Bush's call to privatize Medicare challenged by research

[Hamel]

HMOs love to stick it up the patients' butts

New Research Challenges Bush's Call to Privatize Medicare; Shows Nation's Largest HMOs Increase Profits by Diverting Money from Patient Care

11/24/03 11:13:00 AM

To: National Desk and Health Reporter

Contact: Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights, 415-633-1320; Ron Shinkman of the Healthcare Leadership & Management Report, 818-780-8650

SAN FRANCISCO, Nov. 24 /U.S. Newswire/ -- New research by a nationally recognized healthcare journalist exposes the fact that the nation's six largest HMOs increased their earnings and profitability while dramatically decreasing spending on medical care, according to the Foundation for Taxpayer and Consumer Rights (FTCR). As a result, "patients spent more for less coverage," said Jerry Flanagan of FTCR.

In just the first half of 2003, the nation's six largest HMOs increased their earnings by $3 billion over 2002 levels and nearly doubled their 2001 earnings. The new data coincides with President Bush's support of a Medicare prescription drug plan that will force more seniors into HMOs.

The six HMOs (Anthem, Wellpoint, PacifiCare, Health Net, United Healthcare and Aetna) have on average reduced the amount of money they spent on medical care by more than 4 percent since 2001. Adjusted for inflation of 4 percent annually for medical care, this represents an actual average decrease of 12 percent compared to 2001 levels. Among the six largest HMOs, Aetna reduced medical spending most dramatically - by 15 percent since 2001, which when adjusted for inflation, represents a 23 percent decline.

"The nation's largest HMOs are bleeding the health care system dry to pay for increasing profits, overhead and advertising costs," said Jerry Flanagan, a consumer advocate for the Foundation for Taxpayer and Consumer Rights. "Health plans should not be allowed to divert billions of dollars away from patient care simply because there is no oversight of how our premium dollars are spent. This new data underscores the absurdity of President Bush's claims that privatizing Medicare will result in more affordable health coverage for seniors."

The new analysis is published by Ron Shinkman in this month's edition of Healthcare Leadership & Management Report. It compares the medical loss ratios (MLR) -- the percentage of premiums spent on medical care -- of six of the largest, for-profit, publicly-traded health plans. The data was gleaned from SEC filings.

In 2002, the nation's six largest HMOs diverted an average of 17 percent of every health care dollar to profit, overhead, salaries and advertising while the government run Medicare program spends approximately 4 percent on non-medical expenses.

According to Hoover's Inc., a market research firm, the latest 12-month net income growth rate for:

-- Aetna was 397.1 percent

-- PacifiCare was 227.4 percent

-- Anthem was 115.5 percent

-- United Healthcare was 39.1 percent

-- Wellpoint was 34.4 percent.

FTCR has called for state and federal legislation to require HMOs to get approval for rate increase like auto insurers are required to do in California since 1988 under Proposition 103. Similar regulation of health insurers would allow an independent arbiter to deny rates if profit and overhead costs are deemed to be excessive or unfair. California consumers have saved $23 billion on auto insurance premiums under Prop. 103.

"HMOs have been allowed to game the health care system by diverting more and more money away from hands-on patient care. As a result, business owners and consumers can no longer afford skyrocketing premiums and out-of-pocket costs," said Flanagan. "The perfect storm of slow job growth and increasing health care rates has resulted in a record number of middle class Americans who can no longer afford health care coverage."

Since 2000, health care costs to employers have increased between 12 percent and 30 percent or more annually. Small businesses of less than 50 employees have been hit the hardest. Since 2000, out-of-pocket costs for workers (co-pays and deductible) have increased by 50 percent.

According to data released by the U.S. Consensus Bureau in September, middle class families with an annual income between $24,999-$74,999 experienced the greatest increase of uninsured rates in 2001.

Anthem and Wellpoint, which recently announced a merger agreement to form the nation's largest HMO with 26 million members, diverted a higher percentage of premium dollars away from patient care than most other health plans -- 18.5 percent.

"HMO mergers have resulted in consumers paying more for less care. We expect the same from the proposed merger of Anthem and Wellpoint," said Flanagan.

The Foundation for Taxpayer and Consumer Rights (FTCR) has called on federal and state regulators to investigate the merger that will provide a $335 million payout to Wellpoint CEO Leonard Schaeffer.

Health plan officials claimed that reductions in spending on medical care are not due to profit increases or golden parachutes for company executives but occurred because of seasonal changes in hospitalization rates and slower than expected increases of medical costs.

However, these arguments failed to explain that in contrast to their commercial health plans, the six HMOs spent an additional 10 percent or more on medical care for Medicare and military personnel contracts. Furthermore, a 2003 PriceWaterhouse Cooper survey found that hospital services costs increased about 6 percent annually over the last ten years while health plan rates increased by 12.4 percent and pharmaceuticals went up 21.3 percent per year.

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The Foundation for Taxpayer and Consumer Rights FTCR) is a non-profit and non-partisan consumer advocacy organization. For more information, visit us on the web at http://www.CalHealthConsensus.org or http://www.consumerwatchdog.org

Ron Shinkman is a veteran healthcare journalist, having served as a reporter and Los Angeles Bureau Chief for Modern Healthcare magazine (1996-2001) and healthcare reporter for the Los Angeles Business Journal (1994-1996) and the Orange County Business Journal (1992-1994). In June 2001, he formed his own firm, RFS Consulting, based in Sherman Oaks, California. He continues to write about healthcare issues for a variety of organizations and publications. In February 2003 Shinkman was named editor of Healthcare Leadership & Management Report, a monthly publication of the American Governance & Leadership Group. The AGLG produces seminars and arranges for speakers on issues pertaining to the governance of hospitals and health systems.

http://www.usnewswire.com/

[Stormbringer]

Bush's plan isn't the answer, I'm not in favor of it. But on the other hand no one has offered any better plan to get rid of the crippling burden of Medicare.

[Alyrium Denryle]

We could cover everyone for the same cost if it were moddeled after the German system...

[phongn]

And how much would the German system cost to implement in the US?

[The Kernel]

Socialized medicine is a wonderful idea, but the money really has to come from somewhere. The problem is that we have so many people in this country that are illegal that it makes it very difficult to justify socialized medicine.

What makes it even more difficult is the atrocious legal system in this country. Did you know that a doctor will be lucky if he can take home half his income because of lawsuits? I'm not kidding, lawyers make a fortune off of medical malpractice cases and it is destroying the health care system because medicine has simply ceased to be profitable for the health care providers.

Case it point: I recently had LASIK surgery over at Stanford Hospital, one of the largest medical centers in California. They are a one stop shop for almost every condition there is. I was speaking to my LASIK doctor at length about this problem and he tells me that in the entire hospital, the only two divisions that weren't bleeding money were feritlity and LASIK. Everything else was losing money with lawsuits and rising drug costs being the primary causes.

My opinion on all this is that we really need to look at the inefficiencies of the system before we haggle about how the money is spent. Medical malpractice needs to be severely curtailed because it is a drain on not only the medical practice but our courts as well. There are legitamate reasons for suing a doctor, but most of the time the lawsuits are simply frivalous attempts to make money.

The drug problem is harder. Part of the reason we have to pay so much for drugs is because the drug companies are all researching independently of one another. Unified research efforts are happening, but not at the scale that they need to be. I'm not going to argue that drug companies need to be regulated, but something obviously needs to happen there because the price of treatments like Chemotherapy are absolutely staggering.

[Dahak]

And how much would the German system cost to implement in the US?

We spend roughly 10% of our GDP on health care. That's some 2700 EUro/citizen, or 215 billion Euro all in all.

[phongn]

How do healthcare costs scale in relation to population? Germany may spend 10% of her GDP, but with America's much larger (and spread out) population, would it merely be 10% of the US GDP (~$1e9)?

As for malpractice insurance, my family's GP is seriously considering going into nursing because it's costing her too much.

[Dahak]

How do healthcare costs scale in relation to population? Germany may spend 10% of her GDP, but with America's much larger (and spread out) population, would it merely be 10% of the US GDP (~$1e9)?

As for malpractice insurance, my family's GP is seriously considering going into nursing because it's costing her too much.

Per citizen, it's 2700 Euro spent on health care.
Or what do you mean?

[Alyrium Denryle]

Well, Germany has roughly 1/3rd the US population SO around 700-750 billion at that rate. Using that data, I did the calculations a while back, granted the data was a bit older, and it came our to somewhere around 256 billion.

Though, this would be a hell of a lot more cost-effective, instead of covering 21% of our population(in a few years at least) we will be covering nearly 100% of the population.

In addition, we would cut out medicare, and medicaide completely.

And with a few reforms(I mean, complete revamp of social security) that would basically cut it out of the budget altogether(basically, hav a transferable retirement fund/investment plan, or some knind of pension that transfers from job to job)... it breaks even.

[The Kernel]

He means that because the United States is such a large country, we need far more medical centers to cover our population. And those medical centers cost money. Add to that the fact that Germany has FAR less medical malpractice suits then the US.

[Alyrium Denryle]

My opinion on all this is that we really need to look at the inefficiencies of the system before we haggle about how the money is spent. Medical malpractice needs to be severely curtailed because it is a drain on not only the medical practice but our courts as well. There are legitamate reasons for suing a doctor, but most of the time the lawsuits are simply frivalous attempts to make money.

Legitimate reason for medical malpractice suit= Death as a result of negiligence, or, Doctor was drunk and left a scalpal in your body cavity

Not a legiimate reason=Scar tissue

[HemlockGrey]

I believe Mike pitched some Canadian ideas on how to reform the frivolous suits awhile back, and I agree with them. Stuff like 'loser pays'. Obviously some finetuning would need to be done, but I think it would work.

[Dahak]

He means that because the United States is such a large country, we need far more medical centers to cover our population. And those medical centers cost money. Add to that the fact that Germany has FAR less medical malpractice suits then the US.

Which could be severely reduced if you reformed the law that allows for such ludicrously high fines...

[phongn]

He means that because the United States is such a large country, we need far more medical centers to cover our population. And those medical centers cost money. Add to that the fact that Germany has FAR less medical malpractice suits then the US.

I'm also wondering about relative levels of equipment in American hospitals. With our much higher crime rate, they probably see more trauma with the requisite expensive care it requires. There's also the largish helicopter fleets (Bayfront has 5, Tampa General has 3 - and Tampa Bay is not the largest of markets) the US hospitals tend to need.

Anyone know how Germany compares?

[Graeme Dice]

Socialized medicine is a wonderful idea, but the money really has to come from somewhere. The problem is that we have so many people in this country that are illegal that it makes it very difficult to justify socialized medicine.

Of course, with a system like Canada's, your entire country would be spending around a third of what it spends now when you look at the per capita numbers.

[The Kernel]

Socialized medicine is a wonderful idea, but the money really has to come from somewhere. The problem is that we have so many people in this country that are illegal that it makes it very difficult to justify socialized medicine.

Of course, with a system like Canada's, your entire country would be spending around a third of what it spends now when you look at the per capita numbers.

Oh I definetely agree that socialized medicine is the way to go. But until we deal with frivalous lawsuits and overzealous lawyers, we won't be able to move to such a system.

[Sebastin]

I'm also wondering about relative levels of equipment in American hospitals. With our much higher crime rate, they probably see more trauma with the requisite expensive care it requires. There's also the largish helicopter fleets (Bayfront has 5, Tampa General has 3 - and Tampa Bay is not the largest of markets) the US hospitals tend to need.

Anyone know how Germany compares?

I don´t know about hospital equipment but as far as helicopters go it is often mentioned that germany has the densest helicopter rescue network in the world. I believe it ranks pretty good in general responsiveness too, the rule is that help has to arrive within 5 minutes of an emergency call in 95% of the cases (IIRC). That would of course suffer or be much more expensive in a country with a much lower population density like the US.

It should be mentioned that the german healthcare system is seen as being in desperate need of structural reform over here, with the central problem being it´s high cost. I´m no expert on health care but if the adoption of the current german system would actualy be an improvement of the american system i am amazed.

[SyntaxVorlon]

Hamel your obsession with butts rivals Wong's.
At any rate, given Bush's track rating, he'll ignore science, philosophy and reality because he's an ignorant bigoted creationist fuckwit.

[Stormbringer]

He means that because the United States is such a large country, we need far more medical centers to cover our population. And those medical centers cost money. Add to that the fact that Germany has FAR less medical malpractice suits then the US.

Well one thing that could be done is actually push through some realistic legislation for preventing nuisance and moronic suits as well as capping damages.

[phongn]

I don´t know about hospital equipment but as far as helicopters go it is often mentioned that germany has the densest helicopter rescue network in the world. I believe it ranks pretty good in general responsiveness too, the rule is that help has to arrive within 5 minutes of an emergency call in 95% of the cases (IIRC). That would of course suffer or be much more expensive in a country with a much lower population density like the US.

Ah, well that's good (for Germany). And yes, in the US we're a lot more spread out so it'd probably cost a lot more to get a similar level of coverage.

It should be mentioned that the german healthcare system is seen as being in desperate need of structural reform over here, with the central problem being it´s high cost. I´m no expert on health care but if the adoption of the current german system would actualy be an improvement of the american system i am amazed.

The American system has major, major problems. Malpractice suits and insurance against them are driving up costs to near-unsustainable levels; HMOs have to keep raising rates and cutting benefits, Medicare is that giant sucking sound of unfunded liability about to crush the American budget.

Socialized medicine might not be the answer to the American healthcare system's woes. But right now our system is crumbling.

[The Kernel]

The American system has major, major problems. Malpractice suits and insurance against them are driving up costs to near-unsustainable levels; HMOs have to keep raising rates and cutting benefits, Medicare is that giant sucking sound of unfunded liability about to crush the American budget.

Socialized medicine might not be the answer to the American healthcare system's woes. But right now our system is crumbling.

Which is exactly why I'm wondering why the Federal government is so up in arms about this Medicare issue. We need major reforms to the forementioned malpractice suits and insurance, not changes to the distribution of current medical resources. Any doctor in America will tell you what the problem really is, unfortunately I fear that the lobyists for malpractice lawyers are far superior then those for the GP's of this nation.

I'm amazed that so many people both conservative and liberal are in such complete agreement over this. That just goes to show you how fucked up this system really is.

[Darth Wong]

Socialized medicine might not be the answer to the American healthcare system's woes. But right now our system is crumbling.

The biggest problem with American health-care is the huge amount of money which is going to places other than medical care, such as the insane amount of overhead generated by countless competing insurers and HMOs and lawsuits. However, that's not the only problem. Another key problem is wildly overpaid medical specialists; surgeons can make upwards of a million dollars a year, which siphons money off from GPs. And the competition model doesn't really work; people generally do not price-shop when they need medical attention for a life-threatening condition, and they tend to have only one HMO anyway, so how are they going to shop in the first place?

Some of the myths propagated about the Canadian health-care system are downright infuriating, such the ridiculous claim put forth by American health insurers that we get "rationed care", or the notion that we have to wait 6 months to see a doctor, or better yet, the idea that the entire system is a Soviet-style system, when in fact, it is merely a single large insurer which pays doctors who run private practices. In fact, a typical Canadian doctor faces less restrictions on his activities than a typical American doctor, who must obey the edicts of the HMO. Try to imagine simply replacing all of the insurers and HMOs with a single one which is answerable to the democratic process, and that's the Canadian health-care system in a nutshell. Contrary to popular belief, it has nothing to do with the USSR.

EDIT: just FYI, the US currently spends 14.3% of its GDP on health-care, while Canada spends 9.3% of its GDP on health care. And our system covers everyone, while the US system only covers the elderly and those on welfare. It would be a gross understatement to say that there are differences in the efficiency with which the money is being spent. And in the American private health-care system, roughly 26% of the money goes to administrative costs, while only 3% of the money goes to administrative costs in your supposedly wasteful Medicare system. I'm sure the various right-wingers could write columns about how wasteful Medicare is, but the facts contradict the shopworn theories.

[Darth Wong]

By the way, on the issue of drug costs, people argue that pharmaceutical companies would be going out of business if they were faced with price controls. But we have to ask ourselves some questions at this point:

1) Is health-care a public necessity, hence subject to more stingent regulation than other forms of production?

2) If pharmaceutical companies really do face financial ruin in the event that their prices are forced down, could someone please point me to the financial data showing that they are running with razor-thin profit margins and being forced to cut staff and tweak their operations for efficiency, just like companies in a normal, competitive market?

3) Are the rights of a corporation superior to the importance of a public necessity? Hint: antitrust law says no.

[Dahak]

He means that because the United States is such a large country, we need far more medical centers to cover our population. And those medical centers cost money. Add to that the fact that Germany has FAR less medical malpractice suits then the US.

I'm also wondering about relative levels of equipment in American hospitals. With our much higher crime rate, they probably see more trauma with the requisite expensive care it requires. There's also the largish helicopter fleets (Bayfront has 5, Tampa General has 3 - and Tampa Bay is not the largest of markets) the US hospitals tend to need.

Anyone know how Germany compares?

Germany has around 100 helicopters in use across the country.

[The Kernel]

By the way, on the issue of drug costs, people argue that pharmaceutical companies would be going out of business if they were faced with price controls. But we have to ask ourselves some questions at this point:

1) Is health-care a public necessity, hence subject to more stingent regulation than other forms of production?

Of course it is, but the issue of competition being good for the business is brought up time and time again whenever the idea for regulations on the drug manufacturers come up.

It really is moot though; these guys have the best lobyists in the business and are VERY good at making political allies. I don't think there is another industry as well represented this side of big oil. Regulation of the drug manufacturers will ALWAYS occur on their terms and in their favor. God bless America.

2) If pharmaceutical companies really do face financial ruin in the event that their prices are forced down, could someone please point me to the financial data showing that they are running with razor-thin profit margins and being forced to cut staff and tweak their operations for efficiency, just like companies in a normal, competitive market?

Care to take a gander at this?

Pfizer Inc P&L

These are quarterly reports from Pfizer, the United States largest drug manufacturer. Ignore the latest quarter (as there is a one time, merger related charge of $5 billion) and you will see profits averaging $3-$4 billion a quarter on sales of $8-$9 billion. This is a staggering level of profit (even higher than Microsoft makes) so any complaints about razor thin profits are laughable.

3) Are the rights of a corporation superior to the importance of a public necessity? Hint: antitrust law says no.

We've come a long ways since the days of Teddy Roosevelt I'm afraid. These days the people running our government ARE the people who run the businesses. It's kind of like the problem of campaign finance reform; can you really expect politicians to give up soft money if it will cost them their re-election?

Same thing here, politicians are already in bed with the drug companies, insurance companies and power companies to a staggering extent. The fact that these are the industries most in need of regulation in no coincidence.