State Budget Cutting Holes in Health Care Safety Net

Say what you will about Governor Arnold Schwarzenegger’s failed health care reform plan, it’s goal was noble. If it had worked as planed (which is highly unlikely) it would have not only brought millions of Californians into the health care coverage system, but would have strengthened the state’s medical safety net. Instead, the health care plan failed, the California budget is in tatters and that safety net is in grave danger.

Community health clinics and community health centers play a critical role in assuring that uninsured Californians obtain the health care treatment they need. As is often noted in health care reform debates, no one goes without care. The “safety net” is there to assure treatment is available to everyone. Community health care centers, for example, provide a medical home to 3.6 million uninsured Californians, according to Jason Vega of the Community Clinic Consortiumof Contra Costa and Solano counties.

What’s often overlooked, however, is how fragile that safety net really is. Part of the reason is demand. With millions of uninsured and underinsured Californians, community clinics and the like have no shortfall of clients. The quality of the care provided belies the cost of the care to those patients, who usually pay what they can — if they can at all.

The vast bulk of the funds for community clinics comes from donors and, even more importantly, from government health care programs. And that’s where the danger arises.

Under the Schwarzenegger health care plan, Medi-Cal reimbursement rates (what the state pays doctors, hospitals and clinics) was to increase. There’s certainly room for an increase: California’s reimbursement rates are among the lowest in the country.

But the health care plan failed. Part of the reason was the state’s dire fiscal condition. Even with draconian cuts recently enacted by lawmakers in Sacramento, the state needs to close a multi-billion budget gap. One way they’re likely to do that is to reduce Medi-Cal reimbursement. That, in turn, means fewer doctors will take Medi-Cal patients and, of those that do, many will see fewer of them. And that means more patients turning to community clinics.

The safety net is a critical component of today’s health care system. For those who oppose a government takeover of medical care, it is an element of the system that needs to be strengthened and protected. Yet that’s not happening now. And if the safety net disappears, the government will rush in to fill the vacumn, at great expense and to the detriment of consumer choice.

All this underscores the need for comprehensive health care reform that attacks skyrocketing medical costs while bringing more residents into the health care coverage system. I’m skeptical about whether states are in a position to accomplish this, but the federal government certainly can. As a new administration approaches this task in 2009, they need to make sure the health and vitality of the nation’s community clinics and its partners in the safety net are top of mind.

The State’s Role in Health Insurance Rate Increases

The first part of the year is when the cost of most health insurance policies increase. Most medical plans in most places are seeing rate increases far greater than general inflation. This raises legitimate questions about the sustainability of private health insurance pricing. Increasing faster than other prices means health insurance costs represent a larger percentage of overall spending. This, in turn, impacts the competitive position of American firms and the spending power of American families. That’s one of the reasons comprehensive health care reform needs to be high on the nation’s agenda.

In fashioning reforms, it’s important policy makers look at the complete picture. For example, comparing the rate of rising health insurance premiums inflation to general inflation is misleading. What drives health insurance costs is a complex mix of new technologies, an aging population, increased consumer demand and expectations, greater utilization of medical treatment, the cost of prescriptions in this country and a horde of other factors. Those required to defend health insurance rate increases (no one volunteers for the job) usually point to medical care inflation as a more appropriate benchmark than using general inflation. The problem with this defense is that, recently, premiums have increased at rates higher than medical inflation. This discrepancy was pounced upon by some legislators during hearings on health care reform in California this year. Clearly, the lawmakers implied, this is evidence of the industry’s lust for profits. What’s required, they say, is a governmental smack down. (OK, they didn’t actually use the word “smack down,” but premium regulation amounts to the same thing).

Before lawmakers get too carried away, however, they should look at their contribution to rising health insurance costs. Leave aside the costs related to mandated benefits, regulatory compliance and the like. Those are significant, but obvious. What’s less apparent is the government’s use of private insurance to subsidize public programs.

Medicare and Medicaid make up 55-to-60 percent of the average hospital’s revenues according to Richard Umbdenstock, president and chief executive of the American Hospital Association. As reported by the Todelo Blade, Mr. Umbdenstock said this would require providers to shift more costs to private insurance. In other words, when government budgets get tight, they cut back on what they pay doctors and hospitals to provide care to Medicare and Medicaid enrollees. Some of those providers reduce the number of such patients they’re willing to see — or stop serving them all together. That’s bad enough.

Others, however, shift the cost to those with private coverage. With more than half their income generated by government programs, it means a disproportionate amount of increase on private plans is required to make up for public cutbacks. If 60 percent of a hospital’s income flows from public programs, a 10 percent reduction in reimbursement rates requires increasing charges to private insurers by 15 percent. And that’s before increases based on medical cost inflation, general inflation or any other factors. It’s a rate increase entirely generated by governmental action.

This system actually works well for politicians. They get to cut government spending by undercompensating medical providers treating public program patients and they get to complain about “indefensible” rate increases by greedy private health plans. In other words, they get to pitch the problem, avoid having to catch it, and they can criticize the people that do.

Politicians who want to control both sides of the equation — cut back on public program funding and regulate private health insurance premiums – should be careful about what they wish for. Their own contribution to skyrocketing medical insurance premiums will be much more obvious. They’ll have to catch the problems they create  and they’ll be on the receiving end of the criticism, too.

The Wal-Marting of Health Technology

A few years ago WellPoint, then the nation’s second largest commercial health care plan, offered to give thousands of doctors in its network either a free Dell computer system or a free PDA customized to help with prescriptions. The idea was to speed the adoption of simple technologies by the medical community. The computers would physicians automate more of their office functions. The PDA would help them more quickly, easily and safely prescribe medicines. And it was free. It was also a failure.It turned out, as then WellPoint chairman Leonard Schaeffer once put it, “Free wasn’t free enough.” Integrating technology into their practices required changing those practices. And that was a price too few physicians and medical groups were willing to pay.

Change, it seems, must be either pain-free or at least less painful than continuing to do business as usual. Since anyone who owns a PC knows technology is not painless, someone — or something — is going to have to make the status quo more painful.

When it comes to delivering pain to other businesses, few can match Wal-Mart. Their ruthless treatment of suppliers in pursuit of lower prices for customers is the stuff of legend. So are many of their other business practices. 

What cannot be denied, however, is that their gravitational pull is so great it distorts any business they enter. And they’re about to enter the medical business.

Wal-Mart is joining the in-store clinic movement. And as  reported by Marianne Kolbasuk McGee in Information Week, “not only is [Wal-Mart] rolling out e-health records to tens of thousands of its own employees and their dependents, … but it’s also requiring the use of e-health record software for patients treated at the in-store [medical] clinics it’s about to launch.” Wal-Mart will also be requiring its clinic operators to use practice management software as well.

E-health initiatives are a part of virtually every health care reform proposal put forward in the past few years. The goal is to reduce physician costs and increase patient safety. Forward movement, however, is nearly as rare as expectations are high. According to Information Week, ”less than 20 percent of U.S. doctors have deployed e-health record systems in their offices ….” That’s far too low to move the industry. But few industries are too large for Wal-Mart to move. Wherever the tipping point for widespread adoption of technology in physician practices might lay, Wal-Mart’s presence and impact is likely to get us there faster.

With Wal-Mart’s ability to drive markets — and to drive down prices — perhaps low cost, but demonstrably proven, technologies may finally be “free enough.”