In this episode, we are joined by Paul Keckley, Managing Editor of the Keckley Report and a healthcare researcher and widely-known industry expert. Paul discusses his thoughts on what he sees in 2019 for healthcare’s biggest issues.
Highlights of this episode include:
- Paul’s viewpoints on what the federal agenda for healthcare might look like in 2019.
- Why the issues of Medicaid cuts and drug pricing are so closely related.
- How the issue of veterans healthcare will be a big issue in 2019 and the 2020 election.
- What the mid-term elections meant for Medicaid expansion in some states.
- And more…
Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.
Today, I’m joined by Paul Keckley, Managing Editor of the Keckley Report and a healthcare researcher and widely-known industry expert. Paul recently wrote about what he sees coming for healthcare in 2019. And we’re happy to have him back on the show to discuss his analysis.
Paul, welcome back to the Hospital Finance Podcast.
Paul Keckley: Thank you Michael.
Mike: So Paul, you wrote a great piece recently that gets into some very deep issues around healthcare. I want to give you an opportunity to walk us through those.
First off, why don’t you tell us about what you think the federal agenda might look like related to healthcare in 2019?
Paul: Well, at a high level, it will be staging for the 2020 election cycle. So, to do that, what the HHS folks with CMS and FDA at their side, along with the Department of the Justice, the FTC and even the USDA, the Department of Agriculture, have to do in a concerted way is to make reforms that reinforce the private sector. They want to direct folks away from this notion that Medicare-for-all is a good idea.
At the same time, they have to reduce federal spending going into the 2020 cycle which is obviously around Medicare/Medicaid CHIP federal employee health, military health and veterans health, so that that doesn’t contribute to the already increasing deficit this year. Last year, it was $780 billion which was a spike.
So, that’s the big story. How does an administration that’s vowed its allegiance on healthcare to private sector solutions navigate this with a Democratic controlled House of Representatives where budgets originate, a lot of laws originate. And that’s going to be the tap dance that you’ll see play out. Healthcare, as you know, in the mid-term, was a big deal, especially to democrats, to independents, to urban voters, to women. It just so happened it wasn’t as important to republican voters. So it’s going to be an interesting showcase for discussions around pretty dicey issues on healthcare.
Mike: No doubt! Let’s walk through some of the detail that you’ve outlined in your recent post.
First off, you talk about Medicare cuts; and second point is drug costs. And probably, to some extent, they go hand-in-hand, don’t they?
Paul: They do. There’s obviously bipartisan and popular support for doing something about drug prices at the end of 2018. As you know, companies like Pfizer announced they were rising prices on 41 drugs. At the same time, the administration announced they wanted any advertising of drugs that cost an individual more than $35 a month to carry a price for that on every television ad.
So, there’s just a huge amount of growing belief that the drug industry is kind of beyond the reach of regulators and needs to be reined in. And that’s where you see both parties trying to line up.
In addition to that, we’ve seen HHS with Alex Azar kind of double down on these alternative payment programs. He, for instance, said all of these accountable care organizations need to take on more risks. You didn’t save Medicare enough money. He recently announced for these bundled payment programs a new program called BPCI Advanced Model which essentially does the same. It increases the risk that provider organizations will take in managing bundled payment programs.
So, essentially, what Alex Azar and Seema Verma are really focused on is how do we protect the private sector solution while also cutting federal funding from Medicare and Medicaid and you can do it through the front door which is reimbursement cuts and the fee-for-service programs. And you could do it through the backdoor through all these shared savings programs, alternative payment programs and even some of the programs where there’s a penalty like avoidable readmissions or avoidable complications.
So, the context there, Michael, is pretty straightforward. They’ve got not only a $20 trillion net deficit to deal with at the federal level. But the Tax Cut and Jobs Act that was passed in the fourth quarter of 2017 added $1.3 trillion more to that deficit to that debt.
So, the republicans have to come in to the 2020 cycle showing that they made a necessary investment in tax reform, but the net effect of that is it’s slowing down what the government spends, and it just so happens that healthcare is 29% of what the federal government spends. So, not surprisingly, cuts across the board in healthcare through the front-end backdoors is going to be a big part of the story next year.
Mike: That makes a lot of sense. And you mentioned Medicaid just a second ago as well in your analysis. I want to get back to that because we’re going to cover states in a minute. I think it’s going to be a great discussion.
But let me just move on to a couple of other points that you made. You talked about opioid addiction in your post.
Paul: Yeah. I mean we’ve come in to 2019 with 45 deaths a day. And there’s growing sentiment that there need to be some reparation from drug distributors, from drug retailers like CVS, Walgreens and others, and I think they’ll shortly look to prescribers.
So, from a punishment standpoint, I think it’s scorched earth. I think state attorneys general will view this as the next version of the tobacco tax where the public is spending funds to correct the problem that private industry advantaged, and they’ll seek reparation.
You’ve seen Purdue Pharmaceutical and some others advertise full page ads in a number of newspapers about their intent to participate in solving the problem going forward. A lot of the states are probably not going to be satisfied with that.
The other dimension to this that will get a lot of attention is the solution. How do you correct this pattern of addiction that might, in some cases, begin innocently enough. Some states and some programs have limited prescriptions to no more than seven days. But then there are other elements to this that are pretty dicey. How do you reduce the addictive behavior? What mental health services and what programs are necessary to reduce recidivism which is a substantial problem?
So, we’ve got a number of states that are doing pilot programs around mental health counseling. But it’s not a simple problem. And that’s where I think the public discussion is going to move from being fairly bipartisan, “Yeah, it’s a problem we all need to fix” to the solution that says, “Maybe the federal government, along with states, have to invest some money in this.”
And obviously, you go into the election year, and you talk about spending, that’s not something that republicans want to appear to support. So that’s one to watch for.
Mike: Paul, you then talk about administrative simplification as a priority. Tell us about that.
Paul: Yeah, I mean when you compare the US system with other systems of the world, our total administrative costs all in run about 25% of what we spend in healthcare. And that’s all the administrative paperwork and the staffing and the systems that we use to administer the program in a local, state and national level.
Other systems of the world have administrative costs that are anywhere from 6% to 9% of their expenditures. And a lot of folks make comparisons to Medicare which they say has an administrative cost of 1% which is a misnomer. Medicare is an automatic enrollment. They don’t have marketing expense. And they don’t have a number of the other expenses that private payers have. So realistically, Medicare cost is 6% to 7% to administer, other countries of the world, 6% to 9%, but our system is up to 25%.
So, there are a lot of ideas here. One is standardization of things like billing, credit, collections, credentialing up providers, even standardizing how we define a disease. You’ll find it almost fascinating but unfortunate that weight management or obesity or overweightness can be defined differently in each sector of the industry. And it can be defined differently by insurance plans. So there, the solution in administrative simplification is standardization, technology in place of people, so that we’re not as dependent on head count. We’ve got 21 million people that work in this industry. It’s the biggest employer of any industry in the country. And about 20% of that is administrative head count.
And then, a third—which is probably more controversial—is the system will move more toward consolidation of payers. We’re a pluralistic system. We have Medicare and Medicaid. And they’re about a third of the marketplace of place that have insurance. We have private insurers that cover 155 million. We’ve got an individual insurance market. And then, we’ve got another 10% that go without insurance.
So, because we’re pluralistic, we have duplicated administrative costs, that gets you into this dicey political discussion of Medicare-for-all or a single payer system, which objectively is why other systems of the world have a lower administrative cost. They tend to evolve from a single payer platform instead of things like a doctor will spend about $30,000 a year to get approvals from the various insurance companies that they have to interact with. So you take a lot of that cost out.
So, it’s a tricky issue. But nonetheless, it’s one where there’s low hanging fruit. There’s a lot of opportunity to produce unnecessary cost.
Mike: Indeed, huge spend there. And you mentioned regarding appropriations that you predict veterans health to be a major issue when the next Congress convenes. Tell us what’s going on there.
Paul: Well… this one is interesting because the Veterans Administration, which is the second biggest line item in the federal budget after Medicare and Medicaid (and I guess social security, you have to include), there’s been an effort on the part of the administration to provide veterans more private sector choices in using the Veterans Administration’s 170-some-odd hospitals, 1200 outpatient centers and so on.
And the concept of that was to give veterans choice. And it actually was initially funded as the Veterans Choice Act. But it ran out of money.
So, funding was re-authorized last year under a legislation called the VA Mission Act which was to fund access to private providers where veterans didn’t have choices, or they have to wait too long, or they live too far from a certain veterans facility. That’s very controversial because the veterans themselves believe that privatizing the VA might actually hurt more than it helps. And the cost associated with privatizing, if you will, the VA are all over the place. You’ll see estimates ranging from $20 billion a year to—I’ve seen one that said it would be another $80 billion a year. So no one really knows what it’s going to cost and how it’s going to be impacted.
But it’s going to get a lot of attention if for no other reason than the President has said, “I’m the veterans president.” He authorized additional funding for the VA in his first budget—the FY ’18 budget that we’re in right now or just finished—when he cut just about every other cabinet level department.
So, this one’s going to keep getting a lot of attention. And the veterans organizations are going to be very vocal. And I think this is one where there is a lot of political risk for the administration. So I think it’s going to be walking along eggshells.
Mike: Paul, you also get into some of the circuit courts and Supreme Court decisions that are coming up that are likely to impact healthcare. What can you tell us about that?
Paul: Well, my goodness, the big one obviously is down in Texas where there’s a challenge to the severability of the individual mandate. In other words, if in the Tax Cut & Jobs Act, we have eliminated the individual mandate, doesn’t that render then the entire Affordable Care Act moot? Is it no longer law? And that will be the big one people watch.
But then you’ve got issues at the circuit court level ranging from things like the work requirement that in at least eight states the Medicaid administrators are seeking to require, that there be a minimum work requirement?
We’ve got the standards. We’ve got medical malpractice beginning to pop up again. We’ve got access to abortion services and beyond. This is going to be a state-level series of skirmishes that work themselves through the circuit courts. There’s likelihood that a couple of these may end up at the Supreme Court level where, obviously, the president now has two of his appointees .
In the first 30-some odd cases on the SCOTUS docket this fall. There are really none that point to healthcare. But then the last half of the year, we expect there will be a couple.
Mike: A lot of things to play out in the coming months.
Paul: Yeah, yeah.
Mike: Well, let’s pivot and talk about states. Right before the podcast started, you and I were talking about the interplay what the federal government is doing and what the states are going to be looking at. And you had some interesting points of view on there. And certainly, it’s a place where Medicaid plays a huge role. So tell us what’s going on there.
Paul: Well, a central premise of the current administration is that you should default to the states on as much as you can. And we’ve seen that in deliberation about what constitutes a qualified health plan. Well, let’s let the state determine that.
They’ve been very supportive of this notion of block grants on Medicaid funding to the states and let the governors determine how care should be delivered to Medicaid populations and so on.
So, given that central premise, the one on which there’s more attention right now is Medicaid expansion. It turns out that in the mid-term, in the governor’s races, the democrats picked up six seats. And it appears that in at least three states that were read already—Utah, Nebraska and Idaho—and then in these new governors coming in, a couple of states that hadn’t expanded their Medicaid programs (if you’ll recall, in Maine, the legislature approved it, but the governor refused to sign it, things like that)—we’re going to have probably 900,000 additional Medicaid enrollees as a result of states that have acted. And that then is good news/bad news.
If you’re a governor, you know that most people agree that you should expand. There’s widespread support for the notion of expansion. But how you manage those populations is politically risky.
The Medicaid population is not a stable population. There’s lots of churn in and out of the program. The Medicaid population is unusually dependent on primary care services, pediatricians, family medicine, mental health services, women’s health, where there’s already a shortage.
So, what most states have done is outsourced their Medicaid programs all or in part to private managed care organizations—your names like Centene and Molina and a lot of others.
Well, that’s been a great way for governors to say, “This stuff is complicated, so I brought in these private folks to do it.” But it turns out that these Medicaid managed care operators have made a lot of money and a lot of people are saying, “Shouldn’t the state have been more aggressive in contracting with these folks? And is the profit they’re taking away money that we could be spending on opioid addiction programs and things like that?”
So, it’s complicated. And that to me is going to be an important story to watch. We had 36 governors races. And I think we’ll have another 12 or so in the next cycle, maybe more. So this was a big one for looking at state houses. The next one is going to be important to watch.
But the state legislators and the governors’ offices, it’s not so much clear as to how they’ll navigate through what the administration sees as an opportunity to take on more control of healthcare.
Mike: And the states have a tremendous amount of things to do when it comes to healthcare, things like how insurance coverage is composed, oversight, as you mentioned, treatment of opioid addiction. What do you see coming in 2019 for the states in those areas?
Paul: Well, I think they will address workforce issues right upfront because that’s the means to the end. By that I mean states control through these licensing boards whether a nurse practitioner can diagnose and treat, for instance, or the scope of practice for a pharmacist (retail pharmacies regulated at a state level).
So, the workforce that might increase access to health services include the opioid addiction and other is something that states can address pretty quickly. What they went afoul of in doing that is the conventional gatekeepers that want to maintain those controls. So the state hospital association want to be protective of their interest in their doctors. They want to make sure that you can’t just put up a program next door and cherry pick the commercially insured and leave them in their emergency rooms to treat the uninsured. The medical society doesn’t want to see nurses get more authority.
So, I think around workforce issues, you’ll see a lot of these things surface. I think, secondly, you’ll see there’s a belief that the combination of health and human services programs—in other words, all these social determinants, what some states reference as welfare programs—that those need to be better integrated at the market and the state level.
So, you’re seeing states initiate pilots where health systems take on more responsibility for the social services programs, so that we’re addressing food insecurity, housing, social isolation, and even financial distress. That’s a big deal.
The degree to which we’ve evolved in our country’s health system to one set of services that we’ve called welfare through the years that support low income folks, and then a separate set of services for those that are sick and injured, and we call those health services, is uniquely an American problem.
If you look at other systems of the world, they spend substantially more for these social services programs for their underserved, and they spend substantially less on health services largely because they don’t pay the same high prices for drugs, for a day in the hospital, for specialty care, that we pay.
So, that’s a state issue. That’s what you’re going to see states grapple with as they try to bring their budgets home.
And they’ve got a lot of other things. This is always going to be fertile turf for the discussion of limits on medical liability and some of these other standard issues, but workforce and looking at the connection of health and human services or health and social services is going to be big.
Mike: Paul, at the end of your article, you had some great takeaways. Could you explain those to us?
Paul: Well, I’m looking at this thinking you can’t really imagine something as big and complicated as healthcare not being front and center as we go on to campaign 2020 and beyond. And I found myself, after kind of looking through the litany of issues at the federal and state level—wondering how in the world does someone that works 40 or 50 hours a week and raises a family understand what to do, how to navigate the system… because we really don’t have a system. We have a collection of sectors that have co-existed because the industry keeps growing and everybody has been able to do pretty well.
So, I’m looking at this through the lens of a healthcare guy and looking at the long-term. We will not fix the intrinsic problems of the system because they don’t fit neatly within our election cycles. We’re going to have to look at healthcare I think beyond the election cycles.
And that’s not something that I think we’re of a mind to do. I’m hopeful, but I think it’s going to take the private sector to step in and say, “To achieve this future state where we balance profit and purpose, where we recognize that clinical care has shifted from facility-based services to other sites, and where individuals take on more responsibility for their health, I’m not sure the political process is going to get us to that.” So that was my reflection.
Mike: And it sounds like a well-informed one, Paul. Certainly, we’ll have a link to this article, so you can read more extensively about Paul’s analysis right from our website.
But Paul, if our listeners wanted to learn more about you and what you do, where can they go?
Paul: Just www.PaulKeckley.com.
Mike: Excellent! Well, Paul, great analysis. I always enjoyed talking to you. I want to thank you again for coming by and spending some time with us on the Hospital Finance Podcast.
Paul: Thank you Michael. Always enjoy it!