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Health Care’s "Big Dig"
Posted by: McQ on Thursday, November 20, 2008

Remember this?
In 1985, government officials claimed that Boston's "Big Dig" highway project would cost $2.6 billion and be completed by 1998. The cost ballooned to $14.6 billion and the project is still not finished.

In 1988, Medicare's new home health-care benefit was projected to cost $4 billion by 1993; the actual 1993 cost was $10 billion.
Why does this always happen? Back in 2002 a study took a look at that:
A study by Danish economists published in the Journal of the American Planning Assn. last year looked at 258 government projects in the U.S. and abroad. They found that cost overruns stem from government deceit, not honest errors.

Nine out of 10 projects in their sample had cost overruns, with an average overrun of 28%. The study concluded that intentional deception by public officials was the source of the problem: "Project promoters routinely ignore, hide or otherwise leave out important project costs and risks in order to make total costs appear low." Politicians use "salami tactics" whereby costs are revealed to taxpayers one slice at a time in the hope that the project is too far along to turn back when true costs are revealed.

Another problem with federal spending is that the states compete with each other to secure federal dollars and are prone to exaggerate project benefits and minimize costs. When cost overruns occur, state officials seek to cover up poor contractor performance to conceal their own bad oversight.
Now, fast forward to today and Obama's health care promises. He promised everyone would see their health care premiums cut by $2,500. Remember?

John Merline takes a look at those promises in today's USA Today. And what he finds isn't encouraging - however it does conform with what those Danish economists found a few years back. Part of the savings (200 billion a year) will supposedly come from injecting more information technology into the system:
The $2,500 figure comes from an estimate by unpaid Harvard University advisers to Obama's campaign. They calculated that if you inject more information technology (IT) into health care, manage diseases better and cut extraneous paperwork, you could save about $200 billion a year in health spending — or about $2,500 off the average family's health insurance bill.

Obama's advisers figure that more IT would save $77 billion, based on a report from the RAND Corp., a prominent research organization. Makes sense. After all, IT saves money in the private sector by improving efficiency. But when the Congressional Budget Office looked at the RAND report, it found serious problems, including that researchers had excluded studies, even those published in peer-reviewed journals, "that failed to find favorable results" from adding more IT in health care.

Meantime, a comprehensive look at ways to cut health care costs by the independent Commonwealth Fund pegged annual savings from IT at just $29 billion — and not until 2017.
So IT isn't going to save us as much as projected and when it does save us some money, if it does, it won't be until 2017.

But wait, there's more:
Obama's experts also claim that $46 billion a year could be saved by cutting administrative overhead. Anyone who has come in contact with the health care system knows it's paperwork heavy. Administrative costs today eat up about 14% of benefits.

Even so, whether Obama's health plan, which also adds multiple layers of regulation on the insurance industry, will cut that paperwork load is debatable. Increased government intrusion into private markets rarely, if ever, cuts paperwork costs.
The point? Every "savings" plan politicians put forward claim they'll reap the benefits of cutting administrative costs. But we're talking about increasing the government bureaucracy and intrusion when government involves itself more deeply in health care. That has never brought greater administrative efficiency or lower cost.
The rest of Obama's savings — $81 billion — come from efforts aimed at improving disease management, care coordination and the like. Such savings are possible, but making them a reality will be difficult.
The best example of this is the fact that free pre-natal care is available throughout the US, yet we still suffer from a large number of low birth weight babies because those without insurance (and many with insurance) don't avail themselves of the service. Perhaps an intensive media campaign to educate the public will change that, but usually Americans don't go to the doctor unless they need too - and that's especially true of younger Americans.

So, what are we really looking at?
Even if Obama did save all this money, he'd still be hard-pressed to deliver those premium cuts, because other parts of his plan would almost certainly drive up costs.

Simply expanding insurance coverage, which is the main goal of Obama's plan, would boost spending. A study published in the journal Health Affairs calculates that covering all the uninsured would increase the amount they spend on health care by $122.6 billion a year because people with insurance buy more health care.

Absent some form of price controls, this sharp increase in demand for medical service would push up costs for everyone.
Costs go up for everyone? Price controls?

Any guess which an Obama administration would do? Any guess at the unintended consequences?

Last but not least:
Obama also proposes to end the insurance industry's practice of restricting coverage based on pre-existing conditions. But a study by actuarial Milliman Inc. found that when several states implemented "guaranteed issue" — the formal name for Obama's reform — insurance premiums rose.
See Hawaii. See Tennessee.

Again, we're going to see the Danish economist's study validated. And the coming health care debacle is going to make the "Big Dig" look like the most efficient and cost effective project the government ever has ever undertaken.
 
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It’s also ridiculous to assume that IT is an automatic cost saver. There have been more than a few large IT projects in the private and public sectors that have cost millions of dollars and failed miserably. The government does not have a good track record here.
 
Written By: Grimshaw
URL: http://
IT could indeed save billions in healthcare, if the systems were written correctly, because healthcare information management is still in the Dark Ages in computer science terms. But government doesn’t stand a chance in Hades of creating such systems.

I’ve spent years architecting, designing, and writing healthcare software. The idea that a large-scale government project to write a healthcare clinical management system could succeed is preposterous.

Even a third or more of private efforts to write such systems fail. See HCA Healthcare’s disastrous MARS project for a typical example. They wrote off about $130 million, but insiders tell me the actual losses were more than twice that. Three years, hundreds of millions of dollars, and they threw it in the trash can when transactions that were supposed to take under a second took thirty seconds to a minute to clear the system and no one had a clue how to make the system run any better other than starting over.

McQ mentioned Tennessee, and he was referring to the disastrous TennCare system, which was inspired by HillaryCare in the 1990s (and the best example in my lifetime that Tennesseans can be just as stupid as people anywhere else in the country). It took ten years and three completely failed efforts for the TennCare system to get even basic claims accounting right.

If and when a solution comes about to effectively apply IT to make healthcare cheaper, you can bet the farm that it will come from the private sector in some kind of evolutionary way, not as a grand design in a government project.
 
Written By: Billy Hollis
URL: http://qando.net
Well, what caused the current healthcare administrative system? It was government programs like medicare and employeer provided health insurance (drivien by the tax code).

HMOs and other managed care are the result of regulations and attempts by insurance companies and the government to keep costs (fraud) down. To police themselves, doctors require a large buisness staff.

It is like we are in one of those can bear traps, where the bear pushes his paw further in to stop the pain . . . (instead of pulling out and escaping).
 
Written By: Don
URL: http://
You mean Obama made campaign promises that he knew he couldn’t keep? And that the average American voter bought it?

I’m shocked.
 
Written By: Joseph Somsel
URL: http://
I wonder if it would be possible to find a country or system that already has a decent IT system and buy it off the shelf. You have to imagine that somewhere someone has come up with something at least okay.
 
Written By: Harun
URL: http://
I wonder if it would be possible to find a country or system that already has a decent IT system and buy it off the shelf. You have to imagine that somewhere someone has come up with something at least okay.
On the claims/accounting side, other countries systems won’t work because the rules are too different.

On the clinical side, what you suggest is theoretically possible. However, I’ve never seen even an inkling that such a system exists. There are compartmentalized solutions that work within a restricted domain pretty well, but an across-the-board system for management of clinical patient information does not exist as far as I know.

Such a system would require some of the best minds in IT to design and build. Clinical data is horrifically complex, with structures that vary all over the place. New kinds of data from new clinical tests are constantly being developed, and so the system has to be flexible enough to handle data people had not even figured out when the system was created. It has to dynamically respond to different types of users, including doctors of a hundred different specialties, nurses with various functions, and administrators that oversee the whole process.

The system would need very high stability, because lives are at risk almost every time its used. It would have to be highly distributed, to encompass the entire healthcare system, but highly secure, to protect the private data it contains. It would have to be very, very easy to use, because doctors won’t sit still for weeks of training, and they get the notion that the system takes more time than paper, they simply won’t use it, and I can’t think of a way to make them.

The rules for best practices are constantly changing, so no system that encodes clinical practices in code will work long term. Rules must be data-driven and run by rules engines that are as complex as any I’ve seen in any other industry. Different rules have to apply to different populations, to enable new rules to be tested on sub-populations before being applied to everyone.

I’ve done sub-systems that faced some of these issues. It is possible to build such an overall system, but assembling the talent and resources to do it would be very difficult. Impossible for a government effort, I think, because such an effort would never understand how to find and attract the talent needed.
 
Written By: Billy Hollis
URL: http://qando.net
Billy,

That’s why you get paid the big bucks. I want the program on a flash stick on my desk by 5:00.

I’ll be out golfing, but you call me on my cell when its finished.

:)


 
Written By: Harun
URL: http://
Obama’s experts also claim that $46 billion a year could be saved by cutting administrative overhead. Anyone who has come in contact with the health care system knows it’s paperwork heavy. Administrative costs today eat up about 14% of benefits.

Even so, whether Obama’s health plan, which also adds multiple layers of regulation on the insurance industry, will cut that paperwork load is debatable. Increased government intrusion into private markets rarely, if ever, cuts paperwork costs.
You don’t need to speculate on the administrative costs, you can look them up. The Federal Employees Medical Benefit Plan a government plan using private insurers, has only 7% in administrative costs, less than half of private insureres. It has also been more effective at cost containment and quality of service than pure private plans.

Let me buy into that plan and I’ll move off of my corporate plan, because even after my company contribution, it would be less money for better coverage for my family. The average family premium for the FEMBP is under $600, with low deductibles, and great benefits. My portion of my company plan is over $300 monthly now, with higher deductibles, higher copays, and less overall coverage than the FEMBP, and I typically end up out of pocket by far above the total premium and out of pocket of the FEMBP.

Keep private insurance, just make it compete with the FEMBP, and I’ll argue that costs for healthcare will go down.
I’ve done sub-systems that faced some of these issues. It is possible to build such an overall system, but assembling the talent and resources to do it would be very difficult. Impossible for a government effort, I think, because such an effort would never understand how to find and attract the talent needed.


The Federal Employee Health Benefit Plan uses a better IT and software infrastructure in part to achieve it’s 50% reduction of administrative costs over fully private plans. There may be no need to reinvent this wheel.


 
Written By: CaptinSarcastic
URL: http://
The Federal Employee Health Benefit Plan uses a better IT and software infrastructure in part to achieve it’s 50% reduction of administrative costs over fully private plans. There may be no need to reinvent this wheel.
Are you unaware of the difference between administrative systems and clinical systems? And that my comments were directed mostly at clinical systems?

It’s also a completely different task to design a single purpose system where one entity sets the rules, as in your example, from a more general administrative system where the rules are more fluid and set by many players.
 
Written By: Billy Hollis
URL: http://qando.net
Are you unaware of the difference between administrative systems and clinical systems? And that my comments were directed mostly at clinical systems?


Yes Billy, I was unaware of the distinction. My point was that administrative costs can be brought down significantly in this country, without major innovation. I say this because the template already exists with FEMBP.

Let me choose to buy into the FEMBP and my adminsitrative costs will be cut for 50%. Others can choose to get less for more if they so desire. Is this a great country or what?



 
Written By: CaptinSarcastic
URL: http://
Let me choose to buy into the FEMBP and my adminsitrative costs will be cut for 50%.
Don’t bet on it:
Under the FEHBP, national and local private health plans compete on a level playing field for the business of members of Congress and thousands of federal government employees. The FEHBP has relatively few mandated benefits, which allows for both more choice in the types of plans available and keeps a lid on costs. The Obama plan, in particular, moves away from this model by significantly increasing the number of mandated specific benefits. This would send already rising insurance premiums through the roof. Worse, the Obama plan clearly intends to bring price controls into the health care sector. Obama promises Americans will be charged “fair” premiums and “minimal co-pays.” Presumably, Congress would define these terms. This would put the federal government in the business of deciding what constitutes a fair price and a proper co-payment for benefits and ser­vices, leading to some type of centralized rate set­ting or standardization of payments for providers. In the FEHBP, prices are market-based. No price regulation is imposed on plans or services.

Much more distressing, though, is the creation in both the Baucus and Obama plans of a government-run health care plan that would compete alongside the private plans. The FEHBP contains no such government entrant into the marketplace. The government-sponsored health exchange would naturally write the rules of competition to benefit the government plan.
 
Written By: McQ
URL: http://www.QandO.net
Don’t bet on it:
I see your Heritage Foundation link and raise you a Center For American Progress link.
- Expand the Federal Employee Health Benefits Program (FEHBP), or create a group purchasing pool like it: Participants could choose their own provider and would have the security of knowing they could never lose their coverage. Employers could let their employees get coverage through a FEHBP plan only if they enrolled all of their workers, not just ones with health problems. The FEHP pool would also include a government-run insurance program modeled after Medicare and would have tremendous clout to bargain for the lowest prices from providers and push them to improve quality of care.
But seriously, I acknowledge your concern, and it’s legitimate, but since Heritage has been thoughtful enough to uncover these potential defects, why can’t we work to insure that we build in protection against said problems?

Heritage seems to favor extending the FEHBP to all Americans, so surely, with so little air between us, can’t we just work it out?
The Heritage Foundation [2] has long been an advocate for organizing a national health exchange based on the same model that delivers care to members of Congress;
This is exactly what I am getting at, I don’t think Obama’s plan, as so far advertised is as good as it can be, and Obama is claiming to want bipartisan participation in developing the plan. Maybe some Democrat will raise these questions, but maybe not, and if Republicans just say no, instead of saying, "if you’re going to do this, you better consider this...", we’ll end up with a better plan.

You know it’s coming, they have the votes, and if Republicans decide to step aside and just say no, they might reap some political benefits down the road if it doesn’t work very well, but this monster will already be there, and you know something this big doesn’t go away.

 
Written By: CaptinSarcastic
URL: http://
The GOP should provide healthy criticism. In fact, it should come up with "Shadow Policies" and "Suggestion Papers" and hope that they can get the message out that they are the better party. If the Dems just steal the ideas and get the credit, it sucks, but less than the Dems just copying the NHS from the UK.
 
Written By: Harun
URL: http://
"The Federal Employees Medical Benefit Plan a government plan using private insurers, has only 7% in administrative costs, less than half of private insureres."

Correct me if I am wrong, but it is my impression that the FEMBP is not itself an actual insurer,provider, it is a plan to provide federal employees with an insurer/provider; the actual insurer/provider covers the administrative costs of actually providing health care. Comparing admin. costs of the FEMBP with the admin. costs of Blue Cross, for example, would be inaccurate, since the FEMBP provides no actual health care. And yet its admin. costs are about half those of an actual provider?

Or does this mean that somehow, with the addition of another layer of bureaucracy, the total admin. costs, which includes the admin. costs of providers such as Blue Cross, are somehow cut by more than half compared with getting the same Blue Cross benefits outside the FEMBP? I think I need to see some supporting documentation before I swallow that.
 
Written By: timactual
URL: http://
The GOP should provide healthy criticism. In fact, it should come up with "Shadow Policies" and "Suggestion Papers" and hope that they can get the message out that they are the better party. If the Dems just steal the ideas and get the credit, it sucks, but less than the Dems just copying the NHS from the UK.
BING-freaking-O

The scope and scale of this thing is way too big for politics. If Republicans stay out of this because they think they’ll pick up the pieces when it is seen as a failure, it might benefit some individuals who get those cushy seats in Congress, but we’ll never stop paying for it.

If it works well enough with Republican help, it would probably mean an extra few years in the majority for Democrats, but it it’s awful, it will be awful for a very, very long time.
Or does this mean that somehow, with the addition of another layer of bureaucracy, the total admin. costs, which includes the admin. costs of providers such as Blue Cross, are somehow cut by more than half compared with getting the same Blue Cross benefits outside the FEMBP? I think I need to see some supporting documentation before I swallow that.


That’s a good question, and I don’t know the precise answer as to specifically how administrative costs are reduced. All of the research I have seen on the FEMBP, from Heritage, to Commonwealth, use the same 7% figure and credit it to the the negotiating power of the plan because of the massive number of members as well as the economies of scale. You mentioned BC/BS, and over half of the FEHBP members are covered by this private insurer, and another quarter in one other national carrier, that’s over 6 million enrollees served by two providers. It may just be that BC/BS or any carrier, would see their administrative costs go down to 7% or less if they had this many people under a single plan. Isn’t that what the economy of scale is all about?

I have seen people dispute the assertion that Medicate admin costs are 1% or 2%, but I have not seen any research that questions the stated admin costs of the FEMBP. That does not mean that 7% must be accurate, but based on the rest of the stats regarding the plans, I don’t see any reason not to believe it.

Do you?




 
Written By: Captin_Sarcastic
URL: http://
"All of the research I have seen on the FEMBP, from Heritage, to Commonwealth, use the same 7% figure and credit it to the the negotiating power of the plan"

Pure conjecture. It also assumes that no other organization has negotiating power or the will to use it. Not believable.


"Isn’t that what the economy of scale is all about?"

Assuming there actually are economies of scale. Just how many people does it take for these economies to start? BC/BS is, after all, a large organization even without the FEM.... There are also diseconomies of scale.


"but based on the rest of the stats regarding the plans"

What stats? Are they also based on supposition and conjecture?


"I don’t see any reason not to believe it. Do you? "

Experience. I have heard this same argument (eliminating waste/fraud/abuse, economies of scale, etc.) for decades. It ain’t happened yet. Au contraire, anytime government is involved the opposite happens. Six hundred dollar toilet seats are not exclusive to the defense department, nor are $6,000 shower curtains exclusive to the private sector. Human beings act like human beings, government employees or not. Empires get built, nests get feathered, offices get redecorated, etc.
 
Written By: timactual
URL: http://

 
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