Good afternoon. I am Dr. Zebulon Taintor, a psychiatrist and current President of The New York County Medical Society. I am also chair of the state medical society’s Committee on Health Information Technology, which is currently working on bringing electronic health records and e-prescribing to physicians around New York State. Thank you for this opportunity to testify on the difficult problem of increasing health insurance coverage in New York State.

There are simple ways to increase insurance coverage to cover all New Yorkers: decrease costs so medical expenses can be paid, and have the facilities and people available to treat them. The good news is that more money is not needed.

Costs are the overriding issue, and for-profit is the place to cut: We all know that health care costs are rising and now are 16% of the gross domestic product (GDP). While one could argue that costs potentially are infinite because everyone would like to live forever, there is no justification for escalating costs that actually are a sign that time is wasted on irritations that have nothing to do with patient care. Daniel McFadden, Nobel laureate in economics, wrote: “First, we need to wring out some of the inefficiencies. Something like 30% of our health costs come from administrative overhead, legal costs and defensive medicine. These could be largely eliminated in a comprehensive reform; we just need to emulate best practice in other developed countries.” (Wall Street Journal, Feb. 16, 2007.) Take 30% off 16% and you have 11.2%, not as low as other countries that do it better, but a start.

It is unfortunate that the fight is now is between the governor and the hospital/nursing home sectors, just as it’s too bad that the impulse toward health care reform started with the Berger Commission’s focus on hospitals (as the Commission notes). We work in hospitals and nursing homes and know they perform essential functions for health. We appreciate that the mix of treatments must adapt to improved diagnosis and treatment, and to physicians’ doing more for patients in their offices, so reworking hospital/nursing home/physician relationships should be done. We associate hospitals with tertiary prevention and the work that physicians do in their offices with secondary prevention, and we favor incentives for physicians to do more primary prevention. Increasing primary prevention work by physicians can be subsidized by the savings realized from doing less tertiary care.

We support this part of Governor Spitzer’s response to criticism of the budget: “We agree that reform includes doing more to lower prescription drug costs. That is exactly why our budget strengthens the State preferred drug program, lowers the price the State pays pharmacies for prescription drugs and institutes a preferred drug list in the State EPIC program. That is also why we are actively pursuing the use of the federal 340B drug discount program and why we are working with other states to explore bulk-purchasing opportunities.

“And we agree that reform includes stronger regulation of disproportionately high insurance rates and ending the gamesmanship of HMOs who deny or delay payment for care. That is why our budget proposes to freeze the trend rate increase to HMOs, increases the covered lives assessment paid by HMOs and why the State Insurance Department will propose legislation to reinstate prior approval of HMO insurance rates as well as other legislation that will ensure that HMOs [cannot] unfairly deny coverage for services.” (Albany Times Union, February 22, 2007.)

But any visitor to a physician’s office these days would be struck by how much of what we’re doing in our offices has nothing to do with direct patient care. We welcome the discussion of costs that the budget dispute has opened and urge you to focus on the rising percentage of all health care expenditures that all agree gets nowhere near patients and those taking care of them.

The attached graph of federal data follows percent increases from 2001 through 2005. Please note the highest increases have been for administrative and net costs of private health insurance, especially in 2002 and 2003. The line on increasing physician costs is not net, but includes rising costs for malpractice (averaging about 30-50% in the past four years, so imagine another line around 7.5 to 12.5%, well above the rise in physician services), coping with managed care, regulations, etc. Coping with insurers is increasingly demanding as they come up with weird and creative ways not to pay claims. It makes us physicians feel we have to be equally weird and creative. The experience of St. Vincent’s Hospital, for example, suggests bankruptcy as an option, as is suggested by the New York Times article, which describes the hospital’s emergence from bankruptcy as depending in part on an agreement with insurers that fewer claims would be denied. (And to think we used to imagine that a claim’s fate had something to do with the claim itself!)

The path to bankruptcy is clearer as physicians have been asked to shoulder another $10 billion in costs, as described in The Wall Street Journal of February 14, 2007: “Fights Over Health Claims Spawn a New Arms Race” (Vanessa Fuhrmans): “Doctors increasingly complain that the insurance industry uses complex, opaque claims systems to confound their efforts to get paid fairly for their work. Insurers say their systems are designed to counter unnecessary charges and help keep down soaring health-care costs. Like many tug-of-wars over the health-care money pot, the tension has spawned a booming industry of intermediaries. It’s called ‘denial management.’ Doctors, clinics and hospitals are investing in software systems costing them each hundreds of thousands of dollars to help them navigate insurers’ systems and head off denials. They’re also hiring legions of firms that dig through past claims in search of shortchanged payments and tussle with insurers over rejected charges. ‘Turn denials into dollars,’ promises one consultant’s online advertisement. The imbroglio is costing medical providers and insurers around $20 billion--about $10 billion for each side--in unnecessary administrative expenses, according to a 2004 report by the Center for Information Technology Leadership, a nonprofit health-technology research group based in Boston. The denial-management industry’s rise shows how much of medical spending is consumed by propping up and doing battle over an arcane patchwork of claims systems. Roughly 30% of physicians’ claims are denied the first time around. Sales of physician-billing and practice-management technology grew 25% to more than $7.5 billion last year, estimates Jewson Enterprises, a health information-technology research firm in Austin, Texas. Some doctors say they see insurers stepping up efforts to keep a lid on reimbursements. One increasingly popular tactic among health insurers is to hire ‘health-care claims recovery’ teams or software to dig through claims, some as old as two years, to see if the insurer overpaid and to seek redress. That’s partly because more states have been adopting ‘prompt pay’ laws that require health insurers to reimburse claims within 30 or 60 days (says United Health spokesman Tyler Mason), which sometimes doesn’t leave enough time to review them first. ‘We need to have a way to still thoroughly review whether a claim’s paid correctly or not,’ Mr. Mason says. Some insurers demand the money back. More, though, simply deduct it from future claim payments. That forces doctors to appeal the claim all over again.” Other tactics, such as demanding electronic claims submission but providing only incomplete paper feedback months later (thus disguising the recoding and repricing of the procedure), are well known and contribute to physicians’ dropping out of managed care and insurance generally. By 2004, 54% of my specialty, psychiatry, had done so. While insurers are ranking physicians, often on the basis of how little money the physician costs the insurer, those in the know tend to assume that a physician who is doing well enough not to take insurance is the higher quality physician.

Abundant evidence shows that the profit motive for insurers is an inherent conflict of interest. As I testified on December 1: “Managed care company profits increased 93% from 2001 to 2005, when they earned $1.3 billion, according to a report issued recently by AIS risk consultants. At the same time health plan profits were up soaring, payments for total hospital and medical services were up less than 15%. Not surprisingly, the AIS report also indicated that the companies’ medical loss ratios had dwindled over the same time period from 85.3% in 2001 to 81.7% in 2005. A separate analysis recently released from Health Leaders-Interstudy indicated that New York health plan medical loss ratios had decreased from 83% to 79%. During the consolidation trend they [the insurers] have moved from keeping 14.7% to keeping 21%. As the best predictor of future behavior is past behavior, we can assume that further consolidation will lead to their keeping more, increasing premiums for business and other payers even as they are reducing coverage, limiting patient access and reducing reimbursement to their providers through methods both direct and indirect.” We have no reason to doubt recent advertisements that report that insurers are reaping $5 million profits each day in New York State.

Insurers have argued they need to be for-profit in order to compete in the marketplace. As they keep more and more of each dollar that passes through their hands, one might wonder if this is the goal of the competition. Certainly there has been no price war. There is little relationship to value, as eloquently argued by Porter and Teisberg in “Redefining Health Care.” The US News and World Report rankings of health care plans included Capital District Physicians Health Plan (a not-for-profit) as the fifth best in the country, while the lowest ranked were all for-profit, so one can argue that for-profit status suggests lower quality. Thus we in New York County Medical Society recommend legislation to disallow for-profit health plans from operating in New York State. This will be the best service to our patients. Think of the amount of health services you could buy for $20 billion dollars. Think of the amount of physician time that would be available if they didn’t have to go through whatever it takes to account for $10 billion in unnecessary costs

We have also had cost setbacks on drug prices, as the latest AARP study shows: “The prices for about 200 prescription drugs commonly used by seniors in the United States rose nearly twice the rate of inflation, a seniors group said Tuesday [March 6, 2007], making a case for letting the government negotiate drug prices. Insomnia pill Ambien, made by Sanofi-Aventis, topped the list with a 30 percent rise in price in 2006...” --to say nothing of the extra costs of food and obesity if one is among those who raid the fridge while on Ambien. Buy a warehouse full of drugs and store them for a year, and you can have at least $45 million with which to buy the most expensive house in the Hamptons. Drug prices can be restrained not only by the means recommended in the governor’s budget but also by limiting advertisements directly to the general public. Of course, we favor everyone knowing all there is to know about every medication, but we don’t find advertisements doing much other than creating demand (and subsequent lawsuits, e.g., Celebrex and Vioxx). Only the United States and New Zealand allow such advertising.

Although fighting the escalating costs of managed care claims denial is heading towards disaster and there is bad news on drug prices, we can get some satisfaction that the state government is taking action on fraud, estimated to be another 10-15% of at least Medicaid expenditures. We have been eager to support these measures, especially the forge-proof prescription pads now used by all licensed prescribers in the state. We were glad to learn on March 6 that so far $200 million dollars have been saved, especially on anabolic steroids, erythropeitin, and various other substances that are abused frequently. But the proposed budget measures against fraud need to be amended to prevent insurers’ trying to resolve our legitimate billing disputes by charging us with fraud. Some complaints about physicians to the Office of Professional Medical Conduct (OPMC) have been nothing more than bullying and intimidation about billing disputes. Fortunately OPMC has investigated well and has generally stood its ground against getting involved in billing disputes. There should be more fraud legislation, but with a higher threshold for kicking off a qui tam charge, a binding review by the Attorney General, and no charges in legitimate billing disputes. We are also concerned about insurers’ using the proposed Martin Act for intimidation.

Malpractice costs contribute and should be reduced. An aggregate 15% increase in physician liability premiums was approved by the Insurance Department for the 2006-7 policy year. An orthopedic surgeon in Manhattan who paid $66,535 in 2003 pays over $95,000 in 2007, all before seeing a single patient that year. We are all caught in a layer of excess liability funded by the taxpayers. We are glad to see that funding in the governor’s budget, but would prefer to have no need for it at all. A federal study of the 28 states that have caps on pain and suffering (published in the American Journal of Public Health, August 2006) showed that total health care costs decreased 3-4% in association with the caps. We are delighted with the idea of medical courts, arbitration, a No-Fault system for claims involving neurologically impaired infants (A.3504). We also favor reforms on expert witness use, granting certificates of merit, personal asset protection, strengthening the standard of proof, reducing the threshold for periodic payments, barring frivolous lawsuits (and other measures that would aggravate the situation, such as the cap on contingency fees, lengthening the statue of limitations, etc.).

We can’t provide more care unless we retain more physicians. There are multiple ironies in that:

(1) We train more physicians than any other state, 10% of the nation’s total physician graduates. We provide about two specialty training slots for each graduate.
(2) Physicians are increasingly able to provide more care in their offices, resulting in the Berger Commission’s recommendations to reduce the oversupply of hospital beds.
(3) Yet we are losing physicians to states with fewer insurance and malpractice hassles, a situation that generally parallels the loss of businesses from the state. The overwhelming number of physicians we train in New York State don’t stay here. The Center for Work Force Studies at SUNY/Albany has documented shortages and outflow for years, especially in primary care specialties. Income in these specialties has been decreasing, making their choice by heavily indebted students less likely.

This is not an argument to train less, but to create a climate in which those we train will want to stay here. we can do this by making the changes above and by giving tax credits for medical student loan repayment and improving loan forgiveness programs, Also, we can’t make physicians feel welcome by raising the biannual registration fee by $400 and using the increased income to fund activities unrelated to physicians, such as nursing home report cards.

The good news is that none of our recommendations cost money or complicate anything. The situation is simple: insurers and drug companies are making a lot of money, physicians and some hospitals are suffering, and those who can leave easily are doing so. Determination and simplification can solve these problems and benefit all New Yorkers.