Daniel Marsula, Post-Gazette Highmark chief says problem with Medicare's new drug benefit plan offer lessons for government public role in health care keeps rising. Click illustration for larger image. PG Special Report: Medicare Part D: A guide to cutting through the maze of options to find the best prescription drug plan for you or someone you love.

Rising costs will force the federal government to play a bigger role in financing health care in the coming years, but the current experiment with the Medicare prescription drug program is providing lessons on how not to do it.

That's the view of Dr. Kenneth Melani, the Highmark Inc. chief executive officer. He believes national health insurance is inevitable but, given Medicare's struggles with the new Part D plan, worries how it will work.

"The Part D program has become sort of a wild, wild west," he said. "It's new, it's very confusing and I'm concerned about the funding. ... Where is the long-term revenue stream to really make all these long-term entitlement benefits available?"

Government expenditures for health care have taken a bigger piece of total spending every year since the creation of Medicare and Medicaid in 1965. While Republicans in Congress viewed the new Medicare prescription drug program as a way to expand the role of private companies in the massive health insurance program, Dr. Melani said the end result is a further expansion of government spending.

"History has been made," he said. "If you look year after year, decade after decade, the government has been growing in its role as the financier of medical services, both through Medicare and Medicaid. We're not growing from the private sector standpoint; we're shrinking as a proportionate share."

MELANI'S TAKE In a recent wide-ranging interview about the future of the region's dominant health insurer at Highmark's Fifth Avenue Place offices, Chief Executive Officer Kenneth Melani touched on everything from the fiscal health of the region's hospitals to the relentless rise in health care costs. Here are some highlights of what he said: w Talks with Independence Blue Cross in Philadelphia that could end up with the merger of the state's two biggest Blue health plans have picked up slightly in recent years. w Highmark would consider expanding partnerships with large banks such as PNC as more of the commercial health insurance business moves to high-deductible health plans, including Health Savings Accounts (HSAs). Partly because at their core, both banks and insurers process financial transactions. w The value of Highmark's controversial loan to aid in the creation of the West Penn Allegheny Health System was marked down, financial notes indicated last year, but Dr. Melani said the accounting move involved just "a portion of the loan." He declined to be more specific. Dr. Melani noted that the health system's financial performance has improved since December 2003, when Highmark took the impairment due to the system's shaky financial status.   -- Christopher Snowbeck

The key for Highmark, the region's dominant health insurer, is to maintain and enhance its position as a regional player so that it can work as a key government contractor, Dr. Melani said.

If the government expansion continues, the ongoing experiment with the new Medicare Part D prescription drug program provides lessons in how it should -- and shouldn't -- develop, Dr. Melani said.

One is that consumers like choice, but too much choice is confusing. Consumers in Pittsburgh, for example, can buy Part D benefits in more than 60 shapes and sizes, but they can't make apples-to-apples comparisons between plans, Dr. Melani said.

Another lesson is that the transition of beneficiaries from one government program to another can be difficult. For example, many low-income patients whose pharmacy benefits shifted from state Medicaid programs to Medicare on Jan. 1 were unable to access benefits at the pharmacy because of glitches.

Dr. Melani was critical of state officials for the lack of coordination between PACE, the state's drug assistance program, and the new federal Part D program. The Legislature is considering a proposal that would allow PACE to cover Part D premiums for seniors, but that legislation should have been passed long before Jan. 1, he said.

Commenting on the state of the commercial market for those under 65, Dr. Melani noted the rise of Health Savings Accounts (HSAs) -- tax-preferred accounts from which individuals pay for basic medical care typically are paired with high-deductible insurance policies to create so-called consumer-directed health plans.

Dr. Melani said the central tenet of HSAs and the move toward "consumerism" in health care is that individuals can help tame costs by shopping for care on the basis of cost and quality. But there are problems with the premise, he said.

To effectively shop for care, consumers need better information about the actual cost of medical services. Shopping on the basis of quality is even harder, he said, given the lack of reliable and comprehensive information.

Some health plans say they will group doctors and hospitals in tiers based on quality, and then steer consumers to the best providers. But Dr. Melani called this "smoke and mirrors" because the tiers really are based on cost.

	John Beale, Post-Gazette Ken Melani, chief executive office of Highmark, outside his office at Fifth Avenue Place, Downtown Click photo for larger image.

"From a liability standpoint, I can't tell you much about quality and say Highmark has put its seal of approval on something," he said.

Despite these limitations, more employers are offering HSAs, and Dr. Melani said he expected the trend to continue. But whether they can control costs is debatable.

Dr. Melani believes the growth of overall health-care costs in the region will continue to exceed inflation, but likely will be measured in single digits for a few years rather than double digits that marked past years.

But he denied that health-care inflation at the local level has been driven by overly generous payments for hospital services -- an oft-heard criticism from employers and individuals paying the health insurance bills. Subscribers to the region's dominant health-care insurer are not fueling the record profitability of its dominant hospital system, the University of Pittsburgh Medical Center, he maintained.

One of the key drivers of rising costs, he suggested, is the shortage of health-care professionals in some fields.

A case in point was the divorce this month between a group of anesthesiologists and the West Penn Allegheny Health System. The break-up resulted in increased payments to professionals throughout the region as doctors moved and hospitals scrambled to make sure they had anesthesia services.

"Now, the cost of anesthesia services in the community is higher than it was six months ago, and it doesn't make sense," Dr. Melani said. "We having nothing new -- we have no new capabilities, it's not going to allow us to live longer, healthier lives -- and we're paying more money."

But the other key driver is technological advances in medical care, whether in the form of advanced imaging equipment, improved medical devices or new pharmaceutical products. Noting the emergence of cancer treatments that cost tens of thousands of dollars per month, Dr. Melani said insurers were nearly powerless to stem the tide.

"How can we afford that new technology?" he asked. "First of all, is it worth it? We won't even ask that question, because we don't do that in the United States. But how many of these $100,000-per-year treatments can we continue to support and survive as a country, as an economy?

"You take the unit price of professional services, the unit price of technology, and we're out of control -- totally out of control."