An Open Letter to the Washington Post Fact Checker

Aug. 29, 2018

Please retract and correct two recent Fact Checker articles that have disseminated misleading information: Democratic spin on Medicare-for-all is too good to be true and Democrats seize on cherry-picked claim that ‘Medicare-for-all’ would save $2 trillion, both by Glenn Kessler.

The mistake that requires correction:

The fact checker has endorsed a deceptive and misleading statement that the Sanders’ Medicare for All plan cuts providers’ pay 40%, when in truth Sanders’ plan is likely to maintain and possibly increase provider net income. The Fact Checker’s authority has helped create the deceptive meme, “Sanders’ plan cuts provider pay 40%.”

The Fact Checker has an obligation to report that in spite of the 40% reduction in some insurance payments, the Sanders’ plan would be very close to maintaining and quite possibly increasing provider net income. In addition, he should explain that Blahous’ ratio of insurance payments to Medicare payments that led to the 40% statistic deceives readers and will always make single payer look bad, even when it increases provider income. This ratio is invalid, misleading, and should not be used as a measure of impact on providers.

Charles Blahous, from the Koch brothers-funded Mercatus Center, published a paper, which found that Sen. Sanders’ Medicare for All (M4A) plan would save the U.S. $2 trillion over 10 years. The Fact Checker gave Sen. Sanders and the Democrats—who thanked the Koch brothers for the study—three Pinocchios for not also saying that the $2 trillion in savings occurs if and only if providers are paid roughly 40 percent less than they are now. The fact checker decided that the Sanders’ plan, as written, was “unrealistic.”

Summary of the analysis of provider net income:

The problem is that Charles Blauhous, the Mercatus study’s author, created and used a misleading statistic that makes all universal health care proposals look ridiculously unrealistic. Using Blahous’s data and the calculations shown in the Explanation of the Statistics section below, it follows that:

  • Sen. Sanders’ plan as analyzed by Blahous would pay providers 89% of the 2014 cost of care.
  • Blahous only discussed payments to providers that would decrease and omitted discussion of payments that would increase. He should have included that the Sanders’ plan would increase provider payments by eliminating uncompensated care, which the American Hospital Association (AHA) reports is 4.5% of providers’ expenses[1].
  • Blahous omitted the administrative savings in providers’ offices that would come from simplifying billing and collections into one system. As one of the largest sources of savings in a single payer system, this should have been included. Using Blahous’ methodology and including these savings at 12.5% of cost would lower provider expenses enough to result in a 7% operating margin[2]. This is an increase over the 6% 2014 operating margin reported by the AHA[3].
  • In this scenario that includes the important omitted data, Sanders’ plan increases provider net income. It would also still be true that providers would receive 40% less from health insurance companies than they do now, and the U.S. would still save more than the $2 trillion over 10 years that Blahous reported.
  • The 40% reduction in payments is such a deceptive statistic that it can, as it did in the Mercatus study, make a good health care plan look ridiculously unrealistic. This statistic is not a valid indicator of provider income. It serves to deceive.
  • Instead of Sen. Sanders’ plan being unrealistic, the opposite is true. Even if the potential 12.5% administrative savings in the providers’ offices is not fully achieved, the plan would come close to maintaining provider net income, and if it is achieved, the plan would increase provider net income. The plan, as written, is realistic.
  • The Fact Checker accepted the deceptive statistic as a valid measure of feasibility. He concluded that Sen. Sanders’ Medicare-for-All (M4A) was unrealistic and could not be considered as written, thereby endorsing a deception. The deceivers, Blahous and the Mercatus Center, were treated like truth tellers.
  • The Fact Checker gave the Democrats and Sen. Sanders three Pinocchios because they would not repeat the deceptive statistic. As single payer proponents know, the opposition throws many misleading statistics at single payer proposals, and of course, they would not repeat the deception. However the Fact Checker classified truth tellers as liars.
  • Partially due to the WP’s Fact Checker’s acceptance of the deceptive statement, many publications have also emphasized the deceptive statement. In fact, it is becoming a meme that “Sen. Sanders’ Medicare for all will cut provider payments 40%.”

Analysis of provider net income

The data that Blahous used to compare provider payments came from the 2014 annual survey of the American Hospital Association (AHA). Blahous generalized the hospital payments to all providers, and in most of his paper he used the term “provider” rather than “hospital provider.” The data used in my analysis is also taken from the 2014 AHA survey and also used Blahous’s assumption that it can be generalized to all providers.

Blahous conservatively analyzed administrative savings by comparing the cost of administration in Medicare compared to insurance payment systems. He omitted, however, the administrative savings on the provider side: This expense reduction is one of the largest savings in a single payer system, and it should not have been omitted. U.S. hospital administrative costs are far greater than other countries and account for 25.3% of expenses. The countries that have a single payer system comparable to M4A, Scotland and Canada have 12% administrative expense in their hospitals[4]. These figures indicate that the administrative expense savings in hospitals have the potential to be lowered as much as 13%. For the purpose of this example, it is assumed that provider administrative expense savings will be near their potential at 12.5%.

In the Sanders’ plan, providers would lower expenses 17% — 4.5% due to being relieved of uncompensated care expenses and having a 12.5% administrative expense reduction. With the 17% expense reduction, cost of care in Sanders’ plan would be adjusted to 83% of the 2014 cost of care. In the Sanders’ bill, providers would be paid at the 2014 Medicare rates, 89% of the 2014 cost of care. The relationship between income (89%) and the adjusted cost of care (83%) in Sanders’ M4A is 89/83 or 107%. After the Blahous paper is corrected for omissions, Sanders’ M4A covers all of the cost of care and leaves a 7% operating margin, which is an increase over the 6% 2014 average hospital operating budget reported by the AHA[5].

How can it be that in the Sanders’ plan providers receive almost 40% less from their current insurance patients and still have an increase in net income? The reason is that in the current, insurance payments are 144% of costs. These high payments are not for better quality of care because there is only one standard of care. Approximately one-third of patients have insurance, and they must pay enough to cover the expenses of others who do not pay their share of the cost of care. If the system is changed to single payer, uncompensated care expenses are eliminated and administrative expenses can be greatly reduced, which lowers the cost of care enough so that Medicare payments would be more than the new cost of care and could raise net income.

From one point of view, people with insurance pay a lot more in order to cover people who cannot pay and to support the complicated administrative costs that are necessary for a multi-payer system. People with insurance would benefit from no longer having to carry these financial burdens.

The Deceptive Mercatus Statistic

Because the deception that results from this statistic is so powerful, I have given it the name: The Deceptive Mercatus Statistic.

Definition: The statistic that is the result of comparing single payer payment rates and current insurance payment rates, citing that single payer rates are X% lower than insurance rates. The statistic will always make it appear that single payer will drastically lower provider income, even when the system increases provider income. It also creates the impression that a good system would have no difference in payment rates, a situation that in this example would give providers a 36% increase in gross income[6].

The Mercatus Center is heavily funded by the Koch brothers[7], and Charles Koch sits on the board[8]. He is an outspoken opponent of single payer. It is concerning that a well-funded organization opposed to single payer has stumbled onto a meme that convincingly deceives people that M4A would be outrageously harmful to providers, and the Fact Checker gave this deception its stamp of approval.

Recommended corrective actions

Kessler made a minor correction in his article. However, the articles are still live. Action is needed to address the damage done.

Single payer universal health care is constantly attacked by opponents who want to make it seem unreasonable and too expensive. Single payer advocates often ignore the distortions in order to not give credibility to them. It has been a wise and honest choice for Sen. Sanders and the Democrats to avoid repeating the Deceptive Mercatus Statistic.

The WP Fact Checker would partially repair the damage by doing the following:

  • Publish a correction that includes an explanation of why the Deceptive Mercatus Statistic is an invalid measure of how a universal health care proposal affects providers’ incomes and that the impact on providers’ income should focus on net income after the single payer saving are included.
  • Publish a correction that explains that the Sanders’ proposal is in the reasonable ballpark, and that if factors that should have been included were included, Blahous’ paper would have shown that the Sanders’ plan would increase provider income.
  • Based on this explanation, remove the Pinocchios that have been given to the Democrats and Sen. Sanders for refusing to include the Deceptive Mercatus Statistic when citing the $2 trillion savings found in the Mercatus paper.
  • Blahous wrote a misleading and biased analysis, which introduced and emphasized the Deceptive Mercatus Statistic, did not credit M4A for eliminating uncompensated care expense, and did not include administrative savings in providers’ offices. Blahous has misled the American people (and the Fact Checker) to believe that the Sanders’ plan will have a devastating impact on provider income and dismissed it as unreasonable. I suggest these are good reasons for assigning four Pinocchios to Blahous and the Mercatus Center. By making the correction, and awarding the Pinocchios to the them, the WP will help Americans have valid information for discussions about how to provide health care for all Americans.

If the WP Fact Checker takes these steps to correct the deception, it will go a long way in restoring the readers’ confidence in the Fact Checker as an honest and competent broker of the truth. Many of us, including myself, would like to trust the Fact Checker again.

Thank you for your attention in this important matter.

Ivan J. Miller, Ph.D., Executive Director
Colorado Foundation for Universal Health Care

  1. American Hospital Association. (2018) TrendWatch Chartbook –– Chapter 4.5, Chart 4.5: Distribution of Hospital Cost by Payer Type, 1980, 2000, and 2016. The 2014 uncompensated care expense was extrapolated from the 2000 and 2016 data resulting in 4.4% rounded to 4.5%. https://www.aha.org/system/files/2018-05/2018-chartbook-chart-4-5.pdf
  2. American Hospital Association. (2018) TrendWatch Chartbook –– Chapter 4, table 4.1, Operating margin is calculated as the difference between total net revenue and total expenses and expressed as a percent of the cost of care. The revenue for this example is 89% of 2014 cost of care and the expenses are 84% of 2014 cost of care. The calculation 89/84 = 1.07, or 107%. Thus the margin is 7%. https://www.aha.org/system/files/2018-06/2018-AHA-Trendwatch-Chartbook-Appendices.pdf
  3. American Hospital Association. (2018) TrendWatch Chartbook –– Supplemental Data, table 4.1: Aggregate Total Hospital and Operating Margins, A30. https://www.aha.org/system/files/2018-06/2018-AHA-Trendwatch-Chartbook-Appendices.pdf.
  4. Himmelstein, D., Miraya, J., Busse, R, Chevreau K., Geissler, A., Juerissen,P., Thompson, W., Vinet, M.A., & Woolhandler, S. (2014) A comparison of hospital administrative costs in eight nations: U.S. cost exceeded all by far. Health Affairs, 33:9.
  5. Op cit. American Hospital Association. Table 4.1 indicates that in 2014, hospitals had an average operating margin of 6/4%, which is rounded to 6%. https://www.aha.org/system/files/2018-05/2018-chartbook-table-4-1.pdf
  6. Blahous, Charles. (2018) The cost of a single-payer healthcare system. Mercatus Center. The Blahous paper notes that in 2014, insurance payments to hospitals were 144% of cost of care. In 2014, hospitals brought in 106% of cost of care. If all payments were 144%, a 38% increase over the 2014 income, it would amount to a 38/106 or 36% increase in income.
  7. The Center For Media and Democracy. Sourcewatch: https://www.sourcewatch.org/index.php/Mercatus_Center
  8. Mercatus Center website. https://www.mercatus.org

 

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