Big Pharma and Global Health


The increasing importance of the pharmaceutical industry in global health and development

Posted by Debbie Koh

Take a moment to think about the last time you bought some medication. Maybe you went to your local Duane Reade/CVS/RiteAid to pick up an over-the-counter drug. You might have debated over a brand name versus a generic, or what was covered by your insurance, but the whole process probably didn’t cause you too much anxiety. You probably don’t stop to think if your provider was able to prescribe that medication in the first place, if it was stored properly, or if those meds might even be a useless or possibly harmful counterfeit.

Now, place yourself in another setting. You know you need some medication and you walk into a pharmacy.  The shelves are pretty dusty and filled will medications, labeled and unlabeled. You describe what’s wrong to the guy behind the counter. He listens, and cuts off some tablets from a larger foil-wrapped strip. “Take these twice a day for one week,” he says. Are you thinking about some of those questions now?

For pharmaceutical companies, the developing world is an untapped market that is poised for growth. Recent developments, such as a landmark decision by India’s Supreme Court to reject a patent application for a cancer drug made by Novartis, seem to be protecting generic manufacturer’s ability to continue making low cost drugs available to this market. Other companies are trying to make their products available at competitive prices (the latest example: two name-brand HPV vaccines are now available for less than $5 per dose).

Creating a reliable pharmaceutical regulatory and distribution system hasn’t been a particularly trendy or popular priority in global health and development. But, as the focus around international aid shifts increasingly toward ownership and sustainability, it’s increasingly important to ensure that people can access high-quality, affordable medicines outside of donor-funded supply chains.

Debbie graduated from Wagner in 2010 with her MPA in Health Policy and Management, International Health. She returned to her native California in 2011 and currently works for Venture Strategies Innovations. Follow her on Twitter at @thedebkoh or connect via LinkedIn. All views expressed are her own.


Free Market Lessons from Sweden’s Single Payer System


Posted by Errol Pierre

The United States with a population of over 313 million people spends over 17% of its GDP on health expenditures while over 14% of its population lack health insurance. This has led to runaway costs, access to care issues, and in the face of recent healthcare reform efforts, worries of severe physician shortages come 2014. On the contrary, Sweden, with a much smaller, homogenous population of 9.4 million people has been able to keep health expenditures less than 10% of its GDP while covering all of its population. If efficiency of health dollars were the metric to compare health systems internationally, Sweden would lead the U.S. in this regard for the last 30 years. Despite their successes, like all developed nations, Sweden faced threats of increasing costs in the 1990’s due to an economic downturn. Additionally, Sweden also saw an aging population with a longer life expectancy from advancements in technology and modern medicine. When healthcare is government run it inevitably will succumb to rationing when tax dollars are scare. However, Sweden has been able to achieve sustainable results through policy and market reforms focused on (1) the decentralization of healthcare management, (2) cost containment measures, and (3) physician and hospital competition.

Decentralization of Healthcare Management

While Sweden is a model for a single payer system, many of their reforms can be applicable to the United Stated. In Sweden the Health and Sickness Care Law of 1982 decentralized the Swedish government’s control of healthcare to keep it “accessible, efficient, and equitable.”  Counties within the country were given more autonomy to set up boards and administer health services. In turn, many of the national rules dissolved. This decentralization gave more power for regional decisions within the counties of Sweden. This is unlike America where the answer to the uninsured population in its most recent healthcare reform efforts was to use the national approach of health exchanges and essential health benefits rather than delegating the particular solutions to individual states and localities. For example the Department of Health & Human Services mandated that every state have a health benefit exchange by 2014 or the Federal government would create one within the state.

Lesson Learned: Place the burden of the uninsured into the hands of local governments to formulate strategies to address the issues that are sensitive to the local values.

For example, in the U.S. one third of the uninsured find insurance within 6 months. In Sweden, many counties pay for insurance costs for citizens up to 6 months until they find a new job. This would eliminate 15 million of the 45 million uninsured. Additionally, 50% of the uninsured work part-time. A U.S. state resolution would be a sickness fund (similar to Medicaid) that caters to individuals that work less than 40 hours a week with multiple employers, which would lower the uninsured rates to ~20 million. Lastly, 43% of the uninsured are located in only 4 states (New York, Florida, Texas and California). A focus on local initiatives to answer a national problem similar to Sweden could have potentially been a better use of resources and national funds than a Federal law impacting all 50 states.

Cost Containment

In 1984, with the passage of the Dagmar Reform of 1984, national revenues were divvied up and doled out to counties as block grants based on population size. As a result, private providers could no longer directly bill the national healthcare system for medical services rendered. This is very similar to how physicians who treat Medicare enrollees operate today. From 1984 to 1985 the count of practicing physicians went from well over 5,000 to just over 2,000 greatly controlling costs. Block grants also declined the percentage of GDP in Sweden spent on health expenditures. Sweden is one of the few countries that have been able to lower the percentage of health expenditures.

Additionally, as the economy worsened in the early 1990’s, the Swedish government froze taxes from 1991 until 1994. During this time 22% of the country’s beds for acute bed care were eliminated. Also self referrals received a higher copayment. This is very different in the U.S. where economic downturns cause private insurance enrollment decreases due to cost containments that occur in the private sector. However, since all health care cost controls are not vested in local state government, public spending and public health expenditures balloon during such times. For example, Medicaid spending increased by one third from 2000 to 2003 during the U.S. economic down turn. It grew by 10% between 2010 and 2011 representing 25% of all expenditures for states. U.S. healthcare reform efforts plan to reduce Medicare and Medicaid by 500 billion respectively which is likely to get caught up in the same political stalemate as the Medicare “doc-fix” since these decisions have not been decentralized and delegated to local governments. Since Sweden represents close to 80% of all health expenditures compared to less than 50% in the U.S., they are more sensitive to cost containment measures which lead to quicker reaction and better results.

The Federal government in the U.S. has continued to push off a fix to Medicare reimbursement reductions due to lobbying from physicians and trade groups. If these decisions were made at a local level to handle local concerns, States would have the ability to better control costs. Additionally, 50% of the Medicaid spend is handled by the states. This allows the states conversely to only handle 50% of the costs.

Lesson Learned: Medicare and Medicaid should be handled purely at the state levels since many states have balance budget amendments, cannot run deficits, and it is very costly for states to borrow funds.

Lastly, in 2002, Sweden introduced reference pricing and generic substitution for pharmacy coverage. This meant that when a drug was purchased, the health system would pick up 110% of the lowest priced drug. If a brand name drug was requested over a generic, the consumer would be responsible for the difference. From 2002 through 2005 Sweden realized $7 billion in savings which was close to 10% of total drug spend.

Lesson Learned: Adopt reference pricing and generic substitution in both Medicare and Medicaid programs across the U.S. to sharply cut pharmacy growth rates.

Physician & Hospital Controls

The United States is quickly facing a physician shortage when 20 million or more Americans will enter the insurance market in 2014 through Health Benefit Exchanges. In 1993 Sweden passed a law called The Point of Service Primary Care Reform which answered concerns of primary care shortages. The law made counties responsible for making sure every Swede had access to primary care. Additionally, it capped the amount of specialty training that occurred outside general medicine. It set ceilings and floors for the amount of patients treated by a single practice (1-3k patients per year). It provided credits and loan forgiveness to primary care doctors who started a new practice. And finally, the law allowed pay for performance measures that reduced the reimbursement to physicians who underperformed. Such controls including other initiatives has led to the use of electronic medical records for 94% of Swedish primary care physicians as compared to only 45% in the U.S. Additionally, 49% of Swedish physician practices have the capacity for advanced electronic health information compared to only 26% in the U.S. Lastly, 54% of Swedish practices will see patients after hours as compared to 29% in the U.S.

Lesson Learned: Strong controls on physicians at the local government level can greatly eliminate the potential of primary care shortages and improve the quality of care.

Conclusion

There are feasible lessons to be learned from recent healthcare reforms in Sweden particularly in the areas of decentralization, cost containment, and physician controls. In particular there are four lessons to be learned that are viable in the U.S. despite the current political climate and threat of the unconstitutionality of the Patient Protection and Affordable Care Act. Lesson 1: decentralize the burden of the uninsured to the individual states. Lesson 2: Allow individual states to budget for health care through block grants. Lesson 3: adopt reference pricing and generic alternative scripting. Lesson 4: place strong controls on physicians to eliminate shortages and increase access to care.

Despite America’s strong dislike for government run healthcare, roughly 40% of the population (125M Americans) is enrolled in a federally facilitated health program. Specifically there are 44M Medicare recipients, 62M Medicaid recipients, 10M Tricare recipients (health insurance for the U.S. military) , and 8M Federal Employee Health Benefit recipients. Sweden has been able to use free market principles within a government run system to manage care and cost. And yes, with any balance between quantity and quality, rationing of care does exist. But in a free market, when does rationing based on supply and demand not exist outside of anomalies like luxury and inferior goods?


The Role of Mergers and Aquisitions in the Not-For-Profit Healthcare Sector: Part I


Posted by Joel Wittman

Part I – What to consider when evaluating the sale of a not-for-profit organization

Nonprofit health care organizations are faced with a conundrum.  Is entering the world of mergers and acquisitions (M&A) on either, or both, the sell and/or buy sides, a strategy to be undertaken by nonprofit healthcare organizations in response to the changing healthcare landscape?

In March of this year, Moody’s Investor Service predicted increased M&A activity in the nonprofit healthcare arena.  They cited as reasons for this increase decreased Medicare reimbursements, changes to state funding schemes for Medicaid, and a reform environment that urges increased efficiency and care coordination.  As a reaction to these compelling reasons, and in an effort to continue providing care to its constituent communities, some nonprofit providers are being forced to consider merging with another organization or putting the organization up for sale.  This is a very complex and emotional issue facing the Boards of nonprofit providers.  Sink or swim?  Don’t sell or sell?  How to evaluate the options?

Nonprofit providers historically have played a large role in healthcare as a traditional care provider; their work with the surrounding community and their focus on their nonprofit missions not only embeds them in a community, but often limits the creative thinking that might allow the expansion and extension of the mission. However, in today’s healthcare environment, it is imperative that board members of nonprofit provider organizations evaluate all of the options available to them.  Nonprofit Boards of Directors typically do not have vast experience working on the M&A process and, therefore, have struggled to identify issues and considerations when evaluating their strategic options, including selling the organization.  This lack of experience makes it necessary for the organization to conduct a thorough analysis, including the option of its sale.

Easier said than done.  What should the Boards and management consider as they begin their strategic review.  The following may be an appropriate way to begin

Sustainability of the Mission

With the deterioration of the reimbursement environment and decreasing margins, nonprofit boards are being forced to consider the sustainability of the organization.  First, a Board has to evaluate what strategies it could pursue that will better position the organization for survival in the post-reform environment

A key component of this evaluation is the organization’s ability to access capital. One of the greatest challenges reported by nonprofit healthcare organizations is obtaining necessary funding or financing to upgrade facilities and equipment. Boards are often reluctant to use reserve funds to invest in innovation or changes in strategy. Many Boards view reserve funds as their mission’s backstop. The critical decision point is whether the use of funds will truly sustain the mission or just provide a temporary fix to a fatal decline.

Ultimately, a Board may come to the conclusion that its long-term mission is at risk and decide it is better to sell the company and use current cash reserves and proceeds from the sale to alter or extend the mission. Evaluating this issue is a complex process, requiring a deep understanding of trends in the industry combined with a thorough analysis of an organization’s strategic options.

Impact on the Mission

After wrestling with the question of whether their organization is sustainable, the top concern for nonprofit Boards when they think about selling is how the transaction will ultimately affect the organization’s mission.

Although Boards will examine multiple variables in the acquisition process, the impact on mission is critical – it is the Board’s ultimate fiduciary responsibility. Boards need to consider the potential positive impact on the community if they sell to another provider and use the proceeds of the sale and current cash reserves to expand, extend or alter the mission.

Some Boards find that the community can still receive high quality care from another provider, and the use of proceeds from a sale can allow the organization to serve more community members in need in other ways. This is especially so for those providers faced with declining margins who might struggle to survive as the environment worsens. Such a scenario requires board members to consider how flexible the organization’s mission is, how open to adjustment it might be, and how any changes to its mission would affect its ability to serve the surrounding community.

Impact on Community/Stakeholders

Consideration of stakeholder impact goes along with thinking critically about how an acquisition will affect an organization’s mission. Any nonprofit Board thinking about selling to a for-profit company should think carefully about how a potential sale might affect all of the various stakeholders – patients, staff, surrounding community members, donors and volunteers.

How a Board begins the search for a buyer can be a delicate matter. Any advisors the Board retains should be well-versed in not only finding the right buyers, but in finding them in a way that is respectful of its role in the community.

Many stakeholder groups make negative assumptions about the effects of the purchase of a nonprofit organization by a for-profit entity, even though research suggests that such assumptions are not valid. Careful consideration and planning can ensure that all stakeholders are on board with a potential sale and the benefits it can bring to an organization and the community it serves.

Impact on Quality and Service Lines When Considering Selling to a For-Profit

A common concern by nonprofit Boards when considering selling the organization – particularly to a for-profit – is that they could experience a drop in quality of care.  Research shows that this is false – in many cases, providers maintain the same level of care or experience an increase in quality.

Board members should think about dedication to quality in examining potential buyers, as well as how an acquisition might affect service lines and community benefit. Most nonprofit providers offer services that are less lucrative or even unprofitable, usually as part of their stated missions or in service to the surrounding community. Board members should ask themselves whether they would be willing to see a change in service mix after an acquisition and how that might affect the organization and the community overall.

The Congressional Budget Office (CBO) has reported virtually no change in the amount of charity care provided before and after an acquisition of a nonprofit provider by a for-profit company. In fact, nonprofit Boards should consider the possibility that the right buyer could find ways to meet their mission profitably and efficiently. CBO analysts have cited studies showing that for-profit providers tend to be more efficient and cost-effective than nonprofit providers, adeptly changing their mix of services to respond to reimbursement patterns and aggressively coding to increase reimbursement.

No one ever said it was going to be easy.  This is the responsibility that Boards members have agreed to assume when consenting to serve on the Boards of Directors of nonprofit healthcare organizations.  Mission vs. Margin (profit, that is).  Are they mutually exclusive?  Can the differences be reconciled?

Next month I will write about issues to consider when a nonprofit organization is the acquirer.

 

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry.  He can be reached at joel.wittman@verizon.net.


What Will SCOTUS* Do?


Posted by Joel Wittman

After three days of hearing oral arguments on the legality of all, or parts, of the Patient Protection and Affordable Care Act (ACA), the Supreme Court is hopeful of rendering its decision in June.  Based on what we’ve heard so far, it doesn’t bode well for the ACA.  The primary issue of contention is the inclusion of an “insurance mandate” whereby citizens are required to purchase health insurance or pay a penalty.  The mandate seems to be the linchpin of the reform act; without this requirement will insurance premiums skyrocket and will access to health insurance be limited?  This also raises the question of severability.  If the mandate is struck down, will the entire ACA also be invalidated or can parts of it survive?  Will the law’s popular “guarantee issue” and “community rating” provisions survive without the mandate that virtually all Americans must have health insurance?  Guarantee issue prevents insurers from discriminating against people with pre-existing conditions and community rating standardizes insurance premiums for those living in the same area.  The states that have attempted to enact guarantee issue and community rating systems without instituting mandates saw their health reforms fail – insurance premiums skyrocketed, consumers had fewer choices and the number of uninsured went up.

So, what is the insurance industry to do?  Insurers must prepare for a worst-case scenario – a ruling that the individual mandate is unconstitutional, but insurers still must provide policies for all people.  In that situation, insurers say premiums will rise sharply because of people with chronic illnesses and pre-existing conditions, for example, would buy health coverage, but healthy people would not.  Short of persuading Congress to write a new law, the insurers are considering certain contingencies including:

– Penalizing those who enroll outside of short annual windows

– Denying treatment for specific conditions, especially right after a policy is purchased

– Rewarding certain insurance buyers, such as offering much lower premiums for younger and healthier people

– Expanding employers’ role in automatically enrolling employees for health insurance

– Urging credit- rating firms to use health insurance status as a factor in determining individuals’ credit ratings.

There remains, however, a divided opinion about the exclusion or inclusion of the individual mandate in the health reform act.  Some believe that its exclusion will cripple the ACA and all of its proposed benefits, while others contend that the penalty associated with the mandate is not onerous enough to deter individuals from not purchasing health insurance.

Things are never as simple as they seem to be.  The good intention of the current administration to increase access to health insurance coverage for all individuals at affordable pricing may not be good enough to preserve the goals of the ACA.  Do you throw out the baby with the bath water if the entire plan is deemed unconstitutional?  Do you preserve part of plan and try to make the best of the remaining regulations?  Or, do you leave the ACA as is and have the first meaningful health care reform since the Great Society?  Only SCOTUS can let us know.

* Supreme Court of the United States

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.


Building an Exchange Strategy Part II – Understanding Your Political Climate


Posted By  Errol Pierre

By 2014 there will potentially be a health benefit exchange in every state across the country. Like snowflakes no exchange will be alike and politics will play a pivotal role in the differences found between them. While the healthcare reform bill signed into law requires the establishment of exchanges, the details of operation have yet to be determined. In fact, in March 2012, the Department of Health and Human Services (HHS) provided 600 pages of additional guidance to the states. The guidance given was more of a framework while much of the particulars were purposefully left out. This has made the role of the individual State Governors ever important. They are now in a position of power and play a very integral role in bringing exchanges from a theoretical policy concept to a legislative and operational reality.

Right or Left
At a high level, left leaning blue states will design their exchange to be an active purchaser. This will allow the Governor to take an active role in the day to day exchange operations. Under the direction of an exchange board, most likely selected by the Governor, these states would choose precisely which insurance companies participate, the types of policies sold, the rates of the selected products, and how enrollment and eligibility of those enrolled would work. In some more aggressive instances, states could even negotiate pricings with doctors, hospitals and pharmaceutical companies in the very same ways insurance companies do today in the private sector. This is obviously foreign territory to many of the states pursuing such a model. Nonetheless, proponents of the model see value in such an approach believing more oversight will lead to more affordability and better health outcomes in the long run.

Right leaning red states on the other hand will opt for a facilitator model. The state will merely be a marketplace for health benefit transactions between consumers and insurance companies to occur. They will set the high level guidelines and guardrails and merely outline the rules of engagement. Much of the market dynamics will be left up to private insurance and market forces to sort out. Benefit design, rate approval, distribution strategy, the “off-exchange” marketplace, and pricing will all be left up to “the invisible hand” of Adam Smith’s market forces. The idea of competition lowering healthcare costs has been refuted by the likes of many including Alain Enthoven – the father of managed competition – and Kenneth Arrow – the pioneer in research on asymmetric information as a market failure in healthcare. Nonetheless, American capitalism seems to have trumped over such doubts in these states. As a result, the role of government in these exchanges will be as minimal as the healthcare reform legislation will allow. There are already mandates that must be in place for each exchange. For example there must be four benefit categories ranked by actuarial values labeled bronze, silver, gold, and platinum for simplicity. The legislation also caps insurance company profit at 20% before operating costs are factored in. Lastly, the legislation requires health insurance companies to accept all enrollees and requires that the ratio between the pricing of the healthiest and the sickest consumer not exceed a 3 to 1 ratio. All in all, governors of these red states feel too much regulation stifles competition and the reform bill already has enough rules. As such, they are reluctant to add any further requirements on top of the federal ones. In this role the state will play referee rather than player/coach.

Politics at Play
State by state, there will be different shades of blue as states consider the ramifications of building a health benefit exchange. Health insurers must be prepared to understand how these different shades will impact the development of health policy. Vermont, for example, will be one of those very bold blue states. On May 26, 2011, Governor Peter Shumlin signed into law a historic universal healthcare bill which would cover every citizen in the state under a single payer system called Green Mountain Care. It will be in place by 2017 and the state has been drawing down federal funds from the national health reform bill as it prepares.

Like blue states, there too will be shades of red. Arkansas is a perfect example of a bright red state. Legislative opposition to a state run exchange was so great, Jay Bradford, the State Insurance Commissioner, had to  start preparing for a federally run exchange. By law, when a state cannot come up with its own legislation to run an exchange, the federal government is required to step in and set one up. Ironically, legislators that are so vehemently against Obama’s healthcare reform legislation will end up with a federally run exchange led behind Kathleen Sebelius, the current Secretary of Health and Human Services and former democratic Governor of Kansas.

Understanding the political environment of your state of operation is paramount to assessing the viability of a successful exchange strategy for a private insurance company. An active purchaser model lends itself to be a market where the constraints may be too great to be successful and sustainable. If the market is too controlled, healthcare coverage quickly becomes a commodity and erodes the levers of differentiation used to be competitive. Health insurance companies could come to the conclusion that participating in such a state will not be viable and opt to stay on the sidelines. However, the state would technically have the right to mandate (either directly or indirectly) insurance company participation, which could turn the state into a defacto-single payer.

On the other hand, a facilitator model lends itself to be the more favorable for an insurance company to operate within. However, a state that has done everything to obstruct healthcare reform progress like Arkansas is just as dangerous. It most likely will end up with a federally run exchange which could potentially be more burdensome than a facilitated one a red state would have had the option to create.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu

 


The Curious Case of Kansas


Posted by Errol Pierre

On April 28, 2009, Kathleen Sebelius joined the Obama Administration as the Secretary of the Department of Health and Human Services (HHS). It was one month and five days after the President signed his landmark healthcare legislation into law. Sebelius’ primary task would be to lead the massive implementation effort of a very complex bill with multiple phased in milestones that run through 2018. Throughout her first two and half years she has been vocal about her commitment to transparency and affordability for the American healthcare consumer. She is no stranger to the underlying issues in our system. In fact her dealings with healthcare started in America’s heartland way before this cabinet appointment. It started in Kansas; the Sunshine state. Ironically, the same state where President Obama’s mother grew up.

There’s No Place like Home

After receiving a Masters in Public Administration from the University of Kansas, Sebelius moved to Kansas and pursued politics. This led her to an eight year stint as the state’s Insurance Commission from 1995 to 2003. It was historic for Kansas. Sebelius was the first woman to ever hold the post. She was later profiled as a public official of the year in 2001 noted for her balance between tough regulations and her promotion of business. In full manifestation of her principles, she publically battled healthcare giant, BlueCross BlueShield of Kansas. She successfully blocked the sale of the company to an even larger out of state insurance conglomerate noting her determination to keep healthcare costs low for Kansans. The move was unprecedented and proved to be very timely. It happened one year before the Kansas gubernatorial election of 2002. Sebelius would win that election handedly with 53% of the vote.
Despite her victory, she was a Democrat governing in a bright red Republican state. Nonetheless she reached across the aisle and signed several bipartisan healthcare reform bills in her first two terms. Her work increased the number of health professionals in underserved areas, expanded health coverage for children, and relaxed Medicaid eligibility rules covering more Kansan families. She also established the Kansas Business Health Policy Committee which found ways to the lower the number of the uninsured and increase the number of businesses that offered health benefits to their employees. The committee’s most important work however was the creation of a program that provided health premium assistance to low and modest waged employees ensuring affordability.

We’re not in Kansas Anymore

The Governor’s work on healthcare quickly caught national attention. She also publically supported Obama’s healthcare legislation prior to her cabinet post noting benefits the bill would have on her state. 13% of Kansas lacked health coverage but she believed those 360,000 Kansans could be covered through Obama’s bill. So it made perfect sense for Obama to have Sebelius continue her work on healthcare but on a much larger stage. Rather than worrying about the coverage of 2.8 million Kansans, as head of HHS, she now worried about 49 of the 308 million Americans that lacked insurance and the 40 or so insurance companies across the country she now had the power to regulate.
Sebelius brought along her expertise. Kansas had the prelude to health exchanges – the staple of the healthcare reform legislation. Health exchanges create a marketplace where individuals and small businesses can shop for coverage similar to the way they purchase airplane tickets from online websites. Subsides are also made available through these exchanges to anyone who cannot afford coverage. Exchanges must be in place by 2014 and will be equipped with navigators and a toll-free support line to assist with enrollment questions. HHS recently launched a 50 state version of such a website on November 21st (www.HealthCare.gov). As a former Governor, Sebelius realized that execution of exchanges would be a huge undertaking for the states though. So to nudge tem along, her office provided grants to states that act early. More than $241 million was awarded to seven states that were called early innovators. Secretary Sebelius’ own home state of Kansas was one such recipient; winning a $31.5 million grant

Ding-Dong Reform is Dead

After Sebelius’ departure from Kansas though, things quickly began to change. Her successor, Mark Parkinson, indicated he would not run in 2010. Sam Brownback, a Kansas household name, won the election convincingly with 63% of the vote. As a Republican Senator for Kansas prior to winning, Brownback was one of the strongest challengers to federal healthcare reform not only voting against the bill but calling for its repeal.  One of his first acts as Governor was a very public and symbolic gesture. He returned the $31.5 million grant Kansas received from Sebelius’ office prior to his election.  It was a politicized move that reiterated his firm belief that healthcare reform placed a heavy financial burden on states just like Kansas. The reasons are surprising.

Mandates Are Costly - Kansas already requires thirty seven different health benefits be added to every health plan sold in the state regardless if the consumer wants it or will use it. Mandates like the coverage for Alzheimer’s disease regardless of a person’s age, or the coverage of child annual check up’s for policy holders without children, increase the cost of healthcare for everyone. Additionally, in 2014 when exchanges are implemented; Kansas will not receive federal funds for any mandated benefits that exceed the federal ones. This could potentially be a budget crisis for Kansas if not managed properly. Brownback would prefer to have consumers build their own health plans allowing the free market to dictate what sells and what does not.

Subsidies Shift Costs to the States – Brownback also fears that exchange subsidies will spur employer ‘dumping’. There are about 70,000 businesses in Kansas but the healthcare reform law only requires that roughly 7,800 of them offer health coverage because they are considered large employer. The remaining smaller employers representing close to half a million Kansas workers will not have to offer coverage even though their employees will face financial penalties if they are uninsured. Since these employees will receive lower prices through exchanges, the incentive for small employers to offer insurance in the state will naturally decline, a worry for the Governor. Kansas already has one of the lowest unemployment rates in the nation at 6.2%. Yet the uninsured rate in the state is more than double that.  Kansans are already working for employers that do not offer insurance and exchanges have the potential to widen that gap.

As a result of these issues, Brownback has yet to introduce a health exchange bill for his state; but he’s not alone. Only 14 states currently have legislation passed. However inaction by a state could prove to be costly. Kansas runs the risk of defaulting to federally facilitated exchange which would essentially give power to Sebelius to create an exchange in his state. Brownback acknowledges this ironic twist of events in a letter sent to Sebelius’ office with signatures from 19 other governors stating that unless he receives complete flexibility in handling healthcare reform, he vows to not to act at all.
Brownback has even questioned whether the healthcare bill infringes on the rights of the people of Kansas. In another letter signed by 27 other governors, Brownback strongly requested President Obama to speed up the ruling from the Supreme Court on the constitutionality of the healthcare reform law. The court is due to make its ruling by next summer, but in the meantime the Governor has has taken matters into his own hands. On May 26, 2011, he signed bill HB 2182 into law. The bill created the Kansas Health Care Freedom Act which sets out to protect the rights of Kansas citizens to either participate (or not participate) in any healthcare system freely. It is clearly a preemptive move attempting to block the portion of the healthcare reform law that would require citizens of his state to purchase health coverage from a private insurance company.  Despite all these actions, Kansas has made some progress with regard to healthcare reform. A sanctioned work group of leaders from government and the private sector discuss the implementation of several provisions of the reform bill monthly.  Their work thus far can be view at http://www.ksinsurance.org/consumers/healthreform/hcr.htm.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu