to have you on the program.
UWE REINHARDT, ECONOMICS PROFESSOR, PRINCETON UNIVERSITY: Good to be here. Thanks for having me.
GHARIB: Let me begin by asking you that some people say that one of the big reasons behind healthcare inflation is that the public is really insulated from the real costs of healthcare. What do you think about that?
REINHARDT: I think there's truth to that. For most well-insured people, you go to the hospital, stuff gets done, you get a bill. You don't understand it. It says "you pay this amount." It's usually small. And that's it, to you. There's definitely truth to that.
GHARIB: One of the things that I discovered in your writing is that any system, as you said, that relies on consumers making decisions about healthcare that the success of that system depends on a fully developed information infrastructure. So I was just wondering how would you rate our current system? Do you think that Americans have enough information about the cost and quality of healthcare?
REINHARDT: No, no, the... right now, it's like going into Lord and Taylor's blindfolded, grabbing a shirt and then saying, "send me the bill." and then you get a bill half a year later and you can't ever figure out what you bought. You have no clue why the bill is what it is. That's how it is now. This is not a market. The typical American doesn't know what different doctors in their neighborhood charge, nor do they know anything about the quality of these doctors' services or of the hospital. At the moment, the market...
GHARIB: So if we were to go to a consumer-driven system, we'd have to do a major improvement on just information.
REINHARDT: I think that is the real key. We are now trying to put the cart before the horse. That is, thrust consumers out there and say, be smart shoppers. And you say, what about the quality? What about the prices? And they say, sorry, we won't reveal those. This is ridiculous. What you need to do is, first of all, make the information available, then you can make consumers play like consumers.
GHARIB: You've also said that a system that relies on high-deductible health insurance and tax deductible HSAs, that the biggest losers are likely to be low income people and the chronically ill. Why is that?
REINHARDT: Well, the chronically ill is because they will have to pay the deductible year after year after year while the chronically healthy will spend much less than their deductible and they can look at the rest as a savings account. So you definitely do shift costs to the chronically ill. Why the tax preference favors the rich? Well, for someone in my income group, the government picks up half the healthcare cost, while for a gas station attendant, the government picks up only 25 percent of their cost. If you call that fair, I think you deviate from notions of fairness in America.
GHARIB: Do you think it would be a fairer system if the maximum out- of-pocket amount spent on medical spending were set as a percentage of family income instead of a fixed amount?
REINHARDT: Ultimately, if you don't do this, then eventually we'll slouch towards a government-run system, because to think that a rich person making, say, $200,000 a year reacts in the same way to a deductible of $4,000 than a gas station attendant, that's just ludicrous. For people who make $200,000, a $4,000 deductible is nothing.
GHARIB: Mm-hmm. Uwe, just to wrap it up, when you look at a system of high- deductible insurance and HSAs, do you see this as a stop-gap solution to our healthcare system as it is now, or is it the ultimate solution?
REINHARDT: It's not the ultimate solution. It is one thing we could do to make people a little more cost-conscious. It'll help a little bit, but if one went into the technicalities of it, which is that 80 percent of all health spending is done on the heads of 20 percent of the population, you realize most health spending is about very sick people. This is not a solution. What we need to do is really ask what is worth paying for and what is junk? And we have never asked that in America. Even in Medicare, we spent three times as much on people in Miami than we do in Minnesota, and we have no clue what difference that makes. That is what we should address. This high-deductible is... It's just a small fix that won't do anything at all.
GHARIB: Well, it's certainly a debate that's going to go on for quite some time. We appreciate you participating in explaining some of it to us. Thank you very much.
REINHARDT: Thank you.
GHARIB: We've been speaking with Professor Uwe Reinhardt of Princeton University.
KANGAS: To learn more about the subjects we've covered tonight, please go to our web site, nbr.com. And that's it for this special edition of NIGHTLY BUSINESS REPORT. The markets will reopen tomorrow and we'll be back with our usual program. For Susie Gharib and the NBR team, I'm Paul Kangas, wishing you good health and a good holiday.
