An Open Letter to my State Senator

Written in response to a general solicitation for feedback on the Economic Impact Investment Act.

Thank you Senator [] for the opportunity to comment on the Economic Impact Investment Act.  I'm deeply disturbed by the prospect of Oregon being bound for forty years through a law enacted with barely a week of consideration and review.  The process chosen by the governor for bringing forth this legislation guarantees that no one can honestly say they know what they're doing.

With that in mind, some suggestions:

• This legislation should be a prelude to a law that can receive due and appropriate consideration in the 2013 session.  Emergency legislation should enable the governor to address what is truly an emergency and nothing more.

• Toward that end, this legislation should include a sunset clause.  If the 2013 session doesn't see these powers as necessary than they are not necessary.

• I make a living forecasting long term contingent liabilities, and I can tell you with some confidence that no one knows anything about what Oregon's economy will look like in 2050.  That is even more true when considering the fortunes of a single company, even one the size of Nike.  There is no good reason, either for businesses or the state of Oregon, to make promises about their conduct that far into the future.  Any dispensations granted as a result of this legislation should be limited to 20 years at the most.

Finally, a word of caution.  It may be tempting to look at locking in the status quo as a small thing.  But this legislation and the process by which it is enacted will set a precedent.  Who will come calling and what they will demand next Christmas?

Romney's Medicare reform and the irony of choice

Presidential candidate Mitt Romney has staked his campaign in part on substantially reforming Medicare.  Under his proposal the insurance plan would switch from providing defined benefits to a defined contribution, based on the 2nd cheapest plan available in a person's area.

There are a lot of gaps and details missing from the proposal, but the Kaiser Family Foundation took a stab at measuring the effect on seniors.  They looked at what would happen if that plan had been in effect in 2010, looking at the plans people actually enrolled in (traditional Medicare or one of the Medicare Advantage plans).  The result:  Overall 59% of all Medicare enrollees (88% of Medicare Advantage enrollees) would have to pay higher premiums to stay in their current plan.  Or to put it more directly, the defined contribution Romney's plan provides would not be adequate to pay for the plans most people are in now. 

The numbers are particularly bad for residents in the Portland area:

County	# of Medicare Enrollees not Fully Reimbursed for Current Plan	Avg Monthly Funding Gap	Total Annual Funding Gap
Multnomah	39,285	$211	$99,470,202
Washington	26,210	$216	$67,936,968
Clackamas	27,656	$229	$75,997,589
Total	93,151	$218	$243,404,759

To put that last number in perspective, $240M is about what the highly contentious income tax increases from measures 66 and 67 will cost this year. Romney's Medicare reform would impose a burden of that magnitude on the elderly just within the tri-county Portland area.

Of course, seniors could always opt for one of the two cheapest plans and avoid any funding gap. But that belies all the justifications for Romney that claim his plan increases choice or involves a free-market. The only people with choices under Romney's plan are those willing and able to pay.  Everyone else gets a pick from the bottom of the litter.

Providence revisited

DCBS has rendered a decision on the 11/1/12 Providence individual rate filing.  They knocked the increase down from 15.7% to 12.2%.  The change is mostly driven by a reduction in annual trend from 7.2% to 5.5%, or as a 23 month factor from 14.3% to 10.8%. 

I wrote before that I thought the Providence trend was high, below is an update of the chart that shows why.  I'm starting it with January of 2010 because that was when the explosive growth in membership tapered off.  Prior to that comparing the book to a point 23 months earlier would be apples and oranges, as the book had more than doubled in that time.  Click for a larger view:

The blue line shows the 12 month change in the rolling 12 month normalized cost per member per month.  It's the same as the figures included in Providence's filing attachment G, column N, except that I'm compounding the changes over 23 months the same way the filing uses them.  So the Feb-2012 value of 7.2% becomes (1 + .072) ^ (23/12) - 1 = 0.143.  That 14.3% figure happens to be what Providence proposed using, it's the actual factor by which the experience claims are marked up for trend as shown in the Rate Projection attachment A.  That pick is shown on the chart as the flat red line.

There are two more lines on the chart.  The flat purple line is what DCBS approved, and the green line is the 23 month change in rolling 12 month normalized cost pmpm.  That is, instead of looking at a 12 month change and extrapolating it over a 23 month period I'm looking at the actual change over 23 months. 

People can decide for themselves how reasonable the proposed and approved trends are.

Tweets that make me laugh

First this:

A few items later in my stream was this:

The latter references a new RWJF synthesis on the effects of hospital competition.  The key points:

• Hospital consolidation generally results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.

• Hospital competition improves quality of care. This is true under both administered price systems, such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however.

• Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.

For background, Providence was one of the higher cost providers Regence tried to cut out of their network, while Tuality was one of two low cost providers the insurer wanted to keep.  Despite providers being mostly successful in pushing back against that move, it looks like it still struck a nerve...

Republicans and ineffective medicine: The saga continues

The love affair between Republicans and ineffective medicine grows ever more torrid.  Last week it was seeking to undermine the US Preventative Services Task Force, this week it's eliminating health services research.

These attacks on effectiveness research are bizarre.  Republicans claim to support market solutions to health care, but one of the biggest obstacles to that is that people have no idea what they are buying.  Are they buying a Cadillac treatment that delivers 100% satisfaction with no side effects or a 1979 Pinto that will blow up in their face?  When people can't tell the difference between shit and shinola there is no market and you can't have market solutions.   If Republicans are in any way serious about markets they should be advocating for more effectiveness research, not less.

So what explains the attraction?  Why do Republicans seek to protect treatment that doesn't work, like widespread PSA screening?  It's almost like they're afraid of the paradigm of using evidence to guide decisions.  Probably because in the real world so much evidence goes against them...

Providence Rate Filing

I'm normally sympathetic to insurers, but something about this filing rubs me wrong.  Maybe it's because someone thought it was important that everyone know that we're paying an extra 1.1% for women's preventative health services through the ACA, so important that they included it as a line item in the summary.

Or maybe it's because of this:

Instead of estimating an annual factor and blowing it out over 23 months I'm looking at the actual 23 month changes.  I'm comparing that to Providence's selected 7.2% annual factor, which compounds out to 14.3%.  Even against the worst point in 2011 the factor used in the proposed rates is almost double.  Putting it in comparative terms,

Why CCO's may not fail like HMO's

In response to @ChargerJeff, who asked why CCO's would fare any better than HMO's:

HMO's did succeed at cost control, which is a primary purpose of CCO's.  Where HMO's failed was in working cooperatively with doctors and patients, CCO's if they are to last will have to do better.

Reasons to think they will:

• We already have managed care, particularly in OHP.  The distance between where we are and where CCO's are going is shorter than the distance between indemnity plans and HMO's.

• The distance between doctor patient interactions and financial authority is shorter, you're less likely to see the kinds of coverage conflicts for which HMO's were notorious. 

• There is more cost awareness among providers now than there used to be.  Concepts like variation and evidence-based medicine are gaining growing acceptance, even if they are not entirely mainstream.
• Maybe most important, providers have no choice.  CCO's are an attempt to control costs by empowering providers, if they fail the alternative is to control costs by disempowering providers and stripping them of authority over treatment.  Think about the ER restrictions that Washington considered (and that for-profit hospitals have implemented), or more direct interventions in provider pricing.

None of this is to say that CCO's are a sure thing, there's a reason the feds made their funding contingent on results.  But the cost of trying in my view is much smaller than the cost of doing nothing and hoping that a 40 year history of medical inflation will somehow reverse on its own.