Many purportedly single-payer bills…
at both the state and federal level, including Bernie Sanders’ S 1129 (2019-2020), include features that compromise the principles that would make a single-payer system as cost-effective as it could and should be. We are referring to proposals that contain provisions for Health Maintenance Organizations (HMOs), Accountable Care Organizations (ACOs), and capitated chains of hospitals and doctors referred to as Integrated Delivery Systems (IDSs) and which fail to authorize paying hospitals and other “institutional providers” via budgets.
HMOs, ACOs, and capitated IDSs…
shift risk to providers of care, guarantee the continued existence of multiple risk pools and perpetuate the competitive insurance business model with its perverse incentives to deny care. These incentives promote gaming and include “cherry-picking” the low-risk and “lemon-dropping” the high-risk patients and populations. These incentives ultimately worsen disparities. HMOs, IDSs, and ACOs also perpetuate high administrative costs and sabotage savings. Other payment methods, collectively labeled “value-based payments,” create the same problems and will be addressed in other papers.
There is solid evidence that paying hospitals and other institutional providers of care with budgets allocated by a single-payer is far more cost-effective than paying hospitals on a per-patient basis. Global operating budgets should eliminate 90 percent of billing and collection costs that now consume around 15 percent of hospital budgets. But global budgeting is not possible if money for hospital care is channeled through ACOs, HMOs, capitated IDSs, or other risk-shifting schemes.
Support for HMOs, ACOs, and capitated IDSs is based on a widely held belief that shifting risk onto providers of care is an effective cost-control strategy. This belief rests on the unproven assumption that, because US healthcare costs are double those of the rest of the industrialized world, Americans must be using much more health care than residents of other countries. The logic follows that fee-for-service payment of doctors contributes to such overuse. The evidence indicates US costs are high because our prices are excessive, not because of our utilization rates. Our prices are high in part because our administrative costs are high and because the US makes no attempt to regulate prices. Furthermore, consolidation of hospitals and physician practices into corporate chains in response to the push to organize risk-bearing ACOs and IDSs has repeatedly raised costs substantially compared to independent small group physician practices.
To counter this fad and its false rationale, single-payer advocates must understand the four elements necessary to achieve a cost-effective system,
and to spot efforts to insert risk-shifting schemes into single-payer bills in the name of “cost control.” Such schemes result in perpetuating the competitive insurance business model that is the root cause of high cost in US health care.
An ideal single-payer bill that can achieve single-payer’s potential for significant cost-savings should have four elements:
- One payer pays care providers directly, with no sub-contracting of funding to risk-bearing entities (HMOs, ACOs, IDSs, and other middle-men).
- Budgets for institutional providers of care, including hospitals, skilled nursing facilities, federally qualified health centers, home health agencies, independent dialysis facilities, and community-based programs for patients with specialized care needs.
- A simplified, standardized fee schedule for individual (independent) providers.
- Negotiated price controls for drugs and durable medical equipment.
The four-element list above is based on the research on single-payer systems, showing that if any of these elements are missing, the proposal will be less effective at cutting costs. The traditional Medicare program illustrates such a less-than-ideal system. Medicare is a single-payer program because one payer, CMS, directly reimburses providers of care. Still, because Congress never authorized CMS to negotiate budgets with hospitals nor limits on prices with pharmaceutical and equipment manufacturers, that program is a less-than-ideal single-payer program.
Similarly, just because a state cannot fold separate systems such as the VA, the Indian Health Service, and Military health care into its state single-payer proposal doesn’t make it a multiple-payer bill. According to the above definition, it can be single-payer for the population it covers.
The OPS Policy Working Group defines insurance risk-bearing entities as organizations that:
- have specified enrollees or assignees/members, and
- have a contract with either each enrollee (premium paying subscriber) or with a payer contracting on behalf of enrollees that obligates the organization to pay for all necessary medical services needed by their enrollees over a given time period in exchange for a fixed capitated fee (premium) per enrollee.
Note the essential differences between payment with budgets and payment with capitation/premiums. Budgets for institutional providers do not impose insurance risk on hospitals and nursing homes etc., because (a) they have no enrollees and therefore are not, and cannot be, paid on a per-enrollee basis; and (b) budgets are not fixed. They can be altered in the middle of a budget year, and hospitals are not allowed to keep any excess revenues, nor are they required to eat any “losses.” In contrast, capitation/premium payments are fixed and cannot be changed if the risk-bearing entity finds the total revenue from premium payments does not match costs. In short, entities paid capitation/premium payments stand to make a buck and lose a dollar. Hospitals and nursing homes paid with budgets, like schools and police departments paid via budgets, are not at risk of losing money for events beyond their ultimate control.
Systems such as Kaiser that integrate physician and hospital services can be accommodated in single-payer proposals by allowing a physician group affiliated with hospitals to have their services included in the hospital operating budgets. The doctors are paid with salaries from that budget. This arrangement preserves entities such as Kaiser as hospital-physician care delivery systems. Still, since each hospital-physician entity would be paid individually with a single-payer budget, it would not have subscribers or members. It would not be a risk-bearing entity and would become an open system where anyone could seek care. Budgets from a single-payer would not allow profit or retained earnings year to year, would not include a funding stream for corporate chain management, and would not require that “losses” be absorbed by the hospital. Capital expenditures would be funded separately by the single-payer based on community need assessment. In other words, the care delivery functions of systems such as Kaiser would be preserved, but they would lose their insurance functions and funding streams for corporate empire-building.
There is one other very important rationale for the four elements of a single-payer listed above: They maximize the single-payer system’s power to achieve equality of access to medical care. Our current system allocates resources in a manner that guarantees residents of more impoverished communities have less access to medical care than better-off communities. Hospital budgets negotiated with individual hospitals (not chains), for example, give society the power to decide where new hospitals, MRIs, and obstetricians will be located. Proposals that simply pay existing hospital chains, HMOs, IDSs, and ACOs by any method, whether fee-for-service, capitation, or budgets, substantially reduce social control over medical resources allocation.
In summary, we recommend striking all references to risk-shifting schemes
such as “Health Maintenance Organizations,” “Accountable Care Organizations,” “case-rate basis,” and “capitation” from any proposed single-payer bills. Single-payer bills must also contain a clause banning duplicative coverage from other sources for essential
Stephen Kemble and One Payer States Policy Work Group