Transitions and Transformations

Roy Ramthun, our friend, valued colleague, and leader in the free-market health reform movement, is leaving the administration today after three years of service at the White House and at Treasury.

Roy has been an architect of visionary health care proposals that will usher the consumer-directed health care movement into the next era, and he oversaw the speedy development of the guidelines for Health Savings Accounts.

We are sorry to see him go after three years of round-the-clock service, but we know that he will continue to lend his skills and expertise to the cause in his next venue.


One of the things that Roy worked hardest to promote was price transparency – a crucial tool for consumers in the new health care economy. And yesterday, that movement toward price transparency got a big boost: The Centers for Medicare and Medicaid Services posted a gigantic spreadsheet on what Medicare paid last year for 30 elective inpatient hospital procedures and other common hospital admissions.

The spreadsheet offers information for each state, each county in every state, and each hospital in every county for a variety of treatments they provided in 2005, including heart operations, hip and knee replacements, kidney and urinary tract operations, gallbladder surgery, and back and neck operations.

One of the first things you notice is the huge discrepancy between the national averages of what the hospitals charge and what Medicare actually pays. Medicare’s payment is generally a third or less of the hospital charges. For example, Medicare’s average payment, nationally, for a heart valve operation is $38,538, but the average hospital list price is $115,221.

There also are big price differentials when you drill down into the data. CMS lists the ranges of Medicare payments by county, but hospital-specific pricing data is not yet available. You see that the valve replacement could cost as little as $26,600 in Schenectady, NY, but more than $68,000 in Hardin County, KY.

CMS does list the number of procedures for each hospital – which is a good indicator of the hospital’s expertise and consequently of more successful outcomes. From the data Medicare has published, you may be better off at Florida Hospital in Orange County with 177 heart valve replacements last year rather than Salina Regional Health Center in Kansas, with only 11.

And this is just phase one: CMS will post payment information for ambulatory surgery centers later this summer, and for common hospital outpatient and physician services this fall.

Kudos to CMS Administrator Mark B. McClellan, M.D., Ph.D. and his team at CMS for this heroic effort.


And thanks to Mark for speaking at a meeting that we hosted with Merrill Matthews and the Council for Affordable Health Insurance on May 19 for the policy community and health reporters. Mark had fresh information on enrollment in the Part D benefit, reporting that 38 million seniors have “good secure drug coverage” as of the May 15 sign-up deadline.

He said that 90% of seniors are in plans that “are different from the government-designed” prescription drug benefit structure (which proves that Congress isn’t very good at structuring insurance plans). The Part D sign-up results showed that seniors preferred fixed-dollar co-payments to co-insurance, and they preferred plans with no deductibles and those that filled the doughnut hole.

Mark said 1-800-Medicare handled 640,000 phone calls on May 15, with an average wait time of only 13 minutes. He said that community groups around the country got very involved in helping seniors navigate – groups like 4-H clubs and honors society students who brought their laptops to help seniors enroll on-line.

The best story: “A woman decided that she should sign up for Part D even though she wasn’t taking many drugs now, but ‘you never know what you might need in the future.'” Asked how old she is, she replied, “102.” Now there’s an optimist!

Other news: “You will see HSA-like programs in Medicare next year,” Mark promised. He said that it’s important to get the infrastructure in place now so that baby-boomers, who will be used to having HSAs and other consumer-directed plans, will have this as an option as they age into Medicare.


And finally: The Journal of the Air Force Association reports that the Department of Defense has asked Congress for authority to begin a Health Savings Account pilot program for military retirees under age 65.

Stay tuned?

Grace-Marie Turner


  • Unintended consequences of caps on Medicare drug benefits
  • Consumer-directed health plans: Small but growing enrollment fueled by rising cost of health care coverage
  • Government-controlled pharmaceutical research and development: A recipe for disaster
  • Health savings accounts: Do the critics have a point?
  • Massachusetts’ health care reform plan: Too many sticks; not enough carrots
  • An updated survey of health care claims receipt and processing times

Authors: John Hsu, M.D., M.B.A., M.S.C.E., Mary Price, M.A., Jie Huang, Ph.D., Richard Brand, Ph.D., Vicki Fung, B.A., Rita Hui, Pharm.D., Bruce Fireman, M.A., Joseph P. Newhouse, Ph.D., and Joseph V. Selby, M.D., M.P.H.
Source: The New England Journal of Medicine, 06/01/06

Restricting access to medications can lead to complications that increase other health costs, according to a study in The New England Journal of Medicine. The study examines the clinical and economic outcomes of caps on drug benefits by examining the records of beneficiaries enrolled in a Medicare+Choice plan sponsored by Kaiser Permanente in northern California in 2003 that had a $1,000 cap on medications. This group was compared with a control group whose benefits were not capped. The study finds that beneficiaries whose benefits were capped had lower pharmacy costs but worse health outcomes; “benefit caps were associated with increased rates of nonelective hospitalizations, visits to the emergency department, and death?which offset much of the savings in pharmacy costs.” The authors suggest a need to “modify cost sharing for drugs that are effective in treating chronic diseases.”
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Source: U.S. Government Accountability Office, 06/06

“The rising cost of health care coverage is the primary factor contributing to the growth in employers offering and individuals enrolling in consumer-directed health plans (CDHPs),” according to a new GAO study. Factors that encourage individuals to enroll included their “desire to lower their health insurance premiums, accumulate tax-advantaged savings, and gain greater control over their health care decisions.” The most common employer contributions to HRAs in 2004 were between $500 and $750 for individuals and $1,500 to $2,000 for couples and families. For HSAs, “about two-thirds of employers made a contribution to their employees’ accounts, and the average employer HSA contribution in 2005 was $553 for single coverage and $1,185 for family coverage.” The small price differential between high-deductible and traditional plans is a deterrent to people signing up for CDHC plans. GAO reports that a national broker of health insurance said the average monthly premium for a policy with a deductible between $2,000 and $3,000 was $166, compared to $213 for non-HSA plans with deductibles under $500.
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Authors: Richard Tren and Roger Bate
Source: American Enterprise Institute, 05/22/06

A research and development treaty proposed during May’s World Health Assembly would increase state or intergovernmental control and funding of R&D for neglected diseases and diseases of poverty, but it “is likely to be unworkable and impractical,” write Richard Tren and Roger Bate of the American Enterprise Institute. The resolution “would require patent-holders to forgo some or all of their intellectual property rights internationally?[and would] require a complex bureaucracy of committees and councils to direct and ostensibly control medical R&D priorities and funding.” The authors write that there is little evidence to suggest that “greater state or intergovernmental agency control of the R&D process and limitations to intellectual property will either deliver the medicines required or respond to patients’ needs and the social costs of suffering from a disease.” A better alternative to disease control in poor countries are public-private partnerships, “which are already delivering drugs and treatments and showing promise in vaccine development.”
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Author: Michael F. Cannon
Source: Cato Institute, 05/30/06

Michael Cannon of the Cato Institute writes that, while many of the criticisms of HSAs are “unfounded,” others should not be totally dismissed. “HSAs are not a panacea, and the rules governing them make them less appealing than they could be, particularly to sick or low-income individuals,” writes Cannon. “Those rules should be relaxed with an eye to letting individual consumers control all of their health care dollars and decisions.” He recommends that Congress: 1) Allow HSAs to be paired with any type of insurance; 2) Allow employees to take the total amount of their health care benefits as cash to deposit into HSAs; and 3) Allow employees to use that money to purchase any health insurance plan that they choose.
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Author: JP Wieske
Source: Council for Affordable Health Insurance, 05/06

The Massachusetts health plan “includes numerous new mandates and does nothing to solve the problem caused by the state’s guaranteed issue and community rating laws,” writes JP Wieske of the Council for Affordable Health Insurance. “One of the reasons Massachusetts feels compelled to address the high cost of health insurance is that the state has some of the highest premiums in the country – largely as a result of its own doing.” Boston ranks as one of the most expensive cities in the nation to buy health insurance, with average premiums of $767.30 a month for a family of four. He argues that the plan has too many sticks, including individual mandates, employer mandates, and privacy invasions. And even the carrots – the Connector and subsidies for low income individuals – are not without problems. Wieske concludes that the only hope for more affordable health insurance in Massachusetts is to repeal the state’s guaranteed issue and community rating laws. “Without addressing those problems, there is little hope that the new legislation will make health insurance more affordable.”
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Source: America’s Health Insurance Plans, 05/06

“Electronic submission of health insurance claims more than tripled in the last decade, reducing administrative costs and allowing 98 percent of claims to be processed within 30 days of receipt,” according to a survey conducted by America’s Health Insurance Plans (AHIP). This update to a 2002 survey found that 75% of claims were received electronically in 2006, versus 44% in 2002. The survey also quantified the savings from electronic claims. According to AHIP, “The average cost of processing a clean electronic claim was 85 cents, nearly half the $1.58 cost of processing a clean paper claim.”
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Prescription for Progress: The Critical Path for Drug Development
Center for Medical Progress at the Manhattan Institute Conference
Thursday, June 8, 2006, 9:00 a.m. – 12:30 p.m.
Washington, DC

For additional details and registration information, go to:

Buy or Die: Market Mechanisms to Reduce the National Organ Shortage
American Enterprise Institute Event
Monday, June 12, 2006, 10:00 a.m. – 12:30 p.m.
Washington, D.C.

For additional details and registration information, go to:

360 Degree View of HRAs in Consumer Driven Healthcare
Lighthouse1 Live Webcast
Wednesday, June 21, 2006, 1:00 p.m. – 2:30 p.m. CST

For additional details and registration information, go to:

National Consumer Driven Healthcare Summit
September 13 – 15, 2006
Washington, DC

The Summit features 63 faculty members, including 12 keynote presentations from highly acclaimed national experts, and 34 concurrent sessions offered from 6 tracks. For additional details and registration information, go to:, or call 800-684-4549.

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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