1 2020 The Author. Published by Wolters Kluwer Health, Inc. But federal spending is not the same as C costly it would be. Themany headline refer number to that is the Urbanthat Institute’s Senator estimate Bernie Sanders’plan -for-All would add $34ing trillion to over federal a spend- For decade a (Blumberg fully implemented etspending plan, in al., annual 2020 federal 2019). wouldwhat be more it than would triple trillion be instead of under $1.3 trillion. current law—$4.1 THE NEED TO COMPARE “APPLESAPPLES” TO total spending, which also includesby spending individuals, employers, and states.part A of large thethe increased Sanders federal plansibility spending reflects from for shiftszero individuals cost in sharing, respon- (zeronot and payment covered premiums, for todayservices services and such support) aswhich and long-term from would care employers, to no employer-sponsored longer insurance.reason, it be For is this national instructive contributing to spending. also Forthe look Urban 2020, at Institute total accordingspending analysis, would to increase national from health $3.5 trillion to J Ambulatory Care Manage Vol. 00, No. 00, pp.Copyright 1–6 Dr Ginsburg serves as a Public The Brookings Institution, Paul B. Ginsburg, PhD, The Brook- costs, prices, single-payer One of the most controversial areas in discussions of single-payer approaches for the

NE OF THEtions MORE related controversial to ques- the prospect of single-

Abstract: United States, suchdifferences as between “Medicare federal and forthe total All,” way spending concerns of andadministrative effects “apples-to-apples” its costs of comparisons. implications and lower Key for lower patientsome areas provider costs. cost envision, prices. with sharing Confusion especially But gets potential inallow over cost in to the providers reduction price lower would to area costsKey likely adjust because words: be are of to smaller lower the than lower need prices for and a Americans’ long process unique to attitudes gradually toward regulation. Paul B. Ginsburg, PhD payer in the United States is how

Author Affiliations: Washington, DC; University of(USC), Southern California Los Angeles; and USC-BrookingsInitiative Schaeffer for , Washington,Columbia. District of This work was funded by afer gift to from USC Leonard and D. The Schaef- USC-Brookings Brookings Institution Schaeffer to Initiative support for the am Health grateful Policy. to I and my Christen Brookings Linke Young, colleagues, forearlier Matt helpful draft. comments Fiedler on an Conflict of Interest: Trustee of theas American an Academy Advisory oftute Board Ophthalmology, for member Health atof Care the the Management, Medicare National and Payment Insti- Advisoryadvises as Commission, the Vice which Congress Chair on Medicare issues. This isthe terms an ofCommercial-No Derivatives open-access the License 4.0 Creative (CCBY-NC-ND), where article Commons it Attribution-Non distributed iswork provided permissible under it tobe is changed download in properly any andpermission cited. way from share or The the used journal. the work commercially without cannot Correspondence: ings Institution, 1775 Massachusetts Aveton, NW, DC Washing- 20036 ([email protected]). DOI: 10.1097/JAC.0000000000000338 O Approaches” Spending Under Single-Payer Commentary on “Health

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$4.2 trillion, an increase of 21%. While this is a claims processing, which presumably would much smaller increase than federal spending, continue. Cutler (2020) estimates that about the change in the latter would nevertheless $100 billion per year goes to the private be very important, since it would require very health insurance industry for administrative large tax increases, which, in turn, would sac- costs and profits. This is a substantial sum, rifice productivity in the national economy. butitislessthan3%ofnationalhealth Overall, this shift of burdens from individuals spending. And some of the spending by and employers to government could mean private insurers more than pays for itself by substantial redistribution of income, depend- reducing medical spending. For example, ing on how single payer was financed. prior authorization, which is not done by But comparisons of total or federal spend- traditional Medicare, likely is critical in a ing still mask other key elements in under- delivery system that does not constrain the standing costs. For example, the Sanders pro- purchase of medical technology, such as posal would eliminate the cost sharing that magnetic resonance imaging equipment, as patients are responsible for in both private in- is done by many single-payer systems. The surance and in Medicare itself. For services Governmental Accountability Office (GAO) that enrollees have already been getting, the estimates that Medicare demonstrations of cost burden would shift from patients to the prior authorization have saved substantial taxpayers. But lower cost sharing would also amounts (GAO, 2018). Medicare has often increase service use, some of it valuable and been criticized for spending too little on some of it not, so this would be a net cost in- administration, with numerous analyses crease from the single-payer approach. The by the GAO showing very high rates of same logic applies to payment for services return for increased Medicare administrative that are not typically covered by either Medi- spending (GAO, 2016). A single-payer system care or private insurance. Covering these ad- could substantially reduce the cost of billing ditional services would transfer responsibility providers and patients, but the magnitude from the individuals who pay for the services would depend on the details of its patient but would lead those individuals—and others cost sharing and whether it abandoned fee for who do not currently use the services because service in favor of a budgeted system like that of the expense—to use more of the services. of the Veterans Health Administration. But So the increased costs would come from the regardless of details, having one payer instead higher use of services. Although the Sanders of many, with that payer having the authority plan includes dental, vision, and long-term to specify provider billing mechanisms, care services and supports, other conceivable would reduce administrative costs. single-payer plans, such as an option offered But there are opportunities to substantially by the Urban Institute, leave the list of cov- reduce administrative costs in health care ered services unchanged from current law. in a multipayer system, some of which are being pursued. Cutler (2020) believes ADMINISTRATIVE COSTS that administrative tools that are common in other industries could be created for Focusing on “apples-to-apples” compar- health care and save substantial amounts. For isons, single-payer advocates focus on savings example, health care providers and payers in administrative costs from the elimination could follow the banking industry and set of private insurers and lower provider prices up a clearinghouse for bill submission and through the single payer’s administered payment. Prior authorization, which also prices. If traditional Medicare became the leads to substantial administrative costs for only payer, it would eliminate most of the providers, could be substantially streamlined private insurance industry, which would lead through federal legislation to create a uni- to administrative cost reductions. Medicare form process. And quality reporting could does contract with private insurers for its be standardized, with private insurers and Health Spending Under Single-Payer Approaches 3

Medicare agreeing on common requirements. The key questions concern the economic The last 2 are discussed with increasing feasibility and political feasibility of revenue frequency at the federal level and are biparti- reductions anywhere close to this magnitude. san, suggesting that such advances might be Would rates this much lower than under cur- realistic over the next few years. Making data rent policies be possible without bankrupting interoperable, a goal that appears only a few many providers? Would the US political sys- years from becoming a reality in the United tem support rates under a single-payer system States, would also reduce administrative costs that are substantially lower than today? substantially—regardless of whether payment Analysts have more visibility into hospi- is under a single- or multipayer system. Cutler tal finances than into those of some other estimates that these 4 changes together could providers due to Medicare cost reporting. lead to annual administrative savings of $50 The Medicare Payment Advisory Commission billion to $75 billion per year, as well as (MedPAC), which advises the Congress on making providers’ and patients’ lives better. Medicare payment, estimates that in 2018, ’ all-payer operating margins were 6%, which is somewhat higher than has been LOWER HEALTH CARE PRICES typical in the recent past (MedPAC, 2020). An implication of this is that aggregate payment Perhaps, the most challenging task in es- rates could not fall more than 6% without caus- timating spending under single-payer health ing margins to become negative. This care in the United States concerns assump- would risk threatening the long-term viability tions about health care prices. It is well known for hospitals. But further reductions could be that health care prices are much higher in achieved if the increased financial pressure the United States than in other advanced led hospitals to pursue cost containment more countries (see, eg, Papanicolas et al., 2018). vigorously than they do now. Although it is difficult to compare prices di- Hospital cost containment can be achieved rectly, analyses have combined the higher per in 2 ways—increasing productivity or pay- capita spending, either in purchasing power ing workers or suppliers less. Producing a parity or as a percentage of gross domestic unit of service with fewer inputs has long product, with various indicators that health been perceived as difficult in service indus- care services per capita are not higher in the tries where face-to-face contact between cus- United States to conclude that “it’s the prices, tomers and staff is important. Sometimes, a stupid” (Anderson et al., 2019). lesser trained staff might be substituted for Medicare-for-All proposals envision setting relatively routine services, although licensing all prices at Medicare rates, although the laws often limit such opportunities. There is Urban Institute analysis (Blumberg et al., also the possibility that in response to pres- 2019) points to the current negative hospital sure on hospital prices, inputs are reduced margins for Medicare and assumes that hospi- in ways that reduce quality. The opportuni- tals would be paid at 115% of Medicare rates, ties for large increases in productivity are per- with other types of providers at 100%. The ceived to come from changing how care is de- Urban Institute assumes for its analyses that livered, for example, coordinating care more private insurers currently pay rates that aver- effectively so that fewer services are needed age 240% of Medicare for hospital care, 190% for a hospital stay. Many have embraced mov- for inpatient care, and 340% for outpatient ing toward value-based payment to both mo- care (Blumberg et al., 2020). Rates for physi- tivate and reward providers that succeed in cians are paid at 120% of Medicare on average. achieving efficiencies in delivering an episode Medicaid payment rates for hospital services of care or meeting all of a population’s needs are believed to be roughly equal to Medicare over a period of time. This means employ- on average but below Medicare for physician ing payment approaches such as bundled services. payment or accountable care organizations. 4JOURNAL OF AMBULATORY CARE MANAGEMENT/00 2020

While there has been enthusiasm for these the high cost of treating patients infected approaches among providers, payers, and pol- with the virus, is likely to lead to caution in icy makers, progress in achieving significant pressing providers for rapid reductions in pay- savings to Medicare and other payers has been ment rates. slow (Chernew et al., 2020). Further progress The potential to substantially lower is likely to involve better payment models, provider payment rates under a Medicare-for- stronger incentives for providers and plans to All approach would be heavily influenced by participate, and more time for providers to political processes. The United States has long revamp delivery of care. been an outlier among advanced democracies Data from the Organization for Economic concerning government having less author- and Cooperation and Development (OECD), ity to intervene in the economy (Zohlnhofer as reported in Papanicolas et al. (2018), show et al., 2017). This likely reflects cultural differ- how physician earnings in the United States ences in support for collective initiatives and are far above those in 10 other high-income attitudes toward the role of individuals. So less OECD countries and nurses’ salaries are mod- of the gross domestic product is allocated by erately higher. In 2016, generalist physicians government and regulation is less extensive in the United States earned 63% more than in the United States. the average of the other countries, special- In the Medicare program, the Congress re- ist physicians earned 73% more, and nurses tains a great deal of authority in many aspects earned 43% more. Opportunities likely exist of the program. For example, in what many to pay suppliers lower prices. US hospitals would consider a real weakness, the Medicare have tended to pay high prices for medical benefit structure was written into the statute, devices but have been achieving reductions meaning that it can be changed only through through reducing the numbers of different de- legislation. While in 1965, the Medicare bene- vices that physicians use. fit design reflected what was then the “cutting The upshot of this discussion is that ob- edge” of health insurance, many aspects seem taining lower provider payment rates cannot anachronistic today, such as the separate de- happen quickly. Margins are not large, so ductibles for Part A and Part B and the lack most savings will have to come from increas- of an out-of-pocket maximum. The Congress ing productivity and from paying workers often addresses very detailed aspects of the and suppliers less. A single-payer rate setter program, in many instances at the request of will have to proceed very cautiously, know- numerous stakeholders that are making con- ing that pushing too far too fast could lead tributions to Members’ reelection campaigns. to financial instability in health care deliv- Extensive micromanagement of the Medicare ery, risk serious problems in access for some program by the Congress may reflect at least, populations in some areas, and lose political in part, a long-standing lack of confidence by support for cost containment. This is exac- legislators to use of executive authority by erbated by the current pattern of payment the Centers for Medicare & Medicaid Services, rates by private insurers, where rates as a per- something that I have seen even when the centage of Medicare vary greatly across ge- same party controls the Congress and the ex- ographic areas (White & Whaley, 2019). So ecutive branch. pressure on rates likely would be applied un- An argument can be made that with Medi- evenly, with sharper reductions from private care for All, the Congress would be more insurer rates in selected areas, but some pres- highly motivated to squeeze provider pay- sure also applied to providers in areas with ment than it would be under an alternative lower prices. The recent experience with the in which the federal government set lim- COVID-19 pandemic, which has placed many its on the rates paid by private insurers— hospitals in financial peril through loss of rev- an approach that is getting increasing atten- enue from fewer nonurgent procedures and tion from policy analysts. If Medicare was Health Spending Under Single-Payer Approaches 5 the sole payer, every dollar saved from lower vate insurers? In contrast, most of post–acute rates would reduce the budget deficit by that care provider revenues are from Medicare pa- amount. But if private insurer rates were lim- tients.* This raises the possibility that with ited, it would affect the deficit through in- Medicare responsible for all patients, policy creased revenues. Since most of private in- makers might be much more concerned with surance is provided by employers, premiums rates being high enough to keep providers fi- reductions would likely lead to smaller em- nancially viable. This may be where the US ployer contributions and higher wage rates political system, with more restraint on gov- for employees. Since the former component ernment power and being more open to stake- of compensation is not taxed, using average holder lobbying, may not be equipped to set marginal tax rates for employed populations, low payment rates and press them still lower for every dollar in lower premiums, federal over time as providers are able to achieve fur- revenues would increase by 32 cents. So this ther cost reduction under a Medicare-for-All wouldmeanthatpolicymakersmightbe approach. more motivated to reduce payment rates in In conclusion, it would not be wise to single-payer Medicare than in private insur- assume that a Medicare-for-All approach in ance. the United States could quickly bring pay- But my sense of recent history of Medi- ment rates for those patients now covered care policy on payment rates for different by private insurance down close to Medi- types of providers suggests that other con- care rates. Achieving the provider produc- siderations may be more important. For Medi- tivity gains needed to keep providers finan- care, payment rates for hospitals and physi- cially viable with much lower payment rates cians appear to be fairly stringent while those would take a great deal of time, as would for post–acute care providers appear quite cutting real wage rates for large numbers of generous. For hospitals, MedPAC estimates health care workers. And there are real doubts that the Medicare margin in 2018 was −9.3% about the degree to which US policy mak- (MedPAC, 2020). While margins cannot be ers would press substantial rate reductions calculated for physician practices, physician on a sustained basis. Other relevant factors fees in Medicare have lagged the Medicare include the potential to achieve a large part Economic Index, which measures input price of the administrative savings envisioned un- changes, since early in the 2000s as a re- der single-payer approaches by innovations sult of the sustainable growth rate formula that appear potentially close to being feasi- and Medicare Access and CHIP Reauthoriza- ble under the current multipayer approach tion Act of 2015 (MACRA), which replaced in the United States. Finally, a portion of the it. Nevertheless, MedPAC has consistently re- price reduction that might be achieved under ported that access for Medicare beneficiaries a single-payer approach might be achieved is good. through rate limits in a multipayer system, In contrast, Medicare margins for many something that, although politically challeng- post–acute care providers are very high. Med- ing, might be easier to achieve than Medicare PAC (2020) estimates that Medicare margins for All. in 2018 of 10.3% for freestanding skilled nursing facilities (SNFs), 12.6% for hospices, 14.7% for inpatient rehabilitation facilities, and 15.3% for home health agencies. Such *An exception is SNFs where a large portion of revenue margins are extremely high and have been in many facilities comes from Medicaid, which pays for a lower degree of acuity but at very low rates. With Medi- so for many years. Could it be that policy care being the more attractive payer, federal policy mak- makers feel less constrained for services for ers may feel pressure to pay higher Medicare rates to keep which a lot of the payment is coming from pri- the facilities open. 6JOURNAL OF AMBULATORY CARE MANAGEMENT/00 2020

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