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The Keckley Report

The 2017 Watch list for Healthcare

By January 2, 2017March 1st, 2023One Comment

In the political drama surrounding the new administration, healthcare is certain to take center stage as the 115th Congress convenes tomorrow and Donald Trump is sworn in as our 45th President and Chief Executive January 20. As it turns out, healthcare was a major issue in Campaign 2016, especially with Clinton-Sanders followers who wished expansion of coverage and a vocal minority of GOP voters who liked the promise of Repeal and Replace. Now it’s time to govern.

For the new Congress and administration, governing healthcare will play out against a testy backdrop: it will not be easy.

The Nation is Divided about the Affordable Care Act (HR3590): Only one in four Americans and one in two Republicans surveyed after the election wants the ACA repealed. By contrast, 30% want it expanded and 19% want it to remain as is, (Kaiser Family Foundation Poll December 28, 2016). Elements of the law are popular, like protections against denial of coverage due to pre-existing condition and continuation of coverage for young adults under 26 on their parents’ policy. But the individual mandate became a rallying cry for opponents who labeled it “government run healthcare” and partisans who tagged it ‘Obamacare’ voting to repeal it more than 60 times in the House. Objectively, for the past four years, the ACA has been shorthand for a debate about health insurance coverage and premium costs. The law imposed restrictions on how insurers operate and expanded coverage via Medicaid expansion and subsidies for those between 100 and 400% of the federal poverty level. Access increased–20 million are now covered that weren’t before—and premiums went up for everyone because the law imposed restrictions on how plans were required operate. Ironically, the insurance reforms are in Title I of the ACA “Quality, Affordable Health Care for all Americans”; delivery system reforms that address gaps in quality, care coordination, healthcare workforce innovation and unnecessary care are covered in the other 9 titles that got little attention from media, political pundits and politicians. Nonetheless, the ACA divides America though most know little about what’s in it.

Our Nation is Cynical about its Politics: The result of Campaign 2016 was a shift to the GOP. When the 115th Congress convenes tomorrow, Republicans will control the White House, 52 Senate seats, 241 seats in the House of Representatives, 33 out of 50 governorships, 68 of 98 partisan state legislative chambers including both chambers in 33 states (includes Nebraska which is unicameral and the GOP controls), 4,171 out of 7,383 state legislative seats (56.5% of all seats),  and in 25 states both the legislature and the Governors offices (contrasted to 12 states that are Blue). Soon, nominees for the Supreme Court and cabinet appointments will begin confirmation hearings in the Senate and the partisan rancor will be on full display. The politics of our republic divides us. Our democratic process pits Red v. Blue. It divides us regionally i.e. the heartland v. the coasts, socially i.e. neighborhoods vs. big city folks, philosophically i.e. less government vs. more, and demographically i.e. haves vs. have nots. But the majority of our populace identify as independents and distrust elected officials (Gallup). Being Red or Blue is distasteful. Today, three in four Millennials, Gen X and Boomers and two of three seniors think our politicians serve themselves first before their country. That makes governing difficult, especially in healthcare where the issues are complicated, the public’s understanding of how the system works limited and opinions so widely divided.

Our Economy is Unsteady: As 2016 ended, all four major U.S. stock indexes finished in record territory and investors pushed the Dow, a key index of blue chip U.S. stocks, near a record 20,000. The Conference Board’s index of consumer confidence ended the year at its highest level in 15 years and most S&P 500 companies showed a slight profit for their year despite faltering earlier in the first half. But looking ahead, there are warning signs.  The Fed is raising interest rates making borrowing costs higher. Household wage increases have not kept pace with costs of living and the federal deficit is growing (expected to be $500 billion this year). Downstream, economists expect our GDP and inflation rates to grow at slightly above 2% annually for the next three years and unemployment to hover at a record-low 4.5%.  And for budget hawks, increased spending on healthcare threatens our economy. It’s 30% of total federal spending, 17% of our GDP, $9990 per capita and employs 16 million. Its workforce is stretched thin and job shortages persist across the board in its skilled trades and professions. Medical inflation will increase 3% annually, 10,000 boomers will age into Medicare daily through 2029 and drug prices are out of control: that’s a tri-fecta that’s especially troublesome to budget hawks fearing federal deficits. The ACA offered its solution: change the incentives for providers to reward outcomes and value over volume and utilization. It embedded information technology as a means toward capturing data to reduce unnecessary utilization and measure the efficacy and effectiveness of our drugs. And it expanded coverage to private insurance so care could be coordinated and preventive health intensified. But the politics of healthcare economics is trickier than the science itself: reducing demand (utilization) resulting from epidemic chronic disease and engineering clinical processes so that the sickest are treated efficiently and effectively does not lend itself to soundbites. And as elected officials push for fiscal constraint, they’ll have to address both at a time when our economy is not fully recovered from the 2007 downturn and our national debt is pushing higher.

So, it’s likely Congress will use its reconciliation maneuver circa 2015 to jettison parts of the Affordable Care Act next week that address coverage expansion and funding for cost sharing and tax credits. It’s expected the Republicans not leave the 20 million newly insured in a lurch, offering a phase-out that mitigates ballot-box fallout in 2018. The rest of the ACA will remain intact though tweaked: value-based payment programs like accountable care, MACRA and Stage Two of meaningful use. GOP partisans will shift control of regulation and Medicaid expansion to the states as their master solution and carefully control the legislative agenda in key committees to fend off resurgence of ACA support. And the Trump doctrine of governing—keep it simple, keep it private, do good deals– will permeate regulation and policies impacting every industry including healthcare. So, what should we be watching in 2017?

  1. Watch for refreshed approaches to privatizing Medicare: The centerpiece of Speaker Ryan’s “Better Way” plan is promoting premium support to Medicare enrollees to purchase coverage through private insurers. Though a substantial majority of seniors want Medicare left alone, the GOP hopes to convince younger generations it is necessary to make the change.
  2. Watch for changes in how anti-trust issues and competition is regulated by the U.S. Department of Justice and the Federal Trade Commission: Markets for doctors and hospitals are regulated as 306 localities. But insurers operate regionally and nationally and are highly consolidated: 44% of the national health insurance market is controlled by 5 carriers, and the 35 Blues dominate in most of their markets. And to complicate matters, more than 100 health systems sponsor their own health plans, reasoning it the only vehicle whereby they’re able to manage costs and quality. How markets are defined to assure fair competition and how the integration of financing and delivery of care plays out in the context of oversight by the FTC and DOJ is certain to get attention.
  3. Watch for privatization to be injected into the Veterans Health and Indian Health programs: The two programs serve distinct populations: the VHA’s 8.9 million thru its 168 hospitals and 1023 outpatient facilities and the IHA’s 5.4 million through its 45 hospitals and 617 outpatient facilities. The mechanisms whereby private sector best practices and operators might play a larger role in these will be a major story this year as a new administration seeks ways to address widely reported challenges in each.
  4. Watch for healthcare officials to relax reporting requirements for physicians and hospitals: Data reporting requirements imposed through government program offices are a recurring, expensive frustration to providers who see little correlation to improved performance. Watch for these to be simpler and standardized: it’s low hanging fruit.
  5. Watch for pressures to be exerted toward drug manufacturers to reduce prices: The Prescription Drugs User Fee Act is up for renewal this year and the public’s convinced that drug makers are gouging consumers. Pressure to expedite drug approvals by the FDA coupled with deal-making around PDUFA will showcase the Trump team’s muscle in tackling drug prices. And court-proceedings against the sector’s most egregious will be closely monitored.
  6. Watch for private insurers to recover. Profits for many insurers suffered since 2015 as the ACA’s restrictions took effect.  Watch for federal regulators relax restrictions on private insurers, strengthen managed Medicaid and Medicare Advantage and offload insurance oversight to states. Private insurance companies touch two of three in our country: their formidable clout, data and competencies in coordinating health are viewed as essential to the system’s delicate balancing of care and cost.
  7. Watch for consumer responsibility to become a key theme in health reform: A frequent target of discontent among antagonists toward the ACA is its neglect of personal accountability aka unhealthy behaviors that contribute to avoidable health costs. The new CEO of USA Inc. does not smoke or drink and -describes himself as overweight. Watch for healthy living to be topical, with the White House as a bully pulpit for healthiness.
  8. Watch for employers to stay in the employee health benefits game. By relaxing restrictions for qualified plans and eliminating the threat of the Cadillac tax via Repeal, the expanded use of health savings accounts that allow employers to offload responsibility for costs to their employees will be a critical storyline. 

Might there be others? It’s hard to say. It’s not likely physician discontent will be addressed head-on though the new HHS Secretary Tom Price, an orthopedic surgeon is sympathetic. Physicians want complete clinical autonomy, attractive compensation, full waiting rooms and public esteem. And they want payers to pay them what they think they’re worth, which is always more than they are paid. They don’t know what’s in Medicare’s new pay plan (MACRA) and they fervently believe they’re the most important stakeholder in the system since they alone are their patients’ advocates. That’s a tough scenario for legislators to resolve, especially if costs must be balanced against quality and access.  

It’s not likely a solution to unnecessary care will get attention. Though clinical experts calculate that as much as 30% of what’s spent in U.S. healthcare is for services for which there’s no scientific evidence, the public is easily influenced by special interests that effectively cloud these issues and contribute to unnecessary costs.

And it’s not likely the issue of affordability will be solved, especially for individuals and families. Households pay 28% of total health spending through their out of pocket expenses, premiums and co-payments. The median income of the U.S. household is just above $52,000. Among households headed by an adult 55-64, the median net worth is $21,000 and 52% have no savings at all. As health costs shift to households, and as the ranks of the uninsured swell due to premium costs and dissolution of the marketplace programs, affordability will become the kitchen table issue. And the buck will stop at the doors of public health clinics and hospitals who’ll bear the brunt of the fallout.

The healthcare watch list will be prominent and dicey in 2017. What’s to be the replacement for the Affordable Care Act will be the immediate focus, but there’s much more.


One Comment

  • Paul, good narrative on the 2017 watch list. It will be extremely interesting to see what the mixture of policy is with the repeal (and do they replace?) of the incoming Congress and Trump Administration.

    I wanted to make perhaps a cynical point on the statement you made that "the ACA divides America though most know little about what’s in it." I think the blame for that needs to rest with the legislation itself and all 2,000 pages of gore that even most industry "experts" can’t wrap their heads around and that require health systems, insurers, and other key market players to pay an army of $300 consultants to figure out for them. Given that anecdote, it is little wonder that costs continue to explode in this industry – something economist Milton Friedman referred to as Gammon’s law, which stipulates that highly bureaucratic systems lead to exploding costs with increasingly diminishing returns to outputs. That seems to capture the essence of our healthcare system over decades extremely well. In 2001, Friedman observed that inflation adjusted costs per patient day since 1946 have increased from $30 to $1,200 in 1996. A more recent update for this from the Kaiser Foundation updates this number to $2,200. This is a stonking seventyfold increase. Further highlighting Gammon’s Law at work, hospital staff per bed increased ninefold from 1946 to 1996. Given other trends in the industry, I highly doubt that this force has dissipated in the intervening 20 years. This is an indication of administrative bloat, and no doubt much of it is centered around regulatory compliance. Eliminate a lot of the 2,000 page pieces of legislation, and much of that bloat can get cut, and much of the cost can come down.

    You also point out that the ACA mechanism for medical inflation was to reward providers for performance and value and to embed information technology as a means to capture the data. The challenge with this ever having any impact is that in an increasingly consolidating industry with local and regional monopolies in both the insurance and healthcare delivery markets, there is extremely little incentive for that data to be shared in useful ways with the consumers who could make more meaningful decisions on their care across outcomes and pricing continuums. And until insurers cease to be anything other than administrative middlemen who don’t use the data to more usefully guide their customers on how to maximize their care choices, and until patients care about those cost decisions through skin in the game which is blunted by third-party payment mechanisms, then I am afraid it is all a Potemkin Village designed to provide the illusion that costs will be constrained. And while private insurance has been expanded through the ACA, it was done in a manner counter to constraining costs; forcing insurers to provide and employers/consumers to accept broad coverage for a wide range of services rather than competing on health plans that are diversified to meet individual consumer and market needs. In economic terms, forced demand for bundled services is inevitably going to result in prices going up. The only way to reduce prices in this arena is to move insurance to where it belongs and the form that exists for insurance in every other industry – covering catastrophes. Health Savings Accounts coupled with high deductible plans in which consumers get the same tax benefits and advantages as the employers is likely the only consumer-driven incentives that will force demand of useful data and competition in the healthcare industry that will finally start to have an impact on costs, reversing Gammon’s Law. Ending supply restrictions around licensing and opening of new clinics and hospitals will help with this as well.

    There is a lot of what I am advocating for in the "Better Way" platform espoused by Paul Ryan and others in the House, and I hope Congress has the good sense not to repeal without replacing with something sensible to maintain coverage while also shifting it to much more market-oriented solutions.