Oregon health plan

As the country debates the way forward in reforming the health care sector, it is useful to remember that efforts featuring more intrusive government roles have already been attempted in a number of states. I have written about two such states, Massachusetts and Tennessee, where such initiatives have resulted in surging costs and widespread problems. Now let's take a look at Oregon, which implemented something called the Oregon Health Plan in 1993.

The logic behind the plan was that by rationing care and only paying for certain procedures -- through a formulaic system -- that the state could provide more people with coverage. Wikipedia looks at how this theory has played out in practice:

In 1994, the plan's first year of operation, nearly 120,000 new members signed up, and bad debts at Portland hospitals dropped 16%.

The plan's costs increased from $1.33 billion in 1993-1995 to $2.36 billion in 1999-2001. Significant cuts were made to the Oregon Health Plan's budget in 2003.

New enrollment in the program were closed from mid-2004 until early 2008, when a lottery-based system was introduced. Tens of thousands of Oregonians signed up, competing for 3,000 new spots in the plan.

...The Oregon Health Plan became the focus of national scrutiny in 2003, after deep budget cuts led to 100,000 people in mental health and/or substance abuse treatment losing prescription coverage under the program.

This year and last, the Oregon Health Plan stirred up controversy when enforcing 1994 guidelines to only cover comfort care, and not to cover cancer treatment such as chemotherapy, surgery and radiotherapy for patients with less than a 5% chance of survival over five years. Springfield resident Barbara Wagner said her oncologist prescribed the chemotherapy drug Tarceva for her lung cancer, but that Oregon Health Plan officials sent her a letter declining coverage for the drug, and informing her that they will only pay for palliative care and physician-assisted suicide. She appealed the denial twice, but lost both times. Tarceva drugmaker Genentech agreed to supply her the $4000-a-month drug for free. Wagner's plight garnered a flurry of attention from the media, the blogosphere,and triggered protest from religious groups. Wagner died in October 2008.

Meanwhile a 2001 paper published by the Canadian Medical Association took at look at Oregon's initiative and made some interesting observations. One of them is that rationing care is easier to carry out on paper than in reality:

Establishing an explicit limit on service coverage is much more difficult in practice than in theory. Although the Oregon legislature has drawn a line across the list of prioritized services, that line has been rather fuzzy. Put simply, many Medicaid recipients continue to receive services that are supposedly excluded by the OHP. In large part, this can be attributed to the reticence of providers when it comes to abiding by the rules.

...The OHP has not operated as the scientific vessel of rationing that it was advertised to be. Although initial rankings were based in large part on mathematical values, controversies around the list forced administrators to make political concessions and move medical services “by hand” to satisfy constituency pressures and the federal government. Analyses of the original list have shown that subjective judgements, not the initial formula, are the primary influence on service rankings.

It should be no surprise that when resources are allocated through political means, political considerations play a role. Another point raised is that the plan has largely failed in its goal of expanding coverage through reduced costs, with the expansion instead being funded through new revenue sources:

Oregon's system of priority setting through the list has not produced significant savings. Administrators estimate that during its first 5 years of operation, the list saved the state only 2% of total expenditures from the amount that it would have spent under the previous system. That the list has not produced generous savings should not come as a surprise given the relative paucity of services excluded.

...The expansion of state insurance in Oregon was not funded by rationing and savings from the list, as is commonly (and mistakenly) assumed, but by raising revenues (primarily through a cigarette tax) and moving Medicaid recipients into managed-care plans. The notion that rationing through the list would produce enough savings for Oregon to finance universal coverage has proven to be an illusion.

And then there is this bit of news that emerged last week:

Oregon state officials and care providers are agreeing on one thing: a new state computer system that handles 2 million state Health Plan payment claims each month has serious glitches.

State officials say low-income Oregonians who qualify for state-paid care are still able to see doctors and get prescriptions filled. However, care providers say the state's Medicaid Management Information System has turned into a monthslong nightmare.

...The new Medicaid billing system went online Dec. 9, after being delayed twice. Problems with the $80 million system became apparent almost immediately.

This is yet another example of an attempt to improve health care based more on government that has not achieved its stated goals. This isn't the exception, it's the rule, joining other such efforts as TennCare, efforts in Massachusetts and Medicare in its failure. As Ronald Bailey says:

Finally, the only reliable technique humanity has ever discovered for lowering the costs of products or services over time is market competition. That will be true for health care too.

Yep.