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Costs in any market, including health care, are reduced by raising productivity. The best way to achieve this is to release the forces of competition inherent in free markets. Proposed reforms of the Affordable Care Act (aka Obamacare) seek to do this on the demand side by incentivizing patients/consumers to shop for the best and lowest-priced care via i.e., health savings accounts (HSAs) and cross-state-border sales of health insurance. However, less attention has been paid to supply side reforms.

When suppliers in any market are protected from competition they can charge higher prices.  They are also less efficient, adopt cost-saving technology more slowly and provide lower-quality services. Thus, the project of freeing the demand side is likely to backfire unless the supply side is also freed. A certificate-of-need program is an anti-competitive supply-side barrier under state control.

What is a Certificate-of-Need Program?

Under these programs applicants must establish to the state that there is a need for additional capacity before a certificate is granted to build additional health care facilities or make major equipment purchases. This was due to a mistaken idea that excess capacity raises prices, a plausible possibility under Medicare cost-plus pricing. Medicare reimbursement has since been reformed. Moreover, there was no evidence that health care costs were, in fact, restrained. For these reasons the federal government eliminated the incentive to establish certificate-of-need (CON) programs in 1987 after creating it in 1974. Nevertheless, state CON programs linger on in 34 states, including Delaware.

This planned-economy approach to health care supply is equivalent to denying a grocery store (like Walmart) a permit to build because there is already adequate grocery store supply in the area. A new, more efficient store enters because it can underprice existing stores. This creates excess capacity which forces less efficient stores to close. Even the threat of a new store will force existing stores to become more efficient, in order to deny the new entrant a market opportunity. This is how Walmart drove productivity gains in the retail sector throughout the US in the 1990s.[1]

Clearly, it is advantageous to existing health care providers to convince lawmakers to retain CON programs. One justification is that providers are required to provide free care to indigents. However, this is very inefficient.  Just as we provide EBT (food stamp) cards so families can shop at the best value grocery store, it would be more efficient and fair to switch to an explicit tax on health care providers to fund health care vouchers/HSAs for the indigent. Otherwise this anti-competitive barrier reduces the threat of entry, and insulates existing providers from price competition.

Delaware’s Certificate of Public Review (CON) Program[2]

Title 16, Chapter 93 of the Delaware Code establishes the program. It covers the construction or establishment of any health care facility, the acquisition of a nonprofit health facility, the expenditure of more than $5.8 million by a health care facility (with some exceptions), a change in bed capacity of 10 beds or more than 10% of licensed capacity (whichever is less), and the acquisition of major medical equipment (excluding replacement and with some exceptions).  The review process considers the ‘need of the population’, the effect on existing providers, the effect on cost and quality of health care, and the availability of less costly/more effective alternatives in-state or out and co-ordination with the Delaware Health Resources Management Plan (§9304-6).

In the application kit, applicants are asked to provide demographic data, utilization rates of existing providers, and impacts on existing providers. They also get the opportunity to describe the impact of the project on cost and quality of health care in the service area. There are even some irrelevant questions (e.g. Has the Applicant evaluated alternative uses to which these monies,..could be used…? Does the Applicant intend to employ energy conservation principles..?). Extensive financial data are expected and any other studies/analysis that Applicants may have conducted to reach the decision to file the application. More serious hurdles lurk in the Delaware Health Resources Management Plan.

The Plan (last updated in 2014) explicitly prohibits the establishment of hospitals in Delaware for 5 years based on current versus projected capacity needs. Capacity needs are calculated using explicit formulas in the Plan. CPR applicants’ requirements for indigent (charity) care are laid out. While there is some discussion of other considerations, the major consideration appears to be whether additional capacity is justified based on demographic data and current capacity (existing providers). However, it is not really possible to determine how much weight is given to any one factor, including cost.

It is fair to conclude that Delaware’s CPR program is an anti-competitive barrier. Undue weight is given ‘current capacity’, i.e., existing providers. Applicants must provide highly detailed data, which will be made public thereby possibly giving away competitive advantage. Applications can be denied on a wide range of factors. Although only two applications of 47 were denied (2005-2016), there are no data on withdrawn and deterred applications.

Evidence of Effects

Statistical studies on the impact of CON programs such as Delaware’s CPR program on health care costs indicate that costs are not reduced. There is some evidence that costs are increased.[3] Studies on quality are mixed. However, it is difficult to measure the true impact of CON programs statistically because they are widespread (small control group) and their effect is through the deterrence of cost-saving activity which is hard to measure. Anecdotal evidence is easier to come by. The Federal Trade Commission and the Anti-Trust Division of the US Department of Justice make a very strong case for elimination of state CON programs, and cite specific instances of anti-competitive behavior by health providers that was facilitated by CON regulations.[4]

Conclusion

It is impossible to see any upside for health care consumers or insurers to Delaware’s Certificate of Public Review program, other than to ensure that providers are qualified and licensed to provide care. Excess capacity should not be a consideration, indeed, it is the mechanism through which new entrants to the market puts pressure on suppliers to reduce price. Nor should the financial/economic viability of new entrants or existing suppliers be a factor since it is better for consumers if inefficient providers are driven from the market. Right now, most care is paid for by third parties such as the State itself, or Highmark Blue Cross-Blue Shield. This may account for the failure to eliminate this program already. However, demand side pressure is likely to intensify as health care costs increase and the Affordable Care Act is reformed, as it must be to remain viable. The State of Delaware should eliminate this costly anti-competitive barrier as soon as possible.

by Stacie Beck, Associate Professor of Economics, University of Delaware

& Member of CRI Advisory Board

Footnotes:

[1] The income gain through lower prices, especially to lower income families, has been established in the economic literature (Hausman and Leibtag, 2007)

[2] This information is available at dhss.delaware.gov/dhss/dhcc/hrb/cprpinfo.html

[3] See National Conference of State Legislatures at www.ncsl.org/research/health/con-certificate-of-need-state-lasws.aspx and Mitchell, Matthew “Do Certificate-of-Need Laws Limit Spending?” Mercatus Working Paper, September 2016.

[4] Joint Statement of the Federal Trade Commission and the Anti-Trust Division of the US Department of Justice to the Virginia Certificate of Public Need Work Group, October 26, 2015.

 

 

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The House Ways and Means Committee 2008 timeline for Obamacare rollout pre-ordained a complete failure of the health insurance industry in 2017 and 2018. The mechanism of the economic failure known as the “Death Spiral” can be best described by adverse selection. Expensive sick patients are staying in and healthy customers are bailing out.

In December, Highmark offered my wife and me a plan in which our premiums for the year would be $19,000 with a combined deductible of $15,000. We bailed out to Medi-share for a vastly reduced amount of money. Highmark BCBS is now in full-fledged collapse mode, greatly exacerbated by eliminating their HMO option and forcing people into high deductible PPO plans. Their biggest block of patients, Delaware state workers, is at risk. Their biggest problem is Aetna which is making a move to consolidate complete control of the Delaware health insurance market, (they just displaced Geisinger as the health insurer for the state’s second largest employer, Christiana Care Health Systems). Aetna may actually survive the death spiral by sheer size and being the last man standing, thereby dictating rates.

The most recent instruction from President Trump to the IRS to not require tax filers to tell whether or not they purchased health insurance in 2016 accelerates the pace of the collapse by eliminating the risk of a penalty for healthy people not participating in the insurance pool. The pool of covered lives is therefore populated with sicker people. Mandated insurance coverage which eliminates denial for pre-existing conditions causes a situation where an uninsured person can develop an expensive disease and then immediately gain insurance coverage, of course at a substantial loss to the insurer.

All of this was obviously predictable, as I wrote in 2009, by simply looking at the timeline. 2017 and 2018 were baked in 8 years ago. Looking forward, the most optimistic chance for stabilization of the chaotic and insolvent market can only begin in 2019. By that time, the temporary federal Medicaid subsidy to Delaware will be gone and Delaware’s budget will not be able to be balanced. Between the loss of free market health insurance competition, the burgeoning cost of Medicaid, and the cost of providing health insurance to Delaware state workers and pensioners, the budget will be busted.

C.D Casscells, MD

Healthcare Policy

Caesar Rodney Institute

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Originally published at caesarrodney.org

The cost of healthcare in Delaware is again rising rapidly.  It is looming as a major budgetary issue for the State of Delaware current employees and pensioners. Delaware’s Medicaid budget is increasingly strained. There is a steady flow of articles in the News Journal about the rising cost of health insurance, the rising cost of pharmaceuticals, and the rapid rise in both co-pays and deductibles for patients. There are, however, a few elements in play that have been overlooked, and may have significant effects in the short-term on the overall costs of both insurance and actual healthcare delivery.
While it is abundantly obvious to everyone that utilizes healthcare services that both co-pays and deductibles have risen in an effort supposedly to keep the cost of the overall premium down, the complaint has been made that this discourages the use of health insurance for routine care because of the high out of pocket cost. This is only a part of the problem.
While it is true that discouraging the use of healthcare services saves money for the insurance carrier, there is another side to this disincentive. I am referring to a phenomenon that we see frequently in medicine. Patients, who are usually quite economically aware of the deductible are also very aware that once the deductible has been met, all further healthcare is essentially free for the rest of the year until their deductible resets.
As a consequence, those who have had some healthcare incident recently often then seek out other elective healthcare treatments, medications, and surgery they might otherwise postpone. “I might as well get it done now under this year’s deductible.” Whenever there is an uptick in elective medical services, there is also an uptick in the sheer number of expensive adverse outcomes, although the percentage still may be very small.
Thus costs to the insurer go up. We are seeing this more frequently in our office this year and it is very common toward the end of the year that our services for elective surgeries become highly demanded. In common terms, the patients want to get the elective surgery done before the end of the year when their deductible resets. This is a strong economic motivation.
Quite obviously this will cause a substantial increase in overall costs to Medicare, Medicaid, and the health insurance industry.  All three of these entities have responded to the increasing costs of expanded coverage of the population by increasing the scrutiny over authorized services and increasing the frequency of denials of authorization, in short, rationing services.
The former of these two phenomena, elective utilization of health services after meeting the deductible, tends to raise overall spending on healthcare. The latter, rationing, of course, does the opposite and tends to lower overall expenditure. The question of which will be the dominant effect will be answered by the insurance actuaries when the next year rates are published. Most anticipate substantial rate increases.
There is, however, another phenomenon that we are seeing increasingly. This is the absolute lack of access to physicians. Increasingly, fairly young physicians are retiring from practice for a host of reasons. Dr. Ezekial Emanuel, one of Obamacare’s chief architects, famously said last year on television when asked about this phenomenon that “They will have to work. We will make them”. It turns out not to be true. What turns out to be reality is that doctors will not work under those circumstances and it further turns out that many doctors, especially those who are older and more experienced, easily have the wherewithal to retire.
In addition to this there is the phenomenon of “Community Care Plans”. These are Medicaid plans offered through the Obamacare exchange. In our office we have been getting dozens of phone calls from people asking whether we participate in these plans and if we know anybody who does participate in these plans. The truth is there is a very thin panel of doctors. By my count, looking at the Delaware panel of doctors for United Healthcare “Community Care”, fully one third of the listed entities were either not doctors, were duplicate listings, or were the names of facilities. Most of the family practices on the list are closed to new patients.
In my specialty, Orthopaedics, there are six surgeons listed who are all based at Crozier Chester Hospital in Pennsylvania. In short, there is very limited access to contracted physicians and surgeons. The net result is that the patient’s have a heavily subsidized health insurance card which is not capable of giving them access to healthcare except under convoluted circumstances, usually the Emergency Room. This is of course a very effective mechanism for United Healthcare to control its costs and continue to receive subsidies from both the federal government and the State of Delaware who offers these plans. The State can then say it has expanded the pool of people with health insurance even though that insurance is unusable.
The actual number of previously uninsured people now receiving preventative care is surprisingly small. As the Oregon experiment demonstrated with over a decade of data, the addition of Medicaid insurance to the uninsured population does not change their pattern of choice of the emergency room for their care. In fact, the net result was quite the opposite, emergency room utilization increased. It is not yet clear if that is happening or will happen in Delaware but similar efforts in both Massachusetts and Vermont have had identical outcomes to Oregon.
The news is not bad for everyone. Large hospital systems are suddenly thriving because their previously uninsured patients are now covered by Medicaid. The insurance industry is consolidating and the large carriers are reaping windfall profits from subsidies. For the moment, Delaware continues to have its state Medicaid insurance program subsidized by the federal government.
Soon enough though, federal Medicaid subsidies to Delaware will cease and the full burden of cost will return to the Delaware budget. The insurance industries will be squeezed by the “Death Spiral” as healthy patients decline to purchase the ever more expensive policies and only the expensive chronically ill remain in the insurance pool. In 2018 penalties, fees, and taxes are set to essentially end the health insurance industry as we know it.  Medicare has not yet been reformed and its insolvency has been accelerated by almost a decade. Small hospital systems will consolidate into large systems but will become de facto accountable care organizations, responsible for all community health, but presumably with highly restricted budgets based upon an insolvent single payor. Hospital care is costly and limited access to care is inevitable.
The “Affordable Care Act”, clearly misnamed, appears to be yet another example of “The Uncannily Predictable Law of Unintended Consequences”. Acronym TUPLUC.
C.D. Casscells, MD
Director, Center for Healthcare Policy

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As of April 1, 2015, CMS stopped payments to doctors for Medicare beneficiaries. As of April 13, CMS announced that it would begin processing claims, as required by law, but at an average 21% reduction across the board. The net effect for many physicians offices is that certain services, such as injections and medications are now being reimbursed by CMS less than the wholesale cost to the providers. Quite obviously, those treatments are no longer going to be offered to Medicare patients.

This is the long predicted adverse and unintended consequence of a poorly designed law known as SGR, past almost 2 decades ago but only now being implemented as of April 1. While the Congress has past by part ascending supported legislation to fix the problem, the United States Senate went on an extended Easter vacation for 2 weeks in yet another shocking demonstration of dysfunctional government.

The rationing of of healthcare to the Medicare population has begun in earnest.

-Dr. Casscells, Director

Center for Healthcare Policy

From Reuters, April 15:

“Congress on Tuesday approved a bill to repair the formula for reimbursing Medicare physicians, marking a rare bipartisan achievement just in time to head off a 21 percent cut in the doctors’ pay.

The bill would replace a 1990s formula that linked Medicare doctor pay to economic growth, with a new formula more focused on quality of care. It also would require means-testing of Medicare beneficiaries so higher income people pay higher premiums.

One of the government’s largest social safety net programs, Medicare is health insurance that serves 54 million elderly and disabled people.

The old formula for paying Medicare doctors has been a problem for years as health care costs outpaced economic growth. Congress had repeatedly addressed the problem with a long series of temporary “doc fix” patches. The new formula is intended to be a lasting change.

The federal government warned Congress last week that it must act before April 15 or thousands of Medicare doctors nationwide would face a 21 percent pay cut under the old reimbursement formula.

The measure passed the House overwhelmingly in March but because it expands the federal deficit, it was greeted skeptically by deficit hawks in the Senate.

They labeled the bill irresponsible because it would add an estimated $141 billion to the U.S. debt over the next 10 years, according to the Congressional Budget Office (CBO).”

What does this mean for healthcare, particularly for the elderly? For the longest time, Congress has been forced to pass the annual “doc fix” because they decided the way to “cut spending” on Medicare was not to means-test the program, ensure that only qualified persons were using the program, and ensure that actual spending was kept under control, they decided to cut the reimbursement to healthcare providers.

Medicare and Medicaid pay far below what a provider can get from a health insurance company or from a fee-based service. This is why patients who use these services consistently have trouble getting great care.

Consider this hypothetical scenario: a general practitioner owns a small clinic. He generally expects to earn $100 an hour for his own salary and for his business. A Medicare or Medicaid patient walks in and he realizes that to spend an hour on this patient will net him only $25 per patient. He has, for argument’s sake, one hour right now. Given the low reimbursement, instead of charging two patients $50 each for a half hour each, he needs to see four patients an hour at $25 in order to earn his income. The doctor must now  choose: give less time to the Medicare patients, or accept a lower fee per hour.

There are those who will say the doctor is “greedy” if he doesn’t accept the fee cut, and point to the Hippocratic Oath and the part which says, “I will remember that I remain a member of society, with special obligations to all my fellow human beings, those sound of mind and body as well as the infirm.” This will be used to say they should consider it a privilege to help their fellow human being, even if the doctor derives no benefit from doing so.

Let’s remember that doctors are people too; they have families, bills, expenses, debt, and other obligations like everyone else. Pretty much every doctor would agree that treating patients without regard to difference or ability to pay is fundamental, which is why many doctors perform charity care for the poor. However, this attitude that doctor should be lucky to treat people is arrogant, and usually put forth by non-providers who think they are entitled to things.

Thus, the problem with the fix is that every single year this charade happens: Congress ‘patches up’ the gap, to stave off already-harsh cuts to reimbursements for providers, who can make more money if they don’t treat Medicare and Medicaid patients, and have the benefit of not having the wrath of government on them if they err in filing paperwork (they feel the hassle of dealing with the insurance companies, but at least the insurance companies can’t give out fines or prison sentences for paperwork filing violations or ‘over-billing’ scenarios).

CRI, together with the Medical Society of Delaware, are the only Delaware organizations advocating for physician and patient driven health care, in opposition to socialized medicine. We want to see the power of healthcare decisions shift towards  the patients and their immediate providers, as well as the immediate costs. Doing this will mean a big step forward in getting healthcare costs under control and improve quality by encouraging innovations and cost-lowering for providers to offer patients. We see this in other sectors of our economy, so why not healthcare?

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Today is Giving Tuesday, a day created by the UN and 92nd Street Y nonprofit to encourage people to consider giving to a nonprofit/charitable organization instead of buying more stuff for the holidays.

As someone who currently works at a nonprofit, I can’t emphasize enough how critical donations are to keeping the organization running. I know stories abound about nonprofits where the CEO’s and top executives pull in six or seven figure salaries and very little that’s donated goes to the actual mission. That may be true for a small number of larger nonprofits or shady enterprises, but I can assure you the vast majority of us who work in nonprofits are not rolling in money.

So please find a charity (like the Caesar Rodney Institute, hint hint) and make a contribution today. You can also visit smile.amazon.com and choose a nonprofit you want Amazon to contribute to. For every dollar you spend on Amazon they will make a small contribution to your designated nonprofit. It won’t cost you any money and it’s an easy way to give.

So what are you waiting for? Support #GivingTuesday today!

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CRI predicted years ago charity care would soon become a thing of the past. That’s because the Affordable Care Act, which just about everyone calls Obamacare, is set up to remove charity care from the equation.

Charity care is free healthcare many doctors provide as a service to the community. There is (or was) no financial incentive; a doctor did it because he or she believes in helping their fellow human beings. This was a way for very poor people and/or those who don’t have health insurance to receive healthcare they could not otherwise afford. Well, no more (in Delaware at least):

State to cut ‘charity care’ for near-poor

Delawareans pinching pennies near the federal poverty level – making from $16,100 for an individual to a maximum of $47,700 for a family of four – will lose health coverage through the state’s Community Healthcare Access Program (CHAP) starting Feb. 1, state officials said late Monday afternoon.

CHAP is a state-run program that offers discounted medical services for those not eligible for Delaware’s Medicaid program. The state earmarked $478,000 in tobacco settlement funds for the program this fiscal year.

CHAP recipients are ineligible for Medicaid either because they are undocumented immigrants or make more than 138 percent of the federal poverty level, Delaware’s cutoff for Medicaid assistance. The federal poverty level is $11,670 a year for an individual.

State officials said they will offer an alternative to CHAP on a case-by-case basis, only for those who can prove they are ineligible for other plans or are exempt from the federal insurance mandate.”

Now some of those who were on this program were individuals not legally authorized to be in the country. However, some were and will no longer receive help, and even for those here illegally, most medical professionals will tell you their desire is to help everyone who needs it, no matter what, because it is their calling.

“This is charity care and charity care more or less will be going away based on the mandate that everyone must have health insurance,” said Rita Langraf, secretary of Delaware’s Department of Health and Social Services, referencing the 2010 Affordable Care Act’s requirement that everyone should have health insurance.

The department is taking that mantra seriously. Landgraf said the state will continue to offer coverage for the undocumented population past Feb. 1, but CHAP recipients who make up to 200 percent of the federal poverty level will need to find new coverage.”

This is another problem. DHSS Secretary Landgraf is saying the state will ensure those not authorized to be here will receive benefits not extended to American citizens. Why? Because ACA mandates that all citizens must have health insurance- note the bolded words.

The main reason charity care is disappearing is because the government will begin reimbursing doctors for care previously provided as charity. This means taxpayer dollars will flow into doctor’s pockets for services they were going to perform anyway. If you were going to do something you always did, say brush your teeth, and the government offered to pay you to do that, would you turn that offer down? Most people would not and thus the government is ensuring a larger budget deficit for a service they don’t need to pay for. The other thing this will do remove the “good samaritan” role of medicine, eliminating volunteerism in favor of “rent-seeking” from the government (seeking public money for private bank accounts).

The health insurance exchanges open on Saturday and we were now only hours away from knowing what the 2015 insurance rates will be. If you haven’t yet received a letter notifying you of your insurance status for 2015, you will get it very soon. On Thursday CRI will publish another article on healthcare breaking down the new rates, discussing what you can expect going forward, and discussing how you can Impact Delaware!

photo:myptsolutions.com

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This is a guest post from Mary Sandra Marie, Marketing Coordinator with the Regency Shop based in Los Angeles. In support of Breast Cancer Awareness CRI is posting this guest post. CRI is not being paid to post this nor are we affiliated in any way with the Regency Shop. If you are interested in bidding on these items to raise money for breast cancer awareness you may choose to visit the links below.

Here is How Regency Shop Supporting Breast Cancer Survivors.
October is the official breast cancer awareness month, and whether individual or business, everyone is coming up with creative and innovative ideas to support the social cause. Regency Shop, renowned modern furniture retailer has organized charity auction to financially support breast cancer research and encourage breast cancer survivors.
The furniture retailer has decided to provide beautiful custom designed chair while encouraging people to contribute to an important social cause. Regency Shop has been participating in the movement with three thematic auctions. Participates will get a chance to show their support for breast cancer survivors, and an opportunity to win one-of-a-kind stylish lounge chairs.
According to recent studies, one in every eight American women has chances to develop invasive breast cancer, and the count is expected to increase tremendously. You can generate awareness about the disease and be there for millions of women by taking part in Regency Shop’s exclusive auction during breast cancer awareness month, from 1st Oct to 30 Oct, 2014.
The charity auction organized at Regency Shop is not mere a contest. It’s more like you becoming October’s special hero by supporting a global cause, and support the event. It is indeed the best way to showcase your care for breast cancer survivors and bring a positive change to the world.
Regency Shop is auctioning three magnificent eero aarnio ball chair, hanging bubble chair and barcelona chair. All these three chairs are 100% custom designed and pink as pink is the signature color used in breast cancer awareness campaigns.
For auction listings visit:
Eero Aarnio Ball Chair
http://www.regencyshop.com/p514/Eero-Aarnio-Style-Ball-Chair-Special-Edition/product_info.html

Barcelona Chair
http://www.regencyshop.com/p513/Ibiza-Chair-Special-Edition/product_info.html

Hanging Bubble Chair
http://www.regencyshop.com/p515/Hanging-Bubble-Chair-Special-Edition/product_info.html

Mary Sandra Marie

Marketing Coordinator, Regency Shop

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