Reducing the cost of Minnesota's health care

By Charles R. Peterson, M.D., and Don Pylkkanen
Brainerd (Minn.) Dispatch, March 21, 2016

Some weeks ago a health care article in a major Minnesota newspaper reported, "This year, the average premium in the individual market is up 41 percent." The state's current total health care cost of about $50 billion is projected by a Minnesota Department of Health estimate to reach $76.5 billion in 2022. At that point it would represent 20 percent of the state economy. What can be done about this trend?

The answer is that the Affordable Care Act (Obamacare) provides an opportunity starting in 2017 for any state to improve its health care system with the law's State Innovation Waiver. Both a state agency and a privately designed proposal are in the works under the waiver.

Last September the Minnesota Department of Health and Human Services presented a plan to improve Minnesota's health system, primarily through increased use of existing and new Accountable Care Organizations. ACOs are large, physician-hospital groups voluntarily organized around cost-quality measurable benchmarks. Savings and risks are shared between payers and providers based on these performance standards.

The ACO concept was introduced about a decade ago on a premise that tightly integrated physician-hospital units with dollar-incentivized benchmarks would produce significant cost savings without compromising quality. However, multiple pilot and demonstration projects to date show that ACOs, like previous HMOs, PPOs, and other managed care systems have little, if any, effect on medical cost inflation.

A task force was legislated in 2015 with one of the major goals to explore ways "that reduce cost." However, in its January 2016 final report, only some small savings "to the State and Federal government" were reported. No actual or projected savings on the total system were reported. One recommendation proposed a study to compare a "publicly-financed, private-delivered universal health care system" with other options. The task force did not address downside risks of ACOs such as merger-monopolies or provider dissatisfaction.

The other proposal is the Minnesota Health Plan, which was developed by a number of citizen groups and legislatively introduced in March 2015 by Sen. John Marty and Rep. Carolyn Laine. This "Medicare-for-all" model has been well tested in the U.S., Canada, and elsewhere in the world. It needs no "pilot project." Physicians for a National Health Program of Minnesota, the Minnesota Nurses Association, COACT, and a number of other groups support this plan (see and

With MHP, all Minnesotans would be insured, have uninhibited choice of physicians, and would not lose coverage with job losses or changes. There would be no deductibles, and no co-pays for primary care. The plan's volume purchasing of prescription drugs would reduce prices. In this single-payer proposal, providers are paid directly for medical care, thus avoiding the intermediate overhead costs of multiple insurers. The Lewin Group, commissioned by Minnesota Growth and Justice, has independently analyzed the proposal and judged it financially sound. Compared to projected cost increases, changing to the MHP would result in a 10-year statewide savings of over $100 billion.

In our view, the MHP has much greater potential for cost reduction than the ACO plan does, and it also achieves universal coverage at no risk to quality. ACO disciplines are not excluded as they can be applied to the MHP system just as they have been to the Medicare system.

But even without these direct comparisons, faced with unsustainable cost rises, it makes little sense to ignore the fact that on a global scale, U.S. health care costs are on average 50-70 percent higher than the other 20 most advanced countries of the world. And these nations have better longevity and disease-morbidity outcomes than the U.S. does. These countries started out with a moral commitment to insure everyone, without letting some inconvenience from delay in elective procedures stand in the way of universal and economically efficient basic coverage for all.

Significant changes in our expensive health care delivery are opposed by advocates of an unproven economic philosophy that presumes health care delivery costs respond to free market forces like most businesses do. Dr. Arnold Relman, a former editor of the New England Journal of Medicine, forcefully made this point in his book, "A Second Opinion." Citing Nobel Laureate economist Kenneth Arrow, he pointed out that individual or family purchasers of health care do not shop for provider services on the basis of price. Disease is an existential threat that diminishes consumer cost concerns in favor of perceived quality. Physicians determine over 95 percent of the tests or procedures done. These plus other factors noted by Relman pressure costs upward.

On March 15, Governor Dayton's Supplemental Budget was released. In it, he recommends "funding a study to compare costs and benefits of a universal/single-payer health care system versus a free market insurance-based approach." This action follows one of the recommendations of the state task force.

Minnesotans should be informed on this issue and ask their legislators to support the governor's proposal for an objective study. The high cost of the status quo deserves serious attention.

Dr. Peterson is retired from internal medicine practice at Park Nicollet Clinic. Pylkkanen is executive director, Minnesota COACT.